Plummeting sales compounded by declining revenues
By Durrant Pate
Jamaica’s leading supplier of food and beverages to the hospitality sector, Caribbean Producers Jamaica (CPJ) Ltd, has detailed the financial hemorrhaging from the COVID-19 pandemic that has seen both sales and revenue plummet.
Performance in the first six months of its 2020 financial year saw CPJ Group recording strong sales of US$59.47 million and profitability of US$0.62 million. The company was on track to deliver a robust financial performance for the fiscal year ending June 2020, but things went downhill with the onset of COVID-19, resulting in the unexpected shutdown of hotels both onshore and offshore.
As the largest supplier of food and beverages to the hotel sector, CPJ was severely impacted. In its just released 2020 annual report, the company says sales plummeted from the month of March 2020 and continued to be adversely affected until the end of the fiscal year in June 2020.
This has severely impacted the third quarter and fourth quarter sales and profitability, which happened to be its most profitable period.
Plummeting sales in third and fourth quarters
As a result, sales in Q4 of the fiscal year 2020 were US$5.78 million, down 79 per cent compared to Q4 of the last fiscal year, 2019. Group sales for the entire fiscal year were US$91.70 million, down 16 per cent compared to the same period in 2019 and 26 per cent less than expected revenue.
The loss in revenue for this period was observed both in onshore and offshore operations. Earnings before interest, taxes, and amortisation (EBITA), which is a measure of company profitability used by investors for the first six months of the current fiscal year, 2020, had improved significantly over the same period of the prior year, 2019. The EBITA increased from US$1.64 million to US$3.32 million.
With the impact of COVID-19, CPJ’s EBITDA for the current fiscal year recorded a decrease of US$1.9 million when compared to the prior fiscal year, 2019. This resulted in a reported net loss of US$4.35 million.
Gross operating revenue less favourable
Gross operating revenue decreased by 2.55 per cent from US$94.10 million in 2016 to US$91.70 million in fiscal year 2020. The gross operating revenue reflects a 16.34 per cent decrease for the year, which was less favourable than the previous year’s growth of 1.69 per cent.
The impact of COVID-19 resulted in a negative compound annual growth rate (CAGR) for the period 2016 to 2020 of 0.52 per cent. The directors report that the company “was on track to deliver a robust financial performance for the fiscal year. However the pandemic in March 2020, had a major impact on global economic activities, especially on the travel and tourism sector, resulting in official travel bans and restrictions, and a reduced appetite for business and leisure travel”.
IT initiatives to drive growth in 2021
The directors outlined a number of strategic business transformation initiatives such as a series of new information technology initiatives to be rolled out in the new fiscal year, the desired outcome of which is to strengthen its technology platform for further growth and to achieve operational efficiencies. They noted that “the slowdown in the sales activity due to the ongoing pandemic has assisted the company in a smooth implementation of the new IT initiatives, as it reduced the risk of technological related errors towards the fulfillment of its customers’ obligations”.
The new IT initiatives will methodically and systematically upgrade key software tools and processes necessary to run an efficient supply chain business. Aggressive debt management coupled with inventory containment resulted in a decrease in current assets by US$12.82 million and, accordingly, total assets also decreased by US$14.91million.
Prudent creditors and cash flow management resulted in decrease in total liabilities by US$10.02 million over the last fiscal year. Also, CPJ continued to demonstrate sound treasury management during these turbulent times. The lower-than-usual business activity arising from COVID-19 has contributed to a reduction in total assets and total liabilities.
Outlook for 2021
With the easing of the travel restrictions and bans beginning June 2020, CPJ reports that it has seen some increased demand for products and services in the first few months of the fiscal year 2021.
“We are optimistic a solution to the virus will be available soon and restore confidence in travel in the usual busy tourist season from December 2020 to March 2021 and beyond,” the CPJ advised shareholders.
They say the company is prepared for what is certain to be a full recovery of the travel industry while extending gratitude to its vendors, suppliers, customers, employees, bondholders and shareholders for their continued support in these difficult times.