Tobacco giants’ profits remain golden

Despite tobacco industry claims that one-third of its market in Ontario and Quebec has been grabbed by smugglers, the cigarette companies’ financial reports don’t show much impact on their performance.

Healthy results reported by all three major tobacco producers indicate the contraband problem has not been as damaging as the industry is making it out to be.

Imperial Tobacco

Imperial Tobacco logo is seen under dry tobacco

Rothmans Inc., which makes Rothmans and Benson & Hedges, reported profits of $67.2 million for the six months ended Sept. 30, up from $57.6 million a year earlier. Sales rose to $357.1 million from $328.1 million. The company also boosted its dividend, citing its strong financial performance.

In Rothmans’ financial report, president John Barnett said: “The growth in contraband continues to have a negative effect on all legitimate industry participants.”

Recent quarterly reports from Imperial Tobacco Canada, the nation’s dominant tobacco firm, indicate that company is also performing well despite its claims that contraband cigarettes are eating into its profits.

Imperial Tobacco‘s parent company, British American Tobacco, which makes Players, reported Imperial’s profits for the first nine months of 2007 at $400 million. Though this was down about $40 million from the previous year, third-quarter profits actually rose, the company noted.

The company blames the decline on increased distribution costs, smuggling and lower exchange rates for the Canadian dollar.

Imperial spokesperson Catherine Doyle said that while profits may not reflect huge losses to smuggling, “we are still very concerned about it.”

JTI Macdonald, which makes Export A, is owned by Japan Tobacco Inc. and does not report separate Canadian figures.

But its 2007 six-month report shows a worldwide increase of 51.8 per cent in sales after taxes, to $3.4 billion U.S.

An industry-funded study in May claimed about one in three smokers in Ontario and Quebec buys contraband cigarettes.

“These companies are still making huge profits,” said François Damphousse of the Non-Smokers Rights Association.

Although the RCMP report their seizures have increased from 1994, when tobacco smuggling was also widespread, this does not necessarily reflect a huge proliferation in contraband, Damphousse said.

The seizures are almost all from runners out of the Akwesasne reserve near Cornwall, Ont., he said.

“It’s maybe easier to seize (from runners) because they know where it’s coming from,” he said. “But it’s the most ineffective way (to stop smuggling).”

Most of the illegal tobacco producers are located on the U.S. side of the Akwesasne reserve.

Jerry Montour, chief executive officer of Grand River Enterprises, a federally licensed tobacco producer on the Six Nations reserve near Brantford, Ont., said the simplest way to stop the smuggling is to lay charges against companies that supply tobacco, paper, filters and machines to illegal producers.

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