Salada earnings pressured by cess
Coffee processing company Salada Foods Jamaica Limited saw modest improvement in sales by more than $700 million.
But the gains never made it to the bottom line, which shrank 35 per cent under the weight of regulatory fees.
The company’s underperformance has affirmed for General Manager Dianna Blake-Bennett that the advent of Jamaica Agricultural Commodities Regulatory Authority, JACRA’s, regime of fees, and more specifically the cess on coffee imported for blending, is not healthy for Salada.
“JACRA took $81 million from our bottom line this year with the cess. That amount is rolled into our cost of sales,” she said.
“Last year this time when the cess was just coming into place we would have paid about $20 million. The cess as a new taxation hit us right at the top.”
Comparatively, earnings for the year shrank by $78 million. For year ending September 2019, Salada made a profit of $141 million, down from $219 million in 2018.
Cost of sales at Salada climbed 17 per cent to $752.09 million, erasing the seven per cent gain in revenue, which moved up from $1.04 billion to $1.11 billion.
The company’s annual results were also impacted by an accident in the broiler room at the processing plant during the first quarter.
“Both boilers were damaged and had to be taken offline,” the company disclosed in its February 2019 earnings report.
The accident contributed to a loss of $23 million booked in the company’s October-December 2018 quarter. Blake Bennett told the Financial Gleaner that the company lost a full quarter of production.
“Maybe if we had not lost three months the performance would have been much better than the results that we are reporting right now,” Blake Bennett said, while still insisting that the JACRA cess was the company’s main problem.
“That’s the real hit. There’s nothing wrong operationally that would have caused us to have reduced profits outside of the cess. For one entity to knock out $81 million out of your profits that’s hard,” she said.
Salada, known for its flagship instant coffee brand Jamaica Mountain Peak and new brand Mountain Bliss 876, decided to make an advance purchase of 25,000 boxes of local coffee berries to be processed, stored and blended into Salada’s instant coffee products. Blake-Bennett says the coffee purchased is now in storage and it may become part of a new marketing thrust.
“We really have to find other products that are not coffee-bound or to use more local products, which is the direction that we’re heading. We can’t use it in our instant products but we can use it in some that we plan to roll out,” she said of the coffee now in storage.
The company plans to launch three new products in coming months to be sold locally and in foreign markets.
“The outlook is therefore promising, especially as regards the export market,” Blake-Bennett said.
Exports as a percentage of sales stood at 14.5 per cent for 2019, according to Blake-Bennett, an improvement on the near 11 per cent ratio in 2018.
“We finally fixed the New York market after two years of saying so. That certainly must bear some singularity in the number of things that contributed to the better performance,” she said.