SUBMITTED TO

“SIR ABID SAEED”

MUHAMMAD HASSAN KHAN

FARRKUH SALEEM

FURQUAN SAEED

ZEESHAN SHAFIQUE
BURHAN AHMED
JAHANZEB M. KHAN
MEHMOOD HYDER
 INTRODUCTION

British American Tobacco is the world’s most

international tobacco group, with brands sold in 180
markets around the world.

They produce high quality tobacco products to meet the

diverse preferences of millions of consumers, and we work in
all areas of the business – ‘from seed to smoke’.

Their companies are committed to providing consumers with

pleasure through excellent products, and to demonstrating
that we are meeting our commercial goals in ways that are
consistent with reasonable societal expectations of a
responsible tobacco group in the 21st century.

Pakistan Tobacco Company Limited (PTC). The Group's

principal activities are to manufacture and market cigarettes
and edible oils. The Group's brands include Wills King,
Embassy, Capstan and Sun drop.

MISSION
OUR MISSION IS TO CONTINUE CREATING LONG TERM
SUSTAINABLE SHAREHOLDER VALUE, AND TO LEAD THE
TOBACCO INDUSTRY IN DEMONSTRATING CORPORATE
SOCIAL RESPONSIBILITY AND WIDER ACCOUNTABILITY”
 PRODUCTS:
Pakistan Tobacco Company is the largest producer of
tobacco in Pakistan, with a vast Varity of tobacco products,
and brand names. PTC mainly produces cigarettes, which
covers large Varity of its kind. Apart from its tobacco
products, Pakistan Tobacco had launched sunflower cooking
oil 'Sundrop'. Turnover during Jan-June '99 six months
improved 14.2% to Rs 7,924.8m, from Rs 6,937.0m in the
similar six months of '98.

PRODUCT DESCRIPTION:
The cigarettes produced by PTC are:

Gold Flake
Like many of PTC brands, also boasts its origins at W.D. &
H.O. WILLS where it was a premium brand around the end of
the 19th century. Launched in 1982, in a 'soft cup'
packaging, the brand took off when it was repositioned in
the value for money segment and later a 'hinge lid' variant
was introduced in 2000.

WILLS
Takes its name from the heritage of one of the original
Imperial Tobacco Company families: the Wills Brothers of
London.

EMBASSY
The third leading volume brand in Pakistan is most popular
in the Punjab where it enjoys a leading position due to its
equity and loyalty.
 BENSON & HEDGES
In 1873, Richard Benson & William Hedges started a
partnership in London. From the very start, the idea was to
make Benson & Hedges a style statement, which is why the
business started from London’s fashionable West End.
PTC launched Benson & Hedges in Pakistan in March 2003.
Made with the finest hand picked golden Virginia tobacco
from across three continents, the brand is packed with
perfection to seal its freshness.

JOHN PLAYER GOLD LEAF

The story of John Player Gold Leaf has to start from the story
of its founder, John Player. An enterprising businessman,
John Player started a small tobacco selling business in 1877
and turned it into a thriving cigarette company, John Player
and Sons. With a distinct lifebuoy and sailor trademark, John
Player Gold Leaf has an identity entrenched in sailing and
maritime adventure. Thus staying true to John Player’s very
first big brand - Player’s Gold Leaf Navy Cut cigarettes.

COMPATETORS

PTC holds 38% of the market, the major compotator of

PTC is LACKSON TOBBACO COMPNAY, which holds the 40%
of market total share. Some other local compotators are:

1.Khyber Tobacco Company.

2. Souvenir Tobacco Company Limited.
3.Saleem Cigarette Industries.
4.Premier Tobacco Company Ltd.
5.Souvenir Tobacco Company Limited.
 COMPETITIVE ADVANTAGE

PTC is part of the trans-national British American Tobacco

Group, which employs some 90,000 people worldwide at its
operations in 180 countries. British American Tobacco has a
position of market leader in more than 50 countries selling
over 300 brands there. In 2004, the Group sold and
produced a nearly 16% share of the global market of
cigarettes.

PTC is the largest excise tax generator in the private

sector in the country. In 2004 alone, PTC paid the
government close to Rs.16 Billion in excise and sales taxes.
This amounts to over Rs. 50 million per working day. Over
one million people are economically dependent on the
industry in Pakistan

Until some years ago, Pakistan Tobacco ranked among

the top tier of the
Blue chip companies that earned huge profits and paid
robust dividends to
The shareholders. Paid-up capital of the company has
remained unchanged at Rs 319.4m for Many years now. Due
to robust reserves of Rs 640.7m, break-up value of the
Share works out at Rs30.06. The previous surplus also
enables the company
to wipe out the recurring red on the profit & loss account.

The main competitive advantage of PTC is that it

manufactures cigarettes for all classes, so the revenues
comes from all type of people of Pakistan, who trust PTC due
to its high quality products. The other distinctive feature is
that company maintains its quality from the harvesting of
tobacco up to its distribution. The company also performs
corporate social responsibility, to provide some thing to the
society and environment. e.g.
 PTC has planted over 30 million trees since the project
started in 1981. PTC is also looking into the possibility of
expanding this activity in other parts of Pakistan. Clearly, our
agricultural infrastructure is strongest where we work with
our growers and therefore our focus on afforestation will be
where we have the appropriate resource to support them.

Considering the fact that only four percent of Pakistan's land

mass is covered by forest (whereas ideally it should be at
least twenty percent), we have instituted probably the
largest private sector reforestation program in Pakistan.

QUALITY
The PTC manages quality from the harvesting of tobacco leaf
up to its customer satisfaction. At the factory, the matured
tobacco is checked for quality and then carefully blended
with other ingredients 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 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 the 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 aspect of its specification.
 PRICING

The pricing strategy of PTC is very strong it, the company

produces cigarettes for all economic classes. Its produces
WILL KING, EMBASSY, for lower economic class so that they
can afford it, and be loyal to their brand
Where as JOHAN PLAYER GOLD LEAF is produced for the
middle class people who likes enjoy better taste in affordable
price, last but not the least BENSON & HEDGES is produced
for high economic class who beliefs in life styles.
 DISTRIBUTION

PTC’s aim is to build an excellent Trade Marketing &

Distribution capability, which bears the hallmark of a world-
class field force for effective retailer and consumer contact.

375 exclusive Distributors employing a contingent of over

1200 distribution representatives provide direct store
delivery service of our finished products to the 400,000 plus
retail stores throughout the country. In doing so we aim to
optimize our finished goods Supply Chain efficiencies in
delivering products of consistent quality on-time, every time.

The retail universe is classified into Supermarkets, Groceries,

Convenience stores and recreation or leisure outlets such as
hotels, cafes and restaurants.

The company's Trade marketing field force provides value

added services in complimenting the distribution effort, in
select stores of the universe to enable mutually beneficial
partnerships. company make substantial investment in
Retail, through quality in-store and on-store furniture and
fittings to stock and display our products for the convenience
of consumers.

Market analysis summary

In Pakistan, two transnational companies British American

Tobacco (BAT) and Philip Morris Industries (PMI) hold 78% of
the cigarette market. BAT holds 67% shares in the Pakistan
Tobacco Company (PTC), while PMI has a 30% share in
Lakson Tobacco Company (LTC). PTC holds 38% of the
market, while LTC has a market share of slightly over 40%.
Local companies such as Sarhad Cigarette Industries, Khyber
Tobacco Company, Souvenir Tobacco Company Limited and
Saleem Cigarette Industries hold the rest of the market.

According to the Tobacco Statistical Bulletin 1994, there

were 32 tobacco companies having 38 cigarette
manufacturing factories with an installed capacity of over 87
billion sticks per annum.

However, unofficial reports put the number of factories much

higher. According to one report, 75 unlicensed factories are
in operation in the tobacco-rich Mardan Division and Lala
Musa alone, which are manufacturing counterfeit major
international brands and tax-evaded cigarettes.

The Frontier province has 25 factories with installed annual

capacity of more than 35 billion sticks. The nine factories in
Sindh and four in Punjab have annual capacities of nearly 22
billion sticks and nearly 30 billion sticks respectively.

Tobacco companies’ sell 50 billion sticks (out of their 87

billion stick installed capacity) every year in Pakistan. Around
10 billion smuggled, counterfeit or tax-evaded cigarettes are
also consumed locally. The tobacco companies are
continuously increasing their market size. The cigarette
production rose from 29.9 billion sticks in 1990-91 to 48.21
billion sticks in 1997-98, an increase of more than 70% over
seven years. Both companies rake in huge profits every year
that run into millions of rupees.

But the beneficiaries in this deadly business are not the

tobacco companies alone. As elsewhere in the world, the
government of Pakistan patronizes the tobacco business - at
the expense of public health. The reason for this patronage
is simple: the tobacco business generates much-needed
taxes for the cash-strapped government.

According to “Tobacco Control in the Third World: A

Resource Atlas”, the Pakistani government collected Rs
15.86 billion ($311 million) as tobacco tax in 1990, making
up 10.5% of the total tax revenue. Tobacco taxes are
continually rising since then. In 1999, only two companies,
PTC and LTC, paid Rs 18.7 billion in government levies.

In fact, the revenues collected by the government from the

tobacco industry each year exceed the profits posted by the
companies. According to the Pakistan Tobacco Company's
1999 Annual Report and Accounts, the company paid Rs
10.03 billion in government levies, while it posted an after-
tax-profit of only Rs 136 million. Similarly, Lakson Tobacco
Company deposited Rs 8.66 billion in the government kitty
during the fiscal year 1998-1999 and it recorded a net profit
of 180.7 million. It is estimated that around 70% of revenues
generated by the tobacco companies are paid as excise
duties and other government levies.

How government patronizes tobacco industry

Addicted to tobacco revenues, the government patronizes
the tobacco business in a number of ways:
1. The Pakistan Tobacco Board (PTB) was established in
1968 with headquarters in Peshawar after the government
recognized 'tobacco potential'. Attached to the Ministry of
Commerce, the Board is to promote tobacco cultivation on
scientific lines for domestic use and export. It regulates,
controls, grades and exports tobacco products; undertakes
research and training for the tobacco industry; renders
assistance for the development of existing and new growing
areas and establishment of model farms.
2. The government ensures that the tobacco industry makes
prompt payments to tobacco farmers, which is not the case
for other crops like sugarcane, cotton and fruits. Under the
Deferred Payment Leaf Voucher Scheme, introduced in
1975, the government constituted a consortium of
nationalized commercial banks for providing additional loans
to tobacco companies during the marketing season of
tobacco. The scheme is aimed at ensuring that tobacco
growers are promptly paid for purchases made by the
industry. In 1994, Rs 434.14 million were handed out to
tobacco companies under this scheme.
3. The Pakistan Sports Board and all sports associations
under its aegis accept tobacco sponsorships. The monetary
value of these sponsorships runs into millions of rupees.
4. The government gives tobacco companies a freehand to
advertise their products on electronic and print media. While
the total magnitude of tobacco advertisement in the print
media is unknown, the state-owned Pakistan Television
Corporation (PTV) earns almost 33% of its advertising
income from the tobacco industry. According to press
reports, PTV generated around Rs 280 million through
tobacco advertisement.
 MARKET SEGMENTATION:
PTC has segmented its product by economic condition of the
country. By producing cigarettes for different economic
classes. Like wills and Embassy for lower class and Benson
and Hedges for higher economic class.

TARGET MARKET SEGMENTATION STRATEGY:

British American Tobacco's brand strategy differentiates it

from its competitors and underpins its approach to product
development. The Group continues to build a focused,
segmented and differentiated brand portfolio and allocates
resources to a full range of brands deployed in the key
industry areas that offer the most robust source of volume
and profit growth. These are the international, premium
lights and Adult Smokers Under the age of 30 (ASU30)
segments.

PTC continue to invest in our four global drive brands -

Dunhill, Kent, Lucky Strike and Pall Mall, which have grown
combined volumes by almost 50 per cent since 1999.
Rothmans, Kool, Benson & Hedges, State Express 555, Peter
Stuyvesant, Viceroy and John Player Gold Leaf are also part
of our international brand portfolio, playing a key strategic
role in the different regions where we do business.

INDUSTRY ANALYSIS

Despite numerous health and economic costs, the

consumption of cigarettes continues to rise in Pakistan,
making it a high cigarette consumption country. According to
the Pakistan Pediatric Association, 1,000 to 1,200 children
between the ages of 6 and 16 years take up smoking every
day. Twenty-nine percent of men and 3.4% of women smoke
cigarettes regularly, concluded the National Health Survey,
while the Pakistan Society for Cancer Prevention says 37% of
men and 4% of women over 15 years of age are smokers.

1. Smoking is most common and most likely to be heavy (20

or more cigarettes per day) among men 25-44 years of age
in Pakistan.
2. Approximately 90% of lung cancer cases in men and 79%
in women are attributable to cigarette smoking.
3. Twenty-four percent of illiterate rural young men smoke
as compared to 19% of illiterate urban young men.
4. Among rural smokers (15-64 years of age), 26% smoke
heavily compared to 37% in urban areas.

To advertise the Gold Flake price reduction, PTC ran an

aggressive campaign on PTV during the Sharjah Cricket Cup
and Triangular Series in the West Indies and bought three-
day programming ownership on PTV World with Gold Flake
Eid Hangama. A double-page advert also appeared in the
Urdu-language newspaper Din.

Countrywide, 800,000 posters and buntings and 150,000

leaflets plastered market walls. Three thematic Gold Flake
Floats operated in some cities for 10 days. They featured live
music, male and female models and comedians and also sold
the brand at the reduced price. The company sponsored a
Gold Flake Canal Mela in Lahore featuring Gold Flake
streamers on both sides of the busy Canal Road and 35
banners throughout the city. All this only to advertise a
single price cut!

According to the prestigious Advertising Age magazine, LTC

was the third largest advertiser in Pakistan in 1998,
spending an astounding Rs 328 million (US $6.42 million). It
was
followed by BAT, which spent staggering Rs 295 million (US
$5.77 million) during the same year. The marketing
expenses of the two companies neared Rs 1.5 billion in
1999, with LTC spending Rs 804.75 million and BAT Rs
680.643 - all in the name of hooking new users, the lifeline of
the tobacco industry.
Tobacco companies’ sell 50 billion sticks (out of their 87
billion stick installed capacity) every year in Pakistan. Around
10 billion smuggled, counterfeit or tax-evaded cigarettes are
also consumed locally. The tobacco companies are
continuously increasing their market size. The cigarette
production rose from 29.9 billion sticks in 1990-91 to 48.21
billion sticks in 1997-98, an increase of more than 70% over
seven years. Both companies rake in huge profits every year
that run into millions of rupees.

But the beneficiaries in this deadly business are not the

tobacco companies alone. As elsewhere in the world, the
government of Pakistan patronizes the tobacco business - at
the expense of public health. The reason for this patronage
is simple: the tobacco business generates much-needed
taxes for the cash-strapped government.

According to “Tobacco Control in the Third World: A

Resource Atlas”, the Pakistani government collected Rs
15.86 billion ($311 million) as tobacco tax in 1990, making
up 10.5% of the total tax revenue. Tobacco taxes are
continually rising since then. In 1999, only two companies,
PTC and LTC, paid Rs 18.7 billion in government levies.

In fact, the revenues collected by the government from the

tobacco industry each year exceed the profits posted by the
companies. According to the Pakistan Tobacco Company's
1999 Annual Report and Accounts, the company paid Rs
10.03 billion in government levies, while it posted an after-
tax-profit of only Rs 136 million. Similarly, Lakson Tobacco
Company deposited Rs 8.66 billion in the government kitty
during the fiscal year 1998-1999 and it recorded a net profit
of 180.7 million. It is estimated that around 70% of revenues
generated by the tobacco companies are paid as excise
duties and other government levies.

MARKETING
 We believe strongly that tobacco should never be
marketed to youth. It should only be marketed to adult
smokers, in an appropriate way that takes account of its
health risks. Our consumers – adult smokers – drive
everything we do. We invest effort and care in
understanding their preferences, and we know that just as
adults make informed choices about smoking, adult smokers
make informed choices about brands. We agree there should
be different rules about tobacco marketing – and that’s part
of the challenge our marketers are trained to meet.
This will be one of the few websites from a leading
global consumer goods company that does not advertise or
sell its brands. An open corporate web site isn't the place for
that. But I want to say something about British American
Tobacco as a marketer, because it helps to define who we
are.
We are proud of our strong reputation for high quality
brands. In our major markets, our trade marketers are
frequently rated highly in customer surveys on
professionalism and service. We don't believe in 'one brand
fits all', but with a strong, diversified global portfolio – well
focused and defined – we offer a brand for all key consumer
and market sectors.
We aim to satisfy adult consumers' demands better and
more profitably than our competitors. Importantly, we also
fully acknowledge our product poses risks to health, so it
requires restrictions on how it is marketed. We know that
public expectations about tobacco marketing are higher than
for many other products. So we agree there should be
different rules about tobacco marketing – and that’s part of
the challenge our marketers are trained to meet.
CORE BELIEFS

We believe strongly tobacco should never be marketed

to youth. It should only be marketed to adult smokers, in an
appropriate way that takes account of the risks posed
to health. We also believe adults who have chosen to smoke
should be able to receive information about what they buy,
and we should be able to communicate responsibly with
them about our brands.
Our consumers – adult smokers – drive everything we
do. We invest effort and care in understanding their
preferences, and we know that just as adults make informed
choices about smoking, adult smokers make informed
choices about brands.
Our marketing is not designed to 'sell smoking'. That would
be wrong – and a waste of marketing effort. We are working
in a long-established, mature product category, where
people already know what the basic product is. There would
be no commercial sense to trying to market to informed
customers who don't want the product.
 Our marketing is about our brands; retaining the brand
loyalty of our customers, and winning them over from
competing brands. Our brands are amongst our most
important assets. Why would we not take care to position
them intelligently – to adult consumers who have chosen to
smoke?
As well as complying with all laws and many voluntary
codes on marketing, we have for many years been guided by
a clear set of British American Tobacco Advertising
Principles.
These have set out, for example, that our advertising
and promotional activities will be directed at adult smokers,
that no health claims will be made about tobacco products
that people appearing in advertising will not be, or appear to
be, younger than 25, that billboards will not be close to
schools, and more.
However, society’s expectations about tobacco
marketing continue to evolve - and so does our approach.
Building on our Advertising Principles, we and several
other tobacco companies have launched new International
Marketing Standards. They represent a ‘rising of the bar’,
and establish a benchmark for the industry world wide.

MARKETING IN THE FUTURE

The Marketing Standards are not only a further step to

meet changing expectations but, in many ways, are part of
continuous marketing modernization. Looking ahead, we can
imagine tobacco marketing being based substantially on
relationship marketing and one-to-one permission-based
marketing to adult smokers, with less reliance on channels
such as mass media.
We believe we are well prepared at British American
Tobacco for marketing that is both effective and responsible
in the 21st century.
 MARKETING RESTRICTIONS

We believe manufacturers and retailers of

tobacco products have a right to freedom of speech.
Amid universal awareness of the health risks
associated with tobacco consumption, we believe
manufacturers and retailers should be entitled to
communicate responsibly with adults who are in the
market for such products. However, because the
products pose risks to health and society has
reasonable concerns about how such products are
promoted, we believe all marketing activities should
meet reasonable expectations.

Our marketing practices are designed to attract adult

smokers to our brands so they select our brands in
preference to those of our competitors, and to retain the
loyalty of our customers so they do not switch to competitor
brands. We do not seek to persuade people, whether adults
or youth, to begin or continue smoking.

Experience has shown a substantial number of adults in

every country will choose to smoke, whether or not tobacco
marketing is permitted, for the most part simply because
they enjoy smoking. We seek recognition of the right to
compete for the custom of adult smokers in an appropriate
manner.
 We seek open discussion with governments, other
industry members, and any other interest group, on what
would constitute appropriate restrictions on tobacco
marketing. We are committed to carrying out our marketing
activities so they meet reasonable public expectations. In
some countries, we and other tobacco manufacturers have
established voluntary codes for the marketing of tobacco
products. Often, it is a combination of legislation and
voluntary code which sets the standards by which the
tobacco industry operates.

In September 2001, we and several other members of

the international tobacco industry launched globally
consistent Marketing Standards, defining the first pan-
industry benchmark for tobacco marketing worldwide.
Building on our existing marketing principles, they cover all
aspects from print, billboards and electronic media, to
promotional events, packaging and sponsorship, and
represent a new baseline that ‘raises the bar’. In countries
where the new standards exceed existing restrictions, our
companies are committed to endeavouring to see the
standards incorporated into law or agreements that ensure
effective local implementation.

We will continue to support the enactment of legal

restrictions and the adoption of legislated or voluntary
standards whose objective is to ensure that:
 • Tobacco advertising and other marketing activities are
directed at adults who already have chosen to consume
tobacco products rather than other adults or young
people;
• Adult consumers of tobacco products have the
information they need to make informed choices,
including informed choices with respect to individual
brands;
• All tobacco companies comply in letter and spirit with
the advertising and marketing standards that have
been deemed to be appropriate, whatever those
standards may be.

While we will at all times work within the framework of

a country's laws - whatever those laws may be - we will
continue to challenge regulations affecting marketing
activities where those regulations are not sensible. We
believe bans and/or severe restrictions on advertising of
tobacco products do not achieve their objectives, and that
the costs are disproportionate to the claimed benefits. In our
view, such bans and severe restrictions do not constitute
'sensible regulation'.

FINANCIAL ANALYSIS

2005 2004
Volume millions 21,360 18,694
------------------ ------------------
Turnover Rs millions 15,907 14,938
Excise and Sales Tax " 9,790 9,345
------------------ ------------------
Net Turnover " 6,117 5,593
Operating Profit " 316 344
(Loss) Before Tax " (854) (108)
(Loss) After Tax " (884) (136)
(Loss) Per Share Before Tax Rs (16.9) (3.4)
(Loss) Per Share After Tax Rs (17.5) (4.3)

Shareholders Funds Rs millions 2,218 867

Capital Employed " 2,430 1,324
Capital Expenditure " 841 515

Government Levies
Customs, Excise Duties
and Sales Tax Rs millions 10,230 9,927
Local Taxes and other Duties " 74 83
Corporate Tax " 31 28
Total " 10,335 10,038