1. introduction to the report

chapter no.1

1. introduction to the report

It is not less than a cherished aim of a student to be an internee of a multinational company. This is just because of its perfection in all aspects and especially in businesses management. Pakistan Tobacco Company is also a multinational company that adheres to high standards of management, organizational structure and corporate environment.

I am also among those students who got the opportunity to have an internship in its finance department at Akora Khattak Complex. This report is a reflection of my two months experience and will show how much I was successful in improving my personal, analytical and report writing skills.

1.1 Background of the Study

Today professional fields are becoming more and more challenging. To survive and get success in any field, you should have the deep knowledge and appropriate skills of the concern field. In fact this is very true about the field of management studies. Knowledge and skills of a person can be polished, if he goes through some practical experiences. Internship provides an excellent opportunity to students of professional field especially management studies, to polish their skills and concrete their theoretical knowledge. Student gets the opportunity to match their knowledge with the actual happenings of the field.

Due to importance and usefulness of internship program, the Institute of Management Studies University Peshawar has made it compulsory for the students to go through an internship period of eight weeks in a national or international organization of repute, and to submit an internship report to the Institute as partial fulfillment of the requirement for the degree Master in Business Administration.

Therefore being a student of MBA at IMS (UOP), I was also required to join an organization for internship programme of eight weeks. Thus for this purpose the organization I opted for was Pakistan Tobacco Company, a multinational company and a subsidiary of the British American Tobacco group. PTC follows good management practices; therefore the students of business administration find it very beneficial to join this organization for internship program. And it was the great blessing of Allah and pray of my mother that enabled me to avail this opportunity.

1.2 PURPOSE OF THE STUDY

Every achievement in this world is the result some well defined plan. And to achieve this plan one has to set goals and objectives. That’s why I also have based my internship programme and this report on certain objectives, these are as follows:-

1. 
   To understand the organizational environment of PTC, its organizational structure and how it operates its business.
   
2. 
   To get an overview of the finance department of PTC AKF; Its main sections and how these section work individually and in collaboration with each other.
   
3. 
   To practically observe and critically analyze the organization in general and finance department in particular through a thorough ratio analysis of its financial statements.
   

1.3 SCOPE OF THE STUDY

It is very difficult for an internee to cover all the aspects of an organization in a limited time of about eight weeks of his internship programme. Therefore having specialized in finance my scope of study is focused on finance department and its operations. So the central theme of my report is to analyze the financial condition and financial position of PTC.

1.4 METHODOLOGY OF THE REPORT

To achieve the stated objectives of my study and to get more insight into the organization’s operations, I have used both the primary as well as secondary data of the following types:

1.4.1 Primary Data:-
Interviews

Informal discussions with the employees

Observations

Formal orientation of different departments

1.4.2 Secondary Data:-
Annual Report 2003-2004

Justuju (Quarterly Urdu in-house journal)

News papers

Books

Website of BAT and PTC
1.5 SCHEME OF THE REPORT
The report consists of 5 sections consisting of different chapters making such a picture as follows:
SECTION 1
CHAPTER # 1

Introduction of the Report

SECTION 2

Review
CHAPTER #2

The Tobacco industry

The British American Tobacco (BAT)

Pakistan Tobacco Company (PTC)

History OF PTC

Major Brands

PTC Akora Khattak Factory

Production Capacity of PTC, AKF

Social Contribution and Social Reporting
CHAPTER#3

Organizational Structure

Departmentation

The Security Department

The Leaf & G.L.T (Green Leaf Threshing) Department

The P.M.D (Primary Manufacturing Department)

The S.M.D (Secondary Manufacturing Department)

The M.M.D (Materials Management Department)

The Engineering Department

The H.R.D (Human Resource Department)

CHAPTER#4

The Finance Department

Variable Cost and Excise Duty

Leaf Section

Production Expenses Section

Payroll Section

Cash Section

Fixed Asset Section

Ledger Section
SECTION 3

Projects
CHAPTER#5

Fixed Assets Verification

Findings

Recommendations

Intangible Assets Monitor for PTC

Suggestions

References
SECTION 4

Analysis
CHAPTER #6

Financial Analysis

Horizontal Analysis, Balance Sheet

Horizontal Analysis, Profit & Loss

Ratio Analysis of Financial Statements of PTC

CHAPTER#7

SWOT ANALYSIS
SECTION 5
CHAPTER#8

Findings and Recommendations

CHAPTER NO. 2
INTRODUCTION
2.1 THE TOBACCO INDUSTRY:

The Portuguese brought tobacco to the Sub Continent in 17^th century in the era of King Akbar. Now the best Virginia tobacco is produced in NWFP (Mardan, Swabi) and Punjab. The products obtained or made from tobacco include cigarette, Bidi, Hukka, Pan and Snuff. However about 55% of the market in Pakistan is occupied by its major product i.e. Cigarettes.

The tobacco industry significantly contributes (i.e. 4.4% of GDP) to the Pakistani economy. This is mainly because of the existence of one of the world’s largest tobacco groups in the industry; The British American Tobacco.
2.2 THE BRITISH AMERICAN TOBACCO (BAT)

The business was originally formed in 1902, when - to end an intense trade war – the Imperial Tobacco Company of the United Kingdom and The American Tobacco Company of the United States agreed to form a joint venture, the British-American Tobacco Company Ltd. The parent companies agreed not to trade in each other’s domestic territory, to assign brand territory, to assign brand rights to each other for use in their respective home markets, and to assign trademark, export business and overseas subsidiaries to the joint venture. The American Tobacco Company controlled two-third of the share and Imperial the remainder.

The British American Tobacco began business life in countries as divers a Canada, China, Japan, Denmark, Germany, New Zealand, South Africa and Australia –but not the UK and USA. By 1910, its operations had extended to the West Indies, India, Ceylon (Sri Lanka) East Africa, Java, Malaysia and Nigeria.

In 1911, the American Tobacco Company was adjudged in the USA to be a monopoly, and the complex group was obliged to break-up including divesting its shares in the British-American joint venture.

British American Tobacco got listed on the London Stock Exchange in 1912 and British investors acquired most of its American parent’s shares. The company was now free to conduct its business independently throughout the world, except for the UK; where there were still territorial agreements with Imperial. Imperial retained its one-third interest, although these ties were eventually cut during the seventies, in 1914. British American Tobacco acquired the Brazilian tobacco company Souza Cruz, which today is Brazil’s leading tobacco manufacturer. British American Tobacco moved into the US market in 1927, by purchasing Brown & Williamson, then a small company in North Carolina and now USA’s third largest tobacco company.

Now The British American Tobacco Group (BAT) employs some 85,000 people worldwide at its operations in 180 countries. BAT has a position of Market Leader in more than 50 countries selling over 300 brands. In 2003, the Group sold and produced a nearly 15% share of the global market of cigarettes. While, in 2004, the Group sold and produced a nearly 16% share of the global market of cigarettes.

2.3 PAKISTAN TOBACCO COMPANY (PTC)

Pakistan Tobacco Company (PTC) was incorporated in 1947 immediately after partition, when it took over the business of the Imperial Tobacco Company of India which had been operational in the subcontinent since 1905. It is a part of the trans-national British American Tobacco Group (BAT), which employs some 85,000 people worldwide at its operations in 180 countries. BAT has a position of market leader in more than 50 countries selling over 300 brands. In 2003, the Group sold and produced a nearly 15% share of the global market of cigarettes. While, in 2004, the Group sold and produced a nearly 16% share of the global market of cigarettes.

Pakistan Tobacco Company is the largest excise tax generator in the private sector in the country. In 2003 alone, Pakistan Tobacco Company paid the government close to Rs. 14 Billion in excise and sales taxes. This amounts to Rs. 50 million per working day. In 2004, 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.

Graph 2.1 Distribution of PTC’s Revenue¹
2.3.1 HISTORY OF PTC:

From being the first multinational to set up its business in Pakistan in 1947 and beginning operations out of a warehouse near Karachi Port, PTC has come a long way some of its major historical events are as follows.

• 
  The first PTC Factory was established in 1947 at Karachi
  
• 
  Hence it became the First Foreign Investment in Pakistan
  
• 
  1950 GLT at Akora Khattak was established to support PTC factory Karachi.
  
• 
  1960 PTC Jhelum was established to collect leaf from NWFP and Punjab
  
• 
  1976 a complete Factory was created at Akora Khattak
  
• 
  1980 PTC Karachi was closed due to some reasons.
  

Now PTC is involved in every aspect of cigarette production, from tobacco cultivation to packaging and that is why it defines its business to be what they call “From Seed to Smoke”. However, what is significant about these fifty-seven years is the effort that PTC has demonstrated in the development of the country. By being instrumental in the campaign for modern agricultural and industrial practices, it has helped in the development and progress of the agricultural & industrial sector in the country.

2.3.2 MAJOR BRANDS:

As far the British American Tobacco Group is concerned ,it continues to invest in its 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 its international brand portfolio, playing a key strategic role in the different regions where BAT does its business.

Fig 2.1 Internationally Renowned Brands of PTC

2.3.2.1 INTERNATIONAL RENOWNED BRANDS:-

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.

2.3.2.2 OTHER BRANDS:-
Capstan:

Has a rich heritage, originating in Britain in the 19th century. The brand was created under the auspices of W.D. & H.O. WILLS at Bristol and London. 
Gold Flake:

Like many PTC’s 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. 



Fig 2.2 Local Brands

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.

2.4 PAKISTAN TOBACCO COMPANY, AKORA KHATTAK FACTORY
2.4.1 VISION:

“1^st Choice for Everyone”

2.4.2 MISSION

“Nurture a consumer focused environment at AKF for quality leadership through continual improvement in productivity & responsibility at the lowest possible cost.”

2.4.3 KEY OBJECTIVES:

• 
  Enhance product quality to a benchmark level in relevant consumer segments
  
• 
  Effectively contribute towards corporate image by demonstrating strong business ethics and social responsibility standards.
  
• 
  Never-ending quest for cost reduction and productivity enhancement
  

F
ig 2.3 Mission, Vision and Key Objectives of PTC
2.4.4 PRODUCTION CAPACITY OF THE AKORA KHATTAK FACTORY:

Akora Khattak factory manufacture cigarettes according to the demand of the marketing department. AKF as also updated its machines due to the increase of demand. Recently Akora Khattak Factory established MARK 9 machines in its production department that produce 5000 cigarettes per minute.

Table 2.1

Year wise Cigarettes Production of AKF:

YEARS	PRODUCTION ( 000 Sticks)
1993 – 1994	8,422
1994 – 1995	8,316
1995 – 1996	9,750
1996 – 1997	8,757
1997 – 1998	9,750
1998 – 1999	11,114
1999 – 2000	9,729
2000 – 2001	13,261
2001 – 2002	12,082
2002 – 2003	11,432
2003 – 2004	12,948
2004 – 2005	15,226

(Source: Primary Manufacturing Department, PTC AKF)
2.4.5 PAKISTAN TOBACCO COMPANY’S SOCIAL REPORTING:

Social Reporting is a relatively new discipline that, put simply, is the process of listening and responding to stakeholders.  It is not merely a report that is produced annually, but a process to ensure that companies are behaving in line with society's reasonable expectations.

That’s why Pakistan Tobacco Company proudly launched its Social Report (2004), thus becoming the first company in Pakistan to have a social reporting system.

By producing the Company's first Social Report, Pakistan Tobacco Company has attempted to engage constructively with its stakeholders.
For PTC the process provides a structured approach to:

• 
  Understand more about the expectations of stakeholders
  
• 
  Ensure that these expectations are given due consideration in the company's decision making
  
• 
  Demonstrate with actions that PTC is responsive to reasonable stakeholder expectations and concerns.
  

PTC has chosen to follow the most rigorous international standard, AA1000, set by the Institute of Social and Ethical Accountability.  In addition, in order to ensure full compliance with AA1000 and verify the entire reporting process, it has selected Bureau Veritas Quality International (BVQI) as a social and ethical auditor.

CHAPTER NO.3