Carreras is reporting that it has still not fully recovered from the 2015-2017 increases in excise duty on cigarettes.

The recovery has been slow and has resulted in the company posting after-tax profits for its 2019 financial year of $3.4 billion, representing a decline of 2.2 per cent. However, operating revenue increased by 2.8 per cent moving from $12.6 billion in the 2018 financial year to $12.9 billion for the period under review.

This represents a slight recovery in sales volume after the 21.4 per cent Special Consumption Tax increase on cigarettes in March 2017. This was preceded by a 16.7 per cent increase in May 2016 and a 14.3 per cent increase in March 2015.

There was a sharp decline in the volume that followed the March 2017 excise duty increase with a three-dollar increase in the price per stick of cigarettes moving from $14 to $17 per cigarette stick. So, too, was the fact that the excessive increases in tobacco excise resulted in a transfer of volumes from the legal trade to the illicit trade in cigarettes.

Carreras Chairman Oliver Holmes in his report to shareholders on Wednesday (September 4) conceded that the company is still recovering from these three excise duty increases. “However, we remain optimistic about the continued recovery of our volumes during 2019 that will be driven by various strategies being implemented by management,” Holmes said.

He explained that the profits would have been much more had the company not increased its investment in strategic initiatives to bolster the company’s drive for growth. Carreras reports that “the 2019 strategy and focus is to recover volumes has been met with much success, representing a pivotal point for the business”.

Carreras pointed out in its annual report, which was approved by shareholders at its annual general meeting that “having increased price since March 2017 because of the significant 21.4 per cent increase in Special Consumption Tax on tobacco, the company has not taken a price increase during the two years subsequent.”

This was being done despite an increase in the Carreras cost base. The company pointed to the jump in administrative, distribution and marketing expenses, noting that the increased spend on distribution and marketing arose from investments behind Carreras core brands, Craven A and Matterhorn, to reinforce the brand value proposition to consumers.

Also given the increased levels of crime, the company reorganised its sales routes to avoid certain high-risk areas and increased the security personnel around sales staff, which resulted in increased security costs.