| PAKISTAN
TABACCO COMPANY LIMITED |
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| ANNUAL REPORT FOR THE YEAR 1995 |
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| Corporate Information |
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| BOARD OF DIRECTORS |
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| JOHN BENEDICT STEVENS |
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| Chairman & Chief Executive |
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| FRANCISCO JOSE T. GARCIA |
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| Finance Director |
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| SAFDAR IQBAL |
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| Production Director |
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| ASLAM KHALIQ |
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| Leaf Director |
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| IFTIKHAR AHMAD MALIK |
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| Human Resources Director |
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| IRFAN NASR |
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| Marketing Director |
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| SALIK NAZIR AHMAD |
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| (Non-Executive Director) |
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| ANTHONY CAMERON JOHNSTON |
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| (Non-Executive Director) |
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| FATEHALI
WALIMUHAMMAD VELLANI |
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| (Non-Executive Director) |
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| IMRAN AHMED |
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| Secretary |
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| EXECUTIVE
COMMITTEE OF THE BOARD |
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| IflikharAhmad Malik |
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| Aslam Khaliq, |
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| Safdar Iqbal and |
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| Irfan Nasr |
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| Sitting (L to R) |
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| Ben Stevens |
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| and Francisco Carcia |
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| AUDITORS |
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| A.F. FERGUSON & CO. |
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| Chartered Accountants |
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| REGISTERED OFFICE |
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| Saudi Pak Tower, |
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| 61/A Jinnah Avenue, |
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| Islamabad. |
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| Chairman 's Message |
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| 1995 has been an important year for
Pakistan Tobacco |
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| Company.
During 1995 we made a number of break |
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| throughs
which firmly set the Company on the route to |
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| recovery
from its present difficulties. 1994 closed with us |
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| facing
the 5th successive year of volume decline. This year |
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| we
have reversed that trend and set the Company on a |
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| growth
platform which will eventually lead to the estab |
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| lishment
of more sensible pricing in the Pakistani market. |
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| 1995 was a very successful year for our
major international |
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| brand
John Player Gold Leaf. The brand now sells at a |
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| discount
to smuggled brands and this, combined with |
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| implementing
the international marketing package saw its volume grow by 26.1% in |
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| 1995.
We will keep John Player Gold Leaf pricing at a discount to smuggled brands, |
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| maintaining
its volume growth and benefiting from consumers trading up to the best |
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| quality
cigarette in Pakistan. |
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| In the middle price segment our drive
brand Wills Kings outgrew its principal competi |
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| tor
for the first time. The benefits of many years of top quality sponsorship are
beginning |
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| to
show and this brand, which has real heritage in Pakistan, will be a major
source of |
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| growth
for Pakistan Tobacco in the years to come. |
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| A further boost to our volumes came as a
result of the Federal budget in 1995. The level |
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| of
excise on the low price end of the market was cut which allowed us to reduce
the price |
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| of
its low price brand Embassy to compete with the tax evading sector. The
reduction in |
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| the
price of Embassy together with an intensive marketing drive has led to
considerable |
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| growth
in this brand. Such has been the success of Embassy that, despite reducing
the |
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| rate
of excise duty, Government revenues have actually increased as a result of
their far |
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| sighted
action. We will keep Embassy prices competitive with the tax evaded sector, |
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| maintaining
our volume base. While we would like to take a price increase on Embassy, |
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| we
will not do so at the expense of our volume base. |
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| Prices of cigarettes are still
desperately low in Pakistan - the result of other manufactur |
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| ers
increasing market share by underpricing Pakistan Tobacco Company. We will
never |
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| allow
this to happen because, long term, there is no benefit to the Company from
raising |
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| prices
unilaterally as short term profits are soon wiped out by reducing volumes.
The |
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| only
way to restore Pakistan Tobacco Company's fortunes is to fight the market
share |
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| battle
to persuade the other manufacturers that there is no volume to be gained from
arti |
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| ficially
holding down prices. Once this is established as an accepted truth of the
market |
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| dynamics,
there remains no further obstacle to raising prices and all participating in
what |
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| should
be a profitable market. |
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| Not only will this raise the profits of
all manufacturers, it will lead to a significant and |
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| sustainable
growth in the Rs. 7.4 bn revenues we pay annually to the Government in the |
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| form
of excise and taxes. This strategy will require patience from our
shareholders but, |
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| long
term shareholders' dividends can only be generated by a solid volume base
being |
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| sold at reasonable prices. |
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| 1995 also saw major investment by
Pakistan Tobacco Company in the quality of our |
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| products.
This is a further way to enhance our competitive advantage and I am pleased
to |
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| say
that our laboratory tests show that in each price segment our brands offer
superior |
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| quality
to our competition. We will further enhance quality in 1996 by refurbishing
our |
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| machines
and investing in our production assets. Again this will place us in a strong |
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| position
for building our market share. |
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| 1995 saw the national roll out of our
Edible Oil brand Sundrop. This has been a consid |
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| erable
success beacause it is a healthier product which combines superior quality |
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| (through
a process called winterisation which makes the oil more pure), international |
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| standards
of hygiene and quality and a price which is highly competitive. Sundrop is |
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| based
on domestic sunflower seed and is our contribution to reducing the US$ 1
billion |
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| import
bill of edible oils into Pakistan which is such a waste of the Country's
foreign |
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| exchange. |
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| 1996 will be a challenging year for
Pakistan Tobacco Company |
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| and
the results will largely depend on how quickly the other manu- |
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| facturers
realise that, with no volume to gain from underpricing us, |
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| the
way to make profits is to increase prices. You can be assured |
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| that
we will maintain our competitive pricing strategy for as long |
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| as
it takes for this realisation to come about. Only by sticking firm- |
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| ly
to this strategy will the long term profitability of the Company |
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| be
guaranteed. In the meantime we will continue to build the vol |
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| ume
base and invest in increasing the strength of our brands. This will mean that
when |
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| the
pricing is established, Pakistan Tobacco Company will re-emerge the strongest
com |
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| petitor in the market. |
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| BEN STEVENS |
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| Chairman
and Chief Executive |
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| Year at a Glance |
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1,995 |
1,994 |
1,993 |
1,992 |
1,991 |
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| Volumes |
Billion |
19,311 |
16,352 |
16,692 |
16,852 |
17,070 |
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| Turnover |
Rs. million |
10,151 |
8,788 |
8,642 |
8,663 |
8,060 |
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| (Loss)/Profit Before Tax |
" |
(8) |
59 |
229 |
197 |
( I 51) |
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| (Loss)/Profit After Tax |
" |
(24) |
104 |
158 |
166 |
(160) |
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| Shareholders' Equity |
" |
590 |
615 |
543 |
481 |
394 |
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| Value Added |
" |
8,092 |
7,252 |
7,056 |
7,256 |
7,042 |
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| Duties and Taxes |
" |
7,411 |
6,556 |
6,402 |
6,627 |
6,522 |
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| Dividend Rate |
% |
Nil |
10 |
30 |
25 |
Nil |
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| (Loss)/Earnings Per share |
Rs. |
(0.2) |
1.9 |
7.2 |
6.2 |
(4.7) |
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| Before Tax |
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| Report of the Directors |
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| For
the Year Ended December 31. 1995 |
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| The Directors hereby present their Report
and the Audited Accounts for the year ended |
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| December
31, 1995 before the forty-ninth Annual General Meeting of the Company to be |
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| held on April 18, 1996. |
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1,995 |
1,994 |
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(Rs. OOOs) |
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| (Loss)/Profit for the Year |
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24,354 |
103,573 |
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| Unappropriated
Profit Brought Forward |
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400 |
264 |
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| Appropriations |
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23,954 |
103,837 |
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| Transfer
frorn/(to) Revenue Reserves |
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23,954 |
71,500 |
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| Interim
Dividends Nil (1994: 10%) |
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- |
31,937 |
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---------- |
---------- |
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| Unappropriated
Profit Carried Forward |
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Nil |
400 |
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========== |
========== |
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| 1995 saw a significant increase in
volumes but the benefits of this have yet to flow |
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| through
into the financial performance of your Company. This is because the effect of
the |
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| excise
reduction was passed on to consumers in order to make our Embassy brand price |
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| competitive.
The Company had, therefore, to absorb inflationary pressures in costs, |
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| expenses
and interest charges. |
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| The
main cost increases were seen in wrapping material. Wood pulp related
products |
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| experienced
a world wide price increase of nearly 70%. Similarly international aluminium |
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| prices
increased by about 35%. These two raw materials constitute 80% of our total
wrap |
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| ping
material costs. This was compounded by additional tariffs and currency
devaluation. |
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| Expenses
were also subject to inflationary pressures. Salaries and wages increased by
23% |
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| which
includes the costs of catering for the sudden growth in volume, especially in
the lat |
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| ter
part of the year. Your Directors would like to thank all employees for their
contribution |
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| and
support during the year. Energy related cost increased by 29% during the
year. The |
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| Rupee
devaluation adversely effected the cost of spare parts and other expenses. |
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| Marketing support investment grew on two
fronts. Additional support was needed to build |
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| the
strength of our brands, increasing volumes despite difficult market
conditions. At the |
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| same
time marketing support related expenses increased because of inflation and
the |
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| devaluation of the Rupee. |
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| Effective management of working capital
and fixed assets resulted in a reduction in total |
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| borrowings
of 27%. Your Company's high gearing is significant constraint and this reduc |
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| tion
in borrowings is a major achievement which will eventually translate into a
lower |
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| interest burden. |
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| Because of the current financial
situation of your Company, taking into account the high |
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| debt
level and the need to maintain a competitive pricing policy, the Board of
Directors |
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| recommends
that no dividend be paid. |
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| DIRECTORS |
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| Mr. Francisco Jose T. Garcia was appointed
to the Board on 6th July, 1995 to fill the vacancy caused by the resignation
of Mr. Mohammad Abdul Aleem. The Board would |
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| like
to place on record its appreciation of the meritorious services rendered by
Mr. Aleem during his tenure as Director of the Company. |
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| Messers
Safdar Iqbal, Iftikhar Ahmad Malik and Aslam Khaliq were appointed to the
board on 30th August. 1995. |
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| AUDITORS |
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| The auditors, Messers A. F. Ferguson
& Co. retire and offer themselves for reappointment. |
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| HOLDING COMPANY |
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| British-American Tobacco Company Limited
is the Holding Company and is incorporated in the United Kingdom. |
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| PATTERN OF SHARE HOLDING |
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| The pattern of holding of shares of the
company as at December 31, 1995 is shown on page 30. |
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| On behalf of the Board |
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| J.B. STEVENS |
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F.W. VELLANI |
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| Chairman & |
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Director |
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| Chief Executive |
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| Islamabad: March 14, 1996. |
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| Auditors'
Report to the Members |
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| We have audited the annexed balance sheet
of PAKISTAN TOBACCO COMPANY LIMITED |
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| as
at December 31, 1995 and the related profit and loss account and cash flow
statement, together |
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| with
the notes forming part thereof, for the year then ended and we state that we
have obtained all the |
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| information
and explanations which to the best of our knowledge and belief were necessary
for the |
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| purposes
of our audit and, after due verification thereof, we report that: |
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| (a) in our opinion, proper books of
account have been kept by the company as required by the Companies Ordinance,
1984; |
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| (b) in our opinion: |
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| (i) the balance sheet and profit and
loss account together with the notes thereon have been drawn up in conformity
with the Companies Ordinance, 1984 and are in agreement with |
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| the
books of account and are further in accordance with the accounting policies
consistently applied; |
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| (ii) the expenditure incurred during
the year was for the purpose of the company's business; and |
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| (iii) the business conducted,
investments made and the expenditure incurred during the year were in
accordance with the objects of the company; |
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| (c) in our opinion and to the best of our
information and according to the explanations given to us, |
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| the
balance sheet, profit and loss account and cash flow statement, together with
the notes |
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| forming
part thereof, give the information required by the Companies Ordinance, 1984
in the |
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| manner
so required and respectively give a true and fair view of the state of the
company's |
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| affairs
as at December 31, 1995 and of the loss and cash flows for the year then
ended; and |
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| (d) in our opinion no Zakat was
deductible at source under the Zakat and Ushr Ordinance, 1980. |
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| A.F. FERGUSON & CO. |
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| Chartered Accountantg |
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| Islamabad:
February 27, 1996 |
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| PROFIT & LOSS ACCOUNT |
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| For
the Year Ended December 31, 1995 |
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|
Note |
1,995 |
1,994 |
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|
(Rs. 000s) |
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| TURNOVER |
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|
10,151,545 |
8,788,313 |
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| Less: Cost of Sales |
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3 |
9,560,545 |
8,205,193 |
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---------- |
---------- |
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| GROSS PROFIT |
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591,000 |
583,120 |
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---------- |
---------- |
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| Less: Marketing expenses |
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4 |
3,356,671 |
276,150 |
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| Administration expenses |
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5 |
1,000,691 |
81,913 |
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|
---------- |
---------- |
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|
435,736 |
358,063 |
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|
---------- |
---------- |
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| OPERATING PROFIT |
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|
155,264 |
225,057 |
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| Other income |
|
6 |
6,572 |
9,174 |
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| Other expenses |
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7 |
12,230 |
22,684 |
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|
---------- |
---------- |
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|
149,606 |
211,547 |
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| Less: Financial charges |
|
8 |
158,066 |
152,159 |
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|
---------- |
---------- |
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| (LOSS)/PROFIT
BEFORE TAXATION |
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(8,460) |
59,388 |
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| TAXATION |
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| Current - For the year |
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|
15,894 |
12,690 |
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|
---------- |
---------- |
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| (LOSS)/PROFIT
AFTER TAXATION |
|
|
(24,354) |
46,698 |
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| Gain
on sale of immovable property |
|
9 |
- |
56,875 |
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|
---------- |
---------- |
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| (LOSS)/PROFIT FOR THE YEAR |
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|
(24,354) |
103,573 |
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| Unappropriated
profit brought forward |
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|
400 |
264 |
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|
---------- |
---------- |
|
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|
(23,954) |
103,837 |
|
| APPROPRIATIONS |
|
|
---------- |
---------- |
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| Transfer
from/(to) revenue reserve |
|
26 |
239,541 |
(715,001) |
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| Interim
dividend Nil (1994: Re. 1.00) per share |
|
- |
(319,371) |
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|
---------- |
---------- |
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|
23,954 |
(103,437) |
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| UNAPPROPRIATED PROFIT |
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|
---------- |
---------- |
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| CARRIED FORWARD |
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|
NIL |
400 |
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========== |
========== |
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| The
annexed notes form an integral part of these accounts. |
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|
|
| J.B. STEVENS |
|
F.W. VELLANI |
|
| Chairman & |
|
Director |
|
| Chief Executive |
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|
|
| Balance
Sheet as at december 31, 1995 |
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| As at December 31, 1995 |
|
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|
|
|
|
|
Note |
1,995 |
1,994 |
|
|
|
(Rs 000s) |
|
|
|
|
|
| TANGIBLE FIXED ASSETS |
|
11 |
749,605 |
735,110 |
|
| LONG TERM INVESTMENT |
|
13 |
5,000 |
5,000 |
|
| LONG TERM LOANS |
|
14 |
5,215 |
2,355 |
|
| LONG
TERM DEPOSITS AND PREPAYMENTS |
|
15 |
8,128 |
32,608 |
|
|
|
|
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|
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| CURRENT ASSETS |
|
|
|
|
|
|
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|
---------- |
---------- |
|
| Stores and spares |
|
16 |
76,709 |
68,176 |
|
| Stock in trade |
|
17 |
1,493,388 |
1,458,469 |
|
| Trade debts |
|
18 |
4,712 |
1,189 |
|
| Loans and advances |
|
19 |
14,378 |
15,346 |
|
| Deposits, prepayments & other
receivables |
20 |
158,309 |
152,318 |
|
| Cash and bank balances |
|
21 |
5,958 |
26,602 |
|
|
|
|
---------- |
---------- |
|
|
|
1,753,453 |
1,722,100 |
|
|
|
|
|
|
| LESS: CURRENT LIABILITIES |
|
|
|
| Current portion of long term loans |
|
---------- |
---------- |
|
| and lease obligations |
|
107,711 |
224,578 |
|
| Short
term finances and loans |
|
22 |
691,444 |
842,225 |
|
| Creditors
accrued and other liabities |
|
23 |
987,917 |
593,976 |
|
|
|
---------- |
---------- |
|
|
|
1,787,072 |
1,660,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
---------- |
---------- |
|
| NET
CURRENT (LIABILITIES)/ASSETS |
|
(33,619) |
61,321 |
|
|
|
---------- |
---------- |
|
|
|
734,329 |
836,394 |
|
|
|
========== |
========== |
|
|
|
|
|
|
|
|
|
| FINANCED BY: |
|
|
|
| SHARE CAPITAL |
|
|
|
| Authorised capital |
|
24 |
320,000 |
320,000 |
|
|
|
|
|
| Issued,
subscribed and paid-up capital |
|
25 |
319,367 |
319,367 |
|
|
|
|
|
| RESERVES |
|
26 |
270,898 |
295,252 |
|
|
|
|
---------- |
---------- |
|
| SHAREHOLDERS' EQUITY |
|
590,265 |
614,619 |
|
| LONG TERM LOANS |
|
27 |
57,834 |
72,667 |
|
| OBLIGATIONS
UNDER FINANCE LEASES |
|
28 |
74,230 |
137,108 |
|
| DEFERRED TAXATION |
|
29 |
12,000 |
12,000 |
|
| COMMITMENTS
AND CONTINGENCIES |
|
30 |
|
|
|
|
---------- |
---------- |
|
|
734,329 |
836,394 |
|
|
|
========== |
========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
|
|
| J.B. STEVENS |
|
F.W. VELLANI |
|
|
| Chairman & |
|
Director |
|
|
| Chief Executive |
|
|
|
|
|
|
|
|
| Cash Flow Statement |
|
| FOR
THE YEAR ENDED DECEMBER 31, 1995 |
|
|
|
1,995 |
1,994 |
|
|
|
(Rs. 000s) |
|
| CASH
FLOW FROM OPERATING ACTIVITIES |
|
| Cash
receipts from customers |
|
10,148,022 |
8,787,954 |
|
| Cash
paid to Government for cigarette and |
|
|
| tobacco excise duty, sales tax and other
levies |
(7,190,843) |
(6,558,510) |
|
| Cash
paid to employees and provident |
|
|
|
| and retirement funds |
|
(474,781) |
(373,957) |
|
| Cash paid to suppliers |
|
(1,856,143) |
(1,762,925) |
|
| Other cash payments |
|
(4,984) |
(16,596) |
|
| Income taxes paid |
|
(40,194) |
(46,013) |
|
|
|
---------- |
---------- |
|
|
581,077 |
29,953 |
|
|
---------- |
---------- |
|
|
|
|
| CASH
FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
---------- |
---------- |
|
| Purchase
of tangible fixed assets |
|
(94,697) |
(272,015) |
|
| Assets
acquired by means of finance leases |
- |
101,000 |
|
|
|
---------- |
---------- |
|
|
|
(94,697) |
(171,015) |
|
| Proceeds
from sale of fixed assets and |
|
|
|
| immovable property |
|
4,230 |
15,750 |
|
|
|
---------- |
---------- |
|
|
(90,467) |
(155,265) |
|
|
---------- |
---------- |
|
| CASH
FLOW FROM FINANCING ACTIVITIES |
|
|
|
| Repayment
of lease obligations |
|
(67,120) |
(58,504) |
|
| Long term loans |
|
(127,458) |
215,125 |
|
| Short term loans |
|
(192,569) |
90,057 |
|
| Long
term deposits, prepayments and loans |
21,518 |
(11,365) |
|
| Cash
paid to Phoenix (Private) Limited |
|
(2,623) |
(16,969) |
|
| Financial charges paid |
|
(184,749) |
(132,614) |
|
| Dividend paid |
|
(42) |
(96,140) |
|
|
|
---------- |
---------- |
|
|
(553,043) |
(10,410) |
|
|
---------- |
---------- |
|
|
|
|
| NET (DECREASE) IN CASH AND |
|
|
|
| CASH EQUIVALENTS |
|
(62,433) |
(135,722) |
|
| CASH
AND CASH EQUIVALENTS AS AT JANUARY 1, |
(366,848) |
(231,126) |
