In a concerning revelation, Pakistan Tobacco Company (PTC) has announced a dramatic 23 percent decline in domestic sales volume for the first quarter of 2024, a stark contrast to the same period last year.
This downturn has been attributed predominantly to the excise-driven price hikes initiated in February 2023, which have subsequently reshaped the competitive landscape in favor of Duty Not Paid (DNP) brands, to the detriment of compliant manufacturers like PTC.
The surge in excise taxes on cigarettes last year has not only affected PTC’s sales volumes but also significantly impacted government tax revenues, as consumers increasingly turn to cheaper, illicit alternatives. Despite this challenging environment, PTC has maintained its commitment to resilience and brand strength, adapting to these shifts with a diversified approach to its product offerings.
With the Pakistani economy showing tentative signs of stabilization after a turbulent period, there are still numerous hurdles for the manufacturing sector, especially with ongoing impacts on consumer purchasing power. The tobacco industry, in particular, faces unique challenges exacerbated by these economic conditions.
One of the most pressing issues for PTC is the expanding illicit tobacco market, which has been bolstered by the high excise duties and inadequate regulatory enforcement, including the slow rollout of the Track & Trace System (T&TS). While law enforcement agencies have made some progress with raids across Pakistan and Azad Jammu & Kashmir, seizing counterfeit and illicit products, there is a critical need for a more coordinated strategy to protect the legitimate tobacco market and the associated tax revenues.
Despite these domestic challenges, PTC has found some solace in its export activities, with exports amounting to $3.8 million in the quarter. However, local currency devaluation and soaring inflation have pushed the cost of sales up by 37 percent, with the company managing to limit the decline in operating profit to 16 percent through strategic cost reductions and efficiency enhancements.
Interestingly, while operating profits have suffered, PTC’s profit before tax has seen a comparatively milder decline of 10 percent compared to the same period last year, largely thanks to increased interest income. After-tax profits, however, plummeted by 24 percent, significantly affected by a new 10 percent super tax imposed this year, a sharp increase from the 4 percent rate in Q1 2023.
Amidst these challenges, PTC continues to innovate and evolve, placing significant emphasis on its reduced-risk product portfolio, including VELO™ and Vuse™. These initiatives align with the broader objectives of BAT Group’s vision for A Better TomorrowTM, which focuses on providing safer alternatives to traditional tobacco products and enhancing consumer choices.
As PTC navigates through these turbulent times, it remains focused on delivering value to its consumers and shareholders alike, bolstering its market position through rigorous risk management, cost optimization, and strategic diversification. With a dedicated workforce and a clear strategic vision, PTC is determined to overcome the current adversities and continue its tradition of excellence in the dynamic landscape of 2024 and beyond.
