Tue | May 24, 2022

Seprod still spending millions on remnants of sugar operation

Published:Friday | May 13, 2022 | 12:09 AM

It’s been three years since Seprod shuttered the Golden Grove factory in St Thomas and announced its exit from sugar, but it’s still having to deal with the 3,500 acres of cane lands it holds under lease. Last year, amid conversion of the land to...

It’s been three years since Seprod shuttered the Golden Grove factory in St Thomas and announced its exit from sugar, but it’s still having to deal with the 3,500 acres of cane lands it holds under lease.

Last year, amid conversion of the land to other uses, the remnants of the sugar operation generated expenses of $44 million for Seprod; the year before that it was nearly $60 million. The company also noted that last year it paid US$100,000 in land lease costs.

Seprod Chief Financial Officer Damian Dodd says the loss from the fires has served to depress the value of the holdings.

“Every year, the contract farmers send a report to our auditors, and because of the illicit fires the value went down,” he said.

Both Dodd and CEO Richard Pandohie declined to comment on the squatter activity, saying only it was problematic.

At year ending December 2021, Seprod booked a $146-million loss on the discontinued sugar operations, compared to a gain of $23 million the previous year.

At the time of the factory closure back in mid-2019, and with just over 1,400 hectares, or about 3,500 acres, of leased lands under sugar cane cultivation, Pandohie said the crop in the ground would be gradually converted to cattle feed. He now says the ongoing programme has been largely successful and Seprod has turned attention to repurposing some of the sugar lands by putting in other types of cattle feed. Seprod continues to pay government US$72 per hectare for the land.

“We’re actually doing a mix, because the cane alone can’t feed the cattle, so we’ve put in some acreages of hay and sorghum, which are more beneficial to the cows,” Pandohie said.

He adds that the company has engaged an animal nutritionist from Uruguay to train locals in putting together the right mix of feeds. This, he says, has become particularly important at this time, since the cost of imported feed has skyrocketed.

The Golden Grove sugar factory itself has been on the market since the closure. Consulting firm KPMG was called in to oversee the process. The factory is now booked as an asset held for sale, with a value of $285.76 million at the end of the year, according to the financials. Pandohie says Seprod has signed a letter of intent with un-named interested parties that will allow for the use of the factory facilities in agro-processing.

The details are still being worked out, but he said he was optimistic that the plans will come to fruition before long.

Pandohie also noted that Seprod’s post-closure activities, while complementary, are separate from the land divestment and agriculture development efforts of the Sugar Company of Jamaica, from which Seprod had acquired the factory more than a decade ago.

Meanwhile, Seprod continues to distribute brown sugar under the Eve, NuPak and Golden Grove brands. Dodd says Seprod does bulk purchases from a local producer, then does the packaging at its own facilities.

“The real objective is ... that we can maintain a portfolio of products. We already carry the brands, so it’s just a matter of making sure that they are represented in as many facets as possible,” he said.

There was a fall-off of nearly a billion dollars in Seprod’s group profits last year, which Dodd partly attributed to the write-down of the value of sugar cane under cultivation due to illicit fires, and a warehouse fire in Kingston, most of which was covered by insurance.

Dodd says the combination of the value of the items lost in the fire, net of insurance proceeds up to December 2021, meant a total write-down of $168 million. On the upside, the sale of a Marcus Garvey Drive property in 2020 led to a one-off gain of $760 million, he added.

“Inherent in the numbers and not readily apparent, is the fact that the fire resulted in us having to replace Christmas stock at a time when they were more expensive, plus the inefficiencies that crept in from having to move warehouse, and so on,” the CFO noted.

Pandohie added, as an example, that the fixed cost for new warehousing is in the order of $50 million per month, with rental being about $37 million per month. He says Seprod was fortunate in securing 150,000 square feet of warehousing space at Newport West from the Port Authority of Jamaica.

“We had no choice, it’s just something we had to do. In fact, it’s expensive, but it’s something we had to do. We’re thankful that we could even find warehousing,” the Seprod CEO added.

Seprod’s annual profit fell overall from $2.87 billion to $1.99 billion, inclusive of the impact of the discontinued sugar manufacturing operation.