Carreras sales suffer from clampdown on crime, but profits secure
The Jamaican Government's extraordinary security measures has put a damper on the sale of cigarettes, given the curfew on entertainment venues in targeted zones, but market leader Carreras Limited also sees a potential upside from the clampdown on smugglers.
The additional policing may well result in increased enforcement of a particularly thorny problem - the illicit trade of cigarettes which eat into Carreras' revenues.
Sales for the cigarette trader were marginally higher at $6.3 billion at half-year ending September, up from $6.06 billion in the comparative period last year. Profit rose 4.2 per cent to $1.74 billion in the same period.
Carreras will distribute dividends of $922 million to shareholders, or 19 cents per share, based on these results. That distribution would push the total dividends paid for the calendar year above $4.2 billion. It's the third-highest calendar year distribution for the company within this decade, behind the $4.51 billion paid out in 2014 and the $5.09 billion in 2012, according to Financial Gleaner estimates.
Carreras, whose core brands are Craven A and Matterhorn, said sales volumes have been negatively impacted in its entertainment channels due to the heightened security measures employed by the Government. Bars, restaurants, cafÈs and other establishments are required to curtail their opening hours in the areas where state of public emergency and zones of special operation are in effect.
"This earlier closure restricts consumption moments," the company said in its quarterly earnings report.
"Notwithstanding, it is expected that the anticipated volume decline will be somewhat mitigated provided that the Government's initiatives to reduce crime and their continuation of efforts to vigorously pursue measures towards stemming the influx and growth of illicit cigarettes in the market are successful," said Managing Director Marcus Steele in the preface to the financials.
Steele was not reached for comment.
Carreras, which is owned 50.4 per cent by British American Tobacco Plc through Rothman Holdings Caricom, also continues to rail against government taxes, saying the 21.4 per cent excise tax increase last March eroded its legal volume base and increased the growth of the illicit trade in cigarettes. It's an argument it makes consistently.
"We reiterate the point that there is a direct relationship between high taxes and its impact on legal volumes, Government's revenues and the rise of the illicit trade," said Steele.
Notwithstanding the impact on sales, Carreras remains a highly profitable company and is considered the 'king of dividends' in the Jamaican market because of its propensity to share those returns with owners of the stock.
"The results for the first half of the financial year continue to show improvement over same period last year, and we remain cautiously optimistic that this trend will continue for the second half of the financial year," Steele said.