Jamaica Producers Group (JP) willing to sell pieces of the business

Published: Wednesday May 7, 2008

Jamaica Producers Group (JP) has warned shareholders to brace for the possible divestment or closure of parts of the business that might be sacrificed to return the company to profitability.

But JP has also signalled that new acquisitions - the type that strengthen its 'core business' - are a possibility, with the same objective of breathing new life into the conglomerate.

"Shareholders should be aware that in order to ensure a return to profitability and to grow our group, we must consider the sale, closure or restructuring of material parts of our business," said chairman Charles Johnston, "even as we pursue acquisitions to strengthen our core."

Johnston's comment accompanied JP's March quarter report of a $312.7 million net loss by the group, which followed a $728 million pre-tax loss last year ($479 miller net of tax credits).

But on Tuesday, JP refused to expound on its divestment/acquisition programme, even though group financial controller Paul Samuels advised that the company pretty much knew what had to be done, having almost wrapped up its analysis.

To signal its intent now, he said, would be to give away too much to rivals, but also breach market rules on information sharing and put the listed company in trouble.

"You have to take the statement as indicated," said Samuels. "We are always on the look out for strategic alliances and acquisitions that make sense."

But the company also might have to find "alternative use for some assets," he told Wednesday Business.

Jamaica Producers' troubles prior to now have centred around its banana business. But within the March quarter the company, like everyone else, has been hit with the added misfortune of high energy and raw material prices, as well as the rising price of food.

Falling banana revenues

That has hurt its juice and smoothies business, a segment in which it does not determine price as its products are sold largely under United Kingdom store brands.

Banana, which in the current quarter was only eight per cent of total revenues of $3 billion, seems the most likely area to be chopped.

But Samuels said JP would be giving banana production another chance, now that Government has followed through on its promise to provide backing for growers.

"It is something that contributes significantly to communities in the areas where we operate - we are not just going to walk away from it - but revenues by comparison are lopsided," said the financial controller.

The US$4 million loan, he said, comes with the attractive rider that, if another storm hits and wipes out crops financed by the funds, the government would waive repayment.

The loan is repayable over five years at seven per cent per annum, but with a one-year moratorium on the principal.

JP has already began replanting its farms, but says the fields will not reach full production until the third quarter. The company's shipping operation, which is dependent on the health of the fruit, was devoid of its usual business in the March quarter.

"During the quarter, we had no revenues from banana exports or snack food production in Jamaica," said Chairman Charles Johnston. "More-over, we had to scale back our shipping and freight forwarding activities that typically rely on the backhaul opportunities that are created by our banana export business," he said in a statement filed with the group's accounts.

Expensive to do business

Together, world market events and a storm that happened eight months ago have taken a toll on the conglomerate's revenues, while at the same time making it more expensive to do business.
In the process, JP's losses have tripled in the first quarter to $312.7 million, compared to a $102 million loss in the March 2007 period.

But the conglomerate, to reassure shareholders, played up its balance sheet which remains capitalised at more than $9 billion against long-term liabilities of $1.5 billion, and reflects working capital of $3.2 billion. Within the reporting quarter, its...

"This initiative is ongoing," said Johnston, signalling that more cuts are pending. "We have reduced head count, frozen salaries, delayed salary increases throughout the group."

Diversification

But the company is also refining its customer and product mix, and diversifying geographically in the hopes of diminishing its risk to storms.

"The whole purpose of Dominican Republic," said Samuels, "is diversification."

The company has a joint venture snack business in operation there, to complement its home-based operations. The idea, said Samuels, is that when Jamaica is down, DR can take up the slack, and vice versa. There will be no shift of the Jamaican operation there, he said.

JP also has banana farms in Honduras, and its fruit and smoothie juice business centred in the United Kingdom.


Source:
Lavern Clarke
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080507/business/business1.html
lavern.clarke@gleanerjm.com