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Jamaica Broilers Doubles Revenues On Ethanol Sales - But Production Costs Weigh On Profits
February 22, 2008

R Danvers Williams (left), chairman of Jamaica Broilers Group Limited addressing the company's annual general meeting in 2007 at the Jamaica Conference Centre, Kingston. At right is Robert Levy President and CEO of Jamaica Broilers. - File

Jamaica Broilers Group revenues continued to be fuelled by ethanol, whose sales of $1.8 billion in the quarter ended January 5, 2008, boosted the poultry company's turnover to $5.2 billion, or just about double the $2.8 billion earned in the comparative period a year ago.

Sales by Jamaica's top poultry producer rose 88 per cent or by $2.4 billion, largely on the back of exported fuel-grade ethanol produced at the 60-million gallon plant operational since July 2007.

"Anhydrous ethanol market prices have rebounded since December 2007 and this is expected to impact positively our fourth quarter consolidated results," said chairman R Danny Williams and CEO Robert Levy in a statement accompanying the accounts.

United States traded ethanol, the market to which JB Ethanol sells its output, is now selling above US$2.20 gallon on front month contracts, up from US$1.75 at yearend.

The substantial growth in group revenues led to boosted profit numbers.

But Broilers also faced heavier than normal expenses to eke out those results - raw material and production costs, or cost of sales, more than doubled from $2.1 billion to $4.4 billion year over year or close to 110 per cent - leading to a decline in profit margins in the current period.

Operating profit, for example, rose $86 million to $307 million, but measured against revenues the margin fell from eight per cent in the 2007 period to six per cent.

Net profit was also $32 million improved in the quarter, but again the margin was lower at four per cent, down from six per cent in the January 2007 period.

The company's nine month results also ran a similar track, but with one difference: bottom line income fell over the period.

Revenues gained almost $4 billion to end the period at $12.3 billion, but cost of sales also doubled to $10.4 billion.

The St Catherine company's poultry operation remained its cash cow, accounting for $5.3 billion of sales, and will likely be boosted higher in the fourth quarter ending April following a price hike on chicken meat announced by the group this week.

Ethanol's turnover was $3.1 billion.

But rising production costs allowed Broilers only a slight gain in gross profit of $1.9 billion for the group (9-month 2007: $1.86 billion).

Operating profit for the group also rose from $496 million to $670 million, though the newly added ethanol segment joined the problematic fish business as a drag on earnings.

Fish losses were $19.9 million this period, while startup ethanol lost $7.16 million.

Still, feed and farm supplies as well as the flagship poultry segment were sufficient to spike operating income above year ago levels.

The reversal in fortunes began to manifest at the pretax profit line - which was weighed down by a more than seven-fold increase in debt serving costs - which dropped from $457 million a year ago to $377 million in the review period.

At the bottom line, nine-month net profit slid from $354.5 million to $277.4 million, or from 29 cents per share to 23 cents per share.

The company said its financing charges of $292.6 million were linked to the servicing of increased foreign and local currency loans that were acquired "to meet increasing working capital needs."

JB's balance sheet shows a quadrupling of its debt from $231 million at financial year end April 2007 to $933 million in January, reflecting the higher leverage. Compared to a year ago, Broilers' long-term liabilities have grown six-fold.

The Daily Gleaner

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