More distribution points for Carreras
Cigarette trader Carreras Limited plans to increase its distribution outlets to grow volume sales while keeping prices steady.
The company, whose retired chairman Oliver Holmes is yet to be replaced, told shareholders at their annual general meeting on Thursday that its distribution points are likely to head towards the 6,000 mark in the medium term, about a one-fifth increase, which would include sellers in the inner cities. The focus on the vulnerable communities aims to counter illicit cigarette sale points.
“Starting this year, we are just under 4,700 doors and we are going towards 5,400 doors directly,” said Managing Director Raoul Glynn at the meeting held at the AC Marriott Hotel in New Kingston. “We are working with progressive entrepreneurs in the inner cities and we are equipping them with the tools and credit controls so they can go into the communities safely and provide employment for an additional 170,” he said.
It’s unclear whether this plan is connected to the partnership struck between Carreras and Supreme Ventures Limited to share their distribution networks. Glynn said at the announcement of that pact in late September that Carreras was aiming to deploy 1,500 cigarette sellers in the inner city.
Keeping prices stable would allow the company to maintain annual volume growth of around four per cent, despite the ongoing pandemic. That, in turn, would secure company earnings for one of the most consistent dividend-paying stocks on the Jamaica Stock Exchange. The implied dividend yield hovers at nine per cent, based on the past payout at 70 cents per share and the current stock price which is trading above $8 per share.
The company grew its volumes despite the pandemic, but acknowledged that consumers would not appreciate a price rise within the context of inflation.
“We are cognisant that despite the economy being stable and getting back-to-better, that consumers are stretched,” said Glynn. “We have no intention to raise prices, because we know the effect it will have.”
It wasn’t immediately clear the last time Carreras implemented a price hike on its products, which include popular brands Matterhorn and Craven A, as the company did not respond to the query.
Over the past decade, Carreras has sold its products at around a one-third margin. At year ending March 2021, its trading margin was 35.6 per cent.
The company acknowledged that higher inflation and the rising cost of shipping since the pandemic has increased costs. Glynn added that the company benefits from large bulk purchases done at the group level – Carreras is a subsidiary of British American Tobacco Plc and sister company to cigarette manufacturer West Indies Tobacco Company Limited based in Trinidad & Tobago – which translates to savings on shipping.
“We are a big purchaser from our supplier, as opposed to only buying for Jamaica,” he said, adding that the company continues to find ways to slash costs across the business to keep prices firm.
Raising prices in the short term is likely to create market opportunity for cheaper illicit cigarettes, he reasoned. The company, whose current annual revenue is $14 billion, has previously revealed that illicit cigarettes cost it at least $2 billion per year in sales.
Carreras views its distribution network as largely being unaffected by the pandemic. The company indicated in its 2021 annual report that the closure of entertainment spots, restaurants, bars and mass entertainment gatherings erased “5.0 per cent” of total sales – which equates to about $700 million of vulnerable revenue, Financial Gleaner calculations indicate. The restrictions on public gatherings are still in effect but were most intense during April and May of 2020.
As to the vacant board chair, the vote for a new chairman to replace Holmes, who retired in November after 14 years as director and seven as chairman, will happen later but likely before the end of the calendar year, Glynn said.
The board seat vacated by Holmes was taken by Patrick Smith, a former Carreras manager whose appointment as director was ratified by shareholders on Thursday.
Carreras earned $3.7 billion in net profit for FY2021, which was relatively flat compared to $3.6 billion of earnings in 2020 and $3.4 billion in 2019. The year that Holmes became chairman, Carreras earned net profit of $2.9 billion on revenue of $11.2 billion.