Derrimon, The Not-To-Be-Ignored Trading Giant, Is Going Public

Everyday, companies are born.

You know the process. Companies morph from problems, that turn into ideas, which they will see as business opportunities. And we assume that’s what happened with Derrick and Monique when they first imported granulated sugar to Jamaica which they sold to bulk syrup manufacturers. From that point, the writing was on the wall, and I’m sure they began seeing themselves as more than a regular everyday company.

Now they are the next, soon-to-be publicly listed company, and we can no longer ignore them.

So What Is Their Story?

Derrimon Trading is a unique company, with an impressive performance and a bright future ahead. As their prospectus highlights, the company was founded in 1998 by Derrick and Monique Cotterell and grew from humble beginnings, starting out as a distributor of commodities in the Kingston area. The business began to grow in earnest in 2002, when the Company was appointed as a regional co-distributor of Nestlé Jamaica Limited, for the areas of Kingston and Saint Andrew, Saint Catherine and Saint Thomas (there are 4 such distributors in Jamaica, inclusive of the Company).

As they say, the rest is history. In 2009, the company acquired the business of well-known Sampars Cash and Carry, one of the largest wholesale businesses in Kingston, in order to increase the portfolio of products supplied by the Company and to extend its market reach – and that may have been one of their best moves to date. Certainly, the move that placed them front and center with consumers, their biggest target.

Now the company is on an intense growth treadmill which includes sales and physical expansion, growth in staff and management, and of course its next step of joining the Jamaica Stock Exchange Junior market as a publicly listed company.

And they’re not stopping there. The company recently introduced its own line of exclusive branded products under the “Delect” name. This range of products include rice, canned mackerel, tomato ketchup, vegetable oil, cornmeal and other products, and is designed to provide customers with premium quality at a competitive price point. Watch out Grace, Lasco and Eve!

Closely Guarded Ownership

As with any initial public offering nowadays, you will realize that a small percentage is being offered to the public, and the rest is for management, employees and key partners. Derrimon is no different. This will ensure the offer is quickly oversubscribed (as it will be) to allow them to get that well needed tax break, and close 2013 in fine style.

Look for the general public in the graph below.

As you will see above, the company is offering just about 3% to the general public (yes you could argue that the reserved shares are also for the public), and whenever I see IPOs like this, I tend to doubt that the offering is truly for the public. As I’ve said, this offer will be oversubscribed in no time. Apart from the structure of the ownership (which gives unconnected persons little say in the company), here are some reasons why I like the Derrimon offer.

Double Digit Growth

If investors are looking for anything, it’s going to be growth. Derrimon has that.

Derrimon has sen consistent double-digit growth in sales and gross profit for the last 5 years. They report that despite the challenging economic environment and continued changes in the competitive market landscape, the Company demonstrated top line growth in the past five (5) financial years (1 January 2008 to 31 December 2012). Gross sales increased by 489.67% overall in the 5 – year period under review.

They attribute this growth to strategies employed by the Company to increase its market share including:

• growing existing markets for the Company’s products
• increasing its distribution footprint across Jamaica with the addition of further Sampars outlets
• focusing on customer-centric processes at all levels of the distribution chain
• development of additional revenue streams via the acquisition of allied retail businesses
• diversification of the product range and the introduction of new product offerings

Profitable Performance

What’s growth without profit? If you’re looking for results, they have that.

Their most recent results (unaudited results for the 8 – month period ended 31 August 2013) indicate that the Company generated gross revenue of $3.756 billion, an increase of 13.20% over the $3.318 billion reported for the similar 8 month period ended 31 August 2012. Gross profit recorded for the 8 – month period ended 31 August 2013 was $352.96 million, representing a growth rate of 44.48% when compared to the $244.296 million of gross profit reported for the similar period in 2012. Profit before taxes for the 8 -month period ended 31 August 2013 was $51.047 million, a growth rate of 155.73% when compared to $19.961 million reported for the same period in 2012.    

Strong, Sound, leadership

With Extensive Experience In The Field
One of the things that makes any company stand out, do well and get the respect of its industry, is its leadership. This company isn’t short of experience at the top. From its chairman Derrick Cotterell with over 30 years’ experience in sales, marketing and general management gained during his previous career at Grace Kennedy and Company Limited to the other directors, it’s good to know that the company has sound leadership.

• Winston Thomas (its executive director – general manager) joined the Board of the Company in 2009 and has worked for over 27 years in the field of distribution spending about19 years at Grace Kennedy and Company Limited, Lascelles de Mercado Limited and Pepsi Jamaica Limited.

• Ian Kelly (Executive Director – Finance and Corporate Affairs) who served as a member of the Board since 2009, initially as a non – executive director, subsequently joined the management team of the Company in September 2011 as the Executive Director of Finance and Corporate Affairs. Ian has held positions at Royal Bank of Canada (formerly RBTT Jamaica) as Assistant General Manager for Treasury and Corresponding Banking and later as the General Manager of RBTT Securities Jamaica Limited, a subsidiary which he was commissioned to establish. Prior to that Ian was Senior Vice President in charge of Asset Management & Advisory Services at First Global Financial Services.

e-Commerce Shopping

Now this was one thing that I found interesting for a wholesale cash and carry. But so far, so good it seems. They have been promoting it, so I guess its working out for them.

Their prospectus reveals that the company is focused on the expansion of Sampars Cash ‘N’ Carry e-commerce portal which allows convenient shopping and immediate delivery of products. The company hopes to earn foreign exchange through sales to diaspora and other foreign customers, and they intend to aggressively market this channel through selective marketing campaigns in financial year 2013 and beyond.

What’s Next?

The Company is seeking to raise $150.34 million by inviting applications for the shares. The board intends to use the proceeds of the Invitation for the following purposes:

• Expansion of the Company’s Sampars business, via the establishment of further wholesale and retail outlets in Jamaica.
• Enhancement of the Company’s wholesale/retail business software platform.
• Provision of working capital support to the Company’s distribution business.
• Retirement of a portion of the Company’s debt, including certain Directors’ loans
• Payment of listing expenses which should be about $9.5 million (inclusive of brokerage fees, legal fees, accountant’s fees, Registrar’s fees, filing fees, stamp duty fees, initial listing fees, marketing expenses, and exclusive of GCT).