CARRERAS net profit for the three months ended September 30, 2010 was up 30.9 per cent from year earlier levels, the company reported last week. The after-tax profit totalled $747.1 million for the quarter, or $176 million more than the $570.7 million posted in the comparative quarter last year.

Carreras chairman, Chris Burton said that “cigarette sales volume continues to be negatively impacted by high levels of price increases resulting from excessive increases in Special Consumption Tax (SCT)”, which have caused the company to be concerned “about the long-term sustainability of the business in the face of these frequent and excessive SCT increases”.

A $2.50-a-stick increase in excise tax on cigarettes and a $2-a-stick increase by the cigarette marketer, imposed January 1, translated into 22.5 per cent increase in the price of cigarettes but revenue in the review period increased by 21.5 per cent over year-earlier levels.

However, Carreras did manage to cut the cost of sales, as gross profit jumped 23.7 per cent to $1.43 billion for the three months to September 30, as cost management measures and a near five per cent revaluation of the Jamaica dollar against its major counterpart — the US dollar — paid off.

“The financial results were as a result of the positive impact on variable cost caused by the revaluation of the local currency, the company’s efficient management of expenses below inflation, offset by the decline in interest income and the net effect of the price increase,” said Burton.

The local distributor of cigarettes imports all of its product from overseas, hence the revaluation would have provided a cash windfall to operations, even though the effect of exchange rate changes on cash and cash equivalents was a $24.8-million reduction in cash balances over the 12 months to September 30, 2010.

A decrease in Carreras’ interest and other investment income — which fell from $53.6 million for the three months ending September 30, 2009, to $30 million during the period under review — was expected, given the Jamaica Debt Exchange in which the Government of Jamaica exchanged its high interest-bearing instruments with those for lower yields and longer maturities.

“We applaud the Government on the success of this initiative and the commensurate positive long-term impact this should have on our economy, however, the consequential result is that the company’s interest income earned for the period has declined dramatically,” said Burton of the Government initiative that kept profit from growing another four per cent.

Burton, who was speaking on behalf of a board within a statement accompanying the financial results released last week, said “as the company continues to distribute excess cash as dividend to the shareholders, less cash will be available to invest and consequently, interest income will continue to be adversely impacted”.

For the six months to September 30, Carreras paid out $970.9 million in dividends, while a $1.50-a-share divident payout on December 9 will see the company fork out another $728 million.