Friday, December 5, 2008

Lascelles rakes in $3 billion profit

Published: Friday December 5, 2008

Lascelles deMercado and Company, which deals predominantly in wines and spirits, made $3 billion of net profit in the year just ended, September 30, on strong performance in most business segments.

But the William McConnell-led conglomerate, for which $3 billion is a new profit record and a 13 per cent improvement on last year's $2.7 billion, said it could have done better were it not for disappointing returns from its sugar estate.

"The performance of the company overall was below expectations," said Finance Director Anthony Bell.

"The wines and spirits segment was below expectations due to losses incurred in our cane and sugar operations. Although the spirits division experienced growth, it was not sufficient to offset the losses in sugar."

Bad weather

The losses attributed to cane and sugar amounted to approximately $500 million against the com-pany's original break-even target.

"Bad weather conditions, which commenced with Hurricane Dean in August 2007, led to a reduction in cane quality and quantity beyond that which we had estimated," said Bell, adding that increased usage of fuel at higher costs also significantly affected operations.

Bell also explained that the division was dealt another blow with the passage of Tropical Storm Gustav in August 2008, and had to take a write-down of approxi-mately $220 million on future crop quantities in the company's year-end financial results.

New year investments

Notwithstanding, the broader 'liquors, rums, wines and sugar' segment, which represents the largest business unit, accounted for 59 per cent of the group's revenue, contributing approximately $13.6 billion.

In the year ahead, Lascelles will be investing $1.6 billion in capital projects, but Bell said global conditions did not allow for accurate forecasts of how the business would likely perform.

The company is planning a new distribution warehouse for its merchandise division, and new bottling equipment and additional ageing warehouses for rum for its primary operation, Wray and Nephew, said the finance director.

Within the year just ended, total revenue came within a nose of $23 billion, up from $19.5 billion in the year ending September 2007.

The "increase in the spirits segment was mainly due to growth in the international markets and price increases in the local market," said Bell.

"A very small amount of Angostura products would have been included in this segment," he added.

Some 92.01 per cent of voting rights in Lascelles is now owned by CL Spirits Limited, a holding company created by Angostura and its parent CL Financial group of Trinidad to effect the takeover that was initiated last December and finalised seven months later on July 28.

Synergising operations

Since then, Angostura and Lascelles have been devising plans to synergise their operations. Lascelles, for example, is now Angostura's chief distributor of spirits in this market. CL Financial's owner, Lawrence Duprey, has taken over as chairman of Lascelles, replacing George Ashenheim.

Lascelles' general merchandise and investment segments both reflected huge jump in earnings. Investments for the reporting period more than doubled, moving from $485 million to in excess of $1 billion, though some was credited to book adjustments.

New principals

The general merchandise segment which markets products for several local and international companies, with its latest addition being 3M, reflected an increase of 55.2 per cent.

"The increase in general merchandise is all due to growth in business and the addition of new principals," said Bell.

"The investment segment performed beyond our expectations primarily due to a significant increase in dividends from Carreras and also a significant increase in our IFRS adjustments," he added.

Insurance and transportation services moved by 12.5 and 15.4 per cent, respectively, and performed to expectations, said Bell.

During the financial year, the company also disposed of the Lascelles Telecoms division on July 31, for $93.6 million, resulting in realised gains of $100.8 million, exiting the telecommunications market it had entered in July 2003.

The buyer was not disclosed.

Planned merge

Duprey, on a visit to Jamaica last November, told Lascelles share-holders that he envisions the marriage of its spirits business with that of Angostura's to build a company large enough to comfortably take on big international markets.

Within the expenditure laid out by Lascelles in 2008 was a new half a billion larger bill for administrative and selling expenses.

Those charges, now at $6.2 billion, would continue to climb in 2009.

"Administrative, marketing and selling expenses increased by a moderate seven per cent, but is expected to increase by more in 2009 due to significant planned investments in the international market," Bell explained.

"The planned investments would be a combination of increased marketing spend, in particular in the US market, and capital investments totalling approxi-mately $1.6 billion."

Sabrina Gordon
Jamaica Gleaner

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