Lascelles goes for the big chill

Conglomerate to enter frozen foods business

BY CAMILO THAME Business Co-ordinator thamec@jamaicaobserver.com

Wednesday, February 22, 2012

DESPITE a fall-off in profits in all but one — general insurance — of its business segments during its first quarter and a tough economic climate, Lascelles deMercado is pressing ahead with expansion of its merchan-dising business, which will result in a more-than-tripling of warehousing space and its entry into the frozen food business.

The conglomerate is optimistic about trading prospects for the remainder of its financial year, which began in October, having anticipated substantially higher sugar prices, normalised car sales following 2011's tsunami in Japan and increased demand for rum here and overseas.

The lease of an additional 175,000 square feet of warehousing space at a state-of-the-art facility in St Ann will position the group's general merchandise division to "increase efficiency and open new channels of business", according to the company's financial statements for the three months to December 31, 2011.

Lascelles' group financial officer Janene Shaw told the Business Observer that the additional warehouse space is expected to become operational within the second quarter of the 2012 financial year, which ends September 30.

"This facility will be used for both dry goods as well as frozen foods, particularly frozen meat," said Shaw, while explaining that the frozen food segment will be a new business channel. "The total warehousing capacity of the general merchandise will be approximately 250,000 sq ft."

Lascelles' general merchan-dise division's profit fell from $78 million in the three months to December 31, 2010 to $28.2 million in the comparative quarter in 2011, or by 63.8 per cent, reflecting a 13.4 per cent decline in revenue. Revenue for the company's largest segment — liquors, rums, wines and sugar — also fell by 10 per cent over the review periods, resulting in the division's pre-tax profit falling from $623.3 million to $526 million, or by 15.6 per cent.

"For the liquors, rums, wines & sugar and the general merchandise segments there was a decline in consumer demand and consequently sales volumes," said Shaw.

The company said "sugar revenues, which are substantially earned in the second quarter, are expected to increase significantly due to a substantial increase in price over the prior year," in its latest financial statements. "Indications are that rum volumes will improve both domestically and in the international market."

The group's transportation services division took a $27-million loss during the review quarter (down from a $15.6 million profit in the comparative period in 2010), due to a fall-off in aircraft handling activities, as a result of lower flights into the island, and the continued impact of a shortage in the supply of motor vehicles, which has had the effect of restricting sales volumes.

The earthquake and tsunami, which devastated sections of Japan last March, resulted in the suspension of production of Subaru cars up to October 2011 and slowed production at Ford due to lack of supply of components made in Japan.

"Normalised sales volumes of Subaru and Ford mother vehicles are expected to resume in early 2012 following the supply shortage that occurred subsequent to the earthquake and tsunami in Japan in March 2011," said the company's financial statements.

The group's general insurance division, posted a 97.4 per cent increase in profit, from $188 million to $371.2 million, due to higher premium income and commission earned as well as a reduction in motor claims cost, while Lascelles' investment division posted a $14.3 million loss during the review quarter (down from a profit of $98.7 million during the same quarter the year before), due to reductions in dividend and interest income.

Overall, Lascelles reported a 12 per cent decline in profit for its first quarter of operations when compared to the same period the year before.

The conglomerate's net profit fell from $821.4 million for the three months to December 31, 2010 to $723 million for the comparative period in 2011.

The group's revenue was down by 9.6 per cent, from $7.15 billion to $6.46 billion, while operating expenses were 3.2 per cent lower, year over year, falling from $2.04 billion to $1.97 billion.

"Generally, the group's results for the quarter ended December 31, 2011 were negatively impacted by the challenging economic environment," said Shaw, adding that "the general election in December 2011 also had the effect of depressing sales.

"Even though expenses were reduced compared to the prior year, these were insufficient to offset the decline in revenues."

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GCT to go down, white rum prices going up

Lascelles goes for the big chill