Philip Morris losses worsen

The second-largest tobacco company in Pakistan by market share, Philip Morris has been struggling to find a solid footing lately. Last Friday, the company announced disastrous full-year results for 2014.
Philip Morris gross turnover for 2014 improved 6 percent year-on-year, but only due to higher sales tax and excise duty. Net turnover remained little changed at around Rs14 billion - a meager 0.3 percent growth. Although the gross profit was up by 6.6 percent thanks to improved margins, it simply wasn't enough; the bottom line loss stood at Rs1.5 billion - a jaw-dropping increase of 237 percent to the loss in 2013.
The firm's distribution and marketing expenses grew 16.5 percent, mainly due to increased investment for a new product launch. As a percentage of net sales, distribution and marketing expenses stood at 25.7 percent in CY14 as against 22 percent in CY13. Meanwhile, other expenses nearly doubled, while other income fell 54 percent. Finance cost was also up 37 percent. Clearly, nothing seems to be working for the firm.
Philip Morris has been making continuous losses since 2011. It has been suffering at the hands of the illegitimate, non-tax paid cigarette industry. Non-tax paid tobacco brands continue to damage the company (and the industry as a whole), as excise tax-driven price increases cause people to shift over to the lower-priced, smuggled products. This gives the illegal brands an enormous competitive advantage.
While this column is not against higher taxes on cigarettes, the government ought to step up its efforts to curb sales of illegal brands in the country.

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Philip Morris (Pakistan) Limited

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Rs (mn)                        CY14      CY13         YoY

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Gross turnover               38,046    35,985          6%

Sales Tax                     5,834     5,183         13%

Excise Duty                  18,448    17,074          8%

Net turnover                 13,764    13,728        0.3%

Cost of Sales                 9,853    10,060         -2%

Gross Profit                  3,911     3,668        6.6%

Gross margin                  28.4%     26.7%  up 170 bps

Distribution & Marketing      3,536     3,035         17%

Administrative Expenses       1,235     1,163          6%

Operating Loss                  861       530         62%

Other Expenses                  220       111         98%

Other income                    171       372        -54%

Finance Cost                    604       440         37%

Loss before taxation          1,513       709        113%

Loss after taxation           1,482       441        236%

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