Jan 2008 Financial News

Angostura to take Appleton global

Jan 04, 2008

Apart from the Angostura brands, CL Spirits has its very own portfolio of drinks containing some of Scotland's finest whiskeys, Hine Cognac and Chateau on Line.

The proposed acquisition of one of Jamaica's leading conglomerates, Lascelles deMercado by Trinidad & Tobago's Angostura spells one of the biggest Caribbean deals in recent history and perhaps puts into perspective what the Caribbean Single Market is all about.

However, Angostura's vision for Lascelles' Appleton Rums is not limited to the Caribbean. Angostura is looking to position this prized asset on the world stage, having already identified the brand potential.

Appleton currently sells around 1.2 million cases of rum per annum. Angostura believes that with additional investment and with a dynamic marketing and sales strategy, it can generate sales of between three to four million cases a year. Globe, the insurance arm, is currently a general insurance player, but Angostura sees a brand that can have a presence in life insurance, pension funds and asset management to be expanded within the Caribbean region. Angostura's ambitions, it feels, are by no means lofty, but with capital injection and placing reliance on the existing management structure can add value to the Jamaican group.

Angostura was formed in 1824 primarily manufacturing aromatic bitters. It later began producing rums, liqueurs and spirits which it now exports to over 100 countries. Vat 19, Fernandes Black Label, Angostura 1824, Angostura 1919, Royal Oak, and blu Vodka are just a few of the many offerings from the House of Angostura which over the years has established itself as a force on the corporate Caribbean landscape. Group Executive Director Patrick Patel says the company has plans to double its sales volume of bitters to the United States this year.

Back in 1996, Lawrence Duprey's CL Financial, noting Angostura's potential to become a world player in the spirits game, made a move to acquire it and by the new millennium held a 75 per cent stake. Now backed by arguably the Caribbean's largest corporate entity, and a Trinidadian with a global perspective, Angostura has set about growing both organically and by astute acquisitions.

According to its annual report for 2006, net sales after adjusting for excise duties increased 28 per cent from TT$533 million to TT$682.9 million. Its aggressive acquisition stance and its desire to pursue overseas market development impacted its earnings somewhat but Angostura still managed to register a creditable financial performance. For the year under review, the group recorded a net profit before tax of TT$192 million and a net profit attributable to shareholders of TT$188 million.

When the exceptional gains, recorded in the prior year on disposal of its Cruzan interest are adjusted for, its net profit before tax came to TT$26.8 million and net profit attributable to shareholders stood at TT$45.7 million.

The rationale behind making an attempt to acquire the Appleton brand can be obtained in the Chairman's Report (Lawrence Duprey) a year ago, which read: "In order to further develop our business and to sustain growth, it is essential that we continue to look beyond our domestic and regional markets.

"In an effort to reduce our ongoing dependency on bulk commodity business, our group strategy within recent times has therefore been articulated around the investment in key brands that have both global reach and potential. We are continuing our domination of the local spirits sector, while at the same time seeking to lift and enhance the overall perception and acceptance of rum in the various markets in which we operate.

"Investment in strategic brands with global reach and potential such as Angostura 1919 premium rum and Angostura aromatic bitters and building a portfolio of brands which have the capability to be leaders in their market segments will continue to be the cornerstone of the "Group's strategy going forward."

Earlier this year Duprey made it clear that his ambition is to get his group of spirits brands among the world's top 10 within the next three years.

Duprey heads the Clico Financial Group which has US$ 14 billion in assets. The group has significant interests in financial services, energy, real estate and spirits. It is indeed a true Caribbean conglomerate.

Financial Services

It holds a 56 per cent stake in Republic Bank, one of the largest indigenous Caribbean banking entities. Last year Republic Bank reported profits of TT$1.4 billion (US$220 million). Clico partnered with both Keith and Donna Duncan of Jamaica Money Market Brokers (JMMB) to form Caribbean Money Market Brokers (CMMB). Clico Insurance is one of the largest insurers of the Caribbean. British American is also included in the Clico insurance stable. Also included under its financial services umbrella is Clico Investment Bank.

Energy
The lion's share of Clico's profits now comes from its energy division, especially given the very buoyant international energy prices. Clico Energy is the management arm of the energy group and facilitates the development and growth of the downstream petrochemical sector. Its major subsidiary Industrial Plant Services Limited manages and operates five methanol plants with an annual production capacity of over four million metric tons per year and two ammonia plants with an annual production capacity of 1.3 million metric tons per year.

Methanol Holdings (Trinidad) Limited (MHTL) was formed in 1999 to consolidate the shareholding and overall management of the Trinidad and Tobago Methanol Company Limited (TTMC), the Caribbean Methanol Company Limited (CMC) and the Methanol IV Company Limited (MIV). In 2005, MHTL commissioned its new M5000 methanol plant, which has the capacity to produce 5,400 MT of methanol per day making it the largest methanol plant in the world. This group produces and markets approximately 4.0 million metric tons of methanol per year and cumulatively, has over 30 years experience in the methanol business.
The five methanol plants owned by MHTL represent an investment of over US$1.5 billion. This methanol investment has placed Trinidad as the largest producer of ethanol in the world.

In 1999, CL Financial acquired Primera Oil & Gas. This company is an exploration and production company with extensive leased land acreages in a number of areas in Trinidad. This company has ventured into the offshore arena in a joint venture with Petroleum Company of Trinidad and Tobago by drilling the exploration wells in the East Brighton Field.
Ethanol has not escaped Clico's attention and its company Trinidad Bulk Traders Limited has concentrated on commercial ethanol production since 2005. Clico has constructed a 100- million gallon plant in Point Fortin. Curtis Mohammed serves as the general manager and this company has refined ethanol for Jamaica's Petrojam within recent times.

Real Estate
Clico is a significant real estate developer with interests in Trinidad, Barbados, St Lucia, Bahamas and Florida. It has constructed and operates some of the biggest shopping malls in Trinidad and has carved out a reputation as a residential property developer.

Spirits

Apart from the Angostura brands, CL Spirits has its very own portfolio of drinks containing some of Scotland's finest whiskeys, Hine Cognac and Chateau on Line. It also has about 40 retail stores and a number of distilleries including Burn Stewart of Scotland, Lawrenceburg Distillery in Indiana, which was once owned by Pernod Ricard and is one of the largest independent distilleries in the United States. Angostura also owns and operates both the St. Lucia and Suriname Rum Distilleries.

Appleton will be a prized asset in this illustrious stable and it is viewed as one of the world's premier rums which will now place the Cl Group among the top owners of rum brands behind Barcardi, Captain Morgan and Havana Club.

Speaking with Caribbean Business Report from Angostura's Laventille headquarters in Port of Spain yesterday, Executive Director and Company Secretary Michael Carballo said: "Duprey is looking to go global in all Clico's business divisions. Of all the divisions, the spirits arm provides the most exciting opportunities in terms of vision for brand development. What we are now doing is looking to open up new markets and to that end we have gone into the Far East, South Africa, the UK, France and the US. By 2010 we want to consolidate all of our brands and list the spirits group on the London Stock Exchange.

"Why?" Because we feel we have solid rum brands, Scotch brands, and Cognac. Ours is a global vision."

Lascelles
Clico and Angostura together sold its 68 per cent stake in Belevedere last year for euro345 million which will provide some of the seed capital for the Lascelles acquisition. The Belevedere asset was sold for about 10 per cent more than the total cost of the entire investment which was euro314 million.

There are currently around 96 million Lascelles shares of which Clico and Angostura now approximately hold five million. The shares on offer are for 86 million shares once you remove those held by Calla Lilly. With the Trinidadian entity holding 5.2 per cent of the company, it has set its sights on another 81 million shares, thus making it the majority shareholder.

"Our desire is to keep Lascelles listed on the Jamaica Stock Exchange and to keep the Appleton and J Wray & Nephew brands as Jamaican as ever. It will be business as usual with no interference from us based in Trinidad. We have three years to completely pay off on this acquisition but we may well do it before 2011. On completion of this transaction we will work with management to promote global brand growth.
Our plan is to invest major dollars into the Appleton brand. With the right aggressive international investment, Appleton has the potential to grow in the medium term to three to four million cases a year because it is a very well respected brand internationally. Appleton should be well placed in the Far East, Europe and South Africa. CL Financial are long term value players,"

"A major brand such as Appleton doing three to four cases will obviously place the brand valuation at a completely different level, if one looks at valuations of recent global brand transactions," said Carballo.

After the completion of this deal, Clico will no doubt ponder the possibility of merging Angostura and J. Wray& Nephew and listing it as a single entity on the Trinidad & Tobago Stock Exchange and the Jamaica Stock Exchange. Clico is yet to determine what it will do with the assets other than the spirits and Globe Insurance that lie within the group. On January 8, 2008, senior management from both Clico and Angostura including Lawrence Duprey, Michael Carballo and other CL Financial directors will visit Jamaica to brief investors, analysts, politicians, senior executives and the media on the finer matters of this proposed acquisition.

Although this deal is by far bigger than the proposed takeover of Barbados Shipping & Trading it is less fraught with insular tensions and corporate skulduggery. In the main it is perceived as a good deal at over US$9 a share and Lascelles being sold for around US$1 billion with many synergies making it attractive. It could well be the first big pan Caribbean merger and acquisition deal of the 21st century.
Of all the companies listed on the Jamaica Stock Exchange, Appleton is perhaps the only brand that has the potential to really go global. Lascelles shareholders now have an opportunity to have a stake in a Caribbean company with a global outlook.


Source:
Al Edwards
The Jamaica Observer
Friday 4th January, 2008

http://www.jamaicaobserver.com/magazines/Business/html/20080103T220000-0500_131014_OBS_ANGOSTURA_TO_TAKE_APPLETON_GLOBAL.asp