J'can Teas exits low-income housing, looks downtown for cheap properties

Jamaican Teas CEO John Mahfood says the group, which operates a real estate arm, will never again pursue a low-income housing development, in the face of losses on its Orchid Estate project in St Thomas.

The development, done by subsidiary H. Mahfood and Sons Limited, suffered delays in securing titles and other approvals, but was finally completed last November.

The late receipt of splinter titles and property tax certificates contributed to losses on the project, Mahfood said at Jamaican Teas' annual general meeting on Wednesday, but he did not disclose the extent of the overruns. It meant that Mahfood and Sons was locked into prices that later proved inadequate to cover costs, he added.

Acting Chairman of Jamaican Teas John Jackson also blamed delays on the late distribution of mortgage loans by the National Housing Trust to buyers of the Orchid Units. The agency would not pay out the funds until all documentation and titles were available, which Jackson described as a "culture of rubber-stamping".

Under-income homes

Mahfood said he would "never again do another low income project" - especially in circumstances where the property is outside of Kingston - but would leave such ventures for companies that were "larger and more efficient".

Instead, Mahfood and Sons will be focusing on upper-income developments, such as its $250-million project at Ports View Road in upscale Manor Park, on which construction will begin this year.

"We will start in another couple months. It will be 18 super studios," Mahfood told the Financial Gleaner.

Jamaican Teas, meanwhile, is also looking to acquire what the CEO describes as under-

valued property in downtown Kingston to convert into warehouses for rental.

Mahfood expects such properties to appreciate in value once the Government solves the "problem of parking in downtown Kingston".

Mahfood and Sons acquired its second Harbour Street property in 2017 for $32 million and is currently in negotiations to purchase a third on the same stretch, he said.

Mahfood's personal interest in downtown Kingston properties was sparked eight years ago.

"In about 2010, my father had a property downtown on Harbour Street and he was trying to sell it. There was no interest. It was about six or seven thousand square feet. He was trying to sell it for $5 million and nobody was interested, so I said ... rather than giving it away, I would buy it. One day, I felt, the market downtown would start to turn," he recounted.

"We had it valued last year - and it's valued at $35 million," he said.

Still, he notes that properties downtown are still generally undervalued, primarily because of a lack of parking space.

"Even though there are buildings going up, like Digicel and GraceKennedy, they are building their own parking facilities. That might be good for them, but it does not help the overall state of the market downtown," he added.

For now, the properties being acquired by Jamaican Teas, he said, can only be used for warehousing, based on their condition, but Mahfood adds that in time," maybe in 10 or 15 years", he aims to convert them to office and commercial space for restaurants, and possibly residential use.

Meanwhile, the company is also selling off some assets as it reinvests. During 2017, Jamaica Teas offloaded warehouse space on Spanish Town Road in Kingston for $160 million, with some of those proceeds poured into equity investments, and is now selling property used for its Western Union outlet in Savanna-la-Mar, Westmoreland.

Tea and other consumer products manufacturer, Jamaican Teas Limited, which has branched out into retail, real estate and other investments, is reporting a near $70-million loss on group activities for the year ending September 30, 2020. This is despite its manufacturing arm declaring a near $258-million profit for the period. Losses on the portfolio of its spin-off investment subsidiary, QWI, continue to weigh down the group’s financial performance.

Jamaican Teas CEO John Mahfood says a $482-million fair value loss on revaluation of investments put a damper on big gains in operating revenue.

“That represents the fall in the value of shares in the QWI portfolio. We had a pretty sizeable loss for the first three quarters, but that moderated by Q4 and we ended up with a profit there. We’ve seen a turnaround in the fortunes of QWI and the shareholders there should feel better when we release those results in February,” he told the Financial Gleaner.

Jamaican Teas Group posted 70 per cent more gross revenues for financial year 2020 over 2019. Revenues totalled approximately $2.2 billion, some $904 million more than the roughly $1.3 billion for 2019. Exports was the best segment performer, contributing $860 million, or 39 per cent of revenues. This was followed by domestic sales at $546.5 million, or just under 25 per cent. Retail sales from its Bay City Foods supermarket brought in $534.47 million, or 24 per cent; while sale and rental of properties contributed $254.44 million, or 11.59 per cent, according to notes accompanying the year-end financials.

OVERSEAS MARKETS

Exports were up nearly 49 per cent year-on-year, while domestic sales were flat. Mahfood said the company is paying keen attention to its overseas markets while innovating to maintain its local market position. He is of the view that with the performance of the local market and the leadership position of Jamaican Teas’ products, the headroom for growth will have to come from overseas.

“We can’t rely only on Jamaica in looking for growth. We already have the position of market leader, so the real growth has to come from the overseas markets, where there is more room to grow,” Mahfood said, adding that the export push will include Trinidad & Tobago.

“Despite payment problems in that market, it is still doing well. We are aware that their economy has been hit hard by lower oil prices. We think it is an important market to keep in touch with, because in the event of a turnaround, we want to be first in line to grab the further opportunities,” he added.

Jamaican Teas announced in November that it will be expanding its factory space at Bell Road in Kingston, adding 50 per cent more production capacity.

Meanwhile, in order to boost production, Mahfood said more workers will be hired. Administration expenses were $228 million for 2020, just about $14 million more than the previous year. Expenses are projected to go up further, given the need to spend more to meet demand.

“We’re moving to put in another shift rather than rely on overtime. To do that, however, we have to put in more management to cope with the increased production and productivity requirements,” according to Mahfood.

Diana Blake-Bennett, the former head of coffee processing company Salada Foods Jamaica, has been recruited to head Jamaican Teas’ manufacturing division.

Blake-Bennett’s appointment as CEO, which took effect on November 15, sees her taking control of the company’s biggest revenue earner, as well as overseeing the spin-off of the manufacturing division into a new company to be called Caribbean Dreams Foods Limited. Jamaican Teas intends to list the new subsidiary.

She relieves Group CEO John Mahfood of responsibilities for the manufacturing division, allowing him to focus on the growth of Jamaican Teas real estate division, its investment company QWI and its supermarket businesses, Bay City Foods and Shoppers Delite.

Jamaican Teas is also looking to grow its business through acquisitions, on which Mahfood will take the lead.

“While Diana will focus on the manufacturing business, my focus will change to looking at potential acquisitions along the lines of other manufacturing businesses that complement our business,” Mahfood told the Financial Gleaner.

Jamaican Teas is in the middle of securing approvals from different regulatory agencies for the creation of the new manufacturing company which has an expected completion date of March 2022. Thereafter, it will seek to list Caribbean Dreams Foods on the main market of the Jamaica Stock Exchange by summer.

Jamaican Teas, which will remain listed on the junior stock market, will also become the holding company for the group operations, which will comprise Caribbean Dreams Foods, real estate companies H. Mahfood and Sons Limited and H. Mahfood and Sons (2020) Limited, Bay City Foods Limited, QWI Investments Limited and KIW International Limited. Jamaican Teas holds 50 per cent of KIW and 35 per cent of QWI. The others are wholly owned companies of Jamaican Teas.

Blake-Bennett comes to Jamaican Teas with more than 20 years of experience in the manufacturing business, and familiarity with the hot beverage market segment.

Her four years as general manager of Salada, as the first female boss of the Mountain Peak instant coffee maker, saw her accomplishing a goal for the company that it long held – growing annual revenue above $1 billion ­– aided in part by her focus on youngsters as a market segment worth pursuing, aggressive sales strategy, as well as product innovation, including a new brand called Mountain Bliss.

Blake-Bennett has been tasked with expanding Jamaican Teas product range and extending the company’s footprint into new markets within the Caribbean region. Jamaican Teas could also draw on her knowledge in coffee processing to improve on the instant coffee and ground products business that it ventured into a decade ago.

NEW BRANDS

The manufacturer currently produces teas, soups, spices among other foods items under proprietary brand Caribbean Dreams, and Tetley teas under licence. Plans are to add new brands through the acquisition of manufacturing businesses locally or outside of Jamaica.

“The plan is to acquire businesses that are already exporting,” Mahfood said.

Jamaican Teas sold $2.27 billion worth of products at year ending September 2021, up from $2.19 billion. The company also spun from a loss of $70 million to net profit of $605 million, aided by a turnaround in the level of returns generated through investment subsidiary QWI. The numbers are preliminary and subject to audit.

The tea company is aiming to grow its top line through product variety, the development of which would be part-funded from the share offerings in Caribbean Dreams Foods.

Jamaican Teas’ other growth plans include plant expansion. The tea maker recently received planning approval for the long-awaited expansion of its Bell Road factory. In the meantime, it has secured a 10,000 square-foot building on Montgomery Road in Richmond Park, Kingston, where it will relocate the manufacturing of its soup and spices.

“The soups and spice segment of the business has outgrown the present space at Bell Road. We are bringing in additional equipment to get operations going by next year,” Mahfood said.

Some $20 million will be spent on setting up the new site.

Jamaican Teas has budgeted another $150 million for the expansion of its Bell Road plant, from 22,000 square feet to 34,000 square feet. Once completed, Jamaican Teas will have a combined 44,000 square feet under operation for its manufacturing division.

“We will continue operation at the two locations until we can get a property to acquire and then consolidate the business. But the expanded space at Bell Road is going to be used for our growing tea business,” he said.

The proposed spin-off of the manufacturing arm of Jamaican Teas Limited, or JTL, should happen in time for listing on the main market of the Jamaica Stock Exchange by year end, Chairman John Jackson said Wednesday.

Read more: Jamaican Teas spin-off by year end, but no price as yet