Seprod finally sheds sugar, earnings resilient
Seprod Limited is finally rid of sugar, having wound up the Golden Grove subsidiary at a cost of nearly three-quarters of a billion dollars.
The conglomerate had a bittersweet year as a result, with revenue climbing 45 per cent to $32.7 billion, but profit dipping by 4.8 per cent or $1.07 billion at year ending December 2019.
The majority of the drag was the $732.31 million charge associated with finalising the lockdown of the sugar operation that Seprod acquired as a failed venture in 2009, but was never able to turn around.
“Sugar is done,” Seprod CEO Richard Pandohie declared with relief.
“We still have the factory and we still have cane in the fields. PWC (PricewaterhouseCoopers) is managing the divestment of the factory and we hear of one or two enquiries, and the cane we will incorporate it into fodder for our dairy operation but we’re out of that,” he added.
Seprod has previously disclosed losses of more than $4 billion from its decade as owner of the St Thomas-based sugar estate and factory. The wind-up costs would push that closer to $5 billion.
Seprod expects to recover some of the losses through the liquidation of the assets, but Pandohie was not prepared to say how much they could realistically recoup.
With that chapter of the company’s history all but closed, he is more focused on the current challenge: staying ahead of the coronavirus – and is looking to build on the reorganisation and consolidations that the company undertook last year.
Seprod’s earnings, so far, are showing no sign of stress from the virus. Pandohie says the group was running ahead of target when the mid-March announcement of the first COVID-19 case was announced for Jamaica.
In the first quarter, ending March, the company grew both revenue to $9.14 billion; and profit to $655 million, even with a further $14.6 million loss associated with the discontinued sugar operations.
“We did a lot of heavy lifting last year by exiting the cash-burn of the sugar operations. We also consolidated the dairy business, which was a very expensive operation but the right thing to do. We also brought on the Facey operation by building out one of the warehouses and cranking up distribution,” Pandohie said.
Chief Financial Officer Damian Dodd says the Facey Commodity distribution business acquired by Seprod more than a year ago was responsible for the 45 per cent increase in revenues.
But Facey also served to increase expenses and reduce margins for the group. And its debt servicing charges nearly doubled from $789 million in 2018 to $1.47 billion in 2019.
Still, Dodd says Seprod was able to secure better financing terms because of the larger debt stock and is looking to bring down its total debt servicing charges below a billion dollars for 2020.
“At the end of 2019 we’re down to 7.5 per cent effective interest rate. Facey on its own could not command a proper debt structure. The interest rates were high but when we brought it to the group we were able to restructure based on the strength of the Seprod group overall,” the CFO said.
For Pandohie, the full benefit of the Facey acquisition is the opportunity it presents to grow Seprod’s logistical footprint and brands.
“We want to de-commoditise our distribution and move more into brands because it is brands that are resilient; commodities are price-driven,” he said, adding that having the right brands in the right place helps to build relationships with consumers.
“That is why we have Betty condensed milk on the shelves in New York at a premium price. The customers buy it because they love and trust the brand,” Pandohie said.