Red Stripe's brewery on Spanish Town Road. The beverage company says it plans to put strong marketing support behind the brand. - File

Beverage company Desnoes and Geddes Limited, trading as Red Stripe, has reported net profit of $1.4 billion, but it's the worst the company has performed in four years.

Red Stripe's profits peaked at $2.35 billion in 2005, helped by a tax break granted by government for the company to retool.

Last year, profits slid six per cent to $2.2 billion, but the current fall was particularly dramatic, plunging by $800 million or 36 per cent for the beverage company's financial year ending June 30.

The biggest drag on profits was a sixfold increase in its corporate tax bill from $112.5 million in 2006 to $691 million, the highest for the decade.

Before now, its highest tax liability in any one year was $369 million in 2001.

"Taxation charges," said managing director Mark McKenzie in response to Wednesday Business queries, "were higher following the expiry of the five-year investment incentive which the company had."

Operating profit was also down from $1.99 billion in 2006 to $1.9 billion in the review period, resulting in reduced margins from 20 per cent to 16 per cent.

The company, named for its flagship beer, earned revenues of $11.3 billion, up $1.2 billion year on year. But its cost of sales rose from $800m to $5.7 billion; marketing costs were up by almost $300 million to $1.3 billion, while selling and administration rose $51 million to $802 million.

Strong performance

"Despite a strong top line performance, the decline in trading profit was the result of increased operational costs such as production, shipping, fuel, electricity port charges, labour and raw materials and up-weighted marketing investment," said McKenzie.

"Red Stripe is a key brand for Diageo globally and we have plans in place to continue to invest behind this iconic brand across the globe in particular North America, Europe and Australia."

During the year, the company invested new capital of $752 million in its operations, half a billion of which was used to boost its domestic segment, where the company earns its largest block of revenue.

"We made significant investment in the upgrading the production and distribution facilities, commenced the installation of a new effluent treatment plant, and upgraded our accounting system," said the beverage company boss.

Domestic sales of $8.7 billion accounted for almost 77 per cent of total revenues, and was the only segment contributor to profit. Exports, which earned $2.6 billion, posted segment loss of $39 billion.

The drag on export performance, said the company, stemmed from a 40 per cent increase in marketing expenses to $669 million, as well as lower volume sales.

Lower export volume

"Total export volume was 3.0 per cent lower than the previous year due to the inclusion of large one-off shipments of Guinness to Trinidad in the previous year," said McKenzie.

"If these were excluded, export shipment would have registered growth of 7.0 per cent."

The company said its shipments to markets in the United States, Canada, Australia and Europe did register growth, but that overall it was disappointed with the performance of the geographic segment.

"The result was below expecta-tions and we are closely examining all options to turn the performance around," McKenzie said.

"Our production facilities have been upgraded to bring us greater efficiencies, reliability and quality improvements and we expect to reap success from our substantial investments in marketing Red Stripe globally, particularly in the United States."

During the year, the company also revalued its fixed assets, resulting in a stronger balance sheet. Net assets were up $2.1 billion to $7.6 billion.

A $1.7-billion increase in total equity included unrealised gains from the revaluation which were credited to the capital reserves, according to the notes to the accounts.

lavern.clarke@gleanerjm.com