Corporate profile: Pakistan Tobacco Company (fwd)

[Robert Weissman <rob@essential.org>]

Corporate profile: Pakistan Tobacco Company
by Dilawar Hussain
Source: DAWN Group of Newspapers, Sunday, 11/7/99

Pakistan Tobacco Company Ltd contributed an amount of Rs5.2bn to the
national exchequer in duties and taxes during Jan-June six months of '99.
That sum probably should stand out as one of the highest paid by any
corporate
 or individual tax payer in the country. But for all that, the company
posted a loss of Rs27.5m for the six months. Loss after tax for the period
stood at Rs42.5m.

Chairman M.P. Fenn, however, strikes an optimistic note in the directors'
half term review. He observes that the after tax loss for the period under
review was 40% lower than the loss of Rs 71.3m suffered in the
corresponding period of the earlier year. At the operating stage Pakistan
Tobacco managed to post 84.7% or Rs 181m more in operating profit
amounting to Rs180.9m for the period under review, compared to Rs97.9m
operating profit in the same term of '98.

Until some years ago, Pakistan Tobacco ranked among the top tier of the
blue chip companies that earned huge profits and paid robust dividends to
the shareholders. After an omission in '91, the company paid cash dividend
for three years until '95. The 10-rupee share in Pakistan Tobacco touched
five-year high at Rs 162 in '94. The scrip is now priced at Rs 16. But the
directors hope to 'return to distributing dividends in line with the
company's previous history'.

Paid-up capital of the company has remained unchanged at Rs 319.4m for
many years now. Due to robust reserves of Rs 640.7m, break-up value of the
share works out at Rs30.06. The previous surplus also enables the company
to wipe out the recurring red on the profit & loss account.

As one can recall, the company had perhaps suffered the first serious
reversal in '94, when it could only bolster earnings through the sale of
immovable property (residential property at Clifton, Karachi), which
yielded gain of Rs 56.9m. During '96, the company sold its Karachi factory
premises, which produced gain of Rs134.7m. That year, the company also
earned Rs354m from 'sale and licence back' of some of its trademarks to
the company's major shareholder.

In the winter of '94, Pakistan Tobacco had launched sunflower cooking oil
'Sundrop'. Its contribution to the total turnover during the period under
review has not been mentioned. Turnover during Jan-June '99 six months
improved 14.2% to Rs 7,924.8m, from Rs 6,937.0m in the similar six months
of '98.

Directors stated that the trading conditions for consumer goods had
remained difficult during the reporting period. Although the overall
cigarette market showed modest growth, consumers were moving towards
cheaper offers, into the low priced segment and also tax evaded brands. As
a result, Pakistan Tobacco volume sales showed a 7% decline during the
first half of '99 over the same period of the earlier year, although net
revenue had increased by a healthy 14%.

The company said the losses had been in Wills, Gold Flake and Embassy,
although the company's flagship brand, John Player Gold Leaf had continued
its growth pattern. Directors claimed that in spite of the volume pressure
caused by the adverse market conditions, consumer research showed an
improved performance of Pakistan Tobacco in key urban markets. The company
continued to urge strong Government action to control the tax-evaded
segment and counterfeit brands in the market, so as to protect the
legitimate industry and also Government's own revenue streams. The company
estimated that the Government could gain around Rs 3bn in additional duty
revenue by effective controls on illegitimate market.

Directors observed that the low category brands accounted for 60% of the
total market and Pakistan Tobacco's Embassy remained the dominant brand in
this category. Benson & Hedges was said to have continued to be a foremost
premium segment offer in the market.

For the six months under review, Pakistan Tobacco made gross profit of Rs
599.4m, up 49.6% from Rs 400.8m in the corresponding period of the earlier
year. Gross margin improved to 7.6% from 5.8% and operating margin to 2.3%
from 1.4%. Financial charges, which grew by 36% to Rs 210.5m, from Rs
154.6m, wiped out all of the operating profit, pushing the unit in the
red.

Short term finances and loans increased 31% to Rs 1,515.9m at end-June
'99, from Rs 1,155.7m at the same date in '98. Term loans amounted to Rs
475.0 ('98: Rs 370.0m). Current ratio worked out at 0.97:1. Including the
tangible fixed assets of Rs 1.5bn, total assets of Pakistan Tobacco at
June 30, '99 carried the book value of Rs 4.3bn.