Philip Morris Pakistan (PMPK) Limited, which is the second-largest tobacco company in Pakistan, announced its financial results for the first quarter ended March 31st, 2020.
The tobacco giant reported a profit of Rs. 361.40 million after taxes during the quarter. It had booked a loss of Rs. 1.2 billion after tax in the same period last year.
As per the financial statements, the company’s sales landed at Rs. 4.19 billion, almost flat as compared to Rs. 4.09 billion recorded in the corresponding period of last year. However, the cost of sales of the company increased by 16.25% to Rs. 2.72 billion as compared to Rs. 2.34 billion in the same quarter last year.
The gross profit decreased by 16% to Rs. 1.47 billion for the quarter ended March 31st, 2020. This was most likely due to a continuous decline in the company’s sales and an increase in costs.
The company recorded an Operating Profit before tax of Rs. 561 million for the three months ended March 31st, 2020 compared to an Operating Loss before tax of Rs 1.7 billion for the same period ended March 31st, 2019. However, the previous losses were mainly due to one-off impairment charges from last year’s factory closure by PMPKL. They are no longer reflected in the latest statement.
The company reported a massive decrease in other expenses during Q1 2020 as they were down by Rs. 2.537 billion. Earnings per share came in at Rs. 5.87 as compared to a loss per share of Rs. 20.56 in the corresponding period of the last year.
In the past, the company highlighted the increasing pressure on volumes due to the multiple excise tax increases. That continues to stretch the price gap between illicit and legally compliant tax-paying cigarette industry.
These excise tax increases instead of decreasing the overall consumption of cigarettes which still stands on 85 billion sticks annually showing that these taxes only resulted in adult smokers choosing cheaper and readily available non-tax paid illicit cigarettes leading to a decline in volumes of legally compliant tax paid cigarette industry and consumers shifting to illicit and cheaper brands. The illicit cigarettes are available for as low as Rs. 25 per pack as compared to the government’s minimum regulated price of Rs. 62 per pack.
Sadia Dada Director Communications at Philip Morris Pakistan told ProPakistani,
Over the past decade, we have invested in excess of USD 800 million in Pakistan however we continue to face challenges on the illicit tobacco trade which not only negatively impacts our business but also government revenues and the economy as a whole. According to a survey, illicit cigarette trade causes an estimated loss of Rs. 44 billion every year to the national exchequer. We appreciate the steps being taken by the government in this regard but we also feel that there is a lot more that can be done to create a level playing field for the compliant businesses in Pakistan.
Despite multiple tax increases, the company’s contribution to the National Exchequer, in the form of excise tax, sales tax, and other government levies stood at Rs. 5.7 billion which is 17% less compared to the same period last year Rs. 6.9 billion. It is worth mentioning that tobacco is one of the major contributors to FBR’s revenues.
The government revenues generated from tobacco, which are already on the decline as we can see from the results, may decline further if there are additional taxes on the sector in upcoming budgets as higher taxes will likely result in a further decline in volumes of the legitimate sector, accelerating the prevalence of illicit trade.
This could have a serious impact given the current economic crisis due to the pandemic and threaten livelihoods associated with the tobacco sector. Estimates indicate that share of illicit cigarette trade has ballooned over the past few years to as much as 40% and illicit cigarette trade alone results in a loss of Rs. 44 billion annually.