Carreras' new boss says company here to stay

 But Pandohie believes business model has to adjust

Sabrina Gordon, Business Reporter

Richard Pandohie, as did his predecessor, knows that for all the profit it has generated in the past, Carreras isn't an easy business and things will only become more difficult.

In fact, at the reception last Christmas where Michael Bernard formally retired as managing director of Carreras Ltd, the outgoing CEO made it clear that negotiating the regulatory environment in which the company operates, including the high taxes it pays, were likely to be the major challenges confronting his successor.

Pandohie clearly agrees.

"It's like a relay," he told the Financial Gleaner in a recent interview. "I have got a flying start and the idea now is not to drop the baton."

The problem for Pandohie is that Carreras, a listed subsidiary of the British America Tobacco, markets and sells cigarettes.

And, is happening globally, not only is there a growing anti-smoking lobby, but there is increasing government restrictions on how, and to whom, its products can be marketed.

Additionally, tobacco is among the first place that governments, including Jamaica's, tend to look for taxes every time they need cash to cover budget gaps.

"We are really a tax collector for the government," Bernard quipped at that December hand-over function.

And this, Pandohie believes, provides the basis for a partnership with the Government to - perhaps, paradoxically - defend Carreras' business.

Here's the point. Carreras has for a long time been a highly profitable business, with net profit of $4.5 billion for the financial year that ended in March 2010. The year before that, its net profit was $6.1 billion.

The upshot: in 2009, the company's income tax bill was $1.9 billion. Last year, the Treasury collected $1.5 billion. Indeed, in 2010 Carreras' payment represented five per cent of all the corporate income tax collected by the government.

But company officials say that is not all. By Carreras' reckoning, when all the other add-ons are taken into account, the value of two out of every three cigarette sold in Jamaica represent tax to the Government.

Management trainee

Pandohie - he started his career in the early 1990s as a management trainee at the new defunct Cigarette Company of Jamaica, when British American still manufactured here - believes that this could be in jeopardy given a growing black-market trade in cigarettes. For while Carreras has a monopoly on cigarette imports in a market that consumes about a billion sticks a year, or approximately 385 for each Jamaican, Pandohie estimates that the blackmarketers, often with counterfeit products, have captured up to 40 per cent of the sale

The blackmarketers pay no taxes and this, Pandohie says, translates to around $6.7 billion a year in lost taxes to the Government.

In that sense, both the Government and Carreras, Pandohie argues, have a stake in fighting the the illicit cigarette and structuring a tax regime that "will ensure the viability of the company".

"If you look at it, the model cannot be sustained because of the rate of decline" of legal cigarette sales, he says.

The issues in this regard, Pandohie suggests, are beyond mere complaints about the taxes on cigarettes.

He says: "We want to partner with the Government. So, it's not just about complaining about taxes.

"We want to make sure legislation is in place that allows for the company to have some breathing space and not to create the opportunity for people to get in, in an illegal way."

Already, direct cigarette advertising is not allowed in Jamaica; and Carreras has to put strong warnings about the dangers of smoking on its packets.

Campaigners want the Govern-ment to go even further, such as banning smoking in public spaces and requiring the company to put even more specific information about the effects of smoking on its packages.

But Pandohie, like his predecessor, insists that his company is a responsible marketer of cigarette that does not target minors. It advocates responsibility among smokers and the respect for the rights of non-smokers, they say.

In fact, Pandohie says, Carreras' approach takes into account the entire constituency, "including smokers and non-smokers".

"...There is a shift in the landscape, we have increasing legislation relating to smoking," says Pandohie. "So, our ability to communicate with customers/consumers will also change radically."

The strategy, therefore, requires "getting a lot closer to your customer, being on the ground a lot more because you can't advertise".

"You have to be in the trenches with your team," he says.

Directly advertise

In recent years, with the elimination of the right to directly advertise, Carreras as turned to marketing its products at entertainment events, mostly attended by young people. It has also attempted to burnish its image for corporate social responsibility by offering bursaries and scholarships to tertiary students.

Until he returned to Jamaica to understudy Bernard for the top job, Pandohie worked in recent years in Trinidad and Tobago at the BAT regional operations there. There are those who now question his BAT's long-term agenda in this market and, in that context, the meaning of Pandohie's appointment.

This group, for instance, question the long-term viability of the company and whether Pandohie represents the first of a new generation of CEOs whose jobs will be squeeze as much profit out Carreras before closing its doors, either because of government regulation or unfair competition

The second point brings a rejection from Pandohie.

"We have not even contemplated going down that route, a critical path in which we have to pull out of the business," he says. "I don't think the Government, our partner in business, would allow us to get to that point where we have to contemplate pulling out."

He adds: "Carreras is a local company, we intend to stay here, we intend to fight".

But the new situation, Pandohie concedes, will require revision to the business model and operational strategies.

"We have to continue to be very efficient, have to look for efficiency in every which way, have to squeeze cost out of the business and make sure it is going into value-added activity," he says.

sabrina.gordon@gleanerjm.com