Capital spend is set to expand at Caribbean Producers (CPJ) following approval of the Board, the company stated in a recent release with plans for “three major projects that will positively impact the growth and further development of the Company both locally and offshore” the release from the company stated.
Caribbean Producers
The plans include a U$1 million solar expansion project, with installation to commence in the first quarter of the 2024 financial year that starts in July, US$2.3 million modernization of the Meat Processing Plant, with work to commence in the first quarter of 2024, both projects will reduce operating cost. CPJ will be expanding its Operation in St. Lucia with a new store, with Operations to begin in the second quarter of the financial year 2024.
The proposed capital spend comes on the heels of a profitable nine months for the company recovering from fallout in revenues and profit during the covid-19 pandemic. For the three months to March, revenues rose 28 percent to US$35.7 million versus US$28 million in 2022 and climbed 24 percent to US$107 million for the year to March, over US$86.4 million for the similar period in 2022.
The March quarter saw cost of sales rising slightly faster than revenues, with an increase of 30 percent to US$25.3 million from $19.5 million, with a gross profit margin of 29 percent, down from 31.2 percent in 2022. For the nine months, it also rose faster than sales with an increase of 28 percent to US$75.3 million from US$58.8 million and resulted in a gross profit margin of 29.7 percent, down from 31.5 percent in 2022, negatively impacting profits.
According to management, “We expect growth in revenue and margins going forward will translate to improved company performance.”
Caribbean Producers
Profit before tax declined sharply for the March quarter by 65 percent from US$$1.8 million to US$636,974 after accounting for a one-time charge of US$1.45 million in the third quarter relating to GCT assessment, dragging profit down to a mere US$226,000 after tax, attributable to the company’s shareholders of and down 49 percent to US$3.6 million for the nine months compared to US$6.8 million earned in 2022. For the nine months, profit before tax declined 34 percent to US$5.2 million in the current year, from US$7.9 million for the similar period in 2022, but it declined a smaller 16 percent, excluding the one-time charge for GCT. Selling and administrative expenses rose sharply by 24.7 percent in the March quarter from US$5.2 million in 2022 to $6.5 million in what management stated was due to increased staffing to position for further growth, the increase negated the improvement in the gross profit. For the nine months, the cost in this category increased 33.6 percent to US$19.6 million from US$14.7 million in 2022. That was the area of significant cost increase that depressed profits for 2023. But profit before tax would have increased to US$2.8 million when the charge for GCT is excluded compared with US$2.6 million in March 2022 quarter and US$9 million versus US$10 million.
At the end of March, shareholders’ equity stood at US$26.7 million, up from US$22.4 million at the end of March 2022 and US$23.2 million at the end of the June 2022 fiscal year. The company continues to be heavily leveraged with borrowings of US$40.5 million, of which US$9.8 million is short term and due to be repaid within twelve months.
Current assets stood at US$62 million at the end of March versus US$62.5 million at the end of June 2022 and just US$25.3 million as of March 2022. Cash and equivalents were US$4.9 million, up from US$3.9 million at the end of the 2022 fiscal year, with receivables at $18 million, virtually flat with the fiscal year end. Still, inventories slipped to US$39 million from US$40 million at the end of the fiscal year but are up over March 2022 at $30 million.
Current liabilities stood at US$25.4 million at the end of March versus US$46.75 million at the end of June 2022 and US$25.3 million as of March 2022.
CPJ is the dominant company within the hospitality sector. The expected continued expansion in the hotel rooms should be fertile ground for continued growth in revenues and profitability over the next few years. The company is highly leveraged, which is a huge negative, especially when business declined, as it did during the height of the COVID epidemic, curtailing sales in 2021 and 2022.
The company reported 0.02 US cents in earnings per share for the March quarter compared to 0.14 cents in 2022 and 0.33 US cents for the half year to March 2023 versus 0.62 cents in the prior year. As indicated above, ongoing earnings per share are better than the numbers suggest. The US$1.5 million written off for general consumption tax assessment is not an ongoing expense. As such, it should be excluded from earnings in valuing the company’s shares to assess ongoing earnings capabilities better. In addition, the tourism trade did not return to normal capacity compared to 2019 until the start of 2023, as such, the first two quarters of this fiscal year are based on lower business levels than is the norm and the 2024 fiscal year should reflect a better outcome as a result.
IC insider.com forecast earnings of J$1.35 per share for the June 2023 fiscal year and J$2.50 in the next fiscal year, with the stock currently at $9.46 on the Main Market of the Jamaica Stock Exchange with a value of 7 times the current years’ earnings. Investors can expect a period of continuing growth in the share price over the next 12 months as a result of continued improvement in profitability and lower interest rates in the coming months.
