Tue | Jun 2, 2020

Purity pins hopes for revenue growth on new products

Published:Wednesday | October 18, 2017 | 12:00 AMNeville Graham
Anthony Chang, managing director of Purity Bakery.

Purity shareholders got a taste of what's to come, literally, when the company doled out a new cookie at their annual general meeting for feedback ahead of its market introduction.

It's the first of a series of new products to be brought to market, starting year end or early in 2018, from which Purity is looking for organic growth.

But while minority share-holders at the company's annual general meeting were soothed for a short time by the sweet treat - butterfly biscuits in a munch-sized grab 'n' go pack - they were soon back to clamouring for answers on when they could expect a different type of treat - a dividend.

Consolidated Bakeries Jamaica Limited, which trades as Purity Bakery, has not paid a dividend since its listing on the junior stock market in December 2012.

Purity's managers signalled this week that it may be a while yet before any payout to shareholders, saying they first had to rebuild the company's reserves after a near two-year capital expenditure programme to upgrade equipment and reorder the operations.

Purity spent $82 million in 2016 to retool and expand. At the heart of its capex programme was a new US$300,000 bread line and graphic labelling system.

That done, the company is setting the stage to debut new products, but is not revealing any details, citing the competitive nature of the baked goods business. Purity's big rivals include National Bakery in the breads and biscuits market, while they compete with Honey Bun in the snacks segment.

Nothing will be revealed until the products are closer to market launch, Chang indicated.

"We're not ready for the market as yet - we're still testing. We put in a new packaging line, so we are trying to get that organised so that we can package new items," he told the Financial Gleaner.

"Some of that line will be to support the present SKUs we have. Indeed, some of them may not support additional new products and that means we have to replace some of the equipment, and we've been doing that," Chang said. An SKU, or stock keeping unit, refers to a system of identification for products or items for the purposes of tracking inventory.

Erratic profit record

Purity's half-year financials already indicate that its capex programme has tapered off from last year, and Chang said no big investments are expected for the rest of 2017.

Purity's profit record since its listing has been positive but erratic. In its first full year on the market, the company made $33 million, or nearly tenfold its 2012 performance. In 2014, profit dropped to $21.5 million, and that performance worsened by nearly two-thirds in the next period to $7.86 million.

In 2016, the company's bottom line recovered a bit to $13.9 million. But so far this year, it has been bleeding. At half-year ending June, Purity's sales fell and its net losses topped $7.6 million after a bad second quarter.

Chang says they are using the period as a marker to reorganise.

"We looked at our operations and we put some measures in place. And I can't say anything at this time, but just to point out that we are aware of the slip and we took corrective action. We had end-to-end reviews; we've looked at controls and made the adjustments by way of reorganising. So far, it seems to be bearing fruit, but nothing more on that until the figures come out," he said.

The Purity stock closed on Wednesday at the same price at which it traded on its first day on the market nearly five years ago - $2.05. It means early investors in the stock have made no gains on their investment over time, albeit that the bakery stock has traded as high as $4.50 within the last year.

At the annual general

meeting on Wednesday, some disgruntled shareholders begged the board to even consider a token distribution, but Chang told them the company needed to recover lost ground. Purity's retained earnings amounted to $84 million at midyear 2017, but that's down from $93 million at the end of 2016 and from $109 million a year ago.

Still, in discussion with the Financial Gleaner afterwards, the MD's message was a little more optimistic, although not definitive.

Asked whether Purity has a time horizon for the build-up of its reserves and a prospective period in which it would break its dividend drought, Chang said the matter is under active consideration.

"We're definitely looking at that for next quarter. We can't commit one way or the other, but it's something that we're looking at," he said.