Capital distribution, taxes expected to lower Carreras' earnings, says board

Published: Wednesday August 6, 2008

Carreras Limited board's decision to issue a further dividend of $1 a share to shareholders holding the stock on August 14, will bring the total payout for 2008 to just under $6 billion, or an average dividend yield of approximately 16 per cent.

In June, the cigarette distributor paid out $10.30 per share mainly through a capital distribution derived from the amount net of transfer tax, to be paid out of proceeds received from the liquidation of a subsidiary. In March, Carreras paid out $1 a share.

But the big payout to shareholders in June along with what the company says will be "more exposure" to tobacco taxes will reduce the company's earnings and likely dividend payments in the future, having sold off most of its assets and sharing up the proceeds with shareholders over the last four years.

"Having made a significant capital distribution in June 2008 to shareholders there will be a reduction in interest income and other investment income in future periods," said the company in its report to shareholders issued last week.

Investment income has typically raked in hundreds of millions of dollars for Carreras over the years, but has been declined each year since 2003.

Interest and other investment income declined from $370 million during the June quarter of 2007 to $181 million for the three months to June 30, 2008.

Furthermore, the company saw a drop in net profit during the period when compared to the corresponding period last year, from $1.1 billion to $760 million, on marginally higher sales - sales grew from $1.97 billion earned in the June quarter of 2007 to $2.05 billion in the period under review.

The decline was as a result of, when compared to last year's June quarter, a 14.2 per cent decline in cigarette sales volumes, due to "unprecedented increase in special consumption tax (SCT) of over 100 per cent and the subsequent implementation of a price increase in April 2008".

"Excessive speculatory trade overstocking of our brands in anticipation of excise increase positively impacted the January to March 2008 sales volume but had a commensurate negative impact on our April to June 2008 results," the company said.

"Going forward the company's performance will be more exposed to changes in tobacco taxation," the report added.
Since 2004, Carreras have made substantial distribution and dividend payments to its shareholders - nearly $21 billion - having sold off all of its non-cigarette related assets, which included the Sans Souci hotel, the Jamaica Biscuit Company and its 300-acre high mountain coffee plantation.

Faced with declining volumes and potentially more taxes along with lower capital base - $3.6 billion as at June 30 down from twice that amount a year before - from which to make distributions, this year may be the last year that Carreras' shareholders will see huge dividend windfalls.

The latest dividend of $1 a share will be paid on August 29 for shareholders shown by the register of members on August 14. The X-date is August 12, 2008.


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080805T210000-0500_138691_OBS_CAPITAL_DISTRIBUTION__TAXES_EXPECTED_TO_LOWER_CARRERAS__EARNINGS__SAYS_BOARD.asp