Angostura Holdings investors hold out for returns

A review of financial information for Angostura Holdings Limited (AHL) for the last five (5) years presents a dichotomy for any industry watcher.  Whilst sales and assets have more than tripled their 1998 positions of TT$355M and TT$695M to TT$1,337M and TT$2,327M respectively, the AHL share has declined in the investment opportunity it presents to a shareholder’s portfolio with declining return on assets for the investor.

Any review of the financial data has to be in context of the company’s growth and expansion plans achieved over the last five years. Angostura Holdings Limited was incorporated on March 26, 1982 as a private company and was converted to a public company on September 29, 1982. The parent company, CL Financial Limited, was incorporated in Trinidad and Tobago on March 26, 1982 to acquire the Angostura Group of Companies. “The major objective in 2002 was to increase the pace of our drinks investments in order to grow our core brands globally both in terms of market presence and reach.” states Group Chairman Lawrence Duprey in the 2002 Annual Report. “During 2002 we initiated the concept and creation of global marketing platforms for all of the group’s brands. “CL World Brands plc is the newly formed global drinks company, wholly owned by CL Financial Group, headquartered in the United Kingdom that will now serve as the key driver of international growth and expansion.

“Todhunter International Inc will now be responsible for group distribution throughout North America; Angostura for the ...Caribbean, Central and Latin America and Burn Stewart Distillers plc for Europe, the Far East, Africa and Australasia. Belvedere, the French listed vodka company, in which a minority interest was acquired in February 2003 by the CL Financial Group, has a particularly strong distribution network in Eastern Europe, the Far East and China.” Over the five-year period AHL has expanded both markets and product offerings. Investments in foreign companies and distributorship arrangements have allowed them to increase sales figures by 500% in the last five years.

Total assets for the company has steadily increased to four times the 1998 position, a reflection of constant upgrade of the local equipment and plant facilities and investments in overseas companies. “To build sustainable brand equity in the global market requires considerable marketing and advertising spending,” admits the Chairman.  The company has no choice but to fund all market research, advertising and related expenses.  This combined with cost of hiring new experienced personnel to serve at overseas market locations helped contribute to a declined profit to sales ratios from a 1998 position of 67% to hold constant at 5-7.5 % for the last three years.

The profit attributed to each share has declined from an all time high of TT$1.08 in 1999 to TT$0.28 in 2002.  Since the number of issued shares remains constant the results of declining profits are shown here. The company’s changed fortunes have not gone unnoticed by the stock market.  Share price fell from the all time high position of TT$9.65 in 1999 to the lowest of TT$4.5 in 2001 with 2002 showing some recovery to end at TT$6.00. Additional ratios that would serve the investor in analysing the company’s position would be liquidity test and the leveraging ratios. 

The company maintains a 1:2 ratio of current liabilities to current assets. Removal of long to convert assets as inventory and tax returns sees liabilities being covered 1.4 times. The company’s ability to meet short-term cash obligations must be matched to its ability to safely borrow money over long periods of time. In 2002 the debt to equity ratio stood at 220%, and the debt to assets figure shows that 55% of the company’s assets are financed by debt. (Short-term debts are included in the calculation).   The company is highly leveraged and shareholders must have concern for its ability to meet further interest payments as well as future risks of having too little working capital and the ability to obtain further debts. These ratios encourage us to look at the company’s cash flow for 2002.

In 2002 the company repaid over TT$1billion in debt, and acquired additional loans TT$1.3 billion.  In 2003, the company will make principal repayments of TT$83M and US$6.8M.  No estimates of cash outflow related to loan interest payments have been made. “The Angostura Group is preparing to claim its own in the global market place, especially after the free trade agreement, which ends in 2005, eliminates all barriers to trading with America.”  At the 2002 announcement of the completion of the acquisition of Burn Stewart Distillers plc by its subsidiary Angostura Holdings Limited, Chairman Duprey said he believed these initiatives would build CL World Brands into a strong global company that would eventually be listed on the London Stock Exchange and other major exchanges 

Other than meeting stringent disclosure requirements for such a listing the company would have to consider changes in its strategic and accounting approaches.  Shareholders will not continually experience declining share market values without calling for a major shakeup of the Board of Directors. They will clamour for their investment values to be kept intact regardless of the strategic plans for the company. Neither will the directorship with the consent of the auditors be able to opine that any accounting “treatment provided a more accurate reflection of the commercial substance of the transaction than that prescribed by the AIS”; and proceed to apply their preference. (As was done in the 2001 statements re realisation of profits on sale of investments.) It would be interesting to see if AHL will issue additional shares in the next five years or continue to incur additional debt and sell investments to meet its substantial long-term loan commitments.

Current shareholders need to be aware that theirs is a long-term commitment as the groundwork to achieve the stated vision of global presence is still being laid. They will have to wait for the marketing initiatives to bear fruit before AHL returns to the positions of yesteryear when they enjoyed a high market price and earnings per share to match. MAXINE ATTONG is a financial and management consultant, who specialises in Business Process Redesign. 
You can email her at enhanceink@hotmail.com