Carreras Limited has posted a near $4.3 billion one-off gain, identified only as 'distribution from subsidiaries' but the funds have had no impact on its bottom line.

The funds - which appear on the 'company' profit and loss statement but not the group accounts - on the face of it doubled the profits of Carreras the company.

But Carreras the group actually ended its financial year at March 31, 2009, with much lower profits.

Bottom-line income on the 'group' accounts was half a billion lower, falling from $4 billion or $8.24 per share to $3.5 billion or $7.27 per share, year-on-year.

In-and-out entries

The 'company', on the other hand, reported profit of $7.4 billion, more than double the $3.6 billion in bottom-line income reported in 2008.

Financial director Marcus Steele said the $4.3 billion entry was treated as an 'elimination', representing funds that were paid out to shareholders.

It's an 'in-and-out' entry," Steele said yesterday.

The monies included the special distribution made to shareholders after the Tax Audit and Assessment Department's phyrric victory over Carreras in a tax fight that denied the treasury more than $3.4 billion of penalty that the tax department had imposed on an inter-company transfer of funds involving the now dormant cigarette manufacturing subsidiary.

TAAD won the legal argument that the transfer was tantamount to a loan and taxable, and got a judgement of $2.17 billion plus another $100 million from the five per cent penalty charge allowed by the court.

Special distribution

The special distribution to shareholders pushed dividends paid by Carreras to a record $7 billion, some $4 billion was noted as intra-group transfers that Steele said would have been remitted to parent British American Tobacco, which owns 50.4 per cent of Carreras.

The distributions were also reflected on the company's balance sheet.

Carreras liquidated $2.9 billion of repos, while its stash of cash was down by $1.4 billion, totalling $4.3 billion of current assets.

There is on the other side of the group's balance sheet a similar decline in the company's net worth, which is down to $3.47 billion, from $7.77 billion.

Group assets fell from $8.5 billion to $3.8 billion as a result.

Carreras' lower profits at March 2009 were forewarned by the company, which in its third quarter, said it expected future performance to be weighed down by the increase in the special consumption tax on tobacco, continued rivalry from illicitly imported cigarettes, and inflation and foreign exchange risk.

The company raised prices to boost top line revenue, gaining almost two billion more in sales, from $9 billion in FY 2008 to $10.9 billion in the reporting period.

The costs incurred in building inventory and moving the product to market outpaced the revenues gains by $100 million; that plus higher marketing and administrative costs cut operating profit from $5.8 billion to $5.2 billion, and profit after tax by half a billion.

business@gleanerjm.com