PAKISTAN TOBACCO COMPANY LTD.

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE

Sep 22 - 28, 2008

Pakistan Tobacco Company Ltd is a part of the British American Tobacco, the world's most renowned international tobacco group, with brands sold in 180 markets around the world. The company produces high quality tobacco products to meet the diverse preferences of millions of consumers and it works in all areas of the business from seed to smoke. Pakistan Tobacco provides a number of reputed brands of cigarettes to consumers in Pakistan, including Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.

FINANCIAL RESULTS

FINANCIAL RESULTS DURING 1H'08 RS (MILLION)

JAN-JUN, 2008

JAN-JUN, 2007

VARIANCE

Gross Turnover

24,479

21.112

15.90%

Gross Profit

3,811

3.481

9.50%

Operating Profit

2,612

2.368

10.30%

Profit Before Tax - PBT

2,442

2,204

10.80%

Profit After Tax - PAT

1,588

1.432

10.90%

Earnings Per Share - EPS (Rs)

621

5.6

10.90%

Source: PTC

Overall sales volume during the first half of 2008 was 21.6 bn sticks - registering a growth of 8.5% over the Same Period Last Year (SPLY). This growth is mainly attributable to Gold Flake which grew by 17% compared with SPLY and the sustained strong performance of Gold Leaf. The increased sale translated into a gross turnover of Rs 24.5 bn, which is an increase of 16% over the sales of H1'07. Increased prices as well as increased volume contributed to this increase in sales.

However, Gross Profit Margin, declined to 18% as compared to 19% for H1'07. Marketing distribution and Administrative expenses grew by 7%, reflecting conservativeness and cost efficiency on part of the company. The increasing price pressures are expected to affect the profitability for the full year, unless the company is able to reduce costs through efficient operations.

In 2007, the company posted a record level of sales and profitability. Operating profit grew by 29% to Rs 3,973 mn and profit after tax (PAT) grew by 27% to Rs 2,413 mn. Contribution to the government's revenue amounted to Rs 26 bn, an increase of approx 15% over the last year. Underpinning this exceptional financial performance were the factors such as strong organic volume growth, efficient cost management, continued investment in various brands and people, and most of all the consumers who continuously supported these brands. Sales volume, at 37.2 bn sticks, grew by 8% during the year ahead of the industry growth that was estimated at 2%. Market share also grew by 1.7% points.

PTC further strengthened its brand portfolio with the launch of new variants, limited edition products and packaging, consumer promotions, and effective presence across key market segments. Cost of sales increased by 14% in 2007 over last year and this was mainly due to higher production volumes and inflation. However, the Company was able to derive benefit from economies of scale and various cost control initiatives in its supply chain. As a result, increase in cost per unit was contained at 6% over last year.

PTC - FINANCIAL HIGHLIGHTS

.

2005

2006

2007

INCOME STATEMENT

Turnover

30,615,062

35,715,451

40,889,275

Gross Profit

4,529,604

5,533,520

6,509,957

Operating Profit

2,377,663

3,048,201

3,972,632

Profit Before Tax

2,082,064

2,860,673

3,713,575

Net Profit

1,321,919

1,904,988

2,413,058

BALANCE SHEET

2005

2006

2007

Total Equity

3,639,414

4,139,187

4,022,857

Current Liabilities

3,604,366

3,750,209

4,822,940

Non-current Liabilities

724,673

845,004

980,000

Current Assets

4,136,116

4,172,950

4,641,368

Non-current Assets

3,832,337

4,561,450

5,184,864

LIQUIDITY

2005

2006

2007

Current Ratio

1.15

1.11

0.96

ASSET MANAGEMENT

2005

2006

2007

Inventory Turnover (days)

15.68

17.19

36.44

Days Sales Outstanding

29.34

31.26

0.02

Operating Cycle

45.02

48.45

36.46

Total Asset Turnover

3.84

4.09

4.16

DEBT MANAGEMENT

2005

2006

2007

Debt to Asset Ratio

0.54

0.53

0.59

Debt to Equity Ratio

1.19

1.11

1.44

Long Term Debt to Equity

0.20

0.20

0.24

Interest Coverage ratio

46.9

57

74.80

PROFITABILITY

2005

2006

2007

Gross Profit Margin

14.80%

15.49%

15.92%

Profit Margin

4.32%

5.33%

5.90%

Return on Assets

16.59%

21.81%

24.56%

Return on Equity

36.32%

46.02%

59.98%

MARKET VALUE

2005

2006

2007

Earnings per share

5.15

7.46

9.4

Price Earnings ratio

12.82

9.16

16.5

Dividend per share

2.5

7.4

7.9

Source: PTC

FUTURE OUTLOOK

The company continues to experience inflationary and rupee devaluation pressures on its cost base and the disruption to the manufacturing operation due to electricity load shedding, resulting in increased costs of doing business. However, despite the above challenges, the Company will continue to deliver good operational and financial results in the future despite of those hiccups. Therefore, the financial outlook for the future is quite positive for Pakistan Tobacco Company and a healthy growth is expected over the years.