Report: Philip Morris (Pakistan) Limited results for year ended December 31, 2019 impacted due to manufacturing optimization

Philip Morris (Pakistan) Limited (PMPKL) announced an operating loss before tax of PKR 2,444 million for the year ended December 31, 2019.

The Operating loss before tax was mainly due to the management decision to reorganize its operational footprint by closing its factory in Kotri, which was essential to ensure long term sustainability of the business in Pakistan considering the unpredictable fiscal environment. Excluding the one-off impairment and employee separation costs which were the result of the closure of the Kotri factory and GLT Voluntary Separation Scheme, the Company would have recorded an Operating Profit before tax of PKR 357 million for the year ended December 31st, 2019, instead of Operating loss before tax as mentioned above.

During the year, the compliant tax paid tobacco industry faced challenges from the non-paid illicit sector as the government continued to impose heavy excise increases with limited enforcement. The government announced an increase in FED in Value tier of 46% in Sept’18 followed by another increase of 32% in Jun’19 which resulted in the increase of price differential between compliant tax-paying industry brands and non-tax paid brands selling below minimum legal price (current illicit incidence is 34.7% of the total tobacco market based on December 2019 – Retail audit).

These excessive excise tax increases pose serious threats to the sustainability of the compliant tax paid tobacco industry volume base and are detrimental for the Government revenues in the long run. Therefore, an equitable tax structure with strict implementation of enforcement measures is necessary to restrict the illicit sector while ensuring the sustainability of the compliant tax paid tobacco industry and Government revenue growth through predictable moderate excise tax increases.

Commenting on the announcement, Mr. Roman Yazbeck, Managing Director PMPKL said, “The management team is committed to improving the overall performance of the company. There are many strategic initiatives under discussion which we believe will have a positive impact on the bottom line. We would like to appreciate the recent enforcement by the Government to curb non-tax paid illicit trade and request for a continued enforcement action to create a level playing field for the legitimate and tax-paying manufacturers’”