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Seprod earnings rocket on gains from GraceKennedy shares

Published:Thursday | August 11, 2016 | 12:00 AMSteven Jackson
Richard Pandohie, CEO of Seprod, addresses the company’s annual general meeting in Kingston on July 11.

Seprod Limited earned $594 million in net profit for its June second quarter or 135 per cent more year-on-year, due to improved operations and appreciation of shares held in GraceKennedy.

GraceKennedy, a large food and finance conglomerate, is a rival to Seprod in the retail food arena, but the companies also have a business relationship, with GraceKennedy Foods USA acting as distributor for Seprod's Butterkist, Ovaltine and Pronto brands in the United States.

Seprod reported earnings per share of $1.22 in the June quarter, compared to $0.55 a year earlier. For the half-year, the company made $1.75 per share, compared to $0.99 per share at HY 2015.

The outlook for the remainder of the year puts the performance of the operations up at least 50 per cent higher year-on-year, according to Chief Executive Officer Richard Pandohie in a Financial Gleaner interview on Wednesday.

Seprod booked $518 million as 'finance and other operating income', which related to the 46 per cent rise in the price of GK shares mainly during the quarter.

"We have a substantial amount of GK shares and the [finance and operating income] were positively impacted by the gain on our GK shares," said Pandohie.

The GK stock rocketed from $84 to some $122 per share during the quarter. The stock traded above $123 this week, having previously hit a peak of $127.

The three-way stock split approved by shareholders last month took effect this week, with GK currently trading at $43.62.

The stock's year-to-date performance is in record territory, surpassing levels hit in 2004.

Seprod refused to disclose the value of its GK holdings. Checks by the Financial Gleaner, however, reveal that it is not among the top 10 shareholders.

Seprod was able to book the unrealised gain from the shares, which remained in its possession in the quarter, because of how they are classified on the company's books.

Second quarter

revenues flat

Seprod's chief financial officer, Angela Cooper, told the Financial Gleaner that the GK shares are classified as 'held for trading', allowing the gains to be reflected in 'profit and loss'. She further explained that were the shares to be classified as 'available for sale', then that unrealised gain would instead have gone to comprehensive income.

Seprod's revenues for the second quarter were flat at $3.9 billion as the company slashed prices on its retail products, outsourced its sugar farming operations and divested its grain business.

"We have taken a price reduction on biscuits by 20 per cent and juices by 30 per cent, which also impacted on our revenues," Pandohie said.

"We outsourced the Golden Grove Estate farming operations and all the cane cultivation and harvesting is now being done by third parties," he added.

The company now gets the majority of its cane supply from Bercyn Farms and FM Jones Estate. The restructuring at its Golden Grove sugar operations resulted in reducing losses by 55 per cent to roughly $20 million a month.

"Most of the operations are ahead of last year; plus, we have the new portfolios of Betty milk and Supligen with the acquisition of [the] NestlÈ brands through Mussons," said Pandohie.

Seprod produces its own dairy products under the Serge Island brand, but also manufactures Betty and Supligen on behalf of related company, the Musson Group. The brands were added to Seprod's portfolio after Musson International Dairies Limited acquired the dairy operations of NestlÈ Jamaica last November.

Pandohie took over the reins of Seprod at the end of 2014 with a mandate to grow exports and increase local market share through import substitution. Part of that mandate came with a $5-billion programme that is ongoing across the group. The spend includes upgrades to the beverage plant at Serge Island Dairies and the restructuring of the sugar operations; and an upgrade to the biscuit operations.

An aspect of the growth strategy involved Seprod forging a distribution deal with GK Foods, designed to deepen its own penetration of the North American market.