Express Catering profit up but concerns linger

Ian Dear Chairman & CEO of Express Catering

Profit at Express Catering (ECL) jumped 290 percent to US$3.5 million on increased revenue of 10 percent to $15.7 million. A fall of $1.4 million in administrative cost to $6.6 million and a near $1 million rise in gross profit accounted for the bulk of the profit growth.
Earnings per share came in at 0.021 US cents. With the Starbucks franchise, which should be in full operation for the entire 2019 fiscal year and continued strong showing in tourist arrivals, revenues should climb much faster than the 10 percent experienced for 2018, helping to boost profit, which IC is estimating at 0.035 US cents or Jamaica 45 cents.
Of grave concern is that while the company is incurring $333,000 in preference dividends on $3.5 million preference shares, amounts owing by related parties, rose from $3.6 million last year to $6 million to May, but ECL gets no income from it. That seems partially on the way to be corrected, based on information provided the company’s Chief Execuitive.
The preference shares issued is exactly the same amount due on debt owing to the company by a related party and reported in the financials for the first time in the 2017 fiscal year. While the amount owed by Margaritaville Limited increased by $2.3 million with no interest payable, Express pays dividends on the preference shares. No interest is paid to Margaritaville St. Lucia by Express for an amount due to the former, partially countering the position against the dividend payable. The preference shares, denominated in US dollar, is obligated to pay dividend at 9.5 percent per annum. That is high for a US dollar instrument now, as well as when it was contracted. These matters are clearly an untidy for a listed company with amounts owing to and from related entities, with some incurring a charge while others are not.
IC spoke with Ian Dear who is Chairman of the company on this issue. Dear advises that the dividend to be paid shortly will result in Margaritaville Limited repaying US$4.8 million of the debt in September and it is not expected that the account will return to the above level in the future. Regardless of the above payment, the situation requires regularizing to ensure equity and transparency for the investing public.

Starbucks one of the brands Express Catering will sell at the Montego Bay Airport.

Dear went on to state, “The balance of US$5.99 million at May, due from Related Parties is made up of 3 separate Related Party accounts with amounts due from ECL as well as amounts due to ECL. This is a carry forward from the period when ECL was a fully owned subsidiary of MCL Group. The company will take steps to cancel the non-active balances by paying down the amounts due to Related Parties and collecting from Related Parties amounts due to ECL. The company declared recently a dividend of US$6 million that will result in a further substantial reduction of the existing balance.”
“The existing Preference Shares were entered into at a time of higher interest rates. Since then rates have trended downwards. ECL is currently engaging funding institutions with a view to refinancing this debt. Redemption costs as well as Arranger fees will be critical factors in this decision,” Dear, Chairman & CEO informed IC

Dear also confirmed that the annual results had very little revenues from the Starbucks store. He also indicated that there will be three stores initially, in the Sangster International Airport of which two opened around 2 months ago and the third was opened last week. Annual revenues should be in the order of $1 million per annum, IC estimates.
Unless otherwise stated, all amounts are denoted in US dollars.

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