Lascelles, deMercado & Company Ltd (LAS) has built a long standing reputation as one of the leading production and distribution Companies based in Jamaica. More recently, however, the conglomerate has received attention after Angostura Holdings Ltd (Trinidad), a subsidiary of CL Financial Group, acquired the Firm in 2008. Since then, the Group has undergone a number of changes; not limited to Board changes and its stock becoming illiquid due to a significantly lower available float.

Stocks & Securities Ltd (SSL) took the opportunity to spend a day with LAS on November 12, 2010, in order to give the investing public an inside “look” at its operations and a “feel” of the Group’s strategy going forward.

We chose to begin with a tour of the Wray & Nephew plant located on Spanish Town Road – where some of the Group’s flagship products are produced such as White Overproof Rum. The SSL Team was hosted by Mr Steven Salmon, Technical and Quality Services Manager who commenced by taking us to view the Company’s central laboratory where product testing is done. Notably, every product is evaluated before it leaves the factory to ensure that the highest standard of quality is maintained.

Mr. Salmon further noted that at the plant, which comprises of three compounds on over 60 acres of land, efficiency is critical. At the Company’s North Compound, blending takes place and the product is then pumped through an underground pipeline. The next step is exporting the product whether in bulk or bottled form to the Company’s largest export markets; namely Canada, Mexico and the US.

In FY 2008/2009, the Group undertook several projects to improve its flagship Division — Rums, Wines & Liquors, which was particularly hard-hit during fiscal 2007/2008 and into 2008/2009 by bad weather which ruined sugar crops in the first quarter. These initiatives included land leveling at its Appleton estate, an electrical and turbine upgrade at its Appleton distillery and a blending process automation project at its Kingston plant.

It was also recognized that inventory management was vital to the smooth running of the operations. Mr Salmon highlighted that all bottles used in the Company’s production process were imported, given that glass bottles are not manufactured in Jamaica. Consequently, the Company is required to hold a significant amount of inventory at any point in time, to prevent supply constraints.

We then journeyed to LAS’ Corporate Offices in New Kingston, where we had the opportunity to speak with Mr. Anthony Bell, the Group’s Finance Director, who provided insight about the Group’s future outlook and financial performance over the past fiscal year. Mr. Bell began by giving us a brief “history” of a few of the major subsidiaries or Companies that operate under the Group umbrella; emphasizing the fact that the Group is diversified diverse and mentioning that oftentimes people associate the Lascelles name with Appleton only. While Appleton is the Group’s flagship product, LAS also provides general merchandising, general insurance and transportation services through its subsidiaries. Notably, Lascelles manufactures and distributes household names such as Cetamol, VAPE and Breeze as well.

Importantly, Mr Bell stressed that LAS enjoys strong brand recognition globally, with its reach extending as far as New Zealand. He noted the Appleton’s biggest overseas market is currently Canada, which had recently overtaken Mexico for the top spot given the continued stability in that economy.

With regards to the strategy going forward for the upcoming financial year, Mr. Bell said that LAS will continue to leverage its core competencies, with a focus on export markets. Notably, the Group will continue to target the US where it has yet to gain a strong foothold and seek to stabilize the market in Mexico. LAS employs regional managers across these regions who coordinate these markets.

Touching briefly on the subject of the shareholder structure of LAS, Mr Bell mentioned that a new Chairman had recently been appointed to the LAS Board. Since the Trinidad & Tobago Government announced on January 30, 2009 that it would bailout CL Financial Group due to its heavy indebtedness, there have been a number of changes to LAS’ Board of Directors with Chairman, Lawrence Duprey and Director, Geoffrey Leid, resigning on August 4, 2009. Shafeek Gregory Amrall Sultan_Khan replaced Duprey as Chairman on August 28, 2009. Alison Lewis and Steve Bideshi were also appointed as Directors of the Company on that date.

Despite Board changes the Group’s financial performance has been very credible despite the continued local recession. SSL noted that the results for the nine month period ended June 30, 2010 (9M 2009/2010) were impacted by a significant fall-off in Net Finance Income. Mr Bell noted that this was as a result of the revaluation of the Jamaican dollar against the USD during the period. In fact, a number of Companies on the Jamaica Stock Exchange (JSE) have experienced a similar decline given that a portion of their earnings have traditionally been dependent on interest income from investments.

However, its YE 2009/2010 audited results released on November 25, 2010, showed improvement, with Net Profit of $3.11 billion, a 21.69 per cent increase from the prior year. During the period Operating Revenue rose by 4.26 per cent to $25.97 billion and the Group’s bottom line benefited from the non-recurrence of Pension Asset Derecognized which totaled $1.39 billion in the comparative period a year ago.

While the stock has become one of the least liquid stocks on the JSE, since Angostura’s acquisition, the Group has maintained its appeal to investors that consider the company to be a strong acquisition candidate as its parent Company looks to reduce its debt burden and the clear Government of Trinidad’s position on Fiscal Discipline.

Kimberly Thelwell is Manager, Research and Analyst, Corporate Finance and Advisory Services at Stocks & Securities Ltd. You can contact her at kthelwell@sslinvest.com.