Massy moves to become an international holding company

In many ways, a business is like a high-performing car.

Depending on the kind of road and the kind of race one is running, they will build their vehicle to fit its purpose.

If the purpose is speed, then the car has to be light and unencumbered by weight. It also needs to have a good suspension to absorb shocks along the way.

For Massy Group CEO David Affonso, the new modifications to the international conglomerate have yielded results, as the company saw an 11 per cent growth in revenue for the last year, bringing it to $15.7 billion along with a 33 per cent increase in cash flow.

In an interview with Affonso and chief financial officer James Mc Letchie, Business Day was told that the next step in Massy’s growth into is to modify its engine – the executive – into an international holding company (IHC).

Mc Letchie explained that the IHC should be considered as another one of the businesses under the Massy umbrella, but this one is designed to ensure that the group is performing at its optimum.

“So, this is no longer a head office, this IHC is a business,” Mc Letchie said. “If you think about what that means, the way we think about it, that is to ensure that the portfolios are performing at their best, producing cash to feed it back up, so we can pay the dividends and share it."

Mc Letchie said the IHC sources capital for the rest of the conglomerate, the same way a business will source raw material for a product. Given its wide portfolio, it would be able to borrow capital at wholesale rates.

“The second part of it, is how to improve and drive the performance of our portfolios,” Mc Letchie said.

“For things like cashflow we were sitting at the top and looking at our cashflow and going, here's how we support our portfolios to fix it – and you saw the difference.”

According to its consolidated financial statements, for the first quarter of the financial year ending December 31, 2024, Massy saw a six per cent increase in revenue, from $3.9 billion in fiscal 2023 to $4.1 billion. It also saw a four per cent increase in profit before tax, reaching $303 million in the first quarter of fiscal 2024 compared to $291 million for the final quarter of fiscal 2023.

Affonso said the IHC also sits at the centre of the business where the chief risk officer manages certain risks such as co-ordinating audits of the group’s cybersecurity systems.

“The companies manage theft and other things, so they control their security and manage those risks that are specific to their business. But group-wide risks are things that we look at from the centre.”

IDB loan part of strategy

One of the purposes of the IHC is to achieve the group’s 2030 vision of achieving $25 billion in revenue, with more than half being earned in hard currency.

Mc Letchie said for the past year, executives thought about strategies to enhance its balance sheet and optimise performance.

One strategy for shoring up group's cashflow was to take a US$150 million loan from the Inter-American Investment Corporation (IDB Invest)

A notice to the TT Stock Exchange on February 6 said the IHC approved a long-term financing package, with US$90 million in term financing with a 10-year contract. He added that the interest rate for the loan is 5.96 per cent and is unsecured.

Mc Letchie said it was the single largest private-sector investment ever made locally.

“That is like borrowing a house but not putting up the house for mortgage as a security,” he explained. “This type of financing has never been done in the region.”

Mc Letchie said separately, the companies under Massy would have received “terrible” rates, if they had all gone for financing.

“But as an IHC you can borrow against the entire strength of Massy,” Affonso added.

The Massy executives revealed their debt-to-equity ratio at 32 per cent, meaning that they had a buffer of about 18 per cent, or in Massy’s case US$200 million on which they could borrow.

“Think of it (the IDB loan) as an overdraft or a credit card with a ridiculously competitive rate. We will draw down as needed to deploy in certain spaces.”

He said Massy has not had cause to draw down from the revenue yet, but the loan will facilitate, in particular, the revolving supply chain.

“This is all to support US dollar cash generation. So once again, it is nice to be able to borrow money, but you have to be in a strong position to borrow US dollars. If you are moving to hard mobile currency, you will have to borrow hard mobile currency.”

Affonso said the divestment of Massy Distribution (Jamaica) to Caribbean Distribution Partners Ltd, a subsidiary of Agostini’s Ltd, was another strategic decision by Massy’s IHC.

He explained that while the Caribbean Distributions had become a successful integrated retail business, it no longer fits into Massy’s goals and plans.

“If you noticed the portfolio is integrated retail. That model works for us in smaller Caribbean markets

“We represent several lines. We can say to these lines that we can take your product from your factory and bring it straight to customers shopping carts. We will bring it, distribute it here, give it premium space on our supermarket shelves.

“We have the largest supermarkets chains in TT, so that integrated model creates a stickiness that attracts a lot of these big principles (investors) who are looking for distribution in the Caribbean.

He said because Jamaica has a lot of family-owned supermarkets, the integrated retail sector is locked down.

“We have a stand-alone distribution company. Unlike TT and Barbados where we are the 500-pound gorilla in the room, in Jamaica we are a little monkey.

“The company has gotten to a good size and is profitable but our focus now has shifted to retail in the southern US.”