FosRich expanding PVC plant, eyes low-tax zone for transformer venture
FosRich Company, the sole maker of PVC pipes in Jamaica, is about to add a new production line in order to keep up with demand.
The plant, which is less than two years old, has seen a 240 per cent spike in sales in the past nine months amid the pandemic. FosRich Managing Director Cecil Foster says its going to cost $20 million to add the new pipe-production line, which will be installed by the first week of December. It will grow capacity by 25 per cent.
“Demand is up 300 per cent on the PVC pipes,” said Foster in an interview this week. “We will put in the new line to keep up with that. We’ve taken on another 10 persons, adding to the 35 who were there before,” he said.
The new line is to be commissioned weeks ahead of roll-out of the new transformer repair plant, into which FosRich has pumped $120 million and is getting ready to launch as a third business venture, with full production anticipated to begin by January 2.
The venture under which FosRich will repair equipment for Jamaica Public Service Company, as the starting client, is to be operated from the parish of Clarendon by a new company called Blue Emerald Limited, under contract with its parent.
FosRich, which owns 100 per cent of Blue Emerald, wants the transformer operation declared a special economic zone, a designation that comes with tax benefits, inclusive of a corporate tax rate of 12.5 per cent that is half the regular rate of 25 per cent.
“We are seeking to have this company registered under the Special Economic Zone Authority, in order to take advantage of the significant long-term tax concessions that are available,” said Foster in a statement to shareholders appended to the company’s third-quarter results.
“Activities being undertaken at the new Hayes facility in Clarendon will be done through this new entity, acting exclusively for FosRich under a contract manufacturing arrangement,” he said.
FosRich, which is in the business of distributing lighting products and the manufacture of the pipes, has described the July-September quarter as the best in its history in terms of revenue of $534 million, gross and net profit, and earnings per share of 11 cents.
It also grew both sales and its bottom line over nine months, January-September, with revenue up 17 per cent to $1.39 billion, while earnings rose modestly by three per cent to $75.2 million.
The revenue gains did not flow to the bottom line because the company chose to settle some accounting issues, Foster said, without elucidating on what those were.
“The revenue was definitely up, but we took the opportunity to take care of some specific matters and so we could have had an even better bottom line,” he told the Financial Gleaner.
The numbers show that FosRich had higher production and administrative costs, and that its debt-financing charges increased – all of which would have been expected from a company that has a corporate bond to service, is taking on new staff to meet the needs of the growing business, and has projects under way.
Another of those projects include a distribution hub under development at 76 Marverley Avenue, near to FosRich main operating base in Kingston. FosRich will start occupying the distribution centre towards the end of January. It’s the first phase of a 30,000-square-foot complex that will also eventually include an “electrical superstore”, featuring brands distributed by FosRich, such as Siemens, GE and Nexans.
But there is also a $240-million transaction reflected in cash flows as ‘investment in associate’.
Foster said the 17 per cent spike in revenue, coming as it did during seven months of COVID-19 pandemic lockdowns, curfews and an economic slowdown, was driven by growth on the industrial side of FosRich’s business, including sales of the Siemens switch gear and electrical panel board devices that the company distributes. Foster added that the company also secured a number of big lighting contracts, including the new private hospital being built in Portmore and real estate developments.
“The industrial side of the business is definitely taking off. The market is embracing more of the Siemens. We therefore have a big foot in the door, so to speak. We effectively grew more than 200 per cent in that sector,” he said.