Clampdown on smuggled cigarettes ups DEMTOCO profits

Aug 15, 2018 News

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The country’s main tobacco company is reporting higher profits for the first half of the year, thanks in no small part to anti-smuggling activities.
According to the company’s Interim Financial Report as at June 30, 2018, Chairman, Marcus Steele, in his review, disclosed that a profit before taxation of $1.3B has been recorded for the six-month period. This represents an increase of 10% over the corresponding period in 2017. Gross Profit for the period was recorded at $1.7B reflecting an increase of 2% over 2017.
The Chairman noted that the positive results were driven by “the excellent trade marketing efforts of the staff members, the on-going and positive distribution efforts by our business partner E.B. Beharry, and the disruption in the supply chain in the illicit trade in cigarettes, which flowed from a few major confiscations by the Guyana Revenue Authority (GRA), and the impact and implementation of some other anti-illicit trade measures by the authority.”

“Administration, distribution and marketing expenses totaling $419M (2017: $510M) represented an 18% decrease signaling strong success by the management in reducing overhead costs and strengthening our operating efficiencies.”
Steele noted that the sales volume for the 6-month period ending June 30, 2018 was on par when compared with the same period last year. “This performance is indeed commendable especially when it is recalled that the company effected an industry price increase in January 2018.”
“There is no doubt that the company is operating in a fundamentally new regulatory environment. With the passage and commencement of the Tobacco Control Act, as well as the implementation of a Tax Stamps system for Tobacco products in Guyana by the GRA, the company has been embarked upon a focused drive to ensure compliance and readiness for this new operating reality. It is true, that this new regulatory reality is not specific to Guyana, but is indeed a feature of the tobacco industry worldwide, but I am pleased with the management’s response to date, in both preparing the company, as well as communicating and educating our customers and consumers.”
The Chairman also pointed to a number of things done differently. There were also additions to its brand portfolio since the start of the year, with the Pall Mall Click On.
“The company is also pleased with the continuing resilience in its local beauty, Bristol, and the strong performance by Dunhill, all of which have resulted in an overall strengthening of our brands. There is no doubt that the management and wider team is proactively responding to evolving market trends and insights, to strengthen and make robust our brand portfolio, all towards business sustainability and the long-term growth of shareholder value.”
However, according to Steele, there were challenges too.
“In all of this, the continuing difficult and sluggish economic conditions and the increasing presence of illicit brands continue to be challenging for the business. To this end, the company continued its focused engagements with the relevant stakeholders on this specific issue of the illicit trade in cigarettes. We are also working with the authorities regarding the transition to being in full compliance with respect to the implementation of the tax stamps system for all tobacco products.”
Simultaneously, the company said it is far advanced as it seeks to become compliant with the Tobacco Control Act.
“Going forward, the company will continue its efforts to ensure full compliance with this new piece of legislation, engaging critical internal and external stakeholders, including key agencies of the government (the GRA and the Police), as well as communicating and sharing with customers, retailers, wholesalers and consumers, what compliance means and what it entails.”
The company also lauded the government and specifically, the GRA, for its continued robust monitoring of the industry, in continuing to identify, apprehend, confiscate and prosecute, the illicit traders of cigarettes, which continues to rob the government of millions of tax revenues.
“Without the said measures, it is estimated that the Government would have lost $45M in tax revenues in the first-half of 2018. Hence, we are urging the authorities and the GRA in particular, to move quickly to close the continuing gaps that are enabling the illicit traders in their quest to evade the requisite excise and taxes on tobacco products.”
In May, after months of preparing, GRA introduced the stamping of cigarette packs as a means of preventing smuggled, untaxed cigarette from hitting the streets.
Under new tobacco laws, smoking is not allowed in public places where crowds are, with vending also not allowed on trays or loose cigarettes being sold from bottles; minors are also not allowed to buy.

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