Illicit trade, new packaging guidelines major challenges for Demtoco

…as company records 14.4% increased profits

Guyana’s leading cigarette distribution company, the Demerara Tobacco Company Limited (Demtoco), has recorded a 14.4 per cent increase in pre-tax profits, which represents its highest growth in five years.

This company, which distributes popular brands of cigarettes, like Bristol and Pall Mall, has been grappling with many challenges, including the continued illicit trading in cigarettes; and the market was only recently shaken up with the introduction of tightened regulations governing the trading in tobacco products when new legislation was introduced two years ago.
These obstacles have been taking a toll on the company’s operations, and the firm, in 2017, recorded a 9.5 per cent decrease in pre-tax profit when compared to 2016. The pre-tax profit for 2017 stood at $2.5 billion.
In fact, over the last three years, Demtoco has been recording declining profits. In 2017, after-tax profit stood at $1.4 billion, whereas the company had raked in $1.5 billion in 2016 and $1.6 billion in 2015.
But last year the company made a stunning rebound, recording a significant $2.9 billion in pre- tax profit. After taxes were deducted, the profit stood at $1.6 billion.
How did Demtoco rebound?
Chairman Marcus Steele, in the Demtoco 2018 Annual Report, attributed this success to “solid and transformative leadership”, the company’s “high performing and motivated team”, “stringent and superior internal cost-base management”, and the “strengthening of key business partnerships”.
He added: “A significant reduction of 14.8 per cent in overheads and noticeable financial gains in our volumes also contributed to the good profit outcome.”
As a result, shareholder value has been demonstrated by a 16.3 per cent growth in earnings per share over the previous year.
Steele also posited that Demtoco’s brands remained strong, and the firm’s “moderate” pricing strategy had contributed to a 4.5 per cent increase in sales.
Further, he said new regulations introduced by the Guyana Revenue Authority (GRA) have contributed significantly to levelling the playing field.
The GRA has implemented the application of special excise stamps on imported alcohol and tobacco products with a unique barcode feature, to allow enforcement officials to immediately determine whether taxes have been paid on these items.
“This measure has certainly gone a far way towards ensuring a level playing field across the industry,” Steele has declared.

Challenges
Despite these successes, the company continues to deal with serious challenges that greatly impact its operations.
“The illicit trade in cigarettes continued to be an increasing challenge to the legal tobacco industry, revenue collection for the State, and the law enforcement operators in Guyana,” the Demtoco Chairman has said.
He has said that the struggle is to prevent smuggling; tax, duty and excise evasion; and the introduction into the local industry of cigarettes that do not comply with the labelling and packaging requirements of Guyana.
“These cigarettes do not pay what is due to the nation in the form of excise (taxes) and duties,” Steele has said.
Moreover, he has said that the 2017 Tobacco Act and the new labelling and packaging guidelines have contributed to the company’s challenges.
The guidelines basically stipulate that 60 per cent of the package and label of tobacco products must bear graphic pictorial health warnings provided by the Ministry of Public Health. The other forty per cent is for branding. These health warnings must highlight the harmful effects of tobacco.
Political uncertainty and the country’s economic position were also cited as challenges.

The Future
Nonetheless, the company predicts a successful future ahead. “Wider economic intelligence forecasts strong growth,” Steele has said. “We will continue to build on our momentum as we support regulators, the Government, and international organisations in the establishment of workable tax regimes and economic policies which attack the illicit trade,” Steele has said.
Further, he has said that even amidst changing consumer patterns and with affordability being a key factor across all sectors, Demtoco is well organised and resourced to successfully meet the growing demands and future challenges.