Ptc Project (Final)

7/31/2019 Ptc Project (Final)

1/37

1

Pakistan Tobacco Company

Introduction:Pakistan Tobacco Company Limited (PTC) is a part of British American Tobacco - the world's

most international tobacco group - with brands sold in 180 markets around the world. Pakistan

Tobacco's operations in Pakistan began in 1947, making it one of Pakistan's first foreign

investments.

Principal line of business:

The company produces high quality tobacco products to meet the diverse preferences of millions

of consumers, and it works in all areas of the business - from seed to smoke.

The company provides a number of reputed brands of cigarettes to consumers in Pakistan,including Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.

Location:

Registered Office:

Pakistan Tobacco Company Limited

Dubai Plaza, Plot No. 5

Street 20, Salman Market, F-11/2

P.O. Box 2549Islamabad-44000

Telephone: +92 (51) 2083200, 2083201

Fax: +92 (51) 2111913

Web: www.ptc.com.pk

Regional Sales Offices:

North Punjab & N.W.F.P.

House # 57-A/6, Satellite Town

Rawalpindi

Telephone: +92 (51) 4582390-91Fax: +92(51) 4582392
http://www.ptc.com.pk/http://www.ptc.com.pk/


2/37

2


3/37

3

Reason for decreasing Employees

Organizational restructuring Telecom sector attracted many employees of the company at high pays, as a result high

turnover of employee observed. This issue is somewhat now resolved by the company as

it has started paying more incentives to the employees and also giving training and

development courses to its employees.

Achievements:

The Company was awarded the following Awards:

Corporate Excellence Award by the Management association of Pakistan BATs Global Environmental Health & Safety Award BATs Global Leaf Award. 25th Corporate Excellence Award in Business and Industry Category PTC Annual Report for 2007 was recognized as the best in its category by ICAP

Brands of Pakistan Tobacco Company

Golf Leaf Dunhill Gold Flake Capstan Wills Embassy Benson & Hedges

Focus of the Organization

The Company focuses on the following operational targets:

Continued strong volume and profit growth. Increased focus on productivity savings.


4/37

4

Launch of the 3rd cycle of our social reporting dialogues. Improved corporate governance. Environment, Health & Safety

Organizational CultureTheir culture consists of values they derive from their four guiding principles. PTC is currently

in the process of launching internal campaigns to further inculcate these values into the daily

lives of their employees. Their guiding principles in brief are:

Guiding principles

They follow four guiding principles that represent:

Strength from Diversity

Open Minded

Freedom through Responsibility

Enterprising Spirit

1. Strength from Diversity

Strength from Diversity reflects the cultural mix within the Company and a work environment

that respects employees individual differences. It also reflects their vision of harnessing

diversity of people, cultures, viewpoints, brands, markets and ideas to create opportunities

and strengthen performance.

2. Open Minded

Open Minded reflects their openness to change, opportunities and new ideas, including ways ofaddressing regulatory issues and changing social expectations. They seek to listen without

prejudice, actively and genuinely considering other viewpoints.

3. Freedom through Responsibility

Freedom through Responsibility describes how they make decisions: as close to the consumer as

possible. It also affirms their belief that decision-makers should accept responsibility for their

own decisions.

4. Enterprising SpiritEnterprising Spirit has been a characteristic of their business for more than a century. It is

reflected in PTCs ability to grow theirbusiness and its value within challenging environments

in the confidence to seek out opportunities for success, to strive for innovation and to accept

considered risk-taking as part of doing business.


5/37

5

5. Capacity and production

Against an estimated manufacturing capacity of 43,991 million (2007: 42,797 million) cigarettes,

actual production was 41,159 million (2007: 38,183 million) cigarettes. Actual production was

sufficient to meet market demand. There was no production through any outside manufacturing

source.

PTC and Corporate Social Responsibility:

Maintaining a large scale Corporate Social Responsibility (CSR) program in the midst of

political change and economic uncertainty was not only a challenge but also a personal stretch

for the people involved. In the past, they have seen and surmounted many hurdles, however, the

kind of problems they faced in NWFP in 2008 were unprecedented. In this context, it is indeed a

testament to the steadfast nature of their resolve that they remain partners of first choice for theircommunities, and their CSR initiatives continue undeterred, with the same energy and resolve as

before. Their forestation program continues, with an expansion of the total plantation area and

increased distribution of saplings. In the area of public health, PTC have completed construction

of 8 water filtration units, with 5 more planned in 2009. Their Mobile Doctors Units continued to

operate extensively treating patients in the underprivileged areas; this was in addition to the 19

medical camps organized in the year. PTC also held free eye camps and diabetic screenings in

partnership with various organizations such as Merck and Layton Rehmatullah Benevolent Trust.

In education, the Companys Learning Resource Centers saw 588 more students graduate, with

an 11% increase in the number of female students. Some 200 students have been provided with

the Adult Basic Education Society scholarships during the course of the year. PTC is well aware

of the unique challenge of operating in the field, and is committed to rise to the occasion. I

commend their efforts in the year past, and I am confident that despite some testing times ahead,

they will continue to contribute to the communities that they work with. The people in PTC have

always been one of their greatest asset and they will continue to invest in the same through

various initiatives that helps them to build a winning organization. These include programs such

as WAADA focusing on shop floor employee morale, continuous investment in focused

functional/leadership training programs and coaching programs for first line leader such as

TLDW (Team Leader Development Program). An Employer Branding campus campaign by the

name of Battle of Minds was also launched in 2008, focusing on attracting the right talent toour organization, and this was met with great success. Demand for our highly developed local

talent also remained high andduring 2008, 15 of our managers were sent out for long and short

term assignments to various Operating Companies of BAT around the globe. Environment

Health & Safety, PTC has always been a leader in the field of Environment, Health & Safety.

EHS principles are woven into the fabric of their organization and have now become part of the

culture in all areas of their business from seed to smoke. PTCs endeavor to improve


6/37

6

environmental programs has been recognized repeatedly by the Parent Group (BAT) with PTC

being awarded the annual EHS Excellence award for the fourth consecutive year in 2008 and

also, being awarded the accident free award for 2008 with No Lost Work day Case incident

reported across the organization during the year.

Core Competencies

Business Process Re-engineering2008 has also been a year of change for PTC with a number of Business Process Re-

engineering initiatives successfully implemented across the Company as the organization

embarked on a challenging and ambitious journey classifying their must do objectives to

succeed in the market as the Big Mountains. The Enterprise Program Office played a vital

role in supporting the Company strategy by setting-up the governance structures and process

framework for effective program and project management. Projects implemented during the

year focused on the key areas of Talent, Growth, Illicit Trade reduction, Productivity

improvement and proactive approach to Regulations. PTC is on the forefront of adopting best

practices on Corporate Governance and Reporting standards, as their Annual Report for 2007

was recognized as the best in its category by ICAP. In addition to the above, PTC won the

25th Corporate Excellence Award in Business and Industry Category from the Management

Association of Pakistan which is recognition of the excellent management processes in their

Company.

External Analysis:

Tobacco Industry Analysis

Industry overview:

The tobacco industry is a source of revenues, employment and foreign exchange for the country.

The industry has to pay very high excise and sales tax while complying with various strict rules

and regulations of the government. During 2007-2008, it contributed above Rs.68 billion as

Central Excise Duty and Sales Tax. Despite its contribution to the economy, the industry is

highly criticized for its negative impacts on the society.

Structure of Industry:

In Pakistan the industry consists of farmers who grow tobacco, firms that convert the raw

materials into finished goods (Cigarettes), exporters and importers of tobacco and its products.

Smuggling of tobacco products to and from neighboring countries is also quite common.

Size and number of sellers:


7/37

7

In Pakistan, tobacco cultivation occupies a relatively small area of 0.27% of the total irrigated

land. The country has been divided into various zones depending on the type of tobacco being

grown in that region. The major firms involved in the manufacture of finished goods and

exports include

Pakistan Tobacco Company Lakson Tobacco Company Souvenir Tobacco Company Saleem Cigarette Industry Universal Tobacco Company Imperial Cigarette Industry Khyber Tobacco Company International Cigarette Industry Walton Tobacco Company Sarhad Cigarette Industry

Of these firms Pakistan Tobacco Company is the market leader with lakson Tobacco Company

in second place.

Number of buyers:

The firms that manufacture finished goods act as purchasers themselves, buying it from the

farmers. They serve as intermediaries that purchase, process and resell.In the local market, Twenty-nine percent of men and 3.4% of women smoke cigarettes

regularly, concluded the National Health Survey, while the Pakistan Society of Cancer

Prevention says 37% of men and 4% of women over 15 years of age are smokers. According to

Pakistan Pediatric Association, 1,000 to 1,200 children between the ages of 6 and 16 years take

up smoking every day.

46.30%53.70%

Market share PTC

Market shareRemaining

Companies


8/37

8

Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes per

adult per annum against 119 for India. This shows that the market for tobacco industry is very

immense locally. Chewing tobacco is in demand in the villages.

Alongside this; various countries are also acting as buyers for the tobacco industry.

Product differentiation:

The major product differentiation exists between chewing tobacco and cigarettes and cigars.

The main differentiation exists between the manufactured goods in the form of branded

cigarettes. The firms target different segments of the society with different price levels.

Differentiation also exists between imported and local cigarettes and cigars. Consumers are

willing to pay a premium price for the imported product especially cigars.

Entry conditions and government regulations:

There are no entry conditions as such but when a company enters in the industry, it has to abide

by all the rules and regulations of government. This is very costly especially in terms ofadvertising. The firms have to inform the consumers about the potential health hazards related

to tobacco products. This implies that in order to enter as a manufacturer, heavy investment is

required.

The government is providing incentives to the tobacco growers in order to promote the industry.

This is being done through the Pakistan tobacco board. The board tries to find out their

problems and to educate them about the cultural operations, plant protection measures, picking

and curing operations. Other responsibilities of the board are to regulate, control and promote

the export of tobacco and tobacco products, and to fix grading standards.

Demand and supply:The tobacco board also manages the demand and supply in the industry. According to legal

requirements, the tobacco manufacturing and exporting companies are required to inform their

tobacco requirements by the 21st of October to the Pakistan Tobacco Board. After discussions

between the Board and other stakeholders like buyers, growers, dealers, etc. and taking into

account factors like crop size, prices, domestic usage and exports, these figures are finalized.

In this way the growers get a rough estimate of how much they should grow. This creates a

balance between demand and supply. The Pakistan Tobacco Board, in collaboration with

tobacco companies, holds meetings in the tobacco growing areas to inform the growers about

the requirements of tobacco companies.

Image:

The industry has a negative image among its consumers and the general public. This is due to

the various health hazards associated with tobacco consumption. People are also blaming the


9/37

9

government for its support for the industry. Smoking is the cause of lung cancer in 90% of the

cases. Its users get addicted to it.

Although the companies cannot change the nature of their product, they are trying to build a

socially responsible image in the eyes of the consumers. PTC is currently engaged in various

programs such as a forestation, Mobile doctors program, Youth smoking prevention, learning

resource centers. The laskson group has set up Lakson medical center (Sahiwal hospital) and a

Medical complex in Sawabi NWFP.

Price:

The government fixes the lowest price that firms can pay to growers. There is a restriction that

price for the current year cannot be lower than that paid in the preceding year. The tobacco

board has specified the criteria for fixing prices.

Smuggling is resulting in revenue leakage for the government. Some groups say that high

taxation on the tobacco industry is encouraging smuggling.

Competitor Analysis

Laskson Tobacco Company is the main competitor of Pakistan Tobacco Company or you can say

that the direct competitor. It is a public listed company on Karachi stock exchange having more

than 5000 employees and it is a largest exporter of tobacco having four factories over here indifferent cities Dadu, Sahiwal, Rawalpindi, Sawabi. Their main strengths are the support of an

international player Philip Morris international, second largest cigarette manufacture in a

country, strategic location of factories and established distribution network, largest leaf

processing factory in the country and dedicated workforce, these are there main strengths.

Brands of LTC

Royals Red&white

Diplomat K2 Morven Gold


10/37

10

Vision

We maintain transparency in our financial practices towards stakeholders and institutions by

assiduously following the laws of business, while working for continuous increase in share

holder value to extent allowed by macro economics environment.

Mission

To build a successful business model that encompasses the needs of our customers, our share

holders, and our employees.

Key Success factors Weight PTC ranking PTC extended LTC ranking LTC Extended

Product innovation R

& D

0.12 4 0.48 3 0.36

Manufacturing

technology

0.12 3 0.36 2 0.24

HR 0.7 4 0.28 3 0.21Selling and distribution 0.7 3 0.21 3 0.21

Supply chain strength 0.1 3 0.3 2 0.2

Financial muscle 0.1 3 0.3 3 0.3

Patronage support of

an international player

0.2 4 0.8 4 0.8

Government lobbying 0.5 3 0.15 3 0.15

Brand equity 0.12 3 0.36 3 0.36

CSR 0.5 3 0.15 1 0.05

Total 1 3.39 2.88

As you can see in this table the factors where Lakson Tobacco Company lags behind, and fromthose points PTC has gained the competitive advantage over their main competitor LTC and

continuously growing their market share by providing high quality products. PTC has truly

understood their segments and now they have a complete understanding of the needs and wants

of their segments.

SWOT Analysis

Strengths

Economies of scale in production Enterprise resource management for quick and cost effective operations Efficient management Marketing efficiency and capital effectiveness


11/37

11

Business process re-engineeringWeaknesses

Wastage of material in production.Opportunities

Growing demand of cigarettes despite such anti smoking campaigns.Threats

Illicit sector activitiesThe illicit sector continues to be the single biggest threat to long term commercial

viability and sustainability of the legitimate sector along with its adverse impact on

Government revenue

Law and Order Situation The law and order situation has been precarious, culminating in the bombing at the

Marriott hotel which led to collateral damage to our Head Office in Islamabad.

The general security situation in the country continued to deteriorate in 2008 and it wasespecially difficult in the tobacco growing areas of NWFP.

Technology Changing Optimization techniques not only to ensure capacity enhancement but also to

adhere to international Environment, Health and Safety standards.

Social and economic trends Social trends: Increasing know how of cigarettes hazards Anti - cigarette campaigns and litigations

Economic trends: Rising taxes High inflation Rupee devaluation Rising commodity and oil prices Sharp increase in energy costs.


12/37

12

Government action Cigarette use prohibition and awareness in people for hazards of smoking Ban on sales promotions Ban on product advertisements including sports sponsorships, TV, radio and outdoor

hoarding.

Changing Consumer needs Switching to Discount brands due to decrease in purchasing power of the consumers

Threat of rivalry and new entrantsPTC faces rivalry from Lakson Tobacco Pakistan in major, after it there is no other big

market player and cannot affect the sales of PTC that much.

As there have been the anti tobacco campaigns internationally, there is a threat that the

other international industries might direct themselves for the developed countries toensure their sustainability. Pakistani market may also be in the threat for the international

companies to enter, as government policies for the entry are much relaxed but afterwards

the company has to abide by the strict rules and regulation for operating in the region.


13/37

13

PORTERS MODEL:

1. Rivalry among existing firms:

In Pakistan only two major companies compete with each other. These are Pakistan Tobacco

Company and Lakson Tobacco Company. But the competition between these two firms is very

aggressive both are trying to eat others market share. So the rivalry is very high.

2. Bargaining power of buyers:

Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes per adult

per annum against 119 for India. This shows that the market for tobacco industry is very

immense locally. According to Pakistan Pediatric Association, 1,000 to 1,200 children between

the ages of 6 and 16 years take up smoking every day. Therefore bargaining power of buyers isrelatively low.

3. Bargaining power of suppliers:

Most of the tobacco used by the firms is produced in Pakistan, but still a considerable amount of

tobacco is imported every year so suppliers have some bargaining power regarding the prices

especially.

4. Potential Entrants:

While the anti-tobacco movement in the USA helped lower cigarette sales, Big Tobacco, thelargest US companies: Philip Morris, R.J. Reynolds and Brown and Williamson have continue to

expand overseas. They have flooded the markets in Asia and Eastern Europe with

advertisements, promotional products and cut-price brands designed to encourage new smokers.

5. Substitutes:

Substitutes are easily available in Pakistan so people have the option to switch to brands of other firms.

6. Other Stakeholders:

Every year, the government spends some US$20,000 on anti-smoking messages but Anti-

tobacco campaigners are also playing their role to minimize smoking but cigarette companies

spend millions of dollars annually on advertising so this threat is neutralized up to much extant.


14/37

14

TOWS Matrix

Large number of brandloyal customers.

Economies of scale inproduction

Good distributionnetwork

ERP

Wastage of material in

production

Growing ConsumerMarket.

Less no. of companiesin the market.

Illicit sector activities Technology Social, politico-legal

and economic trends

Threat of rivalry andnew entrants

Retaining LoyalCustomers

Attracting newcustomers by

promotions

Plant replacementwhich ensures least

material wastage and

high production

Production of harmfree cigarettes

Pull Strategy to beadapted

Discount brands to befocused more


15/37

15

Economic Environment:

Majority of the population of Pakistan belongs to the low class and has low purchasing power.

The taxes imposed by the govt. on tobacco industry are also very high that causes a significant

increase in the prices of cigarettes which takes the quality brands away from the reach of the

majority. So for this segment (lower class) PTC has introduced Embassy and Gold Flake.

For lower middle there is Capstan and Wills and for high and upper class there is Gold

Leaf and Benson and Hedges.PTC is promoting itself as an environmental friendly

organization by adopting tree plantation campaign. PTC planned 3 million trees* annually in

different areas of the country.

Technological:

PTC is the pioneer of using latest technology in Pakistan. The machine they use to manufacture

cigarettes Loga Max can produce 8000 sticks per minute. Although now Lakson is also usingthe same technology but it was PTC which introduced it in the country. Everyone knows that

technology has a significant effect on companys production capabilities. Use of this technology

(Loga Max) enables PTC to fulfill the market demand well in time and more efficiently.

Political:

Ministry of Health has made all possible efforts in informing the masses that smoking is

injurious to health and PTC maintains that smoking is an adult choice. Cigarettes are being

manufactured and each packet must contain a warning Tobacco seriously damages health orsmoking is injurious to health. But as such it has no effect on company's marketing strategies

and tactics, although cigarette manufacturers can not promote it as good for health" product.

The law no smoking in public places might effect sales volume because the people who use to

smoke for style or fashion may give it up.

Socio-cultural:

In Pakistan the basic traditions, customs and values are not much different but because of the

dish culture mostly young generation like European and American culture which leads toliberalism so these youngsters go for smoking as an essential of stylish life. On the other hand in

villages the elderly people smoke Hukka and the youngsters smoke cigarettes. The sole reason

behind it is that the young generation does not really see why should they be dependant upon

someone to fill up the paraphernalia of Hukka, and even if they have to do it themselves it is time

consuming and so they prefer ready to smoke stylish cigarettes instead of Hukka.


16/37

16

Task Environment:

As mentioned earlier, the population of Pakistan is growing by 2.7% annually and number of

smokers is increasing as well. Market size therefore is getting larger and it is an opportunity for

cigarette manufactures. But unfortunately Lakson has emerged as a strong competitor of PTC

and has attracted all the 10% growth of potential consumers where PTC was not able to do so.

This tough competition is brining a decline in the profits of the company due to which PTC has

decreased the prices of almost all its brands (except Benson & Hedges) to remain in the

competition.

Internal Environment of the Firm:

Resource based view of the Firm:

Tangible Resources

Financial

Firms capacity to raise equity Support from British American Tobacco Firms Cash account and cash equivalents

Physical

Modern Facilities Favorable Locations Machinery and Equipment

Organizational

Effective Strategic Planning ProcessIntangible Resources

Human Managerial Skills Diversified Workforce Retained Employees Firm-specific practices and procedures


17/37

17

Innovation and creativity

Innovation capacities Employees are welcome to suggest new ideas Training sessions are held almost every year

Organizational Capabilities

Ability to hire, motivate and retain employees Outstanding Customer service Proactive approach

Competitive Advantages from resources

From the start to end, ownership of property, brand reputation, employees loyalty, supply chain,management judgment all these things helps PTC to gain or sustain their competitive edge, brand

recognition is so high thats why they dont need any kind of advertisement for their brands.

With the help of certain packages that they give to their employees they have retained them so

the turnover rate is relatively low as compared to the competitors. They have their own fields of

tobacco that makes their supply chain so strong and helps to minimize the overall cost.

Resources Capabilities

There resources are valuable, rare, difficult to imitate in the presence of substitute so thats make

their competitive edge sustainable in the market.

Value Chain Analysis:

Primary Activities

Inbound logistics

Inbound logistics is primarily associated with receiving, storing and distributing inputs to the

product. It includes material handling, warehousing, inventory control, vehicle scheduling and

returns to suppliers. In PTC they have their own fields of tobacco so the receiving of the material

is no problem for the company and they store all of the material in their warehouse and then

distribute it in the different factories at different locations in the country. They believe in just in

time inventory system to keep their material or product fresh. Every delivery meets the defined

time or schedule. They have a strong inventory control system in their company.


18/37

18

Operations

After harvesting and curing, the cured leaf is processed through a Green Leaf Threshing plant.

The main purpose of this processing is to:

remove sand, dust, scraps and foreign matter; separate the lamina from the stem (threshing) Drive down the moisture content to safe storage levels.

Processed tobacco is then packed into 200kg cardboard boxes for shipping to their

manufacturing sites. Pakistan Tobacco Company's Green Leaf Threshing plant is located at

Akora Khattak, in the NWFP.

Manufacturing

At the factory, the matured tobacco is checked for quality and then carefully blended with otheringredients which the brand recipe may call for, such as flavorings or pre-processed tobacco.

Keeping track of the various types of tobacco and blend components is a key and computers are

increasingly used to track production runs. Moisture content is crucial. Too dry and the tobacco

leaf will crumble; too moist and it may spoil during storage. The blended tobacco is treated with

just the right amount of steam and water to make it supple and then cut into the form in which it

appears in the cigarette. Excess moisture is then removed so the cut tobacco can be given a final

blending and quality check. Cigarette making, once done entirely by hand, is today almost fully

automated, with the cut tobacco, cigarette paper and filters continuously fed into cigarette-

making machines. The technology has advanced dramatically over the years, but quality is not

forgotten; each cigarette is automatically quality controlled to ensure that it meets every

benchmark for its specification. As packing machines put them into the familiar brand packs,

wrap the packs in protective film, and group them into cartons and cases; further testing takes

place at each stage to make sure the cigarettes are properly protected. The completed cases, time-

dated to ensure the freshest product possible is then ready for distribution..

Outbound logistics

Around 250 exclusive distributors, employing a contingent of over 1,200 distribution

representatives, provide direct store delivery services for their finished products to the 500,000

plus retail stores throughout the country. In doing so, they aim to optimize their finished goods

supply chain efficiencies in delivering products of consistent quality on-time, every time. The

strong performance of PTCs brands suggests that theyre getting it right.


19/37

19

Marketing and sales

Trade marketing is a large part of their marketing activities, managing business-to-business

relationships with the retailers and distributors from whom PTCs consumers buy theirproducts.

They believe their win-win-win approach sets them apart in the market place. They dont just

focus on achieving their own goals, but aim to create benefits for their trade customers as well as

their consumers. They work to operate in the most efficient and effective way so that retailers

can offer the products their consumers want to buy, where and when they want to buy them, and

at the right quality. Their trade marketing field force provides value added services in

complimenting the distribution effort, in select stores of the retail universe to enable mutually

beneficial partnerships. They make substantial investment in retail, through quality in-store and

on-store furniture and fittings to stock and display their products for the convenience of their

consumers.

Supporting Activities

General Administration

They have the effective planning system to attain overall goals and objectives, they have

excellent relationship with their workers, and the top management are very much involved in

every small opportunity to make the organization better.

Human resource management

They have the effective HR team to hire the best employees or skilled workforce; there are manyreward and incentive programs to retain the employees. The working environment over there is

highly professional and effective for the company

Technology Development

They have the latest technology and upgraded machined in their factory that makes them ahead

from their competitors

Procurement

They are their own suppliers of raw materials which help them to minimize their cost and

removed all the threats which are normally there in suppliers and companys relationship. They

import tobacco for their premium brands in order to give the customer best quality product


20/37

20

Financial Analysis of the Firm:

Gross Volume

Year

Volume

Gross Profit

Operating Profit

After Tax Profit

2004 27 Billion 3,483 Million 1,077 Million 665 Million2005 31 Billion 4530 Million 2,081 Million 1,322 Million2006 35 Billion 5534 Million 2,841 Million 1,905 Million2007 37 Billion 6516 Million 3,720 Million 2,420 Million2008 41 Billion 7277 Million 3,860 Million 2,532 Million2009 41 Billion 8224 Million 4,589 Million 3,022 Million

Liquidity Ratios

The analysis of Pakistan Tobacco Companys financial statement shows that it has a high

tendency to pay its debts and to convert assets into liquid form within short intervals of time.

The current ratio of PTC remained between 0.901.14 in the last six years and it showsits ability to pay short term liabilities.

The quick ratio of PTC ranged between 0.0690.133 from 2005 to 2010. It shows thecompanys ability to convert its current assets into liquid form (cash form) in order to

meet current liabilities.

On yearly basis from the year 2005 2010, we observed that the number of times thetotal inventory or stock of the company was sold on the average of 2.25 times/year. It


21/37

21

shows the sales of the company are on a very large scale and also gives rise to the

company opportunity to generate huge profits in the long run.

Average Account Receivables Turnover shows that how many times a company is ableto recover the amount of credit sales to people. PTC has shown a high Accounts

Receivables turnover rate which shows its high liquidity transformation rate.

Profitability Ratios

Pakistan Tobacco Companies Profitability ratios clearly reflect its great ability to generate huge

profits and of generating dividends for its shareholders.

Average Assets turnover of the company ranges between 1.21 - 1.91 times per year. Itshows the generation of huge sales from the worth of assets of the company and in the

case of Pakistan Tobacco Company, it shows the firm's efficiency at using its assets in

generating sales or revenue- the higher the number the better.

The profit margin of PTC lies between 31.27% - 40.61% in previous six years. Itmeasures the percentage of each dollars of sales that results in net income. A higher profit

margin indicates a more profitable company that has better control over its costs

compared to its competitors.

The return on assets of PTC ranges among 0.80 to 0.27 according to preceding six yearsrecord. An overall measure of profitability is return on assets. ROA gives an idea as to

how efficient management is at using its assets to generate earnings.This number tells


22/37

22

you what the company can do with what it has, i.e. how many rupees of earnings they

derive from each rupee of assets they control.

Return on common stockholders equity of PTC varies between 0.28 0.76 betweenthe years 2005 to 2006. Another widely used profitability ratio is return on common

stockholders equity. It measures profitability from common stockholders point of

view. Return on equity measures a corporation's profitability by revealing how

much profit a company generates with the money shareholders have invested.Averaging

ROE over the past 5-10 years can give you a better idea of the historical growth.

Earnings per share are a measure of net income earned on each share of common stock.PTCs earning per share of last six years lies among 4.47 - 11.83. The EPS formula does

not include preferred dividends for categories outside of continued operations and net

income. Earnings per share serve as an indicator of a company's profitability.

Payout ratio of this company ranges from 0.8 - 1.34. It measures the percentage ofearnings distributed in the form of cash dividends. The amount of earnings paid out in

dividends to shareholders. Investors can use the payout ratio to determine what

companies are doing with their earnings.Dividend payout ratio is the fraction of net

income a firm pays to its stockholders in dividend.

Price earnings ratio is an oft-quoted measure of the ratio of the market price of eachshare of common stock to the earnings per share. It is also called its "P/E", or simply

"multiple". The P/E ratio is a vital ratio for investors. Basically, it gives us an indication

of the confidence that investors have in the future prosperity of the business. A P/E ratio

of 1 shows very little confidence in that business whereas a P/E ratio of 20 expresses a
http://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Dividends


23/37

23

great deal of optimism about the future of a business. It is the valuation ratio of a

company's current share price compared to its per-share earnings.

SOLVENCY RATIOS

Solvency ratios measure the ability of a company to survive over a long period of time. It

provides a measurement of how likely a company will be to continue meeting its debt

obligations. Different countries use different methodologies to calculate the solvency ratio, and

have different requirements.

Debt to total assets ratio measures the percentage of total assets that creditors provide.A metric used to measure a company's financial risk by determining how much of the

company's assets have been financed by debt. If the ratio is less than one, most of the

company's assets are financed through equity. If the ratio is greater than one, most of the

company's assets are financed through debt. Calculated by adding short-term and long-

term debt and then dividing by the company's total assets.

The average value ofTimes interest earned of PTC is approximately 2.8 for previoussix years. It provides companys ability to meet interest payments as they come due.

Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability

to honor its debt payments. The times interest earned lets the creditor understand whether

or not a company has sufficient income to cover its interest payments requirements. It is

calculated by taking a company's earnings before interest and taxes (EBIT) and dividing

it by the total interest payable on bonds and other contractual debt.


24/37

24

Recognizing Firms Intellectual Assets:

Intellectual assets of PTC are their workforce, goodwill, resources, and their image in the market.

I have explained everything above in my report so I will focus on the human capital here, what

they do with their workforce, how they do it and they retain their employees in order to gain or

maintain their intellectual assets.

Re-Engineering the Human Capital (Attitudinal Change):

PTC focuses on individual to inspire them and provide them with tools to pursue personal

excellence without getting bogged down through self-imposed limitation in thinking and actions.

PTC believes in supporting people to learn from mistakes in pursuit of business excellence.

Encourage people to think differently.

Reduce Emphasis On Training Only Approach:

Create an understanding that Training Only would not be sufficient to develop people and that

other development opportunities should be identified and agreed by the individuals and line

managers e.g.,

Job development Special projects Short-term assignments Short-term attachments with other functions/sections Crossfunctional projects / teams etc.

Compensation:

PTC considers its employees not just as a cost but as a resource in which the company has

invested from which it expects valuable returns. Pay policies and programs are one of the most

important human resource tools for encouraging desired employee behaviors. The advantage of

paying above the market average is the ability to attract and retain the top talent available, which

can translate into highly effective and productive work force.

People

The people in PTC have always been one of their greatest asset and they will continue to invest

in the same through various initiatives that will help them build a winning organization. These

include programs such as WAADA focusing on shop floor employee morale, continuous

investment in focused functional/leadership training programs and coaching programs for first


25/37

25

line leader such as TLDW (Team Leader Development Program). An Employer Branding

campus campaign by the name of Battle of Minds was also launched in 2008, focusing on

attracting the right talent to their organization, and this was met with great success. Demand for

our highly developed local talent also remained high andduring 2008, 15 of our managers were

sent out for long and short term assignments to various Operating Companies of BAT around the

globe

Great Place to Work

They have been challenging and motivating their people to achieve daring and stretching

milestones set under the umbrella of three Must Achieve Objectives. During 2005, they further

improved the focus of their business and people through the Strategic Leadership Agenda (SLA)

and by embedding People Processes based on the system of Leadership Capabilities. During

2005, they invested heavily in building their Employer Brand and related activities. PTC

launched the We challenge you media campaign to attract and recruit talented graduates. As aresult, they recruited a batch of 12 Management Trainees (MTs) who were currently being

developed within the Global Management Trainee Program. Moreover, they continue to invest

generously in developing their people through exposure on international development programs.

Such a high degree of investment has created a surging demand for their talent. Consequently,

they have now achieved the status of net exporters of talent in the BAT World. During 2006,

apart from furthering the above agenda, PTC defined it in such a way that we will drive more

organizational initiatives linked to our business objectives. These include development

frameworks for Business Support Officers, Supply Chain Integration for Leaf, Manufacturing &

Supply Chain roles that will lead to an integrated function, and a Reward & Recognition scheme

that will ensure motivation for better performance and retention of the right talent. We willcontinue our focus in this area by having the right people with the ability and the hunger to drive

and deliver competitive advantage through superior performances.

All these things give us an idea about the internal environment of the PTC and the strategies they

use to retain their employees e.g.

o Foreign training is given to unskilled labor almost every year to make themworking more efficiently

o High Incentives are paid to the employees to ensure their loyalty with thecompany and decreasing the turnover.

o Day Care Centre at Akora Khattak Factory to provide child care facilities toinfants and children of all working mothers.


26/37

26

Business level Strategies: Creating and Sustaining Competitive Advantages:

Pakistan Tobacco Company is using the Cost Leadership Strategy in order to be one step ahead

from their competitors; they have minimized their cost as they are their own suppliers and own

the fields of the tobacco so this gave them the competitive edge and an opportunity to attract

more and more customers through this cost leadership strategy.

Penetration Pricing

In the past years PTC reduced the prices of their products by half of the current selling prices. As

a result more people are purchasing the products, that has lead PTC to gain a market share of

46.3%. Discount brands of PTC including Gold Flake have seen a rigorous growth in sales.

Almost 18% sales growth in Gold Flake has been observed as compared to previous year.


27/37

27

Industry Life Cycle:

Tobacco industry is right now at maturity stage. Market growth is low to moderate, there are

many segments, competition is very intense, emphasis on product design is very low but very

high on the process design, their major area of concern is production and overall objective of this

industry is to defend their market share and extend product life cycle. If I talk about PTC herethen they are truly at the maturity stage and still working on their process design to maintain

their competitive edge over their competitors. The main threat for this industry is the continuous

change in the government regulations and restrictions on this industry, now they have placed a

condition on them that they have to publish a picture of a mouth disease in each and every pack

of their cigarette just to inform people the negative effects of smoking and this restriction played

a very huge role in cutting the profits of this industry because many youngsters left smoking after

seen this warning on the cover of the packet. Now this found to be a good sign for the society but

at the same time its a wrong sign for this industry.

Stage/Factor Introduction Growth Maturity Decline

Generic

Strategies

Differentiation Differentiation Differentiationoverall cost

leadership

Overall costleadership focus

Market Growth Low Very large Low tomoderate

Negative

No of Segments Very few Some Many Few

Intensity of

competition

Low Increasing Very intense Changing

Emphasis onproduct design

Very high High Low tomoderate

Low

Emphasis on

process design

Low Low to moderate High Low

Major

functional areas

of concern

Research anddevelopment

Sales andmarketing

Production Generalmanagement andfinance

Overall

objective

Increase marketawareness

Create customerdemand

Defend market

share and

extend product

life cycle

Consolidate,maintain,harvest, or exist


28/37

28

BCG Matrix

PTC has total seven brands in the market to capture various segments of target market.

Golf Leaf Dunhill Gold Flake Capstan Wills Embassy Benson & Hedges


29/37

29

Introduction stage of Question mark:

The brand Gold Flake of PTC is in the introduction stage but that doesnt mean they are not

earning profits through this brand, this is an overall analysis of the brands of PTC that is why I

have placed Gold Flake in the introduction stage, Gold Flake isnt available in every market of

our country; its for a small segment, people living in the villages or for the labor class. Thisbrand is not known or used by a large segment.

Star or Growth:

Dunhill, Benson & hedges, and Wills are in the growth stage, these brands are very much

popular or gained value in the mind of customers and positioned as the premium brands. The

customers of these brands are mostly the people living in the big cities e.g. Islamabad, Karachi,

Lahore, and Multan. These brands have taken place the position of number 1 selling brands in

our country and they are still growing and making profits from other parts of the country.

Cash Cow or Maturity:

Gold leaf and Capstan are enjoying the maturity period; they also have gained the value of

customers by giving them a good taste of cigarette. These brands are priced very strategically

that almost everyone can afford these brands.

Decline or Dog:

Embassy is now in a decline stage and almost lost its image from the mind of their customers,

the place of embassy had been taken place by the competitors brand e.g. Morven Gold and Red

& white and now demand of Embassy is almost dead.

Turnaround Strategy for Embassy:

There is a chance to turnaround the brand embassy by adopting some strategies e.g. PTC should

re position the brand embassy as mentioned above that by reducing prices PTC has gained a huge

market share so by reducing prices of that cigarette and positioned it as a high valued product in

a less price for the customers live in rural areas or sub urban areas, PTC should redesign the

packet of embassy and target a particular segment because now they are not making this cigarette

for everyone. This could be helpful for the company by squeezing the segment of this brand in

order to gain some profit or test the smaller market in the start.


30/37

30

Corporate Level Strategy: Creating Value through Diversification:

Pakistan Tobacco Company owns different brands of cigarettes and targeted it in a such way that

for every class they have made a particular type of a cigarette, e.g. Marlboro and Dunhill for

upper class, Gold leaf for middle class and Gold Flake etc for lower class, through this kind of

segmentation they are covering the whole population who smokes cigarette. And this also helpedthem to gain value from every type of customer either he lives in a quarter or a mansion, if he

smokes cigarette then he is in their target population. We have seen from past few years that

there is a dramatic increase in a consumption of cigarettes in Pakistan but we unfortunately

didnt focus on other side of the coin, we also have a ongoing trend of Sheesha in our country,

and the market of sheesha is approx 40 percent larger than the market of cigarettes, because

people who dont smoke cigarettes love Sheesha and everyone who smoke cigarette also love to

have sheesha twice in a week except people aged above 40. So its very clear that this industry is

growing day by day in fact the people who smokes cigarettes sometimes skip one or two

cigarettes because they are having sheesha at that time which gives them same kind of

satisfaction with a flavor of their choice and also thick smoke fascinates them, and in future it

can be found as a threat for a company so in this case PTC should focus on a related

diversification over here and step into this Sheesha flavor industry which also contains a small

proportion of tobacco in them, And through this PTC can gain a huge advantage because of

image of the company and also their customer will prefer their flavor while having sheesha and

due to the vertical integration which they have will minimize the cost of supplier and material

and can help the company to meet their objectives. They should also introduce a line of flavored

cigarettes for the people above 40 because this segment are not very much in to sheesha but yes

they want to have something new for their daily life and flavored cigarettes can fulfill their needs

of having something new in shape of cigarettes and it will be less harmful for the ladies whosmoke cigarettes for style and just to maintain their status and image in fact thin flavored

cigarette will be preferred by ladies who love to smoke because it is light and gives you a taste of

your choice.

International Strategy: Creating Value in Global Markets

Pakistan Tobacco Company is a part of British American Tobacco the worlds most international

tobacco group, with brands sold in 180 markets around the world. So the Parent company has

already gained or created value globally so what I think is that, there is no need of going global,

and so as PTC is a part of British American Tobacco so they can also help PTC stepping in to anew industry and can support PTC from every perspective.


31/37

31

Appendix:

1. Current RatioYears Current Assets Current Liabilities Current Ratio

2004 3,434,601 3,137,467 1.0942005 4,136,116 3,604,366 1.1472006 4,172,950 3,750,209 1.1122007 4,641,368 4,822,940 0.9622008 4,739,867 5,210,638 0.9092009 6,242,528 6,856,780 0.9102010 7,893,825 8,630,286 0.914

2. Quick RatioYears Quick Assets Current Liabilities Quick Ratio

2004 3,60,549 3,137,467 0.11492005 3,55,185 3,604,366 0.0982006 3,82,097 3,750,209 0.1012007 6,43,187 4,822,940 0.1332008 6,80,804 5,210,638 0.1302009 4,77,161 6,856,780 0.0692010 6,38,818 8,630,286 0.074

Liquidity Ratios


32/37

32

3. Inventory TurnoverYears Cost of Sales Average Inventory Inventory Turnover

2004 6,089,955 3,069,090 1.982005 7,223,576 3,427,491 2.102006 8,357,474 3,785,892 2.202007 9,527,306 3,894,517 2.442008 11,595,736 4,028,622 2.872009 13,442,066 4,972,215 2.702010 10,789,048 6,510,187 1.67

4. Average Account Receivables Turnover

Years Credit Sales Average A/R A/R Turnover

2004 9,572,576 1,05,266 90.932005 11,753,180 1,11,958 104.972006 13,890,994 98,575 140.912007 16,042,877 1,61,125 99.562008 18,872,495 2,38,282 117.152009 21,666,525 1,67,411 129.412010 15,696,107 1,06,521 147.34



33/37

33

1. Assets Turnover

Years Sales Average Total

Assets

Assets Turnover

2004 9,572,576 6,641,792 1.452005 11,753,180 7,496,609 1.562006 13,890,994 8,351,426 1.662007 16,042,877 9,280,316 1.782008 18,872,495 10,110,636 1.862009 21,666,525 11,310,951 1.912010 15,696,107 12,964,936 1.21

2. Profit Margin

Years Sales Cost of Goods Sold Profit Margin

2004 9,572,576 6,089,955 36.38 %2005 11,753,180 7,223,576 38.53 %2006 13,890,994 8,357,474 39.83 %2007 16,042,877 9,527,306 40.61 %2008 18,872,495 11,595,736 38.55 %2009 21,666,525 13,442,066 37.95 %2010 15,696,107 10,789,048 31.27%



34/37

34

3. Return on Assets

Years Net Income Average Total

Assets

Return on Assets

2004 665,227 6,641,792 0.102005 1,321,919 7,496,609 0.172006 1,904,988 8,351,426 0.222007 2,420,207 9,280,316 0.262008 2,532,295 10,110,636 0.252009 3,022,406 11,310,951 0.272010 1,141,621 12,964,936 0.80

4. Return on Common Stockholders Equity

Years Net Income Average Stock

Holders Equity

Return on Stock

holders Equity

2004 665,227 3,262,823 0.202005 1,321,919 3,451,118 0.382006 1,904,988 3,889,300 0.482007 2,420,207 4,081,022 0.592008 2,532,295 3,656,505 0.692009 3,022,406

3,934,282

0.76

2010 1,141,621 4,065,563 0.28



35/37

35

5. Earnings per ShareYears Net Income Average Shares

Outstanding

Earnings per Share

2004 665,227

2,55,494

2.60

2005 1,321,919 2,55,494 5.172006 1,904,988 2,55,494 7.462007 2,420,207 2,55494 9.472008 2,532,295 2,55,494 9.912009 3,022,406 2,55,494 11.832010 1,141,621 2,55,494 4.47

6. Payout RatiosYears Dividends per

Share

Earnings per Share Payout Ratio

2004 1.61 2.60 0.612005 3.69 5.17 0.712006 5.48 7.46 0.732007 7.88 9.47 0.832008 11.62 9.91 1.172009 9.53 11.83 0.802010 5.99 4.47 1.34



36/37

36

7. Price Earnings Ratio

Years Market Price of

Share

Earnings per Share Price Earnings

Ratio

2004 2.602005 5.172006 7.462007 9.472008 9.912009 11.832010 4.47

Solvency Ratios

1. Debt to Assets Ratio

Years Total Debts Total Assets Debt to Assets

Ratio

2004 1,896,686 7,024,765 0.272005 2,916,486 7,968,453 0.332006 3,505,382 8,734,400 0.402007 4,586,767 9,826,232 0.462008 4,897,101 10,395,041 0.472009 6,338,306 12,226,861 0.512010 8,377,229 13,613,012 0.61


37/37

2. Times Interest Earned

Years Operating Income Interest Expense Times Interest

Earned

2004 1,056,039 390,812 2.702005 2,082,064 760,145 2.732006 2,860,673 955,685 2.992007 3,724,574 1,304,367 2.852008 3,893,717 1,361,422 2.862009 4,648,489 1,626,083 2.852010 1,755,839 614,218 2.85

Ptc Project (Final)

Documents

Transcript of Ptc Project (Final)