$4b distribution deal - Derrimon expands business arrangement with beverage maker SM Jaleel
The new distribution deal that Derrimon Trading Company inked with SM Jaleel & Company represents potential sales of $4 billion annually - according to chairman and CEO Derrick Cotterell - which would grow the company's top line sales by nearly 60 per cent.
Derrimon will buy the goods under invoice from SM Jaleel for resale, said Cotterell. It's the most lucrative deal for the company, so far, which has been on an aggressive drive for growth that has included the acquisition of new businesses.
Last year, Derrimon's turnover topped $6.7 billion, up from $6.17 billion the year before.
Cotterell said Monday, the day the SM Jaleel deal took effect, that the pact adds 60 stock keeping units or SKUs to the company's distribution portfolio and expands Derrimon's business relationship with the Trinidad & Tobago-based beverage maker.
Derrimon already handles SKUs on the company's behalf, through its distribution of chilled beverages Juciful juice drinks and the Dairy Farmers brand. The new agreement adds a range of non-chilled drinks, inclusive of Busta, Fruta, Kool Kidz and Turbo.
SM Jaleel manufactures beverages from its plant in Trinidad, but also operates five factories globally that push products to over 60 countries. It operates in Jamaica through subsidiary Jamaica Beverages Limited, but the local outfit has contracted out distribution of the products to focus on production.
"Jamaica Beverage had it a few years ago and we are taking over the portfolio from T. Geddes Grant," Cotterell said. Caribbean Producers Jamaica also once distributed products for Jamaica Beverages, but CEO David Lowe said they gave up the contract two years ago.
Derrimon Trading was already on track to surpass $8 billion in sales this year, an estimate based on its annualised revenue of $4.04 billion at half year in June. But with four months left in the year and assuming it hits a third of the prospective $4 billion of SM Jaleel sales, the company's annual turnover could end up closer to $10 billion. That estimate includes newly acquired pallet maker Woodcats International, the latter of which is likely to add around $500 million to top-line earnings, based on disclosures by Cotterell.
The Derrimon CEO said neither of the last two deals would materially affect the group's ability to service its $1 billion in total loans from the cash it generates.
Earlier in the year, Derrimon refinanced $550 million of its debt with Sagicor Bank over 10 years at 9.5 per cent.
"We never spent cash to acquire the distribution business. There was no borrowing of money," he said of the SM Jaleel agreement.
The market has been rewarding Derrimon for its aggressive growth programme. The DTL stock has more than tripled in price since the start of the year, moving from $7 to $26.46 per share. The company is currently valued at $7.24 billion on the stock market.
On the company's own balance, its book value increased from $1 billion to $1.1 billion over the past year.
Derrimon operates from Marcus Garvey Drive in Kingston. It distributes bulk and branded household food items inclusive of meat products, operates two grocery operations, Sampars and Select, and is the majority owner of Caribbean Flavours & Fragrances Limited.
At half-year ending June, Derrimon made $123 million in net profit, up from $86.3 million a year earlier.