Philip Morris Pakistan (PMPK) Limited, which is the second-largest tobacco company in Pakistan, announced its financial results for H1 2020.
The tobacco giant reported a profit of Rs. 1.25 billion after taxes during the first of half of the year. It had booked a loss of Rs. 591.59 million after-tax in the same period last year.
The increase in profitability was mainly driven by the increase in gross profits due to lower manufacturing cost and pricing coupled with a decrease in distribution and marketing expenses.
The overall increase in six months’ operating profit before tax from last year is mainly due to a significant decrease in other expenses by Rs. 2.35 billion mainly due to one-off impairment and employee separation cost charged on account of the closure of factory in Kotri coupled with a decrease in distribution and marketing expenses.
As per the financial statements, the company’s sales landed at Rs. 8.80 billion, down by 7.50% compared to Rs. 9.51 billion recorded in the corresponding period of last year. However, the cost of sales of the company was decreased by 10.40% to Rs. 5.17 billion as compared to Rs. 5.77 billion in the same quarter last year. This took the gross profits to Rs. 3.62 billion as compared with Rs. 3.74 billion.
The company is committed to continuously optimizing its cost base by ensuring the effectiveness of its distribution and marketing expenses. The operating profits were reported at Rs. 1.85 billion as compared with an operating loss of Rs. 517.25 million in the same period last year.
Earnings per share of the company during the first half of 2020 increased to Rs. 20.34 from a loss per share of Rs. 9.61.
Cigarette Industry Continues to Face Challenges
During the period, the legally compliant tax-paying cigarette industry continued to face challenges from the illicit cigarette sector, currently estimated at 35.2% of the total tobacco market (Jun’20 – Retail Audit). This was mainly attributable to the multiple excise tax increases that stretched the price gap between illicit and legally compliant tax-paying cigarette industry as well as the growing incidence of downtrading due to the presence of domestically produced, illegally available, nontax paid cigarettes in the market selling at prices lower than the legally permissible limit of Rs. 63/pack.
Philip Morris Pakistan sold 5.2 billion sticks in HY’20 compared to 8.3 billion sticks in 2019, resulting in a decrease of 37% compared to the same period last year, reflecting the rise of illicit cigarettes, whereas the company’s net turnover decreased by 7% for six months ended June 30th, 2020 due to price increases in Jun’19 and Feb’20 (despite 37% volume decline). The company’s contribution to the National Exchequer, in the form of excise tax, sales tax, and other government levies stood at Rs. 12.49 billion for the period.
The contribution registered a decrease of 21% as compared to the same period last year primarily due to a declining volume base of the legally compliant industry which is under pressure from the growing threat of illicit trade.
Philip Morris Pakistan believes that lack of a level playing field due to the prevalence of illicit cigarettes is a threat to the long term sustainability of the legally compliant tax-paying cigarette industry volume base and is detrimental for the government’s revenues.
During the period, Federal Budget 2020/21 was announced and approved with no increase in excise rates on locally produced cigarettes. The company believes this as an important step but doesn’t address the existing price gap between legally compliant tax paid industry and illicit.
In their view, the government should be taking sustainable measures through strict enforcement against the illicit sector.