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Carreras regrets scholarships may be hit by pending tobacco restrictions

BY STEVEN JACKSON Business reporter

Tuesday, September 08, 2015

CIGARETTE distributor Carreras Ltd expressed regret that pending regulations aimed at curtailing its advertising and sponsorship could stop it from offering scholarships. It represents an area that benefits the general public from the company whose products warn that ‘smoke may kill your children’.

"We talk about empowerment through education and we actually believe that," charged managing director Marcus Steele in response to a query at the annual general meeting (AGM) on Wednesday at the Jamaica Pegasus Hotel in Kingston.

Carreras offers more annual scholarships than most other private entities in the island. For the 2014/15 academic year, Carreras awarded a total of 30 scholarships and five ‘National Scholarships’ valued at over $3.5 million, according to financial reports.

The Government, however, plans to implement a second phase of tobacco restrictions which could include a ban on tobacco advertising, promotion, sponsorship and scholarships.

"If successful, then we won’t be able to do that. That is a concern for us because we see the offering of scholarships as helping the recipients a lot," Steele added.

The timeline for the implementation of phase 2 remains unspecified but it forms part of the international Framework Convention on Tobacco Control (FCTC), ratified by Jamaica in 2005.

Carreras ceased media advertisements years ago but continues to promote and sponsor events geared at adults. In 2013 the Government implemented a smoking ban in enclosed spaces under the Public Health Tobacco Control Regulations. This resulted in a reduction in its sales volumes initially.

Steele indicated that Carreras set up an internal team to review the matter in order to engage with stakeholders based on a review of statements made by the Minister of Health Dr Fenton Ferguson on the matter.

"I can assure you that we are listening to the Minister of Health and we have our concerns and we have put together a team internally to look at how we are going to approach him," reasoned Steele.

"We have not approached the Minister of Education [Ronald Thwaites] on this matter because it is not yet tabled." Carreras’ annual report indicates that through its scholarship programme the company demonstrates its commitment as a "responsible" corporate citizen.

"Our objectives are to increase access to college, increase academic achievement through reducing the concerns of families and students about how fees will be paid and importantly, help to retain high-ability citizens in Jamaica," according to its 2015 financial report.

At the AGM on Wednesday, outspoken small shareholder Orette Staple indicated that the company needs to grow its topline revenue despite the challenges. "Our revenue has got to be properly propped up with sales, and if you cannot convince our fellow Jamaicans to continue smoking [then we are] going to be dependent on price changes to justify that increased income. I think the board has a job on their hands to do," he charged the directors.

"Because you cannot come back next year and tell us that revenue dropped."

Carreras made record revenues of $12.9 billion in its financial year ending March 2011 but it continues to experience challenges including taxation, counterfeit cigarettes and raw tobacco or ‘grabba’. Its revenues now hover at $11.2 billion for its financial year ending 2015.

Last year, the Government launched a strategy aimed at discouraging the cultivation of tobacco in Jamaica. Under the initiative, tobacco farmers who chose to join the plan would receive training for alternative crops.

It formed part of measures under the FCTC. Carreras made net profit after tax of $622.9 million on gross operating revenue of $2.6 billion for its June first quarter 2015, or six per cent higher net income.

Its revenues also grew by one per cent over the review period. The higher profit came despite new taxes. In March, Government announced an increase in the special consumption tax on cigarettes from $10.50 to $12 per stick, set to raise $488 million as part of wider measures to raise $10.3 billion for the budget.

Government previously initiated an increase on this product in January 2010 where there was an increase from $8.50 per stick to $10.50 per stick.

Currently none of the directors on the board own shares in the company based on queries at the AGM on Wednesday. Additionally, one of the seven directors smokes, based on queries posed at the 2014 AGM by this reporter.