Carreras Ltd blamed special consumption tax (SCT) on tobacco of $3 or 21.4 per cent per cigarette stick for a decline of $321.6 million in profit for its year ended March 31, 2018.

The cigarette marketer and distributor — in labelling Jamaica’s macroeconomic climate as “continually challenging” from increased tobacco excise and illicit cigarette trade, coupled with growing competition for consumer spending — reckons that it still delivered a strong performance for the fiscal year 2017/2018.

Revenues of Carreras declined 7.1 per cent to $12.6 billion for the period under review, while revenue delivered to the Government was also negatively impacted.

Managing Director of Carreras Marcus Steele, in a statement adjoining the company’s 2017/2018 annual report, noted that the Government had not met the expected revenue target from the excise increase effected in March 2017.

“The reality is that as the taxation of legitimate cigarettes increases, individuals are less able to afford them and they then participate in the illicit trade, evidenced by the decline in legal sales and the illicit trade’s share of market increasing from 19 per cent in 2016 to 24 per cent during 2017,” he said.

Chairman Oliver Holmes noted that while the company is developing a more integrated, cross-functional and efficient approach to business, it continues to highlight to the Government the delicate and direct link between an increasing excise rate and the growth and sustenance of the illicit cigarette trade.

“It continues to emphatically state that the illicit trade of cigarettes remains a challenge to a safe and profitable Carreras. Over the past year, there has been a significant increase in the prevalence of illicit cigarettes, leading to a reduction in legal sales,” Holmes told shareholders.

“We are wholeheartedly committed to working closely with the Jamaican Government in order to disrupt, stem and eventually minimise this illicit trade, which it is estimated has led to loss of government revenues of approximately $5 billion over the past fiscal year. The challenges these illicit cigarettes pose are far-reaching, not only in terms of revenue loss, but as well to the Government’s current health and tobacco control agenda,” he continued.

For the year ended March 2018, Carreras posted net profit of $3.48 billion, a decrease of eight per cent or $321.6 million compared to 2017’s result. It’s the second time over the past five years that Carreras has posted a decline in profit, the other being March 2015 when net profit fell by 26.5 per cent to $2.94 billion.

Back then, Carreras defended the company’s core business activities, noting that the net profit posted in 2014 included a reported of $1.78 billion interest on tax recoverable from the Cigarette Company of Jamaica settlement — a non-routine transaction.

Steele noted that in light of the increasingly competitive environment, the company remains focused on capitalising on its route to market strategy as well as on decreasing costs and increasing productivity.

“As a marketing and distribution company, the availability of our brands in the right place at the right time remains paramount to the success of the company. As such, our trade marketing efforts revolve around giving value to our customers who sell our brands, thereby ensuring that our adult consumers consistently have their preferred brands available in the outlets where they shop. We also continue to benefit from the efficiencies derived from our new route to market structure,” the company said.

Carreras reported a decline of 10.3 per cent in the cost of operating revenue, moving from $6.97 billion to $6.25 billion. Administrative, distribution and marketing expenses, however, increased by $0.01 billion or 0.43 per cent, led by a four per cent inflation rate, according to the company.

“More investigation of ways to increase distribution efficiency are on the way and we are poised for further improvement next year,” the managing director said.

At March 31, 2018, Carreras’ share price on the Jamaica Stock Exchange closed at $10.61, reflecting an upward movement over the prior year’s $7.40. At its last annual general meeting, shareholders of Carreras approved a 10:1 stock split with effect from the close of business on September 20, 2017, moving share price up 37 per cent.

Market capitalisation as at March 31, 2018 amounted to $51.5 billion compared to $35.9 billion in the preceding year, representing an increase of 43.4 per cent.