Feb 28, Colombo: Sri Lanka Ceylon Tobacco Company's profit after tax (PAT) stood at Rs. 12.56 billion for the twelve months ended 31 December 2016, the company said in its Summary of Performance report.

Ceylon Tobacco Company contributed Rs. 87.4 billion to the Government through Excise Tax for the year ended 31st December 2016 driven primarily by relatively stable volumes during the first 9 months of the year.

The significant price hikes in the 4th quarter due to both an excise tax increase in October and the introduction of 15% VAT in November, caused volumes to halve and government revenue through excise to decline by Rs. 13.2 billion compared to the 3rd quarter of the year. It is anticipated that these price hikes will continue to impact both CTC volumes and government revenue during 2017. As a result of the business impact, the company closed 2 leaf depots and reduced factory shifts by a third, in early 2017.

There was a significant increase in overhead expenditure in 2016 compared with the previous year partly due to the constructive liabilities and obligations on behalf of key business partners in the value chain, which have been provided for. Secondly, there has been an increase in marketing investment to strengthen the value proposition of key brands and route to market infrastructure as well as increased legal expenditure due to the increased levels of unfair enforcements in the market and tobacco regulation which pose a greater challenge to the business considering the recent price hikes.

Raw material costs increased by 10% through the rise in imported tobacco leaf required as a consequence of continued adverse weather conditions experienced in certain parts of the country significantly impacting agricultural crops in addition to farmers being pressured to stop cultivating tobacco.

Law enforcement agencies continued to work towards curtailing the spread of unauthorized and illicit tobacco products. A total of 1,842 raids have been conducted during 2016. However, under-regulated and low taxed products such as "Beedi" still remain a key threat to Government revenue from the tobacco industry, which has only exacerbated given the widening price gap between the cheapest legally manufactured cigarette (Capstan) and Beedi.