Philip Morris declares 37% growth in half year net profit

Philip Morris declares 37% growth in half year net profit

KARACHI: Philip Morris (Pakistan) Limited on Friday declared over 37 per cent growth in net profit for the half year ended June 30, 2021.

Philip Morris (Pakistan) Limited is one of the largest manufacturers of cigarettes in the country.

The company posted a profit after tax at Rs1.72 billion for the six months period ended June 30, 2021 as compared with Rs1.25 billion in the same period of the last year.

According to the half yearly report issued by the company, Pakistan’s economy has started gaining momentum and we appreciate the Government’s efforts in this regard especially towards ease of doing business, growth in large scale manufacturing, strengthening of governance, widening tax net etc.

However, the spread of new variants (locally and globally) amidst the ongoing fourth wave of the pandemic might pose a risk to this growth trajectory. While dealing with the pandemic our priority remained the safety of our employees and stakeholders.

In line with the Government directives, the company encouraged the employees for vaccination and the Company’s offices across the Country are operational with relevant SOPs in place with the close monitoring of the pandemic situation.

No change in excise rates on cigarettes during federal budget 2020/2021 proved to be positive for Government Revenue and the Company’s contribution to the National Exchequer during fiscal year (July’20-Jun’21) in the form of excise duty, sales tax and other government levies, which stood at PKR 24,052 million (higher by 18.7 per cent compared to the previous fiscal year July’19-Jun’20). No change in excise rates during the fiscal year 2020/21 also led to consumer price stability of the legitimate cigarette brands.

However, the issue of non-tax paid illicit cigarettes continues to have a detrimental effect with a market share of approximately 40% (which in 2013 was 23%) resulting in an annual loss of PKR 70-77 billion (estimated) to the national exchequer. The past decade has witnessed a growth of local cigarette manufacturers across Pakistan (including AJK) manufacturing over 100+ brands, selling at a lower price than the minimum price prescribed under tax laws for the purposes of levy and collection of federal excise duty i.e. PKR 63 per pack.

Such products can be found in the market being sold between PKR 25 to PKR 38 per pack. In addition to violating the tax laws, these manufacturers continue to advertise and incentivize cigarette smokers to purchase their brands by offering cash prizes, gifts and travel opportunities, which is a violation under tobacco advertisement control guidelines issued by the Federal Ministry of National Health Services Regulations and Coordination.

During the six months ended June 30, 2021, despite all the challenges above, the Company’s net turnover stood at PKR 9,224 million reflecting an increase of 4.7% versus the same period last year. During the six months, the Company’s contribution to the National Exchequer, in the form of excise duty, sales tax and other government levies, stood at PKR 14,435 million (higher by 15.5% compared to the same period last year) reflecting 60% of half-yearly Gross Turnover.

The Company recorded Profit After Tax of PKR 1,720 million for the six months ended Jun 30, 2021 (compared to Profit After Tax of PKR 1,253 million for the same period last year) equivalent to 7.2% of half-yearly Gross Turnover.

Distribution & Marketing expenses showed an increase over the prior year reflecting our continued commitment to allocating resources for initiatives behind building brands and route to market activities whilst remaining compliant with applicable laws that can earn the best returns coupled with lower expenses in Q2’20 driven by COVID 19 lockdown measures.

Further, the company continues to find efficiencies in Administrative Expenses to ensure the increase remains under inflation.

During the period, we continued our efforts to engage with the Government highlighting concerns towards the illicit sector and lack of a level playing field. The announcement of the Federal Budget 2021/22 in Jun’21 saw unaltered excise rates on cigarettes which can continue to support Government Revenues during the ongoing fiscal year and the stability of the consumer prices of legitimate cigarettes brands.

Further, in the Finance bill 2021/22 a requirement to obtain brand registration certificates for specified sectors was also tabled and is now being formalized with the issuance of Sales Tax General Order (STGO) dated August 3, 2021 which requires manufacturers of specified goods including tobacco to obtain brand registration certificates.

Furthermore, the Company is pleased to observe that the Government has made strides in creating checks and balances for goods coming in from the Azad Jammu & Kashmir (AJ&K) trade route to ensure proper taxation of goods arriving in Pakistan. We also continue to support the introduction of the Track and Trace system and strongly urge the Government for its sooner implementation as it will be an effective tool to supplement enforcement efforts against tax evasion.

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