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We have confidence to passionately pursue growth and new opportunities while

building on our legacy as one of the most dynamic and forward-looking organizations
in the Country. Keeping true to our Ethos, the bedrock element that guides us, in 2019
PTC took a bold decision and transcended into the global arena through exports of
finished products, for the first time in its history envisioning prosperity beyond borders.
Our outstanding products coupled with world class talent sets us apart from every
market that our Group operates in.
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PROUD
HERITAGE OF
SUCCESS

Asia Money Award Top Employer 2019 GDIB Award 34th MAP Award
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PAKISTAN TOBACCO
COMPANY LIMITED

Pakistan Tobacco Company Limited (PTC) was the Despite all the macro-economic challenges
first multinational to be incorporated in Pakistan, right in 2019, PTC broke out of its traditional
after the partition of the Subcontinent in 1947. We are a domestic business and took a leap in the
subsidiary of the British American Tobacco Group (BAT) global arena through exports of finished
and we take pride in the fact that we started off with a products, for the first time in its history,
single warehouse near Karachi port and over the course envisioning prosperity beyond borders.
of time, became one of the biggest FMCG companies Aligned with the Government’s ambition of
in the country. We currently hold more than 75% of the reducing the balance of payments deficit,
total legitimate cigarette market share in the country PTC exported Raw Tobacco and Finished
and over 50% of total cigarette sales nationwide. goods to GCC and other Middle Eastern
countries with an approximate worth of
around $11 million. Overall in our first year
of exports, PTC exported over 190+ Million
Cigarettes and around 3 Million Kilograms
of Raw Tobacco. These numbers have the
potential to grow manifold in the years to
come.

We are extremely positive about the strategic

interventions that PTC team undertook during
2019. Our globally sought-after talent, prized
product portfolio, our partnerships throughout
our crop to consumer operations and world
class manufacturing facilities is what sets us
apart locally and globally.

While generating value for our shareholders,

we are determined to support Pakistan not
just by contributing one of the highest level
of Federal Excise Duty to the Government
exchequer but also through upscaling and
increasing the outreach of our community
welfare projects.
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OUR FOOTPRINT

02 06
Factories Leaf Offices

Jhelum & Akora Khattak Yar Hussain, Shergarh, Buner,

Mansehra, Mianwali, Gujrat

04 18 11 17
EXCELLING BEYOND BORDERS

Regional Trade Offices Leaf Depots Warehouses Sales Offices

ANNUAL REPORT 2019

Lahore, Multan, Karachi & Shergarh, Takht Bhai, Jamal Jhelum, Islamabad, Gujranwala, Quetta, Sukkur, Hyderabad,
Rawalpindi Garhi, Mandani, Sharifabad, Lahore, Faisalabad, Okara, Nawabshah, Sahiwal,
Foujoon, Dagai, Firdousabad, Multan, Karachi, Hyderabad, Bahawalpur, Gujranwala,
Yar Hussain, Roshanpura, Sukkur & Quetta Faisalabad, Peshawar, Jhelum,
Buner, Chamla, Baffa, Bherkund, Sargodha, Karachi, Multan,
Paikhel, Fatehpur, Lahore, Islamabad, Northern
Kunjah-Gujrat, Okara Area & D.G Khan
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Excelling Beyond Borders Redefining Excellence Human Resources Awards and Accolades Exported Talent
(Made in Pakistan)

Excelling Beyond Borders In 2019, PTC embarked on the Made in Pakistan journey
and celebrated its achievement in becoming a new export
(Made in Pakistan)
hub for the Group. This is with a view to exporting factory
Depressed macroeconomic conditions manufactured cigarettes & cut rag tobacco to GCC and
other Middle East countries carrying an estimated worth
pushed Government of Pakistan of $11 million, with the potential to grow over the next few
to decrease its current account years. Investments were done on machinery for the Jhelum
manufacturing plant to support regulatory and customer
deficit by setting exports as one requirements of track and trace. Moreover, a change
of its top priority. Rising to the management program under the Made in Pakistan initiative
occasion, PTC through its dynamic was launched with change champions driving multiple
sessions covering the entire population involved in the
leadership realigned its strategy and Exports process. The program enabled soft skill capability
embarked on the exports journey. development, inculcated a sense of pride and it proved to be
a key success driver.
Contemplating avenues for export,
we earmarked Middle East as the What sets Pakistan apart from its competition is that it has a
best export opportunity. Once the low cost of production and labor, strategic advantage due to
its geographical location and priority of the Government to
potential for exports was realized boost exports. So far, we have exported our finished goods
Pakistan became the export hub for to 6 members of Gulf Cooperation Council and Raw cut
Tobacco to Yemen.
BAT world.
PTC holds it as a core belief to be a responsible partner with
the Government and has a 72 year long history of being a
key contributor to the local economy and national exchequer.
Overall, PTC exported over 190+ Million cigarettes and
around 3 Million KGs of tobacco in 2019.

PTC embarked on the Finished goods and raw tobacco

Made in Pakistan journey and worth $11 Million exported to
celebrated its achievement in 6 GCC Countries
becoming a new export hub
PAKISTAN TOBACCO COMPANY LIMITED

for the Group.

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Excelling Beyond Borders Redefining Excellence Human Resources Awards and Accolades Exported Talent
(Made in Pakistan)

Redefining Excellence
in Trade Marketing
2019 was dedicated towards
conducting a full strategy review
of the current route-to-market
model and proposing a robust fit
for future model for the next 5 years Effective consumer engagement has always been our forte
EXCELLING BEYOND BORDERS

and beyond. This will enable PTC and we have been leveraging this platform to ensure the
right registration of our brand message amongst our target
to deliver on the agenda of volume consumers. The year 2019 saw us fully on-boarding a
sustenance and value growth multi-national professional full-service single stop shop for
ANNUAL REPORT 2019

recruitment, training, systems and monitoring.

PTC delivered on its promise to customers to provide
the right product at the right price in the right outlets and In the current era of digitization, it was very important to
Pakistan’s flagship trade loyalty programme ‘Top Trader’ leverage these advancements to ensure right monitoring
enabled this. Top Trader is the most sought-after trade and control of our execution in the field. Store Viz application
loyalty programme by the retail community as verified by the (Tracking tool for our 3rd Party resources) provides
‘CUSTOMER VOICE’, survey conducted by an independent improved visibility on field execution and merchandising
market research agency. control.
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Excelling Beyond Borders Redefining Excellence Human Resources Awards and Accolades Exported Talent
(Made in Pakistan)

Transforming Our Brands

2019 marks the year when John Player Gold Leaf (JPGL) Post the excise increase of 2019, consumer affordability
reached the milestone of achieving over 140 years of in PTC’s Value for Money (VFM) segment came under
excellence. To honour this legacy of great taste and to severe pressure alongside rapid growth of illicit cigarettes
reinforce the brand assets of JPGL, a campaign was in the market. To remain competitive in the VFM segment,
executed to celebrate the history of John Player in Pakistan. Pall Mall and Rothmans were launched at a price parity to
Limited Edition Packs, utilizing modern hot foil technology, duty-paid competition offers in selected high-risk markets to
were introduced to the market for the first time ever. These safeguard volumes and ensure value sustainability for the
initiatives have further propelled the JPGL brand to new organization. The brands have received positive consumer
heights in Pakistan. traction in the pilot markets, with expansions into more
markets planned in 2020.
The VFM segment witnessed Gold Flake’s migration to
Rothmans of London; a transition that has seen the brand In the Aspirational Premium segment, post successful pilot
enhance its equity and mix. This was a strategic intervention launch of John Player, a brand which built on the legacy of
which has helped the brand significantly in building its the House of John Player, the brand was piloted in four test
imageries in one of the most dynamic consumer segments. markets, followed up by an expansion into the 13 biggest
Despite the heavy inflationary pressure, Capstan by Pall Mall cities of Pakistan. Aided by a focused consumer activation
has maintained its position as the biggest tobacco brand in campaign and retailer engagement, the launch was a
Pakistan as a result of innovative and engaging “Always On” success and quickly turned into the most promising brand
activations that leveraged various consumer moments. launch in recent PTC history.
PAKISTAN TOBACCO COMPANY LIMITED
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Excelling Beyond Borders Redefining Excellence Human Resources Awards and Accolades Exported Talent
(Made in Pakistan)

Our People Our Pride

Employees have always been at the heart of PTC’s strategy PTC continues to improve and enhance the policies to facilitate
formulation. It is because of its world class talent and passion that employees. Our aim is to shift gears and transform the reward and
the Company has been able to reach unprecedented heights. PTC recognition process to fit the needs and requirements of our people.
is the net talent exporter to the BAT group. We hire the crème de la These continuous improvements in rewards and policy frameworks
crème from various parts of Pakistan, with diverse backgrounds, help us not only attract the best talent but also to improve the
who bring their variety of experience in the workplace and further retention rate.
strengthen our inclusive culture. PTC provides its talent with a
wide variety of opportunities to learn, develop their potential and Being an employee centric organization is necessary to achieve
help grow within the organization by multiple programs. Moreover, success and PTC believes in a people-first approach where we
the idea is to incorporate the essence of BAT’s guiding principles focus on the training & development of our employees, provide them
within the workforce. Therefore, we give our employees the freedom with the right kind of development interventions and further enhance
through responsibility to be bold and innovative. We also encourage their capabilities. In 2019 we have invested 56,000+ training hours
our talent to pursue opportunities within and outside Pakistan, to build leadership and functional competencies in our employees.
grooming them professionally and personally to combat any
challenge in a work environment. This “Made in Pakistan” talent is The rich history of PTC, spanning over a period of more than 72
sought after globally by the BAT Group and other multinationals. In years, is a testament to great leadership and resilience of its people.
2019, we seconded 28 employees on international assignments. Over the years, we have evolved & transformed our business
while also transforming our HR practices to make this Company
more employee centric. PTC has also been awarded the global
certification of Top Employer for the second year in a row that
further cements our commitment towards the world-class talent
development. PTC is a part of the global community of forward-
thinking organizations that continue to strive for only the best people
practices.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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Excelling Beyond Borders Redefining Excellence Human Resources Awards and Accolades Exported Talent
(Made in Pakistan)

AWARDS AND
ACCOLADES
GDIB Award Asia-Money Award
Global Diversity and Inclusion Benchmark (GDIB) Awards Asia-Money Awards are considered as one of the
are conducted by Diversity Hub Pakistan on an annual most prestigious awards globally and are designed to
basis. The GDIB award’s core objective is to recognize acknowledge listed companies that have excelled in
organizations that fulfil GDIB rigorous standards and areas such as financial performance, management team
benchmarks in Diversity & Inclusion (D&I) across 14 excellence, IR activities and CSR initiatives.
categories.
Pakistan Tobacco Company Limited (PTC) was awarded as
GDIB has awarded Pakistan Tobacco Company Limited the the “Most Outstanding Company in Pakistan” in Tobacco
progressive learning award in Learning category in 2019. Sector by the Euro-Money – Asia-Money Asia’s Outstanding
The award was presented by Ms. Kashmala Tariq, Federal Companies Poll 2019.
Ombudsperson for Protection against Harassment of
Women at Workplaces, to Mr. Aly Taseer, then Area Director The award was received by then Managing Director and
Human Resources, South Asia Cluster of BAT. CEO, PTC, Syed Javed Iqbal and then Deputy Managing
Director Usman Zahur, now the Managing Director and CEO.

Top Employer 2019

Established more than 25 years ago, Top Employer Institute Management Association of
is a global certification Company recognizing excellence Pakistan
in people practices. Top Employers Institute has certified
Founded in 1964, MAP is a professional and non-political
over 1500 organisations in 118 countries/regions. Pakistan
association with a not-for-profit agenda, and it pursues the
PAKISTAN TOBACCO COMPANY LIMITED

Tobacco Company Limited (PTC) has been awarded the Top

vision to lead change processes towards best Management
Employer certification 2019 by the Top Employers Institute for
Practices. Management Association of Pakistan is
excellence in employee conditions.
committed to excellence in management through human
capital development, creating awareness and recognizing
best management practices to enhancing competitiveness.
In 2019 PTC was awarded the 34th corporate excellence
award in the Tobacco sector.
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STRATEGIC OBJECTIVES
PTC’s strategy is aligned with BAT Group’s strategy, which is geared towards
delivering growth and creating long-term value for all its stakeholders

Productivity

Growth Sustainability
PAKISTAN TOBACCO COMPANY LIMITED

Effectively deploying
resources between
product categories
Constantly developing and managing our Winning Ensuring a sustainable
cost base to release
our portfolio of
funds for investment
Organisation business that meets
potentially reduced- the expectations of all
risk products and our stakeholders
new technologies Ensuring we have
while continuing to great people with the
drive revenue growth right skill sets in the
from our traditional right teams to drive
combustible products the transformation of
our business
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Medium-term & Short-term goals to achieve Long-term Objectives

Short & Medium-Term Objectives Must Do Approach towards achieving Short & Medium-Term Objectives

1. Maintain industry leadership by

outperforming the competition
• We understand consumer moments
and how to satisfy them with world-
Customer Centricity
2. Strengthen brands by enhancing class tobacco The Company places its consumers at the centre of its business. In
brand equity of our product • We build distinctive brands by doing so, we endeavour to understand changing consumer needs,
portfolio exciting our consumers with preferences and buying behaviours. We aim to satisfy consumers
3. Address evolving consumer powerful innovations with a range of attractive products suited to the needs of its segment.
Growth

needs and preferences across all • We set bold ambitions for brand Our product innovations, trade capabilities, procurement, logistical
segments initiatives and deliver with speed operations and machinery footprint are developed to deliver to the
4. Implement automated solutions and scale consumer what he desires.
to derive valuable insights for • We make tough choices to deploy
supporting key management an aligned and focused brand Innovative Approach
decisions portfolio in our market
The Company remains at the forefront to implement innovative
• We love our products and provide
solutions that enable it to increase competitive advantage and value
consistently superior offers to our
across its operations.
consumers
1. Lean operating and manufacturing
structures
• We plan for success and supply on
time and in full
Leveraging Global Reach and Size
2. Increase operating and To deliver the short and medium-term objectives, PTC leverages the
Productivity

manufacturing efficiencies across advantages available to it by way of being part of BAT Group. The
the value chain Company replicates BAT’s systems, processes and best practices to
3. Efficient resource allocation and make its entire operations cost-effective, efficient and more agile.
cost-efficient operations
4. Machinery footprint readiness to
meet future demand and product
innovations
1. Promote diversity and inclusion • We invest as much time and energy
Focusing on People – Our Asset
Winning Organisation

2. Equal opportunities for all in our people as in our brands,

3. Invest in Leaders - attract, develop focusing on creating a legacy of The quality of our people is a major enabler of the continued
and retain the best talent leaders performance that we have delivered over the years. We consider
4. Provide a safe work environment. our people our greatest asset and remain committed to investing in
5. Reward people based on our people. We encourage a culture of personal ownership and we
performance value our employees’ talents and abilities. We believe that the diverse
perspectives of our employees help us to succeed in the marketplace.

1. Ensure harm reduction by

ensuring quality product offerings
• We shape a new deal with
consumers and society, being
Corporate Behaviour
2. Promote sustainable agriculture completely transparent and seeking The Company is committed to adhering to the highest standards of
and farmer livelihoods to offer safer products corporate conduct and transparency.
3. Follow the highest standards • We act like owners, taking personal
Sustainability

of corporate conduct and accountability for creating value Social Wellbeing

transparency
The Company is committed to working towards the well-being of all
stakeholders, especially the communities in which it operates. We
have strong business relationships with a wide range of stakeholders,
including farmers, retailers and distributors. We operate on the principle
of making the relationship mutually beneficial. As a commercial
organisation, we aim to build long term shareholder value and believe
the best way to do this is to understand and take into account the
EXCELLING BEYOND BORDERS

needs of all our stakeholders.

No significant changes in objectives from previous years have been identified

ANNUAL REPORT 2019
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RISK & OPPORTUNITY REPORT

As challenges in our operating landscape continue to Names of Directors who have obtained certification from
intensify, the proactive identification and management of SECP approved institutions are provided below:
risks become vital in ensuring that the Company is able 1. Syed Javed Iqbal
to deliver sustainable stakeholder value. The Company’s 2. Asif Jooma
risk management framework is characterized by defined 3. Tajamal Shah
mandates, comprehensive policy frameworks and robust 4. Zafar Mahmood
governance structures. Effective risk identification, 5. Lt. Gen. (R) M. Masood Aslam
monitoring and mitigation processes are embedded in 6. Usman Zahur
the Company’s daily operations through a comprehensive
framework comprising monitoring processes, internal
controls and relevant stakeholder engagement mechanisms. Risk Governance
As a subsidiary of BAT Group, PTC also benefits from The Board of Directors is responsible for determining the
globally followed highly effective best practices in risk nature and extent of the significant risks the Company is
management and thus, has been successful in nurturing willing to take to achieve its strategic objectives. The Board
a risk culture, which aptly balances risk and growth is supported by the Board Audit Committee in discharging
considerations. its risk management related responsibilities and the Board
Audit Committee regularly reviews the effectiveness of
Statement from Board of the Company’s risk management processes and internal
control systems. A dedicated Risk Management Committee
Directors (RMC), comprising the Marketing Director, as its chairman
The Board is responsible for determining the risk appetite and Senior Managers representing key functions, reports to
that the Company is willing to take to achieve its strategic the Executive Committee on the risk performance of each
objectives and for maintaining sound risk management function on a regular basis. The Company’s risk profile is
and internal control systems. PTC’s risk management and also monitored through the internal reporting mechanisms of
internal controls framework are aimed at safeguarding the Group.
shareholders’ investment, the Company’s assets as well
as to evaluate and manage risks that may impede the
Company’s objectives.
Risk Identification
During the year, a robust assessment of the principal risks
As part of the risk governance and overall good corporate faced by the Company has been carried out, including those
PAKISTAN TOBACCO COMPANY LIMITED

governance stipulated in the Code of Corporate Governance that would impact its business model, performance, brands,
2019, several Directors of the Company have been assets, solvency and its employees. Financial and non-
appropriately certified under the Directors’ Training Program financial risks are identified at a functional level, with inputs
from SECP approved institutions in accordance with the time from relevant employees. This is carried out through team
frame set out in the Code. Owing to changes in the Board’s discussions and brainstorming sessions, which facilitate
composition, six members of the Board are yet to obtain the participation and value addition by employees across
requisite certification which is scheduled during the current the Company. The identified risks are then reviewed for
year to ensure certification of PTC’s entire Board. completeness by the RMC on a regular basis.
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Risk
Management

Management
Risk Approach Assessment &
Identification Evaluation

Monitoring EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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Assessment and Evaluation Materiality Approach Adopted

Elaborate risk registers are used to assess and evaluate by the Management
the risks in detail. Each identified risk is assessed and
Materiality levels, other than those provided under
then categorized at one of the three levels (high / medium
regulations, are judgmental and may vary substantially from
/ low) in terms of the likelihood of its occurrence and the
company to company. In PTC, matters are considered to be
severity of its potential impact. Tolerance levels and trigger
material if, individually or in aggregate, they are expected to
points are also defined for each identified risk. The risk
significantly affect the performance, profitability, brands or
registers are first validated by the RMC, then the Executive
assets of the Company.
Committee and finally by the Board Audit Committee.

Powers of the Board of Directors and the management have

Risk Management been defined with special reference to, and in compliance
with, the applicable regulatory framework. Authorizations
Following the identification of key risks faced by the
for transactions have been clearly defined and documented
Company, the respective functions develop elaborate
in the Statement of Delegated Authorities (SoDA). These
strategies and plans to mitigate the impacts of these risks.
authorities have been defined keeping in view materiality
The responsibility for managing each identified risk rests
levels appropriate to a certain position or level of an
with the head of each function (risk owners), who reports
employee. These are reviewed and approved by the BoD
regularly to the RMC on the progress and effectiveness of
each year.
the risk mitigation plans. Additionally, the potential impact
of global trends and risks are also captured through input
by the Regional Risk Management Committee, which Key Sources of Uncertainity
can recommend improvements in internal controls and
risk mitigation plans in line with global best practices and and Risks & Mitigating
experiences.
Strategies
Key sources of uncertainty emanate from challenging
Monitoring environments the Company operates in. Changes in
Risks are monitored at multiple levels in the organization political, social, technological, economic or legal factors
including at functional level, by the RMC, Executive also lead to risks which the Company might be exposed
Committee, Board Audit Committee and Board level. to. The Company actively monitors its risk universe to
Identified risks, the risk registers, mitigation plans, and proactively manage and mitigate various risk exposures.
performance of each risk mitigation plan are evaluated at
these levels throughout the year. Furthermore, the Company The following section details key risks that the Board
is also fully compliant to all the requirements of Sarbanes believes could have the most significant impact on the
Company’s ability to create value. Some of these major risks
PAKISTAN TOBACCO COMPANY LIMITED

Oxley Act (SOx) which has further strengthened the internal

controls of the Company. are outside the control of PTC and other factors besides
those listed below may affect the Company’s performance.
Some risks may be unknown at present; others which are
currently immaterial could emerge as material risks in the
future.
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Risk
Level Impact Mitigating Strategy
Description
Strategic Risks
Illicit and High • Volume loss and profitability • Active engagement with Government/ law
Counterfeit • Erosion of brand value enforcement agencies to highlight the issue
Trade • Investment in trade marketing is and its impact on the legal industry
undermined
Aggressive High • Direct impact on consumer affordability • Active engagement with Government/ law
Excise • Down trading to illicit brands enforcement agencies to explain impact on
Increases • Reduced legal industry volumes the legal industry
• Sustainability issues for the legal
industry
• Reduced Government Revenue
Economic Moderate • Direct impact on consumer buying • Brands across various consumer segments
Conditions power
• Down trading to illicit brands
• Reduced legal industry volumes
Financial Risks
Currency Moderate • Increased cost base • Physical Hedging
Devaluation • Lower operating margins • Operational synergies across value chain
• Pressure on profit growth • Cost savings initiatives
Material Price Moderate • Increased cost base • Productivity initiatives
Sensitivity • Lower operating margins • Substitutes
• Pressure on profit growth • Alternative suppliers
Operational Risks
Pandemics Moderate • Employee absenteeism • Strict compliance with EHS regulations,
• Business Interruption standards and protocols
• Damaging employee morale • EH&S Trainings
• Reduced operational effectiveness • EH&S Audits
• Safety equipment
• Incident reporting
Accidents at Low • Injury to employees or contractor • Strict compliance with EHS regulations,
workplace workforce standards and protocols
• Damage to Company reputation • EH&S Trainings
• Employee dissatisfaction • EH&S Audits
• Business Interruption • Safety equipment
EXCELLING BEYOND BORDERS

• Incident reporting
Employee Low • Loss of key Talent • Market competitive remuneration
turnover • Low Employee morale • International career opportunities
• Employee dissatisfaction • Development and Growth opportunities
ANNUAL REPORT 2019

• Reduced operational effectiveness • Conducive and safe work environment

• Favorable employee policies
Natural Low • Business Interruption • Business interruption plans.
disasters • Property Loss • Evacuation Plans and drills.
• Employee safety • Safety Equipment
• Financial Loss
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ORGANISATIONAL
STRUCTURE

Chairman and
Board of Directors

Audit Human Resource & MD/CEO Share Transfer

Committee Remuneration Committee
Committee

Finance & Head of Country Security

IT Director Human Resources Manager

Head of Corporate Head of Security Manager -

Internal Audit Finance Controller HR - Operations Operations

Security Manager -
Commercial Finance Senior HR Business
Marketing & Secondary
Controller - Operations Partner - Marketing
Supply Chain

Commercial Finance Business Partner - Risk & Resilience

Controller - Marketing Corporate Manager
PAKISTAN TOBACCO COMPANY LIMITED

Executive Retirement Schemes/

Assistant Payroll Manager

Executive
Assistant

As at 31st December 2019

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Executive
Committee
(ExCo)

Legal & External Marketing Head of Executive

Affairs Director Director Operations Assistant

Head Head of
Head of Legal
of Brands Manufacturing

Head of External
Head of Strategy, Head of
Affairs & Company
Planning & Insights Leaf
Secretary

Executive Head of Supply Chain

Assistant Consumer Product Manager

Head of Activations & Senior Quality

Trade Marketing Distribution Manager EXCELLING BEYOND BORDERS

Executive Country EH&S

Assistant Manager
ANNUAL REPORT 2019

Procurement
Business Manager

Executive
Assistant
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POSITION OF REPORTING
ORGANISATION WITHIN
VALUE CHAIN
Tobacco Tobacco Cigarette
Harvesting Buying Manufacturing Selling

Tobacco Tobacco Cigarette

Leaf Curing Processing Distribution

Pakistan Tobacco Company

Sourcing
1. Tobacco Buying in corrugated boxes, ready to be shipped out of the
factory. Our production facilities are located in Akora
While the Company does not own tobacco farms Khattak and Jhelum, which provide employment
or directly employ farmers, it buys the majority of its opportunities to the indigenous people of these areas.
tobacco from local farmers that grow tobacco crop
in areas of KPK and Punjab province. The Company
provides on ground support and advice to these
farmers, enabling them to increase yields, improve
Warehousing and Distribution
tobacco leaf quality and achieve consistency in crop Following production, the finished products are then
attributes. In this way, the livelihood of many tobacco transported from the factories to warehouses located
farmers remains connected with the Company. in various parts of the country. In the final step, the
finished goods are sold to our appointed distributors
2. Other Raw materials operating across the country. These distributors sell the
product to wholesalers and retailers operating in their
The Company procures other raw materials used in
the manufacturing and packaging of cigarettes from
respective market areas. In carrying out its warehousing
local as well as international suppliers. In turn, the local and distribution operations, the Company leases several
industries supplying raw materials to the Company are warehouses across the country whereas it utilizes the
able to generate income and employment by transacting services of Logistics Service Providers for the transportation
commercially with the Company. of goods. These operations in turn enable other companies,
businesses and people not only in generating income for
Manufacturing themselves but also in creating employment opportunities
for others. The benefits of the economic activity generated
1. Tobacco Processing by our business trickles down to various segments and
PAKISTAN TOBACCO COMPANY LIMITED

benefits the society at large.

Prior to being used in the manufacturing of cigarettes,
tobacco undergoes processing first in the GLT (Green
Leaf Threshing) Plant and then in the PMD (Primary
Manufacturing Department). These operations, being in Selling and Marketing
Akora Khattak and Jhelum, benefit the local community Every year the Company carries out various marketing
by providing not only direct employment opportunities
and selling activities to support its business partners and
but also business opportunities created as a result of
ancillary services, required by the Company to run its to promote its brands. These also include activities that
operations. help in providing insights into consumer preferences and
perceptions, especially those related to the Company’s
brands. In executing these activities, the Company utilizes
2. Cigarette Production the services of many local suppliers, which in turn generates
In the production phase, processed tobacco and not only commercial activity for other local businesses but
raw materials are first used to make cigarette sticks, also creates many employment opportunities.
then formed into cigarette packs and finally packed
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Following is the Graphical Representation of PTC’s Seed to

Smoke Operations:

Sourcing Manufacturing Warehousing Distribution

Leaf
Local

GLT + Leaf Warehouses Sindh & Baluchistan Sale to Distributor

Overseas

Southern Punjab Sale to Distributor

WMS
Akora Khattak
Overseas

Central Punjab Sale to Distributor

Local

Jhelum

North Sale to Distributor

EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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ILLICIT TRADE
In the global scheme of things, illicit trade has been acknowledged by different
stakeholders as a serious threat to legitimate businesses including the tobacco
industry. Illicit trade in cigarettes comprises three major components, which
are local tax evaded cigarettes, smuggled cigarettes and counterfeit cigarettes
infringing upon the trademarks of legitimate brand owners.

In Pakistan, the trends are similar and reflective of the global scenario. As each
country has its own flavor, so does Pakistan, and that distinguishes its issues
from other countries. The biggest contribution to the illicit trade in cigarettes
is made by the local duty-not-paid sector, which comes to approximately 27%
of the total consumption annually. Since excise duty and sales tax have been
evaded on these products, they are sold lower than the Government. prescribed
minimum price of PKR 63 rupees per pack and even lower than the minimum
duties and taxes payable per pack, hence causing a loss to the national
exchequer in terms of valuable revenue.

Local tax evaded cigarettes are followed by the smuggled cigarettes which make
their way into the country through illegal channels. These cigarettes are legally
not allowed to be sold in Pakistan as the applicable duties and taxes have not
been paid and additionally, these products do not conform with the laws of the
land as they do not carry the prescribed health warnings mandatory for allowing
a product to be sold in Pakistan.

Counterfeit cigarettes are not manufactured by the rightful trademark owner

and neither do these fake products conform to the specifications of the original
products. Such products not only give a poor experience to our customers but
also cause a loss to the Government in revenue collection. After the 2019-20
Finance Bill was approved by the parliament, the price increase further added
to the woes of the legitimate cigarette manufacturers and the year witnessed a
spike in the availability of counterfeit cigarettes.

We are at a precipice, and if the Government does not act against the illicit
players at this point in time, the legitimate industry will suffer heavily at the hands
of the violators of the law. The recent surge in counterfeit is worrisome as it is
nibbling away the market share of the legitimate industry.

In 2017, the Government had set up the Inland Revenue Enforcement Network
(IREN) to curb illicit trade in the tobacco sector and it yielded positive results with
seizures of over 1.6 billion sticks worth of raw material and cigarettes, however,
IREN was rendered dysfunctional in 2018. Late in 2019, the Government again
EXCELLING BEYOND BORDERS

issued a notification to formally set up IREN, which has again resulted in seizures
of illicit stock. However, it is felt that if the Government provides financial,
logistical and human resources to IREN, it can deliver long term dividends and
also contribute to the tax collection efforts of the Government.
ANNUAL REPORT 2019

Provided IREN is given the resources that it requires, illicit trade can be curbed
in Pakistan and the illicit players can be brought into the legitimate fold. The
provincial and district administrations will have to play a role to offer a level
playing field to the legitimate tobacco players, as they have the biggest network
of law enforcement officials in the country. There is also a need to strengthen
legislation and make it difficult for potential illicit players to operate beyond the
realm of the law. If the Government decides to deal with the illicit sector with an
iron hand, illicit trade will be curbed in the future.
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CORPORATE
INFORMATION

Registered Office Company Secretary Auditors

Pakistan Tobacco Company Limited Yusuf Zaman KPMG Taseer Hadi & Co.
Serena Business Complex T: +92 (51) 2083200 6th Floor, State Life Building No. 5, Jinnah
Khayaban-e-Suhrwardy Avenue, Blue Area, Islamabad 44000
P.O. Box 2549 T: +92 (51) 2823558
Islamabad – 44000 F: +92 (51) 2822671
T: +92 (51) 2083200, 2083201
F: +92 (51) 2604516
www.ptc.com.pk

Bankers
Conventional Banks Share Registrar
MCB Bank Limited Famco Associates (PVT) LTD
Habib Bank Limited
Factories National Bank of Pakistan
8-F, Near Hotel Faran
Nursery, Block 6, P.E.C.H.S.
Akora Khattak Factory Citibank N.A Shahrah-e-Faisal, Karachi
P.O Akora Khattak Standard Chartered Bank (Pakistan) Limited T: +92 (21) 34380101-5
Tehsil and District Nowshera Deutsche Bank AG
Khyber Pakhtunkhwa
T: +92 (923) 561561-72
F: +92 (923) 561502
Islamic Banks
MCB Islamic Bank Limited

Jhelum Factory
G.T Road, Kala Gujran, Jhelum
T: +92 (544) 646500-7
F: +92 (544) 646524

Regional and Area Offices

Central Punjab House No. 313, Street No. 3 Hameed Ullah Sindh & Balochistan
200-FF Block, Central Commercial Area, Mocal Colony, Sahiwal Office No. 903, 9th Floor,
Phase 4, DHA, Lahore Cantt T: +92 (40) 4503107 Emerald Tower (Plot No. G - 19),
T: +92 (42) 35899351-55 Main Clifton Road, Clifton Block 5,
North Karachi 75600
11 KM Jaranwala Road, 1st Floor, Faran-101, Civic Centre, T: +92 (21) 35147690-94
Near Shafi Oil Mills, Faisalabad Phase IV, Bahria Town, Islamabad
T: +92 (41) 8740892-94 T: +92 (51) 5734207-10 Banglow No. 05, Block B, Unit No. 05,
Near Bhittai Hospital Latifabad, Hyderabad
EXCELLING BEYOND BORDERS

G.T Road, Rahwali, Gujranwala Cantt Cigarette Factory, G.T Road, Jhelum T: +92 (22) 3813636
T: +92 (55) 3864297 T: +92 (544) 646500-11
F: +92 (541) 646529 Bunglow No. A-17, Housing Society,
Southern Punjab Nawabshah, (Near SSGE Regional Office).
Office No. 601/602, 6th Floor, House No. 108-A, Aziz Bhatti Town, Nawabshah
ANNUAL REPORT 2019

The United Mall, Main Abdali Road, Multan Khushab Road, Sargodha T: +92 (244) 364463-364458
T: +92 (61) 4512553, 4585992 T: +92 (483) 838699
Bungalow No. A/31 Akhuwat Nagar,
House No. 42/3, Tipu Shaheed Road, Model House No. 3, 4 Jhandagal, New IT Marhaba Shikarpur Road, Sukkur
Town A, Bahawalpur Tower, University Road, T: +92 (71) 5807225 - 5807224
T: +92 (62) 2877576 Peshawar
T: +92 (91) 5700731 B-604, 2nd Floor, (Serena Bazar), Serena
Hotel Quetta, Quetta
T: +92 (81) 2832012 - 13
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BOARD OF
DIRECTORS

Zafar Mahmood Usman Zahur William Pegel

(CHAIRMAN) (MANAGING DIRECTOR / CEO) (FINANCE & IT DIRECTOR)

Mr. Zafar Mahmood holds an MA in Mr. Usman Zahur joined PTC 22 years Mr. William Pegel joined PTC as Area
Economics and an LL.B, as well a Post ago and since then, he has held various Head of Finance for South Asia Cluster
Graduate Diploma in Development senior Marketing positions in Brands, Trade in 2019. He has over 23 years of
Administration from Manchester University, and SP&I across different geographies. experience in various BAT companies and
UK. He served the Government of Pakistan In 2012, he was assigned as the Head successfully performed the role of Finance
for 38 years in multiple important roles, of Marketing – Bangladesh, where he Director in various end markets including
including Secretary Textiles, Secretary led the marketing team in achieving New Zealand, Papua New Guinea, Ghana
Industries, Secretary Water & Power, unprecedented growth in a very complex and Bangladesh. He has also held various
Secretary Petroleum & Natural Resources, and competitive environment. He returned senior finance roles at BAT Australia and
Secretary Commerce and Secretary to Pakistan in 2017 as Area Marketing BAT South Africa since 1996. Prior to
Cabinet. During his distinguished career, Director for South Asia Cluster including joining PTC, he was an integral member
he also held the positions of Consul Sri Lanka and Myanmar. He was appointed of the BAT Bangladesh Leadership Team,
General in Istanbul, Vice Chairman Export as the Managing Director / CEO of the displaying strong leadership and business
Promotion Bureau and Chairman Punjab Company in November 2019. acumen. He is a Certified Chartered
Public Service Commission. He retired Accountant from the South African
from public service while holding the Institute of Chartered Accountancy. He
critical role of Chairman WAPDA. He joined joined the Board in September 2019.
PAKISTAN TOBACCO COMPANY LIMITED

the PTC Board in 2016.

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Syed Asad Ali Shah Syed Ali Akbar Syed Javed Iqbal
(LEGAL & EXTERNAL AFFAIRS DIRECTOR) (MARKETING DIRECTOR) (NON-EXECUTIVE DIRECTOR)

Syed Asad Ali Shah has more than 17 Syed Ali Akbar became a part of PTC Syed Javed Iqbal has been with the BAT
years of experience with the Company. He in May 2019 as the Marketing Director, Group for the last 22 years. He joined as a
has worked in several managerial roles in holding a strong legacy with over two Management Trainee and has held various
Marketing, Supply Chain and Corporate & decades of experience of working key positions in the Finance function
Regulatory Affairs Functions in Pakistan, with various MNC’s and Fortune 500 within PTC as well as with British American
United Kingdom and North America. He companies in senior leadership roles of Tobacco Group. He has served in BAT
has previously served as the Head of General Management, M&A and Business South Korea as the Finance Controller and
Government Affairs and in August 2018, he Development. He has served as a director later in Global Headquarters in London as
was appointed as the Area Head of Legal in different organisations, both in public the Finance Manager for Global Marketing.
and External Affairs for South Asia Cluster. and commercial sectors; not just in In 2011, he was appointed as the Finance
He holds a master’s degree from Cranfield Pakistan but also the Middle East, North Director for Swiss Business Unit. He
University School of Management, UK. He Africa and North America. He embarked returned to Pakistan in 2014 as Director
joined the Board in April 2019. on this outstanding career journey as a Finance & IT. In July 2016, he became
Management Trainee at Unilever Bestfoods the Managing Director /CEO of PTC and
and very quickly grew, taking up senior Area Director of South Asia Cluster. He is
leadership roles in Engro Corporation, currently the Area Director for Middle East
BAT and Coca-Cola. Whilst leading large & South Asia business in BAT with effect
diverse teams across countries in notable from November 2019.
positions, he has received various local &
global honours for his strategic vision; one
of the most coveted accolades being in
recognition of his ground-breaking strategy
EXCELLING BEYOND BORDERS

of driving innovation at Coca-Cola where

he was awarded the Global Award 2018 –
the Zenith of recognition by the Chairman
& the Board. He joined the Board in
November 2019.
ANNUAL REPORT 2019
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BOARD OF
DIRECTORS

Tajamal Hussain Shah Belinda Joy Ross Asif Jooma

(NON-EXECUTIVE DIRECTOR) (NON-EXECUTIVE DIRECTOR) (INDEPENDENT DIRECTOR)

Mr. Tajamal Hussain Shah is a legal Ms. Belinda Joy Ross completed her Mr. Asif Jooma started his career in the
professional with extensive experience LL.B. and B. Com at the University of corporate sector with ICI Pakistan Limited
in the public and private sector. Before Otago, New Zealand and is registered as in 1983 and has over 37 years of extensive
joining BAT in 2000, he worked for various a Barrister and Solicitor of the High Court experience in senior commercial and
organisations based in England including of New Zealand. Before joining BAT, she leadership roles. Following his early years
as a regulator of the financial services has worked as a private practitioner at one with ICI Pakistan Limited and subsequently
industry with UK’s department of trade and of Auckland’s leading firms and has also Pakistan PTA Limited, he was appointed
industry and in the banking department of provided advisory services to various New Managing Director of Abbott Laboratories
the international law firm DLA Piper. In this Zealand and South Pacific Businesses. Pakistan Limited in 2007. After serving
period of his life, he specialised in general Belinda has over 20 years of experience there for nearly six years, he returned to
banking, asset and aircraft financing. He within British American Tobacco (BAT) ICI Pakistan Limited as Chief Executive in
spent over 18 years with BAT, occupying and her current role encompasses Legal February 2013. He has previously served
various senior legal and management Affairs, Corporate Affairs and Security as President of the American Business
roles. He retired in July 2018 from the matters across Asia Pacific and Middle Council, President of the Overseas
role of Area Head of Legal and External East regions. She is a member of the Investors Chamber of Commerce and
Affairs for South Area Cluster to become leadership teams of Asia Pacific and Industry (OICCI) and Chairman of the
a non-executive director on the board of Middle East regions as well as the Global Pharma Bureau. He has also served as
PTC. Currently, he is heading the legal Legal and External Affairs team. She a Director on NIB Bank Limited, Engro
joined the Board in April 2019.
PAKISTAN TOBACCO COMPANY LIMITED

and business consultancy firm THS & Co., Fertilisers Limited and Director and
which specialises in telecommunication Member Executive Committee of the
and technology law, constitution and tax as Board of Investment (BOI) – Government
well as compliance. He is a UK qualified of Pakistan. He currently serves on the
Barrister and a Solicitor for England and Board of Systems Limited and is the Chief
Wales. Executive of NutriCo Morinaga (Private)
Limited.

Mr. Jooma is on the Board of Governors

of the Lahore University of Management
Sciences (LUMS) and a Trustee of the
Duke of Edinburgh’s Awards Programme
whilst previously also serving on the
Board of Indus Valley School of Art and
Architecture (IVSAA). He graduated
Cum Laude from Boston University
with a Bachelor of Arts in Development
Economics. He has attended Executive
Development Programmes at INSEAD and
Harvard Business School. He joined the
Board in April 2019.
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Mohammad Riaz Lt. Gen. (R) Zafar Aslam

(INDEPENDENT DIRECTOR) M. Masood Aslam (NON-EXECUTIVE DIRECTOR)

Mr. Mohammad Riaz started his (INDEPENDENT DIRECTOR) Mr. Zafar Aslam is a Mechanical Engineer,
distinguished 37 year career of having completed management programs
Government Service as the Secretary / Lt. General (R) M. Masood Aslam has at University of Cranfield, Stanford
Chief Budget of FBR in 1981. He later special expertise in countering militancy, University and IMD Lausanne. He’s worked
served overseas as Commercial and violent extremism and undertaking on multiple programs with McKinsey,
Economic Counselor in Paris and Counsel rehabilitative measures to ensure lasting Accenture and Gartner. He joined BAT
General, Istanbul. Due to his active peace. He was commissioned in an 23 years ago as a Management Trainee
involvement in Public Affairs, he was infantry regiment of the Pakistan Army in Operations. After several roles in PTC,
posted as DG Social Sector at the Prime in November 1971. During his illustrious he moved to Malaysia as the Asia Pacific
Minister’s Secretariat. Later he also served career, he has held various command and (AsPac) Regional Supply Chain Program
as the Member Customs of FBR and DG staff appointments, including commanding Manager before returning to Pakistan
Customs Intelligence for 4 years. He retired a brigade and a division. At a crucial time as the Factory Manager. In 2010, he
after serving as Federal Secretary National in the country’s history, he commanded was appointed as Operations Director,
Assembly/Parliament for 2.5 years. After the Peshawar Corps and oversaw military BAT Bangladesh. He then served as the
retirement, he was appointed as a member operations in FATA and KPK. Post his Regional Head of Plan & Service based
of the Board of Governors of the State retirement, he remains actively involved in the UK and later on as the Group Head
Bank of Pakistan (SBP) in 2016. He has with numerous think tanks in Pakistan and of Plan, Service & Logistics in the Global
also served as a Member, Monetary Policy abroad. He has also served the country Head Office, London before returning to
Committee of the Ministry of Finance/SBP. overseas as Pakistan’s Ambassador to Asia as the Regional Operations Director
He joined the Board in April 2019. Mexico. He joined the Board in April 2019. for AsPac Region in 2016. He was also
appointed Director on the Boards of
British-American Tobacco (Singapore) Pte
Ltd & British-American Tobacco Marketing
EXCELLING BEYOND BORDERS

(Singapore) Pte Ltd. Since January

2018, he has taken over the added
responsibilities of the Middle East Area as
Regional Operations Director. He joined
the Board in April 2019.
ANNUAL REPORT 2019
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COMMITTEES OF BOARD

The Board has a number of committees, which assist the Board in the
performance of its functions.

Executive Committee
The Executive Committee of the Board (ExCo) comprises of Executive Directors of the Company and heads of departments.
The ExCo drives to achieve the strategic targets set by the Board of Directors.

Usman Zahur Syed Asad Ali Shah William Pegel

MANAGING DIRECTOR & CEO LEGAL & EXTERNAL AFFAIRS DIRECTOR FINANCE & IT DIRECTOR

Syed Ali Akbar Waqas Ahmad Khan Husain Iqbal Jaffery

MARKETING DIRECTOR HEAD OF HUMAN RESOURCES HEAD OF OPERATIONS
PAKISTAN TOBACCO COMPANY LIMITED

Yusuf Zaman
COMPANY SECRETARY

Note: Matters delegated to the

(i) In the February 2019 Board Meeting, the strength of Directors Management
was increased from 9 to 12.
It is the responsibility of management to conduct the routine
(ii) On 22nd April 2019, elections of Directors were held in the business operations of the Company in an effective and ethical
AGM, resulting in the reconstitution of the Board with 12 manner in accordance with the strategies and goals as approved
Directors comprising: 4 Independent, 4 Non-executive and 4 by the Board and to identify and administer the key risks and
Executive Directors. The positions of Chairman and MD/CEO opportunities which could impact the Company in the ordinary
are kept separate in line with good governance practice. course of execution of its business. Management is also
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concerned in keeping the Board members updated regarding any

changes in the operating environment. It is also the responsibility Lt. Gen. (R) M. Masood Aslam 4/4
of management, with the oversight of the Board and its Audit Independent Director
Committee, to prepare financial statements that fairly present the
financial position of the Company in accordance with applicable
accounting standards and requirements of the Companies Act, Mohammad Riaz 3/4
Independent Director
2017.

Board Meetings Asif Jooma

Independent Director
3/4

In 2019, the Board was reconstituted pursuant to Elections of

Directors held on 22nd April 2019. In 2019, 5 Board meetings were
held, out of which the 1st meeting held on 22nd February 2019 Wael Sabra 2/2
Director Finance & IT resigned w.e.f. June 15.2019
was attended by the previous Directors, while the newly elected
Directors attended the subsequent 4 meetings.
Michael Koest 0/3
The 5 Board meetings were held on February 22, April 22, July 23, Resigned w.e.f August 20, 2019
October 17 and December 13, 2019.

Name Attendance Mueen Afzal 1/1

Retired

Zafar Mahmood 5/5

Chairman
Imran Maqbool
1/1
Retired
Syed Javed Iqbal
Managing Director and CEO resigned on 15th November 2019 4/4
Non-Executive Director w.e.f. 15th November 2019.
Hae In KIM 0/1
Retired
Usman Zahur
Marketing Director w.e.f 22nd April 2019 4/4
Managing Director and CEO w.e.f 15th November 2019
Lt. Gen. (R) Ali Kuli Khan Khattak 0/0
Resigned w.e.f January 31, 2019

William Francis Pegel 2/2

Director Finance & IT w.e.f. 2nd September 2019

Audit Committee Meetings

Syed Asad Ali Shah 4/4
Director Legal & External Affairs w.e.f. 22nd April 2019 4 meetings were held on February 22, April 22, July 23 and October
17, 2019:

Syed Ali Akbar Name Attendance

1/1
Director Marketing w.e.f. November 15, 2019
Mohammad Riaz 2/3
EXCELLING BEYOND BORDERS
Chairman

Tajamal Shah 3/5

Non-Executive Director Lt. Gen. (R) M. Masood Aslam 3/3

Asif Jooma 2/3

ANNUAL REPORT 2019

Belinda Joy Ross 2/4

Non-Executive Director

Tajamal Shah 2/3

Zafar Aslam Khan 1/4

Non-Executive Director Belinda Joy Ross 1/3
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Zafar Mahmood
Retired
1/1 Human Resources &
Imran Maqbool
Remuneration Committee
1/1
Retired
Meetings:
Hae In KIM 0/1 During the year 2019, one meeting held, attendance is appended
Retired
below:
Lt. Gen. (R) Ali Kuli Khan Khattak 0/0
Resigned w.e.f January 31, 2019 Name Attendance
Lt. Gen. (R) M. Masood Aslam 1/1
Michael Koest 0/3 Member and Chairman
Resigned w.e.f August 20, 2019

Asif Jooma 1/1

Executive Committee (ExCo): Usman Zahur 1/1

During the year 2019, 8 meetings of the Executive Committee were
held, attendance is as below:

Name Attendance
Shares Transfer Committee:
During the year 2019, 14 meetings held, attendances are
Syed Javed Iqbal
Member and Chairman reigned w.e.f November 15, 2019
6/7 appended below:

Usman Zahur Name Attendance

Appointed Chairman w.e.f. November 15, 2019
8/8
Syed Javed Iqbal 12/14
Member and Chairman resigned w.e.f. November 15, 2019
Wael Sabra 4/5
Resigned w.e.f. June 15, 2019 Usman Zahur
Member and Chairman w.e.f. November 15, 2019
2/2
William Francis Pegel 3/3 William Pegel
Became member of the Committee w.e.f September 2, 2019
Member w.e.f September 2, 2019
4/5

Wael Sabra
Husain Iqbal Jaffery 6/8 Resigned w.e.f June 15, 2019
2/6

Syed Asad Ali Shah 6/8 Syed Asad Ali Shah 10/14

Aly Uddin Taseer 4/5

Resigned w.e.f. September 1, 2019

Syed Ali Akbar

2/3
PAKISTAN TOBACCO COMPANY LIMITED

Joined w.e.f. July 24, 2019

Waqas Ahmad Khan 2/2

Joined w.e.f. October 17, 2019
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TORs / Functions of Board Committees

Committees Function
1. Executive The Executive Committee of the Board (ExCo) is the central working nucleus of the organisation.
Committee Comprising of Executive Directors and Heads of Departments of the Company, the ExCo drives
of the Board to achieve the strategic targets set by the Board of Directors
(ExCo)
2. Human The Committee is responsible for:
Resources and • Recommending human resources management policies to the Board;
Remuneration • Recommending to the Board the selection, evaluation, compensation (including retirement
(HR&R) benefits) and succession planning of the MD/CEO;
• Recommending to the Board, the selection, evaluation, compensation (including retirement
benefits) of COO, CFO, Company Secretary and Head of Internal Audit; and
• Consideration and approval on recommendations of MD/CEO on such matters for key
management positions who report directly to MD/CEO or COO
3. Audit Committee The Audit Committee functions within the scope of the terms of reference approved by the Board,
which sets out the roles and responsibilities of the Committee as well as the requirements of the
Listed Companies (Code of Corporate Governance) Regulations, 2017. The role and responsibilities
of the Audit Committee include:
• Seeking assurance on the measures taken by the management in identification, evaluation
and mitigation of relevant business risks;
• Reviewing quarterly, half-yearly and annual financial statements of the Company and
preliminary announcements of results before approval by the Board and publication;
• Reviewing the Company’s statement on internal control systems, prior to their approval by the
Board;
• Ascertaining that the internal control systems including financial and operational controls,
accounting system and reporting structure, are adequate and effective;
• Monitoring compliance with the best practices of corporate governance and instituting special
projects and investigations on matters deemed appropriate by the Committee or desired by
the Board; and
• Review and approve the scope and extent of internal audit, including the annual Internal Audit
Plan, and regularly monitors the progress of the internal audit engagements.
4. Share Transfer The Committee is responsible for dealing with the day to day matters relating to the shares of the
Committee Company.
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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REPORT OF AUDIT COMMITTEE

The Audit Committee comprises of five directors. All The Audit Committee functions within the scope of the terms
members of the Audit Committee are non-executive of reference approved by the Board, which sets out the
directors including the Chairman. The Head of Internal Audit roles and responsibilities of the Audit Committee as well as
is the Secretary of the Audit Committee and reports directly the requirements of the Code of Corporate Governance.
to the Chairman. In line with corporate best practices laid
out in the Code of Corporate Governance 2019, there is one
independent director present in the Audit Committee.
For 2019 the Audit Committee
Reports:
The Audit Committee has been reconstituted during
1. The Company has complied, without any material
2019. Four meetings of the Audit Committee were held
departure, with the requirements of Listing
during 2019. The first meeting conducted comprised of
Regulations, Code of Corporate Governance,
the previous members, who were replaced by new Audit
Company’s Standards of Business Conduct and
Committee members as part of the reconstitution of the
other relevant statutory & regulatory requirements;
Audit Committee. The composition of the Audit Committee
as on December 31, 2019 is as follows.
2. The Company has issued a Statement of Compliance
with the Code of Corporate Governance which has
Mohammad Riaz also been reviewed and certified by the external
Chairman and Member
auditors of the Company;
Lt. Gen. (R) M. Masood Aslam
Member
3. The Audit Committee reviewed and approved
Belinda Joy Ross
Member quarterly, half-yearly and annual financial statements
of the Company and recommended them for
Tajamal Shah
Member approval of the Board of Directors. Further, the
financial statements comply with the requirements
Asif Jooma
Member of the Fourth Schedule to the Companies Act, 2017,
and applicable International Accounting Standards
Amina Siraj
Secretary and International Financial Reporting Standards
notified by SECP. No significant issues were identified
The Audit Committee is a standing committee of the Board. by the external auditors with respect to the financial
The Audit Committee assists the Board in carrying out statements;
its responsibilities relating to the Company’s accounting
policies, management of business risks, internal controls, 4. The Audit Committee approves that the Annual
financial reporting practices and the conduct of business in Report is fair, balanced and understandable and it
accordance with Code of Corporate Governance. provides the necessary information for shareholders
to assess the Company’s position and performance,
PAKISTAN TOBACCO COMPANY LIMITED

Meetings of the Audit Committee are held once every business model and strategy;
quarter. The Secretary prepares and circulates minutes to
all members and attendees of the meeting. The external 5. The Audit Committee reviewed all preliminary
auditors attend the meetings to assist the Audit Committee announcements of the Company’s results prior to
on matters relating to financial accounts and reporting. publication;
The Audit Committee also meets the external auditors
without the CFO and Head of Internal Audit being present. 6. The Audit Committee reviewed the Company’s
The Managing Director and the Finance Director attend statement on internal control systems prior to its
meetings of the Audit Committee on standing invitation. endorsement by the Board;

7. The Audit Committee reviewed the Risk & Controls

Matrix for identified risks, implemented controls
and countermeasures to mitigate these risks.
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Furthermore, the Audit Committee reviewed Head of Internal Audit has direct access to the Audit
recommendations from risk-based reviews for the Committee. Internal Audit has carried out its duties under
mitigation of risks and improvement of processes; the plan approved by the Audit Committee.

8. The Audit Committee reviewed the procedures

established for receipt, retention and treatment of
External Audit
concerns relating to the Company’s accounting, The external auditors M/s. KPMG Taseer Hadi & Co. were
internal accounting controls or auditing matters, on a allowed direct access to the Audit Committee. Major
confidential and anonymous basis; and findings arising from audits and any matters that the external
auditors wished to highlight were freely discussed with the
9. The Audit Committee evaluated its performance and Audit Committee.
shared the results with the external auditors.
Without interfering with the independence of the external
and internal auditors, the Audit Committee encouraged
Internal Audit and Risk coordination between them in the discharge of their
Management respective duties.

The Company has an appropriately staffed Internal Audit

The Audit Committee has reviewed and discussed with the
department for the appraisal of internal controls and
external auditors and management, all the Key Audit Matters
monitoring of compliance. The Audit Committee reviewed
and other issues identified during the external audit along
the resources and performance of the Internal Audit
with the methods used to address the same. For continuous
department to ensure adequacy for the planned scope of
improvement of internal controls, the Audit Committee also
the Internal Audit reviews.
discussed the internal controls and the management letter
with the external auditors.
Risk Assessments submitted to the Audit Committee drive
the formulation of the annual Audit Plan to mitigate identified
Being eligible for reappointment as auditors of the
risks in the Company’s operations. Audits are undertaken
Company, the Audit Committee has recommended the
based on this plan and findings from these audits are
appointment of M/s KPMG Taseer Hadi & Co., Chartered
reported to the Audit Committee.
Accountants as external auditors of the Company for the
year ending 31 December 2020. M/s KPMG Taseer Hadi &
Based on the internal audit reports, the Audit Committee
Co. has been the Company’s external auditors since 2016
reviewed the adequacy of controls and recommended
and has a thorough knowledge of the Company’s business
improvements in the audit reviews. Report findings
and industry.
highlighted the adequacy of controls as well as the
compliance shortcomings in the areas audited. Corrective
actions were discussed with management and remediation
plans were put into place. Regular follow ups were done
with management on the execution of remediation plans
ensuring management of risks, effective operation of
EXCELLING BEYOND BORDERS

controls and improved compliance.

ANNUAL REPORT 2019
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STANDARDS OF BUSINESS
CONDUCT AND ETHICAL
PRINCIPLES
We, the Executive Committee of
Pakistan Tobacco Company Limited,
believe in delivering with integrity
and being absolutely transparent in
our operations. Leading by example,
we have embedded the Standard of
Business Conduct in the DNA of this
organisation and we stand by it.

These Standards of Business Conduct

set out the standards that everyone
working for PTC must follow, while
also providing support and guidance
to assist our people to ensure
that their conduct meets the high
standards of integrity expected of
them.

In our Guiding Principles, we express our commitment

to ‘freedom through responsibility’ and ‘strength through
PAKISTAN TOBACCO COMPANY LIMITED

diversity’. Behaving responsibly will help you protect the

quality of our business relationships amongst ourselves, our
stakeholders and markets. Harnessing the diversity of our
people, helps define our organisation, our culture and makes
working together enjoyable.

To ensure that these principles are applied every day in

our jobs, we needed to express them in detailed terms.
We needed to explain the challenges and set standards
so that people could identify situations that might cross
the line and provide guidance on how to address such
situations. To understand how these and other principles
should be reflected in our daily business lives and in our own
behaviours at work, we need to set ourselves standards.
This is why we have the Standards of Business Conduct.
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These Standards are designed to help us make the right decisions when conducting
day to day business and to assist us in upholding the integrity upon which our
reputation is founded. They are based on our beliefs and values and underpin our
commitment to honesty, integrity and transparency. Our Standards have been in
place for many years and are kept under review to ensure that they remain updated
with the best business practices. The latest version has been updated and revised in
alignment with the United States best practice, following the acquisition of Reynolds
American Inc. by British American Tobacco PLC. Though these Standards cannot
cover every situation that we may encounter at work, but they can help guide our
conduct. Above all, we must always choose what we truly believe to be the right
course of action.

These Standards also provide an extensive outline of the legal obligations that all
employees of Pakistan Tobacco Company Limited need to comply with at all times.
However, these Standards are further intended to support all of us in ensuring, not
only that our conduct remains lawful, but also that it is in line with the high standards
that we expect of ourselves. They help to reinforce our purpose, ambitions, values
and mindset that we require to succeed. They do this by making clear the rules that
govern our business conduct and by providing guidance to help us make appropriate
judgments and decisions in the course of our work. Everyone in the Company is
responsible for upholding these requirements. Failure to observe the Standards is a
cause for disciplinary action, which could lead to dismissal.

The Standards encourage employees to feel secure in seeking advice or raising

concerns. If any employee is unsure of what to do in any situation or has concerns
about wrongdoing at work, there are colleagues who can help, managers who will
listen, and policies that are there to support the employee. Above all, channels
are available for employees to raise their concerns regarding any violation of the
Standards. PTC does not tolerate any retaliation against anyone who raises a
concern.

We all have a personal responsibility to uphold the Standards that we set for
ourselves and to act in ways that maintain and improve the reputation of Pakistan
Tobacco Company Limited. The Company encourages everyone to be familiar with
these Standards, not just as a set of rules but as a way of working. By living up to
EXCELLING BEYOND BORDERS

the letter and the spirit of the Standards in our actions and judgment, we ensure that
Pakistan Tobacco Company Limited continues to be an organisation which not only
delivers excellent financial returns, but is also the one which we are proud to work for.
ANNUAL REPORT 2019

Governance exceeding regulatory

requirements
PTC’s commitment towards adherence to the highest levels of ethical values is
demonstrated by its voluntary adoption of the best business practices in addition to
the stipulated regulatory requirements.
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Some governance practices exceeding legal requirements Procedures for raising concerns are provided below:
that have been adopted by the Company include: Informal reporting: Voice concern with line manager or
any other senior manager.
• Implementation of robust EH&S equipment, systems,
processes and standards to ensure a high level of Formal reporting: Report the matter formally for
safety of all its employees and contractors. investigation with line manager or any of the designated
officer either verbally or in writing.
• Detailed disclosure of financial analysis including
quarterly analysis, ratios analysis, horizontal and Designated Officer: Referred to by the individual directly
vertical analysis, risks and opportunities etc. or by the line manager for investigation but matter is kept
confidential.
• Implementation of “Standards of Business Conduct”
to reinforce that the Company strongly believes in Anonymous reports: Individuals may wish to raise
operating with integrity and that there is no room for concerns anonymously.
corrupt practices. Reporting a wrongdoing: If you have a concern you wish
to raise, you may write to any of the Designated Officers or
contact them via telephone or fax.
Whistle Blowing The designated officers are:
At PTC any employee who suspects a wrongdoing at work, Managing Director and CEO
is strongly encouraged to report such wrong doing through Legal and External Affairs Director
the whistle blowing procedure. Head of Internal Audit
Company Secretary
Policy and Procedures
All employees of PTC are made aware of this Policy and the
PTC’s whistle-blowing policy (Policy) gives employees (and safeguards it provides to the whistle-blower.
people working with PTC), trust and confidence in how their
concerns will be treated. The whistle blowing policy allows
employees to report their concerns on any breach of the
Number of incidences reported in
SoBC. The actions that can be reported include: 2019
8 whistle-blowing incidences were reported in the said year.
• Criminal Acts
• Putting Health or Safety at Risk
• Environmental Damage Conflicts of Interest
• Bullying or Harassment A conflict of interest will arise in any situation where an
• Accounting Malpractices employee’s position or responsibilities within the Company
• Failing to Comply with Legal Obligations present an opportunity for him/her or any close relative to
PAKISTAN TOBACCO COMPANY LIMITED

• Concealing any of the above activities obtain a personal gain or benefit (apart from the normal
rewards of employment), or where there is a scope for
The Policy through the procedures set out therein, ensures them to prefer their personal interests, or those of any
highest level of confidentiality for the whistle blower and the close relative, above their duties and responsibilities to the
investigation process. Additionally in order to encourage Company.
people to speak up, the Policy also mandates no reprisal
against the whistle-blower, who may also report the concern
anonymously. Bribery and Corruption
Corruption causes distortion in markets and harms
economic, social and political development, particularly
in developing countries. It is wholly unacceptable for the
Company and its employees to be involved or implicated in
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any way in corrupt practices. PTC expects similar standards

from the third parties it works with and to ensure the same
Confidentiality and Information
has in place policies like Suppliers Code of Conduct and Security
Anti-Bribery & Corruption Procedure
The Company and employees must protect and maintain the
confidentiality of all commercially sensitive information, trade
Entertainment and Gifts secrets and other confidential information relating to the
Company and its business.
The exchange of entertainment and gifts with business
partners can build goodwill in business relationships and,
within limits, is perfectly acceptable. However, some gifts Insider Dealing and Market
and entertainment can create improper influence (or the
appearance of improper influence), and might even be seen Abuse
as bribes. PTC’s Entertainment and Gift Policy prohibits PTC is committed to supporting fair and open securities
giving and receiving of such gifts that may create any markets. Accordingly, employees are prohibited from dealing
improper influence. on the basis of inside information or engage in other forms of
market abuse.

Political Contributions
The Company or its employees in official capacity shall
Competition and Anti-Trust
not make any donations or contributions to any political Laws
party or make any donations or contribution to any entity or
PTC believes in free competition. The Company must seek
individual for a political purpose.
to compete fairly and ethically and within the framework of
applicable ‘competition’ laws (or ‘anti-trust’ laws, as they are
Charitable Contributions known in certain countries).
Pakistan Tobacco Company Limited recognizes the role
of business as a corporate citizen and the Company is Money Laundering and Anti-
encouraged to support local community and charitable
projects. Terrorism
Money laundering involves the possession of, or any dealing
Accurate Accounting and with, the proceeds of criminal activity. It includes the process
of concealing the identity of illegally obtained money so that
Record Keeping it appears to have come from a lawful source. PTC does not
condone, facilitate or support money laundering.
Honest, accurate and objective recording and reporting of
information, both financial and non-financial, is essential to:
• the Company’s credibility and reputation; Trade in the Company’s
• its ability to meet its legal, tax, audit and regulatory
Products
EXCELLING BEYOND BORDERS

obligations; and
• informing and supporting business decisions and PTC engages only in lawful trade in its products. Illicit trade,
actions by the Company. involving smuggled or counterfeit products, harms our
business and we would like to see our market free of it.

Protection of Corporate
ANNUAL REPORT 2019

Sanctions
Assets Various sanction regimes exist throughout the world, ranging
Employees are responsible for safeguarding and making from comprehensive economic and trade sanctions to more
appropriate use of the Company assets which they are specific measures such as arms embargoes, travel bans
entrusted with in order to do their jobs and meet the and financial or diplomatic restrictions. Economic and trade
Company’s business objectives.
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sanctions impact upon the business of our Company by Robust ERP System
restricting the extent to which they can operate within certain
jurisdictions. We have enabled the business team on the latest and
the most reliable ERP system, to ensure that all financial
activities are recorded, and reporting facility is available to
Respect in the Workplace management for the latest update on business results and
quick decision-making.
All Company employees must treat all of their colleagues
and business partners inclusively, with dignity and with
respect. Scaled Sales Automation System
A full sales automation system used by salesmen to sell
Human Rights and the our product to retailers has been put in place. It enables
the availability of key information and speeds up the selling
Company’s Operations process.
The Company is committed to ensuring that its operations
are always conducted in a way that respects the human Cloud Based Infrastructure
rights of its employees, the people it works with and the We have transformed all the local data centres to globally
communities in which the Company operates. hosted GEO redundant facility to ensure that its availability
to business is 24/7 from everywhere. All applications and
IT Governance Policy storage facilities are in cloud with six levels of backups and
GEO redundant backup / failover servers.
PTC has a robust IT governance based on a number of
policies and IT standards, where strategy and respective
plans are defined based on the Company’s automation and
Business Continuity Planning
technology needs, processes and procedures. IT Systems BCP planning is the most important activity. At PTC, a
are defined and implemented as per the industry standard Company-wide business continuity plan exists, reviewed on
process and related requirements. All the controlling quarterly basis and tested twice a year to ensure that it is
as per latest challenges and situations and also to ensure
processes are governed using industry best practices, from
sustainable business operations during any disaster or
leaf buying process to cigarette manufacturing to sales
climate situation.
automation.

Being the custodian of the Company’s most important Human Resource Talent
asset, the data, PTC IT, supported by global support
groups, is ensuring that right people have access to PTC Management
infrastructure through Global IT standards, IT Infrastructure Our focus on creating diverse talent pools begins with
Library (ITIL) processes and controls which are in place. To attracting the best candidates in the market from all
PAKISTAN TOBACCO COMPANY LIMITED

ensure required standards and quality, all IT projects and backgrounds and experiences. All our hiring managers are
initiatives are approved from IT steering committee and built fully trained through our ‘Interviewing & Assessing Skills’
as part of PTC IT plan. training, which ensures effectiveness at hiring top & high
potential talent without any biases or preconceived notions.
All of the above is governed through policies and standards Our rigorous assessment criteria consists of multiple stages
such as IT Security Policy, Approved Product List (APL), and of shortlisting which primarily evaluate a candidate’s agility
Technical Security Standards (TSS) etc. & adaptability to be a part of a diverse community both
locally and internationally. We offer a plethora of learning
opportunities for our talent to perform in a multi-cultural
environment, including short and long term international
assignments based in other end markets of the BAT Group.
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Records Management Policy Actual and Perceived Conflicts

The Company has its formal Records Management of Interest
Policy as well as Information Security Policy (the Policies),
PTC is determined to provide the best working environment
approved by the Board. The Policies define the Company’s
to all its employees. It is a part of SoBC that all employees
critical records (in any form) and their mandated retention
must avoid situations where their personal interests might,
periods, commensurate with legal, audit and tax obligations, or might appear to, be in conflict with the interests of the
in addition to their business needs. The Policies not only Company. In this regard the guiding principle is that an
ensure that critical records are properly saved and archived employee must disclose to the higher management of any
but their security is also uncompromised. For electronic personal or business conflict of interest he/she may have.
records, backups are maintained and for hard records, the
Company has its own off-site “Records Storage” where In the case of any Board member of the Company,
critical records with longer retention period are kept safely. disclosure should be made to, and approval sought from,
the Board of the Company at its next meeting, and the

Investors Grievance Policy decision should be recorded in the minutes.

If any Investor has any grievance, he can contact the All employees must disclose any conflicts of interest in
designated person for handling Investor Claims. On the accordance with the procedure set out in the SoBC at the
official website of the Company under the head “Investor end of each year.
Relations” a name has been provided along with contact
details of the person designated to handle investor The Company maintains a ‘conflicts log’ which records the
grievances as per the SECP’s guidelines. details of all conflicts of interest disclosed by employees
and the action taken in respect of them.

Business Ethics & Anti- The Company Secretary of PTC is responsible for
Corruption Measures maintaining the ‘conflicts log’.

We are committed to operating our business fairly and

ethically in line with applicable laws, right across the world. Related Parties
Conducting business ethically and with integrity amongst All transactions with related parties arising in the normal
other things entails avoiding all forms of corrupt practices. course of business are carried out on an unbiased, arm’s
As an organisation we have a “zero tolerance” approach length basis at normal commercial terms and conditions.
to corrupt practices and in no circumstances, will such
conduct be tolerated. As required under the fourth schedule of the Companies
Act, 2017, detailed disclosures regarding related party
The Integrity Guide (“Guide”) designed by LEX department transactions have been presented in Note 38 to the
reflects our commitment to encouraging the application financial statements. Such disclosures are in line with the
of PTC’s Standard of Business Conduct. This Guide is requirements of the 4th Schedule of the Companies Act,
designed to help everyone working for or with PTC to 2017, and applicable International Financial Reporting
EXCELLING BEYOND BORDERS

understand the Business Integrity Principles of PTC. It aims Standards.

to define and determine behaviours in certain situations
which are prone to risk and will serve as a basis for In compliance with the Code of Corporate Governance
discussing ethical business issues with others. and applicable laws, a comprehensive list of all related
ANNUAL REPORT 2019

party transactions was placed before the Audit Committee

In order to improve corporate sustainability PTC further
for review at the end of each quarter. After review by the
stresses and pushes its contractors, agents or consultants,
Committee, the transactions were considered and approved
to act consistently with the SoBC by applying similar
by the Board keeping in view the recommendations made
standards within their own organisations.
by the Committee.
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2019 Performance:
In 2019, Pakistan Tobacco Company Limited and the duty paying The Company also requires its employees to operate and deliver with
tobacco industry overall faced multiple challenges. The excessive integrity. The Company’s Standards of Business Conduct makes it
excise increase-driven pricing in June 2019, which had been preceded categorical that corrupt practices are unacceptable. This message is
by a similar pricing increase in September 2018, raised the price cascaded and internalized across the Company through face to face
difference between legal brands and duty not paid (DNP) brands. This and online trainings conducted throughout the year. Furthermore,
resulted in the growth of market share of the illicit sector by 5.5% in channels have been established and made available for anyone
2019, which also resulted in a corresponding decline of Government working in or with the Company to raise their concerns in confidence
revenues in the second half of 2019 (July – Dec). Currently, the market and without fear of reprisal.
share of the illicit sector is 36.9% which translates to a revenue loss of
close to Rs 62 bn per annum for the Government. Strong enforcement
action and appropriate fiscal reforms will help provide a level playing Business Sustainability:
field to the duty paying industry and thereby lead to substantially
higher tax revenues for the Government. PTC’s strategic objectives are aimed at building a business which
can be sustained over a long-term period. The Company is focused
Despite the challenge from the growing duty evading segment and on building its capacity to operate effectively while consolidating
the tough macroeconomic indicators, the Company’s overall financial its standing as the export hub for the Group by taking its Made in
position has remained healthy. The Company grew market share in Pakistan initiative to the next level of achievement. However, the
the legitimate sector by 95 bps and delivered EPS growth of 24.7%. presence of a large illicit sector remains an area of concern, as it
This has been achieved by keeping a strong focus on effective cost continues to create major sustainability issues for the duty paying
management, lean operations and investment in brands portfolio to industry while causing revenue losses of close to Rs 62 bn per annum
offer products which reflect evolving consumer preferences. for the Government. Thus, it is in the best interest of all stakeholders
that stringent action is taken by the relevant law enforcing authorities
The Company built further on its ongoing tobacco exports journey by to curb the illicit sector.
launching the export of finished goods through its “Made in Pakistan”
initiative in May 2019. By the end of 2019, the tobacco exports journey In addition, it is necessary to take into account the regulations
which began in 2018 had reaped approximately US$ 11 million concerning tobacco/tobacco products’ advertising, sponsorship
earnings through exports to the GCC countries and Yemen. The and promotion, which have been recently issued by the Ministry of
Company has huge potential to grow its export operations further in National Health Services, Regulations and Coordination (MNHSRC).
the coming years which will also bring in valuable foreign reserves in These regulations have been enacted by MNHSRC without any
the country. industry consultation, and in making these new regulations no
consideration appears to have been given by the MNHSRC to the
fact that the existing extensive legal/regulatory framework on tobacco
Corporate Social Investments: advertising has not been effectively enforced and has been regularly
breached by various members of the DNP sector. Notwithstanding this
PTC has been one of the pioneers in Pakistan of promoting Corporate challenge of weak enforcement, the Company is geared to deal with
Social Investments. PTC is running one of the largest private sector these regulations in accordance with the law.
afforestation programs in Pakistan since 1981. Under this initiative,
the Company plants and distributes tree saplings free of cost and PTC also believes in recruiting the best talent in Pakistan which will
during 2019 the Company planted and distributed more than 3.9 provide us the human capabilities to excel in a challenging business
million saplings. A new nursery was established under this program environment. The senior management of the Company and I have full
in Jhelum which planted and distributed more than 220,000 saplings. confidence in the long-term sustainability of our business and in the
This nursery is in addition to the already established four nurseries in efficacy of its leadership.
Islamabad and Swabi. Furthermore, in collaboration with the National
Rural Support Programme, PTC developed 21 afforestation blocks in Our business rests on strong and durable foundations, which have
the province of Punjab. stood the test of time, and it has the necessary dynamism and
enterprising spirit to ensure the delivery of sustainable growth for the
Amongst our other Corporate Social Investments, the Company long-term. I have faith that the Company will continue to provide an
continued to provide free medical advice and medicines under its attractive value for its shareholders in the future.
Mobile Doctor Unit program. In 2019, more than 76,000 patients took
medical advice and medicines under this program. PTC also has 5
water filtration plants in Lahore and Jhelum with a filtration capacity of
1 million liters per day, which benefit hundreds of thousands of people
EXCELLING BEYOND BORDERS

annually. Lastly, more than 450 farmers are benefiting from the PTC
lift irrigation system that provides water to more than 1,000 hectares of
agricultural land of Buner district.

Corporate Governance:
ANNUAL REPORT 2019

PTC takes pride in its compliance with good corporate governance

practices. A comprehensive system of controls, governance and risk
management is in place to ensure that the Company’s assets and
Zafar Mehmood | Chairman

the interests of the shareholders are protected. With the acquisition of

Reynolds American Inc. by the BAT Group and subsequent adherence
to all of the Sarbanes-Oxley regulations (SOx), the Company’s
controls and governance environment has improved significantly. The
compliance to all the SOx controls is monitored by external auditors
and the Group’s internal compliance teams.
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Business Performance
The excise led price increase taken in 2019 coupled with The Company is also strongly focused on creating a diverse and
deteriorating macroeconomic indicators resulted in stretched inclusive team environment. Due to strong and consistent focus,
consumer affordability during the second half of the year. Consumer the Company was also awarded the “Global Diversity & Inclusion,
downtrading to non-duty-paid cigarettes accelerated due to these Progressive Award 2019”.
reasons which resulted in sales volume decline in 2019. The
worsening price indexation to illicit cigarettes also led to a sizeable
increase in the counterfeit of PTC brands.
Our Processes
Continuous focus on enhancing productivity throughout the value
Post excise increase, the sales volumes decline had a trickle-down chain and focus on achieving global benchmarks has created lean
impact on absolute revenue as well as on overall profitability, but the Company operations. Continuous modernization of the machinery
operating margin was managed through effective cost management footprint also allows the Company to deliver best quality products
and productivity savings. The Company delivered EPS growth of at low cost. Furthermore, significant infrastructural improvements
24.7%. The volume reduction also meant that the Government have also been made in relation to Environment, Health & Safety
revenues reduced in second half of 2019 in comparison to 2018. processes and procedures across the Company.
Despite the growth of the illicit sector, PTC continues to be one of
the highest contributors to the national exchequer and it contributed Our Future
Rs 102.4 bn in the form of sales tax, excise duties and income tax in
2019. The challenges of 2019 are expected to continue in 2020. Illicit trade
remains the biggest threat to the sustainability of the legitimate
tobacco industry and we anticipate economic pressures to continue
Our Brands in the operating environment. Apart from the legal industry, the
PTC remains committed to differentiating itself by investing across National Exchequer also suffers huge losses as the illegitimate
the brand portfolio and strengthening our brand equity in every sector remains outside the tax ambit. PTC continues to work with the
segment. Our brands have continued to lead the industry with the Government on enforcement against the illicit sector and counterfeit
help of various initiatives throughout the year. JPGL continued to producers in order to ensure fiscal and regulatory discipline across
be the preferred choice of consumers in the premium segment the industry in the future. This will not only ensure the sustainability
as the brand reached the milestone of achieving over 140 years of the legal sector but also result in significant revenue inflows for
of excellence. The Company completed Gold Flake’s migration to the Government.
Rothmans of London; a transition that has seen the brand enhance
its equity by bringing international appeal to the brand. Due to the Regulations have recently been issued by the Ministry of National
aggressive excise led price increase and to address consumer Health Services, Regulations and Coordination to prohibit tobacco
affordability, strong emphasis was put behind the “Value for Money” and tobacco products’ advertising, promotion and sponsorship, and
segment. these have the potential to adversely affect the sustainability of the
legitimate tobacco industry. The regulations have been formulated

Our People
without any consultation with the legitimate tobacco industry, and we
believe they will put further pressure on the legal industry if effective
The Company strongly believes in building a robust and dynamic enforcement is not put in place to create a level playing field.
talent pool, capable of delivering the objectives of the Company.
Investing in attracting the best talent and developing its employees I strongly believe that the Company is well-equipped to manage
EXCELLING BEYOND BORDERS

for the future remains the core focus of the organization. This leads these challenges and will continue to deliver on the expectations of
to PTC’s talent being preferred across the BAT world with many its shareholders.
Pakistanis taking up key leadership roles internationally in BAT
Group companies. 2019 was a landmark year in this regard as PTC
was awarded the “Top Employer Award”.
ANNUAL REPORT 2019

Usman Zahur | MD/CEO

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DIRECTOR’S REPORT
The Directors Present The Annual Report Of Pakistan Tobacco Company
Limited (PTC) Along With The Audited Financial Statements Of The Company
For The Year Ended December 31, 2019.
Graph 1
Macroeconomic Environment Illicit Market Share
(%)
In 2019, Pakistan faced multiple challenges on the economic 40

front. GDP growth of 3.3% in FY2018-19 compared to 5.8%

in the same period last year (SPLY), led to a broad-based 5.5% growth in 2019
weakening in domestic demand. The growth rate is expected 36.9

to further decelerate to 2.8% in 2020, as the Government is 36.0

expected to continue with the tight monetary and fiscal policies. 35 34.7

The reported inflation rate climbed from 7.2% in January 2019 to 32.5
32.8
33.1

32.4
12.6% in December 2019. To manage higher inflation, the policy 31.6 31.5
31.8 31.9
31.4
rate was increased by the Monetary Policy Committee of the
State Bank of Pakistan from 10.7% to 13.2%. For the purpose of 30
adjusting the real value of the Pakistani Rupee against the US Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

dollar, the Rupee lost a further 11.5% against the US dollar in

2019. Graph 2
Government Revenues
Sources: State Bank of Pakistan Inflation Monitor, State Bank of Pakistan Economic (Rs Bn) 4% decline in H2 2019
Surveys & World Bank 30 28.7
26.3 26.0

Industry Overview 25 23.6

20.2
19.1
20 18.5 18.8

2019 was a challenging year for the legitimate/organised

15
tobacco industry due to growing and unabated increase of
the illicit cigarette trade coupled with weak enforcement. The 10

illicit cigarette trade comprises of three types of tax-evaded 5

products: products that are smuggled into the country; 0

Q1 Q2 Q3 Q4
counterfeit; and not duty and tax paid locally manufactured 2018 2019
brands. In Pakistan, this problem is predominantly home grown, Excise Rates:
Value for Money
Excise Rates:
Value for Money

whereby most of the illicit cigarette trade comprises local duty- - Rs 25 per pack
Premium: Rs 90 per pack
- Rs 33 per pack (32% Inc)
Premium: Rs 104 per pack (15% Inc)

not-paid brands. On the back of duty and tax evasion, these

Graph 3
brands are available in the market at an average price of Rs 38/
Price Gap vs Duty not Paid
pack, which is not just lower than the Government mandated (Rs per pack)
PAKISTAN TOBACCO COMPANY LIMITED

minimum price of Rs 63/pack, but even lower than the minimum Value for money weighted average price
Illicit weighted average price
excise and sales tax payable per pack i.e. Rs 44/pack. Price Index

77.5 77.5
80
As a consequence of the growing economic pressures due to
fiscal and monetary tightening, the legitimate tobacco industry 70

was forced to take two excise led price increases. The excise 58.0 58.0
rates of lower tier brands doubled in a span of 8 months which 60
204.5 204.5

caused consumers’ downtrading in favor of non-duty paid

50
cigarettes. These price increases have not only resulted in 200.7 193.3

substantial share growth of non-duty paid brands but have also 40

37.9 37.9

adversely impacted Government revenues despite an increase 28.9

30.0

in excise duties in Sep’18 and the June’19 fiscal budget. This is 30

also illustrated in Graphs 1 & 2 below:

20
Q1 - 2019 Q2 - 2019 Q3 - 2019 Q4 - 2019
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Post budget, the worsening price indexation to illicit and processing of tobacco leaf had increased the cost
cigarettes (in excess of 204% as per Graph-3) led to the of doing business for the duty-not-paid sector. However,
sizeable increase in counterfeit varieties of PTC brands. during the year, the Government reduced the adjustable
Timely measures were taken by your Company, whereby advance excise duty of Rs 300/kg to Rs 10/kg which in
resources were reallocated to deal with the issue through effect provides further incentive for the undocumented
launching an aggressive anti-counterfeit campaign. Printed manufacturers.
tear off ribbon was introduced for products in the VFM
segment as an anti-counterfeit measure to protect PTC’ With the rapidly growing share of illicit cigarettes, the
customers. In addition to this, over 6 million consumers Government’s focus on enforcement is of paramount
were contacted via 1-2-1 retailer communications and importance. In late 2019, the Government of Pakistan
awareness campaigns. There is, however, a simultaneous revived and formally set up the Inland Revenue Enforcement
need for the Government to carry out strict enforcement Network (IREN) through a notification. The Company
against the counterfeit producers who are not only believes that with consistent and effective enforcement by
affecting the legitimate industry but are also depriving the IREN, the Government can eradicate the undocumented
Government of much needed tax revenues. sector that is thriving by violating most of the existing
regulations enacted by the Government. To counter the
In Pakistan, smuggled cigarettes also represent a growing trade in illicit cigarettes, the provincial and district
sizable portion of the illicit cigarette trade. The sale of administrations through their law enforcement officials will
smuggled cigarettes causes a two-fold revenue loss to the have to play a pivotal role to offer a level playing field to
Government; firstly, the applicable taxes/duties on the sale the legitimate tobacco players who still have the potential
of the smuggled packs are not duly paid; and secondly, the to deliver an additional Rs 62 bn of Government revenues.
sale of smuggled packs signifies a corresponding decline in There is also a need to strengthen legislation by enhancing
the sale of duty paid packs. penalties for violation of the relevant laws dealing with illicit
cigarettes and by making such offences non-bailable and
Anomalies in the law need to be addressed so that cognizable; such measures will make it difficult for illicit
confiscated smuggled cigarettes are not auctioned and sold players to operate beyond the realm of the law.
in the market. Under the current law, the seized cigarettes
must be offered to PIA/Duty Free Shops for sale on PTC supports the deployment of a track and trace system
appraised value with 25% discount, but in actual fact neither to curb illicit cigarette trade. If introduced, its success
PIA nor the Duty-Free Shops purchase these cigarettes. will be dependent upon effective implementation across
When the PIA or the Duty-Free Shops do not purchase these the board to all manufacturers and robust enforcement
goods, they are put up for auction and make their way back at manufacturer and retail level. For this purpose, the
to the normal trade channels. It is strongly recommended Government needs to ensure that the relevant rules/
that the seized smuggled cigarettes should not be allowed regulations dealing with the implementation of the track
to be sold in the local market as they lack the graphical and trace system contain penal provisions with appropriate
health warning prescribed by local law for all cigarette packs penalties so that violators of the rules/regulations are
to be sold in Pakistan; therefore, it is critical to maintain both effectively prosecuted.
compliance with law and protect Government revenues
EXCELLING BEYOND BORDERS

that these cigarettes are destroyed. It is also a fact that the

receipt issued in respect of the auctioned lot is fraudulently Company Performance
used multiple times by dealers of smuggled cigarettes In 2019, the Company witnessed a decline in sales
to falsely show that they have been obtained through a volume of 15%. This is primarily attributable to consumers
ANNUAL REPORT 2019

legal process, and this further facilitates multiple sale of downtrading to duty evaded cigarettes due to two excise-
smuggled cigarettes. led price increases in June 2019 and September 2018. In
the legitimate sector, the Company continues to maintain its
Positive initiatives were taken in the previous year by way of leadership and grew market share by 95 bps in 2019, with
enhanced documentation through increasing the adjustable a market share of 75.4% of the legitimate market. (Source:
advance tax payable by manufacturers. The higher advance Access Retail – Retail Audit). This has been delivered on
excise duty and requirement to document the purchase the back of a robust brand portfolio strategy on which
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significant investments have been made during the year to Rs. (million) Rs. (million)
offer products which reflect evolving consumer preferences. Jan-Dec, Jan-Dec,
In FY2018-19, the Company also contributed Rs 103.5bn to 2019 2018
Government revenues in the form of excise duties, sales tax
Gross Turnover 149,025 137,116
and income tax.
FED/Sales Tax 97,050 84,004
The Company remains focused on enhancing productivity Net Turnover 51,975 53,112
throughout the value chain. This is ensured through Cost of Sales 25,765 29,829
effective cost management, delivering lean operations and Gross Profit 26,210 23,284
continuous modernization of the machinery footprint. During
Operating Profit 17,675 14,571
the year under review, the Company embarked on its very
first “Made in Pakistan” exports journey by becoming a Profit Before Tax – PBT 18,285 15,280
new export hub for the BAT Group. The Company has huge Profit After Tax – PAT 12,889 10,338
potential to grow its export operations further in the coming Earnings Per Share – EPS (Rs.) 50.45 40.46
years which will generate valuable foreign currency for the
country.
2.1 Profit & Loss Analysis
The Company’s cost base remained under pressure Net Turnover witnessed declined by 2%. Decline in
throughout 2019 in the wake of currency devaluation, NTO is primarily due to 15% decline in sales volume.
increasing inflation and higher regulatory duties. Despite The impact of volume decline was partially offset
these challenges, the Company continued to focus on by excise-led price increase taken in 2019. Prices
effective cost management and delivered multiple efficiency increased by 14% in Premium segment and by 34%
improvement projects, thereby allowing it to keep costs in in Value for Money segment of portfolio.
check.
Cost of Sales also decreased primarily due
to reduction in sales volume. The cost base
With people at the core of its delivery, the Company has a
was adversely impacted during the year due to
strong focus on people by attracting and retaining the best
devaluation of local currency, increase in regulatory
talent in the country. In 2019, PTC was awarded the Top
duties and inflationary pressures. These were
Employer Award 2019. Moreover, for its drive and consistent mitigated through multiple productivity savings
focus on Diversity and Inclusion, the Company was also initiatives and focus on efficiency in production
awarded the “Global Diversity & Inclusion, Progressive processes.
Award 2019”.
Selling & Distribution Costs: Selling & distribution
As a responsible corporate citizen, PTC runs one of the expenses declined by 6% which is also linked to
largest private sector afforestation programs and a Mobile reduction in sales volume. However, significant
PAKISTAN TOBACCO COMPANY LIMITED

Doctor Unit (MDU) program. Under its flagship afforestation investments have been made in brand portfolio in
program running since 1981, the Company planted and 2019 to ensure that brand portfolio is differentiated
distributed more than 3.9 million saplings free of cost in and addresses consumer needs.
2019. A new nursery was also completed in Jhelum, this
is in addition to the already established four nurseries Other Operating Expenses increased by 35%
in Islamabad, Faisalabad and Swabi. Under the MDU during 2019. The major portion of this increase is
program, the Company dispensed medical advice and attributable to foreign exchange loss incurred due to
medicines to more than 76,000 patients in 2019 free of cost. local currency devaluation in 2019. Other operating
expenses also increased due to higher Workers Profit
Participation Fund/Workers Welfare Fund statutory
charges which are determined based on profit
numbers.
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Net Finance Income increased by 9% in 2019, 2.3 Liquidity Analysis

as the Company capitalized on the investment
of surplus funds at market competitive rates and PTC’s Treasury function is responsible for raising
efficient working capital management. finances for the Company as required, managing
its cash resources and mitigating the financial
risks that arise during its business operations.
2.2 Statement Of Financial Position Clear parameters have been established, including
Analysis levels of authority as well as the type and use of
financial instruments. All treasury related activities
Property, Plant & Equipment: The Company are executed as per defined policies, procedures
recorded an increase in property, plant and and limits. These are reviewed and approved by
equipment during 2019 due to adoption of IFRS 16 the Board or the delegated authority to the Finance
whereby all lease agreements greater than 1 year Director/Treasury Committee.
were capitalized. The increase was also driven by
the Company’s effort to upgrade manufacturing
capacities and infrastructure to support better 2.4 Contribution To National
product quality, innovation and higher operating Exchequer
efficiencies.
Despite the challenges faced from the duty-not-paid
Stock in Trade increase was primarily attributable sector, PTC continues to remain one of the largest
to raw material stock and finished goods buildup contributors to the national exchequer. During FY
to mitigate the adverse impact of future currency 2018-19, PTC for the first time crossed the Rs 100
devaluation and to deal with any production bn mark with tax payment of Rs 103.5 bn related
disruptions to sales tax, excise duties and income tax. During
the 2019 calendar year however, the Company
Short Term Prepayments reduced in 2019 due contributed a total of Rs 102.4 bn in the form of
to reclassification of prepayments related to rental excise duties, sales tax and income tax despite the
facilities under operating leases to finance leased volume reduction.
assets under IFRS16.
In order to maintain growth in revenues from the
Other Receivables mainly includes balances Tobacco industry, the Government needs to have
related to cash margins withheld by banks to comply a sharper focus on enforcement and curtailing
with State Bank import regulation to deposit 100% the growth of the duty-not-paid sector. Increase in
cash margin against arrangements/contracts for market share of the illicit sector, already elaborated,
import of raw material. Balance under this head is indicative of the huge revenue loss which is close
increased in 2019 due to local currency devaluation to Rs 62 bn. Thus, it is imperative that the illicit
and stock build up done on imported materials. sector is curtailed through use of both fiscal and
administrative measures.
Short term investments are done in Government
treasury bills which recorded decrease from previous 2.5 Profit Distribution & Reserve
year due to lower availability of surplus funds from
EXCELLING BEYOND BORDERS

sales cash inflows at the end of the year.

Analysis
The Company started the year with reserves of Rs
Current Liabilities reduced due to lower payables 15.2 bn. During the year, final dividend of Rs 22 per
outstanding at year end to internal and external share related to the year ended 2018, was approved
ANNUAL REPORT 2019

vendors. Balance last year also included dividends by shareholders and was subsequently paid. In 2019,
payable which were paid in 2019. the Company earned net profit of Rs 12.9 bn and
paid two interim dividends of Rs 13 per share. The
Share capital & reserves increased due to profits net reserves position of the Company at year end
retained after paying out dividends that were stands at Rs 15.7 bn. The details of appropriations
declared during the year. are also elaborated in the table below:
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Director’s Report

Rs. Rs. Per 3 Operations Review

(million) Share
PTC has a full seed to smoke business
Opening Reserves 15,211 encapsulating two factories and one of the largest
Final Dividend 2018 (5,621) 22.00 leaf operations in the BAT Group. With the aim of
Net Profit 2019 12,889 50.45 enhancing productivity throughout the value chain,
the Company has a strong focus on effective cost
Other Comprehensive Income (100)
management, lean operations and continuous
Available for Appropriation 22,379 modernization of the machinery footprint.

Appropriations: During 2019, the Company, in line with the

Government’s vision, launched its export initiative
Interim Dividends 2019 (6,643) 26.00
titled “Made in Pakistan” and earned the position
Closing Reserves 15,736 of being the export hub for the BAT Group. This
is with a view to export factory manufactured
2.6 Final Dividend cigarettes & tobacco to GCC and other Middle
East countries, and the full annual potential of this
The Board of Directors of PTC in its meeting held on
project for Pakistan is estimated to be $50 Mn. A
February 24, 2020 is pleased to recommend a final
change management program under the “Made
cash dividend of Rs. 23/share for the year ended
in Pakistan” initiative was launched with change
December 31, 2019 (2018: Rs. 22.0 per share), for
champions driving multiple sessions covering the
the shareholders’ approval. This recommendation
entire population involved in the exports process. The
will be subject to approval of the shareholders in
program enabled soft skill capability development,
the Annual General Meeting, scheduled on April 24,
inculcated a sense of pride and proved to be a key
2020.
success driver. In 2019, PTC exported over 190+
million Cigarettes and around 3 million KGs of
2.7 Consolidated Financial tobacco worth $11 Mn.
Statements And Segmental PTC’s Operations continued the journey towards
Review manufacturing excellence through the Integrated
Consolidated financial statements, as included in this Work System (IWS) program with Akora Khattak
Annual Report, combine the performance of Pakistan factory achieving Phase 1 certification in Sep’19 while
Tobacco Company Limited and its wholly owned Jhelum factory continued its journey for Phase 2
subsidiary, Phoenix (Private) Limited. The subsidiary readiness.
Company is dormant and has not commenced
commercial operations. 3.1 EH&S – Environment, Health &
PAKISTAN TOBACCO COMPANY LIMITED

Safety
2.8 Subsequent Events Review Significant awareness and infrastructural
The Management has assessed events arising improvements have been made in relation to
subsequent to the end of the financial year of the Environment, Health & Safety processes and
Company till the date of the report and hereby, procedures at the manufacturing plants. Keeping
confirms that no material changes and commitments in view the energy crisis, multiple initiatives were
affecting the financial position of the Company have undertaken in 2019 like installation of 125KW solar
occurred during this period. power plant across both factories and setting up
the first ever solar powered leaf buying and storage
depot. Furthermore, a focus on consumer centric
quality of the Company’s products has ensured
a significant reduction in consumer complaints
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during the year. PTC’s manufacturing has been taste and to reinforce the brand assets of JPGL,
globally recognized in BAT Group for the efforts and a campaign was executed to celebrate the history
outstanding results delivered through this drive for of John Player in Pakistan. Limited Edition Packs,
excellence. utilizing modern hot foil technology, were introduced
to the market for the first time in history along with
a limited time berry flavor product. These initiatives
4. Marketing Review have further propelled the JPGL brand to new heights
2019 was a difficult year with consumer affordability in Pakistan
coming under stress due to economic tightening
and price increases in all segments of the portfolio.
Despite the challenges faced, investments were
5. Risk Management &
made in the brands portfolio. Internal Controls
The Value for Money (VFM) segment witnessed The Board is responsible for managing the risks and
Gold Flake’s migration to Rothmans of London; a challenges faced by the Company in the course of
transition that has seen the brand enhance its equity its operations, while maintaining a strong control
and mix. This was a strategic intervention which has environment. The Company’s risk management and
helped the brand significantly in building its image internal controls framework is aimed at safeguarding
in one of the most dynamic consumer segments. the shareholders’ investment and the Company’s
Despite heavy inflationary pressure, Capstan by Pall assets, while minimizing the impact of the risks
Mall has maintained its position as the biggest and that may impede the delivery of the Company’s
most loved tobacco brand in Pakistan as a result of objectives. Details of this are captured in the section
innovative and engaging “Always On” activations that on Risk & Opportunity of the Annual Report.
leveraged various consumer moments.
Comprehensive policies and procedures, structured
Post the excise increase of 2019, consumer governance mechanisms and a conducive
affordability of PTC’s VFM segment came under organizational culture have facilitated a strong
severe pressure from illicit cigarettes in the market. compliance and control environment across the
To remain competitive in the VFM segment, Pall Mall Company. All heads of functions are required to
and Rothmans were launched at a price parity to carry out a comprehensive assessment of globally
duty-paid competition offers in selected high-risk defined key controls that are expected to be in place
markets to safeguard volumes and ensure value and operating effectively. Any non-compliances and
sustainability for the Company. The brands have material weakness are reported along with action
received positive consumer traction in the pilot plans to address them. Additionally, all employees
markets, with expansions into more markets planned are required to sign off an annual Statement of
in 2020. Compliance to the Company’s Standards of
Business Conduct. Furthermore, the Company
In the Aspirational Premium segment, post is also fully compliant to all the requirements
successful pilot launch of John Player, a brand built of Sarbanes Oxley Act (SOx) which has further
on the legacy of the House of John Player, the brand strengthened the internal controls of the Company.
EXCELLING BEYOND BORDERS

was piloted in four test markets, followed by an

expansion into the next 13 biggest cities of Pakistan.
Aided by a focused consumer activation campaign,
6. Corporate Governance
exciting touchpoints and retailer engagement, the 6.1 Good Corporate Governance
ANNUAL REPORT 2019

launch was a success and quickly turned into the

The Directors confirm compliance with the Corporate
most promising brand launch in recent PTC history.
and Financial Reporting Framework of the Securities
and Exchange Commission of Pakistan’s Listed
In the Premium segment, John Player Gold Leaf
Companies (Code of Corporate Governance)
(JPGL) reached the milestone of achieving over 140
Regulations, 2019 (“the Code of Corporate
years of excellence. To honor this legacy of great
Governance”) for the following:
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Director’s Report

a) The financial statements, prepared by the 6.2 Composition Of The Board

management of the Company, present fairly its state
of affairs, the result of its operations, cash flows and The Board comprises a total of 12 directors: 8 non-
changes in equity. executive directors, of whom 4 are independent
directors, and 4 executive directors.
b) Proper books of accounts of the Company have
been maintained. The current composition of the Board is as below.
c) Appropriate accounting policies have been
No. of
consistently applied in preparation of financial Name of Director
Directors
statements and the accounting estimates are based
on reasonable and prudent judgement. • Male Directors 11
• Female Director 1
d) International Financial Reporting Standards, as
applicable in Pakistan, have been followed in a. Independent Director 4
preparation of the financial statements and any (i) Zafar Mahmood
Chairman
departures therefrom have been adequately
disclosed and explained. (ii) Lt. Gen. (R) M. Masood Aslam
(iii) Mohammad Riaz
e) The system of internal controls is sound in design
and has been effectively implemented and (iv) Asif Jooma
monitored. b. Non- Executive Directors 4

f) There are no significant doubts about the Company’s (i) Tajamal Shah
ability to continue as a going concern. (ii) Belinda Joy Ross
g) There has been no material departure from the best (iii) Zafar Aslam Khan
practices of corporate governance, as detailed (iv) Syed Javed Iqbal
in the Code of Corporate Governance and listing c. Executive Directors 4
regulations.
(i) Usman Zahur
h) All major Government levies in the normal course MD / CEO

of business, payable as at December 31, 2019 (ii) William Francis Pegel

have been disclosed in the notes to the financial (iii) Syed Asad Ali Shah
statements.
(iv) Syed Ali Akbar
i) Key operating and financial data for last six years
in summarized form is provided separately in this There is female representation on the Board in
Annual Report. compliance with the regulatory requirement.
j) Values of investments in employees retirement
PAKISTAN TOBACCO COMPANY LIMITED

The overall effectiveness of the Board is enhanced

funds for the year ended December 31, 2019 are as
by the diversity and breadth of perspective of its
follows. Further details are provided in Note 33 to the
members, who combine professional and academic
separate financial statements.
skills and experience, local and international, and
collectively the Board also has sufficient financial
Fund Name Rs. (million) acumen and knowledge. PTC conforms to the
Staff Pension Fund 5,525 regulatory requirements on the composition and
qualification of the Board of Directors.
Employees’ Gratuity Fund 1,233
Management Provident Fund 735 Directors’ detailed profiles including their names,
Pakistan Tobacco Company Limited status (independent, executive, non-executive), in
446
Provident Fund addition to industry experience and directorship of
Staff Defined Contribution Pension Fund 497 other companies, have been provided separately
in the Annual Report. The status of directorship
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(independent, executive, non-executive) is indicated Changed from CEO /

in the Statement of Compliance with the Code of Syed Javed November
Managing Director to
Iqbal 15, 2019
Corporate Governance. Non-Executive Director

Inducted to the Board as April 22nd,

6.3 Changes In The Board Usman Zahur
Executive Director 2019

On 22nd April 2019, elections of Directors were held Inducted to the Board as November
in the AGM, resulting in the reconstitution of the CEO / Managing Director 15, 2019
Board with 12 Directors comprising: 4 Independent, Inducted to the Board as November
Syed Ali Akbar
4 Non-executive and 4 Executive Directors. The Executive Director 15, 2019
positions of Chairman and MD/CEO are kept
separate in line with good governance practice.
6.4 Meetings Of The Board
The changes in the board were as follows: Under the applicable regulatory framework, the
Board is legally required to meet at least once in
Effective
Name Changes every quarter to ensure transparency, accountability
Date
and monitoring of the Company’s performance.
Lt. Gen. (R) Ali Resigned from role of January 31, Special meetings are also held during the year to
Kuli Khan Non-Executive Director 2019
discuss important matters, as and when required.
Retired from role of April 22, In 2019, 5 Board meetings were held, out of which
Mueen Afzal
Chairman 2019 the 1st meeting held on 22nd February 2019 was
Imran Maqbool
Retired from role of Non- April 22, attended by the previous Directors, while the newly
Executive Director 2019 elected Directors attended the subsequent 4
Retired from role of Non- April 22, meetings.
Hae In KIM
Executive Director 2019
Appointed as Chairman April 22, The notices / agendas of the meetings were
Zafar Mahmood
of the Board 2019 circulated in advance, in a timely manner and in
Changed from Executive compliance with applicable laws. All meetings of the
April 22, Board held during the year surpassed the minimum
Tajamal Shah Director to Non-Executive
2019
Director quorum requirements of attendance, as prescribed
Syed Asad Ali Inducted to the Board as April 22, by the applicable regulations.
Shah Executive Director 2019
The Company Secretary acts as the Secretary to the
Zafar Aslam Inducted to the Board as April 22,
Khan Non-Executive Director 2019 Board. All decisions made by the Board during the
meetings were clearly documented in the minutes of
Inducted to the Board as April 22,
Asif Jooma the meetings maintained by the Company Secretary
Independent Director 2019
and were duly circulated to all the Directors for
Belinda Joy Inducted to the Board as April 22, endorsement and were approved in the subsequent
Ross Non-Executive Director 2019
Board meetings.
Mohammad Inducted to the Board as April 22,
EXCELLING BEYOND BORDERS

Riaz Independent Director 2019

Name of Director Attendance
Lt. Gen. M.
Inducted to the Board as April 22, Zafar Mahmood
Masood Aslam 5/5
Independent Director 2019 Chairman
(R)
Syed Javed Iqbal
ANNUAL REPORT 2019

Resigned from role of June 15, Managing Director and CEO resigned on 15th
Wael Sabra 4/4
Executive Director 2019 November 2019
Non-Executive Director w.e.f. 15th November 2019.
Resigned from role of August 20,
Michael Koest Usman Zahur
Non-Executive Director 2019
Marketing Director w.e.f 22nd April 2019 4/4
William Francis Inducted to the Board as September Managing Director and CEO w.e.f 15th November 2019
Pegel Executive Director 2, 2019
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Director’s Report

Wael Sabra 2/2 6.7 Directors’ Remuneration

Director Finance & IT resigned w.e.f. June 15.2019
As per the requirements of the Code of Corporate
William Francis Pegel 2/2
Director Finance & IT w.e.f. 2nd September 2019 Governance, there is a formal and transparent
Lt. Gen. (R) Ali Kuli Khan Khattak
procedure in place for fixing the remuneration
0/0 packages of individual Directors. No Director is
Non-Executive Director

Syed Asad Ali Shah involved in deciding his/her own remuneration.

4/4
Director Legal & External Affairs w.e.f. 22nd April 2019

Syed Ali Akbar These remuneration packages are approved as

1/1
Director Marketing w.e.f. November 15, 2019 per requirements of the regulatory framework and
Tajamal Shah 3/5 internal procedures, while ensuring that they are not
Non-Executive Director
at a level that could be perceived to compromise the
Belinda Joy Ross 2/4 independence of non-executive directors.
Non-Executive Director

Zafar Aslam Khan 1/4 The remuneration of executive directors including

Non-Executive Director
the CEO, key management personnel and other
Lt. Gen. (R) M. Masood Aslam 4/4
Independent Director executives is given in note 37 to the financial
statements.
Mohammad Riaz 3/4
Independent Director

Asif Jooma
Independent Director
3/4 6.8 Evaluation Of Board’s
Michael Koest
Performance
0/3
Resigned w.e.f August 20, 2019 The Company has designed an “Evaluation Tool” to
Mueen Afzal assist the Board to:
1/1
Retired
• understand and recognise what is working well;
Imran Maqbool 1/1
Retired • identify areas for improvement;
Hae In KIM 0/1 • discuss and agree on priorities for change, which
Retired
can be addressed in the short-and long-term;
• agree on an action plan.
6.5 Board Meetings Held Outside
The Evaluation Tool comprises an evaluation
Pakistan questionnaire, which is circulated to all the Directors
In 2019, PTC conducted all its Board meetings in in which each Director has to evaluate himself/herself
Pakistan. as well as the Board. In order to encourage open and
frank evaluations, as well as to ensure anonymity,
PAKISTAN TOBACCO COMPANY LIMITED

the evaluation process is directed by the Company

6.6 Committees Of The Board Secretary, who mails the questionnaire to each Director
and then collates the results into a report including a
The Board has four committees, which assist the
summary of the results, and recommendations to the
Board in the performance of its functions. Details
Board. The Report is then discussed in the next Board
of all Board Committees, including attendance and Meeting to address the areas of concern and improve
their functions, are provided separately in the Annual the Board’s performance.
Report.

6.9 Offices Of The Chairman & CEO

To promote transparency and good governance,
the offices of the Chairman of the Board of Directors
and the Chief Executive Officer are held by separate
individuals with clear segregation of roles and
responsibilities.
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6.10 Brief Roles & Responsibilities Of whistleblowing, summary of Company’s major

assets, liabilities and noteworthy contracts etc.
The Chairman & CEO
Roles and responsibilities of the Chairman and the CEO As part of the Induction Plan, senior executives of the
have been clearly and distinctly defined by the Board. Company present the performance of their respective
department to the newly inducted Directors.
The Chairman is basically a leader and mediator to
head the meeting of the Board of Directors effectively
and take decisions after a free and open sharing of 6.13 Directors’ Training Program
views within a limited time quickly and efficiently. The PTC has ensured compliance with the applicable
Chairman is responsible for the overall discharge of the regulatory requirements regarding Directors training.
Board’s duties. More than half of the Directors have obtained
certification under the Directors’ Training Program (DTP)
The CEO is the executive head of the Company, who approved by SECP.
heads all facets of the Company through respective
heads of functions and manages the day to day
operations of the Company and provides leadership 6.14 Last AGM
towards the achievement of the Corporate Plan. The Company’s 72nd AGM (Annual General Meeting)
The CEO is responsible for leading, developing was held on April 22, 2019. All shareholders, including
and executing the Company’s short- and long-term minority shareholders, were proactively sent out
strategies with a view to enhance shareholders’ value. invites informing them about the time and place of the
The CEO liaises with the Board and communicates on meeting, well in advance. High quality and comfortable
behalf of the Management. arrangements, aimed at facilitating the shareholders of
the Company, were made to conduct the AGM.
6.11 CEO’s Performance Evaluation
During the meeting, general clarifications on the
By The Board published financial statements and the impact of illicit
The Board appoints the CEO for a term of 3 years, in trade were sought by the shareholders and investors
compliance with applicable laws. His performance but no issues were reported in that meeting.
is reviewed annually, based on the yearly corporate
plan, besides his responsibilities under the regulatory 6.15 Auditors
framework. Effective November 15, 2019, the previous
CEO, Syed Javed Iqbal resigned from the office of Statutory Audit for the Company for the financial year
Managing Director and CEO and was replaced by Mr. ended December 31, 2019 has been concluded and
Usman Zahur. the Auditors have issued their Audit Reports on the
Company Financial Statements, Consolidated Financial
Performance for the year 2019 is demonstrated by Statements and the Statement of Compliance with the
achievement of the corporate plan and compliance with Code of Corporate Governance. The Auditors, Messers
the applicable regulatory requirements. KPMG Taseer Hadi & Co., shall retire at the conclusion
of the Annual General Meeting, and they have indicated
their willingness to continue as Auditors for PTC. They
6.12 Formal Orientation At Induction
EXCELLING BEYOND BORDERS

have confirmed to have achieved satisfactory rating

by the Institute of Chartered Accountants of Pakistan
Newly inducted Board members are taken
(ICAP) and compliance with the Guidelines on the Code
through an Induction Plan for their orientation and
of Ethics of the International Federation of Accountants
familiarization towards the Company’s vision, (IFAC) as adopted by ICAP. The Board proposes their
ANNUAL REPORT 2019

organizational structure, roles and responsibilities appointment as Auditors for the financial year ending
of senior executives, major pending or threatened December 31, 2020 on the recommendation of the
litigation, policies relating to dividends, Audit Committee. This shall be subject to the approval
of the shareholders in their meeting scheduled for April
24, 2020.
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Director’s Report

6.16 Pattern Of Shareholding ensuring compliance with the Standards and for
the implementation of the BCM process has been
Our holding Company, British American Tobacco delegated to the Managing Director. Operational
(Investments) Limited (BAT-IL), incorporated in United management of BCM is delegated to the Head of
Kingdom holds 94.34% shares of the Company at the Security who is the lead for BCM in the Company.
year end. The pattern of shareholding as at December Heads of Functions are the risk owners and are
31, 2019 alongside the disclosure as required under responsible for enabling and maintaining an effective
Code of Corporate Governance is provided separately BCM capability within their respective functions.
in this Annual Report. The Business Continuity Manager facilitates and
coordinates the BCM process in the Company.
6.17 Trading In Shares By Directors By implementing a BCM process, the Company

And Executives ensures that:

• Its people, assets and information are protected,
The Directors, Chief Executive Officer, Chief Financial
and employees receive adequate support and
Officer, Company Secretary and their spouses and
communications in the event of a disruption;
minors have reportedly not performed any trading in the
shares of the Company. • The relationships with other organizations,
relevant regulators or Government departments,
local authorities and the emergency services
6.18 Review Of BCP are properly developed and documented, and
PTC recognizes the importance of Business Continuity stakeholder requirements are understood and can
Management (BCM) as the means to ensure that the be delivered; and
business can continue to succeed in times of crisis and • The Company has an enhanced capacity to
during the recovery process. To this end, the Company protect its reputation and remains compliant with
has established a BCM Manual as per International its legal and regulatory obligations.
Standards which enables the Company to:
• Proactively plan and prepare in the case of an
incident;
• Understand how to respond should an incident
occur;
• Know how to manage the situation effectively; and
• Return to Business as Usual (BAU) as quickly as
possible to minimize the negative impact on the Zafar Mehmood Usman Zahur
business. Chairman MD/CEO

The process has received recognition within the BAT

PAKISTAN TOBACCO COMPANY LIMITED

Group as one of the best in the Group. The Board

reviews compliance with the BCM Manual on an
annual basis. Responsibility and accountability for
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PRODUCT
PORTFOLIO

PREMIUM
DUNHILL GOLD LEAF BENSON & HEDGES
• Dunhill • John Player Gold Leaf • Benson & Hedges (Red)
• Dunhill Switch • John Player Gold Leaf Special • Benson & Hedges (Blue)
Dunhill, our global drive brand and a true The story of John Player Gold Leaf starts In 1873, Richard Benson & William Hedges
international premium offer, has been from the story of its founder John Player, started a partnership in London. Benson &
leading innovations in the market since its who started a small tobacco selling Hedges was launched in Pakistan in 2003
launch since 2008 business in 1877 and turned it into a
Company: John Player & Sons. John Player
Gold Leaf is the leading premium offer in the
country

ASPIRATIONAL PREMIUM
WILLS
JOHN PLAYER CAPSTAN FILTER INTERNATIONAL
• John Player • Capstan Filter • Wills
Launched in 2018, John Player is the most Capstan Filter is the biggest Aspirational Wills International was launched in 2003
contemporary Aspirational Premium brand Premium brand for PTC and the offer is now and continues to operate in the Aspirational
for the down-trading Premium consumer available in King Size Filter Premium segment
launched in Pakistan in 2003

VALUE FOR MONEY

GOLD FLAKE BY
CAPSTAN BY PALL ROTHMANS OF
MALL EMBASSY LONDON
• Capstan by Pall Mall • Embassy Filter • Gold Flake
Capstan By Pall Mall is our global drive Embassy has built its heritage over a • Gold Flake Soft Cup
EXCELLING BEYOND BORDERS

brand and currently the leading & most number of years & thrives on its brand
Gold Flake enjoys a rich history and legacy
popular Value for Money offering in market loyalty
in the market and is still among the most
popular offerings in Pakistan

PALL MALL ROTHMANS

ANNUAL REPORT 2019

• Pall Mall • Rothmans

Pall Mall is our global drive brand launched Rothmans is our global drive brand
in 2019 for our value conscious consumers launched in 2019 for our value conscious
seeking popular choices consumers seeking a strong taste smoke
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OPERATIONAL EXCELLENCE

PTC, with a full seed to smoke business encapsulating two Education and Kitchen Gardening to contribute in improving
factories and one of the largest leaf operations in BAT group their livelihood.
companies, remained focused on enhancing productivity
throughout the value chain. This was ensured through PTC Operations also delivered the highest ever Savings
effective cost management, delivering lean operations and and curtailed currency devaluation impact by ingenious
continuous modernization of the machinery footprint. solutions. The completion of 2019 Wrapping material & Leaf
Stock Build resulted in a saving of 2.3 Million GBP. As part
PTC Operations supported 38.95Bn production volume on of this stock build a total of 339 containers from different
time and in full. In 2019, manufacturing achieved 79.2% suppliers were ordered, cleared, accommodated & paid for.
Overall Equipment Efficiency (OEE) with Akora-Khattak
Factory joining the 80%+ OEE ranks. All of this was The Company’s aim is to constantly modernize its
delivered with the lowest Manufacturing Cost in the entire operations by introducing innovative concepts, optimal
Asia Pacific & Middle East Region. processes and the latest technology. PTC Operations
continued the journey towards manufacturing excellence
PTC Operations delivered the best-ever Leaf Season with through the Integrated Work System (IWS) program with
lowest In Stock Cost in the Group, global benchmark in AKF achieving phase 1 certification In Sept’19 while Jhelum
Sustainable Tobacco Program & highest Crop Quality continued its journey for Phase 2 readiness.
Index. PTC Leaf strengthened its leadership in Sustainable
Agriculture by introducing latest technologies in tobacco 2019 was also another high performance year for the
industry to farmers. Moreover, PTC female trainers reached procurement team. From effective wrapping material
out to rural women and trained them on Farm Safety, Child price negotiations to delivering multi cycle campaigns,
PAKISTAN TOBACCO COMPANY LIMITED
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procurement has been at the top of its game. Major pressure factories. Moreover, PTC enabled the 1st Solar Powered Leaf
areas for procurement were Rupee devaluation, commodity Depot across BAT network.
prices and regulatory duties increase of imported raw
materials. Furthermore, a focus on consumer centric quality of the
product has ensured a significant reduction in consumer
Imported raw materials are a significant component of our complaints during the year. PTC’s manufacturing has
total raw material consumption, due to which our cost base been globally recognized in BAT Group for the efforts
is vulnerable to impact of currency devaluation. The split of and outstanding results delivered through this drive for
local vs imported raw material has not changed significantly excellence.
from prior period. The imported raw materials in 2019
accounted for 42% of total raw material consumption which Raw Materials
includes wrapping material (tipping paper, cigarette paper & (including tobacco leaf)
plug wrap) and tobacco blends. Composition

Significant awareness and infrastructural improvements

Imported – 42%
have been made in relation to Environment, Health & Safety
(EH&S) processes and procedures at the manufacturing Local – 58%
plants by revamping EH&S Pillar. Keeping in view the energy
crisis, multiple initiatives were undertaken in 2019, with a key
project of 125KW solar power plant installation across both

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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CORPORATE SOCIAL
INVESTMENTS
PTC has always been passionate to give back to the communities that it
operates in. As the biggest FMCG in Pakistan and the First multinational
in the country we are the Benchmark setters in CSI initiatives. We have
channeled our resources and manpower to execute our social responsibilities
of sustainability, empowerment and community uplift. The execution of
our CSI initiatives has been flawless in line with our usual business. We
continuously strive to increase the benefits and outreach of our CSI activities.

Afforestation
Since 1981, under our flagship Afforestation programme we have planted and distributed over 80
million trees for a sustainable future. PTC operates and maintains 5 nurseries across the country, 2
in Islamabad, one in Faisalabad, one in Jhelum and one in Swabi. This year through our technical
partnership and collaboration with NRSP we are proud to announce that PTC developed 21
afforestation blocks in the province of Punjab. Throughout the said year more than 3.89 million
saplings were distributed and planted free of cost through our nurseries. This is the highest number of
saplings distributed and planted in a year since the inception of the project in 1981.

Water Filtration
Pakistan Tobacco Company operates and maintains 5 water filtration plants, 4 in the suburbs of
Lahore and one in Jhelum. The accumulated filtration capacity of these plants is 1,000,000 liters a
day. In year 2019, PTC refurbished and upgraded its water filtration plant in Jhelum city ensuring
uninterrupted supply of fresh clean drinking water to millions.

Mobile Doctor Units (MDUs)

PAKISTAN TOBACCO COMPANY LIMITED

Since 1985, to provide free first aid and medical services to far flung and rural areas, PTC owns and
operates 7 MDU’s in 6 different Leaf Areas. These MDU’s are stationed in Yar Hussian, Mianwali,
Akora Khattak, Sher Gharh, Mansehra and Jhelum. During the course of 2019, The MDU’s treated
more than 76,000 patients free of cost.

Lift Irrigation
More than 450 farmers are benefiting from PTC lift irrigation system that provides water to more than
1000 hectares of agricultural land of Buner district. Pakistan Tobacco Company Limited through its
MoU with the Agriculture department of KPK Installed generators in 2016. In the last three years PTC’s
efforts have helped farmers increase the yield from their land and taken burden off the depleted
national grid.
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CALENDAR OF
NOTABLE EVENTS 2019

JANUARY FEBRUARY MARCH APRIL

Distribution excellenece 1st Cut Rag Tobacco Battle of GDIB Award on
strategy kick off export to Yemen minds 2019 Learning Category

MAY JUNE JULY AUGUST

Finished Goods Exports equipment Exports cell inauguration by Corinne Satisfactory Manufacturing
Exports Launch installation Burrows (Global Head of Manufacturing) Audit Akora Khattak Factory

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019

SEPTEMBER OCTOBER NOVEMBER DECEMBER

Finished Goods Export Production 1st Shipment of Finished Global Manufacturing Execution System
Top Employer 2020
Inauguration in Jhelum Factory Goods Exports Go Live Jhelum Factory
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MARKETING
PERFORMANCE
REVIEW
2019 was a tough year for Pakistan Migration of Gold Flake
from a macroeconomic perspective. to International Brand of
A current account deficit coupled with
Rothmans of London
impending loan repayments resulted In the VFM (Value for Money) segment, our local hero brand
in withdrawal of subsidies, currency Gold Flake went through a pack upgrade. Traditionally a
devaluation and declining GDP brand that was celebrated as a heritage champion, the new
packaging utilized the appeal of Rothman’s of London to
growth rate - forcing consumers to position Gold Flake as a more progressive and international
rationalize their spending not just on offer in line with evolving consumer needs. This has
tobacco but on all daily consumables. introduced another global brand house within the industry
which is now to be manufactured and distributed from our
factories to the rest of Pakistan.
The Budget announcement of a 34% excise rate increase
forced PTC to take a minimum PKR 20 price increase per
Several marketing initiatives supported this campaign
pack across the portfolio. This, in combination with stretched
including the addition of innovative touchpoints and focused
consumer wallet resulted in downtrading to Duty Not Paid
consumer engagement to strengthen the brand connect with
(DNP) brands, trading at Weighted Average Price of Rs. 38
its consumers.
(price indexation 205 versus the Duty Paid industry).

Growing counterfeit incidence, emerged as another Reloc Packaging

challenge which dented a significant portion of the portfolio
Reloc packaging was introduced for the first time in Pakistan
volume.
to Dunhill and later to John Player Gold Leaf Special, making
the packs more appealing and providing further value to the
Despite all these challenges, PTC managed to sell 39 Bn
consumer. The state-of-the-art machinery and equipment for
sticks and close the year with a FY Market share in excess
this had to be imported, making Pakistan Tobacco Company
of 50%. PTC continued to invest behind its brands and had
(PTC) the first Company to introduce this technology to
a robust Cycle Plan with focused interventions across the
Pakistan - a testament to the Company’s legacy of being the
portfolio through impactful multi-cycle campaigns.
pioneers and leaders of innovation in this industry. Staying
PAKISTAN TOBACCO COMPANY LIMITED
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true to the highest standards of quality, the technology is biggest cashless transactions services provider. This further
currently being exported to various markets in the Gulf region cements transparency and accuracy of the transaction while
as well. keeping it simple.

John Player by Gold Leaf Special’s improvement was

assisted by multiple marketing initiatives which created the
Power Business Intelligence
desired level of consumer awareness needed to make the British American Tobacco group chose Pakistan as the pilot
campaign successful. market for rolling out Power Business Intelligence (BI) tool
across the BAT world. Pakistan already boasts of the largest
RCS8 (Sales Automation Software) user base in the BAT
Cashless Transactions in world with more than 2600 active users. Incidentally they
Pakistan account for 40% of RCS8 userbase of BAT. This enables
the organisation to move from static & restricted reports
Digitisation has questioned the age-old way of monetary
to a dynamic platform that not only makes data extraction
transactions. With limited population having access to bricks
robust but empowers the users to create customized reports
& mortar banks, fintech industry has capitalised on the
answering key business questions. In addition to this, the
growing base of smartphone & mobile internet users. Earlier,
users can view these reports conveniently on a multitude of
the distributor salesmen faced challenges of robberies,
portable electronic devices.
counterfeit currency notes and huge amounts of cash
handing which was worrisome. The distributors in South
PETRA team of Pakistan in close collaboration with the
Punjab Region have partnered with cashless transactions
global vendor, extensively tested, amended & deployed
banking network to launch a game-changing initiative;
the POWER BI model during the 1st quarter of 2019. The
Project Skynet. This enables distributor salesman to go
resulting platform was then launched in more than 30
cashless when they sell stock to the retailers. In future this
countries across BAT. In Pakistan several Power BI training
initiative will be expanded to other areas across the country
workshops were held to onboard the users on the new tool,
as well. Another quantum leap in our fintech voyage was the
which has resulted in better sales performance tracking and
launch of disbursement of incentives to the Trade Loyalty
swift decision making.
Programme outlets via partnering with one of Pakistan’s

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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SECURITY THAT
MEANS BUSINESS
Strategy and Planning
Our security strategy 2021 has been named SS21 and is aligned management and supervision and we were able to provide secure
with Ambition 2021 and PTC SLA 2020. It was finalized after working environment to our people, protection to the assets and
numerous deliberations, meetings and breakout sessions. The prime solutions to prevent business interruptions. In year 2020 we will
and focused objective of this was to protect business from security be ensuring quality of all BCM related documentation and the
risks derived through Security Risk Management platform. Security effectiveness of these will be tested in real time scenarios.
team works closely integrated with all the business functions to
help facilitate an informed decision making and at the same time
ensuring internal and legal compliance. The entire Security team has Business Integration
developed business acumen and now act as business managers.
The security team has adopted the five Ps concept in complete
seed to smoke operations (Proactive, Professional, Pragmatic,
Risk and Resilience Progressive & Positivity) ensuring close coordination with business
to support in imports of raw material, manufacturing of exports
During 2019, preparedness was ensured at three major sites by finished goods and securing logistics till the port. Support in
testing of the Business Continuity Plans using scenarios more launching VELO and securing VELO manufacturing site is an
relevant to our environment which helped us in operational activation example of how Security is integrated into business. In fact, security
of those plans during actual business interruption while protests aspects are fast becoming a joint responsibility. AKF transformation
were carried out across the country by opposition parties. We was executed in close coordination with the team which resulted in
adopted Global processes of Business Continuity Management, satisfactory audit results.
Information Security and Security Risk Management as a logical
solution to cope with today’s fragile Security environment.
Security risks were reported into the business which helped in
informed decision making and in appropriate provision of Security
measures across the country and specially in High risk areas.
This only happened due to effective security business partnership
PAKISTAN TOBACCO COMPANY LIMITED
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IN IT
TO WIN IT
2019 has been a year of transformation. The IT department was
rebranded to Information & Digital Technology – IDT, propelled #Modern Workforce
by the need to embrace new ways of working in the digital era. PTC’s greatest assets has always been it’s people and we take
Globally, we see organizations increasingly look towards technology great pride in investing in talents. The IDT team continues to embed
to lead them in the digital age. New terminologies like Big Data, the digital DNA into the employees through introducing new tools
Digitization, Artificial Intelligence and Blockchain continue to influx of trade to help improve collaboration. Meeting spaces have been
the technology landscape and organizations race to adapt these in upgraded to enable video conferencing capabilities. A variety of
a bid to reap benefits that may provide edge over competition. mobile apps such as MyBAT, Microsoft Teams and Sharepoint
have been added into the digital ecosystem to ensure employees
At PTC, we define digital as leveraging technology to unlock are connected where ever they maybe and are able to seamlessly
commercial value. Along our entire “Seed to Smoke” value chain, we execute their activities.
continue to integrate digital technology to deliver increased value. In
2019 alone, IDT helped implement key initiatives.

#Made in Pakistan – Exports

A major milestone in PTC’s illustrious history as it began exporting
finished goods for the first time. In order to comply with Government
regulations and strict taxation standards of Saudi Arabia, the IDT
team implemented a sophisticated digital track and trace system. By
using digital tax stamps, the Government authorities can trace the
source of the finished goods products and it’s entire logistics history
thereby giving it unprecedented control over counterfeit and illicit
trade products.

#Simplification
2019 was also a big year for our manufacturing operations as both
factories (Jehulm and Akora Khattak) saw the implementation of
Global Manufacturing Excellence System (GMES). With GMES
installed, PTC manufacturing capabilities have ushered into the
Industry 4.0 space. The machines, shop floor and quality systems
are now integrated to provide near real time data and analytics on
our production performance leading to improved quality, waste
management and optimization of our systems.

#Connected Consumer
At the very front of Sales and Distribution, PTC implemented an
advanced sales automation system that has digitized all trade
activity in our local markets. Our trade employees now carry tablets
running sophisticated systems that record sales transactions. It has
enabled the business to see near real time sales activity reporting
of more than thirty eight billion sticks across the country. Our sales
EXCELLING BEYOND BORDERS

forecasting capability has improved by over ninety percent and

by leveraging data analytics, we can take intelligent decisions of
effectively utilizing our sales manpower to locations that may have
seen less sales growth than others.
ANNUAL REPORT 2019
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CRITICAL PERFORMANCE
INDICATORS
1) Financial Indicators ii) Aspirational Premium Segment
In the Aspirational Premium segment, post successful pilot
launch of John Player, a brand which built on the legacy
75.4% 12,889 of the House of John Player, the brand was piloted in four
Market Share Profit after Tax test markets, followed by an expansion into the 13 biggest
(Legitimate market) (Rs in Million) cities of Pakistan. Aided by a focused consumer activation
(2018: 73.3%) (2018: 10,338)
campaign, exciting touchpoints and retailer engagement,
the launch was a success and quickly turned into the most
promising brand launch in recent PTC history.
149,025 50.45
Gross Turnover Earnings per Share iii) Value for Money (VFM) Segment
(Rs in Million) (Rs)
(2018: 137,116) (2018: 40.46) PTC’s position in the VFM segment was strengthened
through the strong performance of Pall Mall. The brand
captured the largest market share of 32.3% in 2019, up
51,975 48.0 5% from 2018. Further, the VFM segment witnessed Gold
Net Turnover Dividend per Share Flake’s migration to Rothmans of London; a transition that
(Rs in Million) (Rs) has seen the brand enhance its equity and mix. To remain
(2018: 53,112) (2018: 37.0) competitive in the VFM segment, Pall Mall and Rothmans
were launched at a price parity to duty-paid competition
offers in selected high-risk markets to safeguard volumes
26,210 8,564 and ensure value sustainability for the organization. The
Gross Profit Operating Cash brands have received positive consumer traction in the pilot
(Rs in Million) (Rs in Million) markets, with expansions into more markets planned in
2020
(2018: 23,284) (2018: 12,810)

18,285 2,440.55 d) OEE – Overall Equipment

Profit before Tax Market Price Efficiency
(Rs in Million) per Share
(2018: 15,280) (Rs) In 2019, our factories achieved 79.2% Overall Equipment
Efficiency (OEE) with Akora-Khattak Factory joining the
(2018: 3,000)
80%+ OEE ranks. All of this was delivered with the lowest
Manufacturing Cost in the entire Asia Pacific & Middle East
* Year end
Region.

2) Non-Financial Indicators e) Lost Workday Cases

a) Market Share of the illicit trade EH&S is key priority for the Company. Due to the increased
emphasis, the number of work-related accidents resulting
This indicator gives visibility of the business lost to duty not
PAKISTAN TOBACCO COMPANY LIMITED

in injury to employees under the management’s direct

paid sector due to weak enforcement. Illicit sector currently
accounts for 36.9% of the total market share. supervision remained minimal.

b) Trade Coverage f) Human Capital

The Company’s trade coverage covers a total of 238,000 i) Employee Retention
retail outlets. Employee development and retention is a primary agenda
for the Company and is continuously monitored.
c) Legitimate market share across
ii) Employee Engagement
segments
The high level of engagement we maintain with our
i) Premium Segment share teams enabled us to effectively convey our message
78% market share in the premium segment held by John of confidence during the year. In recent years, our
engagement mechanisms have aimed to nurture an open
Player Gold Leaf (JPGL).
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culture, facilitating communication across all levels of the iv) Lift Irrigation
Organization. Employees are given the opportunity to
directly engage with the Company’s senior management More than 450 farmers are benefiting from PTC lift irrigation
on current business realities and growth prospects, while system that provides water to more than 1000 hectares
factory workers also engage with management through of agricultural land of Buner district. Pakistan Tobacco
numerous platforms including monthly small group Company Limited through its MoU with the Agriculture
meetings. Employees can engage through initiatives such department of KPK Installed generators in 2016. In the last
as Your Voice- an employee opinion survey. three years PTC’s efforts have helped farmers increase
the yield from their land and taken burden off the depleted
In 2019, PTC was certified as a Top Employer for the national grid.
second year running, which is a testament of PTC’s high
level of employee engagement.
h) Natural Capital
iii) Diversity and Inclusion i) Leaf Consumption
PTC is an equal opportunity employer and does not In 2019, PTC purchased 32.4 million kgs of tobacco leaf
discriminate on the grounds of gender, race, religion from local farmers, thereby supporting the livelihood of
or social class, when making decisions on recruitment farmers growing tobacco in the areas of KPK and Punjab.
and promotions. We have aligned ourselves with the
BAT’s diversity ambitions and continue to widen diverse
ii) Environmental Sustainability Initiatives
representation through ensuring balanced access at entry
level, providing opportunities for flexible working, increasing Significant awareness and infrastructural improvements
maternity benefits and facilitating platforms for engagement. have been made in relation to Environment, Health & Safety
Moreover, for its drive and consistent focus on Diversity (EH&S) processes and procedures at the manufacturing
and Inclusion, the Company was also awarded the “Global plants. Keeping in view the energy crisis, multiple initiatives
Diversity & Inclusion, Progressive Award 2019”. were undertaken in 2019 like installation of 125KW solar
power plant across both factories and setting up the first
ever solar powered leaf buying and storage depot.
g) Social and Relationship
Capital Change in Indicators and
PTC has always been focused on investing in community
and social initiatives. Following is the overview of various Performance Measures Over
social responsibility initiatives taken in 2019.
Time
i) Afforestation Key Indicators and performance measures change as the strategic
goals change over time but are mostly aligned to the Company’s
Under its flagship afforestation program, the Company overall goal of increasing shareholders value in the future. These
planted and distributed more than 3.9 million saplings indicators are integral to the assessment of value generated for
free of cost in 2019. A new nursery was also completed in all our stakeholders. These indicators serve as a basis for the
Jhelum, and this is in addition to the already established assessment of the performance of our Company’s operations
four nurseries in Islamabad, Faisalabad and Swabi. This and value generation for all stakeholders, and they continue to be
year through our technical partnership and collaboration relevant for the foreseeable future.
with National Rural Support Programme, we are proud to
announce that PTC developed 21 afforestation blocks in the
Methods and Assumptions
EXCELLING BEYOND BORDERS

province of Punjab.

ii) Water Filtration Used in Compiling the

PTC currently has 5 water filtration plants in Lahore and Indicators
ANNUAL REPORT 2019

Jhelum with a filtration capacity of one million liters per day,

Key Performance Indicators (KPIs) measure progress toward the
which benefit many people annually. desired objectives. They provide focus for strategic and operational
improvement, create an analytical basis for decision making and
iii) Mobile Doctors Units (MDU) help focus attention on what matters the most. The use of KPIs
involves setting the targets (the desired level of performance) and
Under the MDU program, the Company dispensed medical tracking progress against them.
advice and medicines to more than 76,000 patients in 2019
free of cost.
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QUARTERLY ANALYSIS 2019

Rs. in million Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual

Statement of Profit or Loss

Gross Turnover 35,987,837 44,282,346 28,353,694 40,400,771 149,024,648

Excise Duties 18,124,962 22,039,460 14,561,649 20,015,418 74,741,489
Sales Tax 5,428,197 6,679,998 4,207,849 5,992,219 22,308,263

Net Turnover 12,434,678 15,562,888 9,584,196 14,393,134 51,974,896

Cost of Sales 6,702,280 6,756,134 4,650,031 7,656,368 25,764,813

Gross Profit 5,732,398 8,806,754 4,934,165 6,736,766 26,210,083

Selling and distribution Costs 1,048,506 1,083,032 756,263 1,778,321 4,666,122

Administrative Expenses 698,060 975,096 440,949 666,140 2,780,245
Other Operating Expenses 336,461 882,140 314,145 339,253 1,871,999
Other Income 30,147 68,698 582,133 102,204 783,182
2,052,880 2,871,570 929,224 2,681,510 8,535,184

Operating Profit 3,679,518 5,935,184 4,004,941 4,055,256 17,674,899

Finance Income 210,281 406,739 144,758 50,793 812,571

Finance Cost 22,387 56,000 44,840 79,326 202,553

Finance Income - Net 187,894 350,739 99,918 (28,533) 610,018

Profit before Income Tax 3,867,412 6,285,923 4,104,859 4,026,723 18,284,917

Income Tax Expense 1,075,181 2,024,851 1,173,035 1,122,621 5,395,688

Profit for the Year 2,792,231 4,261,072 2,931,824 2,904,102 12,889,229

Quarter Quarter

01 Sales Billion Sticks

Net Turnover
Net Profit
10.7 Billion
12.4 Billion
2.8 Billion 02 Sales Billion Sticks
Net Turnover
Net Profit
13.4 Billion
15.6 Billion
4.3 Billion
PAKISTAN TOBACCO COMPANY LIMITED

Quarter Quarter

03 Sales Billion Sticks

Net Turnover
Net Profit
6.0 Billion
9.6 Billion
2.9 Billion 04 Sales Billion Sticks
Net Turnover
Net Profit
9.1 Billion
14.4 Billion
2.9 Billion
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Operating Costs (Cost of Sales and all

Sales , Net Turover and Income Profit
Operating Costs)
Q1’19 accounted for approximately 24% of total sales Cost of sales increased by 6% compared to Net profit for Q1’19 was
of the Company for FY’19. Sales volume in Q1’19 Q1’18 despite decrease in sales volume. This was 24% lower than that of
Quarter 1

decreased by 5% compared to Q1’18 primarily because primarily due to currency devaluation and general Q1’18. This was primarily
of Excise led price increase in Sep 2018. This resulted inflation in prices of raw materials. driven by Lower Net
in decrease of 7% in Net Turnover as well. Interest Turnover, higher cost of
income from short term investments increased by 35% Selling, distribution and administrative costs sales and higher operating
compared to Q1 2018 because of higher interest rates increased by 15% on account of aggressive trade expenses.
on offer and efficient working capital management. marketing efforts as well as higher employment
costs attributed to salary increase.
Q2’19 accounted for 30% of total sales of the Company While there was an increase in Sales volume, Cost Profit increased by 53%
for FY’19. Sales volume in Q2’19 improved by 25% of sales increased by 1% compared to both Q1’19 compared to Q1’19.
Quarter 2

compared to Q1’19 in anticipation of potential price and Q1'18. This is primarily because
increase post FY2019-20 budget. Net Turnover also of higher sales volume
increased by 25% against Q1'19. Income from short Selling and distribution costs increased by 3% as compared to Q1'19.
term investments increased by 93% vs Q1'19 driven by compared to Q1 19. Operating cost was higher Compared to Q2’18 profit
higher funds availability because of higher turnover and by 53% compared to Q2’18 mainly on account of was higher by 58%.
effective investment strategy. Compared to Q2'2018, Rupee devaluation and general inflation.
Sales volume and Net Turnover were higher by 18% and
21%, respectively.
Q3'19 accounted for 19% of total sales of the Decrease in sales resulted in decrease in cost of Profit declined by 17%
Company for FY’19. Sales volume was lower by 49% sales of 31% compared to average of Q1’19 & in Q3’19 compared to
vs Q3'18. Resultantly, Net Turnover also declined by Q2’19. Compared to Q3 18 cost of sales decreased average of Q1’19 and Q2’19
Quarter 3

32% compared to average of Q1 and Q2. This was by 30%. due to significant drop in
on account of higher distributor on hand stocks. sales volume which was
Investment in marketing activities, dividend payments With the rise in costs for Q1 and Q2 2019, partially offset by effective
and payments to farmers on account of leaf purchases Management turned its focus towards rationalizing cost management. Profit
resulted in lower liquidity and as a result decline in costs and appropriate allocation of resources to declined by 1% vs that in
income from short term investments by 53% compared drive towards achieving full year plans. Hence all Q3, 18.
to average of Q1'19 & Q2'19. operating costs of the Company saw a reduction
of 63% in Q3’19 compared to average of Q1’19 &
Q2’19. This was 49% lower compared to Q3'18
Q4’19 accounted for 27% of total sales of the Company Cost of sales increased by 27% compared to The profit for Q4’19
for FY’19. Sales volume picked up pace in the last average of 3 quarters of 2019 driven mainly by decreased by 13%
quarter of the year rising by 52% compared to Q3'19. Rupee Devaluation and higher manufacturing compared to average of
Quarter 4

Sales volume however were lower by by 24% compared costs. Cost of sales decreased by 25% compared 3 quarters of 2019 mainly
to Q4'18. Net turnover increased by 15% and 4% to Q4’18 on account of reduction in sales volume because of higher costs.
compared to average of 3 quarters of 2019 and Q4’18, (24% compared to Q4'18). Profits however increased
respectively.Immense efforts were put into marketing Q4 2019 also saw increase in investments in by 12% compared to
activities and immediate investments in production marketing activities for brand campaigns resulting average quarterly profit for
capacities to ensure year ending was smooth. in increase of 36% in operating costs compared to 2018
average of 3 quarters of 2019. Compared to Q4'18,
there was a decrease of 12% in operating costs.

EXCELLING BEYOND BORDERS

Analysis of Variation in Interim Results with Final Accounts

The Company’s sales volumes showed an upward trend in the first 6 months of the year on account of expected excise led price increases. The excise
increases introduced in Budget 18/19 led to a decline in sales volumes in the last six months compared to the first half of the year, a decrease of 37%
compared to first half of 2019. This also resulted in the illicit sector gaining market share and rising to 36.9% of the total market share as price-sensitive
ANNUAL REPORT 2019

consumer shifted to lower priced duty-not-paid brands.

The Company’s input costs saw quarter wise increase, with the exception of third quarter, which was mainly attributable to inflation, increase in
import & regulatory duties and rapid Rupee devaluation. These factors led to Cost of Sales increase by 14% in Q4 vs Q1. The cost increase was
mitigated through a strict cost control regime and savings generated through productivity initiatives across the Company. Moreover, in each quarter,
the Company continued to invest in brand activities that led to an increase in selling and distribution costs, indicating the Company’s long-term
commitment to deliver the best quality products to its consumers and create long term brand equity of its brand portfolio.

The Company’s cash flow position deteriorated compared to the prior period due to a 15% decline in sales volumes. However, as a result of effective
liquidity management, the Company managed to generate healthy cash flows for the year ended 2019.
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GRAPHICAL PRESENTATION
of Statement of Profit or Loss & Statement of Financial Position

Volume Gross Turnover

(Million Sticks) (Rs in Million)
149,025

46,078 137,116
44,006
42,716 129,278
125,013
39,140
111,485
36,065 107,218
34,777

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

Net Turnover Excise & Sales Tax

(Rs in Million) (Rs in Million)
97,050

53,112 51,975
84,412 84,004
82,105

44,867
42,907 43,279 70,599
68,206

36,619

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

Cost of Sales Selling & Distribution Costs

PAKISTAN TOBACCO COMPANY LIMITED

(Rs in Million) (Rs in Million)

29,829 4,950
4,855
4,744 4,666

25,765
24,352
22,772 23,075 3,877
3,762
22,093

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
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Profit after Tax Earnings per Share

(Rs in Million) (Rs/share)

12,889 50.45

10,361 10,338 40.55 40.46

9,574 37.47

7,046 27.58

4,850 18.98

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

Dividend per Share Working Capital

(Rs/share) (Rs in Million)
48 9,611

8,512
7,744
37

30 5,756

25
24

15
2,601

761

2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018

Property, Plant & Equipment Share Capital and Reserves

(Rs in Million) (Rs in Million)

18,291
17,766
12,499 16,911
EXCELLING BEYOND BORDERS

10,090 12,977
9,185
8,713 8,629 8,631
10,336

8,011
ANNUAL REPORT 2019

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
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HORIZONTAL &
VERTICAL ANALYSIS
Source Data
Rs. in million 2019 2018 2017 2016 2015 2014
Statement of Profit or Loss

Gross Turnover* 149,025 137,116 111,485 129,278 125,013 107,218

Excise Duties (74,741) (63,118) (51,247) (64,976) (63,290) (54,447)
Sales Tax (22,308) (20,886) (16,959) (19,436) (18,815) (16,151)
Net Turnover 51,975 53,112 43,279 44,867 42,907 36,619

Cost of Sales (25,765) (29,829) (23,075) (22,093) (24,352) (22,772)
Gross Profit 26,210 23,284 20,204 22,774 18,555 13,847

Selling and Distribution Costs (4,666) (4,950) (3,762) (4,744) (4,855) (3,877)
Administrative Expenses (2,780) (2,558) (2,664) (2,185) (2,435) (2,399)
Other Operating Expenses (1,872) (1,382) (1,186) (1,198) (1,068) (651)
Other Income 783 178 242 353 137 166
Operating Profit 17,675 14,571 12,834 15,000 10,335 7,087

Finance Income 813 743 234 428 316 200
Finance Cost (203) (34) (56) (46) (72) (99)
Profit before Income Tax 18,285 15,280 13,011 15,382 10,579 7,188

Income Tax Expense (5,396) (4,942) (3,438) (5,021) (3,533) (2,338)
Profit for the Year 12,889 10,338 9,574 10,361 7,046 4,850

Earnings per Share - Basic and Diluted (Rupees) 50.45 40.46 37.47 40.55 27.58 18.98

*Gross revenue figure has been adjusted as per IFRS-15 methodology. Certain marketing costs have been deducted from total revenues

Statement of Financial Position

Non Current Assets

Property, Plant and Equipment/ Advances for Capital Expenditure 12,499 10,090 8,631 8,629 9,185 8,713
Investment in Subsidiary Company 5 5 5 5 5 5
Long Term Loans - - - - - 0
Long Term Deposits and Prepayments 31 32 32 34 29 32
12,534 10,127 8,668 8,668 9,219 8,751
Current Assets
Stock-in-Trade 21,423 18,489 14,461 13,619 14,008 11,895
Stores and Spares 664 634 594 570 676 472
Trade Debts 4 2 3 2 1 3
Loans and Advances 126 96 73 179 182 67
Short Term Prepayments 15 250 213 184 170 183
Other Receivables 2,132 1,862 969 1,049 447 425
Cash and Bank Balances/Short Term Investments 3,537 8,993 7,154 1,127 53 150
27,901 30,326 23,466 16,729 15,536 13,195
Total Assets 40,436 40,453 32,134 25,397 24,755 21,946

Current Liabilities
PAKISTAN TOBACCO COMPANY LIMITED

Trade and Other Payables 19,306 21,202 13,024 9,095 10,417 11,266
Accrued Interest / Mark-Up 26 5 3 3 12 24
Short Term Running Finance - 76 - 95 1,220 563
Lease Liability 376 148 165 164 154 119
Current Income Tax Liabilities 449 382 662 1,615 1,132 461
20,157 21,813 13,854 10,973 12,934 12,434

Non Current Liabilities
Deferred Income Tax Liabilities 646 589 1,108 1,132 1,039 1,100
Lease Liability 1,342 285 260 315 415 400
1,988 874 1,368 1,447 1,454 1,501
Share Capital & Reserves
Share Capital 2,555 2,555 2,555 2,555 2,555 2,555
Revenue Reserves 15,736 15,211 14,356 10,422 7,811 5,456
18,291 17,766 16,911 12,977 10,366 8,011
40,436 40,453 32,134 25,397 24,755 21,946
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Horizontal Analysis1 Vertical Analysis2

19 Vs 18 18 Vs 17 17 Vs 16 16 Vs 15 15 Vs 14 14 Vs 13 2019 2018 2017 2016 2015 2014

8.7% 23.0% (13.8%) 3.4% 16.6% 19.2%
18.4% 23.2% (21.1%) 2.7% 16.2% 18.1%
6.8% 23.2% (12.7%) 3.3% 16.5% 22.4%
(2.1%) 22.7% (3.5%) 4.6% 17.2% 19.6% 100% 100% 100% 100% 100% 100%

(13.6%) 29.3% 4.4% (9.3%) 6.9% 13.8% 49.6% 56.2% 53.3% 49.2% 56.8% 62.2%
12.6% 15.2% (11.3%) 22.7% 34.0% 30.5% 50.4% 43.8% 46.7% 50.8% 43.2% 37.8%

(5.7%) 31.6% (20.7%) (2.3%) 25.2% -3.6% 9.0% 9.3% 8.7% 10.6% 11.3% 10.6%
8.7% (4.0%) 21.9% (10.2%) 1.5% 39.8% 5.3% 4.8% 6.2% 4.9% 5.7% 6.6%
35.5% 16.5% (1.0%) 12.2% 64.1% 63.5% 3.6% 2.6% 2.7% 2.7% 2.5% 1.8%
340.6% (26.6%) (31.4%) 157.4% (17.6%) 28.9% 1.5% 0.3% 0.6% 0.8% 0.3% 0.5%
21.3% 13.5% (14.4%) 45.1% 45.8% 54.0% 34.0% 27.4% 29.7% 33.4% 24.1% 19.4%

9.4% 217.2% (45.3%) 35.5% 58.1% 46.4% 1.6% 1.4% 0.5% 1.0% 0.7% 0.5%
498.8% (40.0%) 22.9% (36.2%) (27.5%) 37.5% 0.4% 0.1% 0.1% 0.1% 0.2% 0.3%
19.7% 17.4% (15.4%) 45.4% 47.2% 54.0% 35.2% 28.8% 30.1% 34.3% 24.7% 19.6%
9.2% 43.8% (31.5%) 42.1% 51.1% 51.5% 10.4% 9.3% 7.9% 11.2% 8.2% 6.4%
24.7% 8.0% (7.6%) 47.0% 45.3% 55.2% 24.8% 19.5% 22.1% 23.1% 16.4% 13.2%

23.9% 16.9% 0.0% (6.0%) 5.4% 23.0% 30.9% 24.9% 26.9% 34.0% 37.1% 39.7%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% (100.0%) (74.7%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
(4.2%) (0.6%) (3.7%) 15.5% (10.4%) 51.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
23.8% 16.8% 0.0% (6.0%) 5.3% 23.1% 31.0% 25.0% 27.0% 34.1% 37.2% 39.9%

15.9% 27.9% 6.2% (2.8%) 17.8% 29.8% 53.0% 45.7% 45.0% 53.6% 56.6% 54.2%
4.7% 6.8% 4.2% (15.6%) 43.1% (3.3%) 1.6% 1.6% 1.8% 2.2% 2.7% 2.2%
174.3% (41.1%) 43.3% 103.0% (71.9%) 322.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
31.3% 32.1% (59.3%) (1.7%) 172.3% (25.5%) 0.3% 0.2% 0.2% 0.7% 0.7% 0.3%
(93.9%) 17.5% 15.7% 8.0% (7.0%) 132.2% 0.0% 0.6% 0.7% 0.7% 0.7% 0.8%
14.5% 92.2% (7.6%) 134.9% 5.0% (2.2%) 5.3% 4.6% 3.0% 4.1% 1.8% 1.9%
(60.7%) 25.7% 534.7% 2023.3% (64.5%) 148.8% 8.7% 22.2% 22.3% 4.4% 0.2% 0.7%
(8.0%) 29.2% 40.3% 7.7% 17.7% 27.9% 69.0% 75.0% 73.0% 65.9% 62.8% 60.1%
0.0% 25.9% 26.5% 2.6% 12.8% 25.9% 100% 100% 100% 100% 100% 100%

(8.9%) 62.8% 43.2% (12.7%) (7.5%) 45.8% 47.7% 52.4% 40.5% 35.8% 42.1% 51.3%
382.7% 56.2% (0.7%) (70.9% (51.1%) (10.7%) 0.1% 0.0% 0.0% 0.0% 0.0% 0.1%
0.0% 0.0% (100.0%) (92.2%) 116.7% (76.9%) 0.0% 0.2% 0.0% 0.4% 4.9% 2.6%
153.6% (10.3%) 0.5% 6.5% 29.3% 29.0% 0.9% 0.4% 0.5% 0.6% 0.6% 0.0%
17.5% (42.3%) (59.0%) 42.7% 145.6% 7.2% 1.1% 0.9% 2.1% 6.4% 4.6% 2.1%
EXCELLING BEYOND BORDERS

(7.6%) 57.4% 26.3% (15.2%) 4.0% 16.1% 49.8% 53.9% 43.1% 43.2% 52.3% 56.7%

9.7% (46.8%) (2.1%) 9.0% (5.6%) 8.5% 1.6% 1.5% 3.4% 4.5% 4.2% 5.0%
371.1% 9.5% (17.4%) (24.1%) 3.7% 36.6% 3.3% 0.7% 0.8% 1.2% 1.7% 1.8%
127.5% (36.1%) (5.5%) (0.5%) (3.1%) 14.8% 4.9% 2.2% 4.3% 5.7% 5.9% 6.8%

ANNUAL REPORT 2019

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.3% 6.3% 8.0% 10.1% 10.3% 11.6%
3.5% 6.0% 37.8% 33.4% 43.2% 91.0% 38.9% 37.6% 44.7% 41.0% 31.6% 24.9%
3.0% 5.1% 30.3% 25.2% 29.4% 48.0% 45.2% 43.9% 52.6% 51.1% 41.9% 36.5%

1
Horizontal analysis shows changes in the amount of corresponding line items by 2
For Statement of Profit or Loss, net turnover is the base figure whereas for
comparing current period with previous period Statement of Financial Position, total assets is the base figure for calculating vertical
analysis
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ANALYSIS OF STATEMENT OF
PROFIT OR LOSS & STATEMENT
OF FINANCIAL POSITION

Gross Turnover Net Turnover

From 2014 to 2019, gross turnover has followed a healthy In line with the growth in gross turnover, the net turnover
growth trend. During 2019, the gross turnover grew by 9% has also followed a similar trend increasing from Rs 36.6
which was attributable to excise led price increase even billion in 2014 to Rs 51.9 billion in 2019. During 2019, the
though sales volume were lower vs 2018. Looking back at net turnover recorded a marginal decline of 2.1% vs 2018
historical numbers, the growth trend in gross revenues was despite the growth in gross turnover. This is attributable to
disrupted in 2016-2017 due to a steep fall in the Company’s excise rate increases announced in Federal Budget 2019.
volumes as the illicit sector grew rapidly and their market Excise rates increased by 15% and 32% for products in
share reached an alarmingly high level of 41.2%. The premium and VFM segments of the portfolio respectively.
policy reforms introduced in 2017/18 budget helped in
the revival of legitimate industry in 2018 as the illicit sector
saw a decline and consumers shifted from non-duty-paid
Cost of Sales
cigarettes to duty-paid-cigarettes. Cost of sales declined by 14% in comparison to the
previous year. This was primarily attributable to the decline
Important to note that Gross Turnover in 2017 and onwards, in sales volume along with multiple cost control and
followed the IFRS 15 revenue recognition requirements, productivity savings initiatives. The decline in cost of sales
whereby, certain marketing costs were deducted from the was however offset by the increase in input costs. The
total revenues. cost base remained under pressure in 2019 due to rising
inflation, local currency devaluation and increase in import
and regulatory duties.
Duties and Sales Tax
PTC is one of the largest tax contributors to the national
exchequer. Over the years, the contribution to the national
Selling & Distribution
exchequer has followed an increasing trend, except in 2016 Over the years, the Company has continued to invest in
and 2017, when revenue growth stalled due to accelerated its brands and trade capabilities. Brand investments are
expansion of the illicit sector and the legal industry lost aimed at building a strong portfolio wide brand equity
volumes to duty-not-paid products. To address the steep through product upgrades, effective marketing activities
fall in Government revenues, fiscal reforms were introduced and consumer engagements. In 2019, the selling and
in budget 17/18 and 18/19, which helped to put the tax distribution expenses were Rs 4.66 billion, marginally lower
PAKISTAN TOBACCO COMPANY LIMITED

revenues back on the growth trajectory as elaborated by 6% vs 2018. Reduction in selling expenses is mainly
above. In 2019, the Company contributed Rs 97 billion in tax driven by the reduction in sales volume in 2019. However,
revenues in the form of FED and Sales tax, higher by 15% the Company ensured that significant investments have
compared to 2018. been made in brand portfolio in 2019 as well to ensure that
brand portfolio is differentiated and addresses consumer
needs.
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Profit After Tax

Over the past six years, the Company has been able to to Rs 7.7 billion in 2019 vs Rs 8.5 billion in 2018. During
register a healthy growth in its profits apart from the year 2019, the Company also undertook to build up stock levels
2017 when the Company’s volume took a significant of imported materials to act as a physical hedge against
hit. During 2019, the Company increased its profit after local currency devaluation which put strain on working
tax by 25% vs 2018. This is attributable to effective cost capital and cash conversion cycle. The cash conversion
management, productivity savings and healthy finance cycle increased from 47 days to 153 days.
income from efficient working capital management.

Non-Current Liabilities
Earnings per share (EPS) Non-current liabilities (NCL) consist of lease liability
EPS has registered a cumulative average growth rate and deferred tax liability. Over the years, the Company
(CAGR) of 22%, growing from Rs 18.98 per share in 2014 experienced a period of sales growth, increased
to Rs 50.45 per share in 2019, in line with the profitability profitability, higher liquidity and improved working capital
growth trend over the years. EPS for 2019 registered a position, causing the need for long term financing to remain
growth of 25% vs 2018. negligible in comparison to the Company’s overall capital
structure. Investment needs were easily financed through
cash generated from operations. The trend continued in
Property Plant & Equipment 2019 as well with no long-term financing options availed.
Over the years, Property, plant & equipment has increased However, due to the introduction of a new accounting
from around Rs 8.7 billion in 2014 to Rs 12.5 billion in 2019. standard, IFRS 16 – Leases, there has been a significant
The Company has invested not only to increase production increase in the lease liabilities which has resulted in an
capacity but also to upgrade its machinery footprint, increase of 127% in non-current liabilities compared to
enabling it to support future product innovations. Alongside, 2018.
operating infrastructure has been upgraded and equipped
with the best Environment, Health, & Safety systems and
processes to develop a highly safe working environment for Share Capital & Reserves
the Company’s workforce. Over the years, Share Capital has remained the same at
Rs. 2.6 billion. However, reserves have increased from Rs.
5.45 billion in 2014 to Rs. 15.74 billion in 2019 by retaining
Working Capital Management earnings primarily to support long term business growth
The Company’s cash sales model has meant that working initiatives.
EXCELLING BEYOND BORDERS

capital requirements are managed efficiently. The growing

profitability and supplier management systems has also
allowed the Company to improve its working capital position
ANNUAL REPORT 2019
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SUMMARY OF STATEMENT OF
PROFIT OR LOSS, FINANCIAL
POSITION & CASH FLOWS
2019 2018 2017 2016 2015 2014
Statement of Profit or Loss
Gross Turnover* Rs. million 149,025 137,116 111,485 129,278 125,013 107,218
Excise Duties/Sales Tax Rs. million (97,050) (84,004) (68,206) (84,412) (82,105) (70,599)
Net Turnover Rs. million 51,975 53,112 43,279 44,867 42,907 36,619
Cost of Sales Rs. million (25,765) (29,829) (23,075) (22,093) (24,352) (22,772)
Profit for the Year Rs. million 12,889 10,338 9,574 10,361 7,046 4,850
Earning per Share Rs./share 50.45 40.46 37.47 40.55 27.58 18.98
*Gross revenue figure has been adjusted as per IFRS-15 methodology. Certain marketing costs have been deducted from total revenues from 2017 onwards.
2019 2018 2017 2016 2015 2014
Statement of Financial Position
Property Plant & Equipment/Advances for Capital Expenditure Rs. million 12,499 10,090 8,631 8,629 9,185 8,713
Working Capital (Current Assets-Current Liabilities) Rs. million 7,744 8,512 9,611 5,756 2,601 761
Share Capital & Reserves Rs. million 18,291 17,766 16,911 12,977 10,366 8,011
Non- Current Liabilities Rs. million 1,988 874 1,368 1,447 1,454 1,501
Statement of Cash Flows
Cash flow from Operating Activities Rs. million 8,564 12,810 12,280 10,555 5,179 6,375
Cash flow from Investing Activities Rs. million (835) (1,359) (740) 17 (1,015) (1,982)
Cash flow from Financing Activities Rs. million (13,110) (9,688) (5,418) (8,374) (4,917) (2,430)
Net Change in Cash and Cash Equivalents Rs. million (5,380) 1,763 6,122 2,198 (753) 1,963
Beginning Cash and Cash Equivalents Rs. million 8,917 7,154 1,032 (1,166) (413) (2,376)
Ending Cash and Cash Equivalents Rs. million 3,537 8,917 7,154 1,032 (1,166) (413)

Cash and Cash Equivalents Comprise
Cash and Bank Balances/Short Term Investments Rs. million 3,537 8,993 7,154 1,127 53 150
Short Term Borrowings Rs. million - (76) - (95) (1,220) (563)
Rs. million 3,537 8,917 7,154 1,032 (1,166) (413)

Direct Method Cash Flow

(Rs. in million) 2019 2018
Cash flows from operating activities
Cash receipts from Customers 149,037 137,119
Cash paid to Government & suppliers (133,336) (111,863)
Cash paid to employees and retirement funds (5,462) (5,020)
Interest paid (182) (32)
Other cash payments (1,493) (7,393)
8,564 12,810

Cash flows from investing activities

Purchase of property, plant and equipment/Advance for Capex (1,947) (2,275)
Proceeds from sale of equipment 299 155
Interest received 813 762
(835) (1,359)
Cash flows from financing activities
PAKISTAN TOBACCO COMPANY LIMITED

Dividends paid (12,400) (9,436)

Finance lease payments (709) (252)
(13,109) (9,688)
Increase in cash and cash equivalents (5,380) 1,763
Cash and cash equivalents at beginning of year 8,917 7,154
Cash and cash equivalents at end of year 3,537 8,917

Cash and cash equivalents comprise:

Cash and bank balances 536 293
Short term investment 3,001 8,700
Short term running finance - (76)
3,537 8,917

Free Cash Flows

(Rs. in million) 2019 2018
Profit before tax 18,285 15,280
Adjustment non-cash items 1,354 600
Change in working capital (5,293) 2,954
14,346 18,833
Capital expenditure (1,947) (2,275)
Free cash flows 12,399 16,558
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DUPONT ANALYSIS 2019

Profit after
Tax
12,889
Rs. in Million
Net Profit
Margin
24.8%
÷
Net
Return on
Assets x Turnover
51,975
0.32 Rs. in Million
Assets
Turnover ÷
1.29
Return on Average
Assets
Equity ÷
71.1% 40,444
Rs. in Million
Average
Owner’s Equity
–
18,028
Rs. in Million
Ownership Average
Liabilities
Ratio x
0.45 22,416
Rs. in Million
Average
Assets
+
40,444
Rs. in Million
Average
Owner’s Equity
18,028
Rs. in Million

Dupont Analysis Summary EXCELLING BEYOND BORDERS

The Company’s net profit registered healthy growth trend of 25% in comparison to previous year.

Asset turnover decreased from 1.46 to 1.29 as net turnover decreased by a higher margin than the decrease in assets in
comparison to previous year. The additions in non-current asset during the year are primarily attributable to the recognition of
ANNUAL REPORT 2019

Right-of-Use Assets due to implementation of IFRS 16 - Leases. There was decrease in current assets from Rs 30 billion to
Rs 28 billion majorly because lower short term investments compared to 2018.

Ownership ratio reduced from 0.48 to 0.45 because increase in owner’s equity was less than proportional increase in average
assets.

The overall impact on above ratios have resulted in increase in Return on Equity in comparison to 2018 (58.3%).
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LIQUIDITY, CASH FLOWS

AND CAPITAL STRUCTURE
The Company’s Treasury function is responsible for raising the finances required by the Company, managing its liquid
resources and mitigating the financial risks that arise during its business operations. Clear policies and procedures, including
levels of authority as well as the type and use of financial instruments, have been defined and documented. All treasury
related transactions are executed as per the defined policies and procedures. These policies are reviewed and approved by
the Board of Directors or its delegated authority to the Finance Director/Treasury Committee.

Cash Flow Analysis Cash Flow from Operating Activities

(Rs. in Million)
The cashflows of the Company demonstrate the strength
and efficiency of its operations and particularly, its highly 12,810
12,280
efficient working capital management systems and
processes. 10,555

8,564

1. Net cash generated from 6,375

operating activities 5,179

Cash flows from operating activities followed a

healthy trend over the years, improving from Rs.
6.3 billion in 2014 to Rs. 8.5 billion in 2019 (CAGR
2014 2015 2016 2017 2018 2019
of 6.2%). This was primarily driven by increase in
turnover, improved profitability and effective cash
management. Cash Flow from Investing Activities
(Rs. in Million)

2. Net cash generated from 17

investing activities
Cash utilized on investing activities has decreased
from Rs. 1.4 billion in 2018 to Rs. 0.8 billion in 2019 -740

due to reduction in capital expenditure in comparison -835

-1,015
to previous year (Rs 2.2 bn to Rs 1.9 bn) along with
higher inflows from proceeds from disposal of fixed -1,359

assets and interest income.

-1982

2014 2015 2016 2017 2018 2019

3. Net cash generated from
financing activities
PAKISTAN TOBACCO COMPANY LIMITED

Cash Flow from Financing Activities

(Rs. in Million)
Cash outflow on financing activities increased from
Rs 9.7 billion in 2018 to Rs 13.1 billion in 2019, as
the Company paid out dividends of Rs 48/share -2,430

totaling Rs 12.4 billion during the year compared

to Rs 37/share totaling Rs 9.4 billion in 2018. This -4,917
-5,418

is a testament of Company’s ability to generate

sustainable value for its shareholders. -8,374

-9,688

-13,110

2014 2015 2016 2017 2018 2019

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Adequacy of Capital Structure 2. Cash Flow Monitoring

The Company has an adequate capital structure comprising The Company continuously monitors both its cash
mainly of equity with a minimal portion of non-current inflows and outflows, regularly and takes commercial
liabilities. Over the years, share capital has remained the decisions to manage its liquidity. This process of
same at Rs. 2.6 billion, however, revenue reserves have regular monitoring enables the Company to get
increased from Rs. 5.5 billion in 2014 to Rs. 15.7 billion in the visibility of future liquidity requirements and
2019, primarily due to earnings retained in the business accordingly, bridge the gaps by arranging financing
to support future growth. Sales growth, higher profitability facilities, if required.
and improved liquidity position has enabled the Company
to support its financing needs including those for capital 3. Investment of Surplus Funds
expenditure from internally generated cash.
The Company manages its surplus funds by
investing them in short term low risk financial
Financing Arrangements instruments. At a time, when interest rates are on the
rise, the Company is able to invest its excess liquidity
With a view to maximize shareholders’ returns, the
at higher rates and avoid interest expense charged at
Company places high priority on internal generation of
higher rates.
funds. Exhaustive rolling cash flow forecasting is conducted
keeping in view the various requirements of the business.
Healthy operating cash flows allow Company to avail 4. Effective Control Environment
external financing only on short term basis. Company has
The Company is equipped with highly efficient
running finance facilities with multiple banks to drawn down
systems and applications that allow for speedy
funds in time of need.
cash collections and disbursements, while ensuring
operation of robust controls.
Liquidity and Cash Flow
Management Strategy To Repayment of Debts and
Overcome Liquidity Problems Recovery of Losses
The Company has running finance facilities arrangement
1. Effective Working Capital with multiple banks, however healthy operating cash flows
Management allows the Company to keep the utilization of these facilities
to a minimum.
The Company has an elaborate and effective working
capital management process, which largely centers
The Management believes that the Company’s operations
around its cash sales approach. Additionally, the
can generate sufficient cash to meet the liquidity
Company follows an elaborate supplier management
requirements of the Company and thus, does not foresee
process, which enables it to extract the best
any liquidity problems in the future. Considering the amount
commercial terms from its suppliers, including
EXCELLING BEYOND BORDERS

of unutilized borrowing facilities, availability of short-term

favorable credit terms. Over the years PTC’s cash
assets and Company’s ongoing ability to generate cash, the
conversion cycle has not only improved significantly
Company will be able to meet its cash needs for the future
but has also enabled it to finance all its liquidity
very easily.
requirements, including those required for business
ANNUAL REPORT 2019

expansion, through internally generated cash.

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PERFORMANCE INDICATORS
RATIOS FOR 6 YEARS
2019 2018 2017 2016 2015 2014
Profitability Ratios

*Gross Profit ratio % 50.4 43.8 46.7 50.8 43.2 37.8

*Net Profit to Sales % 24.8 19.5 22.1 23.1 16.4 13.2
*EBITDA Margin to Sales % 36.6 29.2 32.2 35.9 26.4 21.6
Operating leverage ratio Times 2.5 0.6 1.0 13.2 2.8 2.8
Return on Equity % 71.5 59.6 64.1 88.8 76.7 72.3
Return on Capital employed % 87.2 78.2 70.2 104.0 87.4 74.5

*Gross revenue figure has been adjusted as per IFRS-15 methodology from 2017 and onwards. Certain marketing costs have been
deducted from total revenues

Liquidity Ratios
Current ratio Times 1.4 1.4 1.7 1.5 1.2 1.1
Quick / Acid Test Ratio Times 0.3 0.5 0.6 0.3 0.1 0.1
**Cash and cash equivalents to Current Liabilities Times 17.5 41.2 51.6 10.3 0.4 1.2
Cash flow from operations to Sales Times 5.7 9.3 11.0 8.2 4.1 5.9

**This includes short term investments as well

Activity / Turnover Ratios

Inventory turnover ratio Times 1.2 1.6 1.6 1.6 1.7 1.9
No. of Days in Inventory Days 303.5 226.2 228.7 225.0 210.0 190.7
Debtor turnover ratio Times 0.0 0.0 0.0 0.0 0.0 0.0
No. of Days in Receivables Days 0.0 0.0 0.0 0.0 0.0 0.0
Creditor turnover ratio Times 2.4 2.0 2.4 2.9 3.1 4.2
No. of Days in Payables Days 150.9 179.6 149.5 124.8 116.6 87.2
Total Assets turnover ratio Times 3.7 3.4 3.5 5.1 5.1 4.9
Fixed Assets turnover ratio Times 11.9 13.6 12.9 15.0 13.6 12.3
Operating cycle Days 153 47 79 100 93 103

Investment /Market Ratios   

Earnings per share After Tax(EPS) and diluted EPS Rs 50.4 40.5 37.5 40.6 27.6 19.0
Price-Earning Ratio Times 48.4 71.7 57.3 35.3 40.4 55.8
Dividend Yield ratio % 2.0 1.3 1.4 1.7 2.2 1.4
Dividend Payout ratio % 95.1 96.4 80.1 61.6 87.0 79.0
Dividend Cover ratio Times 1.1 1.0 1.2 1.6 1.1 1.3
Dividend Per Share Rs 48.0 39.0 30.0 25.0 24.0 15.0
Stock Dividend per share Rs 0.0 0.0 0.0 0.0 0.0 0.0
PAKISTAN TOBACCO COMPANY LIMITED

Market value per share at year end Rs 2,441 2,900.0 2,147.9 1,433.0 1,114.0 1,059.7
Highest Market value per share during the year Rs 2,999 3,000.0 2,147.9 1,433.3 1,169.0 1,539.0
Lowest Market value per share during the year Rs 2,186 1,692.0 1,081.0 950.0 742.9 567.8
Break-up value per share Rs 71.6 69.5 66.2 50.8 40.6 31.4
Breakup value per share including investment
in related party at fair value and also the effect
of Surplus on Revaluation of Fixed Assets Rs 71.6 69.5 66.2 50.8 40.6 31.4

Price to Book Ratio Times 34.1 41.7 32.5 28.2 27.5 33.8

Capital Structure Ratios

Financial leverage ratio Times 2.2 2.1 1.9 2.1 2.5 2.9
***Weighted average cost of debt % 0.0 0.0 0.0 0.0 0.0 0.0
***Debt to Equity ratio (as per book value/market value)
% 0.0 0.0 0.0 0.0 0.0 0.0
Interest Cover/Time interest earned ratio Times 91.3 452.7 232.0 336.6 148.2 73.6

***The Company does not have any long term financing arrangement
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ANALYSIS OF PERFORMANCE
INDICATORS
Profitability Ratios Investment /Market Ratios
Over the years, the Company’s profitability ratios have The Company aims to generate maximum value for its
followed an improving trend. This has been attributable shareholders, both in the short and the long term. This is
to a growth in gross profit coupled with effective cost reflected in the consistent improvement of investment ratios
management. Gross turnover recorded an increase of 8.7% over the years and in particular, the growth of EPS and
in 2019 which was primarily driven by the excise led price improvement in dividend payout ratios in 2019, which are
increases. The excise rates have increased by 15% and certainly very attractive for our shareholders. The impressive
32% for products in premium and VFM segments of the P/E ratio of around 48 and the overall positive investment
portfolio respectively which has seen the excise/sales tax indicators correspond to the consistent performance of the
expenses increase by 15.5% in 2019. Gross profit recorded Company over the years that in turn has created the investor
an increase of 12.6% coupled with a decrease of 5.7% in confidence for the Company to be regarded as a blue-chip
selling and distribution costs. Overall, the net profit margin investment. The Company’s share price has witnessed
increased from 19.5% in 2018 to 24.8% in 2019. a decline of 19% from 2018 owing to the numerous
macroeconomic factors affecting the economy

Liquidity Ratios
The Company’s liquidity ratios present a healthy position Capital Structure Ratios
over the years. PTC’s cash sales model coupled with The capital structure ratios reflect the Company’s ability
effective resource allocation enables it to meet its liquidity to meet its financing needs organically, including those
requirements including those for capital expenditures related to capital investment funded primarily through
from cash generated from its operations. In 2019, a slight cash generated from its operations. As a result, there is
deviation in this trend has been witnessed with liquidity no major requirement for long-term financing, though, the
ratios deteriorating slightly compared to 2018. The quick Company avails a relatively small lease facility for financing
ration decreased in 2019 due to lower availability of cash vehicles, provided to its employees. The debt to equity ratio
and cash equivalents at year end. However, the current ratio is zero while interest cover has seen a significant decline
remained consistent because of high inventory position due from 453 times in 2018 to 91 times in 2019, owing to the
to stock build being done. implementation of IFRS 16 – Leases which has resulted in
an increase in the finance costs of the Company by 500%
compared to 2018.
Activity Ratios
The activity ratios have improved significantly over the years
mainly on account of a highly effective working capital
management approach followed by the Company. As per
the business model, the inventory days remain high due to
a buildup of tobacco and raw material stock essential to
support higher production in the first half of the next year.
During 2019 however, the Company also undertook to build
EXCELLING BEYOND BORDERS

up stock levels of imported materials to act as a physical

hedge against local currency devaluation which put strain
on working capital and cash conversion cycle. The cash
conversion cycle increased from 47 days to 153 days.
ANNUAL REPORT 2019
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SIGNIFICANT PLANS AND

DECISIONS
The Company’s key business (c) Premium Segment

decisions in 2019 were geared John Player Gold Leaf (JPGL) reached the milestone of
achieving over 140 years of excellence. To honor this
towards achieving its strategic legacy of great taste and to reinforce the brand assets
objective of sustainable growth of of JPGL, a campaign was executed to celebrate the
history of John Player in Pakistan. Limited Edition Packs,
its business. To deliver growth, PTC utilizing modern hot foil technology, were introduced to
continued with its plan to strengthen the market for the first time in history along with a limited
time berry flavor product. These initiatives have further
its brands by directing investment propelled the JPGL brand to new heights in Pakistan.
towards product innovations and
marketing activities aimed at 2. Trade Activities
enhancing the brand equity and The trade team supported the brand activities by
ensuring smooth deployment of simultaneous marketing
image of its brands among its campaigns and perfection in their execution.
consumers.
At the very front of Sales and Distribution, PTC
implemented an advanced sales automation system

1. Brand Equity that has digitized all trade activity in our local markets.
Our trade employees now carry tablets running
As part of its marketing activities, the following portfolio sophisticated systems that record sales transactions.
wide initiatives were undertaken during the year. It has enabled the business to see near real time sales
activity reporting of more than thirty eight billion sticks
across the country. Our sales forecasting capability has
(a) Value For Money Segment
improved by over ninety percent and by leveraging data
The Value for Money (VFM) segment witnessed Gold analytics, we can take intelligent decisions of effectively
Flake’s migration to Rothmans of London; a transition utilizing our sales manpower to locations that may have
that has seen the brand enhance its equity and mix. seen less sales growth than others.
This was a strategic intervention which has helped the
brand significantly in building its imageries in one of
the most dynamic consumer segments. Despite the 3. Investing in Talent
heavy inflationary pressure, Capstan by Pall Mall has
maintained its position as the biggest and most loved Development
tobacco brand in Pakistan as a result of innovative and The Company considers Human Capital as one of its
engaging “Always On” activations that leveraged various most valuable asset and thus, continues to invest in
consumer moments. the development of its employees. During the year,
PAKISTAN TOBACCO COMPANY LIMITED

several training programs were conducted across the

(b) Aspirational Premium Segment Company to ensure employees’ skills remained abreast
with evolving business requirements and especially,
Post successful pilot launch of John Player, a brand
the leadership capabilities of its managers were further
which built on the legacy of the House of John Player,
enhanced so that they are fully equipped to operate in
the brand was piloted in four test markets, followed
a challenging environment and deliver the long-term
by an expansion into the 13 biggest cities of Pakistan.
objectives of the Company.
Aided by a focused consumer activation campaign,
exciting touchpoints and retailer engagement, the
With people at the core of its delivery, the Company has
launch was a success and quickly turned into the most
a strong focus on people by attracting and retaining
promising brand launch in recent PTC history.
best talent in the country. In 2019, PTC was also
awarded the Top Employer Award 2019. Moreover, for
its drive and consistent focus on Diversity and Inclusion,
the Company was also awarded the “Global Diversity &
Inclusion, Progressive Award 2019”.
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BUSINESS RATIONALE OF
PROJECTS UNDERTAKEN
DURING THE YEAR
The key projects undertaken by the Company along with their rationale is
given below.

1. “Made in Pakistan” illicit tobacco products. This was made possible based
on the learnings and experience gained through the
During 2019, the Company, in line with Government’s implementation of the Digital Track and Trace system for
vision, launched its export initiative titled “Made in our exports business.
Pakistan” and earned the position of being the export
hub for the BAT Group. This is with a view to export
factory manufactured cigarettes & tobacco to GCC 3. EHS and Regulatory
and other Middle East countries, and the full potential
of this project for Pakistan is estimated to be $50 Mn. Compliance Projects
A change management program under the Made in The Company places great importance on the safety
Pakistan initiative was launched with change champions of its workplace to ensure that its operations are safe,
driving multiple sessions covering the entire population environmentally safe and regulatory compliant. As a
involved in the Exports process. The program enabled result, the Company has invested and continues to
soft skill capability development, inculcated a sense of invest in projects concerning improvement of its EH&S
pride and proved to be a key success driver. In 2019, systems, processes and equipment. PTC has also
PTC exported over 190+ Million Cigarettes and around worked extensively in creating awareness about EH&S
3 million kgs of tobacco worth $11 Mn. standards and requirements among both its employees
and contractor. These include trainings on health and
safety, incident reporting processes and systems, EH&S
2. Operational Synergies audits and maintenance programs to inculcate EH&S
and Product Innovations as a mindset and way of working across all levels within
the organization. Additionally, keeping in view the energy
Projects crisis, multiple initiatives were undertaken in 2019 like
installation of 125KW solar power plant across both
2019 was also a big year for our manufacturing
factories and setting up the first ever solar powered leaf
operations as both factories (Jehulm and Akora Khattak)
buying and storage depot.
saw the implementation of Global Manufacturing
Excellence System (GMES). With GMES installed,
PTC manufacturing capabilities have ushered into
the Industry 4.0 space. The machines, shop floor and
Projects planned for next year
quality systems are now integrated to provide near real In future, the Company will remain focused on achieving
time data and analytics on our production performance sustainable growth and creating long term value for its
leading to improved quality, waste management and shareholders. PTC will continue to invest in our brands to
optimization of our systems. further strengthen our position in the marketplace and to
outperform the competition. This will be supplemented
EXCELLING BEYOND BORDERS

We take great pride in accelerating our digital by investment in our operations to support future product
transformation. IDT has now embarked on the mission innovations, increase efficiencies and deliver productivity
to infuse the digital DNA not just within the organization
savings, while remaining compliant to all applicable and
but also contribute externally. In one such example, PTC
future regulatory requirements.
is currently driving discussions with the Government
ANNUAL REPORT 2019

of Pakistan to implement a digital track and trace

system in an effort to curb sales of counterfeit and
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STATEMENT OF VALUE
GENERATED AND ITS
DISTRIBUTION
2019 2018
Rs. in million % Rs. in million %

Value Addition

Gross Revenues 149,025 137,116
Material, Services and Other Costs 24,406 28,549
Value added 124,618 108,566

Value Distribution Rs. Rs.
To Government
Taxes, duties and other levies 105,069 84.3% 92,211 85.0%
To Society
Contribution towards health, environment
& natural disaster 72 0.1% 68 0.1%
To Employees
Salaries, benefits and other costs 5,119 4.1% 5,020 4.6%
To Shareholders
Dividend to shareholders 12,264 9.8% 9,453 8.7%
To lenders
Mark-up/interest expense on borrowed money 203 0.2% 34 0.0%
Retained for reinvestment
Depreciation and retained profit 1,892 1.5% 1,780 1.6%
124,618 100% 108,566 100%

*Gross revenue figure has been adjusted as per IFRS-15 methodology from 2017 and onwards. Certain marketing costs have been deducted from total revenues

Value Distribution Value Distribution

2019 2018

To Government 84.3% To Government 85.0%

To Society 0.1% To Society 0.1%
PAKISTAN TOBACCO COMPANY LIMITED

To Employees 4.1% To Employees 4.6%

To Shareholders 8.7%
To Shareholders 9.8% To Lenders 0.0%
To Lenders 0.2% Retained for reinvestment 1.6%
Retained for reinvestment 1.5%

Economic 2019 Economic 2018

Value Added 9,498 Rs. in Million Value Added 7,915 Rs. in Million
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SHARE PRICE SENSITIVITY

ANALYSIS
The Company’ share price is primarily impacted by the performance of the
Company in the marketplace, especially against the competition, and by its 5. Social
ability to generate value for its shareholders, both in the short and long term. Pandemics such as the looming Coronavirus threat also plays a
Several factors influence the Company’s performance, some of which are major role in the overall performance of the economy of a nation.
controllable as a result of management action while others are beyond its Such pandemics have the potential to cause major disruptions to
control and thus, cannot be managed. These uncontrollable factors mostly the day to day operations of an economy or to bring it to a halt.
relate to the external regulatory environment in which the Company operates As has been witnessed globally, the stock markets are sensitive to
and has the potential to impact its performance and sustainability to a great such events which in turn impacts investor confidence and causes
extent. Key factors that impact the performance and resultantly the share volatility in the share prices of companies.
price of the Company, are given below.

6. Raw Material Prices

1. Duty Not Paid Sector Raw materials procured locally and internationally are dependent
Not only the Company but the legal tobacco industry as a whole is on international commodity prices. Unusual spikes raise the cost
impacted by the duty not paid sector, which currently forms 36.9% of products manufactured, causing profitability to be impacted and
of the total cigarette market. This sector not only continues to sell ultimately, reflecting in the share price.
cigarettes below the minimum legal price, as stipulated by the local
tax laws but also openly violates tobacco advertising and promotion
restrictions. As a result, the legal industry is placed at a serious 7. Local Currency
disadvantage compared to the illicit sector, as the price stretched
consumer is encouraged to down trade to cheap illicit products. This Devaluation
creates major sustainability issues for the legal industry and hence
Having dependency on imported raw materials and tobacco, the
greatly impacts the share price of the Company.
Company is greatly impacted by a steep and uncertain devaluation
of the local currency. This has the potential to increase the cost

2. Political Environment base and erode operating margins. Rapid devaluation also causes
inflationary pressures to increase, which impact the real buying
The investors are extremely sensitive to the political environment power of the consumers, causing them to spend less on non-
prevalent in the country. Political instability not only jeopardizes essential items.
overall economic conditions but also discourages investors from
investing their capital whereas a stable political environment boosts
investor confidence and persuades him to invest his capital. Thus, 8. Energy
these conditions directly impact the share price changes.
Increase in electricity and gas tariffs increase the cost of doing
business. Additionally, electricity crisis causes the Company to

3. Law and Order spend on alternative sources to generate electricity, which is more
expensive. This is exacerbated by the rise in cost of oil, as its impact
Like any other Company, PTC is impacted by the overall security spans across a much broader spectrum. All these factors will
environment of the country. As security concerns increase, the ultimately be reflected in share price adjustment.
Company must direct enormous amount of resources to ensure the
protection of its assets, operations and primarily the safety of its
people. The resources expended on enhancing security measures Share Price Sensitivity
could easily be used in expanding and improving the business. This
8,000 3,500.00
impacts profitability and hence is reflected in the share price.
7,000 3,000.00

4. Economy
6,000
2,500.00
EXCELLING BEYOND BORDERS
Share Price PKR

5,000
2,000.00
Volume

The general state of the economy plays a major role in the 4,000
performance of any Company. A flourishing economy results in more 1,500.00
3,000
disposable income and a higher standard of living for its people.
1,000.00
Ultimately, companies operating in such a country have better 2,000
ANNUAL REPORT 2019

prospects of growing their businesses and delivering better returns 1,000 500.00

to its shareholders. Whereas businesses operating in slow or volatile 0 0.00

economies find it very difficult to find opportunities for business
Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

expansion. This creates a sensitivity in share price of the Company.

Low High Volume
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FORWARD LOOKING
STATEMENT
In 2019, Pakistan faced multiple challenges on the economic It is also important for the Government to
front. GDP growth of 3.3% in FY2018-19 compared to 5.8% in the drive a balanced fiscal agenda to ensure the
same period last year (SPLY), led to a broad-based weakening in sustainability of the legal industry. Historic data
domestic demand. The growth rate is expected to further decelerate reveals that excise led price increases widen
to 2.8% in 2020, as the Government is expected to continue with the price differential between legal industry
the tight monetary and fiscal policies. brands and duty not paid products, which sell
well below the minimum legal price. As the price
Looking ahead, 2020 will be a challenging year for the differential widens, price stretched consumers
Company as it will need to counter the challenges presented down trade to cheap illicit products available
not only by a tough economic environment but also by the in the market. Resultantly, legal industry starts
unique dynamics of the tobacco industry. In the future, the to lose volumes to the illicit sector, creating
Company aims to drive business growth by focusing on major sustainability threats for the legal industry
delivering the following objectives and by countering the related while at the same time Government revenue
challenges. collections start to experience a steep decline.

Strengthen Portfolio Wide Brand Equity

1. Drive Growth Agenda
The Company’s future actions are aligned towards
The Company’s strategic objective is to deliver further strengthening its brand portfolio. Future
sustainable growth for its shareholders. To do this, the marketing investment will be aimed at enhancing the
Company will focus on increasing its volume base and brand equity of the Company’s brand portfolio amongst
market share. consumers of all segments. This will be achieved
through product innovations developed to address
Challenge: the evolving consumer preferences and creation
of maximum brand awareness through innovative
a) Illicit Trade campaigns directed at relevant and effective consumer
touchpoints. This will aid the Company in building
The major impediment faced by the Company
a robust brand portfolio, enabling it to continuously
in driving volume growth is the high level of the
outperform the competition and lead in the marketplace.
illicit sector, which currently stands at 36.9%.
By adhering to this plan, the Company will be well
The illicit sector thrives on the back of non-tax
positioned to drive volume growth and gain market
paid cigarettes that sell below the minimum legal
share. Thus, the Company remains confident to retain its
price, resulting in significant revenue losses
to the Government exchequer and in major market leadership of the industry in the future.
sustainability issues for the legitimate industry
players. Therefore, it is necessary for the relevant
authorities to intensify their efforts to eradicate
2. Drive Effective Resource
the illicit sector and create a level playing field for
the legitimate industry. This will not only enable
Allocation and Cost
the legal companies in driving volume growth Management
but also result in increasing tax revenues for the
PAKISTAN TOBACCO COMPANY LIMITED

Government. The future will challenge the Company by pressuring its

large cost base due to growing inflationary pressures in
Besides, fiscal non-compliance, the illicit the economy and thus, the Company will take effective
sector openly violates product advertising and measures to mitigate the adverse impacts on its cost
promotion regulations. This not only puts the base.
legitimate industry at a serious disadvantage
compared to the illicit sector but above all Challenge:
adversely affects the Government’s regulatory
agenda towards tobacco control. Thus, it is a) Currency Devaluation
evident that the Company’s outlook will greatly It is expected that the local currency will remain
be impacted by the Government’s efforts weak with minimal value appreciation, if any.
towards enforcing fiscal and regulatory discipline As the Company imports some of its raw
on the illicit sector in the future. materials including tobacco globally, thus, it
will be impacted adversely by unusual currency
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movements, especially in the absence of and we are fully committed to leading the transformation
currency hedging products in local financial of our Company by embarking on the journey of “New
markets. This will ultimately lead to an increase Category” products in 2020. This is also aligned with
in the cost base and cause the operating the Group’s vision and mission of venturing into Next
margins to shrink. Generation and Potentially Reduced Risk Products, of
which we are at the forefront in our Region.
Rapid devaluation also adds to inflationary
pressures and dilutes the real buying power
of the consumers, forcing them to spend less 5. Support CSI initiatives
on non-essential items including cigarettes,
impacting the overall industry sales.
In the future, the Company will continue to support
initiatives aimed at the betterment and uplift of
the communities in which the Company operates.
Therefore, the Company will need to take
Additionally, other initiatives will also be supported to
effective measures to mitigate the impact of
continue driving the CSI agenda of the Company.
currency devaluation in the future.

3. Drive Operating and 6. Invest in Human Capital

To maintain its competitive advantage, the Company will
Manufacturing Efficiencies continue investing in its people to develop a diverse and
In the future, the Company will continue to invest in highly competitive talent pool, fully capable of managing
enhancing its operating and manufacturing efficiencies. the future challenges of the business. Attracting,
This will be achieved through investment in modern developing and retaining the best talent will continue to
and upgraded equipment and machinery that not be rooted in the organization.
only delivers better efficiencies but is also capable of
supporting future product innovations, necessary to
maintain competitive advantage in the marketplace. Analysis of Prior Period’s
The Company is already geared to cater for any
Forward Looking Disclosure
surge in market demand. At the same time, the The Company anticipated 2019 to be a challenging year with
Company is committed to investing in its machinery illicit trade and currency devaluation remaining a major threat
footprint to ensure compliance to any future regulatory for the legitimate industry players. The illicit sector still remains
requirements. Additionally, the operating infrastructure is very high, forming around 36.9% of the total market and
continuously being upgraded with the best Environment, continues to remain a major threat to the sustainability of the
Health & Safety equipment, systems and processes to legitimate industry.
ensure a safe working environment for all employees.
In 2019, the Company lost volumes, however, it successfully
The Company also aims to scale up the export mitigated the inflationary impacts on its cost base. As a result,
operations in coming year. Further investments will be the Company was able to deliver a growth of 25% vs 2018 in its
made in machinery footprint to support all regulatory profits in line with the expectations.
and customers requirements to ensure we achieve full
potential of our exports business including tobacco,
cigarettes and other categories in coming year. Sources of Information EXCELLING BEYOND BORDERS

In the preparation of budgets, a detailed and comprehensive

4. Transforming Tobacco budgeting activity is carried out across the Company. Sales
forecasts are prepared based on the critical analysis of
Keeping in mind the rapid product innovation, along the market demand. Costs are projected based on the
with advances in societal attitudes and public health expected commodity prices, currency devaluation and future
ANNUAL REPORT 2019

awareness, the Company is geared to make a inflation. Based on these assumptions, detailed forecasts are
substantial leap forward in our long held ambition to prepared, which are then approved by the board of directors.
positively impact the lives of millions of our consumers Performance of the Company is then regularly monitored
by providing them with lower-risk tobacco and nicotine against these forecasts.
products. We call this ambition “Transforming Tobacco”
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FINANCIAL CALENDAR

2019
1st Quarter Results issued on April 22, 2019
2nd Quarter Results issued on July 23, 2019
3rd Quarter Results issued on October 17, 2019
Recommendation of Annual Results by the BOD February 24, 2020
73rd Annual General Meeting scheduled for April 24, 2020

2018
1st Quarter Results issued on April 27, 2018
2nd Quarter Results issued on July 23, 2018
3rd Quarter Results issued on October 23, 2018
Recommendation of Annual Results by the BOD February 22, 2019
72nd Annual General Meeting scheduled for April 22, 2019

MANAGEMENT
RESPONSIBILITY TOWARDS
FINANCIAL STATEMENTS
The management of the Company is responsible for adopting sound accounting policies, establishing and maintaining a
system of internal controls and preparation and presentation of the financial statements in conformity with the approved
accounting standards and the requirements of the Companies Act, 2017.

STATEMENT OF
PAKISTAN TOBACCO COMPANY LIMITED

UNRESERVED COMPLIANCE
The Company’s financial statements have been prepared in accordance with the approved accounting standards as
applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRSs)
issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017. In case
requirements differ, the provisions or directives of the Companies Act, 2017, shall prevail.

Note 6 of the financial statements specifies the standards and interpretations which are yet to be effective in Pakistan. The
Company believes that the impact of these standards and interpretations does not have any material impact on the financial
statements
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STATEMENT OF ADHERENCE
WITH THE INTEGRATED
REPORTING FRAMEWORK
The Company’s history of 72 years is a testament of its This report endeavors to provide key information about the
strong foundation, leadership and resilience. Being the below critical aspects of our business, thereby, enabling the
legal industry market leader, our remarkable success is a reader to easily understand the key challenges faced by the
reflection that we hold true to our core business values, Company in generating value for its shareholders and key
adhere to a robust governance framework and operate stakeholders.
through a streamlined set of systems & processes. We
engage and cooperate with our employees, suppliers, 1. Organizational Overview and External Environment
valued business partners and other key stakeholders to
2. Business Model
ensure integrated functioning and effective utilization of our
resources across our value chain, to generate value for the 3. Risks and Opportunities
organization, key stakeholders and our shareholders. 4. Strategy and Resource Allocation
5. Performance
PTC adopts a similar integrated approach towards
corporate reporting and thus, our Annual Report presents 6. Governance
a fair, accurate, balanced and valuable overall assessment 7. Basis of Presentation
of the Company, particularly its strategy, performance,
operations, brands, people and most importantly, its 8. Outlook
outlook in relation to the operating challenges faced by
it. This report will enable the readers to swiftly and easily
understand the material issues that impact our business
Report Methodology
and key stakeholders. The compilation of data has been done on the basic
scientific measurement, key finance concepts and
In the preparation of this report, the Company has tried to principles and mathematical calculus methods on actual
adhere to the guiding principles stipulated by the integrated basis. In cases where actual data is unavailable or
reporting framework. These include. impractical to source, due to numerous reasons, different
logical methodologies are used for calculations. The data
1. Strategic Focus and Future Orientation measurement techniques are the same as used for the
previous year.
2. Connectivity of Information
3. Stakeholder Relationships There has been no change in the reporting period, scope
4. Materiality and boundary of the report. There are no changes that can
significantly affect the comparability of data from period
5. Conciseness
to period. Previous years’ figures have been regrouped/
6. Reliability and Completeness rearranged wherever found necessary to conform to this
7. Consistency and Comparability year’s classification.
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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NOTICE OF THE ANNUAL

GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Seventy Third (73rd) Annual General
Meeting (“Meeting”) of Pakistan Tobacco Company Limited (“the Company”)
will be held electronically through video link arrangements on Friday, the
8th day of May 2020 at 10:30 am to transact the following business:

ORDINARY BUSINESS:
1. To receive, consider and adopt the Company’s Audited Financial Statements for the year ended 31st day of December
2019, together with the Reports of the Directors and Auditors thereon.
2. To approve and to declare Final Dividend for the year ended 31st December 2019 on the Ordinary Shares of the
Company as recommended by the Board.
3. To appoint Auditors and to fix their remuneration.
By the Order of the Board

Yusuf Zaman
Islamabad: April 17, 2020 COMPANY SECRETARY

NOTES:
1. Annual Report
On account of the current lockdown, the Company Registrar, FAMCO Associates (Private) Limited,
is facing serious challenges for the printing and 8-F, Near Hotel Faran, Nursery, Block-6, P.E.C.H.S.,
delivery of physical copies of the annual report to our Shahrah-e-Faisal, Karachi-75400 (“the Share
shareholders. However, the annual report for the year Registrar”) by the close of business on 30th April 2020,
ended 31.12.2019 has been posted for download on will be treated in time to be entitled to vote and for the
our website www.ptc.com.pk. Those shareholders entitlement of dividend payment.
who also wish to obtain an electronic copy of the
annual report via email are requested to send their 3. Participation in the Annual
PAKISTAN TOBACCO COMPANY LIMITED

email address/consent at the following email address:

[email protected] on or before 8th May, 2020 and a General Meeting
pdf copy of the Annual Report will be duly shared with All Members/Shareholders of the Company are entitled
them via email. to attend and vote at the Meeting.

2. Closure of Share Transfer Books 4. Attendance of Members

Share Transfer Books of the Company will be closed A. In view of the evolving threats due to COVID-19
from 2nd May 2020 to 8th May 2020 (both days pandemic and to protect the well-being of our
inclusive) when no transfer of the Company’s shares shareholders, the Company has decided to convene
will be accepted for registration. Transfers in good this AGM electronically through video link arrangements
order, received at the office of the Company’s Share and there would be no specified location for the AGM.
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i) Members can log-in through their smartphones or iii) In case of a corporate entity, the Board of
computer devices to the video link arrangements Directors’ Resolution/Power of Attorney with
after completing the meeting attendance specimen signatures and attested copy of valid
formalities that will be provided to the Members CNIC of the person nominated by the corporate
after completing identification and verification entity to represent and vote on its behalf, shall be
formalities. The Members are requested to submitted.
provide their name, CNIC (both sides scanned
copies), folio number, cell phone number and
5. Submission of CNIC/NTN Details
email address before 03:00 pm on or before
6th May, 2020 at the following email address: Mandatory
[email protected] details of the video link A. Members who have not yet submitted a copy of their
arrangements of the AGM will be sent only to those valid CNIC or valid Passport to the Company, are once
Members who provide the aforementioned details again reminded to send the same at the earliest either
by the said date and time. to the Company or to the Share Registrar. The CNIC
ii) In addition, if the participating Members also have number /NTN details is mandatory and is also required
any comments /suggestions for discussion on for checking the tax status as per the Active Taxpayers
the agenda items of the AGM they should email List (ATL) issued by the Federal Board of Revenue
the same at the above-mentioned email address, (FBR) from time to time.
[email protected], by or before 03:00pm on B. Individual Members (including all joint holders) holding
6th May 2020. Only those comments/suggestions physical share certificates of the Company are therefore
on the agenda items will be discussed at the AGM requested to submit a copy of their valid CNIC to the
which have been received on the aforesaid email Company or its Share Registrar if not already provided.
address by the said date and time. The shareholders while sending CNIC must quote their
iii) The Company will ensure that comments / respective folio numbers.
suggestions of the Members, submitted in C. In cases of non-receipt of the copy of a valid CNIC, the
accordance with clause (ii) above, will be read out Company would be constrained under Section 243 (3)
at the meeting by the Company Secretary and the of the Companies Act, 2017 (“the Companies Act”) to
responses will be made part of the minutes of the withhold divided of such shareholders.
meeting.
B. Attendance Through Proxy: 6. Dividend, Provision of IBAN,
A Member is entitled to appoint a proxy (who not need Mandatory
be a Member of the Company) who will have the right
It is mandatory for a listed company to pay cash
to attend, speak and vote in place of the appointing
dividend to its shareholders only through electronic
Member, through video link. The Proxy shall be
mode by making direct remittance into their respective
appointed in the following manner:
bank account designated by the entitled shareholder(s)
i) Proxy Form. Soft copy has been posted on our (“the Bank Account”), whose title must commence
EXCELLING BEYOND BORDERS

website www.ptc.com under the section Investor with the principal shareholder’s name. Therefore, the
Relations. The scanned copy of the filled form Company will be remitting the dividend proceeds
must be sent at the following email address: directly into the Bank Accounts of its Member, instead
[email protected], not less than of issuing physical Dividend Warrants. In order to
forty-eight (48) hours before the time of the
ANNUAL REPORT 2019

receive dividends directly into their Bank Account,

Meeting. Proxy Form(s) received after the said Members holding shares in physical form are requested
forty-eight (48) hours i.e. after 03:00pm on 6th May to submit their International Bank Account Number
2020 will not be treated as valid. (IBAN) using the “Electronic Credit Mandate Form”,
ii) Attested copies of valid CNIC or the valid Passport available on Company’s website i.e. www.ptc.com.pk.
of the beneficial owners and the Proxy shall be Please, fill and send the completed Form along with
furnished with the Proxy Form. a copy of a valid CNIC to the Share Registrar of the
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Company at [email protected] latest by 30th shareholding proportions of Principal Shareholder and

April 2020. Members who hold shares in CDC accounts Joint-holder(s) in respect of shares held by them (only
should provide their mandate to their respective if not already provided) to our Share Registrar, in writing
participant or CDC Investor Account Services. and in the following manner:

7. Deduction of Income Tax from Company Folio/CDC Total

Principal Shareholder
Name Shareholding
Joint Shareholder
Shareholding

Dividend Mandatory
Name Account # Shares
and Proportion Name and CNIC # Proportion
CNIC # (No. of Shares) (No. of Shares)

A. Please note that withholding tax will be deducted on the

The required information must reach the Company’s
basis of latest Active Taxpayers List (ATL) available at
Share Registrar within ten (10) days of this notice;
FBR website as per following rates:
otherwise it will be assumed that the shares are equally
1. Shareholders appearing in Active Taxpayers List held by Principal Shareholder and Joint Holder(s).
(ATL): 15%
D. The corporate shareholders of the Company having
2. Shareholders not appearing in Active Taxpayers CDC accounts are required to have their National
List (ATL): 30% Tax Number (NTN) updated with their respective
To enable the Company to make tax deduction on participants, whereas corporate physical shareholders
the amount of cash dividend @ 15% instead of 30%, should send a copy of their NTN certificate to either
shareholders whose names are not appearing in the the Company or the Share Registrar. The shareholders
Active Tax-payers List (ATL) provided on the website of while sending NTN or NTN certificates, as the case may
Federal Board of Revenue (FBR), despite the fact that be, must quote company name and their respective
they are filers, are advised to immediately make sure folio numbers.
that that their names are entered in ATL, otherwise tax
on their cash dividend will be deducted @ 30% instead 8. Zakat Deduction
of 15%.
To claim exemption from compulsory deduction
B. Withholding Tax exemption from the dividend income of Zakat, shareholders are requested to submit a
shall only be allowed if a copy of valid tax exemption notarised copy of their Zakat Declaration Form “CZ-50”
certificate is made available to the Company’s Share on NJSP of Rs. 50/- to the Share Registrar.
Registrar, FAMCO Associates (Pvt) Ltd., by the first day
of Book Closure.
9. E-Voting
C. Further, according to clarification received from FBR,
Members can exercise their right to demand a poll
Withholding Tax will be determined separately on ‘Filer/
subject to meeting requirements under Sections
Non-Filer’ status of Principal Shareholder as well as
143-145 of Companies Act and applicable clauses of
joint holder(s) based on their shareholding proportions,
Companies (Postal Ballot) Regulations 2018.
PAKISTAN TOBACCO COMPANY LIMITED

in case of joint accounts.

In this regard, all Members/Shareholders of the
Company either holding shares in physical form or in
10.Unclaimed Dividend / Shares U/S
CDC, who hold shares jointly are requested to provide 244 of the Companies Act, 2017
An updated list for unclaimed dividend / shares of the
Company is available on the Company’s website www.
ptc.com.pk. These are unclaimed dividend / shares
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which have remained unclaimed or unpaid for a period

of three years from the date these have become due
and payable.
Claims can be lodged by shareholders on Claim Forms
as are available on the Company’s website. Claims
Forms must be submitted to the Company’s Share
Registrar for receipt of dividend/ shares.

11. Change of Address

A. Members holding shares in physical form are requested
to immediately notify the Company’s Share Registrar of
changes in their notified address.
B. Members holding shares in electronic form with CDC
must notify change of address to their participants or
CDC Investor Account Services with whom the account
is being maintained.

12. Contact Details

Company Contact:
Company Secretary
Pakistan Tobacco Company Limited
Serena Business Complex, Khayaban-e-Suhrwardy,
Islamabad
+ 92 51 2083200

Share Registrar:
FAMCO Associates (Private) Limited
8-F, Near Hotel Faran, Nursery, Block-6, P.E.C.H.S.
Shahrah-e-Faisal, Karachi
+ 92 21 34380101-5
[email protected] EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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STATEMENT OF COMPLIANCE
With the Code of Corporate Governance

Name of Company: Pakistan Tobacco Company Limited

Year ended: December 31, 2019
The Company has complied with the requirements of the disseminate it throughout the Company along with its
Regulations in the following manner: supporting policies and procedures.

1. The total number of directors are nine as per the 5. The Board has developed a vision/mission statement,
following: overall corporate strategy and significant policies of the
a) Male: 11 Company. The Board has ensured that complete record
b) Female: 1 of particulars of significant policies along with the dates
of approval or updating is maintained by the company.
2. The composition of the Board is as follows:
6. All the powers of the Board have been duly exercised
Independent Directors and decisions on relevant matters have been taken by
Zafar Mahmood (Chairman) Board / shareholders as empowered by the relevant
provisions of the Act and the Regulations.
Lt. Gen. M. Masood Aslam (R)
Mohammad Riaz
Asif Jooma
7. The meetings of the Board were presided over by the
Chairman and, in his absence, by a Director elected by
the Board for this purpose. The Board has complied
Non-Executive Directors with the requirements of Act and the Regulations with
respect to frequency, recording and circulating minutes
Tajamal Shah
of the meeting of the Board.
Belinda Joy Ross
Zafar Aslam Khan
8. The Board have a formal policy and transparent
Syed Javed Iqbal procedures for remuneration of Directors in accordance
with the Act and these Regulations.
Executive Directors
Usman Zahur (Managing Director and CEO) 9. The following Directors have attended Directors Training
Program:
William Francis Pegel
Syed Asad Ali Shah • Zafar Mahmood - Chairman
Syed Ali Akbar
PAKISTAN TOBACCO COMPANY LIMITED

• Lt. Gen. (R) M. Masood Aslam

• Syed Asad Ali Shah
Female Directors
• Syed Javed Iqbal
Belinda Joy Ross
• Asif Jooma

3. The Directors have confirmed that none of them • Tajamal Shah

is serving as a director on more than seven listed
companies, including this Company. 10. The Board has approved appointment of CFO,
Company Secretary and Head of Internal Audit,
4. The Company has prepared a code of conduct and including their remuneration and terms and
has ensured that appropriate steps have been taken to conditions of employment, and complied with relevant
requirements of the Regulations.
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11. CEO and CFO duly endorsed the financial statements 15. The Board has set up an effective internal audit function
before approval of the Board. that is suitably staffed with qualified and experienced
personnel, who are conversant with the policies and
procedures of the Company.
12. 12. The Board has formed Committees comprising of
members given below:
16. The statutory auditors of the Company have confirmed
a) Audit Committee that they have been given a satisfactory rating under
the quality control review program of the Institute
Mohammad Riaz Member & Chairman of Chartered Accountants of Pakistan (ICAP) and
Lt. Gen. M. Masood Aslam (R) Member registered with Audit Oversight Board of Pakistan,
Belinda Joy Ross Member that they and all their partners are in compliance
Tajamal Shah Member with International Federation of Accountants (IFAC)
guidelines on code of ethics as adopted by the ICAP
Asif Jooma Member
and that they and the partners of the firm involved
in the audit are not a close relative (spouse, parent,
b) HR and Remuneration Committee dependent and non-dependent children) of the chief
Lt. Gen. M. Masood Aslam (R) Member & Chairman executive officer, chief financial officer, head of internal
Usman Zahur Member audit, company secretary or director of the company.
Asif Jooma Member
17. The statutory auditors or the persons associated with
13. The terms of reference of the aforesaid Committees them have not been appointed to provide other services
have been formed, documented and advised to the except in accordance with the Act, these regulations or
Committees for compliance. any other regulatory requirement and the auditors have
confirmed that they have observed IFAC guidelines in
this regard.
14. The frequency of meetings (quarterly/half yearly/ yearly)
of the Committees were as per the following:
18. We confirm that all requirements of Regulations 3, 6,
7, 8, 27,32, 33 and 36 of the regulations have been
a) The Audit Committee: Four (4) quarterly meetings complied with.
were held during the year ended 31 December,
2019

b) HR and Remuneration Committee: One (1) meeting

was held during the year ended 31 December,
2019.

Zafar Mehmood Usman Zahur EXCELLING BEYOND BORDERS

Chairman MD/CEO

Dated: 24 February 2020

ANNUAL REPORT 2019
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INDEPENDENT AUDITORS’
REVIEW REPORT
To the members of Pakistan Tobacco Company Limited

Review Report on the Statement of Compliance contained in Listed

Companies (Code of Corporate Governance) Regulations, 2019
We have reviewed the enclosed Statement of Compliance with the Listed Companies (Code of Corporate Governance)
Regulations, 2019 (the Regulations) prepared by the Board of Directors of Pakistan Tobacco Company Limited for the year
ended December 31, 2019 in accordance with the requirements of regulation 36 of the Regulations.

The responsibility for compliance with the Regulations is that of the Board of Directors of the Company. Our responsibility is
to review whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the
Regulations and report if it does not and to highlight any non-compliance with the requirements of the Regulations. A review
is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to
comply with the Regulations.

As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal
control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether
the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of
such internal controls, the Company’s corporate governance procedures and risks.

The Regulations require the Company to place before the Audit Committee, and upon recommendation of the Audit
Committee, place before the Board of Directors for their review and approval, its related party transactions and also ensure
compliance with the requirements of section 208 of the Companies Act, 2017. We are only required and have ensured
compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon
recommendation of the Audit Committee.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance
does not appropriately reflect the Company’s compliance, in all material respects, with the requirements contained in the
Regulations as applicable to the Company for the year ended December 31, 2019.
PAKISTAN TOBACCO COMPANY LIMITED

KPMG Taseer Hadi & Co.

Chartered Accountants

Islamabad
20 March 2020
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PAKISTAN TOBACCO COMPANY LIMITED

FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
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INDEPENDENT AUDITORS’ REPORT

To the members of Pakistan Tobacco Company Limited

Report on the Audit of the Financial Statements

Opinion
We have audited the annexed financial statements of Pakistan Tobacco Company Limited (the Company), which comprise the
statement of financial position as at December 31, 2019, statement of profit or loss, and the statement of comprehensive income,
the statement of changes in equity, the statement of cash flows for the year then ended, and notes to the financial statements,
including a summary of significant accounting policies and other explanatory information, and we state that we have obtained all the
information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit.

In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position,
statement of profit or loss, the statement of comprehensive income, the statement of changes in equity and the statement of cash
flows together with the notes forming part thereof conform with the accounting and reporting standards as applicable in Pakistan and
give the information required by the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and
fair view of the state of the Company’s affairs as at December 31, 2019 and of the profit, the comprehensive income, the changes in
equity and its cash flows for the year then ended.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities
under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of
Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled
our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PAKISTAN TOBACCO COMPANY
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Following are the Key audit matters:

S. No. Key audit matters How the matter was addressed in our audit
1 Revenue recognition Our audit procedures to assess the recognition of revenue,
Refer notes 7.1 and 8 to the financial statements. amongst others, included the following:

The Company is engaged in the production and sale of • Obtaining an understanding of the process relating
tobacco and tobacco products. The Company recognised net to recognition of revenue and testing the design,
revenue from the sales of cigarettes of Rs. 51,975 million for the implementation and operating effectiveness of key
year ended December 31, 2019. internal controls over recording of revenue;

• Comparing a sample of revenue transactions recorded

We identified recognition of revenue as a key audit matter
during the year with sales orders, sales invoices, delivery
because revenue is one of the key performance indicator of the
documents and other relevant underlying documents;
Company and gives rise to an inherent risk that revenue could
be subject to misstatement to meet expectations or targets. • Comparing a sample of revenue transactions recorded
around the year- end with the sales orders, sales
invoices, delivery documents and other relevant
underlying documentation to assess if the related
revenue was recorded in the appropriate accounting
period;

• Assessing whether the accounting policies for revenue

recognition complies with the requirements of IFRS 15
‘Revenue from Contracts with Customers’;

• Comparing the details of a sample of journal entries

posted to revenue accounts during the year, which met
certain specific risk-based criteria, with the relevant
underlying documentation; and

• Assessing the appropriateness of disclosures in the

financial statements.
2 Valuation of stock-in-trade Our audit procedures to assess the valuation of stock-in trade,
Refer notes 7.12 and 20 to the financial statements. amongst others, included the following:

As at 31 December 2019, stock-in-trade is stated at Rs. 21,423 • Assessing the design, implementation and operating
million. Stock-in-trade is measured at the lower of cost and net effectiveness of key internal controls over valuation of stock-
realisable value. in-trade including determination of net realisable values;

• Attending inventory counts and reconciling the count

We identified existence and valuation of stock-in-trade as a key
results to the inventory listings to test the completeness
audit matter due to its size, representing 53% of total assets
of data;
of the Company as at December 31, 2019, and the judgement
involved in valuation. • Assessing the accuracy of cost of stock in trade in EXCELLING BEYOND BORDERS

accordance with the accounting policy;

• Assessing the net realisable value of stock-in-trade

by comparing, on a sample basis, management’s
estimation of future selling prices for the products and
ANNUAL REPORT 2019

selling prices achieved subsequent to the end of the

reporting period;

• Comparing the net realisable value to the cost of

a sample of stock-in-trade and comparison to the
associated provision to assess whether stock-in-trade
provisions are complete; and

• Assessing accuracy of inventory ageing reports and

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Information Other than the Financial Statements and Auditors’ Report Thereon
Management is responsible for the other information. Other information comprises the information included in the annual report for
the year ended December 31, 2019, but does not include the financial statements and our auditors’ report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Board of Directors for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting
and reporting standards as applicable in Pakistan and the requirements of Companies Act, 2017 (XIX of 2017) and for such internal
control as management determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Board of directors are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.

As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
PAKISTAN TOBACCO COMPANY

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However,
future events or conditions may cause the Company to cease to continue as a going concern.
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• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.

From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit
of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Based on our audit, we further report that in our opinion:
a) proper books of account have been kept by the Company as required by the Companies Act, 2017 (XIX of 2017);

b) the statement of financial position, the statement of profit or loss, the statement of comprehensive income, the statement of
changes in equity and the statement of cash flows together with the notes thereon have been drawn up in conformity with the
Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account and returns;

c) investments made, expenditure incurred and guarantees extended during the year were for the purpose of the Company’s
business; and

d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the company and
deposited in the Central Zakat Fund established under section 7 of that Ordinance.

The engagement partner on the audit resulting in this independent auditors’ report is Atif Zamurrad Malik.

KPMG Taseer Hadi & Co.

Islamabad Chartered Accountants
Date: March 20, 2020
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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STATEMENT OF PROFIT OR LOSS
For the year ended December 31, 2019

2019 2018
Note Rs ‘000 Rs ‘000

Gross turnover 8 149,024,648 137,115,757

Excise duties (74,741,489) (63,117,903)
Sales tax (22,308,263) (20,885,770)

Net turnover 51,974,896 53,112,084

Cost of sales 9 (25,764,813) (29,828,556)

Gross profit 26,210,083 23,283,528

Selling and distribution costs 10 (4,666,122) (4,950,293)
Administrative expenses 11 (2,780,245) (2,558,072)
Other operating expenses 12 (1,871,999) (1,381,858)
Other income 13 783,182 177,729

(8,535,184) (8,712,494)

Operating profit 17,674,899 14,571,034

Finance income 812,571 742,648
Finance cost 14 (202,553) (33,828)

Net finance income 610,018 708,820

Profit before income tax 18,284,917 15,279,854

Income tax expense 15 (5,395,688) (4,941,862)

Profit for the year 12,889,229 10,337,992

Earnings per share (basic and diluted)- (Rupees) 16 50.45 40.46

The annexed notes 1 to 42 form an integral part of these financial statements.
PAKISTAN TOBACCO COMPANY

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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STATEMENT OF COMPREHENSIVE INCOME
For the year ended December 31, 2019

2019 2018
Note Rs ‘000 Rs ‘000

Profit for the year 12,889,229 10,337,992

Other comprehensive income:

Items that will not be reclassified to profit or loss

- Remeasurement loss on defined benefit pension
and gratuity plans 33 (144,170) (37,795)

- Tax credit related to remeasurement loss on
defined benefit pension and gratuity plans 15.2 43,873 7,499

(100,297) (30,296)

Total comprehensive income for the year 12,788,932 10,307,696

The annexed notes 1 to 42 form an integral part of these financial statements.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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STATEMENT OF FINANCIAL POSITION
As at December 31, 2019

2019 2018
Note Rs ‘000 Rs ‘000

Non current assets

Property, plant and equipment 17 12,322,830 9,130,827

Advance for capital expenditure 175,783 959,439
Long term investment in subsidiary company 18 5,000 5,000
Long term deposits and prepayments 19 30,759 32,112

12,534,372 10,127,378
Current assets

Stock-in-trade 20 21,422,543 18,489,390

Stores and spares 21 663,999 634,029
Trade debts 22 4,260 1,553
Loans and advances 23 125,644 95,503
Short term prepayments 15,921 249,935
Other receivables 24 2,131,912 1,862,141
Short term investments 25 3,001,058 8,699,508
Cash and bank balances 26 535,905 293,165

27,901,242 30,325,224
Current liabilities

Trade and other payables 27 16,295,217 18,621,368

Other liabilities 28 2,865,822 2,298,698
Short term running finance 29 – 75,542
Lease liability 30 376,065 148,245
Unpaid dividend 31 66,740 200,188
Unclaimed dividend 78,235 81,268
Accrued interest / mark-up 25,735 5,331
Current income tax liabilities 449,395 382,417

(20,157,209) (21,813,057)

Net current assets 7,744,033 8,512,167

Non current liabilities

Lease liability 30 (1,341,607) (284,845)

Deferred income tax liabilities 32 (645,943) (589,076)

(1,987,550) (873,921)

Net assets 18,290,855 17,765,624

Share capital and reserves

Share capital 34 2,554,938 2,554,938

Revenue reserve - Unappropriated profit 15,735,917 15,210,686
PAKISTAN TOBACCO COMPANY

18,290,855 17,765,624

Contingencies and commitments 35

The annexed notes 1 to 42 form an integral part of these financial statements.

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 2019

Share Revenue Reserve - Total

capital unappropriated
profit
Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2018 2,554,938 14,356,260 16,911,198

Total comprehensive income for the year:

Profit for the year – 10,337,992 10,337,992

Other comprehensive income for the year – (30,296) (30,296)

Total comprehensive income for the year – 10,307,696 10,307,696

Transactions with owners of the Company:

Final dividend of Rs 20.00 per share relating to the

year ended December 31, 2017 – (5,109,876) (5,109,876)
Interim dividend of Rs 7.00 per share relating to the
year ended December 31, 2018 – (1,788,456) (1,788,456)
Interim dividend of Rs 10.00 per share relating to the
year ended December 31, 2018 – (2,554,938) (2,554,938)

Total transactions with owners of the Company – (9,453,270) (9,453,270)

Balance at December 31, 2018 2,554,938 15,210,686 17,765,624

Balance at January 1, 2019 2,554,938 15,210,686 17,765,624

Total comprehensive income for the year:

Profit for the year – 12,889,229 12,889,229

Other comprehensive income for the year – (100,297) (100,297)

Total comprehensive income for the year – 12,788,932 12,788,932

Transactions with owners of the Company:

Final dividend of Rs 22.00 per share relating to the

year ended December 31, 2018 – (5,620,863) (5,620,863)
Interim dividend of Rs 13.00 per share relating to the
year ended December 31, 2019 – (3,321,419) (3,321,419)
Interim dividend of Rs 13.00 per share relating to the
year ended December 31, 2019 – (3,321,419) (3,321,419)

Total transactions with owners of the Company – (12,263,701) (12,263,701)

Balance at December 31, 2019 2,554,938 15,735,917 18,290,855

The annexed notes 1 to 42 form an integral part of these financial statements.
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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STATEMENT OF CASH FLOWS
For the year ended December 31, 2019

2019 2018
Note Rs ‘000 Rs ‘000

Cash flows from operating activities

Cash generated from operations 39 14,361,234 18,833,556

Finance cost paid (182,149) (31,911)
Income tax paid (5,271,843) (5,725,015)
Contribution to retirement benefit funds (342,950) (267,012)

Net cash generated from operating activities 8,564,292 12,809,618

Cash flows from investing activities

Purchases of property, plant and equipment (2,731,002) (1,606,818)

Advance for capital expenditure 783,657 (668,321)
Proceeds from sale of property, plant and equipment 299,933 154,543
Interest received 812,571 761,781

Net cash used in investing activities (834,841) (1,358,815)

Cash flows from financing activities

Dividends paid (12,400,182) (9,436,117)

Lease payments (709,437) (251,525)

Net cash used in financing activities (13,109,619) (9,687,642)

Net increase in cash and cash equivalents (5,380,168) 1,763,161

Cash and cash equivalents at beginning of year 8,917,131 7,153,970

Cash and cash equivalents at end of year 3,536,963 8,917,131

Cash and cash equivalents comprise:

Cash and bank balances 26 535,905 293,165
Short term investments 25 3,001,058 8,699,508
Short term running finance 29 – (75,542)

3,536,963 8,917,131

The annexed notes 1 to 42 form an integral part of these financial statements.
PAKISTAN TOBACCO COMPANY

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

1 Corporate and general information

The Company and its operations

Pakistan Tobacco Company Limited (the Company) is a public limited company incorporated in Pakistan on November 18, 1947 under
the Companies Act, 1913 (now the Companies Act, 2017) and its shares are quoted on the Pakistan Stock Exchange Limited. The
Company is a subsidiary of British American Tobacco (Investments) Limited, United Kingdom, whereas its ultimate parent company is
British American Tobacco p.l.c, United Kingdom. The Company is engaged in the manufacture and sale of cigarettes/tobacco.

The registered office of the Company is situated at Serena Business Complex, Khayaban-e-Suharwardy, Islamabad, Pakistan. The
Company has two manufacturing plants located at Akora Khattak and Jhelum.

These financial statements are the separate financial statements of the Company. Consolidated financial statements are prepared
separately.

Capacity and production

Against an estimated manufacturing capacity of 53,381 million cigarettes (2018: 51,330 million cigarettes) actual production was
39,469 million cigarettes (2018: 46,201 million cigarettes). The split from each industrial unit is given below.

Manufacturing Capacity
2019 2018
Site (Units in Millions) (Units in Millions)

Akora Khattak Factory 27,407 28,490

Jhelum Factory 25,974 22,840
Total 53,381 51,330

Actual Production
2019 2018
Site (Units in Millions) (Units in Millions)

Akora Khattak Factory 19,521 24,404

Jhelum Factory 19,948 21,797
Total 39,469 46,201

Actual production is less than the installed capacity due to market demand.

Number of employees

Total number of employees as at December 31, 2019 was 1,127 (2018: 1,109). Average number of employees during the year was
1,101 (2018: 1,097).

2 Statement of compliance
EXCELLING BEYOND BORDERS

These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan.
The accounting and reporting standards applicable in Pakistan comprise of:

– International Financial Reporting Standards (IFRS Standards) issued by the International Accounting Standards Board (IASB)
ANNUAL REPORT 2019

as notified under the Companies Act, 2017; and

– Provisions of and directives issued under the Companies Act, 2017.

Where provisions of and directives issued under the Companies Act, 2017 differ from the IFRS Standards, the provisions of and
directives issued under the Companies Act, 2017 have been followed.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

3 Basis of measurement

These financial statements have been prepared under the historical cost convention except as otherwise stated in the respective
accounting policies notes.

4 Functional and presentation currency

Items included in these financial statements are measured using the currency of the primary economic environment in which the
Company operates (the functional currency), which is the Pakistan rupee (Rs).

5 Use of estimates and judgements

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of
the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised,
prospectively.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements is included in the following notes:

• Note 8 – Nature and timing of satisfaction of performance obligation and revenue recognition
• Note 17 – useful lives, residual values and depreciation method of property, plant and equipment
• Note 20 and 21 – Provision for obsolescence of stock in trade and stores and spares
• Notes 15 and 32 – Provision for income tax and calculation of deferred tax
• Note 33 – Retirement benefits
• Note 36 – Financial instruments – fair values
• Note 35 – Contingencies
• Note 30 - Leases

Measurement of fair values

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-
financial assets and liabilities.

Management regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure
fair values, then management assesses the evidence obtained from the third parties to support its conclusion that these valuations
meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.

When measuring fair value of an asset or a liability, the Company uses observable and available market data as far as possible. Fair
values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1, which are observable and available for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
PAKISTAN TOBACCO COMPANY

• Level 3: inputs for the asset or liability that are not based on observable and available market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the fair value
measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level of input that is significant to
the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period
during which the change has occurred.

6 New accounting standards, amendments and IFRIC interpretations that are not yet effective

The following IFRS Standards as notified under the Companies Act, 2017 and the amendments and interpretations thereto will be
effective for accounting periods beginning on or after January 01, 2020:
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

• Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business (effective for business combinations for which the
acquisition date is on or after the beginning of annual period beginning on or after January 01, 2020). The IASB has issued
amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a
group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.
The amendments include an election to use a concentration test. The standard is effective for transactions in the future and
therefore would not have an impact on past financial statements.

• Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates
and Errors’ (effective for annual periods beginning on or after January 01, 2020). The amendments are intended to make the
definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS
Standards. In addition, the IASB has also issued guidance on how to make materiality judgments when preparing their general
purpose financial statements in accordance with IFRS Standards.

• On March 29, 2018, the IASB has issued a revised ‘Conceptual Framework for Financial Reporting’ which is applicable
immediately, contains changes that will set a new direction for IFRS in the future. The Conceptual Framework primarily serves
as a tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting them. It does not
override the requirements of individual IFRSs and any inconsistencies with the revised Framework will be subject to the usual
due process – this means that the overall impact on standard setting may take some time to crystallise. The companies may
use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements. In these
cases, companies should review those policies and apply the new guidance retrospectively as of January 01, 2020, unless the
new guidance contains specific scope outs.

• Interest Rate Benchmark Reform which amended IFRS 9, IAS 39 and IFRS 7 is applicable for annual financial periods beginning
on or after January 01, 2020. The G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of major
interest rate benchmarks. Following the review, the FSB published a report setting out its recommended reforms of some major
interest rate benchmarks such as IBORs. Public authorities in many jurisdictions have since taken steps to implement those
recommendations. This has in turn led to uncertainty about the long-term viability of some interest rate benchmarks. In these
amendments, the term ‘interest rate benchmark reform’ refers to the market-wide reform of an interest rate benchmark including
its replacement with an alternative benchmark rate, such as that resulting from the FSB’s recommendations set out in its July
2014 report ‘Reforming Major Interest Rate Benchmarks’ (the reform). The amendments made provide relief from the potential
effects of the uncertainty caused by the reform. A company shall apply the exceptions to all hedging relationships directly
affected by interest rate benchmark reform. The amendments are not likely to affect the financial statements of the Company.

• IFRS 14 Regulatory Deferral Accounts - (effective for annual periods beginning on or after July 01, 2019) provides interim
guidance on accounting for regulatory deferral accounts balances while IASB considers more comprehensive guidance on
accounting for the effects of rate regulation. In order to apply the interim standard, an entity has to be rate regulated – i.e. the
establishment of prices that can be charged to its customers for goods or services is subject to oversight and/or approved
by an authorized body. The term ‘regulatory deferral account balance’ has been chosen as a neutral descriptor for expense
(income) or variance account that is included or is expected to be included by the rate regulator in establishing the rate(s) that
can be charged to customers and would not otherwise be recognised as an asset or liability under other IFRSs. The standard
is not likely to have any effect on Company’s financial statements.
 
EXCELLING BEYOND BORDERS

7 Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements except for
the changes in the accounting policy as explained below.
ANNUAL REPORT 2019

IFRIC 23 ‘Uncertainty over Income Tax Treatments’

The Company has applied IFRIC 23 ‘Uncertainty over Income Tax Treatments’ from January 01, 2019; however the adoption has no
impact on the amounts reported in these financial statements.

IFRS -16 ‘Leases’

The Company has initially applied IFRS - 16 ‘Leases’ from January 01, 2019.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Company, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease
payments.

The Company applied IFRS 16 using the modified retrospective approach, under which the Company has recognised right of use
assets and lease liabilities at the date of initial recognition for leases previously classified as operating leases under IAS 17 at the
present value of the remaining lease payments using the Company’s incremental borrowing rate at the initial application date. The
Company has chosen to measure the right of use assets at an amount equal to the lease liabilities adjusted by the amount of prepaid
lease payments relating to the operating leases recognised in the statement of financial position as at January 01, 2019. Accordingly, no
adjustment to equity has been made in these financial statements on adoption of the new policy and the comparative figures presented
for 2018 have not been restated, i.e., it is presented, as previously reported, under IAS 17 and related interpretations.

Previously, the Company determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 ‘Determining
Whether an Arrangement contains a Lease’. The Company now assesses whether a contract is, or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified
asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an
identified asset, the Company assesses whether:

• The contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically
distinct or represent substantially all of the capacity of a physically distinct asset;

• The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of
use; and

• The Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights
that are most relevant to changing how and for what purpose the asset is used.

The impact of adoption of IFRS 16 on transition is disclosed in note 30 to the financial statements.

The Company used the following practical expedient when applying IFRS 16, to leases previously classified as operating leases under
IAS 17.

• The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term.

Amounts recognised in profit or loss for the year under new policy

(Rs.’000)

Depreciation 331,177
Interest on lease liabilities 124,825
PAKISTAN TOBACCO COMPANY

Had IFRS - 16 not been applied, rental cost of Rs. 372.6 million would have been recognised in the statement of profit or loss.
Accordingly, profit before tax would have been increased by Rs. 83.4 million for the year ended December 31, 2019.

Policy applicable before January 01, 2019

Leases

(a) Finance leases

Leases that transfer substantially all the risks and rewards incidental to ownership of an asset are classified as finance leases.
Assets on finance lease are capitalized at the commencement of the lease term at the lower of fair value of leased assets and
the present value of minimum lease payments, each determined at the inception of the lease. Each lease payment is allocated
between the liability and finance cost so as to achieve a constant rate on the finance balance outstanding. The corresponding
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

rental obligations, net of finance charges, are included in other long-term payables. The finance cost is charged to the statement
of profit or loss and is included under finance costs. The assets acquired under finance lease are depreciated over the shorter
of the useful life of the asset or the lease term. The Company has entered into Ijarah arrangement with a financial institution
in respect of vehicles. Islamic Financial Accounting Standard (IFAS) No.2 “Ijarah” was notified by SECP vide S.R.O 431 (I)
/2007 on May 22, 2007. IFAS No.2 requires Ijarah payments under such arrangements to be recognised as an expense over
the Ijarah terms. The Company intends to acquire such assets at the end of the lease term and management believes that
this arrangement meets the conditions of finance lease and consequently, such arrangements have been accounted for under
International Accounting Standard – 17 “Leases”.

(b) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor were classified as
operating leases. Payments made under operating leases are charged to the statement of profit or loss on a straight-line basis
over the period of the lease.

Significant accounting policies of the Company are as follows:

7.1 Revenue recognition

Revenue comprises the invoiced value for the sale of goods net of sales taxes, rebates and discounts. Certain marketing costs
are deducted from the gross amount of sales. Revenue from the sale of goods is recognised when control of the goods passes
to customers and the customers can direct the use of and substantially obtain all the benefits from the goods. Revenue is
recognised when specific criteria have been met for each of the Company’s activities as described below.

Revenue from contracts with customers

Sale of goods

The Company manufactures and sells cigarettes to its appointed distributors. Sale of goods is recognised when the Company
has transferred control of the products to the distributor and there is no unfulfilled obligation that could affect the distributor’s
acceptance of the products.

Contract assets

Contract assets arise when the Company performs its performance obligations by transferring goods to a customer before the
customer pays its consideration or before payment is due.

Contract liabilities

A contract liability is the obligation of the Company to transfer goods to a customer for which the Company has received
consideration from the customer. If a customer pays consideration before the Company transfers goods, a contract liability
is recognised when the payment is made. Contract liabilities are recognised as revenue when the Company performs its
performance obligations under the contract.

Income on bank deposits

EXCELLING BEYOND BORDERS

Income on bank deposits is accounted for on the time proportion basis using the applicable rate of return.

Income on short term investments

ANNUAL REPORT 2019

Short term investments, classified as financial assets at fair value through profit or loss, are re-measured to fair value at each
reporting date until the assets are de-recognised. The gains and losses arising from changes in fair value are included in the
statement of profit or loss in the period in which they occur.

Others

Scrap sales and miscellaneous receipts are recognised on realised amounts. All other income is recognised on accrual basis.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

7.2 Income tax

Income tax expense for the year comprises current and deferred income tax, and is recognised in the statement of profit or
loss, except to the extent that it relates to items recognised in other comprehensive income or directly in the equity. In this case,
income tax is also recognised in other comprehensive income or directly in equity, respectively.

Current

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment
to the tax payable or receivable in respect of previous years. The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred

Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred income tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax
losses and tax credits can be utilised.

Deferred income tax is calculated at the rates that are expected to apply to the period when the differences reverse.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same
taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balance
on a net basis.

7.3 Provisions

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle the obligation; and the amount could be reliably estimated.
Provisions are not recognised for future operating losses. All provisions are reviewed at each statement of financial position
date and adjusted to reflect current best estimate.

7.4 Earnings per share

The Company presents earnings per share (EPS) data for its ordinary shares. EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during
the year.
 
7.5 Contingent assets
PAKISTAN TOBACCO COMPANY

Contingent assets are disclosed when the Company has a possible asset that arises from past events and whose existence will
only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Company. Contingent assets are not recognised until their realisation becomes certain.

7.6 Contingent liabilities

Contingent liability is disclosed when the Company has a possible obligation as a result of past events whose existence will
only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Company. Contingent liabilities are not recognised, only disclosed, unless the possibility of a future outflow of resources
is considered remote. In the event that the outflow of resources associated with a contingent liability is assessed as probable,
and if the size of the outflow can be reliably estimated, a provision is recognised in the financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

7.7 Employee benefits

(a) Retirement benefit plans

The Company operates various retirement benefit schemes. The schemes are generally funded through payments to trustee-
administered funds, determined by periodic actuarial calculations or up to the limit allowed as per the Income Tax Ordinance,
2001. The Company has both defined contribution and defined benefit plans.

A defined contribution plan is a plan under which the Company pays fixed contributions into a separate fund. The Company has
no further legal or constructive obligation to pay contributions if the fund does not hold sufficient assets to pay all employees,
the benefits relating to employees’ service in the current and prior periods.

A defined benefit plan is a plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of
benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation.

The Company operates:

(i) Defined benefit, approved funded pension scheme for management and certain grades of business support officers
and approved gratuity scheme for all employees. Employees also contribute to the pension scheme. The liability
recognised in the balance sheet in respect of pension and gratuity schemes is the present value of the defined benefit
obligation of the Company at the balance sheet date less the fair value of plan assets.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of government bonds denominated in Pakistan rupee and have terms to maturity approximating to
the terms of the related liability.
 
The current service cost of the defined benefit plan, recognised in the income statement in employee benefit expense,
except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from
employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognised
immediately in income.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and
the fair value of plan assets. This cost is included in employee benefit expense in the income statement.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the period in which they arise.

(ii) Approved contributory provident fund for all employees administered by trustees and approved contributory pension
fund for the new joiners. The contributions of the Company are recognised as employee benefit expense when they
are due. Prepaid contributions, if any, are recognised as an asset to the extent that a cash refund or a reduction in the
future payments is available. EXCELLING BEYOND BORDERS

(b) Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination
benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed
ANNUAL REPORT 2019

formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary
redundancy. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on
the number of employees expected to accept the offer.

(c) Medical benefits

The Company maintains a health insurance policy for its entitled employees and their dependents and pensioners and
their spouses. The Company contributes premium to the policy annually. Such premium is recognised as an expense in the
statement of profit or loss.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

(d) Bonus plans

The Company recognises a liability and an expense for bonuses based on a formula that takes into consideration the profit
attributable to the Company’s shareholders after certain adjustments and performance targets. The Company recognises a
provision where it is contractually obliged or where there is a past practice that has created a constructive obligation.

(e) Share-based payments

The Company has two cash-settled share-based compensation plans. Share options are granted to key management personnel
which vest over a period of three years. A liability equal to the portion of the services received is recognised at its current fair
value determined at each statement of financial position date.

Where applicable, the Company recognises the impact of revisions to original estimates in the statement of profit or loss, with
a corresponding adjustment to current liabilities for cash-settled schemes.

(i) Long Term Incentive Plan (LTIP)

Nil-cost option exercisable after three years from date of grant with a contractual life of ten years. Pay-out is subject to
performance conditions based on earnings per share, operating cash flow, total shareholder return and net turnover of
the British American Tobacco (BAT) group. Total shareholder return combines the share price and dividend performance
of the BAT group by reference to one comparator group.

(ii) Deferred Share Bonus Scheme (DSBS)

Free ordinary shares released three years from date of grant and may be subject to forfeit if a participant leaves
employment before the end of the three years holding period. Participants receive a separate payment equivalent to a
proportion of the dividend payment during the holding period. Share options are granted in March each year.

7.8 Lease liability

The Company has recognised lease liabilities at the date of initial recognition of IFRS - 16, for leases previously classified
as operating leases under IAS 17 at the present value of the remaining lease payments using the Company’s incremental
borrowing rate of 10%. Lease liabilities are then measured at their amortised cost using the effective interest method.

7.9 Property, plant and equipment

Owned assets

These are stated at cost less accumulated depreciation and any accumulated impairment losses, except freehold land and
capital work in progress which are stated at cost less impairment losses, if any. Cost includes expenditure that is directly
attributable to the acquisition of the asset.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be
measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance expenses are
recognised in the statement of profit or loss during the financial period in which they are incurred.
PAKISTAN TOBACCO COMPANY

 
Free-hold land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost
less residual value over their estimated useful lives at the following annual rates:

• Buildings on freehold and leasehold land 3%

• Plant and machinery 5%
• Air conditioners (included in plant and machinery) 20%
• Office and household equipment 20% to 33.3%
• Furniture and fittings 10% to 20%
• Vehicles – owned and leased 16%

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Depreciation on additions and deletions during the year is charged on a pro rata basis from the month when the asset is put
into use or up to the month when asset is disposed/written off.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Gains and losses on disposals of operating fixed assets are recognised in the statement of profit or loss.

Right of use assets

Right of use asset is calculated as the initial amount of the lease liability in terms of property rentals and vehicle rentals at the
lease contract commencement date. The right of use asset is subsequently depreciated using the straight line method for a
period of lesser of useful life or actual lease term.

7.10 Impairment of non-financial asset

Asset’s that have an indefinite useful life are not subject to depreciation and are tested annually for impairment. Assets that are
subject to depreciation are reviewed for impairment at each statement of financial position date or whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount for
which assets carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered an impairment are reviewed for
possible reversal of the impairment at each balance sheet date. Reversals of the impairment losses are restricted to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if impairment losses had not been recognised. An impairment loss or reversal of impairment loss is recognised in
the statement of profit or loss.

7.11 Long term investment in subsidiary

The investment in subsidiary company is carried at cost less any impairment losses. The profit and loss of the subsidiary
company is carried in the financial statements of the subsidiary company and is not dealt with for the purpose of the separate
financial statements of the Company except to the extent of dividend declared (if any) by the subsidiary company.
 
7.12 Stock in trade

Stock-in-trade is stated at the lower of cost and net realisable value. Cost is determined using the weighted average method.
The cost of finished goods and work in process comprises design costs, raw materials, direct labour, other direct costs and
related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less cost of
completion and costs necessary to be incurred to make the sale.

7.13 Stores and spares

Stores and spares are stated at cost less allowance for obsolete and slow moving items. Cost is determined using weighted
average method. Items in transit are valued at cost comprising invoice value and other related charges incurred up to the
statement of financial position date.
EXCELLING BEYOND BORDERS

7.14 Financial Instruments

Financial assets

i. Recognition and de-recognition

ANNUAL REPORT 2019

The Company initially recognises financial assets on the date when they are originated. Financial liabilities are initially recognised
on the trade date when the entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are offset, and the net amount presented in the statement of financial position when,
and only when, the Company currently has a legally enforceable right to offset the amounts and intends either to settle them on
a net basis or to realise the asset and settle the liability simultaneously.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

ii. Classification

On initial recognition, a financial asset is classified as measured at:

• amortised cost;
• fair value through other comprehensive income (FVOCI); or
• fair value through profit or loss (FVTPL)

The classification of financial assets is based on the business model in which a financial asset is managed and its contractual
cash flow characteristics.

(a) Amortised cost

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
(i) it is held within a business model whose objective is to hold assets to collect contractual cash flows; and (ii) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
 
(b) Fair value through other comprehensive income (FVOCI)

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: (i) it is
held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets;
and (ii) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.

(c) Fair value through profit or loss (FVTPL)

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.

iii. Subsequent measurement

Financial assets Measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in
at FVTPL profit or loss.

Financial assets Measured at amortised cost using the effective interest method. The amortised cost is reduced by
at amortised impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in
cost profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.

Debt investments These assets are subsequently measured at fair value. Interest income calculated using the effective
at FVOCI interest method, foreign exchange gains and losses and impairment are recognised in profit or loss.
Other net gains and losses are recognised in OCI. On de-recognition, gains and losses accumulated in
OCI are reclassified to profit or loss.

Equity These assets are subsequently measured at fair value. Dividends are recognised as income in profit
PAKISTAN TOBACCO COMPANY

investments or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net
at FVOCI gains and losses are recognised in OCI and are never reclassified to profit or loss.

Subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective interest method.

iv. De-recognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and
does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained
by the Company is recognised as a separate asset or liability.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Any gain / (loss) on the recognition and de-recognition of the financial assets and liabilities is included in the statement of profit
or loss for the period in which it arises.

v. Impairment of financial assets

The Company recognises loss allowance for Expected Credit Losses (ECLs) on financial assets measured at amortised cost
and contract assets. The Company measures loss allowance at an amount equal to lifetime ECLs.

Lifetime ECLs are those that result from all possible default events over the expected life of a financial instrument. The maximum
period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

At each reporting date, the Company assesses whether the financial assets carried at amortised cost are credit-impaired. A
financial asset is ‘credit-impaired when one or more events that have detrimental impact on the estimated future cash flows of
the financial assets have occurred.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering
a financial asset in its entirety or a portion thereof.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is
classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other
financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and
foreign exchange gains and losses are recognised in statement of profit or loss. Any gain or loss on de-recognition is also
included in statement of profit or loss.

7.15 Borrowing costs

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the
statement of profit or loss over the period of the borrowings using the effective interest method.

Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized
as part of the cost of that asset. All other borrowing costs are charged to statement of profit or loss.

7.16 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements in the period in which
the dividend is approved by the Company’s shareholders at the Annual General Meeting, while interim dividend distributions
are recognised in the period in which the dividends are declared by the Board of Directors.
EXCELLING BEYOND BORDERS

 
7.17 Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at call with banks and highly liquid investments with
less than three months maturity from the date of acquisition. Short term finance facilities availed by the Company, which are
ANNUAL REPORT 2019

repayable on demand and form an integral part of the Company’s cash management are included as part of cash and cash
equivalents in the statement of cash flows.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

7.18 Foreign currency transactions and translation

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency using
the exchange rate prevailing at the statement of financial position date. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates are recognised in the statement of profit or
loss.

7.19 Fair value measurement

‘Fair value’ is the price that would be received by selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the
Company has access at that date. The fair value of a liability reflects its non-performance risk.

A number of the Company’s accounting policies and disclosures require the measurement of fair values, both for financial and
non-financial assets and liabilities (See Note 5). When one is available, the Company measures the fair value of an instrument
using the quoted price in an active market for that instrument. If there is no quoted price in an active market, then the Company
uses valuation techniques that maximise the use of relevant observable inputs and minimize the use of unobservable inputs.
The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair
value of the consideration given or received.

2019 2018
Rs ‘000 Rs ‘000

8 Gross turnover
- Domestic 147,291,473 137,073,572
- Export 1,733,175 42,185
149,024,648 137,115,757

Revenue is measured based on the consideration specified in a contract with a customer. The transaction prices are generally
fixed as per the contract with customers. The payment terms are governed by the contractual rights and obligations as defined
in the contracts with customers and payments are generally received in advance of delivering goods sold.

Revenue recognised during the year that was included in the contract liability balance at the beginning of year is Rs. 2,013
thousand (2018: Rs 150 thousand).
PAKISTAN TOBACCO COMPANY
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

9 Cost of sales
Raw material consumed
Opening stock of raw materials and work in process 16,944,127 13,137,236
Raw material purchases and expenses - note 9.1 21,851,976 23,669,134
Closing stock of raw materials and work in process (19,573,174) (16,944,127)
19,222,929 19,862,243
Government taxes and levies
Customs duty and surcharges 2,353,985 2,318,625
Provincial and municipal taxes and other duties 334,885 396,327
Excise duty on royalty 42,771 47,349
2,731,641 2,762,301
21,954,570 22,624,544
Royalty - note 9.2 (1,463,277) 2,364,433
Severance benefits 857,194 172,446
Production overheads
Salaries, wages and benefits 2,034,476 2,059,960
Stores, spares and machine repairs 604,221 803,768
Fuel and power 493,522 394,954
Insurance 20,712 16,859
Repairs and maintenance 456,565 653,622
Postage, telephone and stationery 19,182 17,312
Information technology 31,150 44,570
Depreciation 724,448 592,878
Provision for damaged stocks / stock written off 72,124 17,762
Provision / (reversal) for slow moving items / stores written off 15,123 (64,091)
Sundries 256,111 341,638
4,727,634 4,879,232
Cost of goods manufactured 26,076,121 30,040,655
Cost of finished goods
Opening stock 1,548,417 1,336,318
Closing stock (1,859,725) (1,548,417)
(311,308) (212,099)
Cost of sales 25,764,813 29,828,556

9.1 Raw material purchases and expenses:

Materials 19,157,657 20,966,816
Salaries, wages and benefits 1,203,466 1,175,786
Stores, spares and machine repairs 286,700 190,003
EXCELLING BEYOND BORDERS

Fuel and power 447,675 326,631

Property rentals 26,433 121,346
Insurance 14,100 18,457
Repairs and maintenance 134,278 162,616
Postage, telephone and stationery 11,224 14,493
ANNUAL REPORT 2019

Depreciation 155,580 87,498

Sundries 414,863 605,488
21,851,976 23,669,134

9.2 This represents royalty payable to the associated companies namely BAT (Brands) Limited, Benson & Hedges (Overseas)
Limited and BAT (Holdings) Limited having registered office at Globe House, 1 Water Street, London WC2R 3LA, United
Kingdom. Royalty expense for the year ended December 31, 2019 is presented net of reversals as disclosed in note 38.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

10 Selling and distribution costs

Salaries, wages and benefits 1,036,620 884,521
Selling expenses 2,955,537 3,498,834
Freight 231,931 169,787
Repairs and maintenance 32,781 72,904
Postage, telephone and stationery 12,828 10,693
Travelling 175,689 140,241
Property rentals 31,057 64,050
Insurance 14,440 11,613
Provision for damaged stocks / stock written off 5,256 1,200
Finished goods / wrapping material stock written off 9,945 –
Depreciation 160,038 96,450
4,666,122 4,950,293

11 Administrative expenses
Salaries, wages and benefits 844,868 900,169
Fuel and power 8,200 8,991
Property rentals 7,329 185,907
Insurance 5,382 5,597
Repairs and maintenance 49,358 27,577
Postage, telephone and stationery 18,858 11,256
Legal and professional charges 122,204 118,403
Donations - note 11.1 13,690 8,400
Information technology 1,188,792 1,001,846
Travelling 121,310 79,659
Depreciation 327,410 148,952
Auditor’s remuneration and expenses - note 11.2 13,463 14,626
Sundries 59,381 46,689
2,780,245 2,558,072

11.1 Details of donations exceeding Rs 1,000 thousand are as follows:
Name of Donee
One To Many 10,000 –
Chal Foundation 1,500 –
Prime Ministers’ Dam Fund 1,390 –
Gottfried Thoma PTC Employees’ Benevolent Trust – 8,000
12,890 8,000

There were no donations in which the directors, or their spouses, had any interest.
PAKISTAN TOBACCO COMPANY

11.2 Auditor’s remuneration and expenses include:

- Statutory audit fee 2,317 2,450
- Group reporting, review of half yearly accounts, audit of
consolidated accounts, audit of staff retirement
benefit funds and other certifications and review of
Statement of Compliance with Code of Corporate Governance 10,497 11,623
- Out-of-pocket expenses 649 553
13,463 14,626
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

12 Other operating expenses

Workers’ Profit Participation Fund - note 27.7 982,004 820,615

Workers’ Welfare Fund - note 27.6 411,271 327,658
Bank charges and fees 33,562 38,062
Foreign exchange loss 445,162 195,523

1,871,999 1,381,858

13 Other income

Income from sales / services rendered to associated companies:

- BAT SAA Services (Private) Limited 127,880 124,153
- BAT Bangladesh – 3,928
Recharges / other payable to associated companies written back:
- BAT ASPAC Service Center Sdn Bhd - Malaysia 519,301 15,114
- Ceylon Tobacco Co. Ltd.- SriLanka 52 –
- BAT PNG Ltd - Papua New Guinea 51 –
- BAT Niemeyer Ltd - Netherland 16 –
- BAT Asia-Pacific Region Ltd - Hong Kong – 11,478
Other liabilities written back - net – 343
Gain on disposal of property, plant and equipment 134,391 21,259
Miscellaneous 1,491 1,454

783,182 177,729

14 Finance cost

Interest expense on:

Bank borrowings 21,565 2,014
Lease liability 180,988 31,814

202,553 33,828

15 Income tax expense

Current:
For the year 4,686,603 4,700,006
For prior years 600,639 745,116

5,287,242 5,445,122
Deferred 108,446 (503,260)

5,395,688 4,941,862 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

15.1 Effective tax rate reconciliation:

Numerical reconciliation between the average effective income tax rate and applicable income tax rate is as follows:

2019 2018
% %

Applicable tax rate 29.00 29.00

Tax effect of:
Prior year charge / (reversal) 0.38 2.93
Change in applicable tax rate 0.78 (1.57)
Income taxed at different rate (0.76) (0.02)
Super tax / others 0.11 2.00

Average effective tax rate 29.51 32.34

2019 2018
Rs ‘000 Rs ‘000

15.2 Tax on items directly credited to statement of

other comprehensive income

Current tax charge on defined benefit plans 7,705 8,390

Deferred tax (credit) on defined benefit plans (51,578) (15,889)

(43,873) (7,499)

2019 2018

16 Earnings per share

Profit after tax (Rs ‘000) 12,889,229 10,337,992

Number of fully paid weighted average ordinary shares (‘000) 255,494 255,494

Earnings per share - Basic (Rs) 50.45 40.46

There is no dilutive effect on the basic earnings per share of the Company.

2019 2018
Rs ‘000 Rs ‘000

17 Property, plant and equipment

Operating assets - note 17.1 11,590,196 8,170,276

Capital work in progress - note 17.2 732,634 960,551
PAKISTAN TOBACCO COMPANY

12,322,830 9,130,827
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

17.1 Operating assets

Right of use assets
Free-hold Buildings on Buildings on Plant and Office and Furniture and Vehicles Land and Vehicles Sub- Total
land free-hold leasehold machinery household fittings building total
land land equipment
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

At January 1, 2018
Cost 30,570 978,444 20,004 13,841,474 1,685,267 383,923 162,305 – 1,087,283 1,087,283 18,189,270
Accumulated Depreciation – (273,635) (11,978) (7,957,696) (1,052,571) (219,418) (122,499) – (380,228) (380,228) (10,018,025)

Net book amount January 1, 2018 30,570 704,809 8,026 5,883,778 632,696 164,505 39,806 – 707,055 707,055 8,171,245

Year ended December 31, 2018

Net book amount at January 1, 2018 30,570 704,809 8,026 5,883,778 632,696 164,505 39,806 – 707,055 707,055 8,171,245
Additions – – – 708,020 71,361 35,337 – – 259,320 259,320 1,074,038
Disposals – (4,211) (74) (29,735) (440) (40) (6,459) – (92,324) (92,324) (133,283)
Depreciation charge – (18,882) (409) (428,144) (211,339) (50,996) (7,352) – (208,656) (208,656) (925,778)
Impairment charge – – – (3,225) (211) – (10,818) – (1,692) (1,692) (15,946)

Net book amount at December 31, 2018 30,570 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,170,276

At December 31, 2018

Cost 30,570 970,153 19,888 15,044,250 1,727,721 418,532 124,172 – 1,151,619 1,151,619 19,486,905
Accumulated depreciation – (288,437) (12,345) (8,913,556) (1,235,654) (269,726) (108,995) – (487,916) (487,916) (11,316,629)

Net book amount at December 31, 2018 30,570 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,170,276

At January 1, 2019
Cost 30,570 970,153 19,888 15,044,250 1,727,721 418,532 124,172 – 1,151,619 1,151,619 19,486,905
Accumulated Depreciation – (288,437) (12,345) (8,913,556) (1,235,654) (269,726) (108,995) – (487,916) (487,916) (11,316,629)

Net book amount January 1, 2019 30,570 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,170,276

Year ended December 31, 2019

Net book amount at January 1, 2019 30,570 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,170,276
Additions – 936 – 2,455,823 357,497 58,219 16,649 1,559,221 504,593 2,063,814 4,952,938
Disposals – (64) – (32,463) (823) (191) (3,913) – (128,088) (128,088) (165,542)
Depreciation charge – (18,647) (405) (524,284) (226,383) (52,137) (2,435) (331,177) (212,008) (543,185) (1,367,476)
Impairment charge – – – – – – – – – – –

Net book amount at December 31, 2019 30,570 663,941 7,138 8,029,770 622,358 154,697 25,478 1,228,044 828,200 2,056,244 11,590,196

At December 31, 2019

Cost 30,570 970,868 19,888 17,251,879 1,980,058 474,810 128,432 1,559,221 1,278,200 2,837,421 23,693,926
Accumulated depreciation – (306,927) (12,750) (9,222,109) (1,357,700) (320,113) (102,954) (331,177) (450,000) (781,177) (12,103,730)

Net book amount at December 31, 2019 30,570 663,941 7,138 8,029,770 622,358 154,697 25,478 1,228,044 828,200 2,056,244 11,590,196
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

17.1.1 Particulars of immovable property (land and building) in the name of the Company are as follows:

Location Total Area

Production Plants
Jhelum 58.3 Acres
Akora 61.0 Acres

Warehouses
Faujoon 163,970 Sq ft.
Shergarh 65,227 Sq ft.
Takht Bhai 54,593 Sq ft.
Umerzai 87,464 Sq ft.
Mianwali 878,694 Sq ft.
Okara 71,723 Sq ft.

2019 2018
Rs ‘000 Rs ‘000

17.2 Capital work in progress

Carrying value at the beginning of the year 960,551 168,450

Additions during the year 1,419,007 962,382

2,379,558 1,130,832
Transferred to operating fixed assets (1,646,924) (170,281)

Carrying value at the end of the year - note 17.2.1 732,634 960,551

17.2.1 Capital work in progress includes capital expenditure on projects relating to enhancement of already installed machinery.

2019 2018
Rs ‘000 Rs ‘000

17.3 Depreciation charge has been allocated as follows:

Cost of sales 724,448 592,878

Raw material purchases and expenses 155,580 87,498
Selling and distribution expenses 160,038 96,450
Administrative expenses 327,410 148,952

1,367,476 925,778
PAKISTAN TOBACCO COMPANY
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

17.4 Details of property, plant and equipment disposed off during the year, having book value of Rs 500,000 or more are as follows:

Cost Book Sale Gain/ Particulars of buyers Relationship
value proceeds (loss) on
less selling sale
expenses
Rs ‘000 Rs ‘000 Rs ‘000

Plant & machinery

- by negotiation 46,897 25,948 25,948 – BAT Polska S.A Associate
company
11,957 1,029 239 (790) Bahadar Khan Contractor

Vehicles
- as per Company’s policy 2,322 888 491 (397) Irfan Mirza Executive
2,322 966 582 (384) Athar Sultan Ex-Executive
2,402 1,677 1,328 (349) Khurram Rajpoot Executive
2,997 2,757 2,701 (56) Hassan Khalid Executive
2,047 1,121 940 (181) Mian Waqar Ex-Executive
2,067 1,147 1,170 23 Bushra Rehman Executive
2,322 827 464 (363) Muhammad Gulzar Executive
2,322 959 742 (217) Umair Luqman Executive
2,402 1,415 1,248 (167) Shadman Safdar Ex-Executive
2,104 1,497 1,627 130 Madeeh Pasha Executive
2,689 2,258 2,171 (87) Muneeba Haleem Ex-Executive
5,161 2,891 2,611 (280) Sami Zaman Ex-Executive
5,283 3,760 3,564 (196) Sadaf Saeed Ex-Executive
2,047 698 408 (290) Saqib Ali Executive
2,404 1,445 1,186 (259) Saad Ikram Ex-Executive
2,414 1,547 1,577 30 Syed Bilal Firdous Executive
2,584 1,774 1,779 5 Hamzah Fazal Ex-Executive
2,639 2,181 2,198 17 Mustafa Sherdil Executive
5,286 3,177 3,033 (144) Asif Khan Ex-Executive
5,283 3,458 3,486 28 Talat Mehmood Ex-Executive
6,233 5,069 4,943 (126) Khurram Javed Ex-Executive
6,867 6,318 6,232 (86) Imran Fazal Ex-Executive
6,483 5,272 5,406 134 Athar Baig Ex-Executive
12,200 8,252 8,216 (36) Aly Ud Din Taseer Ex-Executive
20,000 11,747 9,330 (2,417) Syed Javed iqbal Ex-Executive
5,161 3,237 2,987 (250) Waqas Bhatti Ex-Executive

Vehicles (continued)
- Auction 2,249 1,730 2,530 800 Through bidding in auction Auction agent
3,363 673 2,600 1,927 Through bidding in auction Auction agent
3,363 673 2,535 1,862 Through bidding in auction Auction agent
3,363 673 2,515 1,842 Through bidding in auction Auction agent
3,303 661 2,470 1,809 Through bidding in auction Auction agent
3,363 673 2,500 1,827 Through bidding in auction Auction agent
2,846 2,504 2,720 216 Through bidding in auction Auction agent
2,519 504 1,955 1,451 Through bidding in auction Auction agent
2,322 543 1,980 1,437 Through bidding in auction Auction agent
3,353 671 2,480 1,809 Through bidding in auction Auction agent
EXCELLING BEYOND BORDERS

3,353 671 2,555 1,884 Through bidding in auction Auction agent

3,353 671 2,510 1,839 Through bidding in auction Auction agent
3,353 671 2,405 1,734 Through bidding in auction Auction agent
3,353 671 2,500 1,829 Through bidding in auction Auction agent
3,353 671 2,575 1,904 Through bidding in auction Auction agent
ANNUAL REPORT 2019

3,353 671 2,400 1,729 Through bidding in auction Auction agent

3,353 671 2,330 1,659 Through bidding in auction Auction agent
3,353 671 2,500 1,829 Through bidding in auction Auction agent
3,353 671 2,810 2,139 Through bidding in auction Auction agent
3,353 671 2,600 1,929 Through bidding in auction Auction agent
3,353 671 2,405 1,734 Through bidding in auction Auction agent
3,353 671 2,505 1,834 Through bidding in auction Auction agent
3,353 671 2,645 1,974 Through bidding in auction Auction agent
3,353 671 2,700 2,029 Through bidding in auction Auction agent
3,353 671 2,750 2,079 Through bidding in auction Auction agent
143
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Cost Book Sale Gain/ Particulars of buyers Relationship

value proceeds (loss) on
less selling sale
expenses
Rs ‘000 Rs ‘000 Rs ‘000

3,353 671 2,756 2,085 Through bidding in auction Auction agent

3,353 671 2,605 1,934 Through bidding in auction Auction agent
3,413 683 2,500 1,817 Through bidding in auction Auction agent
3,272 654 2,790 2,136 Through bidding in auction Auction agent
3,272 654 2,650 1,996 Through bidding in auction Auction agent
3,272 654 2,605 1,951 Through bidding in auction Auction agent
3,272 654 2,710 2,056 Through bidding in auction Auction agent
3,272 654 2,770 2,116 Through bidding in auction Auction agent
3,272 654 2,700 2,046 Through bidding in auction Auction agent
3,272 654 2,360 1,706 Through bidding in auction Auction agent
3,272 654 2,470 1,816 Through bidding in auction Auction agent
3,272 654 2,420 1,766 Through bidding in auction Auction agent
3,272 654 2,455 1,801 Through bidding in auction Auction agent
5,031 1,006 4,355 3,349 Through bidding in auction Auction agent
5,131 1,670 5,000 3,330 Through bidding in auction Auction agent
3,882 776 2,850 2,074 Through bidding in auction Auction agent

- by insurance claim 2,107 528 1,458 930 EFU General Insurance Ltd. Insurance agent
3,353 671 2,187 1,516 EFU General Insurance Ltd. Insurance agent

18 Long term investment in subsidiary company

This represents 500,001 (2018: 500,001) fully paid ordinary shares of Rs 10 each in Phoenix (Private) Limited, a wholly owned subsidiary
of the Company. The break up value of shares calculated by reference to net assets worked out to be Rs 10 per share (2018: Rs 10
per share) based on audited financial statements for the year ended December 31, 2019.

Phoenix (Private) Limited is dormant company and has not commenced commercial production. Investment in subsidiary has been
made in accordance with the requirements under the repealed Companies Ordinance, 1984 (now the Companies Act, 2017).

2019 2018
Rs ‘000 Rs ‘000

19 Long term deposits and prepayments

Security deposits 30,759 28,480

Prepayments – 3,632

30,759 32,112

20 Stock-in-trade

Raw materials 18,762,548 16,053,378

Raw materials in transit 719,314 797,363
Work in process 91,312 93,386
PAKISTAN TOBACCO COMPANY

Finished goods 1,859,725 1,548,417

21,432,899 18,492,544
Provision for damaged stocks - note 20.1 (10,356) (3,154)

21,422,543 18,489,390

20.1 Movement in provision for damaged stocks is as follows:

Balance as at January 1 3,154 12,664

Provision for the year 87,325 18,962
Written off during the year (80,123) (28,472)

Balance as at December 31 10,356 3,154

144
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

21 Stores and spares

Stores and spares 744,834 699,741

Provision for slow moving items - note 21.1 (80,835) (65,712)

663,999 634,029

21.1 Movement in provision for slowing moving items is as follows:

Balance as at January 1 65,712 129,803

Provision / reversal of provision during the year 15,123 (64,091)

Balance as at December 31 80,835 65,712

22 Trade debts

These are unsecured, considered good.

23 Loans and advances

Related parties:
Advances to key management personnel for
house rent - note 23.1 2,140 2,079

Others:
Advances to executives for house rent and expenses 34,279 32,692
Advances to other parties 89,225 60,732

125,644 95,503

23.1 Advances were given to the following key management personnel

Mr Ahsen Altaf 990 990

Mr Hassan Khalid 450 –
Mr Umair Luqman 400 –
Ms Sana Saad 300 –
Mr Talat Mehmood – 99
Mr Khurram Javaid – 990

2,140 2,079

The maximum aggregate amount of advances to key management personnel outstanding at the end of any month during the
year was Rs. 2,140 thousand (2018: Rs. 2,079 thousand).

EXCELLING BEYOND BORDERS

These loans and advances are unsecured and considered good. Advances extended to key management personnel, executives
and other employees are deducted from the individuals’ monthly payroll as per Company’s policy.
ANNUAL REPORT 2019

145
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

24 Other receivables

Related parties - unsecured:

Due from holding company / associated companies - note 24.1 188,638 169,006
Due from subsidiary company - note 24.1 20,021 20,021
Staff pension fund - note 33 881,821 787,677
Management provident fund – 2,393
Staff pension fund - defined contribution – 712
Workers’ profit participation fund - note 27.7 – 159,385

Others:
Claims against suppliers 6,576 6,576
Cash margin with banks - imports 904,202 676,943
Others 130,654 39,428

2,131,912 1,862,141

24.1.1 Ageing analysis of the amounts due from holding company / associated companies comprises:

Upto 1 1 to 6 More than
month months 6 months 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Holding company:
British American Tobacco p.l.c. - UK 69,884 – – 69,884 3,569

Associated companies:
BAT Nigeria Ltd - Nigeria – 60,132 – 60,132 21,542
BAT (Investments) Ltd - UK 18,469 – – 18,469 –
Solomon Islands Tobacco Co Ltd - Solomon Islands 16,022 – – 16,022 –
BASS (GSD) Ltd - UK – 7,771 – 7,771 –
BAT Marketing (Singapore) Pte Ltd 5,427 – – 5,427 3,588
PT Bentoel Prima - Indonesia 4,041 – – 4,041 11,549
BAT Asia Pacific - Hong Kong 3,930 – – 3,930 416
PT Bentoel International Investama - Indonesia – 1,431 – 1,431 –
BAT PNG Ltd - Papua New Guinea 581 – – 581 –
BAT Polska SA - Poland 527 – – 527 –
Ceylon Tobacco Co. Ltd - SriLanka – – 160 160 –
BAT Fiji Ltd - Fiji 145 – – 145 –
BAT Tutun Mamulleri - Turkey 118 – – 118 1,458
BAT SAA Services (Private) Limited - Pakistan – – – – 124,153
PAKISTAN TOBACCO COMPANY

BAT Myanmar Ltd - Myanmar – – – – 1,881

BAT (Singapore) Pte Ltd - Singapore – – – – 706
BAT Romania Investment - Romania – – – – 144

119,144 69,334 160 188,638 169,006

Subsidiary company:
Phoenix (Pvt) Limited – – 20,021 20,021 20,021

Total 119,144 69,334 20,181 208,659 189,027

24.1.2 The maximum aggregate amount of receivable from related parties at the end of any month during the year was Rs 208,659
thousand (2018: Rs 189,027 thousand).
146
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

25 Short term investments

At fair value through profit or loss (FVTPL):

- Market treasury bills 3,001,058 8,699,508

This represents short term investment in treasury bills issued by the Government of Pakistan and carries effective interest rate of
13.14% ( 2018 : 9.82%) per annum and are held for trading. These treasury bills have less than three months maturity from the date of
acquisition and have been disposed off subsequent to the year-end.

2019 2018
Rs ‘000 Rs ‘000

26 Cash and bank balances

Deposit account - note 26.1 9,075 8,863

Current accounts:
Local currency 379,282 157,122
Foreign currency 145,874 122,175

534,231 288,160
Cash in hand 1,674 5,005

535,905 293,165

26.1 These are security deposits being kept in separate bank account.

2019 2018
Rs ‘000 Rs ‘000

27 Trade and other payables

Related parties - unsecured:

Due to holding company / associated companies - note 27.1 1,397,088 2,108,134
Others:
Creditors 5,206,714 9,069,600
Federal excise duty - note 27.2 7,255,338 5,288,160
Sales tax 1,283,563 1,135,412
Workers’ welfare fund - note 27.6 373,162 311,833
Workers’ profit participation fund - note 27.7 12,004 –
Other accrued liabilities 109,977 283,392
Employee incentive schemes - note 27.4 99,713 99,675
Employees’ gratuity fund - note 33 337,649 210,278
Employees’ provident fund 5,450 124
EXCELLING BEYOND BORDERS

Management provident fund 14,728 –

Staff pension fund - defined contribution 55,805 –
Tobacco excise duty / Tobacco development cess - note 27.3 118,134 103,884
Security deposits - note 27.5 9,075 8,863
ANNUAL REPORT 2019

Contract liability 16,817 2,013

16,295,217 18,621,368
147
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

27.1 The amount due to holding company / associated companies comprises:

2019 2018
Rs ‘000 Rs ‘000

Holding company:
British American Tobacco p.l.c. - UK 195,226 162,839

Associated companies:
BASS GSD Ltd. - UK 394,624 196,043
BAT GLP Ltd - UK 240,866 377,355
BAT ASPAC Service Center Sdn Bhd - Malaysia 185,834 562,944
BAT Singapore (Pte) Ltd - Singapore 121,168 493,357
BAT (Investments) Ltd - UK 92,321 –
BAT M.E DMCC - UAE - note 27.1.1 61,833 –
Solomon Island tobacco Co. Ltd - Solomon Islands 31,204 –
BAT Souza Cruz Ltd - Brazil 15,041 7,636
BAT Korea Manufacturing - South Korea 14,647 4,539
BAT Western Europe - UK 12,457 –
BAT Bangladesh Co. Ltd- Bangladesh 10,136 42,278
PT Bentoel Prima - Indonesia 9,520 5,670
BAT Tutun Mamulleri - Turkey 2,204 10,618
BAT GSD (KL) SDN BHD - Malaysia 2,052 –
BAT Australia Ltd-Australia 1,716 –
BAT Nicoventures Trading Ltd-UK 1,473 –
BAT Myanmar Ltd - Myanmar - note 27.1.1 909 40,932
BAT Argentina - Argentina 584 179
BAT Romania Investments Ltd - Romania 347 –
BAT Mexico Ltd - Mexico 143 424
BAT Nigeria Ltd - Nigeria 118 2,475
Ceylon Tobacco Company Plc - Sri Lanka 39 182
BAT Marketing (Singapore) Pte Ltd – 138,522
R.J Reynolds Tobacco Co - USA – 43,253
BAT Cambodia Ltd-Cambodia – 8,588
BAT JSC-Spb - Russia – 3,697
BAT Prilucky - Ukraine – 1,187
BAT South Africa (Pty) Ltd - South Africa – 1,052
BAT Germany GmbH - Germany – 599
BAT Chile Tobacco - Chile – 431
BAT Pecsi Dohanygyar Kft-Hungary – 206
BAT Polska S.A - Poland – 157
BAT Suisse - Switzerland – 139
PAKISTAN TOBACCO COMPANY

BAT Tabacalera - Honduras – 138

BAT Kenya Ltd - Kenya – 71
BAT PNG Ltd - Papua New Guinea – 51
BAT Niemeyer-Netherland – 15
Other
Tajamal Hussain Shah - Key Management Personnel 2,626 2,557

1,397,088 2,108,134

27.1.1 Rs 62,741 thousand (2018: 40,932 thousand) relates to unsecured export advance.
148
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

27.2 Federal excise duty

Balance as at January 1 5,288,160 2,089,200

Charged during the year 74,741,489 63,117,903
Payment to the Government during the year (72,774,311) (59,918,943)

Balance as at December 31 7,255,338 5,288,160

27.3 Tobacco excise duty / tobacco development cess:

Balance as at January 1 103,884 94,509

Charge for the year 212,829 204,890
Payment to the Government during the year (198,579) (195,515)

Balance as at December 31 118,134 103,884

27.4 Employee incentive schemes

These represent liability for unvested portion of cash-settled share-based payment schemes available to certain employees.
Such schemes require the Company to pay the intrinsic value of these share based payments to the employee at the vesting
date.

2019 2018
Rs ‘000 Rs ‘000

Long Term Incentive Plan (LTIP) - note 27.4.1

Balance as at January 1 29,580 90,307
Charge for the year 21,166 28,513
Share options exercised (15,362) (42,053)

Balance as at December 31 35,384 76,767

Deferred Share Bonus Scheme (DSBS) - note 27.4.2
Balance as at January 1 70,095 76,135
Charge for the year 42,989 48,069
Share options exercised (48,755) (54,109)

Balance as at December 31 64,329 70,095

(Reversal)/Charge other employee benefit – (47,187)

99,713 99,675

27.4.1 Long Term Incentive Plan (LTIP)

Details of the options movement for cash-settled LTIP scheme during the year were as follows:
EXCELLING BEYOND BORDERS

2019 2018
Number of options
ANNUAL REPORT 2019

Outstanding as at January 1 12,158 14,592

Granted during the year 7,994 7,201
Exercised during the year (2,779) (9,635)

Outstanding as at December 31 17,373 12,158

There are no exercisable options as at 31st December, 2019.
149
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

27.4.2 Deferred Share Bonus Scheme (DSBS)

Details of the options movement for cash-settled DSBS scheme during the year were as follows:

2019 2018
Number of options

Outstanding as at January 1 19,399 17,440

Granted during the year 12,184 11,110
Exercised during the year (9,862) (9,151)

Outstanding as at December 31 21,721 19,399

There are no exercisable options as at 31st December, 2019.

27.5 These represent amounts received as security deposits from dealers and suppliers, which are non-utilisable for the purpose of
the business in accordance with their agreements. These security deposits are being held in a separate bank account.

2019 2018

Rs ‘000 Rs ‘000

27.6 Movement in Workers’ Welfare Fund is as follows:

Balance as at January 1 311,833 265,538

Charged during the year 411,271 327,659
Payment to Government during the year (349,942) (281,364)

Balance as at December 31 373,162 311,833

27.7 Movement in Workers’ Profit Participation Fund is as follows:

Balance as at January 1 (159,385) (101,217)

Allocation for the year 982,004 820,615
Payments during the year (810,615) (878,783)

Balance as at December 31 12,004 (159,385)

28 Other liabilities

This relates to provisions for employee benefits, litigation and restructuring consequent to modernization of production processes.
During the year, the Company has consumed amounts aggregating Rs. 973 million (2018: Rs 505 million) and recorded further
obligations of Rs 1,541 million (2018: Rs 577 million).

29 Short term running finance - secured

(a) Short term running finance

PAKISTAN TOBACCO COMPANY

Short term running finance facilities available under mark-up arrangements with banks amount to Rs 6,500 million (2018: Rs
6,500 million), out of which the amount unavailed at the year end was Rs 6,500 million (2018: Rs 6,424 million). These facilities
are secured by hypothecation of stock in trade and plant and machinery amounting to Rs 7,222 million (2018: Rs 7,222 million).
The mark-up ranges between 10.52% and 14.05% (2018: 6.40% and 10.50%) per annum and is payable quarterly. The facilities
are renewable on annual basis.

(b) Non-funded finance facilities

The Company also has non-funded financing facilities available with banks, which include facility to avail letter of credit and
letter of guarantee. The aggregate facility of Rs 2,500 million (2018: Rs 2,500 million) and Rs 420 million (2018: Rs 420 million)
is available for letter of credit and letter of guarantee respectively, out of which the facility availed at the year end is Rs 83 million
(2018: Rs 227 million) and Rs 386 million (2018: Rs 324 million). The letter of credit and guarantee facility is secured by second
ranking hypothecation charge over stock-in-trade amounting to Rs 670 million (2018: Rs 670 million).
150
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

30 Lease liability

This represents lease agreements entered into with a leasing company for vehicles. Total lease rentals due under various lease
agreements aggregate to Rs 596,290 thousand - short term Rs 258,036 thousand and long term Rs 338,254 thousand (December 31,
2018: Rs 433,090 thousand - short term Rs 148,245 thousand and long term Rs 284,845 thousand) and are payable in equal monthly
instalments latest by December 2024. Taxes, repairs, replacement and insurance costs are to be borne by the Company. Financing
rates of 12.35% to 15.36% (December 31, 2018: 7.85% to 13.14%) per annum have been used as discounting factor.

As per IFRS 16 all rental facilities of the Company with lease terms greater than one year have been reclassified from operating leases
to leased assets. When measuring the lease liabilities for leases that were classified as operating leases, the Company discounted
lease payments using an estimated incremental borrowing rate at January 01, 2019. The estimated incremental borrowing rate applied
is 10%. At the date of initial application right of use of asset amounting to Rs. 1,448,717 thousand was recognised in property, plant and
equipment (Note 17.1) and lease obligation of Rs. 1,243,268 thousand was recognised after adjustment of prepaid rent amounting to
Rs. 205,449 thousand. Financing rates of 10% to 14% (December 31, 2018: Nil) per annum have been used as discounting factor.

Closing balance includes lease obligation of Rs 1,121,382 thousand - short term Rs 118,031 thousand and long term Rs 1,003,351
thousand (December 31, 2018: Rs Nil) on account of change in accounting policy IFRS 16.

The amount of future minimum lease payments together with the present value of the minimum lease payments and the periods during
which they fall due are as follows:

2019 2018

Rs ‘000 Rs ‘000

Present value of minimum lease payments 1,717,672 433,090

Current maturity shown under current liabilities (376,065) (148,245)

1,341,607 284,845

Future minimum lease payments
Not later than one year 552,925 182,441
Later than one year 1,760,855 328,407

2,313,780 510,848
Interest (596,108) (77,758)

Present value of minimum lease payments 1,717,672 433,090

Present value of minimum lease payments
Not later than one year 376,065 148,245
Later than one year 1,341,607 284,845

1,717,672 433,090
EXCELLING BEYOND BORDERS
31 Unpaid dividend

Unpaid dividend includes amount of Rs nil (2018: Rs 166,660 thousand), payable to British American Tobacco (Investments) Limited,
parent company.
ANNUAL REPORT 2019

151
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018

Rs ‘000 Rs ‘000

32 Deferred income tax liability

Deferred tax liability is in respect of:

Accelerated tax depreciation 1,270,770 898,482
Leased assets 100,263 63,405

1,371,033 961,887
Deferred tax asset is in respect of:
Remeasurement loss arising on employees’
retirement benefit (109,389) (57,810)
Provision for severance benefits (592,257) (296,600)
Provision for stock and stores (23,444) (18,401)

645,943 589,076

The gross movement on deferred income tax account is as follows:

At January 1 589,076 1,108,225
(Credit) / charge for the year - statement of profit or loss 108,445 (503,260)
(Credit) for the year - statement of comprehensive income (51,578) (15,889)

At December 31 645,943 589,076

33 Retirement benefits

Investments in all contributory funds have been made in accordance with the provisions of section 218 of the Companies Act, 2017 and
the rules formulated for that purpose.

2019 2018
Rs ‘000 Rs ‘000

Staff pension fund - asset - note 24 (881,821) (787,677)

Employees’ gratuity fund - liability - note 27 337,649 210,278

The latest actuarial valuation of the defined benefit plans was conducted at December 31, 2019 using the projected unit credit method.
Details of the defined benefit plans are:

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(a) The amounts recognised in the statement of

PAKISTAN TOBACCO COMPANY

financial position:

Present value of defined benefit obligations 4,978,396 4,628,109 1,650,937 1,474,653

Fair value of plan assets (5,860,217) (5,415,786) (1,313,288) (1,264,375)

Net (assets) / liability (881,821) (787,677) 337,649 210,278

152
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(b) Movement in the (asset) / liability recognised

in the statement of financial position
is as follows:

Balance as at January 1 (787,677) (765,618) 210,278 139,736

Charge for the year - profit and loss (37,069) (4,364) 105,427 85,868
Employer’s contribution during the year (30,507) 11,238 (148,794) (82,054)
Remeasurement (gain)/loss recognised in Other
Comprehensive Income (OCI) during the year (26,568) (28,933) 170,738 66,728

Balance as at December 31 (881,821) (787,677) 337,649 210,278

(c) The amounts recognised in the statement
of profit and loss:

Current service cost 95,605 97,559 94,064 86,113

Interest cost 627,565 437,944 201,833 133,716

Expected return on plan assets (729,114) (507,451) (174,173) (121,030)

Net interest (101,549) (69,507) 27,660 12,686

Members’ own contribution (24,456) (26,211) – –
Secondees’ own contribution (6,669) (6,205) – –
Contribution by employer in respect of secondees – – (16,297) (12,931)

(37,069) (4,364) 105,427 85,868

(d) Re-measurements recognised in Other
Comprehensive Income (OCI)
during the year:

Actuarial (gain) / loss on obligation (80,458) (436,665) 158,282 (25,865)

Net return on plan assets over interest income 53,890 407,732 12,456 92,593

Total remeasurements loss / (gain) recognised in OCI (26,568) (28,933) 170,738 66,728

(e) Movement in the present value of
defined benefit obligation:

Present value of defined benefit obligation

at January 1 4,628,109 4,759,609 1,474,653 1,416,319
Current service cost 95,605 97,559 94,064 86,113 EXCELLING BEYOND BORDERS
Interest cost 627,565 437,944 201,833 133,716
Actual benefits paid during the year (292,425) (230,338) (277,894) (135,630)
Remeasurements: Actuarial (gain) / loss

on obligation (80,458) (436,665) 158,282 (25,865)

ANNUAL REPORT 2019

Present value of defined benefit obligation

at December 31 4,978,396 4,628,109 1,650,938 1,474,653
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(f) Movement in the fair value of plan assets:

Fair value of plan assets at January 1 5,415,786 5,525,227 1,264,375 1,276,583

Interest income 729,114 507,451 174,173 121,030
Contribution by employer in respect of members 30,507 (11,238) 148,793 82,054
Members’ own contribution 24,456 26,211 – –
Secondees’ own contribution 6,669 6,205 – –
Contribution by employer in respect of secondees – – 16,297 12,931
Actual benefits paid during the year (292,425) (230,338) (277,894) (135,630)
Return on plan assets, excluding amounts included in
interest income (53,890) (407,732) (12,456) (92,593)

Fair value of plan assets at December 31 5,860,217 5,415,786 1,313,288 1,264,375

Actual return on plan assets 635,638 135,063 148,744 27,768

The Company expects to credit Rs 58 million for pension plan and charge Rs 128 million for gratuity plan for the year ending
December 31, 2020.

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(g) The major categories of plan assets:

Investment in listed equities 1,060,470 1,134,619 242,441 230,671

Investment in bonds 2,020,367 2,226,922 477,299 483,015
Cash and other assets 2,779,380 2,054,245 593,548 550,689

5,860,217 5,415,786 1,313,288 1,264,375

(h) Significant actuarial assumptions at
the statement of financial position date:

Discount rate 12.50% 13.75% 12.50% 13.75%

Pension increase rate 6.75% 7.50% – –
Expected rate of increase in salary
First year 11.75% 9.00% 11.25% 9.00%
Second year onwards 11.75% 12.50% 11.25% 12.50%

PAKISTAN TOBACCO COMPANY

The mortality table used for post retirement mortality is Standard Table Mortality The “80” Series PMA 80 (C=2015) and PFA
80(C=2015) for males and females respectively but rated up 2 years.

The discount rate is determined by considering underlying yield currently available on Pakistan Investment Bonds and high
quality term finance certificates and expected return on plan assets is determined by considering the expected returns
available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on
gross redemption yields as at the balance sheet date.

Salary increase assumption is based on the current general practice in the market.

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

(i) Sensitivity Analysis on significant actuarial assumptions

The calculation of the defined benefit obligation is sensitive to assumptions set out above. The following table summarizes
how the impact on the defined benefit obligation at the year end of the reporting period would have increased / (decreased)
as a result of a change in respective assumptions by one percent.

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
1 percent 1 percent 1 percent 1 percent
increase decrease increase decrease
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Discount rate (568,751) 701,742 (132,066) 151,406

Salary increase 169,440 (153,453) 155,805 (138,001)
Increase in post retirement pension 534,411 (443,874) – –

If life expectancy increases by 1 year, the obligation of the Pension Fund increases by Rs 292,406 thousand
( 2018: 256,706 thousand).

Expected maturity profile

Following are the expected distribution and timing of benefits payments at the year end.


Defined Benefit Defined Benefit
Pension Plan Gratuity Plan
2019 2018 2019 2018

Weighted average duration of the PBO (Years) 11.42 11.43 8.00 8.05

Risks associated with defined benefit plan

Longevity risk

The risk arises when the actual lifetime of retiree is longer than the estimate of future employee lifetime expectation. This risk is
measured at the plan level over the entire retiree population.

Salary increase risk

The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual
increases are higher than the expectations and impacts the liability accordingly.

Withdrawal risk

The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement
of the liability can go either way. EXCELLING BEYOND BORDERS

Historical Information

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
Present value of Net liability at Present value of Net liability at
ANNUAL REPORT 2019

defined benefit the end of defined benefit the end of

obligation the year obligation the year
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

2019 4,978,396 (881,821) 1,650,938 337,649
2018 4,628,109 (787,677) 1,474,653 210,278
2017 4,759,609 (765,618) 1,416,319 139,736
2016 4,654,000 (855,329) 1,433,183 (52,951)
2015 4,506,581 (346,701) 1,458,102 415,493
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

33.1 Salaries, wages and benefits as appearing in note 9, 10 and 11 include amounts in respect of the following:

2019 2018
Rs ‘000 Rs ‘000

Defined Contribution Provident Fund 94,106 91,296

Defined Benefit Pension Fund (37,069) (4,364)
Defined Contribution Pension Fund 116,520 95,803
Defined Benefit Gratuity Fund 105,427 85,868

278,984 268,603

33.2 Defined Contribution Plan

Details of the management and employees’ provident funds are as follows:

Un-audited Un-audited

(a) Size of the fund - total assets 1,747,719 1,768,572

Cost of investments made 1,588,501 1,562,298

Percentage of investments made 91% 88%

Fair value of investments made 1,583,001 1,599,719

2019 2018
Rs ‘000 % age Rs ‘000 % age

(b) Breakup of investments at cost

Pakistan Investment Bonds 251,725 14% 352,345 20%
Investment plus deposit certificates 605,250 35% 509,600 29%
Investment in savings account with bank 118,981 7% 145,922 8%
Investment in securities 311,711 18% 297,887 17%
Accrued interest 300,834 17% 256,544 15%
1,588,501 91% 1,562,298 88%

34 Share capital

34.1 Authorized share capital

2019 2018 2019 2018

Number of shares Rs ‘000 Rs ‘000

300,000,000 300,000,000 Ordinary shares of Rs 10 each 3,000,000 3,000,000

34.2 Issued, subscribed and paid-up capital

2019 2018 2019 2018
PAKISTAN TOBACCO COMPANY

Number of shares Rs ‘000 Rs ‘000

230,357,068 230,357,068 Issued for cash 2,303,571 2,303,571
25,136,724 25,136,724 Issued as bonus shares 251,367 251,367

255,493,792 255,493,792 2,554,938 2,554,938

British American Tobacco (Investments) Limited held 241,045,141 (2018: 241,045,141) ordinary shares at the year-end and 10,150
(2018:12,274) and 798,282 (2018:798,282) ordinary shares are held by the directors and associated company respectively.

All ordinary shares rank equally with regard to the Company’s residual assets. Holders of these shares are entitled to dividends as
declared from time to time and are entitled to one vote per share at general meetings of the Company.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

35 Contingencies and commitments

35.1 Contingencies

Claims and guarantees

(i) Claims against the Company not acknowledged as debt - Note 35.1.1 75,706 75,706
(ii) Guarantees issued by banks on behalf of the Company 385,730 323,587

35.1.1 Litigation

a) In the year 1979, the Market Committee Jhelum (“the Committee”), constituted under the Punjab Agriculture Produce Market
Ordinance of 1978 demanded the Company to obtain license and pay marketing fee on all tobacco that is transported into
the Jhelum factory of the Company. Since tobacco is not an agricultural produce and no transaction of any sale or purchase
of tobacco takes place in Jhelum, the Company refused to apply for the license. In 1986, the Committee proceeded against
the Company which resulted in protracted litigation, culminating in filing of a Review before the Supreme Court of Pakistan,
which was decided against the Company on technical grounds in 2010. Meanwhile, the Committee made their own fictitious
calculation and levied fee and penalties aggregating Rs. 64.9 million relating to years 1982 to 2010 against which the Company
filed a Writ Petition before the Lahore High Court, Rawalpindi Bench. The Lahore High Court granted a stay order suspending
demand of penalties amounting to Rs.60 Million and directed the Company to deposit Rs. 6 Million (being the principal amount)
with the court in the shape of National Saving Certificates. The matter is since then pending before the Lahore High Court,
Rawalpindi Bench.

b) In 2009, the Punjab Employees Social Security Institution (PESSI) demanded payment of social security contribution effective
October 2007, from the Company for the non-permanent workers hired at its Jhelum factory hired through third party contractors.
The Company has filed a complaint before the Director PESSI, which was kept pending till 2018 when an order was passed
against the Company. Thereafter, PESSI demanded payment of Rs. 2,306,513/- for the period from October 2007 till May 2010.
In 2018, the Company filed an appeal before the Judge Punjab Social Security Court, Labour Complex, Lahore, and the matter
is since then pending.

c) Tobacco Development Cess (TDC) is a tax levied and collected by the KPK pursuant to S. 11 of the KPK Finance Act, 1996 ( “the
Act”). The term “tobacco” was however not defined by the Act. Each year the Pakistan Tobacco Board (PTB), on the demand of
each tobacco buyer, fix Quota (i.e. the quantity of tobacco) to be purchased by each such tobacco buyer from the farmers. The
calculation of quantum of TDC to be paid by each tobacco buyer is based on the quantities indicated and purchased in terms
of Quota. Till 2002, TDC was collected from the tobacco buyers directly by Excise & Taxation Dept. (ETD). However, in 2003,
the provincial government, through an amendment in law, imposed TDC also on the surplus tobacco purchased by tobacco
buyers (i.e. purchase of tobacco beyond the Quota amount) (“the Surplus”). Additionally, the amended law also stipulated that
while the TDC on Quota shall be collected by ETD, TDC levied on the Surplus shall be collected by a contractor to whom ETD
has leased the collection through a public tender. Contract for the year 2005/06 was awarded to Malik Tilla Muhammad (“the
Contractor”) by PTB. The Contractor demanded payment of Rs. 8.8 Million from PTC on account of TDC, which claim was
rejected by PTC. The Contractor then filed a suit for recovery of Rs. 8.8 Million before a civil judge but the matter was referred
to Arbitration, with Chairman PTB as the Arbitrator. The Arbitrator passed an award whereby PTC was to pay Rs. 8,375,071/-
to Malik Tilla Muhammad Tilla. The said order was challenged by the Company through an appeal before the District Judge
EXCELLING BEYOND BORDERS

Peshawar and the appeal was finally decided in Company’s favor on June 29, 2019. The matter was remanded back to the trial
court / civil judge for cross examination of the arbitrator and deciding the matter afresh and the case is still pending.

d) Employees’ Old-Age Benefits Institution (EOBI) constituted under the Employees’ Old-Age Benefits Act, 1976 (“the Act”)
ANNUAL REPORT 2019

requires contributions to be made by industries and establishments against workers employed by it. PTC has been making
prompt contributions under the Act. PTC has contractual arrangements with Logistics Service Providers for the shipment of its
raw material and finished goods. In the year 2015, the EOBI Jhelum issued a show cause notice dated 04-03-2015, demanding
payment of Rs. 3,024,000/- against non-payment of contribution of 200 employees. These employees were in fact employees of
five transport concerns with which PTC had contractual arrangements. PTC filed complaint against the said show cause before
Adjudicating Authority – III, EOBI Islamabad and raised the objection that this liability is of the five transport concerns who are
independent entities. The Adjudicating Authority however passed an order against PTC on 14-02-2017, upholding the demand
earlier raised by the EOBI Jhelum. PTC has filed an appeal in May 2017 against the order before the Board of Trustees EOBI
Head Quarter at Karachi which is pending adjudication.
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

e) The Company hired the services of Tariq & Saad Associates (“T&S”) for providing consultancy services for the construction of
“Mianwali Mega Barn Project”. T&S started the work. Thereafter, during a meeting between Company and T&S, it was verbally
agreed that T&S would charge @ 2.25 % of estimated cost of the Project. However, payments to T&S were delayed due to some
issues in Company’s approval process from region. Consequently, declaring inordinate delay in payment, T&S served Notice
of Termination. T&S subsequently filed a civil suit for recovery in the district court of Islamabad, where the matter is pending
adjudication.

The Company expects favorable outcome in these matters and accordingly, no provision is recognised in the financial
statements.

35.2 Commitments
(a) All property rentals before adoption of IFRS 16 were under cancellable operating lease arrangements and were due as follows:

2019 2018
Rs ‘000 Rs ‘000

Not later than one year – 99,777

Later than one year and not later than five years – 375,899
Later than five years – 285,199

(b) Letters of credit outstanding at December 31, 2019 were Rs 83,392 thousand (2018: Rs 227,427 thousand).

36 Financial Instruments - Fair Values And Risk Management

36.1 Accounting classification and fair value

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels
in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at
fair value if the carrying amount is a reasonable approximation of fair value.

December 31, 2019 Fair value

Fair value Amortised Total Level 1 Level 2 Level 3

through profit cost
or loss
Note Rs ‘000 Rs ‘000

Financial assets measured at fair value

Short-term investments 25 3,001,058 – 3,001,058 – 3,001,058 –
Financial assets not measured at fair value
Deposits 19 – 30,759 30,759 – – –
Trade debts 22 – 4,260 4,260 – – –
Other receivables 24 – 2,131,912 2,131,912 – – –
Cash and bank balances 26 – 535,905 535,905 – – –

3,001,058 2,702,836 5,703,894 – 3,001,058 –

PAKISTAN TOBACCO COMPANY

Financial liabilities measured at fair value
Financial liabilities not measured at fair value
Trade and other payables 27 – (6,884,278) (6,884,278) – – –
Lease liability 30 – (1,717,672) (1,717,672) – – –
Accrued interest/mark-up – (25,735) (25,735) – – –

– (8,627,685) (8,627,685) – – –
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

December 31, 2018 Fair value

Fair value Amortised Total Level 1 Level 2 Level 3

through profit cost
or loss
Note Rs ‘000 Rs ‘000

Financial assets measured at fair value

Short-term investments 25 8,699,508 – 8,699,508 – 8,699,508 –
Financial assets not measured at fair value
Deposits 19 – 28,480 28,480 – – –
Trade debts 22 – 1,553 1,553 – – –
Other receivables 24 – 1,862,141 1,862,141 – – –
Cash and bank balances 26 – 293,165 293,165 – – –

8,699,508 2,185,339 10,884,847 – 8,699,508 –

Financial liabilities measured at fair value

Financial liabilities not measured at fair value
Trade and other payables 27 – (11,851,120) (11,851,120) – – –
Short-term Running finance 29 – (75,542) (75,542) – – –
Lease liability 30 – (433,090) (433,090) – – –
Accrued interest / mark–up – (5,331) (5,331) – – –

– (12,365,083) (12,365,083) – – –

36.2 Financial risk management

The Company has exposure to the following risks from financial instruments:

- credit risk
- liquidity risk
- market risk

36.2.1 Risk management framework

The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on the financial performance. Risk management is carried out by the Treasury Committee
(the Committee) under policies approved by the board of directors (the Board). The Board provides written principles for overall
risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk
and investment of excess liquidity. All treasury related transactions are carried out within the parameters of these policies.

36.2.2 Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from trade debts, other receivables, deposits with banks and investment in treasury bills
EXCELLING BEYOND BORDERS

issued by the Government of Pakistan. The carrying amount of financial assets represents the maximum credit exposure.

Due to the Company’s long standing business relationships with these counterparties and after giving due consideration to
their strong financial standing, management does not expect non-performance by these counter parties on their obligations to
ANNUAL REPORT 2019

the Company. Accordingly the credit risk is minimal.

Financial assets amounting to Rs 5,704 million (2018: Rs 10,885 million) do not include any amounts which are past due or
impaired. The table below shows bank balances held with counterparties at the balance sheet date.



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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Counterparty Rating Rating agency

Short term Long term 2019 2018

Rs ‘000 Rs ‘000

Cash at bank:
MCB Bank Ltd A-1+ AAA PACRA 317,091 47,133
Habib Bank Ltd A-1+ AAA JCR-VIS 15,647 3,192
Deutsche Bank AG P-2 Baa3 Moody’s 147,132 130,795
MCB Islamic Bank A-1 A PACRA 53,006 3,433
National Bank of Pakistan A-1+ AAA PACRA 893 101,113
Standard Chartered Bank A-1+ AAA PACRA 48 2,181
Citibank N.A. P-1 Aa3 Moody’s 414 313

534,231 288,160

Short term investments:

Government of Pakistan B3+ Moody’s 3,001,058 8,699,508

3,535,289 8,987,668

As at December 31, 2019, maximum exposure to credit risk for financial assets by geographic was as follows:

Carrying amount
2019 2018

Rs ‘000 Rs ‘000

Pakistan 5,515,256 10,839,994

United Kingdom 96,124 3,569
Asia & other 92,514 41,284

5,703,894 10,884,847

As at 31 December 2019, the ageing of financial assets was as follows:

Carrying amount
2019 2018

Rs ‘000 Rs ‘000

Not past due 5,616,409 10,856,369

Past due 1-30 days 60,728 1,881
Past due 31-90 days 160 –
Past due 90 days 26,597 26,597
5,703,894 10,884,847

36.2.3 Liquidity risk

PAKISTAN TOBACCO COMPANY

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as
far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed
conditions, without incurring unacceptable losses or risking the Company’s reputation.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and
undiscounted, and include contractual interest payments and exclude the impact of the netting arrangements:

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Carrying Contractual cash flows

amount Total 12 months 1 to 5
or less years
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

31 December 2019

Financial liabilities

Trade and other payables 6,884,278 (6,884,278) (6,884,278) –

Lease liability 1,717,672 (2,313,780) (552,925) (1,760,855)
Accrued interest/mark-up 25,735 (25,735) (25,735) –

8,627,685 (9,223,793) (7,462,938) (1,760,855)

31 December 2018

Financial liabilities

Trade and other payables 11,851,120 (11,851,120) (11,851,120) –

Lease liability 433,090 (510,848) (182,441) (328,407)
Short-term Running finance 75,542 (75,542) (75,542) –
Accrued interest/mark-up 5,331 (5,331) (5,331) –

12,365,083 (12,442,841) (12,114,434) (328,407)

Cash flows included in the maturity analysis are not expected to occur significantly earlier or at significantly different amounts.

36.2.4 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates will affect the Company’s
income or the value of its holding of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return.

Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. This exists due to the Company’s exposure resulting from outstanding payments on account of
import of goods and services. The currencies in which these transactions are primarily denominated are euro, sterling and US
dollars.

The summary quantitative data about the Company’s exposure to currency risk is as follows:

December 31, 2019 December 31, 2018

Euro Sterling US dollars Euro Sterling US dollars

Other receivables 55,953 187,712 5,928 – 48,361 21,638

EXCELLING BEYOND BORDERS

Cash and bank balances – – 941,945 – – 880,230

Trade and other payables (903,640) (2,751,771) (4,447,951) (1,310,664) (1,551,586) (15,899,171)

Net exposure (847,687) (2,564,059) (3,500,078) (1,310,664) (1,503,225) (14,997,303)

ANNUAL REPORT 2019

The following significant exchange rates have been applied:

Average rate Year-end spot rate
2019 2018 2019 2018

Euro 1 167.62 143.24 173.84 158.67
Sterling 1 191.06 161.90 205.16 176.78
US dollar 1 149.79 121.51 154.87 138.80
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

A 10 percent strengthening (weakening) of the Rupee against euro, sterling and US dollar at the reporting date would have
affected the measurement of financial instruments denominated in a foreign currency and affected the equity and profit or loss
by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and
ignores any impact of forecast sales and purchases.

Profit or loss Equity, net of tax

Strengthening Weakening Strengthening Weakening
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

December 31, 2019

Euro 14,736 (14,736) 10,388 (10,388)

Sterling 52,604 (52,604) 37,081 (37,081)
US dollar 54,206 (54,206) 38,210 (38,210)

31 December 2018
Euro 20,398 (20,398) 13,801 (13,801)
Sterling 25,958 (25,958) 17,563 (17,563)
US dollar 188,485 (188,485) 127,529 (127,529)

Interest rate risk

This represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is not exposed to fair value interest rate risk as it does not hold any fixed rate instruments.
The Company does not have any significant long-term interest-bearing financial assets or financial liabilities whose fair value or
future cash flows will fluctuate because of changes in market interest rates.

Financial liabilities include balances of Rs. 1,717,672 thousand (2018: Rs 433,090 thousand) which are subject to interest rate
risk. Applicable interest rates for these financial liabilities have been indicated in respective notes.

At statement of financial position date, if interest rates had been 1% higher/lower, with all other variables remaining constant,
profit for the year would have been Rs. 17.177 million (2018: Rs. 4.331 million) lower/higher, mainly as a result of higher/lower
interest expense on floating rate borrowings.

37 Remuneration of Chief Executive, Directors and Executives

The aggregate amounts charged in the financial statements of the year for remuneration including all benefits to Chief Executive,
Executive Directors and executives are as follows:-

Chief Executive Executive Directors Executives Total

Key Management Other

Personnel Executives

2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
PAKISTAN TOBACCO COMPANY

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Managerial remuneration 36,918 35,784 79,596 84,360 267,380 209,323 631,659 597,664 1,015,553 927,131
Corporate bonus 22,995 29,812 39,193 43,393 141,618 173,928 195,814 219,145 399,620 466,278
Leave fare assistance 1,603 1,279 5,618 3,138 8,021 8,950 - - 15,242 13,367
Housing and utilities 14,990 11,696 10,010 7,333 73,370 78,208 275,640 262,188 374,010 359,425
Medical expenses 261 1,084 578 1,507 7,221 10,097 40,780 46,804 48,840 59,492
Post employment benefits 10,426 13,475 6,590 4,199 37,940 40,575 146,784 131,483 201,740 189,732

87,193 93,130 141,585 143,930 535,550 521,081 1,290,677 1,257,284 2,055,005 2,015,425

Number of persons 1 1 3 2 30 26 252 247 286 276

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

37.1 The Company, in certain cases, also provides individuals with the use of company accommodation, cars and household items,
in accordance with their entitlements.

37.2 The aggregate amounts charged in the financial statements of the year for remuneration including all benefits to eight (2018:
six) non-executive directors of the Company amounted to Rs 11,438 thousand (2018: Rs 5,555 thousand).

38 Transactions with related parties

British American Tobacco (Investments) Limited (BAT-IL) holds 94.34% (2018: 94.34%) shares of the Company at the year end.
Therefore, all the subsidiaries and associated undertakings of BAT-IL and the ultimate parent company British American Tobacco, p.l.c
(BAT) are related parties of the Company. The related parties also include directors, major shareholders, key management personnel,
employee funds and the entities over which the directors are able to exercise significant influence. The amounts due from and due to
these undertakings are shown under receivables and payables. The remuneration of the chief executive, directors, key management
personnel and executives is given in note 37 to the financial statements. Transactions with employee funds and associated payable/
receivable balances are provided in note 33 to the financial statements.

2019 2018
Rs ‘000 Rs ‘000

Purchase of goods and services from:

Holding company 1,396,342 967,868
Associated companies 3,423,682 2,284,782

Sale of goods and services to:
Holding company 83,672 –
Associated companies 1,939,827 156,265

Dividend paid to:
Holding company 12,263,702 8,948,577

Royalty charged by:
Holding /associate company
Charged 427,710 2,364,433
Reversed (1,714,439) –
(1,286,729) 2,364,433

Expenses reimbursed to:
Holding company 11,182 22,749
Associated companies 4,552 25,785

Expenses reimbursed by:
Holding company 51,350 41,797
Associated companies 260,612 222,950

Payment under employee incentive schemes:
EXCELLING BEYOND BORDERS
Key management personnel 55,848 82,460

Other income:
Associated company:
Recharges written back 519,420 26,592
ANNUAL REPORT 2019
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

38.1 Following are the name of associated companies, related parties and associated undertakings with whom the Company had
entered into transactions or had agreements and arrangements in place during the year. Names of associated companies,
related parties and associated undertakings, incorporated outside Pakistan are included in note 38.2.

Aggregate % of
Associated company Basis of relationship shareholding

Pheonix (Private) Limited Subsidiary Nil

BAT SAA Service
(Private) Limited Common Directorship Nil

Retirement benefit funds:
Pension Funds Post employment benefits Nil
Provident Funds Post employment benefits Nil
Gratuity Fund Post employment benefits Nil

Zafar Mahmood Director 0.000196%
Usman Zahur Director 0.000978%
William Pegel Director 0.000978%
Syed Asad Ali Shah Director 0.000254%
Syed Javed Iqbal Director 0.000196%
Tajamal Shah Director 0.000196%
Syed Ali Akbar Director 0.000196%
Zafar Aslam Director 0.000196%
Belinda Ros Director 0.000196%
Asif Jooma Director 0.000196%
Mohammad Riaz Director 0.000196%
Lt. Gen (Rtd.) Muhammad
Masood Aslam Director 0.000196%
Husain Iqbal Jaffery Key management personnel Nil
Waqas Ahmed Khan Key management personnel Nil
Umair Luqman Key management personnel Nil
Ahsen Altaf Key management personnel Nil
M. Idries Ahmed Key management personnel Nil
Yusuf Zaman Key management personnel Nil
Khan Muhammad Mohmand Key management personnel Nil
Syed Hammad Ali Naqvi Key management personnel Nil
Muhammad Asim Key management personnel Nil
M.Ali Khan Key management personnel Nil
Syed Muhammad Ali Key management personnel Nil
Sana Saad Key management personnel Nil
Qadeer Hussain Key management personnel Nil
PAKISTAN TOBACCO COMPANY

Khuram Javaid Rajpoot Key management personnel Nil

164
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

38.2 Following particulars relate to associated companies incorporated outside Pakistan with whom the Company had entered into
transactions during the year or have arrangement / agreement in place.
Basis of Aggregate % Country of
Associated company relationship of Shareholding Incorporation

British American Tobacco p.l.c. Ultimate Parent Company 0.00% United Kingdom
BAT (Investments) Limited Holding Company 94.35% United Kingdom
BAT Rothmans International Holding Company 0.31% United Kingdom
Ceylon Tobacco Company Limited Common Directorship 0.00% Sri Lanka
British American Tobacco Myanmar Limited Common Directorship 0.00% Myanmar
British American Tobacco Argentina Fellow Subsidiary 0.00% Argentina
British American Tobacco Australia Fellow Subsidiary 0.00% Australia
BAT Bangladesh Company Limited Fellow Subsidiary 0.00% Bangladesh
Souza Cruz Ltd. Fellow Subsidiary 0.00% Brazil
BAT Switzerland SA Fellow Subsidiary 0.00% Swiztzerland
British American Tobacco Chile Fellow Subsidiary 0.00% Chile
BAT Germany GmbH Fellow Subsidiary 0.00% Germany
BAT (Brands) Limited Fellow Subsidiary 0.00% United Kingdom
Benson & Hedges (Overseas) Limited Fellow Subsidiary 0.00% United Kingdom
BAT (Holdings) Limited Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Western Europe Fellow Subsidiary 0.00% United Kingdom
BASS (GSD) Limited Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Fellow Subsidiary 0.00% United Kingdom
BAT Nicoventures Trading Ltd Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Asia Pacific Region Ltd Fellow Subsidiary 0.00% Hong Kong
BAT Pecsi Dohanygyar KFT Fellow Subsidiary 0.00% Hungary
British American Tobacco Kenya Ltd Fellow Subsidiary 0.00% Kenya
BAT Koea Ltd Fellow Subsidiary 0.00% South Korea
BAT Koea Manufacturing Ltd Fellow Subsidiary 0.00% South Korea
British American Tobacco Mexico Fellow Subsidiary 0.00% Mexico
BAT AsPac Service Centre Sdn Bhd Fellow Subsidiary 0.00% Malaysia
BAT GSD (KL) Sdn Bhd. Fellow Subsidiary 0.00% Malaysia
BAT Nigeria Ltd Fellow Subsidiary 0.00% Nigeria
British American Tobacco Niemeyer Fellow Subsidiary 0.00% Netherlands
British-American Tobacco Polska S.A Fellow Subsidiary 0.00% Poland
BAT Romania Investment Ltd. Fellow Subsidiary 0.00% Romania
BAT (Romania) Trading SRL. Fellow Subsidiary 0.00% Romania
JSC BAT-Spb Fellow Subsidiary 0.00% Russia
British-American Tobacco (Singapore) Pte Ltd Fellow Subsidiary 0.00% Singapore
BAT Marketing (Singapore) Pte Ltd Fellow Subsidiary 0.00% Singapore
British American Tobacco Tutun Mamulleri Fellow Subsidiary 0.00% Turkey
West Indian Tobacco Co. Ltd Fellow Subsidiary 0.00% Trinidad & Tobago
PJSC A/T B.A.T Prilucky Tobacco Co. Fellow Subsidiary 0.00% Ukraine
R J Reynolds Tobacco Company Fellow Subsidiary 0.00% United States
British American Tobacco South Africa (Pty) Ltd. Fellow Subsidiary 0.00% South Africa
British American Tobacco ME DMCC Fellow Subsidiary 0.00% United Arab Emirates
BAT GCC DMCC Fellow Subsidiary 0.00% United Arab Emirates
EXCELLING BEYOND BORDERS

BAT Egypt Ltd. Fellow Subsidiary 0.00% Egypt

Central Manufacturing Company Ltd Fellow Subsidiary 0.00% Fiji
PT Bentoel Internasional Investama Fellow Subsidiary 0.00% Indonesia
PT Bentoel Internasional Prima Fellow Subsidiary 0.00% Indonesia
British American Tobacco (Malaysia) Fellow Subsidiary 0.00% Malaysia
ANNUAL REPORT 2019

Tobacco Importers and Manufacturers Fellow Subsidiary 0.00% Malaysia

British American Tobacco (PNG) Ltd Fellow Subsidiary 0.00% Papua New Guinea
British American Tobacco Vranje AD Fellow Subsidiary 0.00% Serbia
BAT Services Ltd., Taiwan Branch Fellow Subsidiary 0.00% Taiwan
Tabacalera Hondurena S.A. Fellow Subsidiary 0.00% Honduras
Solomon Islands Tobacco Co. Ltd. Fellow Subsidiary 0.00% Solomon Islands
British American Tobacco (Cambodia) Fellow Subsidiary 0.00% Cambodia
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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

2019 2018
Rs ‘000 Rs ‘000

39 Cash generated from operations

Profit before taxation 18,284,917 15,279,854

Adjustment for non-cash items:
- Depreciation / impairment 1,367,476 941,723
- Gain on disposal of property, plant and equipment (134,391) (21,259)
- Finance cost 202,553 33,828
- Finance income (812,571) (742,648)
- Foreign exchange loss 445,162 195,523
- Provision /(Reversal of provision) for slow moving
stores and spares 15,123 (64,091)
- Provision / (reversal of provision) for stock-in-trade 7,202 (9,510)
- Provision for staff retirement benefit plans 278,984 266,205

1,369,538 599,771
Changes in working capital:
- Stock-in-trade (2,940,355) (4,018,990)
- Stores and spares (45,093) 23,971
- Trade debts (2,707) 1,083
- Loans and advances (27,684) (25,275)
- Short term prepayments 234,014 (37,188)
- Other receivables (181,189) (884,657)
- Trade and other payables (2,898,684) 7,695,567
- Other liabilities 567,124 199,213

(5,294,574) 2,953,724

Changes in long term deposits and prepayments 1,353 207

14,361,234 18,833,556

40 Reconciliation of movement of liabilities to cash flows arising from financing activities

Liabilities Equity Total

Unclaimed / Finance lease Revenue
Unpaid Dividend obligations reserves

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2018 264,303 425,295 14,356,260 15,045,858

Changes from financing cash flows:

PAKISTAN TOBACCO COMPANY

Finance lease payments – (251,525) – (251,525)

Dividend declared 9,453,270 – (9,453,270) –
Dividend paid (9,436,117) – – (9,436,117)

Total changes from financing cash flows 17,153 (251,525) (9,453,270) (9,687,642)

Other changes:

New finance leases – 259,320 – 259,320

Total equity-related other changes – – 10,307,696 10,307,696

Balance at December 31, 2018 281,456 433,090 15,210,686 15,925,232

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2019

Liabilities Equity Total

Unclaimed / Finance lease Revenue
Unpaid Dividend obligations reserves

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2019 281,456 433,090 15,210,686 15,925,232

Changes from financing cash flows:

Lease payments – (709,437) – (709,437)

Changes in Dividend payable
Dividend declared 12,263,701 – (12,263,701) –
Dividend paid (12,400,182) – – (12,400,182)
Total changes from financing cash flows (136,481) (709,437) (12,263,701) (13,109,619)

Other changes:

New leases – 1,994,019 – 1,994,019

Total equity-related other changes – – 12,788,932 12,788,932

Balance at December 31, 2019 144,975 1,717,672 15,735,917 17,598,564

41 Post balance sheet event

In respect of the year ended December 31, 2019 final dividend of Rs 23.00 (2018: Rs 22.00) per share amounting to a total dividend
of Rs 5,876,357 thousand (2018: Rs 5,620,863 thousand) has been proposed at the Board of Directors meeting held on February 24,
2020. These financial statements do not reflect this proposed dividend.

42 General

42.1 Corresponding figures

Corresponding figures have been rearranged and reclassified, wherever considered necessary, for the purposes of comparison
and to reflect the substance of the transactions.

42.2 Date of authorization for issue

These financial statements have been authorised for circulation to the shareholders by the Board of Directors of the Company
on February 24, 2020.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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PAKISTAN TOBACCO COMPANY
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PAKISTAN TOBACCO COMPANY LIMITED

CONSOLIDATED
FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
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CHAIRMAN’S REVIEW
(Consolidated Accounts)

I am pleased to share the Annual Report for the year 2019.

2019 Performance: in Islamabad and Swabi. Furthermore, in

collaboration with the National Rural Support
revenue losses of close to Rs 62 bn per
annum for the Government. Thus, it is in the
In 2019, Pakistan Tobacco Company Limited Programme, PTC developed 21 afforestation best interest of all stakeholders that stringent
and the duty paying tobacco industry overall blocks in the province of Punjab. action is taken by the relevant law enforcing
faced multiple challenges. The excessive authorities to curb the illicit sector.
excise increase-driven pricing in June 2019, Amongst our other Corporate Social
which had been preceded by a similar pricing Investments, the Company continued to In addition, it is necessary to take into account
increase in September 2018, raised the price provide free medical advice and medicines the regulations concerning tobacco/tobacco
difference between legal brands and duty not under its Mobile Doctor Unit program. In 2019, products’ advertising, sponsorship and
paid (DNP) brands. This resulted in the growth more than 76,000 patients took medical advice promotion, which have been recently issued
of market share of the illicit sector by 5.5% in and medicines under this program. PTC also by the Ministry of National Health Services,
2019, which also resulted in a corresponding has 5 water filtration plants in Lahore and Regulations and Coordination (MNHSRC).
decline of Government revenues in the Jhelum with a filtration capacity of 1 million These regulations have been enacted by
second half of 2019 (July – Dec). Currently, liters per day, which benefit hundreds of MNHSRC without any industry consultation,
the market share of the illicit sector is 36.9% thousands of people annually. Lastly, more and in making these new regulations no
which translates to a revenue loss of close than 450 farmers are benefiting from the PTC consideration appears to have been given
to Rs 62 bn per annum for the Government. lift irrigation system that provides water to more by the MNHSRC to the fact that the existing
Strong enforcement action and appropriate than 1,000 hectares of agricultural land of extensive legal/regulatory framework on
fiscal reforms will help provide a level playing Buner district. tobacco advertising has not been effectively
field to the duty paying industry and thereby enforced and has been regularly breached

Corporate Governance:
lead to substantially higher tax revenues for the by various members of the DNP sector.
Government. Notwithstanding this challenge of weak
PTC takes pride in its compliance with enforcement, the Company is geared to deal
Despite the challenge from the growing good corporate governance practices. A with these regulations in accordance with the
duty evading segment and the tough comprehensive system of controls, governance law.
macroeconomic indicators, the Company’s and risk management is in place to ensure
overall financial position has remained healthy. that the Company’s assets and the interests PTC also believes in recruiting the best talent
The Company grew market share in the of the shareholders are protected. With the in Pakistan which will provide us the human
legitimate sector by 95 bps and delivered acquisition of Reynolds American Inc. by the capabilities to excel in a challenging business
EPS growth of 24.7%. This has been achieved BAT Group and subsequent adherence to environment. The senior management of the
by keeping a strong focus on effective cost all of the Sarbanes-Oxley regulations (SOx), Company and I have full confidence in the
management, lean operations and investment the Company’s controls and governance long-term sustainability of our business and in
in brands portfolio to offer products which environment has improved significantly. The the efficacy of its leadership.
reflect evolving consumer preferences. compliance to all the SOx controls is monitored
by external auditors and the Group’s internal Our business rests on strong and durable
The Company built further on its ongoing compliance teams. foundations, which have stood the test of
tobacco exports journey by launching the time, and it has the necessary dynamism and
export of finished goods through its “Made The Company also requires its employees enterprising spirit to ensure the delivery of
in Pakistan” initiative in May 2019. By the end to operate and deliver with integrity. The sustainable growth for the long-term. I have
of 2019, the tobacco exports journey which Company’s Standards of Business Conduct faith that the Company will continue to provide
began in 2018 had reaped approximately US$ makes it categorical that corrupt practices an attractive value for its shareholders in the
11 million earnings through exports to the GCC are unacceptable. This message is cascaded future.
countries and Yemen. The Company has huge and internalized across the Company through
potential to grow its export operations further face to face and online trainings conducted
in the coming years which will also bring in throughout the year. Furthermore, channels
valuable foreign reserves in the country. have been established and made available
for anyone working in or with the Company to
Corporate Social raise their concerns in confidence and without
PAKISTAN TOBACCO COMPANY

fear of reprisal.
Investments: Zafar Mehmood | Chairman

PTC has been one of the pioneers in Pakistan Business Sustainability:

of promoting Corporate Social Investments.
PTC’s strategic objectives are aimed at
PTC is running one of the largest private sector
building a business which can be sustained
afforestation programs in Pakistan since 1981.
over a long-term period. The Company is
Under this initiative, the Company plants and
focused on building its capacity to operate
distributes tree saplings free of cost and during
effectively while consolidating its standing
2019 the Company planted and distributed
as the export hub for the Group by taking its
more than 3.9 million saplings. A new nursery
Made in Pakistan initiative to the next level of
was established under this program in Jhelum
achievement. However, the presence of a large
which planted and distributed more than
illicit sector remains an area of concern, as it
220,000 saplings. This nursery is in addition
continues to create major sustainability issues
to the already established four nurseries
for the duty paying industry while causing
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DIRECTOR’S REPORT
(Consolidated Accounts)

The Directors Present The Annual Report Of Pakistan Tobacco Company

Limited (PTC) Along With The Audited Financial Statements Of The Company
For The Year Ended December 31, 2019.

Graph 1

Macroeconomic Environment Illicit Market Share

(%)
40
In 2019, Pakistan faced multiple challenges on the economic
front. GDP growth of 3.3% in FY2018-19 compared to 5.8%
in the same period last year (SPLY), led to a broad-based 5.5% growth in 2019
36.9
weakening in domestic demand. The growth rate is expected
36.0
to further decelerate to 2.8% in 2020, as the Government is
expected to continue with the tight monetary and fiscal policies. 35 34.7

33.1

The reported inflation rate climbed from 7.2% in January 2019 to 32.4 32.5
32.8

12.6% in December 2019. To manage higher inflation, the policy 31.4 31.6 31.5
31.8 31.9

rate was increased by the Monetary Policy Committee of the

State Bank of Pakistan from 10.7% to 13.2%. For the purpose of 30
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
adjusting the real value of the Pakistani Rupee against the US
dollar, the Rupee lost a further 11.5% against the US dollar in
2019. Graph 2
Government Revenues
(Rs Bn) 4% decline in H2 2019
30 28.7

Industry Overview 25 23.6

26.3 26.0

20.2
2019 was a challenging year for the legitimate/organised 20 18.5
19.1
18.8

tobacco industry due to growing and unabated increase of the 15

illicit cigarette trade coupled with weak enforcement. The illicit
10
cigarette trade comprises of three types of tax-evaded products:
products that are smuggled into the country; counterfeit; and 5

not duty and tax paid locally manufactured brands. In Pakistan, 0

Q1 Q2 Q3 Q4
this problem is predominantly home grown, whereby most of the 2018 2019
Excise Rates: Excise Rates:
illicit cigarette trade comprises local duty-not-paid brands. On Value for Money Value for Money
- Rs 25 per pack - Rs 33 per pack (32% Inc)
the back of duty and tax evasion, these brands are available in Premium: Rs 90 per pack Premium: Rs 104 per pack (15% Inc)

the market at an average price of Rs 38/pack, which is not just

Graph 3
lower than the Government mandated minimum price of Rs 63/
Price Gap vs Duty not Paid
pack, but even lower than the minimum excise and sales tax (Rs per pack)
payable per pack i.e. Rs 44/pack. Value for money weighted average price
Illicit weighted average price
Price Index

As a consequence of the growing economic pressures due to 80 77.5 77.5

EXCELLING BEYOND BORDERS

fiscal and monetary tightening, the legitimate tobacco industry

was forced to take two excise led price increases. The excise 70

rates of lower tier brands doubled in a span of 8 months which

58.0 58.0
caused consumers’ downtrading in favor of non-duty paid 60
204.5 204.5

cigarettes. These price increases have not only resulted in

ANNUAL REPORT 2019

50
substantial share growth of non-duty paid brands but have also 200.7 193.3

adversely impacted Government revenues despite an increase 40

37.9 37.9

in excise duties in Sep’18 and the June’19 fiscal budget. This is 30.0
28.9
also illustrated in Graphs 1 & 2 below: 30

20
Q1 - 2019 Q2 - 2019 Q3 - 2019 Q4 - 2019
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DIRECTOR’S REPORT
(Consolidated Accounts)

Post budget, the worsening price indexation to illicit excise duty of Rs 300/kg to Rs 10/kg which in effect provides
cigarettes (in excess of 204% as per Graph-3) led to the further incentive for the undocumented manufacturers.
sizeable increase in counterfeit varieties of PTC brands.
Timely measures were taken by your Company, whereby With the rapidly growing share of illicit cigarettes, the
resources were reallocated to deal with the issue through Government’s focus on enforcement is of paramount
launching an aggressive anti-counterfeit campaign. Printed importance. In late 2019, the Government of Pakistan
tear off ribbon was introduced for products in the VFM revived and formally set up the Inland Revenue Enforcement
segment as an anti-counterfeit measure to protect PTC’ Network (IREN) through a notification. The Company
customers. In addition to this, over 6 million consumers were believes that with consistent and effective enforcement by
contacted via 1-2-1 retailer communications and awareness IREN, the Government can eradicate the undocumented
campaigns. There is, however, a simultaneous need for sector that is thriving by violating most of the existing
the Government to carry out strict enforcement against regulations enacted by the Government. To counter the
the counterfeit producers who are not only affecting the growing trade in illicit cigarettes, the provincial and district
legitimate industry but are also depriving the Government of administrations through their law enforcement officials will
much needed tax revenues. have to play a pivotal role to offer a level playing field to
the legitimate tobacco players who still have the potential
In Pakistan, smuggled cigarettes also represent a to deliver an additional Rs 62 bn of Government revenues.
sizable portion of the illicit cigarette trade. The sale of There is also a need to strengthen legislation by enhancing
smuggled cigarettes causes a two-fold revenue loss to the penalties for violation of the relevant laws dealing with illicit
Government; firstly, the applicable taxes/duties on the sale cigarettes and by making such offences non-bailable and
of the smuggled packs are not duly paid; and secondly, the cognizable; such measures will make it difficult for illicit
sale of smuggled packs signifies a corresponding decline in players to operate beyond the realm of the law.
the sale of duty paid packs.
PTC supports the deployment of a track and trace system
Anomalies in the law need to be addressed so that to curb illicit cigarette trade. If introduced, its success will be
confiscated smuggled cigarettes are not auctioned and sold dependent upon effective implementation across the board
in the market. Under the current law, the seized cigarettes to all manufacturers and robust enforcement at manufacturer
must be offered to PIA/Duty Free Shops for sale on and retail level. For this purpose, the Government needs to
appraised value with 25% discount, but in actual fact neither ensure that the relevant rules/regulations dealing with the
PIA nor the Duty-Free Shops purchase these cigarettes. implementation of the track and trace system contain penal
When the PIA or the Duty-Free Shops do not purchase these provisions with appropriate penalties so that violators of the
goods, they are put up for auction and make their way back rules/regulations are effectively prosecuted.
to the normal trade channels. It is strongly recommended
that the seized smuggled cigarettes should not be allowed
to be sold in the local market as they lack the graphical Company Performance
health warning prescribed by local law for all cigarette packs In 2019, the Company witnessed a decline in sales
to be sold in Pakistan; therefore, it is critical to maintain both volume of 15%. This is primarily attributable to consumers
compliance with law and protect Government revenues downtrading to duty evaded cigarettes due to two excise-
that these cigarettes are destroyed. It is also a fact that the led price increases in June 2019 and September 2018. In
receipt issued in respect of the auctioned lot is fraudulently the legitimate sector, the Company continues to maintain its
used multiple times by dealers of smuggled cigarettes to leadership and grew market share by 95 bps in 2019, with
PAKISTAN TOBACCO COMPANY

falsely show that they have been obtained through a legal a market share of 75.4% of the legitimate market. (Source:
process, and this further facilitates multiple sale of smuggled Access Retail – Retail Audit). This has been delivered on
cigarettes. the back of a robust brand portfolio strategy on which
significant investments have been made during the year to
Positive initiatives were taken in the previous year by way of offer products which reflect evolving consumer preferences.
enhanced documentation through increasing the adjustable In FY2018-19, the Company also contributed Rs 103.5bn to
advance tax payable by manufacturers. The higher advance Government revenues in the form of excise duties, sales tax
excise duty and requirement to document the purchase and income tax.
and processing of tobacco leaf had increased the cost of
doing business for the duty-not-paid sector. However, during The Company remains focused on enhancing productivity
the year, the Government reduced the adjustable advance throughout the value chain. This is ensured through
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effective cost management, delivering lean operations and 2.1 Profit & Loss Analysis
continuous modernization of the machinery footprint. During
the year under review, the Company embarked on its very Net Turnover witnessed declined by 2%. Decline in
NTO is primarily due to 15% decline in sales volume.
first “Made in Pakistan” exports journey by becoming a
The impact of volume decline was partially offset
new export hub for the BAT Group. The Company has huge
by excise-led price increase taken in 2019. Prices
potential to grow its export operations further in the coming
increased by 14% in Premium segment and by 34% in
years which will generate valuable foreign currency for the
Value for Money segment of portfolio.
country.
Cost of Sales also decreased primarily due
The Company’s cost base remained under pressure to reduction in sales volume. The cost base
throughout 2019 in the wake of currency devaluation, was adversely impacted during the year due to
increasing inflation and higher regulatory duties. Despite devaluation of local currency, increase in regulatory
these challenges, the Company continued to focus on duties and inflationary pressures. These were
effective cost management and delivered multiple efficiency mitigated through multiple productivity savings
improvement projects, thereby allowing it to keep costs in initiatives and focus on efficiency in production
check. processes.

With people at the core of its delivery, the Company has a Selling & Distribution Costs: Selling & distribution
strong focus on people by attracting and retaining the best expenses declined by 6% which is also linked to
talent in the country. In 2019, PTC was awarded the Top reduction in sales volume. However, significant
Employer Award 2019. Moreover, for its drive and consistent investments have been made in brand portfolio in
focus on Diversity and Inclusion, the Company was also 2019 to ensure that brand portfolio is differentiated
awarded the “Global Diversity & Inclusion, Progressive and addresses consumer needs.
Award 2019”.
Other Operating Expenses increased by 35%
As a responsible corporate citizen, PTC runs one of the during 2019. The major portion of this increase is
attributable to foreign exchange loss incurred due to
largest private sector afforestation programs and a Mobile
local currency devaluation in 2019. Other operating
Doctor Unit (MDU) program. Under its flagship afforestation
expenses also increased due to higher Workers Profit
program running since 1981, the Company planted and
Participation Fund/Workers Welfare Fund statutory
distributed more than 3.9 million saplings free of cost in
charges which are determined based on profit
2019. A new nursery was also completed in Jhelum, this
numbers.
is in addition to the already established four nurseries in
Islamabad, Faisalabad and Swabi. Under the MDU program, Net Finance Income increased by 9% in 2019, as
the Company dispensed medical advice and medicines to the Company capitalized on the investment of surplus
more than 76,000 patients in 2019 free of cost. funds at market competitive rates and efficient
working capital management.
Rs. (million) Rs. (million)
Jan-Dec, Jan-Dec, 2.2 Statement Of Financial Position
2019 2018
Analysis
Gross Turnover 149,025 137,116
Property, Plant & Equipment: The Company
EXCELLING BEYOND BORDERS

FED/Sales Tax 97,050 84,004 recorded an increase in property, plant and

Net Turnover 51,975 53,112 equipment during 2019 due to adoption of IFRS 16
Cost of Sales 25,765 29,829 whereby all lease agreements greater than 1 year
were capitalized. The increase was also driven by
Gross Profit 26,210 23,284
ANNUAL REPORT 2019

the Company’s effort to upgrade manufacturing

Operating Profit 17,675 14,571 capacities and infrastructure to support better product
Profit Before Tax – PBT 18,285 15,280 quality, innovation and higher operating efficiencies.
Profit After Tax – PAT 12,889 10,338
Earnings Per Share – EPS (Rs.) 50.45 40.46
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DIRECTOR’S REPORT
(Consolidated Accounts)

Stock in Trade increase was primarily attributable 2.4 Contribution To National

to raw material stock and finished goods buildup
to mitigate the adverse impact of future currency Exchequer
devaluation and to deal with any production Despite the challenges faced from the duty-not-paid
disruptions sector, PTC continues to remain one of the largest
contributors to the national exchequer. During FY
Short Term Prepayments reduced in 2019 due 2018-19, PTC for the first time crossed the Rs 100 bn
to reclassification of prepayments related to rental mark with tax payment of Rs 103.5 bn related to sales
facilities under operating leases to finance leased tax, excise duties and income tax. During the 2019
assets under IFRS16. calendar year however, the Company contributed a
total of Rs 102.4 bn in the form of excise duties, sales
Other Receivables mainly includes balances related tax and income tax despite the volume reduction.
to cash margins withheld by banks to comply with
State Bank import regulation to deposit 100% cash In order to maintain growth in revenues from the
margin against arrangements/contracts for import Tobacco industry, the Government needs to have
of raw material. Balance under this head increased a sharper focus on enforcement and curtailing the
in 2019 due to local currency devaluation and stock growth of the duty-not-paid sector. Increase in market
build up done on imported materials. share of the illicit sector, already elaborated, is
indicative of the huge revenue loss which is close to
Short term investments are done in Government Rs 62 bn. Thus, it is imperative that the illicit sector is
treasury bills which recorded decrease from previous curtailed through use of both fiscal and administrative
year due to lower availability of surplus funds from measures.
sales cash inflows at the end of the year.

Current Liabilities reduced due to lower payables

2.5 Profit Distribution & Reserve
outstanding at year end to internal and external Analysis
vendors. Balance last year also included dividends
The Company started the year with reserves of Rs
payable which were paid in 2019.
15.2 bn. During the year, final dividend of Rs 22 per
share related to the year ended 2018, was approved
Share capital & reserves increased due to profits
by shareholders and was subsequently paid. In 2019,
retained after paying out dividends that were declared
the Company earned net profit of Rs 12.9 bn and
during the year.
paid two interim dividends of Rs 13 per share. The net
reserves position of the Company at year end stands
2.3 Liquidity Analysis at Rs 15.7 bn. The details of appropriations are also
elaborated in the table below:
PTC’s Treasury function is responsible for raising
finances for the Company as required, managing its Rs. Rs. Per
cash resources and mitigating the financial risks that (million) Share
arise during its business operations. Clear parameters
Opening Reserves 15,211
have been established, including levels of authority as
well as the type and use of financial instruments. All Final Dividend 2018 (5,621) 22.00
treasury related activities are executed as per defined Net Profit 2019 12,889 50.45
policies, procedures and limits. These are reviewed Other Comprehensive Income (100)
PAKISTAN TOBACCO COMPANY

and approved by the Board or the delegated authority

Available for Appropriation 22,379
to the Finance Director/Treasury Committee.

Appropriations:
Interim Dividends 2019 (6,643) 26.00
Closing Reserves 15,736
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2.6 Final Dividend the exports process. The program enabled soft skill
capability development, inculcated a sense of pride
The Board of Directors of PTC in its meeting held on and proved to be a key success driver. In 2019, PTC
February 24, 2020 is pleased to recommend a final exported over 190+ million Cigarettes and around 3
cash dividend of Rs. 23/share for the year ended million KGs of tobacco worth $11 Mn.
December 31, 2019 (2018: Rs. 22.0 per share), for the
shareholders’ approval. This recommendation will be PTC’s Operations continued the journey towards
subject to approval of the shareholders in the Annual manufacturing excellence through the Integrated
General Meeting, scheduled on April 24, 2020. Work System (IWS) program with Akora Khattak
factory achieving Phase 1 certification in Sep’19 while
2.7 Consolidated Financial Jhelum factory continued its journey for Phase 2
readiness.
Statements And Segmental
Review 3.1 EH&S – Environment, Health &
Consolidated financial statements, as included in this
Annual Report, combine the performance of Pakistan
Safety
Tobacco Company Limited and its wholly owned Significant awareness and infrastructural
subsidiary, Phoenix (Private) Limited. The subsidiary improvements have been made in relation to
Company is dormant and has not commenced Environment, Health & Safety processes and
commercial operations. procedures at the manufacturing plants. Keeping
in view the energy crisis, multiple initiatives were
undertaken in 2019 like installation of 125KW solar
2.8 Subsequent Events Review power plant across both factories and setting up
The Management has assessed events arising the first ever solar powered leaf buying and storage
subsequent to the end of the financial year of the depot. Furthermore, a focus on consumer centric
Company till the date of the report and hereby, quality of the Company’s products has ensured
confirms that no material changes and commitments a significant reduction in consumer complaints
affecting the financial position of the Company have during the year. PTC’s manufacturing has been
occurred during this period. globally recognized in BAT Group for the efforts and
outstanding results delivered through this drive for
excellence.
3 Operations Review
PTC has a full seed to smoke business encapsulating
two factories and one of the largest leaf operations 4. Marketing Review
in the BAT Group. With the aim of enhancing 2019 was a difficult year with consumer affordability
productivity throughout the value chain, the Company coming under stress due to economic tightening
has a strong focus on effective cost management, and price increases in all segments of the portfolio.
lean operations and continuous modernization of the Despite the challenges faced, investments were
machinery footprint. made in the brands portfolio.

During 2019, the Company, in line with the The Value for Money (VFM) segment witnessed Gold
Government’s vision, launched its export initiative Flake’s migration to Rothmans of London; a transition
titled “Made in Pakistan” and earned the position of that has seen the brand enhance its equity and mix.
EXCELLING BEYOND BORDERS

being the export hub for the BAT Group. This is with This was a strategic intervention which has helped
a view to export factory manufactured cigarettes & the brand significantly in building its image in one
tobacco to GCC and other Middle East countries, and of the most dynamic consumer segments. Despite
the full annual potential of this project for Pakistan heavy inflationary pressure, Capstan by Pall Mall has
ANNUAL REPORT 2019

is estimated to be $50 Mn. A change management maintained its position as the biggest and most loved
program under the “Made in Pakistan” initiative was tobacco brand in Pakistan as a result of innovative
launched with change champions driving multiple and engaging “Always On” activations that leveraged
sessions covering the entire population involved in various consumer moments.
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DIRECTOR’S REPORT
(Consolidated Accounts)

Post the excise increase of 2019, consumer carry out a comprehensive assessment of globally
affordability of PTC’s VFM segment came under defined key controls that are expected to be in place
severe pressure from illicit cigarettes in the market. To and operating effectively. Any non-compliances and
remain competitive in the VFM segment, Pall Mall and material weakness are reported along with action
Rothmans were launched at a price parity to duty- plans to address them. Additionally, all employees
paid competition offers in selected high-risk markets are required to sign off an annual Statement of
to safeguard volumes and ensure value sustainability Compliance to the Company’s Standards of Business
for the Company. The brands have received Conduct. Furthermore, the Company is also fully
positive consumer traction in the pilot markets, with compliant to all the requirements of Sarbanes Oxley
expansions into more markets planned in 2020. Act (SOx) which has further strengthened the internal
controls of the Company.
In the Aspirational Premium segment, post successful
pilot launch of John Player, a brand built on the legacy
of the House of John Player, the brand was piloted in 6. Corporate Governance
four test markets, followed by an expansion into the
next 13 biggest cities of Pakistan. Aided by a focused
6.1 Good Corporate Governance
consumer activation campaign, exciting touchpoints The Directors confirm compliance with the Corporate
and retailer engagement, the launch was a success and Financial Reporting Framework of the Securities
and quickly turned into the most promising brand and Exchange Commission of Pakistan’s Listed
launch in recent PTC history. Companies (Code of Corporate Governance)
Regulations, 2019 (“the Code of Corporate
In the Premium segment, John Player Gold Leaf Governance”) for the following:
(JPGL) reached the milestone of achieving over 140
years of excellence. To honor this legacy of great a) The financial statements, prepared by the
taste and to reinforce the brand assets of JPGL, management of the Company, present fairly its state
a campaign was executed to celebrate the history of affairs, the result of its operations, cash flows and
of John Player in Pakistan. Limited Edition Packs, changes in equity.
utilizing modern hot foil technology, were introduced
b) Proper books of accounts of the Company have been
to the market for the first time in history along with
maintained.
a limited time berry flavor product. These initiatives
have further propelled the JPGL brand to new heights c) Appropriate accounting policies have been
in Pakistan consistently applied in preparation of financial
statements and the accounting estimates are based

5. Risk Management & on reasonable and prudent judgement.

d) International Financial Reporting Standards, as
Internal Controls applicable in Pakistan, have been followed in
The Board is responsible for managing the risks and preparation of the financial statements and any
challenges faced by the Company in the course of departures therefrom have been adequately
its operations, while maintaining a strong control disclosed and explained.
environment. The Company’s risk management and
e) The system of internal controls is sound in design and
internal controls framework is aimed at safeguarding
has been effectively implemented and monitored.
the shareholders’ investment and the Company’s
PAKISTAN TOBACCO COMPANY

assets, while minimizing the impact of the risks f) There are no significant doubts about the Company’s
that may impede the delivery of the Company’s ability to continue as a going concern.
objectives. Details of this are captured in the section
g) There has been no material departure from the best
on Risk & Opportunity of the Annual Report.
practices of corporate governance, as detailed
in the Code of Corporate Governance and listing
Comprehensive policies and procedures, structured
regulations.
governance mechanisms and a conducive
organizational culture have facilitated a strong
compliance and control environment across the
Company. All heads of functions are required to
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h) All major Government levies in the normal course c. Executive Directors 4

of business, payable as at December 31, 2019
(i) Usman Zahur
have been disclosed in the notes to the financial MD / CEO
statements. (ii) William Francis Pegel
i) Key operating and financial data for last six years (iii) Syed Asad Ali Shah
in summarized form is provided separately in this
(iv) Syed Ali Akbar
Annual Report.
j) Values of investments in employees retirement funds There is female representation on the Board in
for the year ended December 31, 2019 are as follows. compliance with the regulatory requirement.
Further details are provided in Note 33 to the separate
financial statements. The overall effectiveness of the Board is enhanced
by the diversity and breadth of perspective of its
members, who combine professional and academic
Fund Name Rs. (million)
skills and experience, local and international, and
Staff Pension Fund 5,525 collectively the Board also has sufficient financial
Employees’ Gratuity Fund 1,233 acumen and knowledge. PTC conforms to the
Management Provident Fund 735 regulatory requirements on the composition and
qualification of the Board of Directors.
Pakistan Tobacco Company Limited
446
Provident Fund
Directors’ detailed profiles including their names,
Staff Defined Contribution Pension Fund 497 status (independent, executive, non-executive), in
addition to industry experience and directorship of
6.2 Composition Of The Board other companies, have been provided separately
in the Annual Report. The status of directorship
The Board comprises a total of 12 directors: 8 non- (independent, executive, non-executive) is indicated
executive directors, of whom 4 are independent in the Statement of Compliance with the Code of
directors, and 4 executive directors. Corporate Governance.

The current composition of the Board is as below.
6.3 Changes In The Board
No. of On 22nd April 2019, elections of Directors were held
Name of Director
Directors in the AGM, resulting in the reconstitution of the Board
• Male Directors 11 with 12 Directors comprising: 4 Independent, 4 Non-
• Female Director 1 executive and 4 Executive Directors. The positions of
Chairman and MD/CEO are kept separate in line with
a. Independent Director 4
good governance practice.
(i) Zafar Mahmood
Chairman
The changes in the board were as follows:
(ii) Lt. Gen. (R) M. Masood Aslam
(iii) Mohammad Riaz Effective
Name Changes
Date
(iv) Asif Jooma
Lt. Gen. (R) Ali Resigned from role of January 31,
EXCELLING BEYOND BORDERS
b. Non- Executive Directors 4 Kuli Khan Non-Executive Director 2019
(i) Tajamal Shah Retired from role of April 22,
Mueen Afzal
(ii) Belinda Joy Ross Chairman 2019
(iii) Zafar Aslam Khan
ANNUAL REPORT 2019

(iv) Syed Javed Iqbal

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DIRECTOR’S REPORT
(Consolidated Accounts)

Retired from role of Non- April 22, The notices / agendas of the meetings were
Imran Maqbool circulated in advance, in a timely manner and in
Executive Director 2019
compliance with applicable laws. All meetings of the
Retired from role of Non- April 22,
Hae In KIM Board held during the year surpassed the minimum
Executive Director 2019
quorum requirements of attendance, as prescribed by
Appointed as Chairman April 22,
Zafar Mahmood the applicable regulations.
of the Board 2019
Changed from Executive The Company Secretary acts as the Secretary to the
April 22,
Tajamal Shah Director to Non-Executive
2019 Board. All decisions made by the Board during the
Director
meetings were clearly documented in the minutes of
Syed Asad Ali Inducted to the Board as April 22, the meetings maintained by the Company Secretary
Shah Executive Director 2019
and were duly circulated to all the Directors for
Zafar Aslam Inducted to the Board as April 22, endorsement and were approved in the subsequent
Khan Non-Executive Director 2019
Board meetings.
Inducted to the Board as April 22,
Asif Jooma
Independent Director 2019
Name of Director Attendance
Belinda Joy Inducted to the Board as April 22,
Zafar Mahmood 5/5
Ross Non-Executive Director 2019 Chairman
Mohammad Inducted to the Board as April 22, Syed Javed Iqbal
Riaz Independent Director 2019 Managing Director and CEO resigned on 15th
November 2019
4/4
Lt. Gen. M.
Inducted to the Board as April 22, Non-Executive Director w.e.f. 15th November 2019.
Masood Aslam
Independent Director 2019 Usman Zahur
(R)
Marketing Director w.e.f 22nd April 2019 4/4
Resigned from role of June 15, Managing Director and CEO w.e.f 15th November 2019
Wael Sabra
Executive Director 2019 Wael Sabra 2/2
Resigned from role of August 20, Director Finance & IT resigned w.e.f. June 15.2019
Michael Koest
Non-Executive Director 2019 William Francis Pegel 2/2
Director Finance & IT w.e.f. 2nd September 2019
William Francis Inducted to the Board as September
Pegel Executive Director 2, 2019 Lt. Gen. (Retd.) Ali Kuli Khan Khattak 0/0
Non-Executive Director
Changed from CEO /
Syed Javed November Syed Asad Ali Shah
Managing Director to 4/4
Iqbal 15, 2019 Director Legal & External Affairs w.e.f. 22nd April 2019
Non-Executive Director
Syed Ali Akbar 1/1
Inducted to the Board as April 22nd, Director Marketing w.e.f. November 15, 2019
Executive Director 2019
Usman Zahur Tajamal Shah 3/5
Inducted to the Board as November Non-Executive Director
CEO / Managing Director 15, 2019 Belinda Joy Ross 2/4
Non-Executive Director
Inducted to the Board as November
Syed Ali Akbar Zafar Aslam Khan
Executive Director 15, 2019 1/4
Non-Executive Director

Lt. Gen. M. Masood Aslam (R) 4/4

6.4 Meetings Of The Board Independent Director

Mohammad Riaz 3/4

PAKISTAN TOBACCO COMPANY

Under the applicable regulatory framework, the Board Independent Director

is legally required to meet at least once in every
quarter to ensure transparency, accountability and
monitoring of the Company’s performance. Special
meetings are also held during the year to discuss
important matters, as and when required. In 2019,
5 Board meetings were held, out of which the 1st
meeting held on 22nd February 2019 was attended
by the previous Directors, while the newly elected
Directors attended the subsequent 4 meetings.
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Asif Jooma 3/4 6.8 Evaluation Of Board’s

Performance
Independent Director

Michael Koest 0/3

Resigned w.e.f August 20, 2019 The Company has designed an “Evaluation Tool” to
Mueen Afzal assist the Board to:
1/1
Retired
• understand and recognise what is working well;
Imran Maqbool 1/1
Retired • identify areas for improvement;
Hae In KIM 0/1 • discuss and agree on priorities for change, which
Retired
can be addressed in the short-and long-term;
• agree on an action plan.

6.5 Board Meetings Held Outside The Evaluation Tool comprises an evaluation
Pakistan questionnaire, which is circulated to all the Directors
in which each Director has to evaluate himself/herself
In 2019, PTC conducted all its Board meetings in as well as the Board. In order to encourage open and
Pakistan. frank evaluations, as well as to ensure anonymity,
the evaluation process is directed by the Company
6.6 Committees Of The Board Secretary, who mails the questionnaire to each Director
and then collates the results into a report including a
The Board has four committees, which assist the summary of the results, and recommendations to the
Board in the performance of its functions. Details Board. The Report is then discussed in the next Board
of all Board Committees, including attendance and Meeting to address the areas of concern and improve
their functions, are provided separately in the Annual the Board’s performance.
Report.
6.9 Offices Of The Chairman & CEO
6.7 Directors’ Remuneration To promote transparency and good governance, the
As per the requirements of the Code of Corporate offices of the Chairman of the Board of Directors and the
Governance, there is a formal and transparent Chief Executive Officer are held by separate individuals
procedure in place for fixing the remuneration with clear segregation of roles and responsibilities.
packages of individual Directors. No Director is
involved in deciding his/her own remuneration. 6.10 Brief Roles & Responsibilities Of
These remuneration packages are approved as
The Chairman & CEO
per requirements of the regulatory framework and Roles and responsibilities of the Chairman and the CEO
internal procedures, while ensuring that they are not have been clearly and distinctly defined by the Board.
at a level that could be perceived to compromise the
independence of non-executive directors. The Chairman is basically a leader and mediator to
head the meeting of the Board of Directors effectively
and take decisions after a free and open sharing of
The remuneration of executive directors including
views within a limited time quickly and efficiently. The
the CEO, key management personnel and other Chairman is responsible for the overall discharge of the
EXCELLING BEYOND BORDERS

executives is given in note 37 to the financial Board’s duties.

statements.
The CEO is the executive head of the Company, who
heads all facets of the Company through respective
heads of functions and manages the day to day
ANNUAL REPORT 2019

operations of the Company and provides leadership

towards the achievement of the Corporate Plan.
The CEO is responsible for leading, developing
and executing the Company’s short- and long-term
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DIRECTOR’S REPORT
(Consolidated Accounts)

strategies with a view to enhance shareholders’ value. arrangements, aimed at facilitating the shareholders of
The CEO liaises with the Board and communicates on the Company, were made to conduct the AGM.
behalf of the Management.
During the meeting, general clarifications on the
published financial statements and the impact of illicit
6.11 CEO’s Performance Evaluation trade were sought by the shareholders and investors but
By The Board no issues were reported in that meeting.

The Board appoints the CEO for a term of 3 years, in

compliance with applicable laws. His performance 6.15 Auditors
is reviewed annually, based on the yearly corporate Statutory Audit for the Company for the financial year
plan, besides his responsibilities under the regulatory ended December 31, 2019 has been concluded and
framework. Effective November 15, 2019, the previous the Auditors have issued their Audit Reports on the
CEO, Syed Javed Iqbal resigned from the office of Company Financial Statements, Consolidated Financial
Managing Director and CEO and was replaced by Mr. Statements and the Statement of Compliance with the
Usman Zahur. Code of Corporate Governance. The Auditors, Messers
KPMG Taseer Hadi & Co., shall retire at the conclusion
Performance for the year 2019 is demonstrated by of the Annual General Meeting, and they have indicated
achievement of the corporate plan and compliance with their willingness to continue as Auditors for PTC. They
the applicable regulatory requirements. have confirmed to have achieved satisfactory rating
by the Institute of Chartered Accountants of Pakistan
6.12 Formal Orientation At Induction (ICAP) and compliance with the Guidelines on the Code
of Ethics of the International Federation of Accountants
Newly inducted Board members are taken through an (IFAC) as adopted by ICAP. The Board proposes their
Induction Plan for their orientation and familiarization appointment as Auditors for the financial year ending
towards the Company’s vision, organizational December 31, 2020 on the recommendation of the Audit
structure, roles and responsibilities of senior Committee. This shall be subject to the approval of the
executives, major pending or threatened litigation, shareholders in their meeting scheduled for April 24,
policies relating to dividends, whistleblowing, 2020.
summary of Company’s major assets, liabilities and
noteworthy contracts etc. 6.16 Pattern Of Shareholding
Our holding Company, British American Tobacco
As part of the Induction Plan, senior executives of the
(Investments) Limited (BAT-IL), incorporated in United
Company present the performance of their respective Kingdom holds 94.34% shares of the Company at the
department to the newly inducted Directors. year end. The pattern of shareholding as at December
31, 2019 alongside the disclosure as required under
6.13 Directors’ Training Program Code of Corporate Governance is provided separately
in this Annual Report.
PTC has ensured compliance with the applicable
regulatory requirements regarding Directors training.
More than half of the Directors have obtained 6.17 Trading In Shares By Directors
certification under the Directors’ Training Program (DTP)
approved by SECP.
And Executives
The Directors, Chief Executive Officer, Chief Financial
PAKISTAN TOBACCO COMPANY

Officer, Company Secretary and their spouses and

6.14 Last AGM minors have reportedly not performed any trading in the
The Company’s 72nd AGM (Annual General Meeting) shares of the Company.
was held on April 22, 2019. All shareholders, including
minority shareholders, were proactively sent out
invites informing them about the time and place of the
meeting, well in advance. High quality and comfortable
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6.18 Review Of BCP By implementing a BCM process, the Company ensures

that:
PTC recognizes the importance of Business Continuity
• Its people, assets and information are protected,
Management (BCM) as the means to ensure that the
and employees receive adequate support and
business can continue to succeed in times of crisis and
communications in the event of a disruption;
during the recovery process. To this end, the Company
has established a BCM Manual as per International • The relationships with other organizations,
Standards which enables the Company to: relevant regulators or Government departments,
local authorities and the emergency services
• Proactively plan and prepare in the case of an
are properly developed and documented, and
incident;
stakeholder requirements are understood and can
• Understand how to respond should an incident be delivered; and
occur;
• The Company has an enhanced capacity to protect
• Know how to manage the situation effectively; and its reputation and remains compliant with its legal
• Return to Business as Usual (BAU) as quickly as and regulatory obligations.
possible to minimize the negative impact on the
business.

The process has received recognition within the BAT

Group as one of the best in the Group. The Board
reviews compliance with the BCM Manual on an
annual basis. Responsibility and accountability for
ensuring compliance with the Standards and for the
implementation of the BCM process has been delegated Zafar Mehmood Usman Zahur
to the Managing Director. Operational management of
Chairman MD/CEO
BCM is delegated to the Head of Security who is the
lead for BCM in the Company. Heads of Functions are
the risk owners and are responsible for enabling and
maintaining an effective BCM capability within their
respective functions. The Business Continuity Manager
facilitates and coordinates the BCM process in the
Company.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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INDEPENDENT AUDITORS’ REPORT

To the members of Pakistan Tobacco Company Limited

Opinion
We have audited the annexed consolidated financial statements of Pakistan Tobacco Company Limited (PTC) and its subsidiary
(the Group), which comprise the consolidated statement of financial position as at 31 December 2019, the consolidated statement
of profit or loss, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and
the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a
summary of significant accounting policies and other explanatory information.

In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of the Group as
at 31 December 2019, and (of) its consolidated financial performance and its consolidated cash flows for the year then ended in
accordance with the accounting and reporting standards as applicable in Pakistan.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities
under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code), and we
have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PAKISTAN TOBACCO COMPANY
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Following are the Key audit matters:

S. No. Key audit matters How the matter was addressed in our audit
1 Revenue recognition Our audit procedures to assess the recognition of revenue,
Refer notes 7.1 and 8 to the consolidated financial statements. amongst others, included the following:

The Group is engaged in the production and sale of tobacco. • Obtaining an understanding of the process relating
The Group recognised net revenue from the sales of cigarettes to recognition of revenue and testing the design,
of Rs. 51,975 million for the year ended 31 December 2019. implementation and operating effectiveness of key
internal controls over recording of revenue;
We identified recognition of revenue as a key audit matter
because revenue is one of the key performance indicator of the • Comparing a sample of revenue transactions recorded
Group and gives rise to an inherent risk that revenue could be during the year with sales orders, sales invoices, delivery
subject to misstatement to meet expectations or targets. documents and other relevant underlying documents;

• Comparing a sample of revenue transactions recorded

around the year- end with the sales orders, sales
invoices, delivery documents and other relevant
underlying documentation to assess if the related
revenue was recorded in the appropriate accounting
period;

• Assessing whether the accounting policies for revenue

recognition complies with the requirements of IFRS 15
‘Revenue from Contracts with Customers’;

• Comparing the details of a sample of journal entries

posted to revenue accounts during the year, which met
certain specific risk-based criteria, with the relevant
underlying documentation; and

• Assessing the appropriateness of disclosures in the

financial statements.
2 Valuation of stock-in-trade Our audit procedures to assess the valuation of stock-in trade,
Refer notes 7.11 and 19 to the consolidated financial amongst others, included the following:
statements.
• Assessing the design, implementation and operating
As at 31 December 2019, stock-in-trade is stated at Rs. 21,423 effectiveness of key internal controls over valuation of stock-
million. Stock-in-trade is measured at the lower of cost and net in-trade including determination of net realisable values;
realisable value.
• Attending inventory counts and reconciling the count
results to the inventory listings to test the completeness
We identified existence and valuation of stock-in-trade as a key
of data;
audit matter due to its size, representing 53% of total assets
of the Group as at 31 December 2019, and the judgement • Assessing the accuracy of cost of stock in trade in EXCELLING BEYOND BORDERS

involved in valuation. accordance with the accounting policy;

• Assessing the net realisable value of stock-in-trade

by comparing, on a sample basis, management’s
estimation of future selling prices for the products and
ANNUAL REPORT 2019

selling prices achieved subsequent to the end of the

reporting period;

• Comparing the net realisable value to the cost of

a sample of stock-in-trade and comparison to the
associated provision to assess whether stock-in-trade
provisions are complete; and

• Assessing accuracy of inventory ageing reports and

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Information Other than the Financial Statements and Auditors’ Report Thereon
Management is responsible for the other information. Other information comprises the information included in the annual report for
the year ended 31 December 2019, but does not include the consolidated financial statements and our auditors’ report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and the Board of Directors for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with accounting and reporting standards as applicable in Pakistan and Companies Act, 2017 and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in
Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgement and maintain professional
skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
PAKISTAN TOBACCO COMPANY

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are
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inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’
report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is Atif Zamurrad Malik.

KPMG Taseer Hadi & Co.

Islamabad Chartered Accountants
Date: March 20, 2020

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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CONSOLIDATED STATEMENT OF
PROFIT OR LOSS
For the year ended December 31, 2019
2019 2018
Note Rs ‘000 Rs ‘000

Gross turnover 8 149,024,648 137,115,757

Excise duties (74,741,489) (63,117,903)
Sales tax (22,308,263) (20,885,770)

Net turnover 51,974,896 53,112,084

Cost of sales 9 (25,764,813) (29,828,556)

Gross profit 26,210,083 23,283,528

Selling and distribution costs 10 (4,666,122) (4,950,293)
Administrative expenses 11 (2,780,245) (2,558,072)
Other operating expenses 12 (1,871,999) (1,381,858)
Other income 13 783,182 177,729

(8,535,184) (8,712,494)

Operating profit 17,674,899 14,571,034

Finance income 812,571 742,648
Finance cost 14 (202,553) (33,828)

Net finance income 610,018 708,820

Profit before income tax 18,284,917 15,279,854

Income tax expense 15 (5,395,688) (4,941,862)

Profit for the year 12,889,229 10,337,992

Earnings per share (basic and diluted)- (Rupees) 16 50.45 40.46

The annexed notes 1 to 41 form an integral part of these consolidated financial statements.
PAKISTAN TOBACCO COMPANY

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended December 31, 2019
2019 2018
Note Rs ‘000 Rs ‘000

Profit for the year 12,889,229 10,337,992

Other comprehensive income:

Items that will not be reclassified to profit or loss

- Remeasurement loss on defined benefit pension
and gratuity plans 32 (144,170) (37,795)

- Tax credit related to remeasurement loss on
defined benefit pension and gratuity plans 15.2 43,873 7,499

(100,297) (30,296)

Total comprehensive income for the year 12,788,932 10,307,696

The annexed notes 1 to 41 form an integral part of these consolidated financial statements.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
As at December 31, 2019
2019 2018
Note Rs ‘000 Rs ‘000

Non current assets

Property, plant and equipment 17 12,347,878 9,155,875

Advance for capital expenditure 175,783 959,439
Long term deposits and prepayments 18 30,759 32,112

12,554,420 10,147,426
Current assets

Stock-in-trade 19 21,422,543 18,489,390

Stores and spares 20 663,999 634,029
Trade debts 21 4,260 1,553
Loans and advances 22 125,644 95,503
Short term prepayments 15,921 249,935
Other receivables 23 2,111,891 1,842,120
Short term investments 24 3,001,058 8,699,508
Cash and bank balances 25 535,905 293,165

27,881,221 30,305,203
Current liabilities

Trade and other payables 26 16,295,244 18,621,395

Other liabilities 27 2,865,822 2,298,698
Short term running finance 28 – 75,542
Lease liability 29 376,065 148,245
Unpaid dividend 30 66,740 200,188
Unclaimed dividend 78,235 81,268
Accrued interest / mark-up 25,735 5,331
Current income tax liabilities 449,395 382,417

(20,157,236) (21,813,084)

Net current assets 7,723,985 8,492,119

Non current liabilities

Lease liability 29 (1,341,607) (284,845)

Deferred income tax liabilities 31 (645,943) (589,076)

(1,987,550) (873,921)

Net assets 18,290,855 17,765,624

Share capital and reserves

Share capital 33 2,554,938 2,554,938

Revenue reserve - Unappropriated profit 15,735,917 15,210,686

18,290,855 17,765,624
PAKISTAN TOBACCO COMPANY

Contingencies and commitments 34

The annexed notes 1 to 41 form an integral part of these consolidated financial statements.

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended December 31, 2019
Share Revenue Reserve - Total
capital unappropriated
profit
Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2018 2,554,938 14,356,260 16,911,198

Total comprehensive income for the year:

Profit for the year – 10,337,992 10,337,992

Other comprehensive income for the year – (30,296) (30,296)

Total comprehensive income for the year – 10,307,696 10,307,696

Transactions with owners of the Company:

Final dividend of Rs 20.00 per share relating to the

year ended December 31, 2017 – (5,109,876) (5,109,876)
Interim dividend of Rs 7.00 per share relating to the
year ended December 31, 2018 – (1,788,456) (1,788,456)
Interim dividend of Rs 10.00 per share relating to the
year ended December 31, 2018 – (2,554,938) (2,554,938)

Total transactions with owners of the Company – (9,453,270) (9,453,270)

Balance at December 31, 2018 2,554,938 15,210,686 17,765,624

Balance at January 1, 2019 2,554,938 15,210,686 17,765,624

Total comprehensive income for the year:

Profit for the year – 12,889,229 12,889,229

Other comprehensive income for the year – (100,297) (100,297)

Total comprehensive income for the year – 12,788,932 12,788,932

Transactions with owners of the Company:

Final dividend of Rs 22.00 per share relating to the

year ended December 31, 2018 – (5,620,863) (5,620,863)
Interim dividend of Rs 13.00 per share relating to the
year ended December 31, 2019 – (3,321,419) (3,321,419)
Interim dividend of Rs 13.00 per share relating to the
year ended December 31, 2019 – (3,321,419) (3,321,419)

Total transactions with owners of the Company – (12,263,701) (12,263,701)

Balance at December 31, 2019 2,554,938 15,735,917 18,290,855

The annexed notes 1 to 41 form an integral part of these consolidated financial statements.
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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CONSOLIDATED STATEMENT OF
CASH FLOWS
For the year ended December 31, 2019
2019 2018
Note Rs ‘000 Rs ‘000

Cash flows from operating activities

Cash generated from operations 38 14,361,234 18,833,556

Finance cost paid (182,149) (31,911)
Income tax paid (5,271,843) (5,725,015)
Contribution to retirement benefit funds (342,950) (267,012)

Net cash generated from operating activities 8,564,292 12,809,618

Cash flows from investing activities

Purchases of property, plant and equipment (2,731,002) (1,606,818)

Advance for capital expenditure 783,657 (668,321)
Proceeds from sale of property, plant and equipment 299,933 154,543
Interest received 812,571 761,781

Net cash used in investing activities (834,841) (1,358,815)

Cash flows from financing activities

Dividends paid (12,400,182) (9,436,117)

Lease payments (709,437) (251,525)

Net cash used in financing activities (13,109,619) (9,687,642)

Net increase in cash and cash equivalents (5,380,168) 1,763,161

Cash and cash equivalents at beginning of year 8,917,131 7,153,970

Cash and cash equivalents at end of year 3,536,963 8,917,131

Cash and cash equivalents comprise:

Cash and bank balances 25 535,905 293,165
Short term investments 24 3,001,058 8,699,508
Short term running finance 28 – (75,542)

3,536,963 8,917,131

The annexed notes 1 to 41 form an integral part of these consolidated financial statements.
PAKISTAN TOBACCO COMPANY

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
1 Corporate and general information

The Group and its operations

Pakistan Tobacco Company Limited (the Company) is a public limited company incorporated in Pakistan on November 18, 1947 under
the Companies Act, 1913 (now the Companies Act, 2017) and its shares are quoted on the Pakistan Stock Exchange Limited. The
Company is a subsidiary of British American Tobacco (Investments) Limited, United Kingdom, whereas its ultimate parent company is
British American Tobacco p.l.c, United Kingdom. The Company is engaged in the manufacture and sale of cigarettes/tobacco.

The registered office of the Company is situated at Serena Business Complex, Khayaban-e-Suharwardy, Islamabad, Pakistan. The
Company has two manufacturing plants located at Akora Khattak and Jhelum.

Phoenix (Private) Limited (PPL) is a private limited company incorporated on March 9, 1992 in Azad Jammu and Kashmir under the
Companies Ordinance, 1984 (now the Companies Act, 2017. The registered office of PPL is situated at Bin Khurma, Chichian Road,
Mirpur, Azad Jammu and Kashmir. The object for which the PPL has been incorporated is to operate and manage an industrial
undertaking in Azad Jammu and Kashmir to deal in tobacco products. PPL is dormant and has not commenced its commercial
operations.

For the purpose of these consolidated financial statements, the Company and its wholly owned subsidiary PPL is referred to as the
Group.

Capacity and production

Against an estimated manufacturing capacity of 53,381 million cigarettes (2018: 51,330 million cigarettes) actual production was
39,469 million cigarettes (2018: 46,201 million cigarettes). The split from each industrial unit is given below.

Manufacturing Capacity

2019 2018
Site (Units in Millions) (Units in Millions)

Akora Khattak Factory 27,407 28,490

Jhelum Factory 25,974 22,840
Total 53,381 51,330

Actual Production

2019 2018
Site (Units in Millions) (Units in Millions)

Akora Khattak Factory 19,521 24,404

Jhelum Factory 19,948 21,797
Total 39,469 46,201 EXCELLING BEYOND BORDERS

Actual production is less than the installed capacity due to market demand.

Number of employees

Total number of employees as at December 31, 2019 was 1,127 (2018: 1,109). Average number of employees during the year was
ANNUAL REPORT 2019

1,101 (2018: 1,097).

2 Statement of compliance

These consolidated financial statements have been prepared in accordance with the accounting and reporting standards as applicable
in Pakistan. The accounting and reporting standards applicable in Pakistan comprise of:

– International Financial Reporting Standards (IFRS Standards) issued by the International Accounting Standards Board (IASB)
as notified under the Companies Act, 2017; and
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
– Provisions of and directives issued under the Companies Act, 2017.

Where provisions of and directives issued under the Companies Act, 2017 differ from the IFRS Standards, the provisions of and
directives issued under the Companies Act, 2017 have been followed.

3 Basis of measurement

These consolidated financial statements have been prepared under the historical cost convention except as otherwise stated in the
respective accounting policies notes.

4 Functional and presentation currency

Items included in these consolidated financial statements are measured using the currency of the primary economic environment in
which the Company operates (the functional currency), which is the Pakistan rupee (Rs).

5 Use of estimates and judgements

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the
application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognised, prospectively.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements is included in the following notes:

• Note 8 – Nature and timing of satisfaction of performance obligation and revenue recognition
• Note 17 – useful lives, residual values and depreciation method of property, plant and equipment
• Note 19 and 20 – Provision for obsolescence of stock in trade and stores and spares
• Notes 15 and 31 – Provision for income tax and calculation of deferred tax
• Note 32 – Retirement benefits
• Note 35 – Financial instruments – fair values
• Note 34 – Contingencies
• Note 29 - Leases

Measurement of fair values

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-
financial assets and liabilities.

Management regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure
fair values, then management assesses the evidence obtained from the third parties to support its conclusion that these valuations
meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.

When measuring fair value of an asset or a liability, the Group uses observable and available market data as far as possible. Fair values
PAKISTAN TOBACCO COMPANY

are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1, which are observable and available for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable and available market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the fair value
measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level of input that is significant to the
entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
6 New accounting standards, amendments and IFRIC interpretations that are not yet effective

The following IFRS Standards as notified under the Companies Act, 2017 and the amendments and interpretations thereto will be
effective for accounting periods beginning on or after January 01, 2020:

• Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business (effective for business combinations for which the
acquisition date is on or after the beginning of annual period beginning on or after January 01, 2020). The IASB has issued
amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a
group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.
The amendments include an election to use a concentration test. The standard is effective for transactions in the future and
therefore would not have an impact on past financial statements.

• Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates
and Errors’ (effective for annual periods beginning on or after January 01, 2020). The amendments are intended to make the
definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS
Standards. In addition, the IASB has also issued guidance on how to make materiality judgments when preparing their general
purpose financial statements in accordance with IFRS Standards.

• On March 29, 2018, the IASB has issued a revised ‘Conceptual Framework for Financial Reporting’ which is applicable
immediately, contains changes that will set a new direction for IFRS in the future. The Conceptual Framework primarily serves
as a tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting them. It does not
override the requirements of individual IFRSs and any inconsistencies with the revised Framework will be subject to the usual
due process – this means that the overall impact on standard setting may take some time to crystallise. The companies may
use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements. In these
cases, companies should review those policies and apply the new guidance retrospectively as of January 01, 2020, unless the
new guidance contains specific scope outs.

• Interest Rate Benchmark Reform which amended IFRS 9, IAS 39 and IFRS 7 is applicable for annual financial periods beginning
on or after January 01, 2020. The G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of major
interest rate benchmarks. Following the review, the FSB published a report setting out its recommended reforms of some major
interest rate benchmarks such as IBORs. Public authorities in many jurisdictions have since taken steps to implement those
recommendations. This has in turn led to uncertainty about the long-term viability of some interest rate benchmarks. In these
amendments, the term ‘interest rate benchmark reform’ refers to the market-wide reform of an interest rate benchmark including
its replacement with an alternative benchmark rate, such as that resulting from the FSB’s recommendations set out in its July
2014 report ‘Reforming Major Interest Rate Benchmarks’ (the reform). The amendments made provide relief from the potential
effects of the uncertainty caused by the reform. A company shall apply the exceptions to all hedging relationships directly
affected by interest rate benchmark reform. The amendments are not likely to affect the consolidated financial statements of
the Group.

• IFRS 14 Regulatory Deferral Accounts - (effective for annual periods beginning on or after July 01, 2019) provides interim
guidance on accounting for regulatory deferral accounts balances while IASB considers more comprehensive guidance on
accounting for the effects of rate regulation. In order to apply the interim standard, an entity has to be rate regulated – i.e. the EXCELLING BEYOND BORDERS
establishment of prices that can be charged to its customers for goods or services is subject to oversight and/or approved
by an authorized body. The term ‘regulatory deferral account balance’ has been chosen as a neutral descriptor for expense
(income) or variance account that is included or is expected to be included by the rate regulator in establishing the rate(s) that
can be charged to customers and would not otherwise be recognised as an asset or liability under other IFRSs. The standard
is not likely to have any effect on Group’s consolidated financial statements.
ANNUAL REPORT 2019

7 Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements except for
the changes in the accounting policy as explained below.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
IFRIC 23 ‘Uncertainty over Income Tax Treatments’

The Group has applied IFRIC 23 ‘Uncertainty over Income Tax Treatments’ from January 01, 2019; however the adoption has no impact
on the amounts reported in these financial statements.

IFRS -16 ‘Leases’

The Group has initially applied IFRS - 16 ‘Leases’ from January 01, 2019.

IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease
payments.

The Group applied IFRS 16 using the modified retrospective approach, under which the Group has recognised right of use assets and
lease liabilities at the date of initial recognition for leases previously classified as operating leases under IAS 17 at the present value
of the remaining lease payments using the Company’s incremental borrowing rate at the initial application date. The Company has
chosen to measure the right of use assets at an amount equal to the lease liabilities adjusted by the amount of prepaid lease payments
relating to the operating leases recognised in the statement of financial position as at January 01, 2019. Accordingly, no adjustment to
equity has been made in these financial statements on adoption of the new policy and the comparative figures presented for 2018 have
not been restated, i.e., it is presented, as previously reported, under IAS 17 and related interpretations.

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 ‘Determining
Whether an Arrangement contains a Lease’. The Company now assesses whether a contract is, or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified
asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an
identified asset, the Company assesses whether:

• The contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically
distinct or represent substantially all of the capacity of a physically distinct asset;

• The Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use;
and

• The Group has the right to direct the use of the asset. The Group has this right when it has the decision - making rights that are
most relevant to changing how and for what purpose the asset is used.

The impact of adoption of IFRS 16 on transition is disclosed in note 30 to the financial statements.

The Group used the following practical expedient when applying IFRS 16, to leases previously classified as operating leases under IAS 17.

• The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term.
PAKISTAN TOBACCO COMPANY

Amounts recognised in profit or loss for the year under new policy

(Rs.’000)

Depreciation 331,177
Interest on lease liabilities 124,825

Had IFRS - 16 not been applied, rental cost of Rs. 372.6 million would have been recognised in the statement of profit or loss.
Accordingly, profit before tax would have been increased by Rs. 83.4 million for the year ended December 31, 2019.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Policy applicable before January 01, 2019

Leases

(a) Finance leases

Leases that transfer substantially all the risks and rewards incidental to ownership of an asset are classified as finance leases.
Assets on finance lease are capitalised at the commencement of the lease term at the lower of fair value of leased assets
and the present value of minimum lease payments, each determined at the inception of the lease. Each lease payment is
allocated between the liability and finance cost so as to achieve a constant rate on the finance balance outstanding. The
corresponding rental obligations, net of finance charges, are included in other long-term payables. The finance cost is charged
to the statement of profit or loss and is included under finance costs. The assets acquired under finance lease are depreciated
over the shorter of the useful life of the asset or the lease term. The Group has entered into Ijarah arrangement with a financial
institution in respect of vehicles. Islamic Financial Accounting Standard (IFAS) No.2 “Ijarah” was notified by SECP vide S.R.O
431 (I) /2007 on May 22, 2007. IFAS No.2 requires Ijarah payments under such arrangements to be recognised as an expense
over the Ijarah terms. The Group intends to acquire such assets at the end of the lease term and management believes that
this arrangement meets the conditions of finance lease and consequently, such arrangements have been accounted for under
International Accounting Standard – 17 “Leases”.

(b) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor were classified as
operating leases. Payments made under operating leases are charged to the statement of profit or loss on a straight-line basis
over the period of the lease.

Significant accounting policies of the Group are as follows:

7.1 Revenue recognition

Revenue comprises the invoiced value for the sale of goods net of sales taxes, rebates and discounts. Certain marketing costs
are deducted from the gross amount of sales. Revenue from the sale of goods is recognised when control of the goods passes
to customers and the customers can direct the use of and substantially obtain all the benefits from the goods. Revenue is
recognised when specific criteria have been met for each of the Group’s activities as described below.

Revenue from contracts with customers

Sale of goods

The Company manufactures and sells cigarettes to its appointed distributors. Sale of goods is recognised when the Group
has transferred control of the products to the distributor and there is no unfulfilled obligation that could affect the distributor’s
acceptance of the products.

Contract assets

Contract assets arise when the Group performs its performance obligations by transferring goods to a customer before the
EXCELLING BEYOND BORDERS

customer pays its consideration or before payment is due.

Contract liabilities

A contract liability is the obligation of the Group to transfer goods to a customer for which the Group has received consideration
ANNUAL REPORT 2019

from the customer. If a customer pays consideration before the Group transfers goods, a contract liability is recognised when
the payment is made. Contract liabilities are recognised as revenue when the Group performs its performance obligations
under the contract.

Income on bank deposits

Income on bank deposits is accounted for on the time proportion basis using the applicable rate of return.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Income on short term investments

Short term investments, classified as financial assets at fair value through profit or loss, are re-measured to fair value at each
reporting date until the assets are de-recognised. The gains and losses arising from changes in fair value are included in the
statement of profit or loss in the period in which they occur.

Others

Scrap sales and miscellaneous receipts are recognised on realised amounts. All other income is recognised on accrual basis.

  7.2 Income tax

Income tax expense for the year comprises current and deferred income tax, and is recognised in the statement of profit or
loss, except to the extent that it relates to items recognised in other comprehensive income or directly in the equity. In this case,
income tax is also recognised in other comprehensive income or directly in equity, respectively.

Current

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment
to the tax payable or receivable in respect of previous years. The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred

Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred income tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax
losses and tax credits can be utilised.

Deferred income tax is calculated at the rates that are expected to apply to the period when the differences reverse.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same
taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balance
on a net basis.

7.3 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the obligation; and the amount could be reliably estimated. Provisions are
not recognised for future operating losses. All provisions are reviewed at each statement of financial position date and adjusted
PAKISTAN TOBACCO COMPANY

to reflect current best estimate.

7.4 Earnings per share

The Group presents earnings per share (EPS) data for its ordinary shares. EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the
year.

7.5 Contingent assets

Contingent assets are disclosed when the Group has a possible asset that arises from past events and whose existence will
only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Group. Contingent assets are not recognised until their realisation becomes certain.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
7.6 Contingent liabilities

Contingent liability is disclosed when the Group has a possible obligation as a result of past events whose existence will only
be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Group. Contingent liabilities are not recognised, only disclosed, unless the possibility of a future outflow of resources is
considered remote. In the event that the outflow of resources associated with a contingent liability is assessed as probable, and
if the size of the outflow can be reliably estimated, a provision is recognised in the financial statements.

7.7 Employee benefits

(a) Retirement benefit plans

The Group operates various retirement benefit schemes. The schemes are generally funded through payments to trustee-
administered funds, determined by periodic actuarial calculations or up to the limit allowed as per the Income Tax Ordinance,
2001. The Company has both defined contribution and defined benefit plans.

A defined contribution plan is a plan under which the Group pays fixed contributions into a separate fund. The Group has no
further legal or constructive obligation to pay contributions if the fund does not hold sufficient assets to pay all employees, the
benefits relating to employees’ service in the current and prior periods.

A defined benefit plan is a plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of
benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation.

The Group operates:

(i) Defined benefit, approved funded pension scheme for management and certain grades of business support officers
and approved gratuity scheme for all employees. Employees also contribute to the pension scheme. The liability
recognised in the balance sheet in respect of pension and gratuity schemes is the present value of the defined benefit
obligation of the Group at the balance sheet date less the fair value of plan assets.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of government bonds denominated in Pakistan rupee and have terms to maturity approximating to
the terms of the related liability.

The current service cost of the defined benefit plan, recognised in the income statement in employee benefit expense,
except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from
employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognised
immediately in income.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and
the fair value of plan assets. This cost is included in employee benefit expense in the income statement.
EXCELLING BEYOND BORDERS

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the period in which they arise.

(ii) Approved contributory provident fund for all employees administered by trustees and approved contributory pension
fund for the new joiners. The contributions of the Company are recognised as employee benefit expense when they
ANNUAL REPORT 2019

are due. Prepaid contributions, if any, are recognised as an asset to the extent that a cash refund or a reduction in the
future payments is available.

(b) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date or whenever
an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is
demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. In
the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of
employees expected to accept the offer.

(c) Medical benefits

The Group maintains a health insurance policy for its entitled employees and their dependents and pensioners and their
spouses. The Group contributes premium to the policy annually. Such premium is recognised as an expense in the statement
of profit or loss.

(d) Bonus plans

The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration the profit
attributable to the Group’s shareholders after certain adjustments and performance targets. The Group recognises a provision
where it is contractually obliged or where there is a past practice that has created a constructive obligation.

(e) Share-based payments

The Group has two cash-settled share-based compensation plans. Share options are granted to key management personnel
which vest over a period of three years. A liability equal to the portion of the services received is recognised at its current fair
value determined at each statement of financial position date.

Where applicable, the Group recognises the impact of revisions to original estimates in the statement of profit or loss, with a
corresponding adjustment to current liabilities for cash-settled schemes.

(i) Long Term Incentive Plan (LTIP)

Nil-cost option exercisable after three years from date of grant with a contractual life of ten years. Pay-out is subject to
performance conditions based on earnings per share, operating cash flow, total shareholder return and net turnover of
the British American Tobacco (BAT) group. Total shareholder return combines the share price and dividend performance
of the BAT group by reference to one comparator group.

(ii) Deferred Share Bonus Scheme (DSBS)

Free ordinary shares released three years from date of grant and may be subject to forfeit if a participant leaves
employment before the end of the three years holding period. Participants receive a separate payment equivalent to a
proportion of the dividend payment during the holding period. Share options are granted in March each year.

7.8 Lease liability

The Group has recognised lease liabilities at the date of initial recognition of IFRS - 16, for leases previously classified as
operating leases under IAS 17 at the present value of the remaining lease payments using the Group’s incremental borrowing
rate of 10%. Lease liabilities are then measured at their amortised cost using the effective interest method.

7.9 Property, plant and equipment
PAKISTAN TOBACCO COMPANY

Owned assets

These are stated at cost less accumulated depreciation and any accumulated impairment losses, except freehold land and
capital work in progress which are stated at cost less impairment losses, if any. Cost includes expenditure that is directly
attributable to the acquisition of the asset.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance expenses are recognised
in the statement of profit or loss during the financial period in which they are incurred.

 
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Free-hold land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost
less residual value over their estimated useful lives at the following annual rates:

• Buildings on freehold and leasehold land 3%

• Plant and machinery 5%
• Air conditioners (included in plant and machinery) 20%
• Office and household equipment 20% to 33.3%
• Furniture and fittings 10% to 20%
• Vehicles – owned and leased 16%

Depreciation on additions and deletions during the year is charged on a pro rata basis from the month when the asset is put
into use or up to the month when asset is disposed/written off.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Gains and losses on disposals of operating fixed assets are recognised in the statement of profit of loss.

Right of use assets

Right of use asset is calculated as the initial amount of the lease liability in terms of property rentals and vehicle rentals at the
lease contract commencement date. The right of use asset is subsequently depreciated using the straight line method for a
period of lesser of useful life or actual lease term.

7.10 Impairment of non-financial asset

Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment. Assets that are
subject to depreciation are reviewed for impairment at each statement of financial position date or whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount for
which asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered an impairment are reviewed for
possible reversal of the impairment at each balance sheet date. Reversals of the impairment losses are restricted to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if impairment losses had not been recognised. An impairment loss or reversal of impairment loss is recognised in
the statement of profit or loss.

7.11 Stock in trade

Stock-in-trade is stated at the lower of cost and net realisable value. Cost is determined using the weighted average method.
The cost of finished goods and work in process comprises design costs, raw materials, direct labour, other direct costs and
related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less cost of
completion and costs necessary to be incurred to make the sale. EXCELLING BEYOND BORDERS

7.12 Stores and spares

Stores and spares are stated at cost less allowance for obsolete and slow moving items. Cost is determined using weighted
average method. Items in transit are valued at cost comprising invoice value and other related charges incurred up to the
statement of financial position date.
ANNUAL REPORT 2019

7.13 Financial Instruments

Financial assets

i. Recognition and de-recognition

The Group initially recognises financial assets on the date when they are originated. Financial liabilities are initially recognised
on the trade date when the entity becomes a party to the contractual provisions of the instrument.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Financial assets and financial liabilities are offset, and the net amount presented in the statement of financial position when, and only
when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.

ii. Classification

On initial recognition, a financial asset is classified as measured at:

• amortised cost;
• fair value through other comprehensive income (FVOCI); or
• fair value through profit or loss (FVTPL)

The classification of financial assets is based on the business model in which a financial asset is managed and its contractual
cash flow characteristics.

(a) Amortised cost

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
(i) it is held within a business model whose objective is to hold assets to collect contractual cash flows; and (ii) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
 
(b) Fair value through other comprehensive income (FVOCI)

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: (i) it is
held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets;
and (ii) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.

(c) Fair value through profit or loss (FVTPL)

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.

iii. Subsequent measurement

Financial assets Measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in
at FVTPL profit or loss.

Financial assets Measured at amortised cost using the effective interest method. The amortised cost is reduced by
at amortised impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in
cost profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.

Debt investments These assets are subsequently measured at fair value. Interest income calculated using the effective
PAKISTAN TOBACCO COMPANY

at FVOCI interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other
net gains and losses are recognised in OCI. On de-recognition, gains and losses accumulated in OCI are
reclassified to profit or loss.

Equity These assets are subsequently measured at fair value. Dividends are recognised as income in profit or
investments loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains
at FVOCI and losses are recognised in OCI and are never reclassified to profit or loss.

Subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective interest method.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
iv. De-recognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of
the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and
does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained
by the Company is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Any gain / (loss) on the recognition and de-recognition of the financial assets and liabilities is included in the statement of profit
or loss for the period in which it arises.

v. Impairment of financial assets

The Group recognises loss allowance for Expected Credit Losses (ECLs) on financial assets measured at amortised cost and
contract assets. The Company measures loss allowance at an amount equal to lifetime ECLs.

Lifetime ECLs are those that result from all possible default events over the expected life of a financial instrument. The maximum
period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

At each reporting date, the Group assesses whether the financial assets carried at amortised cost are credit-impaired. A
financial asset is ‘credit-impaired when one or more events that have detrimental impact on the estimated future cash flows of
the financial assets have occurred.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering
a financial asset in its entirety or a portion thereof.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is
classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other
financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and
foreign exchange gains and losses are recognised in statement of profit or loss. Any gain or loss on de-recognition is also
included in statement of profit or loss.

7.14 Borrowing costs

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the
statement of profit or loss over the period of the borrowings using the effective interest method. EXCELLING BEYOND BORDERS

Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised
as part of the cost of that asset. All other borrowing costs are charged to statement of profit or loss.

7.15 Dividend distribution

ANNUAL REPORT 2019

Dividend distribution to the Group’s shareholders is recognised as a liability in the financial statements in the period in which
the dividend is approved by the Group’s shareholders at the Annual General Meeting, while interim dividend distributions are
recognised in the period in which the dividends are declared by the Board of Directors.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
7.16 Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at call with banks and highly liquid investments with less
than three months maturity from the date of acquisition. Short term finance facilities availed by the Group, which are repayable
on demand and form an integral part of the Group’s cash management are included as part of cash and cash equivalents in
the statement of cash flows.

7.17 Foreign currency transactions and translation

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency using
the exchange rate prevailing at the statement of financial position date. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates are recognised in the statement of profit or
loss.

7.18 Fair value measurement

‘Fair value’ is the price that would be received by selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the
Group has access at that date. The fair value of a liability reflects its non-performance risk.

A number of the Group’s accounting policies and disclosures require the measurement of fair values, both for financial and
non-financial assets and liabilities (See Note 5). When one is available, the Group measures the fair value of an instrument
using the quoted price in an active market for that instrument. If there is no quoted price in an active market, then the Group
uses valuation techniques that maximise the use of relevant observable inputs and minimize the use of unobservable inputs.
The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair
value of the consideration given or received.

2019 2018
Rs ‘000 Rs ‘000

8 Gross turnover
- Domestic 147,291,473 137,073,572
- Export 1,733,175 42,185
149,024,648 137,115,757

Revenue is measured based on the consideration specified in a contract with a customer. The transaction prices are generally
fixed as per the contract with customers. The payment terms are governed by the contractual rights and obligations as defined
in the contracts with customers and payments are generally received in advance of delivering goods sold.

Revenue recognised during the year that was included in the contract liability balance at the beginning of year is Rs. 2,013
thousand (2018: Rs 150 thousand).
PAKISTAN TOBACCO COMPANY
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

9 Cost of sales
Raw material consumed
Opening stock of raw materials and work in process 16,944,127 13,137,236
Raw material purchases and expenses - note 9.1 21,851,976 23,669,134
Closing stock of raw materials and work in process (19,573,174) (16,944,127)
19,222,929 19,862,243
Government taxes and levies
Customs duty and surcharges 2,353,985 2,318,625
Provincial and municipal taxes and other duties 334,885 396,327
Excise duty on royalty 42,771 47,349
2,731,641 2,762,301
21,954,570 22,624,544
Royalty - note 9.2 (1,463,277) 2,364,433
Severance benefits 857,194 172,446
Production overheads
Salaries, wages and benefits 2,034,476 2,059,960
Stores, spares and machine repairs 604,221 803,768
Fuel and power 493,522 394,954
Insurance 20,712 16,859
Repairs and maintenance 456,565 653,622
Postage, telephone and stationery 19,182 17,312
Information technology 31,150 44,570
Depreciation 724,448 592,878
Provision for damaged stocks / stock written off 72,124 17,762
Provision / (reversal) for slow moving items / stores written off 15,123 (64,091)
Sundries 256,111 341,638
4,727,634 4,879,232
Cost of goods manufactured 26,076,121 30,040,655
Cost of finished goods
Opening stock 1,548,417 1,336,318
Closing stock (1,859,725) (1,548,417)
(311,308) (212,099)
Cost of sales 25,764,813 29,828,556

9.1 Raw material purchases and expenses:

Materials 19,157,657 20,966,816
Salaries, wages and benefits 1,203,466 1,175,786
Stores, spares and machine repairs 286,700 190,003
EXCELLING BEYOND BORDERS

Fuel and power 447,675 326,631

Property rentals 26,433 121,346
Insurance 14,100 18,457
Repairs and maintenance 134,278 162,616
Postage, telephone and stationery 11,224 14,493
ANNUAL REPORT 2019

Depreciation 155,580 87,498

Sundries 414,863 605,488
21,851,976 23,669,134

9.2 This represents royalty payable to the associated companies namely BAT (Brands) Limited, Benson & Hedges (Overseas)
Limited and BAT (Holdings) Limited having registered office at Globe House, 1 Water Street, London WC2R 3LA, United
Kingdom. Royalty expense for the year ended December 31, 2019 is presented net of reversals as disclosed in note 38.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

10 Selling and distribution costs

Salaries, wages and benefits 1,036,620 884,521
Selling expenses 2,955,537 3,498,834
Freight 231,931 169,787
Repairs and maintenance 32,781 72,904
Postage, telephone and stationery 12,828 10,693
Travelling 175,689 140,241
Property rentals 31,057 64,050
Insurance 14,440 11,613
Provision for damaged stocks / stock written off 5,256 1,200
Finished goods / wrapping material stock written off 9,945 –
Depreciation 160,038 96,450
4,666,122 4,950,293

11 Administrative expenses
Salaries, wages and benefits 844,868 900,169
Fuel and power 8,200 8,991
Property rentals 7,329 185,907
Insurance 5,382 5,597
Repairs and maintenance 49,358 27,577
Postage, telephone and stationery 18,858 11,256
Legal and professional charges 122,204 118,403
Donations - note 11.1 13,690 8,400
Information technology 1,188,792 1,001,846
Travelling 121,310 79,659
Depreciation 327,410 148,952
Auditor’s remuneration and expenses - note 11.2 13,463 14,626
Sundries 59,381 46,689
2,780,245 2,558,072

11.1 Details of donations exceeding Rs 1,000 thousand are as follows:
Name of Donee
One To Many 10,000 –
Chal Foundation 1,500 –
Prime Ministers’ Dam Fund 1,390 –
Gottfried Thoma PTC Employees’ Benevolent Trust – 8,000
12,890 8,000

There were no donations in which the directors, or their spouses, had any interest.
PAKISTAN TOBACCO COMPANY

11.2 Auditor’s remuneration and expenses include:

- Statutory audit fee 2,317 2,450
- Group reporting, review of half yearly accounts, audit of
consolidated accounts, audit of staff retirement
benefit funds and other certifications and review of
Statement of Compliance with Code of Corporate Governance 10,497 11,623
- Out-of-pocket expenses 649 553
13,463 14,626
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

12 Other operating expenses

Workers’ Profit Participation Fund - note 26.7 982,004 820,615

Workers’ Welfare Fund - note 26.6 411,271 327,658
Bank charges and fees 33,562 38,062
Foreign exchange loss 445,162 195,523

1,871,999 1,381,858

13 Other income

Income from sales / services rendered to associated companies:

- BAT SAA Services (Private) Limited 127,880 124,153
- BAT Bangladesh – 3,928
Recharges / other payable to associated companies written back:
- BAT ASPAC Service Center Sdn Bhd - Malaysia 519,301 15,114
- Ceylon Tobacco Co. Ltd.- SriLanka 52 –
- BAT PNG Ltd - Papua New Guinea 51 –
- BAT Niemeyer Ltd - Netherland 16 –
- BAT Asia-Pacific Region Ltd - Hong Kong – 11,478
Other liabilities written back - net – 343
Gain on disposal of property, plant and equipment 134,391 21,259
Miscellaneous 1,491 1,454

783,182 177,729

14 Finance cost

Interest expense on:

Bank borrowings 21,565 2,014
Lease liability 180,988 31,814

202,553 33,828

15 Income tax expense

Current:
For the year 4,686,603 4,700,006
For prior years 600,639 745,116

5,287,242 5,445,122
Deferred 108,446 (503,260)

5,395,688 4,941,862 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
15.1 Effective tax rate reconciliation:

Numerical reconciliation between the average effective income tax rate and applicable income tax rate is as follows:

2019 2018
% %

Applicable tax rate 29.00 29.00

Tax effect of:
Prior year charge / (reversal) 0.38 2.93
Change in applicable tax rate 0.78 (1.57)
Income taxed at different rate (0.76) (0.02)
Super tax / others 0.11 2.00

Average effective tax rate 29.51 32.34

2019 2018
Rs ‘000 Rs ‘000

15.2 Tax on items directly credited to statement of

other comprehensive income

Current tax charge on defined benefit plans 7,705 8,390

Deferred tax (credit) on defined benefit plans (51,578) (15,889)

(43,873) (7,499)

2019 2018

16 Earnings per share

Profit after tax (Rs ‘000) 12,889,229 10,337,992

Number of fully paid weighted average ordinary shares (‘000) 255,494 255,494

Earnings per share - Basic (Rs) 50.45 40.46

There is no dilutive effect on the basic earnings per share of the Company.

2019 2018
Rs ‘000 Rs ‘000

17 Property, plant and equipment

Operating assets - note 17.1 11,593,560 8,173,640

Capital work in progress - note 17.2 754,318 982,235
PAKISTAN TOBACCO COMPANY

12,347,878 9,155,875
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
17.1 Operating assets

Right of use assets
Free-hold Buildings on Buildings on Plant and Office and Furniture and Vehicles Land and Vehicles Sub- Total
land free-hold leasehold machinery household fittings building total
land land equipment
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

At January 1, 2018
Cost 33,934 978,444 20,004 13,841,474 1,685,267 383,923 162,305 – 1,087,283 1,087,283 18,192,634
Accumulated Depreciation – (273,635) (11,978) (7,957,696) (1,052,571) (219,418) (122,499) – (380,228) (380,228) (10,018,025)

Net book amount January 1, 2018 33,934 704,809 8,026 5,883,778 632,696 164,505 39,806 – 707,055 707,055 8,174,609

Year ended December 31, 2018

Net book amount at January 1, 2018 33,934 704,809 8,026 5,883,778 632,696 164,505 39,806 – 707,055 707,055 8,174,609
Additions – – – 708,020 71,361 35,337 – – 259,320 259,320 1,074,038
Disposals – (4,211) (74) (29,735) (440) (40) (6,459) – (92,324) (92,324) (133,283)
Depreciation charge – (18,882) (409) (428,144) (211,339) (50,996) (7,352) – (208,656) (208,656) (925,778)
Impairment charge – – – (3,225) (211) – (10,818) – (1,692) (1,692) (15,946)

Net book amount at December 31, 2018 33,934 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,173,640

At December 31, 2018

Cost 33,934 970,153 19,888 15,044,250 1,727,721 418,532 124,172 – 1,151,619 1,151,619 19,490,269
Accumulated depreciation – (288,437) (12,345) (8,913,556) (1,235,654) (269,726) (108,995) – (487,916) (487,916) (11,316,629)

Net book amount at December 31, 2018 33,934 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,173,640

At January 1, 2019
Cost 33,934 970,153 19,888 15,044,250 1,727,721 418,532 124,172 – 1,151,619 1,151,619 19,490,269
Accumulated Depreciation – (288,437) (12,345) (8,913,556) (1,235,654) (269,726) (108,995) – (487,916) (487,916) (11,316,629)

Net book amount January 1, 2019 33,934 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,173,640

Year ended December 31, 2019

Net book amount at January 1, 2019 33,934 681,716 7,543 6,130,694 492,067 148,806 15,177 – 663,703 663,703 8,173,640
Additions – 936 – 2,455,823 357,497 58,219 16,649 1,559,221 504,593 2,063,814 4,952,938
Disposals – (64) – (32,463) (823) (191) (3,913) – (128,088) (128,088) (165,542)
Depreciation charge – (18,647) (405) (524,284) (226,383) (52,137) (2,435) (331,177) (212,008) (543,185) (1,367,476)
Impairment charge – – – – – – – – – – –

Net book amount at December 31, 2019 33,934 663,941 7,138 8,029,770 622,358 154,697 25,478 1,228,044 828,200 2,056,244 11,593,560

At December 31, 2019

Cost 33,934 970,868 19,888 17,251,879 1,980,058 474,810 128,432 1,559,221 1,278,200 2,837,421 23,697,290
Accumulated depreciation – (306,927) (12,750) (9,222,109) (1,357,700) (320,113) (102,954) (331,177) (450,000) (781,177) (12,103,730)

Net book amount at December 31, 2019 33,934 663,941 7,138 8,029,770 622,358 154,697 25,478 1,228,044 828,200 2,056,244 11,593,560
EXCELLING BEYOND BORDERS
ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
17.1.1 Particulars of immovable property (land and building) in the name of the Company are as follows:

Location Total Area

Production Plants
Jhelum 58.3 Acres
Akora 61.0 Acres

Warehouses
Faujoon 163,970 Sq ft.
Shergarh 65,227 Sq ft.
Takht Bhai 54,593 Sq ft.
Umerzai 87,464 Sq ft.
Mianwali 878,694 Sq ft.
Okara 71,723 Sq ft.

2019 2018
Rs ‘000 Rs ‘000

17.2 Capital work in progress

Carrying value at the beginning of the year 982,235 190,134

Additions during the year 1,419,007 962,382

2,401,242 1,152,516
Transferred to operating fixed assets (1,646,924) (170,281)

Carrying value at the end of the year - note 17.2.1 754,318 982,235

17.2.1 Capital work in progress includes capital expenditure on projects relating to enhancement of already installed machinery.

2019 2018
Rs ‘000 Rs ‘000

17.3 Depreciation charge has been allocated as follows:

Cost of sales 724,448 592,878

Raw material purchases and expenses 155,580 87,498
Selling and distribution expenses 160,038 96,450
Administrative expenses 327,410 148,952

1,367,476 925,778
PAKISTAN TOBACCO COMPANY
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
17.4 Details of property, plant and equipment disposed off during the year, having book value of Rs 500,000 or more are as follows:

Cost Book Sale Gain/ Particulars of buyers Relationship
value proceeds (loss) on
less selling sale
expenses
Rs ‘000 Rs ‘000 Rs ‘000

Plant & machinery

- by negotiation 46,897 25,948 25,948 – BAT Polska S.A Associate
company
11,957 1,029 239 (790) Bahadar Khan Contractor

Vehicles
- as per Company’s policy 2,322 888 491 (397) Irfan Mirza Executive
2,322 966 582 (384) Athar Sultan Ex-Executive
2,402 1,677 1,328 (349) Khurram Rajpoot Executive
2,997 2,757 2,701 (56) Hassan Khalid Executive
2,047 1,121 940 (181) Mian Waqar Ex-Executive
2,067 1,147 1,170 23 Bushra Rehman Executive
2,322 827 464 (363) Muhammad Gulzar Executive
2,322 959 742 (217) Umair Luqman Executive
2,402 1,415 1,248 (167) Shadman Safdar Ex-Executive
2,104 1,497 1,627 130 Madeeh Pasha Executive
2,689 2,258 2,171 (87) Muneeba Haleem Ex-Executive
5,161 2,891 2,611 (280) Sami Zaman Ex-Executive
5,283 3,760 3,564 (196) Sadaf Saeed Ex-Executive
2,047 698 408 (290) Saqib Ali Executive
2,404 1,445 1,186 (259) Saad Ikram Ex-Executive
2,414 1,547 1,577 30 Syed Bilal Firdous Executive
2,584 1,774 1,779 5 Hamzah Fazal Ex-Executive
2,639 2,181 2,198 17 Mustafa Sherdil Executive
5,286 3,177 3,033 (144) Asif Khan Ex-Executive
5,283 3,458 3,486 28 Talat Mehmood Ex-Executive
6,233 5,069 4,943 (126) Khurram Javed Ex-Executive
6,867 6,318 6,232 (86) Imran Fazal Ex-Executive
6,483 5,272 5,406 134 Athar Baig Ex-Executive
12,200 8,252 8,216 (36) Aly Ud Din Taseer Ex-Executive
20,000 11,747 9,330 (2,417) Syed Javed iqbal Ex-Executive
5,161 3,237 2,987 (250) Waqas Bhatti Ex-Executive

Vehicles (continued)
- Auction 2,249 1,730 2,530 800 Through bidding in auction Auction agent
3,363 673 2,600 1,927 Through bidding in auction Auction agent
3,363 673 2,535 1,862 Through bidding in auction Auction agent
3,363 673 2,515 1,842 Through bidding in auction Auction agent
3,303 661 2,470 1,809 Through bidding in auction Auction agent
EXCELLING BEYOND BORDERS

3,363 673 2,500 1,827 Through bidding in auction Auction agent

2,846 2,504 2,720 216 Through bidding in auction Auction agent
2,519 504 1,955 1,451 Through bidding in auction Auction agent
2,322 543 1,980 1,437 Through bidding in auction Auction agent
3,353 671 2,480 1,809 Through bidding in auction Auction agent
ANNUAL REPORT 2019

3,353 671 2,555 1,884 Through bidding in auction Auction agent

3,353 671 2,510 1,839 Through bidding in auction Auction agent
3,353 671 2,405 1,734 Through bidding in auction Auction agent
3,353 671 2,500 1,829 Through bidding in auction Auction agent
3,353 671 2,575 1,904 Through bidding in auction Auction agent
3,353 671 2,400 1,729 Through bidding in auction Auction agent
3,353 671 2,330 1,659 Through bidding in auction Auction agent
3,353 671 2,500 1,829 Through bidding in auction Auction agent
209
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Cost Book Sale Gain/ Particulars of buyers Relationship
value proceeds (loss) on
less selling sale
expenses
Rs ‘000 Rs ‘000 Rs ‘000

3,353 671 2,810 2,139 Through bidding in auction Auction agent

3,353 671 2,600 1,929 Through bidding in auction Auction agent
3,353 671 2,405 1,734 Through bidding in auction Auction agent
3,353 671 2,505 1,834 Through bidding in auction Auction agent
3,353 671 2,645 1,974 Through bidding in auction Auction agent
3,353 671 2,700 2,029 Through bidding in auction Auction agent
3,353 671 2,750 2,079 Through bidding in auction Auction agent
3,353 671 2,756 2,085 Through bidding in auction Auction agent
3,353 671 2,605 1,934 Through bidding in auction Auction agent
3,413 683 2,500 1,817 Through bidding in auction Auction agent
3,272 654 2,790 2,136 Through bidding in auction Auction agent
3,272 654 2,650 1,996 Through bidding in auction Auction agent
3,272 654 2,605 1,951 Through bidding in auction Auction agent
3,272 654 2,710 2,056 Through bidding in auction Auction agent
3,272 654 2,770 2,116 Through bidding in auction Auction agent
3,272 654 2,700 2,046 Through bidding in auction Auction agent
3,272 654 2,360 1,706 Through bidding in auction Auction agent
3,272 654 2,470 1,816 Through bidding in auction Auction agent
3,272 654 2,420 1,766 Through bidding in auction Auction agent
3,272 654 2,455 1,801 Through bidding in auction Auction agent
5,031 1,006 4,355 3,349 Through bidding in auction Auction agent
5,131 1,670 5,000 3,330 Through bidding in auction Auction agent
3,882 776 2,850 2,074 Through bidding in auction Auction agent

- by insurance claim 2,107 528 1,458 930 EFU General Insurance Ltd. Insurance agent
3,353 671 2,187 1,516 EFU General Insurance Ltd. Insurance agent

2019 2018
Rs ‘000 Rs ‘000

18 Long term deposits and prepayments

Security deposits 30,759 28,480

Prepayments – 3,632

30,759 32,112

19 Stock-in-trade

Raw materials 18,762,548 16,053,378

Raw materials in transit 719,314 797,363
Work in process 91,312 93,386
PAKISTAN TOBACCO COMPANY

Finished goods 1,859,725 1,548,417

21,432,899 18,492,544
Provision for damaged stocks - note 19.1 (10,356) (3,154)

21,422,543 18,489,390

19.1 Movement in provision for damaged stocks is as follows:

Balance as at January 1 3,154 12,664

Provision for the year 87,325 18,962
Written off during the year (80,123) (28,472)

Balance as at December 31 10,356 3,154

210
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

20 Stores and spares

Stores and spares 744,834 699,741

Provision for slow moving items - note 20.1 (80,835) (65,712)

663,999 634,029

20.1 Movement in provision for slowing moving items is as follows:

Balance as at January 1 65,712 129,803

Provision / reversal of provision during the year 15,123 (64,091)

Balance as at December 31 80,835 65,712

21 Trade debts

These are unsecured, considered good.

22 Loans and advances

Related parties:
Advances to key management personnel for
house rent - note 22.1 2,140 2,079

Others:
Advances to executives for house rent and expenses 34,279 32,692
Advances to other parties 89,225 60,732

125,644 95,503

22.1 Advances were given to the following key management personnel

Mr Ahsen Altaf 990 990

Mr Hassan Khalid 450 –
Mr Umair Luqman 400 –
Ms Sana Saad 300 –
Mr Talat Mehmood – 99
Mr Khurram Javaid – 990

2,140 2,079

The maximum aggregate amount of advances to key management personnel outstanding at the end of any month during the
year was Rs. 2,140 thousand (2018: Rs. 2,079 thousand).

EXCELLING BEYOND BORDERS

These loans and advances are unsecured and considered good. Advances extended to key management personnel, executives
and other employees are deducted from the individuals’ monthly payroll as per Company’s policy.
ANNUAL REPORT 2019

211
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

23 Other receivables

Related parties - unsecured:

Due from holding company / associated companies - note 23.1 188,638 169,006
Staff pension fund - note 32 881,821 787,677
Management provident fund – 2,393
Staff pension fund - defined contribution – 712
Workers’ profit participation fund - note 26.7 – 159,385

Others:
Claims against suppliers 6,576 6,576
Cash margin with banks - imports 904,202 676,943
Others 130,654 39,428

2,111,891 1,842,120

23.1.1 Ageing analysis of the amounts due from holding company / associated companies comprises:

Upto 1 1 to 6 More than
month months 6 months 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Holding company:
British American Tobacco p.l.c. - UK 69,884 – – 69,884 3,569

Associated companies:
BAT Nigeria Ltd - Nigeria – 60,132 – 60,132 21,542
BAT (Investments) Ltd - UK 18,469 – – 18,469 –
Solomon Islands Tobacco Co Ltd - Solomon Islands 16,022 – – 16,022 –
BASS (GSD) Ltd - UK – 7,771 – 7,771 –
BAT Marketing (Singapore) Pte Ltd 5,427 – – 5,427 3,588
PT Bentoel Prima - Indonesia 4,041 – – 4,041 11,549
BAT Asia Pacific - Hong Kong 3,930 – – 3,930 416
PT Bentoel International Investama - Indonesia – 1,431 – 1,431 –
BAT PNG Ltd - Papua New Guinea 581 – – 581 –
BAT Polska SA - Poland 527 – – 527 –
Ceylon Tobacco Co. Ltd - SriLanka – – 160 160 –
BAT Fiji Ltd - Fiji 145 – – 145 –
BAT Tutun Mamulleri - Turkey 118 – – 118 1,458
BAT SAA Services (Private) Limited - Pakistan – – – – 124,153
BAT Myanmar Ltd - Myanmar – – – – 1,881
PAKISTAN TOBACCO COMPANY

BAT (Singapore) Pte Ltd - Singapore – – – – 706

BAT Romania Investment - Romania – – – – 144

Total 119,144 69,334 160 188,638 169,006

23.1.2 The maximum aggregate amount of receivable from related parties at the end of any month during the year was Rs 188,638
thousand (2018: Rs 169,006 thousand).
212
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

24 Short term investments

At fair value through profit or loss (FVTPL):

- Market treasury bills 3,001,058 8,699,508

This represents short term investment in treasury bills issued by the Government of Pakistan and carries effective interest rate of
13.14% ( 2018 : 9.82%) per annum and are held for trading. These treasury bills have less than three months maturity from the date of
acquisition and have been disposed off subsequent to the year-end.

2019 2018
Rs ‘000 Rs ‘000

25 Cash and bank balances

Deposit account - note 25.1 9,075 8,863

Current accounts:
Local currency 379,282 157,122
Foreign currency 145,874 122,175

534,231 288,160
Cash in hand 1,674 5,005

535,905 293,165

25.1 These are security deposits being kept in separate bank account.

2019 2018
Rs ‘000 Rs ‘000

26 Trade and other payables

Related parties - unsecured:

Due to holding company / associated companies - note 26.1 1,397,088 2,108,134
Others:
Creditors 5,206,741 9,069,627
Federal excise duty - note 26.2 7,255,338 5,288,160
Sales tax 1,283,563 1,135,412
Workers’ welfare fund - note 26.6 373,162 311,833
Workers’ profit participation fund - note 26.7 12,004 –
Other accrued liabilities 109,977 283,392
Employee incentive schemes - note 26.4 99,713 99,675
Employees’ gratuity fund - note 32 337,649 210,278
Employees’ provident fund 5,450 124
EXCELLING BEYOND BORDERS

Management provident fund 14,728 –

Staff pension fund - defined contribution 55,805 –
Tobacco excise duty / Tobacco development cess - note 26.3 118,134 103,884
Security deposits - note 26.5 9,075 8,863
ANNUAL REPORT 2019

Contract liability 16,817 2,013

16,295,244 18,621,395
213
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
26.1 The amount due to holding company / associated companies comprises:

2019 2018
Rs ‘000 Rs ‘000

Holding company:
British American Tobacco p.l.c. - UK 195,226 162,839

Associated companies:
BASS GSD Ltd. - UK 394,624 196,043
BAT GLP Ltd - UK 240,866 377,355
BAT ASPAC Service Center Sdn Bhd - Malaysia 185,834 562,944
BAT Singapore (Pte) Ltd - Singapore 121,168 493,357
BAT (Investments) Ltd - UK 92,321 –
BAT M.E DMCC - UAE - note 26.1.1 61,833 –
Solomon Island tobacco Co. Ltd - Solomon Islands 31,204 –
BAT Souza Cruz Ltd - Brazil 15,041 7,636
BAT Korea Manufacturing - South Korea 14,647 4,539
BAT Western Europe - UK 12,457 –
BAT Bangladesh Co. Ltd- Bangladesh 10,136 42,278
PT Bentoel Prima - Indonesia 9,520 5,670
BAT Tutun Mamulleri - Turkey 2,204 10,618
BAT GSD (KL) SDN BHD - Malaysia 2,052 –
BAT Australia Ltd-Australia 1,716 –
BAT Nicoventures Trading Ltd-UK 1,473 –
BAT Myanmar Ltd - Myanmar - note 26.1.1 909 40,932
BAT Argentina - Argentina 584 179
BAT Romania Investments Ltd - Romania 347 –
BAT Mexico Ltd - Mexico 143 424
BAT Nigeria Ltd - Nigeria 118 2,475
Ceylon Tobacco Company Plc - Sri Lanka 39 182
BAT Marketing (Singapore) Pte Ltd – 138,522
R.J Reynolds Tobacco Co - USA – 43,253
BAT Cambodia Ltd-Cambodia – 8,588
BAT JSC-Spb - Russia – 3,697
BAT Prilucky - Ukraine – 1,187
BAT South Africa (Pty) Ltd - South Africa – 1,052
BAT Germany GmbH - Germany – 599
BAT Chile Tobacco - Chile – 431
BAT Pecsi Dohanygyar Kft-Hungary – 206
BAT Polska S.A - Poland – 157
BAT Suisse - Switzerland – 139
PAKISTAN TOBACCO COMPANY

BAT Tabacalera - Honduras – 138

BAT Kenya Ltd - Kenya – 71
BAT PNG Ltd - Papua New Guinea – 51
BAT Niemeyer-Netherland – 15
Other
Tajamal Hussain Shah - Key Management Personnel 2,626 2,557

1,397,088 2,108,134

26.1.1 Rs 62,741 thousand (2018: 40,932 thousand) relates to unsecured export advance.
214
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

26.2 Federal excise duty

Balance as at January 1 5,288,160 2,089,200

Charged during the year 74,741,489 63,117,903
Payment to the Government during the year (72,774,311) (59,918,943)

Balance as at December 31 7,255,338 5,288,160

26.3 Tobacco excise duty / tobacco development cess:

Balance as at January 1 103,884 94,509

Charge for the year 212,829 204,890
Payment to the Government during the year (198,579) (195,515)

Balance as at December 31 118,134 103,884

26.4 Employee incentive schemes

These represent liability for unvested portion of cash-settled share-based payment schemes available to certain employees.
Such schemes require the Company to pay the intrinsic value of these share based payments to the employee at the vesting
date.

2019 2018
Rs ‘000 Rs ‘000

Long Term Incentive Plan (LTIP) - note 26.4.1

Balance as at January 1 29,580 90,307
Charge for the year 21,166 28,513
Share options exercised (15,362) (42,053)

Balance as at December 31 35,384 76,767

Deferred Share Bonus Scheme (DSBS) - note 26.4.2
Balance as at January 1 70,095 76,135
Charge for the year 42,989 48,069
Share options exercised (48,755) (54,109)

Balance as at December 31 64,329 70,095

(Reversal)/Charge other employee benefit – (47,187)

99,713 99,675

26.4.1 Long Term Incentive Plan (LTIP)

Details of the options movement for cash-settled LTIP scheme during the year were as follows:
EXCELLING BEYOND BORDERS

2019 2018
Number of options
ANNUAL REPORT 2019

Outstanding as at January 1 12,158 14,592

Granted during the year 7,994 7,201
Exercised during the year (2,779) (9,635)

Outstanding as at December 31 17,373 12,158

There are no exercisable options as at 31st December, 2019.
215
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
26.4.2 Deferred Share Bonus Scheme (DSBS)

Details of the options movement for cash-settled DSBS scheme during the year were as follows:

2019 2018
Number of options

Outstanding as at January 1 19,399 17,440

Granted during the year 12,184 11,110
Exercised during the year (9,862) (9,151)

Outstanding as at December 31 21,721 19,399

There are no exercisable options as at 31st December, 2019.

26.5 These represent amounts received as security deposits from dealers and suppliers, which are non-utilisable for the purpose of
the business in accordance with their agreements. These security deposits are being held in a separate bank account.

2019 2018

Rs ‘000 Rs ‘000

26.6 Movement in Workers’ Welfare Fund is as follows:

Balance as at January 1 311,833 265,538

Charged during the year 411,271 327,659
Payment to Government during the year (349,942) (281,364)

Balance as at December 31 373,162 311,833

26.7 Movement in Workers’ Profit Participation Fund is as follows:

Balance as at January 1 (159,385) (101,217)

Allocation for the year 982,004 820,615
Payments during the year (810,615) (878,783)

Balance as at December 31 12,004 (159,385)

27 Other liabilities

This relates to provisions for employee benefits, litigation and restructuring consequent to modernization of production processes.
During the year, the Company has consumed amounts aggregating Rs. 973 million (2018: Rs 505 million) and recorded further
obligations of Rs 1,541 million (2018: Rs 577 million).

28 Short term running finance - secured

(a) Short term running finance

PAKISTAN TOBACCO COMPANY

Short term running finance facilities available under mark-up arrangements with banks amount to Rs 6,500 million (2018: Rs
6,500 million), out of which the amount unavailed at the year end was Rs 6,500 million (2018: Rs 6,424 million). These facilities
are secured by hypothecation of stock in trade and plant and machinery amounting to Rs 7,222 million (2018: Rs 7,222 million).
The mark-up ranges between 10.52% and 14.05% (2018: 6.40% and 10.50%) per annum and is payable quarterly. The facilities
are renewable on annual basis.

(b) Non-funded finance facilities

The Company also has non-funded financing facilities available with banks, which include facility to avail letter of credit and
letter of guarantee. The aggregate facility of Rs 2,500 million (2018: Rs 2,500 million) and Rs 420 million (2018: Rs 420 million)
is available for letter of credit and letter of guarantee respectively, out of which the facility availed at the year end is Rs 83 million
(2018: Rs 227 million) and Rs 386 million (2018: Rs 324 million). The letter of credit and guarantee facility is secured by second
ranking hypothecation charge over stock-in-trade amounting to Rs 670 million (2018: Rs 670 million).
216
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
29 Lease liability

This represents lease agreements entered into with a leasing company for vehicles. Total lease rentals due under various lease
agreements aggregate to Rs 596,290 thousand - short term Rs 258,036 thousand and long term Rs 338,254 thousand (December 31,
2018: Rs 433,090 thousand - short term Rs 148,245 thousand and long term Rs 284,845 thousand) and are payable in equal monthly
instalments latest by December 2024. Taxes, repairs, replacement and insurance costs are to be borne by the Company. Financing
rates of 12.35% to 15.36% (December 31, 2018: 7.85% to 13.14%) per annum have been used as discounting factor.

As per IFRS 16 all rental facilities of the Company with lease terms greater than one year have been reclassified from operating leases
to leased assets. When measuring the lease liabilities for leases that were classified as operating leases, the Company discounted
lease payments using an estimated incremental borrowing rate at January 01, 2019. The estimated incremental borrowing rate applied
is 10%. At the date of initial application right of use of asset amounting to Rs. 1,448,717 thousand was recognised in property, plant and
equipment (Note 17.1) and lease obligation of Rs. 1,243,268 thousand was recognised after adjustment of prepaid rent amounting to
Rs. 205,449 thousand. Financing rates of 10% to 14% (December 31, 2018: Nil) per annum have been used as discounting factor.

Closing balance includes lease obligation of Rs 1,121,382 thousand - short term Rs 118,031 thousand and long term Rs 1,003,351
thousand (December 31, 2018: Rs Nil) on account of change in accounting policy IFRS 16.

The amount of future minimum lease payments together with the present value of the minimum lease payments and the periods during
which they fall due are as follows:

2019 2018

Rs ‘000 Rs ‘000

Present value of minimum lease payments 1,717,672 433,090

Current maturity shown under current liabilities (376,065) (148,245)

1,341,607 284,845

Future minimum lease payments
Not later than one year 552,925 182,441
Later than one year 1,760,855 328,407

2,313,780 510,848
Interest (596,108) (77,758)

Present value of minimum lease payments 1,717,672 433,090

Present value of minimum lease payments
Not later than one year 376,065 148,245
Later than one year 1,341,607 284,845

1,717,672 433,090
EXCELLING BEYOND BORDERS
30 Unpaid dividend

Unpaid dividend includes amount of Rs nil (2018: Rs 166,660 thousand), payable to British American Tobacco (Investments) Limited,
parent company.
ANNUAL REPORT 2019

217
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018

Rs ‘000 Rs ‘000

31 Deferred income tax liability

Deferred tax liability is in respect of:

Accelerated tax depreciation 1,270,770 898,482
Leased assets 100,263 63,405

1,371,033 961,887
Deferred tax asset is in respect of:
Remeasurement loss arising on employees’
retirement benefit (109,389) (57,810)
Provision for severance benefits (592,257) (296,600)
Provision for stock and stores (23,444) (18,401)

645,943 589,076

The gross movement on deferred income tax account is as follows:

At January 1 589,076 1,108,225
(Credit) / charge for the year - statement of profit or loss 108,445 (503,260)
(Credit) for the year - statement of comprehensive income (51,578) (15,889)

At December 31 645,943 589,076

32 Retirement benefits

Investments in all contributory funds have been made in accordance with the provisions of section 218 of the Companies Act, 2017 and
the rules formulated for that purpose.

2019 2018
Rs ‘000 Rs ‘000

Staff pension fund - asset - note 23 (881,821) (787,677)

Employees’ gratuity fund - liability - note 26 337,649 210,278

The latest actuarial valuation of the defined benefit plans was conducted at December 31, 2019 using the projected unit credit method.
Details of the defined benefit plans are:

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(a) The amounts recognised in the statement of

PAKISTAN TOBACCO COMPANY

financial position:

Present value of defined benefit obligations 4,978,396 4,628,109 1,650,937 1,474,653

Fair value of plan assets (5,860,217) (5,415,786) (1,313,288) (1,264,375)

Net (assets) / liability (881,821) (787,677) 337,649 210,278

218
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Defined Benefit Defined Benefit
Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(b) Movement in the (asset) / liability recognised

in the statement of financial position
is as follows:

Balance as at January 1 (787,677) (765,618) 210,278 139,736

Charge for the year - profit and loss (37,069) (4,364) 105,427 85,868
Employer’s contribution during the year (30,507) 11,238 (148,794) (82,054)
Remeasurement (gain)/loss recognised in Other
Comprehensive Income (OCI) during the year (26,568) (28,933) 170,738 66,728

Balance as at December 31 (881,821) (787,677) 337,649 210,278

(c) The amounts recognised in the statement
of profit and loss:

Current service cost 95,605 97,559 94,064 86,113

Interest cost 627,565 437,944 201,833 133,716

Expected return on plan assets (729,114) (507,451) (174,173) (121,030)

Net interest (101,549) (69,507) 27,660 12,686

Members’ own contribution (24,456) (26,211) – –
Secondees’ own contribution (6,669) (6,205) – –
Contribution by employer in respect of secondees – – (16,297) (12,931)

(37,069) (4,364) 105,427 85,868

(d) Re-measurements recognised in Other
Comprehensive Income (OCI)
during the year:

Actuarial (gain) / loss on obligation (80,458) (436,665) 158,282 (25,865)

Net return on plan assets over interest income 53,890 407,732 12,456 92,593

Total remeasurements loss / (gain) recognised in OCI (26,568) (28,933) 170,738 66,728

(e) Movement in the present value of
defined benefit obligation:

Present value of defined benefit obligation

at January 1 4,628,109 4,759,609 1,474,653 1,416,319
Current service cost 95,605 97,559 94,064 86,113 EXCELLING BEYOND BORDERS
Interest cost 627,565 437,944 201,833 133,716
Actual benefits paid during the year (292,425) (230,338) (277,894) (135,630)
Remeasurements: Actuarial (gain) / loss

on obligation (80,458) (436,665) 158,282 (25,865)

ANNUAL REPORT 2019

Present value of defined benefit obligation

at December 31 4,978,396 4,628,109 1,650,938 1,474,653
219
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Defined Benefit Defined Benefit
Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(f) Movement in the fair value of plan assets:

Fair value of plan assets at January 1 5,415,786 5,525,227 1,264,375 1,276,583

Interest income 729,114 507,451 174,173 121,030
Contribution by employer in respect of members 30,507 (11,238) 148,793 82,054
Members’ own contribution 24,456 26,211 – –
Secondees’ own contribution 6,669 6,205 – –
Contribution by employer in respect of secondees – – 16,297 12,931
Actual benefits paid during the year (292,425) (230,338) (277,894) (135,630)
Return on plan assets, excluding amounts included in
interest income (53,890) (407,732) (12,456) (92,593)

Fair value of plan assets at December 31 5,860,217 5,415,786 1,313,288 1,264,375

Actual return on plan assets 635,638 135,063 148,744 27,768

The Company expects to credit Rs 58 million for pension plan and charge Rs 128 million for gratuity plan for the year ending
December 31, 2020.

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
2019 2018 2019 2018
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

(g) The major categories of plan assets:

Investment in listed equities 1,060,470 1,134,619 242,441 230,671

Investment in bonds 2,020,367 2,226,922 477,299 483,015
Cash and other assets 2,779,380 2,054,245 593,548 550,689

5,860,217 5,415,786 1,313,288 1,264,375

(h) Significant actuarial assumptions at
the statement of financial position date:

Discount rate 12.50% 13.75% 12.50% 13.75%

Pension increase rate 6.75% 7.50% – –
Expected rate of increase in salary
First year 11.75% 9.00% 11.25% 9.00%
Second year onwards 11.75% 12.50% 11.25% 12.50%

PAKISTAN TOBACCO COMPANY

The mortality table used for post retirement mortality is Standard Table Mortality The “80” Series PMA 80 (C=2015) and PFA
80(C=2015) for males and females respectively but rated up 2 years.

The discount rate is determined by considering underlying yield currently available on Pakistan Investment Bonds and high
quality term finance certificates and expected return on plan assets is determined by considering the expected returns
available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on
gross redemption yields as at the balance sheet date.

Salary increase assumption is based on the current general practice in the market.

220
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
(i) Sensitivity Analysis on significant actuarial assumptions

The calculation of the defined benefit obligation is sensitive to assumptions set out above. The following table summarizes
how the impact on the defined benefit obligation at the year end of the reporting period would have increased / (decreased)
as a result of a change in respective assumptions by one percent.

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
1 percent 1 percent 1 percent 1 percent
increase decrease increase decrease
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Discount rate (568,751) 701,742 (132,066) 151,406

Salary increase 169,440 (153,453) 155,805 (138,001)
Increase in post retirement pension 534,411 (443,874) – –

If life expectancy increases by 1 year, the obligation of the Pension Fund increases by Rs 292,406 thousand
( 2018: 256,706 thousand).

Expected maturity profile

Following are the expected distribution and timing of benefits payments at the year end.


Defined Benefit Defined Benefit
Pension Plan Gratuity Plan
2019 2018 2019 2018

Weighted average duration of the PBO (Years) 11.42 11.43 8.00 8.05

Risks associated with defined benefit plan

Longevity risk

The risk arises when the actual lifetime of retiree is longer than the estimate of future employee lifetime expectation. This risk is
measured at the plan level over the entire retiree population.

Salary increase risk

The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual
increases are higher than the expectations and impacts the liability accordingly.

Withdrawal risk

The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement
of the liability can go either way. EXCELLING BEYOND BORDERS

Historical Information

Defined Benefit Defined Benefit

Pension Plan Gratuity Plan
Present value of Net liability at Present value of Net liability at
ANNUAL REPORT 2019

defined benefit the end of defined benefit the end of

obligation the year obligation the year
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

2019 4,978,396 (881,821) 1,650,938 337,649
2018 4,628,109 (787,677) 1,474,653 210,278
2017 4,759,609 (765,618) 1,416,319 139,736
2016 4,654,000 (855,329) 1,433,183 (52,951)
2015 4,506,581 (346,701) 1,458,102 415,493
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
32.1 Salaries, wages and benefits as appearing in note 9, 10 and 11 include amounts in respect of the following:

2019 2018
Rs ‘000 Rs ‘000

Defined Contribution Provident Fund 94,106 91,296

Defined Benefit Pension Fund (37,069) (4,364)
Defined Contribution Pension Fund 116,520 95,803
Defined Benefit Gratuity Fund 105,427 85,868

278,984 268,603

32.2 Defined Contribution Plan

Details of the management and employees’ provident funds are as follows:

Un-audited Un-audited

(a) Size of the fund - total assets 1,747,719 1,768,572

Cost of investments made 1,588,501 1,562,298

Percentage of investments made 91% 88%

Fair value of investments made 1,583,001 1,599,719

2019 2018
Rs ‘000 % age Rs ‘000 % age

(b) Breakup of investments at cost

Pakistan Investment Bonds 251,725 14% 352,345 20%
Investment plus deposit certificates 605,250 35% 509,600 29%
Investment in savings account with bank 118,981 7% 145,922 8%
Investment in securities 311,711 18% 297,887 17%
Accrued interest 300,834 17% 256,544 15%
1,588,501 91% 1,562,298 88%

33 Share capital

33.1 Authorized share capital

2019 2018 2019 2018

Number of shares Rs ‘000 Rs ‘000

300,000,000 300,000,000 Ordinary shares of Rs 10 each 3,000,000 3,000,000

33.2 Issued, subscribed and paid-up capital

2019 2018 2019 2018
PAKISTAN TOBACCO COMPANY

Number of shares Rs ‘000 Rs ‘000

230,357,068 230,357,068 Issued for cash 2,303,571 2,303,571
25,136,724 25,136,724 Issued as bonus shares 251,367 251,367

255,493,792 255,493,792 2,554,938 2,554,938

British American Tobacco (Investments) Limited held 241,045,141 (2018: 241,045,141) ordinary shares at the year-end and 10,150
(2018:12,274) and 798,282 (2018:798,282) ordinary shares are held by the directors and associated company respectively.

All ordinary shares rank equally with regard to the Company’s residual assets. Holders of these shares are entitled to dividends as
declared from time to time and are entitled to one vote per share at general meetings of the Company.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

34 Contingencies and commitments

34.1 Contingencies

Claims and guarantees

(i) Claims against the Group not acknowledged as debt - Note 34.1.1 75,706 75,706
(ii) Guarantees issued by banks on behalf of the Group 385,730 323,587

34.1.1 Litigation

a) In the year 1979, the Market Committee Jhelum (“the Committee”), constituted under the Punjab Agriculture Produce Market
Ordinance of 1978 demanded the Company to obtain license and pay marketing fee on all tobacco that is transported into
the Jhelum factory of the Company. Since tobacco is not an agricultural produce and no transaction of any sale or purchase
of tobacco takes place in Jhelum, the Company refused to apply for the license. In 1986, the Committee proceeded against
the Company which resulted in protracted litigation, culminating in filing of a Review before the Supreme Court of Pakistan,
which was decided against the Company on technical grounds in 2010. Meanwhile, the Committee made their own fictitious
calculation and levied fee and penalties aggregating Rs. 64.9 million relating to years 1982 to 2010 against which the Company
filed a Writ Petition before the Lahore High Court, Rawalpindi Bench. The Lahore High Court granted a stay order suspending
demand of penalties amounting to Rs.60 Million and directed the Company to deposit Rs. 6 Million (being the principal amount)
with the court in the shape of National Saving Certificates. The matter is since then pending before the Lahore High Court,
Rawalpindi Bench.

b) In 2009, the Punjab Employees Social Security Institution (PESSI) demanded payment of social security contribution effective
October 2007, from the Company for the non-permanent workers hired at its Jhelum factory hired through third party contractors.
The Company has filed a complaint before the Director PESSI, which was kept pending till 2018 when an order was passed
against the Company. Thereafter, PESSI demanded payment of Rs. 2,306,513/- for the period from October 2007 till May 2010.
In 2018, the Company filed an appeal before the Judge Punjab Social Security Court, Labour Complex, Lahore, and the matter
is since then pending.

c) Tobacco Development Cess (TDC) is a tax levied and collected by the KPK pursuant to S. 11 of the KPK Finance Act, 1996 ( “the
Act”). The term “tobacco” was however not defined by the Act. Each year the Pakistan Tobacco Board (PTB), on the demand of
each tobacco buyer, fix Quota (i.e. the quantity of tobacco) to be purchased by each such tobacco buyer from the farmers. The
calculation of quantum of TDC to be paid by each tobacco buyer is based on the quantities indicated and purchased in terms
of Quota. Till 2002, TDC was collected from the tobacco buyers directly by Excise & Taxation Depart (ETD). However, in 2003,
the provincial government, through an amendment in law, imposed TDC also on the surplus tobacco purchased by tobacco
buyers (i.e. purchase of tobacco beyond the Quota amount) (“the Surplus”). Additionally, the amended law also stipulated that
while the TDC on Quota shall be collected by ETD, TDC levied on the Surplus shall be collected by a contractor to whom ETD
has leased the collection through a public tender. Contract for the year 2005/06 was awarded to Malik Tilla Muhammad (“the
Contractor”) by PTB. The Contractor demanded payment of Rs. 8.8 Million from PTC on account of TDC, which claim was
rejected by PTC. The Contractor then filed a suit for recovery of Rs. 8.8 Million before a civil judge but the matter was referred
to Arbitration, with Chairman PTB as the Arbitrator. The Arbitrator passed an award whereby PTC was to pay Rs. 8,375,071/-
to Malik Tilla Muhammad Tilla. The said order was challenged by the Company through an appeal before the District Judge
EXCELLING BEYOND BORDERS

Peshawar and the appeal was finally decided in Company’s favor on June 29, 2019. The matter was remanded back to the trial
court / civil judge for cross examination of the arbitrator and deciding the matter afresh and the case is still pending.

d) Employees’ Old-Age Benefits Institution (EOBI) constituted under the Employees’ Old-Age Benefits Act, 1976 (“the Act”)
ANNUAL REPORT 2019

requires contributions to be made by industries and establishments against workers employed by it. PTC has been making
prompt contributions under the Act. PTC has contractual arrangements with Logistics Service Providers for the shipment of its
raw material and finished goods. In the year 2015, the EOBI Jhelum issued a show cause notice dated 04-03-2015, demanding
payment of Rs. 3,024,000/- against non-payment of contribution of 200 hundred employees. These employees were in fact
employees of five transport concerns with which PTC had contractual arrangements. PTC filed complaint against the said
show cause before Adjudicating Authority – III, EOBI Islamabad and raised the objection that this liability is of the five transport
concerns who are independent entities. The Adjudicating Authority however passed an order against PTC on 14-02-2017,
upholding the demand earlier raised by the EOBI Jhelum. PTC has filed an appeal in May 2017 against the order before the
Board of Trustees EOBI Head Quarter at Karachi which is pending adjudication.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
e) The Company hired the services of Tariq & Saad Associates (“T&S”) for providing consultancy services for the construction of
“Mianwali Mega Barn Project”. T&S started the work. Thereafter, during a meeting between Company and T&S, it was verbally
agreed that T&S would charge @ 2.25 % of estimated cost of the Project. However, payments to T&S were delayed due to some
issues in Company’s approval process from region. Consequently, declaring inordinate delay in payment, T&S served Notice
of Termination. T&S subsequently filed a civil suit for recovery in the district court of Islamabad, where the matter is pending
adjudication.

The Company expects favorable outcome in these matters and accordingly, no provision is recognised in the financial
statements.

34.2 Commitments
(a) All property rentals before adoption of IFRS 16 were under cancellable operating lease arrangements and were due as follows:

2019 2018
Rs ‘000 Rs ‘000

Not later than one year – 99,777

Later than one year and not later than five years – 375,899
Later than five years – 285,199

(b) Letters of credit outstanding at December 31, 2019 were Rs 83,392 thousand (2018: Rs 227,427 thousand).

35 Financial Instruments - Fair Values And Risk Management

35.1 Accounting classification and fair value

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels
in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at
fair value if the carrying amount is a reasonable approximation of fair value.

December 31, 2019 Fair value

Fair value Amortised Total Level 1 Level 2 Level 3

through profit cost
or loss
Note Rs ‘000 Rs ‘000

Financial assets measured at fair value

Short-term investments 24 3,001,058 – 3,001,058 – 3,001,058 –
Financial assets not measured at fair value
Deposits 18 – 30,759 30,759 – – –
Trade debts 21 – 4,260 4,260 – – –
Other receivables 23 – 2,111,891 2,111,891 – – –
Cash and bank balances 25 – 535,905 535,905 – – –

3,001,058 2,682,815 5,683,873 – 3,001,058 –

PAKISTAN TOBACCO COMPANY

Financial liabilities measured at fair value
Financial liabilities not measured at fair value
Trade and other payables 26 – (6,884,305) (6,884,305) – – –
Lease liability 29 – (1,717,672) (1,717,672) – – –
Accrued interest/mark-up – (25,735) (25,735) – – –

– (8,627,712) (8,627,712) – – –
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
December 31, 2018 Fair value

Fair value Amortised Total Level 1 Level 2 Level 3

through profit cost
or loss
Note Rs ‘000 Rs ‘000

Financial assets measured at fair value

Short-term investments 24 8,699,508 – 8,699,508 – 8,699,508 –
Financial assets not measured at fair value
Deposits 18 – 28,480 28,480 – – –
Trade debts 21 – 1,553 1,553 – – –
Other receivables 23 – 1,842,120 1,842,120 – – –
Cash and bank balances 25 – 293,165 293,165 – – –

8,699,508 2,165,318 10,864,826 – 8,699,508 –

Financial liabilities measured at fair value

Financial liabilities not measured at fair value
Trade and other payables 26 – (11,851,147) (11,851,147) – – –
Short-term Running finance 28 – (75,542) (75,542) – – –
Lease liability 29 – (433,090) (433,090) – – –
Accrued interest / mark–up – (5,331) (5,331) – – –

– (12,365,110) (12,365,110) – – –

35.2 Financial risk management

The Group has exposure to the following risks from financial instruments:

- credit risk
- liquidity risk
- market risk

35.2.1 Risk management framework

The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize
potential adverse effects on the financial performance. Risk management is carried out by the Treasury Committee (the
Committee) under policies approved by the board of directors (the Board). The Board provides written principles for overall risk
management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk and
investment of excess liquidity. All treasury related transactions are carried out within the parameters of these policies.

35.2.2 Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from trade debts, other receivables, deposits with banks and investment in treasury bills
EXCELLING BEYOND BORDERS

issued by the Government of Pakistan. The carrying amount of financial assets represents the maximum credit exposure.

Due to the Group’s long standing business relationships with these counterparties and after giving due consideration to their
strong financial standing, management does not expect non-performance by these counter parties on their obligations to the
ANNUAL REPORT 2019

Company. Accordingly the credit risk is minimal.

Financial assets amounting to Rs 5,684 million (2018: Rs 10,865 million) do not include any amounts which are past due or
impaired. The table below shows bank balances held with counterparties at the balance sheet date.



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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Counterparty Rating Rating agency

Short term Long term 2019 2018

Rs ‘000 Rs ‘000

Cash at bank:
MCB Bank Ltd A-1+ AAA PACRA 317,091 47,133
Habib Bank Ltd A-1+ AAA JCR-VIS 15,647 3,192
Deutsche Bank AG P-2 Baa3 Moody’s 147,132 130,795
MCB Islamic Bank A-1 A PACRA 53,006 3,433
National Bank of Pakistan A-1+ AAA PACRA 893 101,113
Standard Chartered Bank A-1+ AAA PACRA 48 2,181
Citibank N.A. P-1 Aa3 Moody’s 414 313

534,231 288,160

Short term investments:

Government of Pakistan B3+ Moody’s 3,001,058 8,699,508

3,535,289 8,987,668

As at December 31, 2019, maximum exposure to credit risk for financial assets by geographic was as follows:

Carrying amount
2019 2018

Rs ‘000 Rs ‘000

Pakistan 5,495,235 10,819,973

United Kingdom 96,124 3,569
Asia & other 92,514 41,284

5,683,873 10,864,826

As at 31 December 2019, the ageing of financial assets was as follows:

Carrying amount
2019 2018

Rs ‘000 Rs ‘000

Not past due 5,616,409 10,856,369

Past due 1-30 days 60,728 1,881
Past due 31-90 days 160 –
Past due 90 days 6,576 6,576
5,683,873 10,864,826

35.2.3 Liquidity risk

PAKISTAN TOBACCO COMPANY

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as
possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions,
without incurring unacceptable losses or risking the Group’s reputation.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and
undiscounted, and include contractual interest payments and exclude the impact of the netting arrangements:

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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019

Carrying Contractual cash flows

amount Total 12 months 1 to 5
or less years
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

31 December 2019

Financial liabilities

Trade and other payables 6,884,278 (6,884,278) (6,884,278) –

Lease liability 1,717,672 (2,313,780) (552,925) (1,760,855)
Accrued interest/mark-up 25,735 (25,735) (25,735) –

8,627,685 (9,223,793) (7,462,938) (1,760,855)

31 December 2018

Financial liabilities

Trade and other payables 11,851,120 (11,851,120) (11,851,120) –

Lease liability 433,090 (510,848) (182,441) (328,407)
Short-term Running finance 75,542 (75,542) (75,542) –
Accrued interest/mark-up 5,331 (5,331) (5,331) –

12,365,083 (12,442,841) (12,114,434) (328,407)

Cash flows included in the maturity analysis are not expected to occur significantly earlier or at significantly different amounts.

35.2.4 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates will affect the Group’s
income or the value of its holding of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return.

Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. This exists due to the Group’s exposure resulting from outstanding payments on account of import of
goods and services. The currencies in which these transactions are primarily denominated are euro, sterling and US dollars.

The summary quantitative data about the Group’s exposure to currency risk is as follows:

December 31, 2019 December 31, 2018

Euro Sterling US dollars Euro Sterling US dollars

Other receivables 55,953 187,712 5,928 – 48,361 21,638

Cash and bank balances – – 941,945 – – 880,230
EXCELLING BEYOND BORDERS

Trade and other payables (903,640) (2,751,771) (4,447,951) (1,310,664) (1,551,586) (15,899,171)

Net exposure (847,687) (2,564,059) (3,500,078) (1,310,664) (1,503,225) (14,997,303)

The following significant exchange rates have been applied:
ANNUAL REPORT 2019

Average rate Year-end spot rate
2019 2018 2019 2018

Euro 1 167.62 143.24 173.84 158.67
Sterling 1 191.06 161.90 205.16 176.78
US dollar 1 149.79 121.51 154.87 138.80
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
A 10 percent strengthening (weakening) of the Rupee against euro, sterling and US dollar at the reporting date would have
affected the measurement of financial instruments denominated in a foreign currency and affected the equity and profit or loss
by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and
ignores any impact of forecast sales and purchases.

Profit or loss Equity, net of tax

Strengthening Weakening Strengthening Weakening
Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

December 31, 2019

Euro 14,736 (14,736) 10,388 (10,388)

Sterling 52,604 (52,604) 37,081 (37,081)
US dollar 54,206 (54,206) 38,210 (38,210)

31 December 2018
Euro 20,398 (20,398) 13,801 (13,801)
Sterling 25,958 (25,958) 17,563 (17,563)
US dollar 188,485 (188,485) 127,529 (127,529)

Interest rate risk

This represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Group is not exposed to fair value interest rate risk as it does not hold any fixed rate instruments. The
Group does not have any significant long-term interest-bearing financial assets or financial liabilities whose fair value or future
cash flows will fluctuate because of changes in market interest rates.

Financial liabilities include balances of Rs. 1,717,672 thousand (2018: Rs 433,090 thousand) which are subject to interest rate
risk. Applicable interest rates for these financial liabilities have been indicated in respective notes.

At statement of financial position date, if interest rates had been 1% higher/lower, with all other variables remaining constant,
profit for the year would have been Rs. 17.177 million (2018: Rs. 4.331 million) lower/higher, mainly as a result of higher/lower
interest expense on floating rate borrowings.

36 Remuneration of Chief Executive, Directors and Executives

The aggregate amounts charged in the financial statements of the year for remuneration including all benefits to Chief Executive,
Executive Directors and executives are as follows:-

Chief Executive Executive Directors Executives Total

Key Management Other

Personnel Executives

2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
PAKISTAN TOBACCO COMPANY

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Managerial remuneration 36,918 35,784 79,596 84,360 267,380 209,323 631,659 597,664 1,015,553 927,131
Corporate bonus 22,995 29,812 39,193 43,393 141,618 173,928 195,814 219,145 399,620 466,278
Leave fare assistance 1,603 1,279 5,618 3,138 8,021 8,950 - - 15,242 13,367
Housing and utilities 14,990 11,696 10,010 7,333 73,370 78,208 275,640 262,188 374,010 359,425
Medical expenses 261 1,084 578 1,507 7,221 10,097 40,780 46,804 48,840 59,492
Post employment benefits 10,426 13,475 6,590 4,199 37,940 40,575 146,784 131,483 201,740 189,732

87,193 93,130 141,585 143,930 535,550 521,081 1,290,677 1,257,284 2,055,005 2,015,425

Number of persons 1 1 3 2 30 26 252 247 286 276

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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
36.1 The Group, in certain cases, also provides individuals with the use of Group accommodation, cars and household items, in
accordance with their entitlements.

36.2 The aggregate amounts charged in the financial statements of the year for remuneration including all benefits to eight (2018:
six) non-executive directors of the Group amounted to Rs 11,438 thousand (2018: Rs 5,555 thousand).

37 Transactions with related parties

British American Tobacco (Investments) Limited (BAT-IL) holds 94.34% (2018: 94.34%) shares of the Company at the year end.
Therefore, all the subsidiaries and associated undertakings of BAT-IL and the ultimate parent company British American Tobacco, p.l.c
(BAT) are related parties of the Company. The related parties also include directors, major shareholders, key management personnel,
employee funds and the entities over which the directors are able to exercise significant influence. The amounts due from and due to
these undertakings are shown under receivables and payables. The remuneration of the chief executive, directors, key management
personnel and executives is given in note 36 to the financial statements. Transactions with employee funds and associated payable/
receivable balances are provided in note 32 to the financial statements.

2019 2018
Rs ‘000 Rs ‘000

Purchase of goods and services from:

Holding company 1,396,342 967,868
Associated companies 3,423,682 2,284,782

Sale of goods and services to:
Holding company 83,672 –
Associated companies 1,939,827 156,265

Dividend paid to:
Holding company 12,263,702 8,948,577

Royalty charged by:
Holding /associate company
Charged 427,710 2,364,433
Reversed (1,714,439) –
(1,286,729) 2,364,433

Expenses reimbursed to:
Holding company 11,182 22,749
Associated companies 4,552 25,785

Expenses reimbursed by:
Holding company 51,350 41,797
Associated companies 260,612 222,950

Payment under employee incentive schemes:
EXCELLING BEYOND BORDERS
Key management personnel 55,848 82,460

Other income:
Associated company:
Recharges written back 519,420 26,592
ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
37.1 Following are the name of associated companies, related parties and associated undertakings with whom the Company had
entered into transactions or had agreements and arrangements in place during the year. Names of associated companies,
related parties and associated undertakings, incorporated outside Pakistan are included in note 37.2.

Aggregate % of
Associated company Basis of relationship shareholding

BAT SAA Service

(Private) Limited Common Directorship Nil

Retirement benefit funds:
Pension Funds Post employment benefits Nil
Provident Funds Post employment benefits Nil
Gratuity Fund Post employment benefits Nil

Zafar Mahmood Director 0.000196%
Usman Zahur Director 0.000978%
William Pegel Director 0.000978%
Syed Asad Ali Shah Director 0.000254%
Syed Javed Iqbal Director 0.000196%
Tajamal Shah Director 0.000196%
Syed Ali Akbar Director 0.000196%
Zafar Aslam Director 0.000196%
Belinda Ros Director 0.000196%
Asif Jooma Director 0.000196%
Mohammad Riaz Director 0.000196%
Lt. Gen (Rtd.) Muhammad
Masood Aslam Director 0.000196%
Husain Iqbal Jaffery Key management personnel Nil
Waqas Ahmed Khan Key management personnel Nil
Umair Luqman Key management personnel Nil
Ahsen Altaf Key management personnel Nil
M. Idries Ahmed Key management personnel Nil
Yusuf Zaman Key management personnel Nil
Khan Muhammad Mohmand Key management personnel Nil
Syed Hammad Ali Naqvi Key management personnel Nil
Muhammad Asim Key management personnel Nil
M.Ali Khan Key management personnel Nil
Syed Muhammad Ali Key management personnel Nil
Sana Saad Key management personnel Nil
Qadeer Hussain Key management personnel Nil
Khuram Javaid Rajpoot Key management personnel Nil
PAKISTAN TOBACCO COMPANY
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
37.2 Following particulars relate to associated companies incorporated outside Pakistan with whom the Company had entered into
transactions during the year or have arrangement / agreement in place.
Basis of Aggregate % Country of
Associated company relationship of Shareholding Incorporation

British American Tobacco p.l.c. Ultimate Parent Company 0.00% United Kingdom
BAT (Investments) Limited Holding Company 94.35% United Kingdom
BAT Rothmans International Holding Company 0.31% United Kingdom
Ceylon Tobacco Company Limited Common Directorship 0.00% Sri Lanka
British American Tobacco Myanmar Limited Common Directorship 0.00% Myanmar
British American Tobacco Argentina Fellow Subsidiary 0.00% Argentina
British American Tobacco Australia Fellow Subsidiary 0.00% Australia
BAT Bangladesh Company Limited Fellow Subsidiary 0.00% Bangladesh
Souza Cruz Ltd. Fellow Subsidiary 0.00% Brazil
BAT Switzerland SA Fellow Subsidiary 0.00% Swiztzerland
British American Tobacco Chile Fellow Subsidiary 0.00% Chile
BAT Germany GmbH Fellow Subsidiary 0.00% Germany
BAT (Brands) Limited Fellow Subsidiary 0.00% United Kingdom
Benson & Hedges (Overseas) Limited Fellow Subsidiary 0.00% United Kingdom
BAT (Holdings) Limited Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Western Europe Fellow Subsidiary 0.00% United Kingdom
BASS (GSD) Limited Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Fellow Subsidiary 0.00% United Kingdom
BAT Nicoventures Trading Ltd Fellow Subsidiary 0.00% United Kingdom
British American Tobacco Asia Pacific Region Ltd Fellow Subsidiary 0.00% Hong Kong
BAT Pecsi Dohanygyar KFT Fellow Subsidiary 0.00% Hungary
British American Tobacco Kenya Ltd Fellow Subsidiary 0.00% Kenya
BAT Koea Ltd Fellow Subsidiary 0.00% South Korea
BAT Koea Manufacturing Ltd Fellow Subsidiary 0.00% South Korea
British American Tobacco Mexico Fellow Subsidiary 0.00% Mexico
BAT AsPac Service Centre Sdn Bhd Fellow Subsidiary 0.00% Malaysia
BAT GSD (KL) Sdn Bhd. Fellow Subsidiary 0.00% Malaysia
BAT Nigeria Ltd Fellow Subsidiary 0.00% Nigeria
British American Tobacco Niemeyer Fellow Subsidiary 0.00% Netherlands
British-American Tobacco Polska S.A Fellow Subsidiary 0.00% Poland
BAT Romania Investment Ltd. Fellow Subsidiary 0.00% Romania
BAT (Romania) Trading SRL. Fellow Subsidiary 0.00% Romania
JSC BAT-Spb Fellow Subsidiary 0.00% Russia
British-American Tobacco (Singapore) Pte Ltd Fellow Subsidiary 0.00% Singapore
BAT Marketing (Singapore) Pte Ltd Fellow Subsidiary 0.00% Singapore
British American Tobacco Tutun Mamulleri Fellow Subsidiary 0.00% Turkey
West Indian Tobacco Co. Ltd Fellow Subsidiary 0.00% Trinidad & Tobago
PJSC A/T B.A.T Prilucky Tobacco Co. Fellow Subsidiary 0.00% Ukraine
R J Reynolds Tobacco Company Fellow Subsidiary 0.00% United States
British American Tobacco South Africa (Pty) Ltd. Fellow Subsidiary 0.00% South Africa
British American Tobacco ME DMCC Fellow Subsidiary 0.00% United Arab Emirates
BAT GCC DMCC Fellow Subsidiary 0.00% United Arab Emirates
EXCELLING BEYOND BORDERS

BAT Egypt Ltd. Fellow Subsidiary 0.00% Egypt

Central Manufacturing Company Ltd Fellow Subsidiary 0.00% Fiji
PT Bentoel Internasional Investama Fellow Subsidiary 0.00% Indonesia
PT Bentoel Internasional Prima Fellow Subsidiary 0.00% Indonesia
British American Tobacco (Malaysia) Fellow Subsidiary 0.00% Malaysia
ANNUAL REPORT 2019

Tobacco Importers and Manufacturers Fellow Subsidiary 0.00% Malaysia

British American Tobacco (PNG) Ltd Fellow Subsidiary 0.00% Papua New Guinea
British American Tobacco Vranje AD Fellow Subsidiary 0.00% Serbia
BAT Services Ltd., Taiwan Branch Fellow Subsidiary 0.00% Taiwan
Tabacalera Hondurena S.A. Fellow Subsidiary 0.00% Honduras
Solomon Islands Tobacco Co. Ltd. Fellow Subsidiary 0.00% Solomon Islands
British American Tobacco (Cambodia) Fellow Subsidiary 0.00% Cambodia
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
2019 2018
Rs ‘000 Rs ‘000

38 Cash generated from operations

Profit before taxation 18,284,917 15,279,854

Adjustment for non-cash items:
- Depreciation / impairment 1,367,476 941,723
- Gain on disposal of property, plant and equipment (134,391) (21,259)
- Finance cost 202,553 33,828
- Finance income (812,571) (742,648)
- Foreign exchange loss 445,162 195,523
- Provision /(Reversal of provision) for slow moving
stores and spares 15,123 (64,091)
- Provision / (reversal of provision) for stock-in-trade 7,202 (9,510)
- Provision for staff retirement benefit plans 278,984 266,205

1,369,538 599,771
Changes in working capital:
- Stock-in-trade (2,940,355) (4,018,990)
- Stores and spares (45,093) 23,971
- Trade debts (2,707) 1,083
- Loans and advances (27,684) (25,275)
- Short term prepayments 234,014 (37,188)
- Other receivables (181,189) (884,657)
- Trade and other payables (2,898,684) 7,695,567
- Other liabilities 567,124 199,213

(5,294,574) 2,953,724

Changes in long term deposits and prepayments 1,353 207

14,361,234 18,833,556

39 Reconciliation of movement of liabilities to cash flows arising from financing activities

Liabilities Equity Total

Unclaimed / Finance lease Revenue
Unpaid Dividend obligations reserves

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2018 264,303 425,295 14,356,260 15,045,858

Changes from financing cash flows:

PAKISTAN TOBACCO COMPANY

Finance lease payments – (251,525) – (251,525)

Dividend declared 9,453,270 – (9,453,270) –
Dividend paid (9,436,117) – – (9,436,117)

Total changes from financing cash flows 17,153 (251,525) (9,453,270) (9,687,642)

Other changes:

New finance leases – 259,320 – 259,320

Total equity-related other changes – – 10,307,696 10,307,696

Balance at December 31, 2018 281,456 433,090 15,210,686 15,925,232

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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended December 31, 2019
Liabilities Equity Total
Unclaimed / Finance lease Revenue
Unpaid Dividend obligations reserves

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Balance at January 1, 2019 281,456 433,090 15,210,686 15,925,232

Changes from financing cash flows:

Lease payments – (709,437) – (709,437)

Changes in Dividend payable
Dividend declared 12,263,701 – (12,263,701) –
Dividend paid (12,400,182) – – (12,400,182)
Total changes from financing cash flows (136,481) (709,437) (12,263,701) (13,109,619)

Other changes:

New leases – 1,994,019 – 1,994,019

Total equity-related other changes – – 12,788,932 12,788,932

Balance at December 31, 2019 144,975 1,717,672 15,735,917 17,598,564

40 Post balance sheet event

In respect of the year ended December 31, 2019 final dividend of Rs 23.00 (2018: Rs 22.00) per share amounting to a total dividend
of Rs 5,876,357 thousand (2018: Rs 5,620,863 thousand) has been proposed at the Board of Directors meeting held on February 24,
2020. These financial statements do not reflect this proposed dividend.

41 General

41.1 Corresponding figures

Corresponding figures have been rearranged and reclassified, wherever considered necessary, for the purposes of comparison
and to reflect the substance of the transactions.

41.2 Date of authorization for issue

These consolidated financial statements have been authorised for circulation to the shareholders by the Board of Directors of
the Group on February 24, 2020.

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019

Usman Zahur William Pegel

Chief Executive Officer Chief Financial Officer / Director
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PATTERN OF SHAREHOLDING
As at December 31, 2019

No. of Shareholders Categories Total Shares

1,347 From 1 To 100 41,845

1,088 From 101 To 500 307,012
349 From 501 To 1,000 243,733
238 From 1,001 To 5,000 504,071
30 From 5,001 To 10,000 208,587
5 From 10,001 To 15,000 60,334
2 From 15,001 To 20,000 34,223
6 From 20,001 To 25,000 140,019
1 From 25,001 To 30,000 27,000
1 From 30,001 To 35,000 31,978
1 From 35,001 To 40,000 37,000
1 From 40,001 To 45,000 44,402
1 From 45,001 To 50,000 49,280
3 From 55,001 To 60,000 172,390
1 From 60,001 To 65,000 60,961
2 From 165,001 To 170,000 335,714
1 From 190,001 To 195,000 191,000
1 From 300,001 To 305,000 300,752
1 From 385,001 To 390,000 386,800
1 From 795,001 To 800,000 798,282
1 From 1,755,001 To 1,760,000 1,757,713
1 From 8,715,001 To 8,720,000 8,715,555
1 From 241,045,001 To 241,050,000 241,045,141

3,083 255,493,792
PAKISTAN TOBACCO COMPANY
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PATTERN OF SHAREHOLDING
As at December 31, 2019

No. of Shares

Associated Companies, Undertakings and Related Parties 241,843,423

NIT and ICP 515
Directors, CEO and their spouse and minor children 10,150
Executives 49
Banks, Development Finance Institutions, Non-Banking
Finance Institutions, Insurance companies, Modaraba and Mutual Funds 2,392,066
Individuals 2,070,880
Others 9,176,709

255,493,792

Categories of Shareholders Number Shares Held %

Directors, CEO and their spouse and minor children 12 10,150 0.0
Executives 4 49 0.0
Associated Companies, Undertakings and Related Parties 2 241,843,423 94.7
Investment Companies 1 515 0.0
Modarabas & Mutual Funds 3 1,760,913 0.7
Insurance Companies 4 627,871 0.2
Banks, Development and other Financial Institutions 8 3,282 0.0
Individuals 3,005 2,070,880 0.8
Others 44 9,176,709 3.6

Total 3,083 255,493,792 100.0

Associated Companies, Undertakings and Related Parties

British American Tobacco (Investments) Limited 241,045,141
Rothmans International 798,282

NIT and ICP (name wise details)
National Bank of Pakistan 515

Directors, CEO and their spouse and minor children (name wise details)
Zafar Mahmood 500
Usman Zahur 2,500
William Francis Pegel 2,500
Syed Asad Ali Shah 650
Syed Ali Akbar 500
Syed Javed Iqbal 500
Tajamal Shah 500
Asif Jooma 500
EXCELLING BEYOND BORDERS

Mohammad Riaz 500

Belinda Ross 500
Zafar Aslam Khan 500
Muhammad Masood Aslam 500
ANNUAL REPORT 2019

Executives
Farkhanda Naheed 17
Awais Hussain Kazi 15
Shahid Yamin 9
Arshad Javed 8
Shareholders holding 10% or more voting interest
British American Tobacco (Investments) Limited 241,045,141
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PAKISTAN TOBACCO COMPANY
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237 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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PAKISTAN TOBACCO COMPANY
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239 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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PAKISTAN TOBACCO COMPANY
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241 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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PAKISTAN TOBACCO COMPANY
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Graph 1
Illicit Market Share
(%)
40

5.5% growth in 2019

36.9

36.0

35 34.7

33.1
32.8
32.4 32.5

31.8 31.9
31.4 31.6 31.5

30
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Graph 2
Government Revenues
(Rs Bn) 4% decline in H2 2019
30 28.7
26.3 26.0

25 23.6

20.2
19.1
20 18.5 18.8

15

10

0
Q1 Q2 Q3 Q4
2018 2019
Excise Rates: Excise Rates:
Value for Money Value for Money
- Rs 25 per pack - Rs 33 per pack (32% Inc)
Premium: Rs 90 per pack Premium: Rs 104 per pack (15% Inc)

Graph 3
Price Gap vs Duty not Paid
(Rs per pack)
Value for money weighted average price
Illicit weighted average price
Price Index

77.5 77.5
80

70
EXCELLING BEYOND BORDERS

58.0 58.0
60
204.5 204.5

50
200.7 193.3
ANNUAL REPORT 2019

37.9 37.9
40

30.0
28.9
30

20
Q1 - 2019 Q2 - 2019 Q3 - 2019 Q4 - 2019
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PAKISTAN TOBACCO COMPANY
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Principal Shareholder Joint Shareholder

Company Folio/CDC Total
Name Shareholding Shareholding
Name Account # Shares
and Proportion Name and CNIC # Proportion
CNIC # (No. of Shares) (No. of Shares)

EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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7
PAKISTAN TOBACCO COMPANY
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Glossary and Definitions

Acid Test Ratio Dividend Payout Ratio ICAP Operating Cycle

The ratio of liquid assets to current The ratio found by dividing the annual Institute of Chartered Accountants of The average time between
liabilities dividends per share by the annual Pakistan purchasing or acquiring inventory and
earnings per share receiving cash proceeds from its sale
AGM ICP
DNA ORA
Annual General Meeting Investment Corporation of Pakistan
Deoxyribonucleic Acid Overall Risk Assessment
AJK IDT
Earnings Per Share P.l.c
Azad Jummu and Kashmir Information and Digital Technology
Earnings found by dividing the Public Limited Company
Amortisation IFAC
net income of the Company by
Price-Earnings Ratio (P/E)
To charge a regular portion of an the number of shares of common International Federation of
expenditure over a fixed period of outstanding stock Accountants The ratio found by dividing market
time price per share by earnings per share
EBITDA IT (This ratio indicates what investors
AmSSA Earnings before Interest, Taxes, Information Technology think of the firm’s earnings’ growth
Americas & Sub-Saharan Africa Depreciation and Amortization and risk prospects)
ITIL
APME EH&S PPEs
Information Technology Infrastructure
Asia Pacific & Middle East Environment, Health & Safety Library Personal Protective Equipments
APL ENA IWS PTC
Approved Product List Europe & North Africa Integrated Work System “Pakistan Tobacco Company Limited”
or “The Company”
ATL ExCo JV
QRP
Active Taxpayers List Executive Committee Joint Venture
Quick Risk Prediction
BA FBR KPIs
RAI
Bachelors in Arts Federal Board of Revenue Key Performance Indicators
Reynolds American Incorporated
BAT FED KPK
Return on Equity (ROE)
British American Tobacco Federal Excise Duty Khyber Pakhtunkhwa
The value found by dividing the
BCP Fiscal Deficit LLB Company’s net income by its net
Business Continuity Planning Fiscal deficit occurs when a Bachelor of Laws assets (ROE measures the amount a
government’s total expenditure company earns on investments)
BOM exceeds the revenue that it generates, M.A
RMC
Battle of Minds excluding money from borrowings Masters in Arts
Risk Management Committee
CDC FMCG MBA
SECP
Central Depository Company Fast Moving Consumer Goods Masters in Business Administration
Securities Exchange Commission of
CEO FTSE MCB Pakistan
Chief Executive Officer Financial Times Stock Exchange Muslim Commercial Bank SfD
CFO FX MD Strength from Diversity
Chief Financial Officer Foreign Exchange Managing Director SoBC
CGS GB MIS Standards of Business Conduct
Chief of General Staff Gilgit-Baltistan Management Information Systems SOx
CMA Gearing Ratio MoU Sarbanes-Oxley
Certified Management Accountant Compares some form of owner’s Memorandum of Understanding SPLY
equity (or capital) to borrow funds
CNIC MS Same Period Last Year
GG
Computerized National Identity Card Masters in Sciences TFP
Global Graduate
COO NIT Teach For Pakistan
GLT
Chief Operating Officer National Investment Trust
EXCELLING BEYOND BORDERS
TSS
Green Leaf Threshing
CSR NEBOSH Technical Security Standards
HI
Corporate Social Responsibility National Examination Board in UK
Hilal-i-Imtiaz Occupational Safety and Health
CTC United Kingdom
HR & RC Net Working Capital:
Ceylon Tobacco Company USA
ANNUAL REPORT 2019

Human Resource and Remuneration Current assets minus current liabilities

Current Ratio Committee United States of America
NJSP
The current ratio indicates a HR VFM
company’s ability to meet short-term Non-Judicial Stamp Paper
debt obligations Human Resource Value for Money
NRSP
Debt-to-Equity Ratio IBM vs.
National Rural Support Programme
The ratio found by dividing total debt International Business Machines Versus
by the equity (all assets minus debts) NTN
held in stock (This is a measure of National Tax Number
financial risk)
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PAKISTAN TOBACCO COMPANY
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Form of Proxy
Pakistan Tobacco Company Limited

I/We

of

being a member(s) of Pakistan Tobacco Company Limited (“Company”), holding

Ordinary Share(s) as per Register Folio No.

hereby appoint Mr./Ms.

Folio No. (if member) of

or failing him/her, Mr./Ms.

Folio No. (if member)

as my/our proxy in my/our absence to attend and vote for me/us, and on my/our behalf at the 73rd Annual General Meeting of
the Company to be held on the 8th day of May 2020 and at any and every adjournment thereof.

Signed by

Signed under my/our hand this the day of , 2020.

WITNESS – 1 WITNESS – 2

Name: Name:

CNIC: CNIC:

Address: Address:

NOTE:
a. The signature should match with the specimen signature registered with the Company.
b. A Proxy need not be a member of the Company.
c. Proxy Forms (scanned copies) properly completed along with attested copies of CNIC or the Passport of the Proxy shall
be sent to [email protected] not less than 48 hours (excluding closed days) before the Meeting.
d. The Proxy Form shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on
the Form.
EXCELLING BEYOND BORDERS

e. In case of a corporate entity, the Board of Directors’ Resolution / Power of Attorney with specimen signature shall be sent
at [email protected] along with Proxy Form.
ANNUAL REPORT 2019
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‫واں‬73 2020 08

2020
PAKISTAN TOBACCO COMPANY
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115 EXCELLING BEYOND BORDERS

ANNUAL REPORT 2019
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