Black market blamed for cigarette maker’s fall in sales volume

Tobacco distributor PJ Carroll increased its profit last year following “numerous years of decline” after cutting costs at its Irish operation.

The company, which sells products including Camel, Lucky Strike and Rothmans, recorded pretax profit of €5.68 million for 2017, up almost 13 per cent on the previous year, recently filed accounts show.

But directors blamed the black market in cigarettes as one of the causes behind the reduction in its sales volume. In their review of the company, the directors flagged black market sales as a “huge challenge facing the business”.

“PJ Carroll commends the gardaí and Revenue Commissioners for their continuing efforts in fighting the illicit trade of tobacco products. However, the black market is still at a very high rate in comparison with other EU countries due to the high prices of tobacco products and repeated excise hikes introduced in Budget 2017 (50 cent) and Budget 2018 (50 cent).”

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Excise duty

Turnover for the company, which previously manufactured cigarettes in Ireland before moving that operation to Poland, fell almost 2 per cent in the year to €201.6 million. The majority of that, or €175 million, comprised excise duty and other taxes.

In the 12-month period the company cut its sales and marketing costs by 10 per cent to €6.5 million and cut its workforce by seven people to 22. Its wage and salary costs also declined to €1.48 million.

Having been acquired by Rothmans in 1990, which was subsequently acquired by British American Tobacco, PJ Carrolls has a loan from subsidiary undertakings of €48.8 million, up more than €4.4 million on 2016. BAT, incorporated in the UK, is the company’s ultimate parent. It received a dividend of €1.09 million from the Irish arm during the year.

In its accounts, PJ Carroll noted it is a defendant, along with other cigarette manufacturers, in a number of product liability cases in the Republic.

“If, despite the defences available to PJ Carroll & Company Limited, there were to be adverse final judgments, such developments could materially affect the results of operations or cash flow of the company,” it noted in the report.

Nevertheless, the company didn’t make any provision in respect of pending litigation.

Aside from the risk of litigation, the company listed a sustained level of illicit tobacco trade and the introduction of “stringent regulatory measures, such as standardised packaging” as factors accelerating the decline in “legitimate cigarette sales”.