Marcella Scarlett, Business Reporter
Despite July's ban on smoking which has hurt its sales, cigarette distributor Carreras Limited is still projecting that revenues will improve this financial year, saying the effect on market behaviour is likely to fizzle in the short term.
"Since the PPS [Public Place Smoking] ban we experienced approximately 30 per cent fall-off in sales. Also, earlier, we saw a drop in consumption due to the increase in price in March; so for this year we got a double whammy," Managing Director Marcus Steele told the Financial Gleaner after the company's annual general meeting on Wednesday.
"It wasn't like this last year," he said.
Generally, when the price of cigarette increase consumption decreases, but the company implemented the price hike anyway, he said, because it was necessary to offset devaluation and inflation costs.
It was the first price increase in over three years, he adds.
Regarding the smoking ban, the Jamaican Government has put new regulations in place that bars smoking inside buildings or near entrances.
"We saw a 30 per cent fall-off in sales because of the chaos in the market and the confusion surrounding where to smoke. You will find that sales will go down, and as behaviour settles down we expect that it will go back up. So that, I believe, is short term," Steele said.
At year ending March 2013, the company reported sales of J$12.2 billion and net profit of J$6.5 billion. In the quarterly period ending June, Carreras profited J$485.4 million of J$2.2 billion of cigarette sales.
That compares to year end 2012 sales of J$11 billion and profit of J$2.6 billion; while the June 2012 quarter returned profit of J$806 million from sales of J$3.1 billion.
Carreras' large profit in the financial year just ended in March is due to a one-off J$5 billion pension surplus refund.
Carreras expects the market to 'settle down' by the middle of the third quarter, which for Carreras runs from October to December, just in time for the Christmas season. Steele said the company is also banking on the performance of its latest smoking innovation, the Matterhorn Click & On, to help shrink the revenue gap.
"For the dip in consumption we want to re-energise and re-engage with our consumers. That is where our Matterhorn Click comes in," he said.
The new cigarette gives consumers the option to boost their menthol smoking experience. This is done by tapping the tip of the cigarette that activates a capsule that releases additional menthol in the stick. If it is not clicked then the cigarette will burn like a regular Matterhorn.
The market for Carreras' products is stratified with the Pall Mall brand occupying the lower end of the market, Craven 'A' and Matterhorn occupies the middle market, and Dunhill and Rothmans the premium end of the market. The company trades brands owned by parent British American Tobacco Plc.
Steele said the new Matterhorn product occupies a section of the market he calls "aspirational premium".
"This would be a category above the middle but below the premium. So from this new product we expect higher margins. These are the persons who are usually Matterhorn smokers and have upgraded because they like the power to click, and they are willing to pay for this," he said.
Steele said Matterhorn has about 37 per cent of the cigarette market.
"Because it is the same family, I wouldn't mind if my Matterhorn is cannibalised by my higher premium one. I don't have a problem because it is a higher category ... and we have to price it accordingly ... so the margins would be higher than the other one," said the Carreras head.
Carreras stock price has fallen in recent months, which Steele said was the result of market uncertainty surrounding the PPS ban. He does not expect the effect to last.
Carreras is currently trading at J$46.50 on the lower end of the 52-week range of J$45 to J$63.29.
Feedback on the ban is expected from the minister of health about proposed amendments, including a clearer definition of what constitutes a public space by the end of September, after which Steele said Carreras will roll out its mass communication campaign to help educate smokers about where they can light up.