Believes that the Board should immediately begin exploring
Strategic Alternatives to maximize Shareholder value
The Performance of the stock has been abysmal
Profitability has collapsed over the past 3 years
Insiders own less than 1% of the outstanding stock
No insider has purchased a single share of stock in 10 years
– an unequivocal vote of "no confidence" in the business
LOUISVILLE, Ky,
Sept. 3,
2024 /PRNewswire/ --
Jewett-Cameron Trading Company LTD.
Attn: The Board of Directors
32275 N.W. Hillcrest
P.O. Box 1010
North Plains, Oregon 97133
Members of the Board of Directors:
Parthenon LLC is one of the largest shareholders of
Jewett-Cameron Trading Company Ltd. (NASDAQ: JCTCF), with a
beneficial ownership of approximately 6.2%. We have been continuous
shareholders since 2011. We have generally been very patient and
supportive owners. However, over the past two years, we have
discussed our growing apprehension and disappointment with the
current CEO and the Board Chairman in numerous conversations. Our
warnings, which have unfortunately proven even more prescient than
we imagined, have largely been ignored. We are writing this letter
to express our serious concerns regarding both the business and
stock performance and the extremely problematic prospects for the
long-term viability of Jewett-Cameron as an independent public
company. In addition, the near-total lack of ownership by the board
and management creates a governance structure with an appalling
economic and incentive mismatch between insiders and outside
shareholders. Management has failed operationally and
strategically, yet continues to implement more of the same failed
strategies of the past. Management has not articulated any
rational, sound plan to address the serious and growing challenges
the company faces. We believe management is in denial about the
severity of the hurdles the company must surmount to generate
positive returns for shareholders. They seem unaware of the need to
act with urgency before more (or all) shareholder value is
destroyed.
A brief summation of the stock and business performance will
serve to illustrate the depth of the problem. Over the past five
years ending August 23,
Jewett-Cameron stock has returned a horrific negative 46.3%, while
the Russell 2000 Index is up 62.4% for the same period. For the
past 10 years, the total return in the stock has been negative
11.4%. The Russell 2000 is up 118.8% for the same period. The stock
collapse has mirrored the business collapse. For the 10 Fiscal
Years (FY) ending August 31, 2012
through 2021, Jewett-Cameron generated an average of approximately
$4 million in EBITDA annually with a
low of approximately $3 million in FY
2019. In FY 2022, EBITDA declined to $2.4
million. In FY 2023, EBITDA was slightly below $1 million. This fiscal year, through the first
nine months ending May 31, EBITDA was
approximately negative $1.2 million.
We expect the company to be only marginally profitable (if at all)
for the fiscal year ending August
2024. Based on management's comments in the third quarter
10-Q, along with our discussions with management and our own
analysis, we fear that Fiscal Year 2025 results are likely to be
worse than any of the past three years.
The challenges Jewett-Cameron must overcome to return to
consistent profitability are, we believe, numerous, daunting, and
growing. These include supply chain concentration that carries
significant geopolitical risks along with rising procurement costs,
limited pricing power with its most important customers, and
growing competition in several important product lines. The company
has introduced few successful new product line extensions over the
past decade, and none that have had a meaningful positive impact on
profitability. The weight of all these challenges will be
difficult, if not impossible, to overcome as a small independent
company with limited resources.
Our fears for the long-term viability of Jewett-Cameron as an
independent company have been, as the board knows, echoed by the
credit market. The company was forced to search for a new lender
for its credit line this past spring after being dropped by their
then-current lender. Management was able to secure a new line, but
will pay interest computed at the prime rate plus 4.75%. That is
now equal to a very painful, and telling, 13.25%. This extremely
high-cost debt will weigh heavily on already severely diminished
pre-tax profits.
Insiders own only 32,518 shares, or 0.93%. That amounts to
$141,453 (at market close on
August 23), a shamefully miniscule
capital commitment. Even more disturbing, nearly all the shares
owned by insiders were obtained through grants and options. Over
the past 10 years, based on publicly available information, we
think that no board member or senior executive has purchased even a
single share of stock. This is a clear, and appalling, vote of "no
confidence" in the prospects of the company that insiders manage
and oversee.
In addition, we were incredibly disappointed and angered to see
the board attempt to entrench themselves by instituting a staggered
board in February 2024. Fortunately,
this arrogant and self-serving move was voted down by shareholders
(in a true "grassroots" vote, as we are aware of no public campaign
waged against the proposal).
We feel that Jewett-Cameron's branded pet containment, area
fencing, and wood panel products, along with the company-owned real
estate, could have a value well above the public market valuation
to a buyer with the capital, expertise, and infrastructure to
maximize the returns. The expense synergies in the right "home"
are, we believe, potentially quite large. The board should explore,
with the assistance of a qualified outside advisor, if the best
path forward for the company and shareholders would be for those
products to be part of a larger company with much greater
resources. We are very concerned this may be the only viable
long-term path forward for Jewett-Cameron. We believe the board
should immediately begin to fulfill its fiduciary duty to consider
the best interests of all shareholders.
Sincerely,
Thomas A. Corea
Chief Executive Officer
Parthenon LLC
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SOURCE Parthenon, LLC