Ashford W. Meikle, Staff ReporterCARRERAS' RECENTLY released interim report for the nine months to December 31, 2004, revealed nothing new. A few months ago this writer, analysing Carreras's six months results, noted that its "lacklustre performance can be traced to a number of factors, namely ... declining investment, increased advertising and administrative costs (and a) recent arbitration settlement which ruled against the group."
Well, nothing much has changed in the last few months.
As was the case in its six months report, the group registered a 10 per cent increase in revenues to $4.7 billion. However, to Carreras' credit, cost of operating revenue went up by just eight and a half per cent. And, as a result, gross
operating profit increased by 12 per cent to $2.2 billion.
As has been the case with most companies that have substantial investment portfolios, the Carreras' income from investments and interest has dipped dramatically owing to falling interest rates. Declining by 29 per cent, interest and other investment income plunged to a little over $1 billion (compared to the $1.5 billion earned in 2003). But, there are no surprises here.
"The income from their investment portfolio has fallen off from the previous year. We are going to see a lot more of that," commented an analyst on the group's six months results.
WIDE VARIANCES
Other operating income
experienced an overall increase of 15.5 per cent to $643 million. However, within this category, there were wide variances. For example, because of a stable exchange rate the cigarette
manufacturer registered a decrease in income from foreign exchange gains. The $493 million earned in 2003 plunged by 85 per cent to $81 million during the group's nine months. However, the loss sustained in foreign exchange gains was
buttressed by an increase of almost 800 per cent other income which galloped to $562 million.
As was the case in its six months, administrative and
marketing expenses continue to record huge increases. For example, these expenses jumped by 3.5 per cent to $1.4 billion, in the process eating into Carreras' pre-tax profits which declined to $2.5 billion, a decrease of 16 per cent.
After paying the taxman and accounting for minority interests, the group saw its net profit decline by 26 per cent to $1.6 billion, substantially less than the almost $2.2 billion earned last year. Expectedly, its earning per share fell by the same percentage points, to 335.7 cents.
Notwithstanding a rather lacklustre profit and loss statement, the Carreras group remains a cash-rich entity. Although cash in the bank declined by just seven per cent, it stills sits on a treasure chest of $8 billion.
In addition, there is another $3.7 billion tied up in repurchase agreements (Repos) and short-term investments which has seen an impressive 86 per cent growth since the group's year-end (to March 31, 2004) results. It is fair to point out though, that compared to the previous year's nine months, Repos and short-term investments fell from $5.4 billion, a decline of 32 per cent.
Importantly, Carreras has seen a reduction in its accounts receivable which decreased by 34 per cent to $416 million. Perhaps, this is something that other companies should take note of to ensure strong balance sheets.
The past year has been a challenging one for Carreras. Its ongoing tax case with the Commissioner of Stamp Duty and Transfer Tax remains its albatross. There is also the challenge of having to deal with the new government regulations which govern the advertising of cigarette. The group's balance sheet was also affected by the paying out of US$6 million to VRL Services Limited for prematurely terminating the latter's management contract for Sans Souci hotel.
But, in spite of these factors, Carreras continues to be generous to its shareholders. Last September it paid out a special cash of $4 per stock unit to stockholders arising from the sale of Twickenham Insurance Company to Globe Holdings (a Lascelles subsidiary) for US$32 million. And, at a recent meeting, the board declared a dividend payment of $1 per stock unit to be paid to shareholders this month.
