Sat | Jan 20, 2018

Purity profit falls amid reinvestment

Published:Wednesday | March 23, 2016 | 12:00 AMTameka Gordon
A basketful of Purity’s Miss Birdie crackers.

Consolidated Bakeries Jamaica, which trades as Purity Bakery, grew sales by a modest three per cent, but a realignment of its product portfolio alongside other investments suppressed bottom-line profit last year.

The bread and pastry maker made net profit of $5 million at year end December 2015, or just about a quarter of the $19 million earned the previous year.

Revenue rose 3.3 per cent from $742 million to $767 million in the same time frame.

Purity directors, in a report to shareholders, said the slump in profits was due to investments in marketing in an effort to boost its brands, among other expenses. The company sells under the Purity and Miss Birdie labels.

Advertising spend doubled $16.8 million for the year, Purity said, noting the strategy was utilised to "strengthen the brand platform for future growth".

Additionally, the company spent $19 million to increase its fleet of trucks.

"These additions, plus the cost associated with machinery acquisitions, accounted for most of the increased cost for travelling and motor vehicle expenses," the company said.

Overall, Purity's capital expenditures amounted to $51.68 million. At the close of year, the value of its fixed assets was estimated at $438 million, up from $407 million; while the company reduced its long-term indebtedness from $41 million to $33 million.

Total assets rose from $628 million to $656 million, while the company's capital base expanded from $525 million to $533 million.

Purity was focused last year on refreshing its product portfolio. The company said delays in new equipment installation and introduction of new products affected revenues, while adding $10 million to production costs.

"In the year under review, we decided to centre our attention on market spaces, in which we made gains. In order to effectively execute on such a strategy, we discontinued several products which we deemed to have the least growth potential, with the end goal being to maximise our returns ... ," the company said.

To place the company "on a more competitive growth path," the directors said Purity also chose not to match "certain competitive price discounts and other activities" in some of its product categories.

Additionally: "The deletion of certain SKUs [stock keeping units] from our system came with a one-off cost of $21m to revenues," the company said.

"The addition of technical personnel, reorganisation of staff and increased sales staff to service our accounts aggressively positioned our brand in the marketplace, but resulted in additional staff costs," Purity said.

The directors noted that while profit declined, the company's capital base "remains strong".

Purity is a 59-year-old company owned and managed by the Chang family.

Looking ahead, Business Development Manager Victor Salazar says Purity expects better returns by mid-2016.

"We are hoping that we will see some positive signs as soon as quarter two. We have been focusing on investing in the future, with hiring professionals, to deal with the factory side and upgrading the equipment," said Salazar.