E-Malt.com News article: Jamaica: Diageo’s Red Stripe brewery reports a 35.2% decline in after-tax profit for FY ended June, 30

For its financial year ended June, 30, Jamaica’s Red Stripe brewery reported a 35.2 per cent decline in the after-tax profit on the back of a soft economy that slowed demand and rising cost of inputs, including energy and raw materials, the Jamaica Gleaner communicated on September, 12.

Both domestic sales volume and exports fell, the company said.

"While it may be true that our brands are price-sensitive, there were other macroeconomic factors, such as inflation, that would have negatively impacted volumes to an even greater extent," said the company's corporate spokesperson, Maxine Whittingham.

But the company, a subsidiary of the British drinks and food giant Diageo Group, says it is already taking steps to slash costs and drive demand for its products in a bid to deliver better returns to shareholders during the current year.

"... Red Stripe is actively reviewing all costs implications that go into producing our brands, and to find ways to drive efficiencies and increase overall costs without compromising the integrity of our brands," Whittingham said in an emailed response to Financial Gleaner questions.

"The business will also be accelerating innovation projects, among other initiatives, but our pricing strategy to competitor brands remains unchanged."

Recently released data on the 2007/2008 financial year show that Red Stripe returned after-tax profit of JMD1.042 billion, or JMD37.11 per share, against JMD1.409 billion, or JMD50.14 a share, in the 2006/2007 financial year.

The brewer’s pre-tax profit fell from JMD2.093 to JMD1.67 billion.

The decline in profit was not stopped by a 10 per cent hike in turnover to JMD12.489 billion, driven by price increases, particularly a 33 per cent jump in the price for the flagship Red Stripe lager beer in April.

Even with that jump in price, Red Stripe, which accounts for nearly 90 per cent of Jamaica's beer market - an estimated 7.5 million cases annually - still managed a two per cent increase in volume sales.

In their report to shareholders, Red Stripe's chairman Richard Byles and managing director Mark McKenzie noted that the company's cost of sales, at JMD6.6 billion, was up JMD857 million, or 15 per cent on the previous year.

Red Stripe had to pay more for "energy, raw materials, distribution/shipping and personnel costs", they said.

The company's administrative expenses jumped 29 per cent, or JMD236 million - to JMD1.038 billion - reflecting, according to the Red Stripe bosses, "inflationary wage adjustments, new hires and up-weighted personnel training and development".

But even as Red Stripe battled with these higher costs, the company pumped 13 per cent more cash, for a year's total JMD1.493 billion, into marketing.

A little under half of that amount, JMD704 million, or JMD56 million more than the previous year, was spent in the domestic market to build brand and drive sales. The Jamaican dollar spend overseas increased by 18 per cent, to JMD789 million.

Byles and McKenzie said in their report: "Total sales declined by two per cent. Domestic volume was two per cent lower, as consumers experienced a gradual decline in purchasing power throughout the year.

"Exports to North America were flat year-on-year. Strong performance in Europe was off-set by discontinued shipments to Australia and a marginal decline in Canada and the Caribbean region."

The only modest success, therefore, would have been in the domestic market where, according to Whittingham, "the Red Stripe brand grew by two per cent which, under the circumstances, was a strong performance."

Whittingham said Red Stripe could not disclose the specifics, but claimed that "our spirits business has grown significantly" since it took over the distribution sale and marketing of Diageo range of drinks last year from the Lascelles deMercado Group.

Red Stripe, she said, remained confident about the future.

"While it is not our policy to publish projections, we have already initiated a number of initiatives to turn the performance around," Whittingham said. "Our brands are in excellent health and we are confident that with the right strategic moves we can return to growth."


16 September, 2008