Cigarette sales drop in 3Q after two quarters of volume growth

• CTC says volumes down 14.2% in 3Q18
• Taxes to govt. down by almost Rs.2.5bn

The sales dropped at Sri Lanka’s monopoly cigarette player, Ceylon Tobacco PLC (CTC), during its most recent quarter, after two quarters of volume growth, with the government again hiking the taxes in August 2018, which led CTC to jack up the prices of some of its products. 

During the July-September quarter (3Q18), CTC said the cigarette sales fell 14.2 percent from a year ago and as a result, the gross revenue fell by almost Rs.3.0 billion to Rs.33.0 billion. The net revenue also fell by about Rs.600.0 million to Rs.7.5 billion.

“The company’s continuous efforts in managing the cost base while focusing on right investments contributed positively to offset the drop on the net turn over for the period,” CTC said in an earnings release.

The fall in sale of cigarettes also eroded the levies paid by CTC to the government by almost Rs.2.5 billion to Rs.25.5 billion. The company has so far this year paid over Rs.85.5 billion in excise and other duties to the government.

CTC experienced a recovery in sales during the first two quarters of this year, after the 43 percent excise duty increase in the fourth quarter of 2016, which led to substantial price increases. 

After a hiatus of about 21 months, the government announced Rs.3.80 per stick excise duty increase with effect from August 21, 2018, on 72mm and 84mm cigarettes, which led CTC to raise the prices of its most popular cigarette brand by Rs.5.00. 

CTC’s earnings for the quarter under review fell Rs.19.46 per share or to Rs.3.6 billion, from Rs.21.02 per share or Rs.3.9 billion recorded for the same period, last year.

CTC noted that the growth in low-taxed products such as beedi and smuggled illicit cigarettes remained as a key threat to government revenue contribution from the regulated tobacco industry.

CTC estimates the smuggled illegal cigarette market in the country at 500 million sticks per annum. The revenue loss to the government from smuggled cigarettes is estimated at Rs.20.0 billion per annum.

“The trend is expected to grow due to the widened gap between the prices of legal and illicit cigarettes available in the market as well as the current macroeconomic factors that are impacting consumer spending power,” CTC said. 

The law enforcement agencies had carried out 909 raids on smuggled cigarettes during the first half of this year.

Sri Lanka has a completely unregulated beedi market that caters to the lower strata of society, which according to some, is bigger than the regulated cigarette market.
Beedis are awfully cheap, priced at Rs.5.00 a stick—still Rs.15.00 cheaper than the lowest priced legitimate cigarette in the country. 

British American Tobacco Holdings (Sri Lanka) BV holds an 84.13 percent stake in CTC while the world’s largest cigarette maker, Philip Morris, which is now leading the global campaign for alternative products such as e-cigarettes, which are considered less harmful to human health, has 8.32 percent in CTC, being the second largest shareholder. 

The directors recommend a third interim dividend of Rs.19.00 per share to be paid on November 29, 2018.