CARRERAS saw a 34 per cent jump in sales during the December quarter which led to a 5.7 per cent increase in net profit to $863 million, but the improvement only temporarily broke a downward trend as higher prices imposed since will likely impact sales volumes signficantly going forward.

What’s more, forward purchasing by wholesalers in December in a bid to hoard stock before a $2.50-a-stick increase in excise tax on cigarettes and a $2-a-stick increase by the cigarette marketer were imposed January 1, will likely further drive down demand for the tobacco product during the March quarter this year.

On Friday, Carreras announced its mixed financial results but gave news of a favourable ruling in the Court of Appeal that will potential lead to a $1.7-billion windfall to the company.

The high court ruled upheld the appeal of the Cigarette Company of Jamaica Limited to recover the amount of income tax paid to the Commissioner Taxpayer Audit and Assessment of J$1,733.1 million together with costs in the Court of Appeal and the Court below. The amount is already reflected in the financial statements as taxation recoverable.

For the period October to December 2009, the company saw an increase in net income from $803.6 million in December 2008, to $849 million in the corresponding period December 2009 as a result of an increase in cigarette sales volume during the period.

“The slight increase in December was due to the trade purchasing more stocks in response to yet another increase announced by the Government in the specific taxes on cigarettes to be effective January 1, 2010,” said Carreras’ chairman, Chris Burton in his report to shareholders.

But the higher volume already sold to the market prior to the March quarter and the 23.5 per cent tax increase in excise tax on cigarettes along with an addition to the increase in general consumption tax from 16.5 to 17. 5 per cent effective January 1 2010, “could have a significant impact on our volumes going forward within an environment where our volumes are already experiencing significant declines,” according to Burton.

Carreras’ income from interest and other investments declined 59 per cent over the corresponding quarters from $135 million to $55 million as a result of a reduction in cash available for investment following dividend payments in 2008, February 2009 and capital distributions to shareholders in September 2009, according to the company chairman.

Similarly, exchange rate changes between the December 2008 and December 2009 quarters — reflecting a stabilisation of the local currency — resulted in a decline in exchange gains of 99 per cent, from $82.7 million in the 2008 quarter, to $223,000 in corresponding quarter of 2009.

Other operating income also declined 19.7 per cent resulting in a year to date performance that is below the overall performance of 2008, Carreras has indicated.

In response to the excise increases, Burton said that there will be greater focus on improving the marketing and distribution activities in order to ensure sustainability. This strategy is reflected in an increase in the distribution and marketing expenses by 26 per cent over the corresponding quarters from $209.7 million to $283 million.