Management Discussion & Analysis

REVENUE

During the 2015 financial year, revenue continued to grow, following our decision to focus on market spaces where we could make gains. The three per cent year-over-year increase in sales reflected double-digit growth in some key product areas offset by other factors such as the nearly half-year worth of revenue foregone due to the discontinuation of certain products .

The discontinued products were those deemed to have the least growth potential . Therefore, these deletions placed the organization on a more competitive growth path.

Indeed, when our process began in earnest in 2013, we saw considerable growth in revenue of 42 per cent over the previous year. This was followed by 10 per cent growth in 2014. And while sales growth for the entire 2015 appeared to have slowed in the year, during the last quarter of 2015, sales grew by 11 per cent over the same period in 2014.

GROSS MARGIN

The company’s gross margin improved from 34.2 per cent in 2014 to 35 per cent last year. This resulted from (on the one hand) the removal of certain products and (on the other hand) efficiency gains we are starting to realize from our capital investment programme. For example, we are seeing savings on energy since shifting a portion of our fuel source to liquefied petroleum gas (LPG). Improved quality assurance has also reduced the incidences of quality rejects.

EXPENSES

Last year, we increased the number of technical personnel, reorganized and increased our sales staff to better service our accounts. This aggressively positioned our brand in the market place, but also resulted in additional staff costs. We doubled our spending on advertising and promotions from $8.5 million to $16.8 million, in order to strengthen the brand for future growth.

Additionally, we continued to spend on fleet and trucks ($19million was spent on motor vehicles). These additions, plus the cost associated with machinery acquisitions accounted for most of the increased cost for travelling and motor vehicle expenses

CAPITAL EXPENDITURE

Since listing on the Jamaica Stock Exchange, we have spent well over $100 million of capital in purchasing vehicles and equipment. In 2015 alone we spent $51 million, up from $31 million in 2014.

The total of $112 million includes $13 million spent on computerisation. This improves the flexibility of machines for product development and introduces capabilities for remote operations, which will result in future efficiency gains.

Our capital base remains strong with total equity of $533 million as at December 31, 2015. Our current assets exceed our current liabilities by $128 million, or by more than 140 per cent. And our cash and investment position stood at $118 million at the end of 2015. We continued to maintain 38 per cent of those cash and cash equivalents in US currency to hedge against depreciation of the Jamaican dollar, particularly as we continue with our capital expenditure programme.

LOOKING AHEAD

The new financial year is off to a great start. All product categories grew from year-earlier levels during the first five months of 2016. Earnings rose by 64 per cent during the first quarter of 2016 when compared with the corresponding period of 2015 , while revenue climbed by 16 per cent. But our gross margin improved from 34.2 per cent in Q1 2015 to 36.8 per cent in Q1 2016, while net margin increased from 6.2 per cent to 8.8 per cent.

Challenging economic climate will continue to weigh on our financial performance as consumers see their disposable income decline. .

Looking even further ahead, the baked goods industry is shifting in response to consumer behaviour and demands. Consumers across all income groups are becoming more discerning in their product choices and are requiring more information about those products as well. Our expectation is that consumption patterns in Jamaica will change as income levels improve, spurring a demand for more innovative offerings.

We are very optimistic about the gains we have been making in efficiency and product development. In this regard and through our capital investment programme we will be better positioned in the evolving market.

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THANK YOU

As we look with optimism to the year ahead, we would like to once again to acknowledge our customers, who continue to be loyal to our brand and who inspire us to find creative ways to do business, as we serve them with fairness, respect, compassion and of course, love. We also wish to thank you, our shareholders, for investing a high level of confidence and trust in us as we continue to strive for excellence. We are confident that our goals for the year ahead will be realised and that we will strengthen our presence in the local market and will reinforce the platform for long-term sustainable growth and further enhancement of shareholder value.

Our results were achieved by a dedicated team, which went above and beyond the call of duty to ensure that performance targets were met and consumers were satisfied. We commend all the managers and workers for a fantastic job in executing our strategy in 2015 and look forward to increased energy and impact in 2016.

Anthony Chang

Managing Director