The Demerara Distillers Limited (DDL) group has seen after tax profit fall from $792M in 2001 to $751M at the end of 2002, in part a result of losses by its subsidiary BEV processor

(-$48M) and a 50% reduction in profits by the Demerara Shipping Company Limited at $43M.

This represents a 5% decline for the group but compares with an increase in after-tax profit by DDL, the company, of 7.6%. DDL, the company, will be embarking on a massive modernisation project for its distillery, its bottling plant and adding capacity to its non-alcoholic beverage line.

According to the financial statements for DDL for 2002, last year was the most difficult year for the group which saw a 12.5% increase in turnover from $8B in 2001 to $9.1 billion in 2002. Profit before tax was $1B, $100M less than the year before.

The group’s interest expense increased from $203M at the end of 2001 to reach $240M at the end of 2002. The reduced profits of the shipping line from $86M to $43M last year and BEV Processors’ fish business moving from a profit of $206M to a loss of $48M, led to a decline in profitability. DDL’s share of the loss of BEV Processors was $19M. BEV Processors is a joint venture with a Barbadian conglomerate, Goddard’s.

DDL, the company

DDL’s after-tax profit in 2002 increased from $625M in 2001 to $673M. Turnover moved from $6.19B to $7.35B, an increase of 19%. This was mainly due to increases in the sale of Pepsi, Slice, 7-up and the Soca range of products as well as Diamond Mineral water.

Yesu Persaud, Chairman of DDL, in his report to shareholders for the upcoming 151st annual meeting on July 25th, said that the steep rise in the cost of fuel to produce steam, the escalation in the price of electricity and increases in the cost of raw material affected DDL’s pre-tax margin. The pre-tax profits in 2001 were $873M and this moved to $863M in 2002, a difference of $10M.

Volume sales for DDL’s non-alcoholic beverages grew by 27% in 2002. This increase in market share will see DDL investing in additional equipment this year. Unit costs of production of these beverages increased as a result of the additional cost of packaging because of a shift in consumers’ preference from returnable to non-returnable packages. Persaud said the rise in oil prices impacted on the cost of resin used to manufacture PET (plastic) bottles.

The alcohol line’s volume sales grew marginally in 2002. Branded exports increased by 10% over 2002 and Persaud said DDL continues to invest significant sums in brand development. He said El Dorado, DDL’s flagship brand, is becoming well-known in Europe and other foreign markets.

The company will be moving this year to replace its old bottling plant to replace the existing line which is 20 years old.

In terms of sale of bulk spirits, Persaud said that exports in 2002 decreased by one per cent compared with 2001. The cost of molasses, he said, remained high. DDL bought over $1B in molasses from Guysuco and coupled with the rising cost of fuel and the increases in electricity tariffs this impacted heavily on the distillery division.

Persaud said DDL’s competitors in Trinidad obtain fuel and energy at less than 50% of the price DDL is paying and in the case of Barbados the distilleries do not pay consumption tax on fuel. But despite these adversities, he feels that the company has done well to be able to hold on to its bulk market share as a result of aggressive pricing. DDL intends to modernise the distillery, also some 20 years old, using partial funding from an EU funding package for the region’s distillers.

Demerara Shipping

Because of fierce competition and undercutting of rates, this subsidiary saw a 17% decline in turnover with a corresponding drop in profits from $86M to $43M for Demerara Shipping Company Limited (DSCL). Persaud said several lines were forced to discontinue their service to Guyana and a three-tier system to establish minimum rates for cargo by the shipping association, fell through after one month in existence.

Tropical Shipping acquired Kent Lines and Tecmarine; Maersk was forced to stop its service here because of the competition and Trade Wind Lines also terminated its services. DSCL acquired the Bernuth Lines Agency in August last year.

Persaud said the long term success of the shipping business would depend on its ability to deliver the best service in the industry with fast turnaround time for ships, quick and easy clearance of cargo by consignees and the ability to deliver cargo when and where consignees require.

Distribution Services Limited

Distribution Service Limited’s (DSL) profit before tax declined by $17.7M, or by 40%, to reach $25.5M in 2002. Turnover was $905M in 2002 as against $903M in 2001.The cash and carry division, Persaud said, continues to do well and an outlet was opened in Berbice last December.

TOPCO

Pre-tax profits for this division also declined from $10M in 2001 to $7M last year. Turnover was $92.6M compared with $91.3M in 2001. The reduction in profits, Persaud said, resulted from increased prices for fruits and electricity. However he rated the performance “exceedingly well”, having created a niche for itself in the fresh juice market.

Persaud said Topco has revitalised the farming of fresh fruits by creating a dependable market for farmers, and the company is investing over $500M in a new Tetra Pak Plant that can process more than five million pounds of fruit annually. The plant will add value to farm produce and offer hundreds of farmers a guaranteed market for their produce.

Solutions 2000

Profit before taxes hit $4.6M compared with $9.9M in 2001. Turnover was $94.8M in 2002 compared with $94.6M in 2001.

Persaud said the reduced profits were due to increased payments to the phone company for additional bandwidth and lines purchased to improve customer service.

“The cost of bandwidth in Guyana is outrageously high,” he said, noting that to increase service to customers, the subsidiary increased bandwidth by 100% and access lines were increased by 50%. Persaud said the company is looking to expand the range of services it provides currently and noted that the potential of the sector depends on its de-monopolisation.

Other subsidiaries include a construction company, which made a loss of $7.7M last year compared with a loss of $13.5M the previous year. This company is expected to return to profitability this year.

In the case of BEV processors, Persaud noted the loss was as a result of all products experiencing a price cut of 25% in the US market because of huge stocks of shrimps from the Far East and Latin American countries on the market. Also there was a seven-week moratorium to rest the fishing grounds and the cost of this had to be carried. BEV is expected to make a profit this year, Persaud said. The foreign subsidiaries, Persaud said, did better than expected, contributing $112M to pre-tax profits compared with $70.6M in 2001, an increase of 47%.

Meanwhile, DDL, the company is working to promote its brand on a very selective basis. It has already created a brand image in Europe with El Dorado now available in all countries of the EU as a superior quality product.

The product is available in a few major supermarket chains in Europe, Persaud said. El Dorado, 15 Year Old is now available in all EU Continental countries, at most upscale restaurants and stores and even smaller outlets in Europe.

DDL has spent in excess of US$1M in North America on registration, marketing and setting up distribution channels. Persaud said El Dorado is gradually getting space in five states in the US.

“It is going to be hard but we are confident that within the next two years, El Dorado will become a brand to contend with in the US,” Persaud asserted.

The company has distribution linkages in Latin America and El Dorado is available in all Caribbean countries and at duty free outlets. A small volume of the 15-year-old rum has been sent to Japan while India is the new market being targeted.