Sugar downsizingThe downsizing of the Guyana Sugar Corporation (GuySuCo) has had “serious implications” for the liquor operations and as such privately-owned Demerara Distillers Limited (DDL) has been forced to diversify operation to mitigate the potential effects of a minimised sugar industry.This was amongst the challenges, albeit a very good performance, that the DDL Group faced last year, Chairman Komal Samaroo said in the company’s 2017Chairman of DDL Group Komal SamarooAnnual Report.He pointed out that, domestically, the economy was revised downwards last year and a significant contributing factor was the contraction of the sugar industry, which produced 137.298 tonnes in 2017 compared to 183.615 tonnes produced the previous year.According to the Chairman, given the implications from the downsizing, the Group has been exploring all options as it seeks to mitigate any potential adverse effects of such downsizing.“It is, in this context, that our strategic decision sometime ago to diversify our business must be seen as the right course of action by the Group. However, our core business is rum production and molasses is a key raw material for such production. DDL has expressed to the Government an interest in investing in the Enmore Estate to continue molasses production there. If that proposal does not prove to be economically feasible, DDL may have to source molasses from foreign suppliers to ensure adequate and reliable supply,” Samaroo detailed.The challenges of the company extended internationally as the Chairman explained that while global economic growth strengthened in 2017 to 3.7 per cent compared to 3.2 per cent in 2016, countries that depended on commodity exports continued to be hard hit, experiencing sharp declines in foreign earnings.He added too that with regards to the rum category, the cumulative annual growth was estimated at only 0.5 per cent that growth being confined to the premium and super premium segments, while the standard segment was projected to experience marginal decline.“Given these projections, the Group’s strategic decision to premiumise its Eldorado Rum brand was certainly well timed,” the Chairman posited.Regardless, the DDL Group managed to rake in a total of $19.569 billion in revenue last year, representing an increase of $1.460 billion or eight per cent over that of 2016. The revenue from both the domestic as well international markers showed steady growth, the Chairman said.Group profit before tax for 2017 was $3.551 billion compared to $2.920 billion for the previous year, an increase of $631 million or almost 22 per cent. Earnings per share were $3.38 in 2017 compared to $2.85 the previous year. Additionally, Shareholders’ Funds increased by 13 per cent in the year, while net debt to equity ratio at the end of the year improved from 22:1 in 2016 to 13:01 in 2017.With regards to the Group’s subsidiaries, Distribution Services Ltd (DSL) achieved $396 million in profit before tax in 2017 compared to $358 million the previous year, an increase of about 10.6 per cent. According to the Chairman, this company has been the major focus of its diversification plans. “This subsidiary has outgrown its present distribution facilities and a new warehouse and distribution centre is presently being constructed at Plantation Diamond. This 12,000 square feet new modern facility, including cold storage and offices, is projected to cost approximately $1 billion and is scheduled for completion in the second half of this year,” Samaroo detailed in the report.This trend continued onto the Demerara Shipping Co Ltd (DSCL), which recorded an operational profit before tax of $132 million in 2017 compared to $102 million the previous year, an increase of 29 per cent.However, the profit-gaining performance eluded the Tropical Orchards Products Company Ltd (TOPCO) which endured the loss of the Education Ministry’s School Feeding contract that was handed to a foreign company.According to the Chairman, while the company steadily increased its sales on the domestic market, it suffered a loss of $53 million during the year compared with a loss of $16 million the previous year.Nevertheless, in January 2018, the company was awarded the School Feeding contract for the first three months of the year and Samaroo said they are hopeful for its renewal.On the other hand, DDL’s overseas subsidiaries also performed well contributing $212 million in profit before tax compared to $185 million the previous year. Demerara Distillers St Kitts-Nevis Ltd recorded a profit of $23 million; Demerara Distillers USA Inc recorded a profit of $37 million; Demerara Distillers Ltd Europe recorded a profit of $95 million, and Demerara Rum Co recorded a profit of $57 million.Going forward, Samaroo said the Group’s diversification will gain momentum in 2018 with several major projects, still at the planning stage, that would significantly expand revenue from non-alcoholic products.