Efficiency strategies and product mix drive CFF growth
CARIBBEAN Flavours and Fragrances Limited (CFF) experienced its highest-grossing quarter to date with revenues increasing by 16.88 per cent to $236.189 million. The substantial improvement in the company’s performance stemmed from increased orders in the flavours segment, with special orders emerging as the key growth segments during the quarter. The third quarter’s notable highlight for CFF was its expanded product range for bakeries.
New customers were attracted, both locally and internationally, seeking products to integrate into their product lines.
Gross profit for the company experienced a growth of 49.61 per cent, reaching $86.154 million, and the gross profit margin saw an increase from 28.50 per cent in the corresponding period of 2022 to 36.48 per cent. The notable enhancement in profit margins can be attributed to the stabilisation of commodity prices and the implementation of efficiency strategies. This substantial improvement in margins, coupled with effective production practices, enabled the company to retain a higher portion of its earnings before operational costs.
“The change in the product mix and the control of other factors of production, namely packaging and labour, positively impacted the gross profit margin increase,” noted Ian Kelly, group chief financial officer for Derrimon Trading Limited Group, of which CFF is a subsidiary. “Other factors such as the tighter management of our inventories — focusing on the control of wastage and expired materials — also positively impacted the out-turn.”
“Q3 growth was driven by a combination of improvements, however of special note was the special orders revenue group which grew by 96 per cent ($37.538M) compared to Q3-2022,” he added.
CFF achieved record-breaking revenue, reaching $668.268 million, marking the best nine-month performance in its history and surpassing the $637.714 million earned in 2021. The achievement falls just $103.961 million short of the total out-turn for the 2022 financial year.
The company also experienced a substantial 32.66 per cent growth in gross profit, reaching $230.003 million. This growth was attributed to a lower increase in the cost of sales compared to the previous year, which faced more significant supply chain disruptions. CFF passed on these cost savings to its customers, who expressed appreciation for the reduced costs.
“The broadening and diversification of our supply partners as well as implementation of different logistics and transportation strategies have proven to be a success,” Kelly said. “This strategy will continue as we widen our supply chain and markets with which we trade.”
Profit before taxation experienced a significant surge of 56.96 per cent, reaching $106.034 million. This figure not only exceeds the 2022 full-year out-turn of $70.730 million but also marks the first instance in which the company has surpassed the $100-million mark. The net profit demonstrated a substantial increase of 55.38 per cent, reaching $92.534 million, and concurrently earnings per share exhibited growth from $0.07 to $0.10.
Total expenses increased by 9.91 per cent to $49.385 million as the company allocated more resources to advertising and promotion for its expanded product range. Higher utility and insurance costs persisted, with general insurance nearly doubling compared to the previous financial year. Security costs also witnessed a notable increase during the period, a result of factors such as the recent hike in the minimum wage and other related considerations.
Kelly spoke about the strategies in place to ensure that earnings grow at a faster pace than expenses, which are outside of its control.
“CFF continues to explore and to attract new customers in different markets as well as to provide new innovation to the market, and as such we are experiencing increased levels of acceptance from our target groups,” he explained. “Our strategy of increasing our year-over-year exports continues to be one of the pillars on which our growth is built. Thus far the rewards are in line with our expectations.”
The company anticipates that it will attain record revenues by the year’s end and achieve a milestone by surpassing $100 million in net profit for the first time. According to CFF, the sustained growth in business suggests it is on track to exceed $1 billion in both revenue and total assets by 2025, with the anticipation of consistently earning at least $100 million in revenue per month.
It also foresees significant advantages stemming from the increased production capacity of its major customers. These customers have invested over US$70 million in retooling over the last two years so as to meet the rising demand in Jamaica and the broader Caribbean region.
Guyana is being actively explored as a key market, driven by the anticipated growth in commercial activity associated with the ongoing expansion of the economy. Presently, CFF is strategising and implementing plans to gain more traction in Spanish-speaking markets. This endeavour represents a new dimension of growth that holds promise once fully executed.
“The company foresees significant advantages stemming from the increased production capacity of its major customers,” the group chief financial officer commented. “These customers have invested over US$70 million in retooling over the last two years to meet the rising demand in Jamaica and the broader Caribbean region.”
As CFF’s major local and international distribution partners transition towards distributing larger portfolios in the future, plans are underway to install a new automated filling system in the fourth quarter of 2023.
“The new automated filling system will enable us to package a wider range of sizes, from 500 ml to 5L, and to transition from the current manual approach to full automation of some of the manual processes,” Kelly stated. “It will also enable us to increase throughput (possibly tripling) without any increase in our labour cost. This level of automation will facilitate co-packing arrangements for smaller manufacturers and thereby providing other support for related parties. This is the first step to full automation and will enhance our revenue growth as well as improving our manufacturing efficiency.”
Meanwhile, ongoing investments in staff training persist to ensure readiness for the projected growth expected over the next three to five years.