Lasco Manufacturing navigating regulatory changes, but bullish on returns
Published:Friday | September 28, 2018 | 12:00 AMSteven Jackson
Lasco Manufacturing Limited (LASM) will pump as much as US$3 million into its operations this year, as it prepares for regulatory changes for sugary drinks.
Lasco is also negotiating deposit refund system for plastic bottles, with the Jamaican government.
"Capital investments are going to be in the range of US$2 million to US$3 million this year," Managing Director James Rawle told shareholders at the company's annual general meeting in Kingston on Friday.
That's the equivalent of $270 million to $400 million at current conversion rates.
The bulk of the funds committed for this fiscal year, US$2 million, will be spent on expansion of the warehouse by 10,000 square feet, Rawle said. Lasco previously embarked on a 65,000 square foot addition to the warehouse at a cost of US$5 million, which is due for completion in October.
The new spend will increase the amount of new storage space by 75,000 square feet overall for its iCool and Lyrix drinks and Konka energy drink.
Since listing in 2011, LASM has invested over US$60 million on factory expansion, Chairman Lascelles Chin said at the meeting.
"We have laid the foundation and we are now going to reap the rewards," said the chairman indicating that the company was moving into a new phase, where it is looking to reap returns from the sizeable investments.
"The first quarter increased 77 per cent in net profit over the last year," he added.
LASM grew its June quarter profit from $134 million to nearly $238 million. It represented a positive turn for the company whose annual profit for the year ending March 2018 fell to $560 million from $707 million.
The guideline on sugar content in schools will take effect on January 1, 2019. It sets a limit for drinks at under 30 grammes of sugar per 500 millilitre. That's about the level of sugar in a cranberry-flavoured water product.
Rawle said the timeline does not easily allow time for manufacturers to reformulate products. He added that of equal concern is the tax on sugary drinks, which he expects to be imposed within 12 months.
He told shareholders that the company plans to reduce its sugar content such that it will incur the least amount of tax, in order to offer the lowest price in the marketplace. iCool cranberry water holds 24 grammes of sugar per 500 ml. Its Lyrix ginger beer contains 66 grammes of sugar per 500ml.
"We are ahead of the game. We have the foresight and science to back it up with the LM team. We are working with partners to push back while there is merit to sugar consumption. We have to protect the industry," added Peter Chin, managing director of sister company, Lasco Distributors and deputy chairman of the Lasco companies.
As to the deposit scheme, Rawle said, it could be quite costly for a manufacturer, saying that in Germany, for example, it is the equivalent of $12 per 500 ml bottle.
"We will have to pay a deposit for each bottle that we put out there and that deposit will go towards funding the recovery of those bottles, and processing and recycling. That is a cost that we will have," said Rawle. "But we are prepared for it and continue the negotiations," he told shareholders.