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Salada Foods earnings continue to be hit by Gov’t regulatory fees … but exports up 26 per cent

Food manufacturer and coffee processor Salada Foods Jamaica Limited continues to be negatively affected by the Government’s cess on imported coffee and the Jamaica Commodities Regulatory Authority’s (JACRA) 30 per cent coffee quota, as earnings declined under the weight of the regulations.

For the December year end, Salada recorded an after-tax profit of $110.49 million, a 22 per cent decline when compared to the $141.37 million in the prior year. Operating profit also decreased by 25 per cent to $126.68 million, when compared with the $169.97 million recorded in the previous corresponding year.

This performance, according to Salada, is attributable to the delay and denial of raw material import permit requests by JACRA. Instead, the company said it now shells out five times more on green coffee beans to be used in the manufacture of its flagship products, as well as having to spend approximately $90 million in cess annually.

DOMESTIC SALES DOWN, EXPORTS UP

The impact of the economic slowdown and supply chains disruptions caused by the novel coronavirus lead to domestic sales – which accounts for 65 per cent of the company’s revenue – to fall by 10.5 per cent for the period under review. About 80 per cent of the company’s domestic sales are coffee-based products.

Speaking at the company’s annual general meeting held virtually last week, General Manager Dianna Blake-Bennett indicated that despite the slowdown of the company’s domestic activity and the cost of the cess, it was able to keep revenue of $1.067 billion for the December year end relatively stable, as it marginally dipped by four per cent.

“On the favourable side of business, we have really seen that exports, especially in our Diaspora markets of New York, Miami and Canada, have been able to push ahead. Last year exports represented just about 15 per cent of our revenue, this year 19 per cent, and we have seen a year-on-year growth of about 26 per cent,” she said.

She added that while coffee remains Salada’s mainstay product, there was a shift in export consumer behaviour in the purchase of ginger-based products during the 2019/2020 financial year. This, Blake-Bennett attributed to the “demand for immunity-building products”.

POSSIBLE INCREASE IN PRICES

The general manager revealed that with the increased cost of sales and the pressure of the regulations on the company’s bottom line, Salada will look to increase the prices of its products.

“Our coffee products is what our ordinary Jamaican consumers use and when we include [JACRA’s] 30 per cent as well as the cess, we’re going to eventually move prices significantly in order to maintain our margins,” Blake-Bennett said.

She, however, admitted with the economic slowdown and less disposable incomes, there is a potential that Salada will record even lower domestic revenue as consumers may have challenges affording its products.

“This is really what the impact of the cess and the 30 per cent has had on our business,” she argued.

Nonetheless, she said that Salada has already been prospecting for new markets and has employed several diversification strategies, which have seen some success, to organically grow the company and counter the negative effects of the government cess.

Paramount on the list is the protection of its coffee business segment, which includes looking to non-based coffee products as part of its diversification strategies to take some of the weight off the coffee segment.

Additionally, increase domestic sales by way of new channels, new products and the expansion of its contract manufacturing business segment, which she said has been performing reasonably well.