Profits up at Red Stripe

Camilo Thame Business Co-ordinator thamec@jamaicaobserver.com

Wednesday, February 15, 2012

Red Stripe's won't complete moving its production of beer destined for the US to North America before April, but the brewer continued to lift its profitability in the domestic market during the last three months of 2011.

Higher levels of efficiency leading to lower costs and greater diversification of its product mix, which included increasing its sales volume of beverages with lower alcohol content, translated into higher profits in its Jamaican segment.

The local beer manufacturer posted a 27 per cent increase in profit — from $613 million to $780 million — for is domestic segment during the three months to December 31, 2011, when compared to the same period the year before. The profit rise follows three consecutive quarters of year over year profit growth.

Sales actually declined in the last quarter of 2011, and was not as robust in the previous quarters when compared to the growth in profit on those occasions.

The local beer market took a hit in may 2009 when the government changed the special consumption tax on the beverage from a range of 16-21 per cent to a single rate of 25 per cent.

As a result, tax as a proportion of sales for Red Stripe, increased from 18.6 per cent (based on the average between July 2007 and June 2009) to 24 per cent by the end of the three months ending September 2009.

Volumes fell dramatically but Red Stripe managed to offset the huge fallout in domestic sales through price increases.

Importantly, by focusing on its product mix, the company managed to get higher sales with lower effective tax rates, and thus higher profit margins. During the quarter under review, SCT was 21.4 per cent of sales.

Red Stripe also said yesterday that its profitability was "impacted by our increased focus on brand value creation and end to end efficiencies as per our (2012 financial year) strategy".

"While the domestic market continues to be challenged, we have seen the benefit of our (2012 financial year) strategy," the company said in response to Business Observer queries. "Already in the financial year, we have launched a new Red Stripe campaign as well as the sponsorship of the Red Stripe Premier League."

On the export side of its business, the provisional figures indicates that Red Stripe reported a profit for the quarter — $36 million during the review period compared to $49 million in the comparative period in 2010 — but that's before the company starts seeing the benefit of a shifting its manufacturing of beer destined for the US there.

"We continue to pursue a profitable export strategy which will be strengthened by the improved margins from this move," said Red Stripe. "This is targeted to transition in the fourth quarter of (the 2012 financial year)", which ends June 30.