SALADA Foods Jamaica Ltd (SALF), which celebrated its 50th Anniversary last year, is the largest coffee-processing company in Jamaica.

Ninety-five per cent of its core business is the production and supply of instant Jamaican coffee. However, given that this is a mature market, the Company is looking to grow other aspects of the business. SALF, which recently realigned its management team, is also placing significant focus on cutting expenses in order to ensure future profitability and increase shareholder value. Recently, Stocks & Securities Ltd was granted the opportunity to tour the operations of SALF, located on Bell Road, Kingston 11. The plant — which is fully equipped with an extensive range of service equipment, from air compressors to water tanks — employs over 70 individuals, including roasters, bottlers, and extractor and power operators. Our visit was a very timely one as the Company utilises just about 40 per cent of the plant’s capacity, processing coffee three times per annum, 24 hours per day for a total of 150 days.

After receiving a warm welcome from Managing Director John Rosen, Plant Manager Winston Butler gave us a tour of the facility and a “crash course” in the processing of quality coffee products. It was evident that SALF places keen focus on safety, accountability, quality, and maintenance throughout the stages of production. One key aspect of quality assurance is the maintenance of proper conditions in the filling rooms due to the hydroscopic nature of coffee. SALF also has an onsite laboratory that provides for assured quality and taste. Highlighting that the manufacturing of instant coffee is heavily reliant on water and energy consumption, Butler noted the plant’s boilers operate non-stop over the processing period, consuming 1,500 gallons of fuel every three days.

SALF’s Financial Controller Kevin Price further elaborataed on this point, informing us that Fuel Costs represented 29 per cent of overall Factory Costs. Consequently, SALF is constantly seeking ways to conserve energy. The Company has also been undertaking a number of measures to boost its bottom line, of note SALF implemented its first price increase in 18 months, of seven per cent, effective July 1, 2010. This, along with a new distributorship arrangement that saw the Company sign an exclusive deal with The Musson Group, resulted in a 2.8 per cent reduction in Expenses related to Marketing and Promotion. This translated into improved results for the financial year ended September 30, 2009 with Net Profit Attributable to Shareholders rising 43.56 per cent to $108.1 million or $1.04 per share.

As a result, SALF ended a two-decade drought on profit-sharing to shareholders in the Company. SALF declared a dividend of $0.30 per share paying out $31.17 million to shareholders on December 14, 2009. The Company’s Chairman made statements at the time that a dividend policy would be implemented. SALF stock, which was split nine to one in November 2008 to create liquidity, closed Friday’s trading session at $10.67 per share, a decline of 31.2 per cent since the start of 2010.

Looking at its most recent financial results, for the six months ended March 31, 2010, SALF reported earnings of $42.04m, a 12.71 per cent increase, compared with $37.3 million in the corresponding 2009 period. Performance was boosted by increased export sales that led to an 11.44 per cent increase in revenue. Price stated that currently exports (in pounds) are doing much better than budgeted. In terms of financial position, SALF has a liquid balance sheet, with Cash and Deposits of $307.94 million representing almost 70 per cent of Total Current Assets as at March 31, 2010. In light of the Jamaica Debt Exchange (JDX), if the Company is to hold to the profits that were achieved last year, prudent treasury management must be a priority. Already SALF has reported a 5.19 per cent decline in Interest Income for its second quarter to $8.27 million compared with a prior surge of 79.02 per cent in the first quarter.

Brand awareness has also become an integral part of the Company’s strategy to weather the economic downturn. SALF recently launched its new website where it has a full listing of the range of products offered, as well as insightful information about coffee and brewing techniques. Its instant line includes Mountain Peak, Mountain Peak Decaffeinated, and Shirriff Instant Coffee. Roasted and ground coffee and roasted whole coffee beans are also among the Company’s product offerings. In addition to coffee, SALF produces a range of other beverages, drink mixes and dessert products, including Cocoa Mix, Salada Tea, Rise ‘n’ Shine and Lushus Jelly Crystals. The Company also manufactures specially packaged sachets for hotels and restaurants that can be branded with the hotel or restaurant name. SALF also does contract packaging for a number of local coffee producers.

The diverse range of products offered by SALF meets consumer expectations both locally and internationally with distributors available throughout the Caribbean and in parts of the US, China, Europe and Canada. With exports rising and the economic stability expected due to the International Monetary Fund agreement, future growth looks promising for SALF as the Company continues to analyse a number of potential projects in search of the right fit for the upcoming year.

Deirdre Witter is an Investment Analyst at Stocks & Securities Ltd. You can contact her at dwitter@sslinvest.com.