JamTeas considers carve out, listing of manufacturing operation
The owners of Jamaica Teas Limited are planning a restructuring of the group to carve out the manufacturing unit, the main component of the business, as a stand-alone entity. The company would then float the manufacturing operation on the stock...
The owners of Jamaica Teas Limited are planning a restructuring of the group to carve out the manufacturing unit, the main component of the business, as a stand-alone entity.
The company would then float the manufacturing operation on the stock market, according to Jamaican Teas CEO John Mahfood.
Jamaican Teas, a listed company, is primarily a tea maker but it also manufactures other products, operates a real estate arm, and oversees an investment subsidiary that it formerly hived off and listed in 2019 as QWI Investments Limited.
“We want to separate the manufacturing company and present it to the public via IPO, and sell maybe 25 per cent, so that if people want to invest in a pure manufacturing company instead of the group, they can do so,” said Mahfood in an interview with the Financial Gleaner.
“We will set it up as a subsidiary of the group, list it on the stock exchange so that we can raise some money for further expansion in the next financial year,” he said, but would not comment on the timing of the IPO itself.
Meanwhile, Jamaican Teas is in moving ahead with plans to add over 50 per cent more factory space, which calls for investment of about $150 million and would grow the square footage from 22,000 to 34,000 square feet. The company had expected to begin construction in March or April this year, and commission the additional space by latest September 2021, but those timelines have been derailed. The company is still awaiting necessary approvals, Mahfood said, citing the pandemic for the delay.
The company is expanding to keep up with demand and further grow its exports.
In the second quarter ending March, the company spun from a loss of $412 million to profit of $111 million, off revenues of $608 million. The half-year results followed the same track, reversing from losses of $456 million to net profit of $291 million.
Revenue for the half year jumped by more than a third, from $906 million to $1.2 billion.
Mahfood says the performance could have been even better but for headwinds from shipping and other logistical problems with raw material supplies out of the Asia region.
“Half of our raw material comes from Thailand and Malaysia. What we’re finding is that when the ships come out of China, they are relatively full and therefore not picking up goods in other regional ports,” Mahfood said, adding that the products that the company sells more of in Jamaica, namely the Tetley branded products, were the most affected.
Jamaican Teas has the rights to locally manufacture and distribute the foreign-owned Tetley brand. It otherwise produces and sells teas in Jamaica and overseas under its proprietary brand Caribbean Dreams.
The supply challenges led to a shortage of production, and a fall in segment revenue.
Whereas six-month sales to the ‘foreign’ markets, which comprises manufactured products mostly made from Jamaican raw materials, increased by 70 per cent, the revenue from products sold to the ‘local’ market and made with foreign inputs, decreased by three per cent.
Mahfood says he expects to see a turnaround in the next quarter, saying the company partially resolved some of the raw material problems, and has put more product on the market.
“We saw a rebound of sales in April and May, so I think when we come to report on the June quarter, things will be much more in line with expectations. That growth won’t match exports but it will be good,” he said.
Like many other manufacturers, Mahfood says, in addition to logistical problems, he’s having to face increased shipping costs, which will ultimately show up in the shelf prices of its products.
“Last year we were paying about US$2,000 per shipping container. This year we are talking about upwards of $9,000. That extra spending for shipping out of the Far East is impacting costs that are now beginning to translate to increased prices to consumers,” he said.
On the real estate side of the group, its most recent residential complex, Violets View in Manor Park is now fully sold out and all 18 units paid for, according to Mahfood. The last unit was handed over to the buyer in April. Sales of units in the company’s ongoing project, The Belvedere, will start by December.