Spin-off tea maker Caribbean Dream re-equipping for start up

Jamaican Teas Limited has concluded the first phase of separating out its manufacturing arm from the rest of the group.

But there are still hurdles for spin-off Caribbean Dream Foods Limited to clear before it officially launches into business.

In a recent notice to the Jamaica Stock Exchange, the new company’s board of directors were named as Jamaican Teas CEO John Mahfood as chairman, economist Dr Damien King as deputy chairman, CEO Dianna Blake-Bennett, Peter John Thwaites and Lisa Lewis, whose tenures began January 1, 2023.

Mahfood noted that although the board was having regular meetings, Caribbean Dream Foods as a manufacturing entity was not yet in operation. However, he expects that to change within this quarter.

“We have one more regulatory hurdle to deal with and, all things being equal, I expect that by the end of March we will be fully operational,” he said.

The spin-off will also be offering shares for sale on the main market of the Jamaica Stock Exchange, the proceeds from which are being targeted to acquire larger production space for Caribbean Dream Foods. But until then the Jamaican Teas plant at East Bell Road, Kingston, is being outfitted with new equipment acquired for US$500,000.

The five new machines being procured for Caribbean Dream Foods, one of which will replace old equipment, are all to be commissioned by April.

“We’re installing three of those five as we speak,” said Blake-Bennett. “One of them, in particular, is a US$250,000 piece of kit, and it should improve profitability on one of our product lines by increasing output and ramping up efficiency,” she said. That particular machine will replace a tea packaging machine that is more than 25 years old.

“Just that replacement alone should drive our efficiency,” Blake-Bennett asserted. “We can supply more output, and I have no doubt that it augurs well for profitability,” she said.

The Jamaican Teas manufacturing operation makes teas under the Tetley brand, and teas, quick-mix beverages and other food items under Caribbean Dreams. Tetley is produced under licence to the United Kingdom-based owner of the brand while the Caribbean Dreams brand is owned by Jamaican Teas.

The other business lines include investments, retail grocery, and investments.

Mahfood said the naming of the Caribbean Dream Foods board came after the transfer of the rights to produce Tetley teas from Jamaican Teas to new company, alongside other matters that took time to work through.

“We had to go through a number of things to get to a stage where we could start up the business,” Mahfood said.

“We had to get permission from the Tetley company in the UK. There were also regulatory approvals in Jamaica covering export permits and manufacturing status to export duty free to Caricom,” he added.

For now, Caribbean Dream Foods will share space with Jamaican Teas, which operates two facilities at Montgomery Road and East Bell Road, spanning a combined 40,000 square feet. But the hunt is on for a much larger plant factory, of around 60,000 to 70,000 square feet, he said.

“We’ve been looking for a while now, and one of the reasons for doing an IPO is to be able to acquire a new factory, or we may have to build it if we can’t find it,” Mahfood said.

The IPO will be done via the main market, where around 20 to 30 per cent of Caribbean Dream shares will be floated, while Jamaican Teas will remain the majority shareholder.

“It will continue being a subsidiary; not 100 per cent but certainly more than 50 per cent,” Mahfood said.

“The idea is that people who want to invest in a pure-play manufacturing business will be able to do so by buying shares in this company as opposed to Jamaican Teas, which is in different lines of business,” Mahfood said.

The new manufacturing entity would become the second company listed by Jamaican Teas on the main market, the other being QWI Investments Limited in which the tea maker holds the largest block of shares.

As to group’s financial performance, Mahfood said Jamaican Teas was coming off a “particularly bad year” ending September 2022. Profit from manufacturing declined, but the more significant drag was the losses made by QWI Investments.

Despite a moderate boost in revenue, Jamaican Teas experienced a steep decline in annual profit, which fell from $586 million to $162.6 million. The downturn continued into the new fiscal year, with the company spinning from profit of $167.6 million to a loss of $14.26 million for the October-December 2022 quarter.

Not only did QWI sustain yearly losses of $74 million, tax credits aside, it’s bottom line was also severely compressed in the December quarter when it racked up bigger losses of $91 million in the shorter period.

As for the manufacturing side of the group, Mahfood said the operation was still facing supply-chain challenges.

“We’ve always cited the logistics issues, which caused items to go out of stock and substantial price increases from suppliers made worse by the increased transportation costs,” Mahfood said.

He added that Jamaican Teas had been deliberately slow in passing on price increases, which put the squeeze on margins, while the maintenance of high inventory levels impacted operational costs.

Mahfood does not expect normalisation of global logistical factors before the second half of this financial year. Blake-Bennett had a more definitive date of June in the mind, the end of the company’s third quarter.

neville.graham@gleanerjm.com