Salada shareholders question stock split proposal

Salada shareholders question stock split proposal

Board to decide on stock split on March 19

DURRANT PATE
Observer business writer

Friday, February 28, 2020

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At least two shareholders of Salada Foods have voiced their concern over a proposal to split the company's shares.

The shareholders made their views known at the company's annual general meeting on Thursday February 20, as they reeled off a barrage of questions about the necessity of the stock split at this time. The last stock split of 10 to 1 was done 12 years ago in November 2008.

The split was implemented then as the near doubling of the stock's market price in the months prior to November 2008 was taking the stock out of the reach of mainstream investors.

Minority shareholder, Orette Staple quizzed Salada's Chairman Patrick Williams about the need for a stock split at this time when there is no direct benefits for shareholders, questioning what is to be gained by such a move.

DISCOLOSURE RULES CITED

In his reply, Williams said he was unable to say much about the matter at this time, citing Jamaica Stock Exchange (JSE) rules, which prevent the disclosure of matters that are under active consideration prior to any determination being made. Salada is traded on the JSE and is therefore bound by JSE rules.

However, Williams referred Staples and any other shareholders interested in knowing the benefits of a stock split to undertake a Google search and obtain the information through their independent research. The board of Salada is to meet on Thursday March 19 at its 20 Bell Road, Kingston 11, headquarters at which time a decision would be made on the stock split.

REASONS FOR STOCK SPLIT

A stock split is usually engineered to ensure that there is no dilution of the stock's value to investors. However, there is no dividend increase even though shareholders will get a greater volume of shares held in the company.

Salada is in the business of food manufacturing and coffee processing. At the height of Salada's stock split in 2008 the company had 10.4 million shares in issue and was already one of the JSE's most illiquid stocks, which trades in tiny volumes.

At $70 per share then Salada was the seventh most expensive stock and was the seventh lowest in market capitalisation of more than 40 stocks at $727 million.

Salada profits have since been hit by the introduction of a government cess. Last year Salada paid $90 million in cess, which is levied on imported green coffee beans at a cost of US$1.41 per kilogramme.

Imported green coffee beans is a raw material used to manufacture instant coffee, which is Salada's primary manufactured product. Arising from this the company got a $81 million hit on the cost of sales, which adversely impacted operating profit, which declined by 37 per cent as a result.


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