Dear Fellow Barbadians,
Yesterday evening we met with our Shareholders to share important developments and decisions within the Cave Shepherd Group, as the Company responds to the impact of the COVID-19 pandemic, which has triggered unprecedented business and economic challenges in Barbados.
Looking back, we are reminded that this Company has faced and overcome many hurdles and also, that at every difficult juncture, we have relied on partnership to see us through. The most important of these partnerships has been with the people of Barbados. Our relationship with you – our customers, suppliers and business partners, has been built on a legacy of trust and respect, and it is against this backdrop that I write to you today.
When Cave Shepherd & Co. Limited went public in 1971, the Company was primarily a Barbados retail business. Since then, we have diversified the Group’s portfolio to include financial services, tourism and other investments around the region, which account for the bulk of the company’s earnings. Having said that, we recognize that it is our legacy retail business that you are most familiar with and regrettably has faced the greatest challenge.
You may recall that in the year 2000, all of the retail assets of the Company held across the various territories were sold to Duty Free Caribbean (Holdings) (“DFCH”), a joint venture partnership formed between Cave Shepherd & Co. Limited and Weitnauer (now Dufry) trading primarily as Cave Shepherd, Colombian Emeralds International and Duty Free Caribbean. Since 2006, Dufry has owned 60% of that business and we have held the remaining 40%.
Since the global recession back in 2008, DFCH’s profitability has steadily declined against a backdrop of countless challenges. Despite implementation of several strategic initiatives aimed at repositioning and improving business performance, DFCH’s accumulated financial losses continue at unsustainable levels.
Coupled with this undesirable performance, DFCH is now faced with the fallout from the COVID-19 pandemic. This business relies on visitors to the Caribbean for 90% of its revenue and when international travel came to a virtual halt in late March, all of its 66 stores across seven countries were forced to close and over 600 team members were laid-off temporarily. At the time of writing, only ten stores are open and with travel and tourism expected to be negatively impacted for the foreseeable future, it is anticipated that DFCH’s revenue will be significantly reduced well beyond 2020.
After careful consideration, in light of the immense challenges and uncertainty facing the DFCH business, the Directors of Cave Shepherd & Co. Limited have made the difficult decision not to inject any further funds into DFCH and to fully write down our investment. This strategic decision will change the current shareholder structure of DFCH and will likely result in a substantially diminished shareholding by Cave Shepherd & Co. Limited, with the possibility that Dufry could take full control of the retail business. The details of this transaction are still very much under negotiation; however, the immediate priority is a comprehensive restructuring of DFCH’s business operation, led by Dufry, aimed at repositioning DFCH for long-term viability.
The most difficult decisions are those that impact people, and this one in particular, being our legacy business, has been deeply felt on a personal level, as it has been for many who have been involved in this difficult process. The restructuring of DFCH will result in job losses and team members have been given the assurance that due process will be followed and that they will be treated with the dignity they deserve and the fairness they have come to expect. For those team members affected, DFCH will be offering both personal and financial counseling and we have extended our ‘Care Programme’ to assist the most vulnerable.
Based on the above, the accounting adjustments in the Cave Shepherd Group this year will need to be substantial. They will take the form of write offs, including impairment of goodwill for the retail business, in addition to losses resulting from the pandemic, which collectively are expected to be over $39 million.
This brings me to our other Subsidiaries and Associates, where the outlook is much more positive. Notwithstanding the difficult operating conditions, I am pleased that the financial services arm of the Cave Shepherd Group continues to perform well. Our Cave Shepherd Card business is well positioned for future growth and is operating steadily, as is SigniaGlobe Financial Group. Meanwhile, as global markets show resilience despite the pandemic, we anticipate that the diversification strategy adopted by Fortress Fund Managers will generate increasing returns. We are also pleased that DGM Financial continues to contribute positively to our Group’s overall financial performance. When combined with our healthy liquid and cash reserves, the Group is secure and well positioned to act on opportunities for further growth and expansion in the years ahead.
In closing, I would like to thank you, the Barbadian public, for your continued support as we sail through these uncharted waters. On the eve of our 50th anniversary as a public company, we choose to view the future through a positive lens and remain committed to ensuring the long-term viability of the Cave Shepherd Group, while acting in the best interest of the people and communities we serve.
Sir Geoffrey Cave, K.A.