Shane Ingram, Contributor
Left: INGRAM - Right: Managing Director of Red Stripe Jamaica, Mark McKenzie. - RICARDO MAKYN/STAFF PHOTOGRAPHER
THE RECENT Business and Consumer Confidence Survey on Jamaica reported that consumer confidence fell to its lowest level for 2005 in the fourth quarter. And although business confidence rebounded strongly for the same period, businesses remained concerned about insufficient domestic demand, taxes, high construction costs and the impact of crime and violence on the economy. As such, businesses intend to reduce investment plans for periods ahead despite stabilisation in finances and improved profit margins experienced in the 4th quarter. These uncertain conditions are now being borne out in the equities market where investors' appear unwilling to commit to stocks.
COMPANY SPOTLIGHT: SPIRITED EXPORT PERFORMANCE DRIVES EARNINGS AT D&G?
Desnoes and Geddes Limited reported net profits of $292.6 million for the first quarter ended September 2005, up from $252.4 million recorded at the same interval in 2004. This 16 per cent increase in profits was fully reflected in the earnings per share that moved from 8.99 cents to 10.42 cents.
With a virtual monopoly grip over the local beer market, D&G enjoyed $2.08 billion in net sales during its opening quarter ended September 2005, a sizeable 21.23 per cent upturn from the corresponding quarter of the prior year. The robust sales outturn was impacted by an 11 per cent rise in volumes as well as price increases on the major brands. D&G also benefited from increased efficiency as gross profits climbed 22.04 per cent on the back of favourable movement in gross margins from 34.7 per cent to 35.64 per cent in the period.
Marketing expenditure, the single largest indirect cost, grew 33 per cent to $383.6 million in the quarter. D&G spent close to $144 million in export marketing in the period, which contributed to the healthy 11 per cent growth in export volumes and consequently the 48 per cent spike in export revenues in the quarter. Although domestic marketing activities accounted for $240 million or approximately 63 per cent of each marketing dollar, domestic volumes fell four per cent in the quarter amidst passage of Hurricanes Dennis and Emily in that period. General, selling and administrative costs also climbed 53.1 per cent in the quarter. Despite these cost pressures, trading profit rose 22.1 per cent as the last year's outturn was reduced by $45 million in one-off expenses. Conversely, pre-tax profits were only 13.8 per cent ahead of the first quarter of 2004 that benefited from $25 million booked as Employee Benefits Income. Net profit for 2005 was boosted by $10.77 million in gains realised from the disposal of land as well as with a lower effective tax rate.
Since marketing plays a major role in revenue outturn, D&G has increased these activities in both local and export markets in order to realise improved sales revenues for upcoming quarters. D&G is expected to sustain its export drive in line with its mandate to penetrate new overseas markets such as Australia, Switzerland and Sweden. D&G successfully engineered a revival in Canada and no projects to expand it reach into 10 other European countries by the end of 2006. Simultaneously, D&G's continued focus on improving efficiencies have led to the introduction of the new draught facility and a new keg filling and washing plant that promises to yield lower production costs. This is expected to complement the MAG-5 bottling line that has improved the Company's production capacity to 18 bottles per second or 66000 bottles per hour. D&G's positive earning prospects together with its generous dividend policy (paying as much as 90 per cent of earnings in dividends) makes this stock a suitable long-term addition to one's investment portfolio.
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We hold favourable outlook for NCBJ, CWJA, PJAM, DB&G, and BNS; Seprod, D&G, CRTS, KW, and Goodyear could also perform well over the short-term. Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgment as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
