Seprod sets big goal for earnings:
Acquisition likely as part of distribution overhaul
SEPROD PLANS to grow earnings by as much as 60 per cent this year, a plan that CEO Richard Pandohie said includes reorganisation of its distribution operations, consolidation of the dairy business, and reining in the losses from sugar.
The company expects 2018 to be a year of payback, at least partially, on its manufacturing investments.
Pandohie’s profit guidance follows a 19 per cent dip in net profit for 2017, when compared to 2016 when one-off gains from the disposal of investments pumped up net earnings. Discounting the extraordinary gains – which were distributed to shareholders as dividends – profit for 2017 would have climbed by 38 per cent, the company said in a statement to shareholders.
The company reported sales of $16.2 billion and net profit of $710 million or $1.54 per share last year. In 2016, sales were marginally lower at $15.78 billion and net profit substantially higher at $875 million or $2.11 per share.
Seprod is expecting a boost from its Nestlé dairy business, which the company brought under its direct ownership in the past quarter, and consolidated within the group last month. Pandohie also expects revenue to climb as the joint-venture flour mill commissioned in December ramps up sales in Jamaica and the region.
“Therefore, our guidance to the board is that we expect a 4060 per cent growth above prior year on net profits,” Pandohie said. On a per share basis, that would translate to a target of $2.16 to $2.46.
“It’s good to be in the revenue game now. That should immediately add positive results to the bottom line,” said Pandohie, who referred to 2018 as an i mportant year for Seprod.
“We’ve pulled the former Nestlé operations into Seprod as of January, so those numbers should be reflected on the bottom line due to the synergies and consolidation on the dairy side,” he said.
Over the past three years, Seprod has been i nvesting heavily in the manufacturing side of the operation – focusing on both plant and products. The company is now ready to turn attention to its distribution operations, but acknowledges it will be playing catch-up to other operators such as
We want to go from farm to table, so to speak. Whether it is from the factory or the farm, we want to go directly to the consumer.
Wisynco, Cari-Med and Lasco, which have large distribution networks.
Since Pandohie’s recruitment as CEO in late 2014, Seprod has spent about US$115 million on capital projects, consistent with a plan enunciated earlier by the new boss to reshape the conglomerate’s operations.
Seprod has a budget in mind for development of the distribution hub, but is not saying how much due to expected negotiations. The company is weighing acquisition of an established company and lands as part of the programme.
Distribution currently contributes “less than a lamentable four per cent” to the group, t he CEO said. But, the restructuring of that side of t he business is more a logistics-driven initiative to develop a network that helps the company maximise sales of its manufactured products , including exports.
“Now that we have the major manufacturing projects out of the way, it is time to take charge of our distribution destiny. We want to move on this rather quickly because that is the lifeblood of the operations,” Pandohie said.
“Everything else done i n manufacturing or innovation makes no sense if you can’t bring it to your consumer quickly, and at a value point that makes sense for everybody,” he added.
Seprod’s distribution operation is done t hrough subsidiary I ndustrial Sales Limited, which, in turn, uses intermediaries to distribute the products.
Pandohie said t he t hirdparty structure has led to inefficiencies within the supply chain.
“We want to go from farm to table, so to speak. Whether it is from the factory or the farm, we want t o go directly t o t he consumer,” he said.
But pressed about the mechanics of the new distribution programme, Pandohie said while he is yet to get sign-off from Seprod’s board of directors, he is not minded to build the network from scratch.
“It’s easier for us to look at an acquisition opportunity; of course, we have to go through the board and work through the many steps, but it has to be done in 2018. We want to find a set-up that has the infrastructure, even if it is not perfect, so that we can tweak it and make it better,” he said.
As for Seprod’s sugar operations at Golden Grove in St Thomas, the company has spent close to $4 billion in write-offs, retooling and redundancies over the last three years, and Pandohie is signalling there are more losses to come as production for the current crop year got off to a bad start due to weather conditions.
Pressed on the possibility of a complete shutdown of the operation, Pandohie says he is not ruling that out.
“All options are on the table. It is not the first option that I’d want to execute, but being at the company for three years now, despite doing a lot of good things, like being the biggest exporter of sugar out of the country and holding our own as a brand, we’ve not been able to stem the bleeding,” Pandohie admitted.
He says the direction to be taken will become clear in two to three months, once Seprod holds talks with the Ministry of Labour and the various unions representing the sugar workers.
But he also signalled that restructuring was unlikely to be among the resolutions pursued for sugar, saying such a programme would take about 16 months to work out.