Wednesday, June 22, 2022
• Despite 20-40% raw material cost jump
• Forecasts full pandemic recovery in 2023
• BPL fuel hedge stopped price ‘gyrations’
By NEIL HARTNELL
Tribune Business Editor
Caribbean Bottling’s president yesterday revealed it is just 6-8 percent behind pre-COVID business levels despite the cost of key raw materials surging by as much as 20-40 percent.
Walter Wells told Tribune Business that the Coca-Cola supplier is forecasting that it will complete its full pandemic recovery by 2023 given that this is inextricably tied to hotel occupancies, employment and disposable income - all of which are coming under growing pressure to varying degrees from the cost of living crisis.
Speaking as Bahamas Power & Light (BPL) revealed that high global oil prices will likely produce an electricity bill increase later this summer, he hailed the utility’s previous fuel hedging strategy for both lowering energy costs and providing price stability for homeowners and businesses.
Electricity bills were totally driven by consumption (volume), and Mr Wells told this newspaper that it had allowed businesses such as his to engage in long-term planning over six-month periods secure in the knowledge that they would not be hit by sudden “gyrations” in energy costs.
Caribbean Bottling, as a manufacturer, is a significant energy consumer and there remains significant uncertainty over whether BPL is negotiating - or has secured - a new hedging strategy to minimise the impact of high global oil prices that last night stood at $110.7 and $114.1 per barrel on the West Texas and Brent Crude indices, respectively.
“To be quite frank I actually expected it to go up before now given what we’re seeing with the price of fuel,” Mr Wells said of BPL’s fuel charge and overall bills. “There’s an expectation that it will go up as the price of fuel goes up. It doesn’t help our bottom line, and means at some point that businesses like ourselves have to pass a portion on to consumers.
“All we’re doing is contributing further to inflation. It’s a fact of life today. All of us, businesses and consumers, are going to have to manage our way through this process. It will pass. We’ve been through it before, those of us old enough to remember it. It’s a challenge today for everybody.”
Mr Wells added that BPL’s fuel hedge, which fixed the fuel charge component of electricity bills at 10.5 cents per kilowatt hour (KwH) for two years after it was introduced in June 2020, had “obviously brought a great deal of stability to our business and every business and homeowner as well”.
“That brought stability to our business as it meant we could plan for the next six months,” he explained, “and I wouldn’t see any gyrations in my energy costs. The country has benefited substantially from it, but any contract agreement does not last forever and, at some point, expires.” Given that oil prices have increased substantially in that time, Mr Wells said any new BPL fuel hedge would obviously involve higher prices.
“Given what we’re seeing globally we’re not immune from inflation,” he told Tribune Business of Caribbean Bottling. “Pretty much everything we utilise today in our business, from raw materials to freight and surcharges on various items we use, everything is going up. We’re really seeing it from all angles.
“Aluminum cans have gone up pretty close to 20 percent over the last five months. That’s the bulk of our production process. Who knows where it’s going to end up? Bottle costs in some cases have gone up anywhere from 17 percent to 40 percent. It’s a challenge, but we manage our way through it.
“Most companies don’t want to change their pricing. Certainly every manufacturer does not want to change their pricing every month. We manage as best we can, and perhaps two times’ on an annual basis we assess it and make adjustments if necessary.”
Despite the inflationary pressures, Mr Wells said Caribbean Bottling was “seemingly tracking in the right direction” on its post-COVID recovery. “2020 was obviously the worst year with the pandemic when we saw a decline by as much as 40 percent,” he revealed. “2021 was still well below 2019, which we use as a benchmark year, and for 2022 we’re running somewhere in the range of 6-8 percent behind 2019.
“That’s nothing to complain about given what we’ve been through and where we’ve been. It’s quite encouraging. I think, though, it will be in 2023 before we see that [full COVID recovery]. A lot of that is heavily contingent on hotels getting back to where they were, and I don’t think hotels have brought back all the employees they had pre-pandemic, which means unemployment is higher than it was.
“All of that is a burden on disposable income, and all the people who have jobs today, their dollar does not stretch as far as it did pre-pandemic. There are some things left out of the grocery cart. Getting back to pre-pandemic depends a lot on how the economy evolves and unemployment. We’re certainly not complaining. We continue to improve on a monthly basis.”