Key points:

Derrimon has shelved a US$2.5-million Arosa manufacturing expansion as it focuses on reducing debt and finance costs.

The company will outsource production to local partners while keeping control of Arosa’s recipes, formulations and quality standards.

The asset-light model is expected to increase production capacity, lower operating costs and reposition Arosa for growth.

Faced with finance costs approaching $1 billion and an ongoing effort to reduce debt across the group, Derrimon Trading Company has abandoned plans to spend more than US$2.5 million expanding the manufacturing operations of subsidiary Arosa Limited, opting instead for an asset-light model that relies on third-party producers to drive growth.

The decision offers a glimpse into how the distribution and retail conglomerate is approaching capital allocation at a time when management is under pressure to improve returns, lower borrowing costs and strengthen the balance sheet.

It also comes as Derrimon works to bring its delayed financial statements up to date and restore trading in its shares on the Jamaica Stock Exchange.

“We had planned on taking in excess of US$2.5 million in order to build out the current capacity, the smokers, the automation equipment and other upgrades. “But when we looked at the payback and the long-term return, and given the fact that our focus right now is reducing debt across the group, we decided to pursue a different approach,” CEO of Derrimon Ian Kelly told the Jamaica Observer.

Instead, the company has chosen to outsource production to local manufacturing partners while retaining control of its recipes, formulations and quality standards.

The move marks a significant change for Arosa, which Derrimon acquired in April 2022 for approximately $932 million, as part of its push into the food service market. The company supplies processed meats, wines, cheeses and other specialty products to hotels, restaurants and commercial customers.

At the time, management also outlined plans to invest a further US$2 million in the operation to increase capacity and strengthen its product offering.

Fast-forward four years, and Kelly said the economics ultimately do not support that approach.

“When you buy a business, you change it, and you operate in a way where you can finance for expansion either by debt or equity. The fact that we are, as a group, trying to reduce all of our debt, the strategy would have been to go and grow,” he said.

The comments align with the company’s most recent available financial results, which show finance costs climbing to $928 million during the first nine months of 2025, up more than 18 per cent from the corresponding period a year earlier. Management noted at the time that it was pursuing a deliberate strategy aimed at reducing debt. Total liabilities stood at $10.2 billion at the end of September 2025.

Against that backdrop, Kelly said management concluded that partnering with manufacturers that already possessed excess capacity would allow Arosa to expand faster and at a lower cost than building out its own facilities.

“The best approach I think we should take is to use the strategy that we are using right now,” he said.

The company has spent the last several months testing products and refining manufacturing processes with multiple partners, undertaking trial runs and commercial production exercises to ensure product quality remains unchanged.

“The quality of the products and the taste of the products will not change, and we will still be doing all the formulations for manufacturing,” the CEO said.

The restructuring is expected to address what management describes as one of Arosa’s biggest constraints — limited production capacity.

According to Kelly, the company was unable to fully satisfy demand from its existing customer base under the previous model.

“Under this new arrangement, we’ll be able to do five times in any one run,” he told the Business Observer, adding that he expects the company to grow by at least 40 per cent.

The increase in production capacity is expected to allow Arosa to satisfy its current market while creating room for further expansion.

Beyond manufacturing, the move also reflects a broader integration strategy unfolding across the Derrimon group.

The company has folded Arosa’s sales and distribution functions into its existing distribution division, eliminating a standalone structure and placing the business under the same network that serves Derrimon’s wider portfolio. Arosa previously employed approximately about 46 people. Kelly said the manufacturing positions were affected by the transition, while other functions were integrated into Derrimon’s wider operations.

Management believes the consolidation will reduce duplication, lower operating costs and provide access to a broader customer base than Arosa could reach on its own.

“Another benefit of merging the sales and distribution division is that we’ll be able to have better coverage of the markets, we can go deeper into retail trade in addition to serving our hospitality clients,” Kelly said.

The integration effectively transforms Arosa from a traditional manufacturer and distributor into a leaner operation focused on product development, procurement, customer relationships and brand management, while leveraging Derrimon’s existing infrastructure to execute manufacturing, sales and distribution activities.

The strategy mirrors a broader shift taking place across the private sector, where companies are increasingly choosing partnerships and contract manufacturing arrangements over major capital investments that can take years to generate acceptable returns.

For Derrimon, the approach also preserves financial flexibility.

The company’s latest financial statements showed net cash used in financing activities of approximately $1.15 billion during the first nine months of 2025 as loans were repaid and debt balances reduced.

Kelly said the company is not exiting Arosa or scaling back its ambitions for the business. Rather, management believes the new structure will accelerate growth while avoiding the financial burden of a multi-billion-dollar expansion programme. The company is still tallying the savings associated with the adjusted business model.

“What we are doing is not selling Arosa. What we are doing is repositioning Arosa,” he said.

The future of Arosa’s Drax Hall facility remains under review.

While Derrimon continues to explore the sale of some parcels of land associated with the property, Kelly said the company has no plans to dispose of the core factory building. Instead, management intends to convert the site into a revenue-generating asset linked to the food and distribution sectors.