By Al Edwards, Business Co-ordinator
THE COUNTRY'S largest brewed beverages company, Desnoes and Geddes (D&G), now known as Red Stripe, is boosting its marketing spend by over 100 per cent in order to drive up sales both at home and abroad.
A subsidiary of Diageo, the company has posted financial results for the year ended June 30, 2003, in accordance with International Financial Reporting Standards (IFRS).
Red Stripe registered a slight decline in after tax profits and saw an adverse impact upon domestic volumes due to the imposition of an increase ($850 million to Red Stripe) in Special Consumption Tax (SCT).
Profit after tax stood at J$1.32 billion, slightly down (four per cent) on last year's figure of J$1.38 billion for the corresponding period.
As far as sales are concerned, the fourth quarter saw revenues rising, resulting in a 23 per cent increase in turnover. Audited operating results puts turnover at J$6.9 Billion, up on last year's J$5.6 Billion.
The Minister of Finance and Planning's April budget made a significant dent in domestic volumes when SCT was increased by a whopping 45 per cent forcing the company to put up its prices.
On April 28, Red Stripe announced that it had been forced to increase the prices of its products except the non-alcoholic Malta. The ex-factory price of all brands (except Malta) moved up by an extra $7 per bottle.
This announcement pertained to Red Stripe, Red Stripe Light, Guinness, Heineken, Smirnoff Ice and Dragon Stout.
Back then, the company explained the price increases were necessary as a result of the SCT and the continued devaluation of the Jamaican dollar. Red Stripe has raised its prices twice so far this year. Overall domestic volumes for the year were three per cent above last year, which was well behind the more positive trend from earlier in the year. The only brands which showed growth were Guinness and the newly introduced Smirnoff Ice.
EXPORT MARKET FOR PROFITS
To soften the impact of the budget on domestic volumes, the company turned to the export market and focused upon boosting its products overseas. This proved relatively successful with volume growth increasing by 12 per cent for the year.
Red Stripe made significant investments in its US market which has paid off with a 14 per cent increase in that market. Its U.S. distributor must take some of the credit for this increase in exports.
Red Stripe saw an increase of 4 per cent in markets outside the U.S.
Trading profit grew by 29 per cent as a result of the 23 per cent increase in net turnover. Red Stripe took the bold step to beef up the marketing of its brands taking on Zachary Harding to assist them in that area. Its marketing spend increased by 111 per cent (J$689 million) aided by an increase in brand investments.
The new bottling line which cost a little over $1 billion and other modernisation efforts assisted in mitigating against increased costs brought on by escalating inflation and slippage in the local currency against its U.S counterpart. This saw an increase in cost of sales limited to 11 per cent.
PROFITS
This year's exceptional item represents the write-off of bottles and loss on disposal of fixed assets which were made obsolete by the investment in the new bottling line. The net result was a profit before tax figure of $1.4 billion, a 33 per cent increase. Tax provisions of J$131 million include amounts payable on non-operating income as well as deferred tax adjustments. Last year the after tax results benefited from some positive deferred tax movements so this year's net profit was four per cent lower.
INVESTMENTS
Investment in fixed assets during the year amounted to $570 million as the company continued to transform the technology base of the plant by investing in new equipment including a new filter, ready-to-drink equipment, wort-cooler and boiler. These are in addition to the major investment in the new state-of-the-art bottling line and are in line with the company's commitment to inject $2.5 billion in plant and equipment over a five year period.
Inventories increased in value as a result of higher costs of imported materials. At the end of the year the company held cash reserves of J$1.2 billion. During the next year, this will be used to pay further dividends and creditors and to continue the investment in fixed assets.
DIVIDENDS
Shareholders will be asked at the annual general meeting to confirm the interim dividend of 20 cents per stock unit paid on June 6, 2003, as the final dividend for the year ended June 30,2003. At the board meeting held on September 24, 2003, the directors declared a first interim dividend (for the year ending June 30, 2004) of 25 cents per stock unit to be paid on December 10, 2003, to stockholders on record as at November 26, 2003.
Red Stripe's director of external affairs, Noel De Costa, speaking with Wednesday Business yesterday said: " The increase in profits is attributed to three things:
Volume increase spurred on by extensive advertising and promotional spends.
Price increase - our first in four years and Cost savings in distribution and administration."
