FosRich manufacturing debut set for January
By late January, FosRich Company will be putting the final touches to a manufacturing facility that will be based at the complex now used for storage.
The transformation of the 180,000 square foot Maverley Avenue warehousing site in Kingston is being funded in part from a new $200-million unsecured bond that matures in 2020, said CEO Cecil Foster.
"These funds will assist us to go after project business and indeed our manufacturing arm, which is expected to come on stream by late January 2019," Foster told the Financial Gleaner.
The bond, which will pay interest at 9.5 per cent, is one of two debt instruments issued by the company. The other is a $460-million asset-backed bond issued at 6.75 per cent that will replace a $460-million Mayberry facility. Both instruments mature in 2020.
Foster, who has spoken previously about the company's pending diversification into manufacturing, is still not saying what product or products the company will be making at the Maverley complex, citing competitive reasons, but noted that his operation would give it sufficient range to service both the domestic and export markets.
"Yes, it will both add to our line and give effect to our import substitution strategy. We want to manufacture locally and then sell to the market. Of course, that includes CARICOM," he said.
As an energy and lighting distribution company, FosRich is currently racking up sales of about $1.1 billion annually. It mainly distributes Nexans, Siemens and GE products, among others.
Foster estimates that his company can garner at least $200 million in additional revenues in the short run through the manufacturing operation, saying the segment he is targeting is a lucrative market with untapped potential.
"The market is fairly huge - we estimate a couple billion dollars per year," he said. "We project that we can do at least 10 per cent of that market in the first 12 to 18 months."
Foster says the debt refinancing will save his company in excess of $32 million per year in finance charges.
"The previous arrangement was a facility that was available to us at close to 10 per cent, so we are replacing it with a note that calls for 6.75 per cent," he said.
Pressed about the relatively high interest rate tag on the 9.5% Unsecured Notes, Foster said it was the first time that FosRich was tapping the market for this type of debt financing and believes it got a good deal.
"Because it was unsecured we feel we got a good deal under the circumstances. At the same time, put together with the other portion, I'd say that we are much better off. This being our first note, we can expect that if we approach the market in a year or two then the terms will be even better," he said.
Foster is otherwise bullish on his company's financial performance, year to date, saying so far, each succeeding quarter had outperformed the other.
For the third quarter, FosRich improved sales by 53 per cent to $353.6 million, while net profit climbed 135 per cent to $10.4 million. Over nine months, sales improved 19 per cent to $946 million, while net profit grew 215 per cent to $71 million.
"The last quarter was a good quarter. In fact, the second quarter was up to then our best ever, but that was overtaken by quarter three, and we're working on Q4 being our best quarter," Foster said.