Wed | Jan 16, 2019

Profits plunge at Red Stripe

Published:Friday | September 3, 2010 | 12:00 AM
The Red Stripe Jamaica brewery at Spanish Town Road, Kingston. - File

Drink manufacturer and distributor Red Stripe Jamaica has seen profits plummet 84 per cent in the fourth quarter to June this year on the back of a marginal drop in sales, the latest in a performance slide which the company has been bracing for some two years now.

The June quarter after-tax profit of J$74 million, down from J$450 million in the comparative 2009 period, had a knock-on effect of a 49 per cent contraction in after-tax profit for the year, to J$789 million, down from J$1.55 billion last year.

Sales revenue was down five per cent in the fourth quarter, and one per cent for the year.

"The year was a challenging one for the Red Stripe business," said the Diageo subsidiary, which trades as Desnoes and Geddes on the Jamaica Stock Exchange.

Two weeks ago, parent Diageo Plc also reported near-flat results, but tweaked a 1.5 per cent profit gain on the back of global sales.

Gov't to blame

Red Stripe has continued to blame the Government's taxation of alcoholic beverages, and especially beers, one of its major product lines, among the factors for its crash in profits.

"Operating in a difficult economic environment, the continuation of tax inequities, increased competition and lower consumer disposable income have all contributed to a further decrease in volumes," the company said in the overview to the financials.

In a recent interview with the Financial Gleaner, Red Stripe's Managing Director Alan Barnes said the tax burden on beers had given fillip to competing drink products, including tonic wines, which he noted continued to cut in to domestic beer sales.

As a result of local market conditions, the company has been ramping up beer exports and slashing operating costs.

While Red Stripe said beer exports continued to grow, recording a four per cent improvement in net sales value of exports for the year, turnover nudged down one per cent on last year's J$13.44 billion, to J$13.33 billion; and five per cent on 2009's June quarter, from J$3.58 billion to J$3.4 billion this review period.

Brand visibility

"Our brands continue to be highly visible through advertising and marketing spend. However, we are yet to see the upturn in domestic beer volumes," Red Stripe reported, admitting that traditional marketing tools have so far failed to break the back of the business fall-off.

"The impact of the ongoing weakness in the economy, along with the discriminatory SCT regime, continues to have an adverse effect on our domestic volume performance," said Red Stripe, pointing to the intractable and systemic nature of the decline.

With Red Stripe's strategic decision to pull sponsorship from several major music events to protest the lyrics of some artistes having been blamed in some circles for the company's weak response to the adverse market conditions, the firm has noted its return to the music arena, which some of Red Stripe's competitors have been using to good effect.

"We have been successful this year in re-entering the music arena (and) the innovation programme delivered Red Stripe Bold, Dragon Stout Spitfire and several variants of Smirnoff flavours into the Jamaican marketplace," Red Stripe said of its strategic market moves over the year.

With beer sales in the doldrums, the company reported that spirits sales have shown an increase to stem what could have been a greater business decline.

"Spirits sales have recorded an impressive increase, with Smirnoff and Baileys being the main contributors," the Red Stripe performance highlight added.

Trading profit for the June quarter took an 82 per cent plunge to J$88 million, from J$479 million, and saw a 47 per cent decline for the year to J$1.18 billion, from J$2.2 billion, in 2009.

Profit before tax fell sharply by 76 per cent in the quarter, from J$535 million to J$126 million; and contracted by a considerable 47 per cent from J$2.2 billion to J$1.2 billion for the year.