SOS mulling APO or split as it chases expansion

Stationery and Offices Supplies Limited, SOS, will be expanding into new markets beginning the first quarter of 2023, and is currently working on distribution arrangements within the Caribbean towards that end.

It’s also looking to add to its line of products, bouyed by the early sales of the latest brand of office furniture to enter its showrooms in mid-summer, known as Evolve.

Amid those ambitions, the company is also giving consideration to an additional public offering, or APO, or otherwise splitting the stock to make more units available for trading, in response to shareholder requests.

In an interview with the Financial Gleaner on Wednesday, SOS Managing Director Allan McDaniel said now that the company has emerged from the pandemic-induced sales and profit trough, it is looking for markets outside of Jamaica with other office supplies companies.

The plan, he said, is to supply the regional market through partnerships, rather than physical expansion.

“We’re not really talking about establishing outlets, but rather, to introduce the products such as the Evolve line or whatever the market requires,” McDaniel said.

The new distribution deals being targeted are expected to be finalised and implemented by next March.

Despite the current focus on foreign sales, McDaniel indicated that the company was not satisfied with its current stake in the office furniture market, which he estimated to be about 35 per cent.

“It makes no sense for me to say we’re done growing in Jamaica, when we’re only controlling less than half of the market,” McDaniel said, noting that presently, margins for the industry are high.

“I find that there are people out there who put a lot of money into things that are not making money. Now that we’ve been able to create the cash flow, we can turn our attention to lesser-earning things that could also turn a profit,” McDaniel said.

By ‘lesser earning’, the SOS manager was referring to high-quality products sold at competitive price. He placed Evolve in that category.

The new brand was introduced in August and has, he said, generated revenues of $13.2 million in three months.

“The demand for these new products is high, and has allowed SOS to place orders for an additional three containers to be in stock before the end of 2022,” the company affirmed in its third-quarter financial report.

SOS and other stationery and office supply companies suffered dramatic declines in business when workers and students retreated to their homes to keep the coronavirus pandemic at bay.

Its sales fell to a three-year low, and its bottom line followed the same track.

The recovery began in 2021 and was even more pronounced in the company’s nine-month results for this year. Sales to September, at $1.32 billion, have already outpaced the outturn for the full year ending December 2021, which amounted to $1.12 billion. And nine-month profit, at $252 million. is already about two and a half times the $107 million of earnings reported for the full year in 2021.

In addition to its pricing strategy, McDaniel says SOS will be sending its sales staff out on the streets to actively seek out customers, in order to continue generating new business to feed its top line.

McDaniel says the company has enough cash resources to deal with both its local and regional expansion plans. Its operations generated $133 million over nine months ending September, compared to just under $370,000 in the comparative period in 2021., while its net cash holding was just around $100 million, up from $63 million.

As to the consideration of either an APO or stock split to add to the volume of SOS shares available for trading — which is referred to in market parlance as adding liquidity to the stock — McDaniel said a decision would be made after board consideration.

The request for one or the other was made by shareholders at the company’s annual general meeting on Tuesday.

“We know we have to get there. No question that it’s coming,” he told the Financial Gleaner.

The timing, however, is still in question.

“We believe that we’re doing everything in the interest of the company and for everybody, and when the time comes it will be the right time for everybody,” McDaniel said.

The company has 500 million units of authorised share capital, of which 250.12 million are already in issue.

A split would create more units, but would raise no funds for the company. Stockholders would essentially end up with more shares in their hands, but at a lower price proportionate to the split, with no change in the value of their holdings. The APO would also provide more shares for trading, but it is also a fundraising tool.

neville.graham@gleanerjm.com