Ceylon Tobacco increasing govt. revenue despite losing local and export volumes

The Ceylon Tobacco Company (CTC) has once again complained of the threat to the local tobacco market by the influx of unauthorized products which, together with the high incidence of excise duty on cigarettes and the squeeze on consumer spending, has tended to encourage purchase of illegal products for price reasons.

CTC has said in a financial statement covering the third quarter of the current financial year ended September 2003, that such product "continued to be available in the market on an increasing scale."

The company said that they, in co-ordination with the government and the relevant authorities, continued their efforts at protecting the legal cigarettes industry. Action taken includes preventive customs action as well as raids on premises storing such illegal products.

CTC has been plagued by the sale of cheap "white" cigarettes, free availability of smuggled established brands and the of counterfeiting of their own brands that are available in the local marketplace.

Such cigarettes, mainly manufactured in China, are smuggled into the country. Traffickers are so good that any changing packaging done to combat them can be duplicated in weeks.

The nine months up to September 30 this year saw CTC reporting an after-tax profit of Rs.669 million, up 7.2% against results achieved in the comparative period the previous year.

The company attributed this profit growth to a 2% increase in earnings from the tobacco business, an increased profit contribution from their information technology subsidiary, Advent, through export related IT services and the realization of capital gains through the sale of land belonging to a subsidiary.

Net revenue for the nine months at Rs. 3.47 billion was up 7% from a year earlier while the operating profit at Rs. 996 million was up 8% from the comparative period the previous year.

The company’s performance up to now translated to an earnings per share of Rs. 3.57, up 7.2% from Rs. 3.33 earned a year earlier.

CTC said that it had contributed Rs.19 billion to the government revenue during the nine months under review, up 4.4% from a year earlier. This included VAT at 20%.

"Despite managing cost increases well below inflation through effective cost management initiatives, the company was unable to grow profit at a reasonable level against the same period last year. This is mainly due to the decline in volumes in the domestic market by 1.5% and the 61% decline in export volumes due to the discontinuance of some export brands to the Middle East," CTC said.

The company has already paid a first interim dividend of 10% in April and a second interim dividend of 12% at end July. A third interim dividend of 12% was paid at the end of October.

The directors have expressed the confidence of the board of "delivering a reasonable return" to shareholders for the current financial year.

CTC has an issued share capital of Rs. 1.87 billion, reserves of Rs. 17 million and retained earnings of Rs. 260 million in its books.

Net assets per share as at September 30, 2003 was Rs. 11.48, down from Rs. 11.93 a year earlier. The CTC share traded at a high of Rs. 48 and a low of Rs. 38.50 for the period under review. This compared with a trading range of Rs. 45 to Rs. 33 a year earlier.