Red Stripe earnings flat line

Red Stripe saw annual earnings fall
by 49 per cent over the financial year ending 30 June, following what the
company says are tax inequities, increased competition and lower consumer
disposable income.

Indeed, the firm saw its bottom
line tumble by 84 per cent in the fourth quarter, a miserable end to a
disappointing financial year for the beer manufacturer.

In a statement to shareholders, Red
Stripe managing director Alan Barnes noted that 2010 was “a challenging
one for the Red Stripe business”, noting that the difficult environment,
which includes the tax inequities, has contributed to the “decrease in
volumes”. Red Stripe is involved in the brewing, bottling and distribution
of beers and stouts, including the popular Red Stripe and Dragon brands and
spirits such as Smirnoff and Baileys and is a subsidiary of the United Kingdom
based Diageo PLC.

“Our brands continue to be
highly visible through advertising and marketing spend, however we are yet to
see the upturn in domestic beer volumes,” he said.

Total marketing costs for Red
Stripe increased to $1.49 billion year on year, $876 million of which was spent
in the domestic market.

“The increase over the same
period last year reflected our strategy to maintain investment behind our core
brands and innovation,” said Barnes. He also pointed to an $80 million
increase in export marketing costs for the year as a result of the launch of
Red Stripe Light in the North American market. Advertising of the brew was done
during the US Superbowl global football showcase this year.

However, despite attempts to
increase volumes in overseas markets, Red Stripe is still reeling from the
effects of what Barnes calls “the discriminatory SCT (Special Consumption
Tax) regime” that sees the company pay a tax on the alcoholic beverages
its produces.

SCT is a tax on prescribed goods,
including petroleum products, tobacco products and alcoholic beverages with the
tax rates varying according to whether the item is manufactured in Jamaica or
imported. The SCT rates were adjusted by the Government of Jamaica (GOJ) last
year in an attempt to raise more revenue for its coffers.

Under the SCT, the tax on stout
beer (Guinness) rose from 16 per cent to 25 per cent or approximately $8.97 per
bottle. The tax on Red Stripe, Smirnoff Ice and other beers increased from 21
to 25 per cent, or approximately J$3.59 per bottle. The tax on the majority of
spirits increased from 24 per cent to 25 per cent.