While Demerara Tobacco Company Limited raked in $2.5b in profits before tax for 2017 that sum still represented a 9.5 per cent decline compared to 2016 and the after-tax profit for 2017 was $1.41b compared to $1.56b in the preceding year.
The after-tax profit was the lowest over the last five years. The after-tax profit in 2013 was $1.85b.
The board’s new chairman Marcus Steele. who replaced Felicio Feraz, told the Demerara Tobacco Annual General Meeting (AGM) held on Tuesday at the Pegasus Hotel that gross revenues for the cigarettes seller also declined by four per cent in 2017 when compared to 2016. The decline in 2016 from 2015 was five per cent.
The drop in revenues, in the first instance, he said, was because of the challenges in the country’s macro-economic situation in which there was a reduction in sugar and gold revenues which impacted on employment and people’s disposable income.
In the second instance, he said, the passage and promulgation of the Tobacco Control Act with pending regulations to govern the industry, and Government’s decision to institute tax stamps for all tobacco products being traded and distributed in Guyana had a part to play in the revenue decline.
“Though these measures will come into effect sometime in 2018, the company, certainly has started to experience some market fluctuations,” he said.
In his address, Steele said that while the government views the introduction of the tax stamps as a tool to protect and expand revenues, Demtoco has proactively implemented a tax code measure on its packaging to show that there is a more cost-effective way to track and trace the validity of its products.
He told the media subsequently that there has been some dialogue with the Government on the outstanding regulations because the company believes they are very important to the survival of the industry.
“Regulations without consultations tend to be a disaster both for the Government and the industry both from a public health and revenue perspective. Our job is to ensure that does not happen. We have reached out to Government and they have been open to listen to us.”
Managing Director, Maurlain Kirton said that the Minister of Public Health has agreed to a meeting with the company. The company has prepared a tentative agenda in which it would like to address six key areas of concern. They include the ban on vending or selling in trays, the ban on tents, the ban on sponsorship and promotion, and the issue of the use of corporate branding. She hopes the meeting could be held within the next two weeks.
“We are particularly concerned with the new law which speaks to the fact that the tobacco industry is to be excluded from any discussions and consultations on the development of public policy that directly affect our business and industry”, Kirton said in her Managing Director’s overview.
The legislation, Kirton said, extends itself beyond product branding to threatening their corporate brand which has been around for 84 years.
The company will be compliant with the legislation but there are going to be some consequences, she said, including an increase in illicit trade.
“It is already at about 25 percent of the total consumption. So while Demtoco continues to pay its fair share of taxes, there is a group of importers who are not doing that.”
From an industry perspective, she said, “We believe there is not strong enforcement. For the illicit trade not to grow at its current rate, we need strong enforcement.”
She added that the macro-economic factors such as less disposable income and foreign exchange fluctuations resulted in the down trading from the Bristol to the Pall Mall brand.
Applauding the Guyana Revenue Authority’s imposition of a tax stamp measure for importers, and even though Demtoco is not targeted, she said, the company believes that if there is no enforcement, “the situation that we face today can get worse and Government will eventually lose revenue from the legitimate industry which is Demerara Tobacco.”
Giving an example, Steele said, the first part of Jamaica tobacco legislation was not tidy and the illicit trade moved from below 10 percent to almost 30 per cent. The Jamaican Government is now losing billions of dollars in revenue and has to rethink its strategy.
He said that during the period under review, Demtoco was able to successfully engage with the authorities on fully understanding the negative implications from aggressive and unmitigated taxation of the industry.
“Examples wherein excessive excise increases led to reductions in government revenues and the growth in illicit trade in cigarettes were presented to the authorities”, he said.
Despite the challenging economic environment, Steele told shareholders, the company was able to pay four interim dividend payments totaling $53.46 a share for 2017 with a final in the value of $7.07 per ordinary share. “This represents a 6.73% return on investment at December 31, 2017’s share price,” he said.
Dividends paid per share were 62.71 last year compared to 66.68 in 2016. In 2013 this figure was 79.06.
In spite of the challenges, he said, Demtoco still maintains the highest share price on the Guyana stock exchange which speaks to the resilience of its brand portfolio, and plans and strategies implemented by its management team and workers.
Asked by a shareholder on the floor about the company floating shares in the future, Steele said, the issue will be discussed and a report will be made at the next AGM.