Grove Road expansion project set to completed by December 2024

Durrant Pate/Contributor

Tropical Battery continues to face heavy weather from global supply chain challenges, which is still affecting its bottom line.

The Jamaican listed company, which sells and distributes auto batteries and accessories has been facing challenges such as shipping delays and increased operational expenses but managed to overcome these obstacles and delivered relatively positive results for the December 2022 first quarter. Revenues for the quarter came in at J$649 million, a decrease of 1.9 per cent compared to J$662 million in Q1 of 2022.

This decline of J$12 million was primarily due to supply chain issues and shortage of materials. Tropical Battery Managing Director Alexander Melville was quick to point out “despite the decrease, Q1 2022 revenues saw a 47 per cent increase over the previous year, making that quarter a challenging one to beat. Our focus remains on balancing inventory arrivals and achieving our inventory turnover ratio target, which the entire team is working towards”.

Gross profit for the quarter totalled J$217 million, 9.2 per cent higher than the J$198 million recorded in the same period last year with the gross profit margin being 33.5 per cent of total revenue, significantly higher than the 30.1 er cent recorded in Q1 2022.

Margins being closely watched

Melville reports that the management is closely monitoring the margins to keep them on track within budget. Operating expenses for the quarter came in at J$144.7 million, 26.4 per cent higher than last year’s J$114.5 million. This increase was mainly due to incentive payouts for last year’s achievements and higher rental/lease costs.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to J$73 million for the quarter, 16 per cent lower than the previous year’s Q1 EBITDA of $84.5 million, a decrease of J$11.8 million. The net profit for the quarter closed at J$44.2 million, 22.0 per cent lower than the J$56.7 million recorded in Q1 FY2022.

The Tropical Battery managing director explained that “we are focused on achieving our revenue and net income targets FY2023 and are determined to make up for this shortfall in future quarters,” adding that “gross profit margin increased to an impressive 33.5 per cent and the dollar value of our gross profit surpassed the previous quarter’s results, demonstrating the resilience and strength of our team and operations”.

Overcoming supply chain challenges

As part of the strategy of addressing the supply chain challenges, the management has taken proactive steps to increase inventory levels to address any potential supply chain disruptions. In addition, budgets and targets have been set and approved by each department with the management and other team members confident about the rest of the year.

This confidence is predicated on future prospects, as Tropical Battery continues to expand its reach in the Caribbean region through strategic acquisitions. Reference was made to the 50 per cent acquisition of Kaya Energy Group, a leading renewable energy company based in the Dominican Republic, which is expected to have a positive impact on revenue and net income, as well as opening up new opportunities for growth in the dynamic and rapidly growing Caribbean region.

Strategic partnerships being sought

The company says it is constantly exploring new partnerships and potential acquisitions with a focus on creating long-term value for our shareholders. According to Melville, “our draft acquisition structure includes Tropical ownership of 50 per cent to 80 per cent in partnership, a requirement for profitability and audited accounts, a purchase price of five to seventimes net income, payment in Tropical shares with the possibility of some cash, retention of current management, and a focus on back-office cost savings if possible and agreed upon”.

These acquisitions, he adds, will bring numerous benefits to the company and shareholders, including increased earnings, a higher trading multiple, greater liquidity and access to cash, improved leverage with suppliers, and a reduction in risk through diversification across multiple countries in the region.

Expansion plans

Regarding expansion plans the managing director reports that schematic designs for its Grove Road in Kingston expansion project are under way. Construction is expected to be completed by December 2024. In the meantime, the renovation of the staff restroom/changing room and storage area at Grove Road has been completed.

The company will also be implementing information technology projects and training existing team members to maximise organisational efficiency.