Philip Morris Pakistan : Transmission of quarterly accounts for the quarter ended September 30, 2023

Company Information

FACTORIES

1. G.T ROAD, QUADIRABAD, DISTRICT: SAHIWAL (PUNJAB)
2. LEAF DIVISION COMPLEX, 22ND KM, MARDAN SWABI ROAD, MARDAN (KPK)

SHARE REGISTRAR

CDC SHARE REGISTRAR SERVICES LIMITED

CDC HOUSE, 99-B,BLOCK-B, S.M.C.H.S.,

MAIN SHAHRAH-E-FAISAL, KARACHI -74400

Website : http://philipmorrispakistan.com.pk

Email : pmpk.info@pmi.com

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Director's Report

Pakistan's economy has already been witnessing the impact of the global economic crisis, and, the situation has further been exacerbated by the rising current account deficit, foreign exchange crunch, rupee devaluation, and political instability in the country. Though we recently have witnessed the rupee gaining some stability against US$, however, the high interest rate, inflation and energy prices continue to pose great challenges for the businesses. As per the World Bank report, the economic growth in Pakistan is expected to remain sluggish and downside risks to the outlook will remain exceptionally high. These economic pressures coupled with demand, supply disruptions, and an exorbitant increase in taxes have adversely impacted investor confidence and are making the operating environment increasingly challenging for businesses.

With the cumulative increase of >200% in cigarette excise during fiscal year 2022/2023, including the unprecedented excise hike of 150% in Feb'23, a massive decline of ~55% in tax paid volumes were noted during Mar-Jun 2023 vs same period prior year. This massive decline in tax paid volumes is driven from the shock of Feb'23 excise. Further, during the first nine months of the current year (Jan-Sep'23) tax paid volumes declined by 37.9% reflecting the impact of multiple excises driven price increases. The minimum price prescribed under the tax laws for the levy and collection of FED and Sales Tax is PKR 127.4 per pack but according to the latest market observations, non-tax-paid cigarettes are being sold at an average price of PKR 100 per pack (price gap of ~200% vs. most sold tax paid brands) which is significantly below the prescribed minimum price. Without effective monitoring, the annual estimated loss of more than PKR 240 billion to the National Exchequer caused by the non-tax paid sector is expected to further increase.

During the nine months ended Sept 30, 2023, Philip Morris (Pakistan) Limited ('the Company") reported a Total Net Turnover of PKR 13,641 million reflecting a decrease of 8.9% vs. the same period last year. The Company's domestic Net Turnover of PKR 10,575 million reflects a significant decrease of 24.1% vs. prior year reflecting decline in volumes by 44% vs. prior year reflecting the Feb'23 exorbitant excise hike. The Company recorded a profit after tax of PKR 659 million for the nine months ended Sept 30, 2023, reflecting a significant decrease vs. prior year driven by the impact of decline in volumes as mentioned above. For the first nine months of the current year (Jan-Sep'23), the company contributed PKR 26,189 million to the National Exchequer higher by 22.5% vs. prior period.

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The Track & Trace System ("the System") for the tobacco industry was implemented effective July 01, 2022. The System was rolled out with a view to enhance tax revenue by preventing and reducing counterfeiting and smuggling of non-tax paid goods through robust nationwide implementation of the system. However, to date only Philip Morris (Pakistan) Limited and two other companies have fully implemented the System whereas, the remaining tobacco manufacturers have signed the Tri-Partite Agreement but not fully implemented the System. The System could only be effective through its across-the-board implementation, compliance and robust monitoring of the production volumes and tracking of the goods at the retail outlets.

The tax-compliant tobacco industry is facing the repercussions of deteriorating economic conditions, including heightened interest costs, inflated business expenses, and escalated energy tariffs. Coupled with the unexpected FED tax escalation, the environment for tax-paying tobacco entities has become increasingly challenging. The Company remains committed to vigilantly monitoring market dynamics and striving to effectively manage operations amidst these challenging circumstances.

On behalf of the Board of Directors.

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FINANCIAL STATEMENTS

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PHILIP MORRIS (PAKISTAN) LIMITED

CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION (UNAUDITED)

AS AT SEPTEMBER 30, 2023

The annexed notes from 1 to 23 form an integral part of these condensed interim financial statements.

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