CPJ drops chemical unit in order to woo hotels. Ahhh, the sweet smell of new business:
DR DAVID Lowe, general manager of Caribbean Producers Jamaica Limited (CPJ), says the company’s half-year underperformance is linked to a streamlining of operations, which included the winding down of a non-core business unit.
CPJ added US$626,000 more to its revenue, a 1.4 per cent improvement to US$46 million at half-year December 2016, but profits suffered a steep drop from US$1.76 million to US$968,000. Contributing to the decline was an unusual US$137,000 tax bill that the company faced in the second quarter, compared to zero tax in prior periods.
Lowe says the sales numbers don’t tell the full story.
“The gain in the top line, although modest, is really replacement of almost two million dollars of what would have been recurrent business in the past. Indeed, some of the selling and inventory cost would have been the result of winding down those, too,” Lowe said.
The approximately US$2 million in revenue had to do with the June 2016 divestment of the Sealed Air Diversey Care line of business that sold chemicals, a deal that CPJ said would be disclosed later.The GM said the business case for CPJ’s continued involvement in chemicals was weak since it ran the risk of taking CPJ out into the deep.
CPJ is mainly in the business of wine and food distribution, juice manufacturing and meat processing.
“We closed that out in June, as a business decision, since it was too far removed from our core. The types of cost associated with continuing in that business did not justify continuing in that space,” said Lowe.
“We have actually grown, because while the numbers are modest, we have actually done business and got income that was not there before,” he said.
Lowe had previously advised that CPJ would be paring down and streamlining inventory levels, the results of which are now showing up in the financials, which point to a 3.2 per cent reduction in consolidated gross profit for the period.
Lowe said the benefits from the changes will begin to flow to the bottom line in the short to medium term, since growth in the tourism sector is bound to impact CPJ. The hospitality sector is its main distribution market.
“This is really the manifestation of the plan where we are getting geared up for the future roll-out of additional business to new rooms and buildings that will be ready within the next 24 months,” he said, making reference to ongoing hotel development projects along the north coast.
Lowe said the company is now in a better place since it is more sharply focused on core business at lower inventory levels. This means the company’s money will be better spent on areas that give greater yield, he said.
“By flattening, or at least bringing it in line, what we’ve done is to do a lot more business that is a lot more profitable in a particular part of the portfolio,” said Lowe. “It comes at a cost,”, he added, while maintaining that it positions CPJ to take advantage of future business from the expanding hotel market.
CPJ, as a junior market company listed in July 2011, enjoy waivers on income taxes. Since the latter part of 2016, its waiver would have been cut from 100 per cent to 50 per cent.
CPJ pays other taxes and is currently in dispute with the tax authorities over its General Consumption Tax, or GCT, audit.
“Tax Administration Jamaica (TAJ) conducted a GCT audit for the period January 2012 to December 2015 and proposed an adjustment to the returns for the period. No assessment has been raised in this regard. At the date of authorisation of these financial statements, the management and directors were still in discussion with TAJ to review the proposed adjustments,” said a note in the financials, which was first published with the audited FY 2016 accounts.
There is no indication whether the results of those discussions may materially affect CPJ’s financials.
“We have been in dialogue with them (TAJ),” said Lowe, adding that the talks were disclosed for transparency.
“We can’t really comment much on it since there is nothing formal at this stage. It’s just a discussion at this time,” he said.