Ceylon Tobacco Grows Profits Despite Shrinking Sales

Source from:  The [Sri Lanka] Island 03/10/2010

Ceylon Tobacco Company PLC (CTC) has continued to skillfully walk a tight rope enhancing profitability despite contracting sales volumes by posting a group profit after-tax of Rs.4.1 billion in the year ended December 31, 2009, up from the previous year's Rs.2.76 billion according to the company's just published annual report. CTC Chairman J.D. Bandaranayake claimed that the company had demonstrated corporate excellence during the year under review both from an operational and financial point of view. "Hopefully society at large sees us as a responsible company in the conduct of all organs including the manner in which we market tobacco products," he said. CTC has in recent years increased its contribution to government coffers and has long been a key source of government revenue having in 2009 contributed a total of Rs.52.4 billion, 7.6% of the country's total tax revenue, to the national exchequer. Bandaranayake noted that this comprised approximately 2.2% of GDP. The company, in the context of growing realization of the dangers of smoking, has been operating in a stagnant market with contracting demand and the chairman attributed the excellence of CTC's financial performance in the teeth of a challenging market situation to what he called "its effectiveness and efficiency across each of the company's strategic pillars." He told shareholders that they must be aware that the revenue expectations of government must be met particularly in the context of the present stress on development with a clear vision for the future. The company's CEO, Mr. Mustanser Ali Khan, noted that CTC's contribution to the national exchequer was up 8% during the year under review from a year earlier with the company contributing 90% of its gross revenue to government coffers despite continued contraction of sales volumes of cigarettes over the past few years. The year under review had seen the government persisting in its drive against illicit cigarettes (CTC is the only legal cigarette manufacturer) with approximately 1,890 raids carried by law enforcement authorities. "Sri Lanka continued to be one of the few countries in the region to continuously sustain efforts against illicit cigarettes, and was thus an exception, as like markets in the region witnessed a growth in the informal sector," he noted. "These actions proved to be of fundamental importance to ensure continued growth in government as well as CTC revenue." Khan praised government's efforts to embed the Tobacco Registration Process, differentiating the informal and formal tobacco sectors, and was confident that the drive towards formalizing the entire tobacco sector was greatly sustaining the flow of government revenue. He reported that the company's productivity led initiatives throughout last year will allow CTC to achieve impressive cost containment targets of beyond Rs.1 billion posted last year. Shareholders of the company had been handsomely rewarded by CTC's impressive performance during the year under review with a dividend of Rs.21.90 per share, up from Rs.14.68 the previous year with the company's share price closing at Rs.185 against Rs.66 at the end of the previous year. CTC has a stated capital of Rs.1.87 billion, capital reserves of Rs.15 million and retained earnings of Rs.1.47 billion in its books. Total assets stood at Rs.10.77 billion against total liabilities of Rs.7.4 billion. British American Tobacco Holdings (Sri Lanka) BV with 84.13% of the company remains its dominant shareholder followed by FTR Holdings SA with 8.32% and Pershing LLL SA (0.83%). The National Equity Fund, Eagle Insurance Company, Ceylon Chamber of Commerce and the DFCC Bank are among the top 20 shareholders although their individual holdings are all under one percent of the company. The CTC share traded at a high of Rs.193 and a low of Rs.69 during the year under review against a trading range of Rs.80 to Rs.53 a year earlier. Group net assets per share were up to Rs.17.93 from Rs.14.21 the previous year. The directors of the company are: Messrs. J.D. Bandaranayake (Chairman), Mustanser Ali Khan (CEO), Bruce Jalleh, Vijaya Malalasekera, Deva Rodrigo, Susantha Ratnayake, Mobasher Raza and Ariyaratne Hewage. Enditem