Fe­lix Pereira

In some ways 2011 might be con­sid­ered a wa­ter­shed year for An­gos­tu­ra Hold­ings Lim­it­ed (AHL). Af­ter show­ing loss­es for the pe­ri­ods 2005 to 2009, some progress was made in 2010, a year that saw the com­pa­ny re­port some spec­tac­u­lar one-off items. In or­der to bet­ter ap­pre­ci­ate AHL's re­sults for both 2010 and 2011, I have backed out sev­er­al items in an ef­fort to show the com­pa­ny's core prof­it pic­ture for the two pe­ri­ods. The re­sults are shown in the ac­com­pa­ny­ing ta­ble. Let us first deal with the 2010 re­sults. I shall ex­plain three of the ma­jor items in some de­tail. First, the $201.8 mil­lion in oth­er in­come has as its largest com­po­nent $161.1 mil­lion, which is due to the re­ver­sal a pre­vi­ous year's pro­vi­sion for Cli­co's debt to the com­pa­ny. The con­se­quence of this re­ver­sal meant that, on De­cem­ber 31, 2010, An­gos­tu­ra ac­quired 28.91 per cent in­ter­est in the Scot­tish com­pa­ny, Burns Stew­art Dis­tillers Lim­it­ed, which is a sub­sidiary of CL Glob­al Brands Lim­it­ed. Next, pri­mar­i­ly flow­ing from the above was $41.8 mil­lion in net fair val­ue gains. Af­ter al­low­ing for $2 mil­lion in neg­a­tive ad­just­ments, there was a fair val­ue gain of $43.8 mil­lion re­lat­ing to the same ac­qui­si­tion of Burns Stew­art. The third ma­jor item was a $57.4 mil­lion tax cred­it. This rep­re­sent­ed an ad­just­ment to its tax bill of pre­vi­ous­ly un­recog­nised tax loss­es. With­out this cred­it, the com­pa­ny's tax bill would have been $46.5 mil­lion in­stead of the $10.9 mil­lion cred­it shown in the ac­counts.

Al­so in­clud­ed in the amend­ments are fi­nance in­come, div­i­dend in­come and for­eign ex­change gains. The to­tal ad­just­ments made for 2010 equal $317,583. Thus, the core prof­it of the com­pa­ny is now re­duced to $51.176 mil­lion. Based on out­stand­ing shares of 205,820,000 this rep­re­sents an EPS fig­ure of $0.25. For the 2011 re­sults, the ma­jor item that I have backed out is the share of Burns Stew­art Dis­tillers Lim­it­ed net prof­it. In 2011, this as­so­ciate record­ed an af­ter-tax prof­it of $59.1 mil­lion; thus, An­gos­tu­ra's share­hold­ers now ben­e­fit­ted to the tune of $17.1 mil­lion, that is, 28.91 per cent of the to­tal. Again, for con­sis­ten­cy of treat­ment, oth­er in­come, for­eign ex­change in­come, for­eign ex­change and fair val­ue move­ments have al­so been re­moved. Al­so, note that the im­pair­ment charge of $12.8 mil­lion re­lates specif­i­cal­ly to div­i­dends re­ceived from Las­celles de Mer­ca­do. These div­i­dends were pledged against bor­row­ing of the ul­ti­mate par­ent com­pa­ny, CL Fi­nan­cial Lim­it­ed. Af­ter mak­ing to­tal ad­just­ments of $36.483 mil­lion for 2011, that year's ad­just­ed core prof­it fig­ure de­clined from $156.9 mil­lion to $120.4 mil­lion. This now shows re­duced earn­ings per share of $0.58, down from the orig­i­nal fig­ure of $0.75. The sim­ple pur­pose of this ex­er­cise is to at­tempt to crys­tallise the pure earn­ings of the com­pa­ny from its nor­mal op­er­a­tions of pro­duc­ing and sell­ing dis­tilled spir­its and re­lat­ed prod­ucts and to elim­i­nate as far as pos­si­ble pe­riph­er­al sources of prof­it.

In 2011, sales ad­vanced by 12.1 per cent to $696.3 mil­lion from 2010's $621 mil­lion. Much of this in­crease was in­flu­enced by high­er spend­ing on mar­ket­ing and sell­ing ac­tiv­i­ties; these ex­pen­di­tures rose by al­most 11 per cent to $106.3 mil­lion, from 2010's fig­ure of $95.9 mil­lion. De­spite this rev­enue im­prove­ment, the gross prof­it mar­gin de­clined from 58.3 per cent in 2010 to 56.6 per cent in 2011. Even so, helped by sig­nif­i­cant re­duc­tions in ad­min­is­tra­tive ex­pens­es and fi­nance costs, AHL's ad­just­ed earn­ings per share im­proved by a dra­mat­ic 132 per cent or from 25 cents in 2010 to 58 cents in 2011. By any mea­sure, this is a fine re­sult, which re­sult­ed in the pay­ment of its first div­i­dend since 2007 of 12 cents per share. Up­dat­ing to the cur­rent pe­ri­od, AHL re­port­ed re­duced sales for the first six months of 2012. Net sales fell by al­most six per cent, from $318.3 mil­lion in 2011 to $299.4 mil­lion this year. This out­turn may have re­sult­ed from its low­er ex­pen­di­ture on mar­ket­ing and sell­ing ex­pens­es. That line item fell by 11.6 per cent or from $58.8 mil­lion for the first six months of 2011 to $52 mil­lion for the com­par­a­tive pe­ri­od in 2012. De­spite this de­cline in rev­enue, AHL record­ed an im­proved gross prof­it pic­ture, both in ab­solute and in per­cent­age terms. This fig­ure moved from $171.6 mil­lion in 2011 to $178.2 mil­lion this year. This im­proved prof­itabil­i­ty was prob­a­bly caused by a re­duc­tion in raw ma­te­r­i­al in­puts, most like­ly mo­lasses.

Let us look now at the prof­it fig­ures for the first six months of 2011 and 2012 af­ter mak­ing the same types of ad­just­ments that we did pre­vi­ous­ly. When we look back at Las­celles de Mer­ca­do's fig­ures, we note that in May 2012, they paid a div­i­dend of J$9.00 per share. With An­gos­tu­ra own­ing 2,845,074 shares, that div­i­dend trans­lates in J$25,605,666 or ap­prox­i­mate­ly TT$1,869,026.70. Per­haps, as was re­port­ed in the 2011 ac­counts, this in­come is like­ly to be im­paired; con­se­quent­ly, it seems to have been elim­i­nat­ed from the hal­fyear re­port. For Jan­u­ary to June 2011, AHL had a for­eign ex­change loss of $25.89 mil­lion, re­sult­ing pri­mar­i­ly from the ad­verse move­ment of the US dol­lar against the Eu­ro. This fig­ure is now added back so that we can treat on­ly with core earn­ings. In 2012, this loss is re­versed and we now have a prof­it fig­ure of $16.78 mil­lion. For the most part, this is com­prised of a re­alised gain of $9.1 mil­lion due to favourable set­tle­ment of a debt of &eu­ro;13.6 mil­lion com­bined with an un­re­alised gain of $6.3 mil­lion on a re­main­ing debt of &eu­ro;26.1 mil­lion. This prof­it fig­ure is al­so re­moved so that our com­par­i­son would be con­sis­tent. For both half-year pe­ri­ods we al­so elim­i­nat­ed the share of prof­its from the as­so­ciate com­pa­ny Burns Stew­art Dis­tillers Lim­it­ed.

In 2011, this amount­ed to $10.743 mil­lion while, in 2012, this fig­ure was $15.236 mil­lion. The to­tal ad­just­ment for 2011 amount­ed to a pos­i­tive fig­ure of $14.38 mil­lion; con­se­quent­ly, the core prof­it in­creased to $41.629 mil­lion, from the pre­vi­ous­ly stat­ed $27.249 mil­lion. As a re­sult, ad­just­ed earn­ings per share im­proved to $0.20 from $0.13. For the cur­rent pe­ri­od, we made to­tal neg­a­tive ad­just­ment of $33.67 mil­lion; this brought the prof­it fig­ure down to $57.279 mil­lion from the pre­vi­ous­ly record­ed amount of $90.951 mil­lion. In this case, the EPS con­tract­ed to $0.28 from the $0.44 orig­i­nal­ly stat­ed. Now that we have made these ad­just­ments, we see that the core earn­ings per share im­proved by 40 per cent from $0.20 in 2011 to $0.28 this year. Re­fer­ring back to the first ta­ble, we can al­so de­rive that, in the sec­ond six months of 2011, AHL earned $0.38 ($0.58-$0.20) from its core busi­ness; this was al­most twice the fig­ure earned in the first half of the year. Flow­ing from these ob­ser­va­tions, we can ask three ques­tions. Are sales like­ly to re­cov­er sig­nif­i­cant­ly in the sec­ond half? Will raw ma­te­r­i­al prices con­tin­ue to be favourable? To what ex­tent will the com­pa­ny pump up its mar­ket­ing and sell­ing ef­forts?

Giv­en that its fi­nance costs de­clined by more than $11 mil­lion from $29.3 mil­lion in 2011 to $18.3 mil­lion in the first half of 2012, what is the ex­pec­ta­tion for the sec­ond half of this year? Com­bin­ing all these vari­ables, it seems very like­ly that An­gos­tu­ra would pro­duce ro­bust core re­sults for the re­main­der of the cur­rent year. Of course, the fig­ures are like­ly to be en­hanced by most of the ad­just­ments made in our ear­li­er ex­er­cis­es. One item that con­tin­ues to con­cern and nag many AHL share­hold­ers is the sta­tus of the amount due to An­gos­tu­ra by its par­ent, CL Fi­nan­cial. In note 36 (IV) of the 2011 au­dit­ed ac­counts, this fig­ure is record­ed at $984.6 mil­lion, which was high­er than the $971.8 mil­lion shown for 2010. This in­crease was due to the im­paired Las­celles div­i­dend of $12.8 mil­lion. One might won­der as to the full ex­tent of this re­ceiv­able if, as seems to be hap­pen­ing, any Las­celles div­i­dend re­ceived by An­gos­tu­ra is added to the to­tal sum? This may call for some fur­ther clar­i­fi­ca­tion.