‘…the presence of unregulated players in the market continues to create an inequitable environment for the company to compete against products of questionable origin and repute.’ That was the explanation given by Caribbean Producers Jamaica Limited (CPJ) to explain what will be a “likely impairment to their net profit in the financial year ended June 30, 2016”.

Despite this, however, newly appointed CEO, Dr David Lowe says the company’s financials will not reflect a loss for the period under review. We are not going to make a loss or break even. It is not the end of the world…we are confident that the business model remains strong.”

Dr Lowe, who in June took over from Co-founder Thomas Tyler, indicated that the decision to inform shareholders of the issues being faced by the company was made because of a “moral obligation to our shareholders”. He says it however “raises the bar” for higher corporate governance and transparency. “We feel it was a prudent thing to do. It is not the norm in Jamaica, but we have an obligation to advise our shareholders.” He says the company further thought it of importance to warn the market that CPJ was engaged in realigning its business model. “It will be a one- off provision which will not change our core business.”
However, the CEO says the company’s earnings are expected to be impacted both by the compounding effect of new costs attributed to expansion and the impact of unregulated competitors who appear to be bringing in and selling uncustomed goods, effectively undercutting price.

In a release to the JSE on July 4, 2016, Co-chairman Mark Hart indicated that Caribbean Producers Jamaica Limited (CPJ) was concerned with the impact of unregulated players in the market and after a review of the implications for CPJ’s business model, took the decision to ‘write-down inventory that has become aged or obsolete that cannot be competitive against unregulated players; and increase tax provision in anticipation of realignment changes to CPJ’s business model’. The release continued, “CPJ views these issues as material primarily for the Fiscal year ended June 2016 and anticipates the authorities will aggressively target the unregulated players”.

In the first day following the announcement, CPJ dropped 14.5 percent in trading on the Jamaica Stock Exchange (JSE).
Auditors are determining the value of the possible impairment and, as such, the figure remains undisclosed to date, however, for the nine months ended March 31, 2016, CPJ reported net profit of US$2.3 million, down four percent from the US$2.4 million earned during the 2015 financial year. Meanwhile, revenues rose US$4.79 million or 7.4 per cent to US$69.79 million, year over year.
For that period, CPJ said growth was due to increases in sales of seafood, spirits and beverages year over year.
For the six-month period to December, revenue reflected 8.5 percent growth to US$45.41 million. Net profit for the company jumpe d 73 percent to US$1.76 million for the six-month period, compared to US$1.01 million earned at December 2014.

Dealing with Unregulated Competitors
Dr Lowe says while CPJ is not averse to competition, he does not believe that the competition should come from an unregulated source. “They are not playing by the rules. We welcome competition, but it cannot be that we are getting competition from such sources”. He says the government must make haste to address this issue as it will eventually stun the growth and profits of other, smaller, regulated businesses. “…it is a problem which needs to be addressed with urgency as the government itself will lose revenue both from the ports and from taxes. They will cannibalise smaller companies which employ people and stunt their growth”.

The CEO says he is further concerned with the health and safety issues raised by these unregulated players in the market. “We are not only concerned about profit. We are concerned about food safety and consumer safety”. With CPJ having established itself as the ‘largest purveyor of food and beverage to the local hospitality sector’, Dr Lowe says these unregulated competitors are not playing by the rules.

Realigning the Business Model
Dr Lowe says going forward however, the company will switch its focus from competing against these unregulated players and instead focus on “leveraging core business lines for growth in the tourism sector, retail and offshore.’ He says as CPJ continues to experience rapid growth in these areas. He says until the issue of these unregulated competitors is solved, the company will remain cautious in this regard.

For the new fiscal year, Dr Lowe says CPJ “will concentrate on rationalizing non-core businesses and a realignment to address the year-on-year increase in costs associated with rapid growth and new investments while focusing on protecting their profitable lines of businesses”.