Seprod earnings spike despite crisis
F reed from its lossmaking sugar operation, Seprod Limited more than doubled its net earnings in the quarter ending June.
The company also grew sales by double digits, while keeping spending in check – gains that flowed from the consolidation of its dairy factories, expanded distribution linked to the acquisition of the Facey Consumer business, and more exports.
The dairy division also got a boost from a contract manufacturing deal to produce a range of milk products on behalf of Nestle Jamaica Limited.
Group sales in the quarter totalled $9.47 billion, up from $8 billion; expenses dropped from $3 billion to $2.83 billion; and net profit rocketed to $568 million, from $241 million.
In an unusual move for Seprod, which like other stock market companies is allowed up to six weeks beyond the close of the quarter to publish its results, the conglomerate did it in three weeks.
CEO Richard Pandohie says the early reporting is meant to engender confidence in and demand for the Seprod stock among investors in the market. The company has traded on the Jamaica Stock Exchange since 1986.
“In this day and age, it is critical to get information quickly, so I have charged our team members to get out information within five days after close off. I am very committed to bring Seprod to the point of being the share that everyone wants to lay hands on,” Pandohie said.
At half-year, with the sugar operation stripped out of the numbers, Seprod’s revenues grew 12 per cent, from $16.6 billion to $18.6 billion, while profit improved by 41 per cent, from $862 million to $1.2 billion.
Factoring for sugar, which contributed $309 million in losses at half-year 2019 and compressed the group’s bottom line at the time, Seprod’s profit doubled from $553 million to $1.2 billion between January and June of this year.
The period incorporates three months in which the COVID-19 pandemic sent Jamaica and other economies into lockdown.
More nuanced story
The bare numbers suggest that Seprod experienced a COVID bounce. But Pandohie says the actual sales data tells a more nuanced story.
“COVID has had an impact on some of our revenue lines. Key things like biscuits and juices are down, but food and pharmaceuticals have lessened that impact somewhat,” he said.
“The two big moves that we made in the manufacturing area are now really playing out in the numbers; same too for Facey. Although, I’ll say we’re not there yet, but we’re making the synergies work for us.”
Seprod effected a $2-billion takeover of Facey Consumer in 2018; and a $1-billion consolidation of its Serge Island Dairy operations with that of its Bybrook Condensery just over a year ago in May 2019. The Golden Grove sugar operation was also wrapped up a year ago in July 2019, and its assets are up for sale.
Pandohie describes Seprod’s group operation, as it is now configured, as resting on three pillars – dairy, distribution and commodities.
“The third one is what I call the ingredients pillar with commodity-based products like oil, flour and corn,” he said.
Seprod says it has more investments to make, but is in no rush. With the uncertainties of COVID, the preservation of cash has become a primary concern of most businesses, Seprod included.
The downside to the reduction of the cash burn is that projects and investments are being delayed, the exception for some being expenditures deemed to be mission-critical.
“We have cut back on capex. Some critical ones may go through, but it is all about preserving cash flow,” Pandohie said.
He’s also cautious about the company’s outlook for the coming periods despite its promising half-year results, saying not only did COVID slow Seprod’s momentum, but the hit to the Jamaican economy from the coronavirus also won’t be overcome immediately.
“There’s really going to be a long haul ahead of us. We take a minute to breathe and celebrate, but every month from now on is going to be a challenge because we don’t expect the economic situation to improve in the short run,” Pandohie said.
Seprod will proceed with the second phase of its warehouse expansion project at the main plant at Marcus Garvey Drive, Kingston. Soil tests, drawings and approvals from the planning authorities are being pursued, and construction is scheduled for the fourth quarter of this year.