Philip Morris Pakistan Limited is a public listed company on the Karachi and Lahore Stock Exchanges and is an affiliate of Philip Morris International Inc (PMI). Amongst the two multinational tobacco companies in Pakistan, Philip Morris Pakistan Limited (formerly known as Lakson Tobacco) stands at number two to Pakistan Tobacco Company.
The tobacco company is involved in the manufacture and sale of cigarettes for the domestic market. It currently operates three cigarette factories with primary and secondary facilities and one tobacco leaf threshing plant, all located in various parts of the country.It also runs an extensive tobacco leaf agronomy programme in the tobacco growing areas of Khyber Pakhtunkhwa.
The company is also involved in CSR activities where it is engaged in undertaking various initiatives in the education, environmental sustainability and disaster relief sectors to give back to the community it operates in.
Brand Portfolio For the domestic market, the company offers 10 brands of cigarettes.
Of the main ones, it markets and sells both international brands like Marlboro and Red & White, and locally owned brands like Morven Gold, Diplomat, K2.
Highlights CY11 has been a challenging year for Philip Morris and the tobacco industry due to the weakening economic situation fuelled by power crisis and rising inflation.
The company faces stiff competition from its Competitor Pakistan Tobacco Company which has a market share of almost 60 percent.
Moreover, the illicit market is a serious concern for the company as it accounts for almost a 20 percent market share.
The detrimental impact of the non tax-paid industry extends to not only the company but to the legitimate industry as a whole and also the government as it reduces inland revenue.
The company faces high taxes and duties expenditure as it is a cigarette manufacturer and an importer.
The company's sales tax and excise duty as a percentage of its gross turnover for the CY11 stood at a little above 61 percent, and this share has remained fairly constant over years.
The year saw weaker sales by four billion cigarettes and eroding market share with the heightened activity of the non tax-paid tobacco brands.
Overall the profitability of the company went into negative returns compared to CY10.
Thought still significant, Philip Morris's contribution to national exchequer went down by 4.6 percent YoY during CY11.
Revenues and Profitability Gross turnover experienced a decline of five percent from Rs 34 billion for CY10 to RS32.3 billion in CY11.
The decline in gross revenue is not only due to the tough economic environment, high government taxes and illicit trade but also due to the successful launch by PTC of its brand, Capstan which alone has a market share of 14 percent.
Though the sales tax and excise duty were considerably less during CY11, the gross profit was affected by a surge in the cost of sales by six percent during CY11 compared to CY10.
This rise of six percent is significant to the company as the cost of sales ate away almost 75 percent of the gross revenues in CY11 on the back of rising energy costs, security related expenses and high inflation.
Gross margins had a steep decline to 24.8 percent during CY11 compared to 32.7 percent for comparable period.
Meanwhile the marketing and distribution activities were affected by the decline in sales by 12 percent YoY in CY11.
In CY11, the company recorded a loss after tax of Rs 455 million with a net margin of negative 3.6 percent compared to the profit after tax half a million rupees for CY10.
This was largely due to an increase in the finance costs and other expenses which included property, plant and equipment write-off.
On the other hand, the EPS for PTC for the same period in consideration also registered a fall of 60 percent, showing that the trend of falling margins and profits continue to plague the industry as the illicit sector attracts consumer attention.
Liquidity Position Compared to the current ratio of 0.81 of PTC, Philip Morris Pakistan had a ratio of 1.51 for CY11.
However, a current ratio of higher than one and the industry average suggests that the company is not investing excess assets.
Also, the company has no long-term debt on its book but a significant portion of current liabilities as shortterm borrowings, suggesting that the company is facing working capital problems.
Philip Morris took running finance facility from various commercial banks worth Rs 6 billion in each of CY11 and CY10.
Operations and Issues PTC outshines its rival Philip Morris Pakistan Limited in its efficiency at using its assets in generating sales revenue.
The fixed asset turnover in CY11 for Philip Morris Pakistan stood at 3.19 compared to 11.08 of PTC.
The company however, increased its investment in property, plant and equipment to Rs 769 million in CY11.
This increase of 27 percent over CY10 figures is reflective of the investment for modernising and upgrading of manufacturing facilities.
The company faces two significant problems: Primarily due to the injurious nature of the industry, the authorities have been maintaining higher taxes and duties in order to comply with health regulations, and as a result increase cigarette revenue.
Secondly, cigarette revenue has been cut short due to the mushrooming of cheaper illegal, smuggled and counterfeit sector.
Outlook The tobacco industry was seriously affected by the floods during the summers and hence the aftermath in shape of deterioration in the already dwindling economy.
The continuing growth of the illicit tobacco industry has put the legitimate sector at perils and has served to be a great threat to the income stream of the government by the tobacco industry- the highest tax paying sector.
However, the FBR has taken a step to stop the menace, anticipating some respite in the threat from the illicit sector.
The Directorate General of Intelligence and Investigation Inland Revenue, FBR has started a countrywide onslaught targeting the non-duty paid tobacco sector.
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