JOHNSTON

Ashford W. Meikle, Business Reporter

Having endured a difficult first quarter and projecting that the rest of 2007 will be tough, Jamaica Producers Group (JPG) says it is hunkering down to cut costs even as it seeks to enhance efficiencies and utilise spare capacity.

"Our principal goal for the remainder of the year will be to squeeze costs while we increase capacity utilisation across our operations," said chairman Charles Johnston this week as he reported a first-quarter loss of $102 million.

In fact, said Johnson, Producers has already cut jobs at its Kingston headquarters, but the company has not said how many and whether there are more to go. The costs associated with this latest restructuring were not included in the first-quarter results, suggesting that they impact future earnings.

Disappointing performances

The first-quarter loss, which compared with net profit of $122.6 million for the corresponding period last year, came on the back of disappointing performances in the group's major business segments - banana production and marketing, and fresh and frozen-food operations.

Ironically, during the review period, Producers' revenue actually grew by about 11 per cent, to $3.16 billion. But this was not enough to offset the losses in its banana and fresh-foods division. The corporate segment recorded a pre-tax profit of $16.8 million.

Johnston, in his statement to the Stock Exchange, reported that banana division recorded "$55 million pre-tax loss on $540 million of revenue from continuing operations".

Climatic conditions

He attributed this to climatic conditions in Jamaica and Honduras, which faced a seasonal downturn in banana production as a result of cooler weather; as well as a loss of revenue due to shifts in the European Union banana regime that had allowed fixed-import quotas to African, Caribbean and Pacific countries under a licence arrangement.

But more critically for Producers, the fresh and frozen-foods division - which, for years, has been the group's star performer and considered by analysts to be the future of the company - returned a loss of over $91 on revenue of $2.5 billion, which represented a 12 per cent increase over the comparative period last year.

Johnson explained that the loss in this area was driven by "intense pressure" on its Sunjuice operation in the United Kingdom and start-up costs associated with its dessert business. The company has had to face competition, lower sale prices and higher operating costs as it attempts to build equity into its brands.

"We are implementing our strategy to increase the branded element of our sales, which increases costs in the short term, in anticipation of future benefits," Johnston said.

Difficult times ahead

But according to analyst Mark Croskery, Producers faces difficult times ahead with the seeming inevitability of the further opening of the EU's banana market to imports from Latin America, and the costs associated with growing brand equity.

"The competition is growing," said Crockery, of the firm. "It's a tough call where they go from here, because even if they go to the Dominican Republic to buy [banana] farms, I really don't see a turnaround happening by the end of the year. It's going to be a rough year for JPG."

Noting past growth of between 20 and 40 per cent in Producers' processed-foods division, Croskery said it was clear that competition was slowing that down. He added that Producers does not have the kind of market budget that competitors in the U.K. might put behind their products.

"They don't have the type of marketing budget like those Irish companies in the U.K," he said. "You have about 200 competitors in England [and] when you need to buy shelf space, you need to be out there marketing and they don't have the type of money like those big boys."

ashford.meikle@gleanerjm.com