Caribbean Producers (Jamaica) Limited (CPJ) will be spending an extra US$7 million (J$1.09 billion) to expand its operations in Jamaica and St Lucia as it gears up for the influx of 6,000 additional hotel rooms to be built in the coming years and expansion on the eastern end of Jamaica.
The manufacturing and distribution company will be spending US$1 million on an 800kW solar project, US$2.5 million on the development of its processing plant, US$1 million in St Lucia, and an additional US$2.5 million on normal capital expenditure in the coming 2024 financial year which begins on July 1. Some of these projects are set to be completed by Christmas while the company's new information technology (IT) upgrade is set to be manifested in the next two years at a cost to be determined.
CPJ is making these moves at a time when it's selling more volume locally to a booming tourism sector which attracted 1.81 million terminal passengers at the Sangster International Airport (SIA) in the first four months of 2023. SIA is also receiving a multimillion-dollar expansion which will see the runway expanded by 15 per cent to 3,060 metres, and other areas surrounding the airport adjusted.
"There are other really strong opportunities in the greater Caribbean, and I won't say yet, but we're going to see how things unfold here. We're building our capacity to take on new opportunities and we're waiting on the capital markets to become a little bit better before we make the next step," said Executive Chairman and interim Chief Executive Officer Anthony Mark Hart in a recent interview with the Jamaica Observer.
The 800kW project is aimed at cutting down on the company's US$1.64 million utility bill while the expansion of its processing plant is to allow it to process more seafood and other commodities for clients. This expansion comes at a time when it built out its recent e-commerce platform which is meant to improve its business-to-business (B2B), business-to-consumer (B2C) and direct sales on its retail arm which has been complimented by its CPJ Market stores. CPJ is also expanding its spirits business with the distribution of the Sazerac brand, expected to bring in an extra US$10 million of sales in the future.
"We have over 6,000 rooms slated to be built over the next three to five years. In all my personal years in Jamaica, I have never seen the growth happen at this rate. Our direct sales, B2C and B2B through our stores is another area that we want to expand on the north coast and do additional locations. The diaspora is coming back to Jamaica in droves, construction on the north coast in mid-sized housing is on fire. People are building and it's not just Jamaicans buying, but it's foreigners buying to come back and own a piece of the rock," added co-Chairman Thomas "Tom" Tyler on the tourism boom being observed.
When asked about funding the expansion, Hart mentioned that this would be done with internal capital rather than approach the debt markets at a time when interest rates are at record highs across the globe. CPJ's consolidated net profit was nearly cut in half from US$7.02 million to US$3.82 million for the nine months, but it's cash flow from operations was US$4.82 million relative to the US$319,109 cash outflow in the prior period.
The company recently retired a J$500 million bond last month by working with its key bankers while also finalising a tax assessment with Tax Administration Jamaica which resulted in a one-time expense of US$1.45 million in the third quarter ending March 31.
"If the markets were still strong in favour of being able to raise [equity] capital, there are some opportunities that we would have most likely pursued. During the time that we were identifying a target, you saw an unprecedented change in how the capital markets function. We just figured, hey, we have a lot of organic growth coming and we have some further investments we can make here and focus on that. We'll be strategic on how we expand the business, but we didn't want to go and necessarily create a large amount of debt even to take on a new opportunity with the uncertainties that are in the market right now," Hart explained as the company had previously explored acquisitions in Latin America.
CPJ's retooling following COVID-19 saw it open a store at Drax Hall, expand its Freeport store, and enhance its Lady Musgrave Road space offerings. While some may see it as a grocery store, Hart mentioned that it is more like a commercial store as the company seeks to service a market with more premium offerings. CPJ sees tremendous potential on the Eastern side of Jamaica for growth as it seeks to possibly add another store in the space while also targeting the growth of numerous villas being built along the north coast.
"We're lucky that we have additional properties in the area contiguous to our infrastructure at the CPJ campus. As we need to grow with physical infrastructure, we have the ability to do so," Hart added about the potential for additional physical space for the business in its expansion plans.
CPJ's current warehouse at its Freeport, St James, location currently covers 170,000 sq ft with six different temperature controls.
CPJ's 51 per cent controlled St Lucian subsidiary has also seen considerable improvement in sales which exceeded US$28 million recently with the business earning US$483,235 in profit for the nine months. With sales growing considerably in the Eastern Caribbean island and plans to further branch out in the region, CPJ will be spending US$1 million on the business which had US$13.03 million in assets at the end of 2022.
"It's been a great partnership and we're excited to see them [Sandals] open Dunn's River. They basically invited us to be their supplier in St. Lucia and do some of the things that we do in Jamaica. Obviously, we used that as a base to do business and branched into a retail department, doing local sales and the beverage business," the co-chairman added.
CPJ's consolidated sales for the nine months improved by 24 per cent to US$107.04 million which is a new record for the group. While its profit before tax fell 34 per cent to US$5.20 million, it would have been US$6.65 million without the TAJ expense. Total assets hit US$86.17 million with US$39.19 million in inventory while equity attributable to shareholders closed the period at US$26.73 million. The stock price closed at J$9.13 on Thursday.
"Because of the high interest rates, we would love to be able to meet the capital needs of the company primarily through our own resources. The shareholders, of which Tom and I are significant shareholders, we're willing to forego taking money out of the company with a longer of investing to build the company's strength and profitability for the shareholders going forward. We are evaluating, we want to get back to paying dividends and will certainly look at it in the next financial year which is in 2024. We'll certainly be looking at the policy," Hart closed on dividends which haven't been paid since 2018.
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