Seprod expects supply chain troubles to persist with rise of Delta
W eighed down by the lagging effects of its sugar misadventure, manufacturing and distribution company Seprod Limited experienced a narrow one per cent dip in quarterly profit in the second quarter. But it is the unyielding supply chain...
W eighed down by the lagging effects of its sugar misadventure, manufacturing and distribution company Seprod Limited experienced a narrow one per cent dip in quarterly profit in the second quarter.
But it is the unyielding supply chain bottlenecks, and complications that the rise of the Delta variant of the coronavirus introduces to an already-uncertain business climate, that is colouring the company’s outlook.
Seprod expects the uncertainties will likely persist to year end.
The losses that the company continues to book two years after exiting sugar manufacturing, while relatively small, have erased a narrow gain in net profit for the April-June 2021 period, pushing profit down by $7 million to $661 million.
Half-year profit, from January to June, was also down from $1.3 billion to $1.2 billion, but substantially better than the pre-pandemic 2019 out-turn by nearly one-half.
Seprod CEO Richard Pandohie is focused on product innovations and cost efficiencies to squeeze even more sales revenue out of the brands that Seprod produces and/or distributes, and grow earnings.
However, the company’s emergency response to the pandemic is complicating the effort.
“We are always looking for efficiencies,” said Pandohie. “Unfortunately, because of COVID-19, we had some inefficiencies built into the system, most related to the shift system we had to create to reduce any possible infections from COVID-19,” he said.
Although Seprod has grown its sales throughout the pandemic, the gains have been consumed by spending to address the fallouts from COVID, including supply chain bottlenecks that are still affecting businesses overall, as well as flood rains that caused the company’s dairy cows to get sick.
Seprod has sought to minimise its impact from the supply chain disruptions by forward buying, but that has resulted in a realignment of its cost structure as well as price increases in the June quarter to offset the additional cost of doing business.
The price adjustments helped to push revenue up to $10.25 billion in the April-June period, an increase of eight per cent, but the company has not been able to pass through all the additional costs incurred to buyers of the products in which it trades.
Seprod said in a statement appended to the financial results that its costs were driven up by about 20 per cent, on average, but that it “has not been able to recoup this by taking a corresponding price increase to the trade”.
Pandohie is also examining the conglomerate’s export business segment to identify ways in which it can become more innovative, or how it can reshape the business to co-exist more profitably with COVID-19.
“We believe productivity can improve. We have a target of at least half of Jamaica’s inflationary target, which means that we should improve productivity internally by three per cent this year,” said the Seprod CEO.
“We are not tracking at this rate at this point, but that’s our aim and we hope to do this by looking at our processes, the equipment that we use, etc,” he said. “That becomes important, especially in an environment where there has been so many cost pressure; we need to find a way to minimise the pass-through to our consumers.”
Seprod, like everyone else, is keeping a wary eye on the Delta strain of the coronavirus, and while it is prepared to react to an outbreak but hoping for the best, the company expects supply chain challenges and high shipping prices to persist in the short term.
Initially, members of the business community had expected the shortage of shipping containers and other supply chain bottlenecks to start righting themselves by September, but there is already talk, internationally, that the container shortages could persist to year end, and even extend into 2022.
Seprod itself expects that given the rise of the Delta variant, internationally, that the business challenges faced throughout the pandemic will persist, “at a minimum, for the rest of the year”.