Philip Morris (Pakistan) Limited (“Company”) announced an operating loss before tax of PKR 1,728 million for the nine months period ended September 30, 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 due to this manufacturing optimization, the Company would have recorded an operating profit before tax of PKR 836 million, instead of the nine month operating loss before tax.

During the period, tax paid industry faced challenges from the non-tax paid illicit sector, currently estimated at 33.9% of the total tobacco market. This is mainly attributable to the two excise tax increases in 2018-19, stretching the price gap between non-tax paid illicit and compliant tax paid industry. The tax increase on cigarettes is likely to result in adult smokers choosing cheaper and readily available non-tax paid illicit cigarettes. According to a survey, non-tax paid illicit cigarette trade causes an estimated loss of PKR 44 billion every year to the national exchequer.

Commenting on the announcement, Joao Martins, Managing Director Philip Morris (Pakistan) Limited said, “The management team continues to be committed to improving the overall performance of the Company through various measures. Growing our gross margin and controlling the cost base remain key objectives for improving the Company’s profitability in a continuously challenging environment. We would also like to appreciate and acknowledge the recent increased enforcement measures taken by the Government, FBR and Customs to curb non-tax paid illicit trade. This will surely create a level playing field for the compliant tax paying cigarette manufacturers.”