Ashford W. Meikle, Staff Reporter
Michael Bernard, managing director of Carreras.
WITH AN 11 per cent increase in its revenue for 2005, the Carreras Group Limited is set to handsomely reward its shareholders with an interim dividend of $485.4 million - or $1 per stock unit - on July 26.
For its financial year to March 31, 2005, the cash-rich cigarette producer's revenue increased to $6.6 billion, according to its unaudited report.
However, in contrast to its gross earnings, the company's earnings per share (EPS) - compared with the corresponding 2003/2004 period - declined by 80 cents, to $5.06. That 15 per cent dip in its EPS was as a result of the 14 per cent dip in its net profit after taxation, which fell to $2.4 billion.
One of the most generous dividend-paying companies on the Jamaica Stock Exchange (JSE), this is the second time for the calendar year (but the first for its financial year) that the company is rewarding its shareholders with a dividend payout. In February, the board approved a similar interim dividend of $1 per stock unit.
Last year, shareholders earned $7 per stock unit.
DIVIDEND PAYOUT
By far, the biggest beneficiary of the dividend largesse will be Carreras' parent, Rothmans Holdings (CARICOM) Limited. As Carreras' largest stockholder, Rothmans - with its 244 million stock units - will pocket almost US$4 million ($244.5 million).
The London-based British American Tobacco, plc (BAT), is the ultimate parent company of Rothmans Holdings.
Importantly, though, for those critics who point to the repatriation of profits out of the country, local conglomerate Lascelles deMercado and Company Limited - the second largest shareholder in Carreras - will see its coffers augmented by a $74 million dividend cheque. Lascelles' stake in Carreras amounts to a little over 74 million stock units.
Wednesday Business estimates that the top 10 stockholders will pocket $385 million, or a little over 79 per cent of the dividend payout.
Last year was a particularly litigious one for Carreras. In
July 2004, an arbitration board ruled that it should pay VRL Services Limited $370 million (US$6 million) for prematurely terminating the latter's management contract for Sans Souci Hotel.
There is also the ongoing legal battle with the commissioner of taxpayer audit and assessment. Carreras is appealing (on behalf of a former subsidiary, Cigarette Company of Jamaica, now voluntarily wound up) tax assess-ments of $5.7 billion over a five-year period, 1997 to 2002. Of that amount, penalties amount to $3.5 billion.
Added to that are proposed legislative changes, which would restrict the marketing and advertising of cigarettes and tobacco products, as well as the banning of smoking in all public places as per the World Health Organisation's (WHO) Framework Convention on Tobacco Control (FCTC), of which the Government is a signatory. The Cabinet is yet to ratify the treaty, contingent upon the implementation of other domestic legislation. For example, it has been proposed to raise the price of cigarettes to a level that would also serve as a disincentive to smokers or would-be smokers. In fact, this year there has been a 20 per cent increase in the retail price of cigarettes as a result of increased taxation by the Minister of Finance.
An erstwhile blue-chip company on the JSE, Carreras was once included in the JSE Select Index; (the latter comprises the dozen or so most liquid stocks on the exchange). But, Carreras has seen the value of its share price fall by 15 per cent over the past year, trading at $33 at the close of business on Monday. In fact, at the height of the bull run in the market last year, the share traded as high as $55 in April.
With Carreras though, to borrow a cliché, 'never say never'. The cinders are not quite cold - the company has demonstrated tenacity for strategic decisions. So far, for this financial year it has rationalised its operations by:
Appointing NCB Jamaica (Nominees) Limited as its registrar and transfer agent - a cost-cutting operation negating the need to contend with overhead expenses of such a department.
Vis-à-vis its human capital, the company says it hopes to achieve staff alignment "through a combination of early retirement and redundancy."
Carreras' tobacco operations will also be restructured with the cessation of tobacco cultivation in Jamaica. Rather, the company will now import cigarettes from the West Indian Tobacco Company in Trinidad.
Almost a year ago, one analyst predicted that Carreras' revenues for 2005 would grow at about 12 per cent. He said, "Its core business remains the sale of tobacco products, which is a mature market and, therefore, the potential for significant growth is minimal. Earnings from its core operations continue to grow in line with the market. Of course, it will face drawbacks because of declining interest in tobacco products worldwide and the health tax on cigarettes."
