Derrimon looks to the sea for logistics market
As a distribution company, Derrimon Trading's relationship with the shipping and logistics sector would be expected to be that of a client paying for services rendered.
But the company, which is in the business of trading food items and operating a grocery network, has found a way to earn from the sector, and is now looking to invest in additional capacity in anticipation that more leisure and cargo ships would soon be calling on Jamaican ports.
Under its Sampars retail grocery chain, Derrimon operates a unit called Kingston Chandlers, which supplies food to shipping vessels departing the Kingston port and has done so since 2016.
A ship's chandler is a retail dealer specialising in supplies for ships, referred to as ship's stores.
Derrimon plans to increase the stock and staff at other Sampars locations, including St Ann's Bay and Old Harbour, to meet the needs of ships docking at other ports around Jamaica.
Chairman and CEO Derrick Cotterell, who reported on the plan to shareholders at the company's annual general meeting on Wednesday, said the investment to be made in the expansion would be spent mainly on human resources.
"It's just a matter of getting the orders and filling them in a timely manner," added Chief Financial Officer Ian Kelly on Thursday.
Derrimon's expectation that logistics and port services would grow in coming years would have been based on ongoing and pending projects such as the US$8-million floating cruise dock to feed Port Royal and Kingston; the US$28.5-million state-of-the-art logistics warehouse being constructed by China Harbour Engineering Company on behalf of the Port Authority of Jamaica at New Port West in Kingston; dredging of the cruise port in Falmouth to accommodate larger ships; and capital works and expansion of Jamaica's largest cargo port, Kingston Container Terminal, by French concessionaire Kingston Freeport Terminals Limited.
"It is inevitable that there will be more ships calling to Jamaica and more wanting to originate tours from Jamaica," said Cotterell. "Distribution is logistics - we are just broadening our scope," he added.
Speaking with the Financial Gleaner after the meeting, Cotterell said Derrimon was already in talks with the local representative of one major cruise line to supply them with food.
He also disclosed that the company has ambitions "outside of [packaged] food" and is prepared to stock whatever the lines need, including fresh produce, which Sampars does not currently trade.
"If they require from a pin to an anchor, we will source it for them and deliver on a timely basis at competitive prices," he said.
Kingston Chandlers has already taken on new staff with experience in shipping, which Cotterell said was the main investment made in the expansion, and has increased its trucking fleet - both owned and contracted.
Outside of comfort zone
Derrimon continues to demonstrate its willingness to step outside its comfort zone, most recently through the acquisition of pallet maker Woodcats International this month. The price of the transaction was not disclosed.
Derrimon's ambitions could also see the company eventually offering bulk breaking services as well, Cotterell said.
As to the potential for revenue growth from ship supplies, Cotterell conceded: "It's not a lot at this time, but sometimes you just have to put yourself in line."
Reporting on Derrimon's health to shareholders on Wednesday, Cotterell said the company reduced its debt-to-equity ratio below 1:1 at midyear, made possible by a new 10-year facility offered jointly by Sagicor Bank and First Global Bank.
Kelly said the facility had been used to pay off $450 million in bonds and a $100-million loan with Mayberry.
The company also liquidated a portion of its holdings in subsidiary Caribbean Flavours & Fragrances, selling 13 per cent of its shareholding to an unnamed buyer.
Cotterell asserted that in line with its motto 'Grow or Die', Derrimon would continue to use debt creatively to pursue opportunities.
Kelly, who is also divisional manager of Sampars, said that the debt-to-equity ratio for the group was an improvement on the 220 per cent level at the time of the company's listing five years ago, It is now below 100 per cent, he said.
Auditors McKenley and Associates mentioned the ratio as a key issue, but reported that they had examined the debt arrangements and noted no breaches or delinquency in the loans outstanding, nor any circumstances which would require loans to be called.
Derrimon, which now reports as a group of companies following its majority acquisition of Caribbean Flavours, now has assets of $3 billion, and an equity base of $1.1 billion. Half-year sales to June 2018 grew by a third to $4.03 billion, while net profit increased 42 per cent to nearly $123 million.