Pakistan Tobacco Company Limited is part of British American Tobacco the world's most 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'. Its operations in Pakistan began in 1947, making it one of country's first foreign investments. Pakistan Tobacco provides a number of repute brands of cigarettes, including Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.
Over the years, the company has shown a rising trend as evident from the impressive growth in gross profits, the company's operating profits growing by 28% and net profit increase by 44% in 2006 as compared to the previous year.
The strong financial performance is attributable to significantly higher sales volume, improved margins across all brands, and continued control over cost through focus on operational efficiencies and other initiatives. The company maintained double-digit volume growth in 2006 with a record sales volume of 34.5 billion sticks - 13% higher vs. same period last year (SPLY).
This is a remarkable performance keeping in view the industry growth is estimated at 3%. Gold Flake remained the volume leader in the portfolio and grew at a phenomenal rate of 27% vs. SPLY, whereas Gold Leaf maintained its volume base.
The liquidity of Pakistan Tobacco has remained barely above one for the past couple of years, and actually fell in 2006 compared to 2005. Despite improved profitability on account of strong financial performance the company's cash outflow remained higher than inflow mainly due to higher income tax, dividend payment and capital expenditure. Consequently, there was not a significant increase in the current assets as opposed to the current liabilities.
The company's asset management ratios depict a healthy trend of improving inventory management and improved credit policies. Both the inventory turnover days and the sales outstanding have decreased, indicating that the company has been able to utilize its inventory at an optimally better level each year, and has been able to receive cash from its debtors over shorter periods of time subsequently over the lapse of time.
The overall operating cycle has improved tremendously, falling from around 57 days in 2003 to around 40 days in 2006. As far as the fixed assets are concerned, recently the company spent Rs 1.2 billion (Rs 0.5 billion more than the previous year) for acquiring latest machinery to cater for increased demand and to facilitate up gradation in technology footprint.
With the phenomenal growth in sales over the past couple of years, increasing by around 17% in 2006 compared to the last year, and efficient utilization of property plant and assets, the total asset turnover ratio has also shown a rising trend over the years. The total asset turnover ratio exceeded 7 in all the four years, hence bearing substance to the efficient asset management practices of the company.
The TIE (times interest earned) ratio of Pakistan Tobacco has improved phenomenally over the past couple of years. It has increased from 7.68 in 2003 to 57.03 in 2006, showing that over the years, the company improved operating margins, its ability to pay its financial costs pertaining to interest payments.
The long-term debt to equity ratio of the company increased over the years as well, primarily due to an increase in the deferred taxation of the company. Consequently, there was an increase in the long-term debts of the company and debt to equity ratio.
The book value ratio has improved over the years owing primarily to increase in equity due to a rise in the revenues and reserves of the company. The dividends paid per share have improved tremendously as excellent performance of the company over the past couple of years allowed it to disburse dividends to its shareholders. The earning per share also increased significantly, maintaining a rising trend since 2003.
This is due to an impressive growth in net margin of the company over the course of four years under review. The market price of the company has also improved significantly over the years. It was only Rs 29 in 2003, but soared up to Rs 68.35 in 2006, an increase of over 135% over a period of four years.
PERFORMANCE DURING THE FIRST QUARTER 2007:
Over the first quarter of 2007, the company achieved overall growth in sales and profitability as compared to the same period last year. This enhanced the profitability is mainly attributed to increased sales volume, control on costs, overheads and lower expenses as a result of difference in timing of various administrative and marketing activities. The company's board declared an interim dividend of Rs 1.50 per share in respect of the financial year ending December 31st 2007.
Considering the past performance of the company, the financial outlook for future is quite positive, and a healthy growth is expected over the years. However, the directors speculate that the profitability of the company for the coming time period may remain under pressure due to the cyclical nature of the business and the rising inflationary trend.
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Pakistan Tobacco Company - Financial Highlights
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2003 2004 2005 2006
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INCOME STATEMENT
Turnover 22,572,247 25,452,634 30,615,062 35,715,451
Gross Profit 2,871,541 3,482,621 4,529,604 5,533,520
Operating Profit 1,010,268 1,444,628 2,377,663 3,048,201
Profit Before Tax 614,695 1,056,039 2,082,064 2,860,673
Net Profit 321,081 665,227 1,321,919 1,904,988
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BALANCE SHEET
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Total Equity 2,853,090 3,262,823 3,639,414 4,139,187
Current Liabilities 4,075,034 3,137,467 3,604,366 3,750,209
Non-current Liabilities 370,632 624,475 724,673 845,004
Current Assets 3,859,453 3,434,601 4,136,116 4,172,950
Non-current Assets 3,439,303 3,590,164 3,832,337 4,561,450
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PROFITABILITY
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Gross profit margin 12.72% 13.68% 14.80% 15.49%
Profit margin 1.42% 2.61% 4.32% 5.33%
Return on Asset 4.40% 9.47% 16.59% 21.81%
Return on Common Equity 11.25% 20.39% 36.32% 46.02%
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LIQUIDITY RATIO
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Current Ratio 0.95 1.09 1.15 1.11
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ASSET MANAGEMENT
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Inventory Turnover 54.25 45.82 46.57 40.17
Day Sales Outstanding 2.32 0.18 0.03 0.02
Operating cycle 56.57 46.00 46.60 40.20
Total Asset turnover 7.00 6.55 7.02 7.17
Sales/Equity 7.91 7.80 8.41 8.63
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DEBT MANAGEMENT
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Debt to Asset(%) 137.90 96.78 99.20 92.20
Debt to Equity Ratio 0.5 0.3 0.3 0.3
Times Interest Earned 7.68 29.90 46.91 57.03
Long Term Debt to Equity( 12.99 19.14 19.91 20.41
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MARKET VALUE
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Earning per share 1.26 2.60 5.15 7.46
Price earning ratio 23.02 16.92 12.82 9.16
Dividend per share 0.10 1.20 2.50 7.40
Book value 1.12 1.28 1.42 1.62
Market prices(June 30) 29 44 66 68.35
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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