Moves afoot at Angostura

At first glance, Angostura Holdings Limited (AHL) improved performance in 2003.  The company enjoyed profits before tax and associates share of profit of TT$73.8M, which is 9 percent or TT$14M above the TT$67.7M in 2002. There was a slight improvement in sales “against a very challenging and extremely competitive domestic and international market environment for both the branded and bulk business.” Gross sales for the company increased by TT$13.3m or 1 percent to close at TT$1.4B (2002 TT$1.3M.).  Gross profit for 2003 (TT$418.9M), was 31 percent of Gross Sales, a 2 percent improvement on the 2002 performance.  (Gross Profit in 2002 was 29.6 percent of sales — TT$396.9M )

Operating expenses were 22.4 percent of total sales or TT$302.1M in 2003, slightly up from 2002 expenses of TT$272.5M —  20 percent of sales. 2003 finance costs TT$107.2M doubled amounts paid in 2002 — TT$52.9M. The company’s bottom line before taxation got a TT$39M boost from investment income and another TT$24.7M from sale of investments. Removal of the TT$20.1M gain related to sale of Burn Stewart sale results in a reduction in the profit before taxation to TT$53.7M  or TT$14M below the 2002 profit of TT$67.7M, which gives us a very different feeling about the company’s 2003 results.

The market kept faithful to the reduced before taxation profits as the share price fell to its lowest levels yet of TT$4.25 at December 2003.  (In 2002 stock values recovered from the then lowest market price of TT$4.5 in 2001 to end at TT$6.00 in December 2002.) This share price also reflects the market’s response to the formation of the CL World and the announcement that Angostura is now a subsidiary of that company, all in keeping with ongoing speculation about AHL’s future and the stakeholders’ concerns about the levels of debt incurred for investment in CL World Brands. The company believes that shareholders have to be patient and know that theirs is a long-term commitment as the groundwork to achieve the stated vision of global presence is still being laid.  Brand building initiatives have to bear fruit before AHL returns to the positions of yesteryear when they enjoyed a high market price and earnings per share to match. Recorded profits allow an earnings per share of TT 31 cents, a 10 percent increase over 2002 EPS of TT 28 cents.  Dividends have moved with the same proportion from 11 cents (2002) to 12 cents in 2003.  

Cash reserves for the company have dropped substantially to TT$166.9M from the 2002 TT$428M, as the company used TT$219.4M in financing activities. During 2003, Angostura Holdings Limited (AHL) sold Burn Stewart Distillers, acquired in 2002, to CL World Brands — AHL’s parent company of Angostura.  Burn Stewart was thought   important to AHL because of its distribution networks throughout Europe, the Far East, Africa and Australasia.  To hold true to CL World Brands’ task of creating a global brand moving Burn Stewart from AHL to CL World Brands seems a reasonable response. 

Although, this inter-company sale added book profits of TT$20M to Angostura’s books, shareholders need to ensure that AHL was properly remunerated for incurring loans, which are still on its books, to buy Burn Stewart and the cash outflows related to servicing the loans.  Since there is no apparent cash transfer between the companies, the benefits of this transaction to AHL may be but a book figure. AHL’s remaining ventures  — Todhunter International and Tobago Plantations — have fallen short on their promises.   AHL’s “50 percent joint venture company, Trinidad Plantations Limited and its own investment in the Hilton Tobago” suffered losses of TT$15.7M.  “Restructuring the entire operation” is hoped to return the project to profitability. 

Todhunter experienced a decline in profitability because of its exit from the ready-to-drink product category, a 32.7 percent decrease in volume (from 2002) of the Company’s bottling operations as a large bottling customer to shifted production from the Company to its own bottling facilities and an increase in Operating expenses According to US press releases in March 2004, AHL wants to increase its shareholding in Todhunter and take the company private.  The timing is right as Todhunter’s declining and dwindling profit figures translates to lower share prices.  This makes for juicy speculation on AHL’s next moves. What if AHL acquires more shares in Todhunter and takes the company private? 

Undoubtedly, AHL’s cash flows will suffer and its debt burden will be horribly increased.  Stakehol-ders will groan at this all too familiar situation and management will explain that this is the price of being part of the CL World Brands brand building initiative. Based on the trend, expect that after privatisation there will be a pursuant sale of Todhunter to CL World Brands by AHL and expect AHL’s recoupment of debt burdens and cash outflow to become relevant. If this is the trend, shareholders must wonder about an eventual move to privatise AHL to further the objectives of CL World Brands, as that company prepares for UK Stock Exchange listing. This may explain the company’s nonchalance about the AHL share price, since shares can be repurchased at a reasonable figure if AHL needs to be taken private.

Maxine Attong is a financial consultant

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