Business

Honey Bun profits slump

BY JULIAN RICHARDSON Assistant business co-ordinator richardsonj@jamaicaobserver.com

Wednesday, August 15, 2012    

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HIGHER administrative expenses and a weakened consumer market helped drag down Honey Bun's third-quarter profits by more than half.

The Jamaican bakery posted pre-tax profits of $7.5 million during the June quarter compared to $16.8 million in the corresponding period last year.

The decline in profit is mainly due to increases in administrative costs, non-recoverable general consumption tax payments and depreciation, the company said.

An "extremely difficult economic climate" has impacted consumers' purchasing power and thus company revenues, it said.

Revenues at the bakery fell from $154.4 million over the June 2011 quarter to $152.4 million in the period under review.

Expenses at Honey Bun rose sharply by 17 per cent year-on-year to $59.7 million.

Administrative expenses jumped by 25 per cent to $38 million while selling and distribution costs rose by four per cent to $21.8 million.

The increase in expenses was also partly due to a rise in staff costs, mainly due to employment of distribution staff.

"We are not entirely satisfied with the overall performance over the third quarter," said Krystal Chong, marketing manager of Honey Bun.

"We are cognisant of the fact that some expenditures/ investments in distribution were made to secure our position in the market and to facilitate future growth, which will not materialise immediately but will in future periods," she said, noting that "the comparative period of Q3 2011 included a one off manufacturing contract which boosted sales by $17 million".

In order to control costs, the company is improving on efficiencies and capitalising on economies of scale, Chong said, adding that the company is prepared to tackle its challenges and is in a good position going forward.

"In terms of the future, we have strategically designed new products for new revenues and automation planned to improve efficiencies on the line," she said.

"While distribution presents increased costs, it is an integral part in the baking industry and new technology ... will place Honey Bun at a significant advantage over the medium term," Chong said.

Founded 30 years ago by the Chong family, Honey Bun listed on the Jamaica Stock Exchange Junior Market last year, with its initial public offering being over-subscribed four times the targeted amount of $50.8 million.

The company planned to use the funds raised to invest in new product development, process improvement and general working capital purposes, including the exporting of products with longer shelf lives, increased automation to improve overall efficiency, increased distribution, new product development, and pursuing available franchising opportunities.

Honey Bun is also targeting a greater share of the local market — of which it controlled up to 38 per cent at the time of the IPO — for individual packaged baked products.

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