Sat | Jul 11, 2020

Carreras records increased revenue, decreased profit

Published:Sunday | September 8, 2019 | 12:13 AM

Managing Director at listed cigarette distribution company Carreras, Marcus Steele, is again warning of further growth in the illicit sale of tobacco products if further excise duties are imposed on legitimate distributors.

“If you take a decision where you end up losing, then in my view, that is a bad decision,” Steele said as he updated investors at the company’s annual general meeting at The Jamaica Pegasus hotel in New Kingston last week.

He says Carreras is only just recovering from the negative impact of the last excise duty increase. At the same time, he says, indications are that the illicit trade currently has about 30 per cent of the total market. Steele says data gathered by the company show that 53 per cent of the cigarettes consumed in Kingston ad St Andrew are illicit, 15 per cent for St Catherine, and 10 per cent for Clarendon. He said that best estimates are that the illicit trade is valued at about $5 billion annually, with the Government losing a little over half of that figure in excise duties.

“They’re losing more than $2.5 billion per year, so it is in our best interest to fight this monster, and one of the ways we can do it is to look at how we implement excise duties,” Steele argued.

In 2017, the Government hiked the excise duties on tobacco products. Steele says that in the aftermath, it was established that there is a direct relationship between an increase in excise duties and an increase in the illicit trade.

“Two years ago when there was an increase with the $3 excise moving the price from $14 to $17 per stick, we had a significant reduction in duties collected, and the government lost $1.8 billion. It affected our company as well because the legal market went down by over 22 per cent,” the managing director said, noting that 57 per cent of the invoice cost on cigarettes distributed is tax, which means that 47 per cent of the value to the consumer is tax.

Carreras reported first-quarter profits of $923.3 million up to June 2019. This was 12 per cent more than the $821 million earned for the similar period in 2018. The increased profits came on the back of improved revenues, which stood at $1.22 billion, or 10 per cent more than the $1.11 billion garnered during the similar period in 2018.

For the March 2019 year-end, Carreras recorded a 2.2 per cent decrease in profits, or $3.4 billion, slightly less that the $3.5 billion recorded in the previous year. The drop in profits was despite a marginal increase in total revenues, which moved from $12.6 billion in 2018 to $12.9 billion at the end of March 2019. Steele said the decreased end-of-year profits had to do with a reorganisation of the Carreras sales force and their route to market arrangements.