REPORT ON PTC PAKISTAN

Corporate information of PTC

History
Directors
Corporate governance
Corporate social responsibilities
Auditors report
Corporate information:

REGISTERED OFFICE

Pakistan Tobacco Company Limited

Serena Business Complex
Khayaban-e-Suhrwardy

P.O. Box 2549 Islamabad 44000

T: +92 (51) 2083200, 2083201 F: +92 (51) 2604516

www.ptc.com.pk

FACTORIES

AKORA KHATTAK FACTORY P.O

Akora Khattak Tehsil and District Nowshera

Khyber Pakhtunkhwa
T: +92 (923) 630901-11 F: +92 (923) 510792 JHELUM FACTORY G.T Road,
Kala Gujran, Jhelum T: +92 (544) 646500-7 F: +92 (544) 646524

COMPANY SECRETARY

M. Idries Ahmed T: +92 (51) 2083200-01

BANKERS

MCB Bank Limited

Habib Bank Limited

National Bank of Pakistan

Citibank N.A Standard Chartered Bank (Pakistan) Limited
Deutsche Bank AG

AUDITORS

KPMG Taseer Hadi & Co.

6th Floor, State Life Building No. 5,

Jinnah Avenue, Blue Area,

Islamabad 44000
T: +92 (51) 2823558 F: +92 (51) 2822671
SHARE REGISTRAR

FAMCO ASSOCIATES PRIVATE LIMITED 8-F,

Next to Hotel Faran Nursery,

Block 6, F.E.C.H.S. Shahrah-e-Faisal,

Karachi T: +92 (21) 34380101-2

Geographical spread:

02 FACTORIES

04 REGIONAL TRADE OFFICES

06 REGIONAL LEAF OFFICES

07 WAREHOUSES

15 SALES OFFICES

26 LEAF DEPOTS

Company profile:
History of tobacco

The history of tobacco in Pakistan is closely linked to the Pakistan Tobacco Company
The history of tobacco cultivation in Pakistan is one of the rare success stories in agrarian
cultivation and the adoption of modern farming practices in the country.

Pakistan went from being a net importer of tobacco in 1948, which is when Pakistan Tobacco
Company started operations, to becoming self sufficient in tobacco production in 1969.

Although tobacco is grown throughout the country, the primary source of this integral raw
material is the NWFP where soil and climatic conditions suit tobacco cultivation the most. The
province has been the focal point of our efforts in terms of tobacco-related activities in Pakistan,
and as a result, produces around three-fourths of the tobacco leaf grown in the country. The
province grows the three most widely used types of tobacco namely, Flue Cured Virginia (FCV),
Burley and Nicotiana Rustica (White Patta).

Pakistan Tobacco Company, as the largest cigarette manufacturer in Pakistan, has a special
relationship with the land and people of the NWFP. The fruit of these activities is that in just 30
years Pakistan became the 5th largest tobacco producer in the world and 4th in highest yield.

In 1948, we pioneered the cultivation of Virginia tobacco in Pakistan with an average yield per
hectare of 861 kg. Through our continuous efforts and the hard work put in by our contracted
farmers, the yields have increased significantly to 2,400 kg/hectare. Prior to that native varieties
like Jati & Motihari were cultivated mainly in the eastern part of Pakistan (Bangladesh). All the
Virginia tobacco was imported from the USA & India

Flue Cured Virginia tobacco is now the most widely grown and widely used type of cigarette
tobacco in Pakistan and the total production of this high value commodity has increased from
23.8 million kgs in 1967-68 to 66 million kgs in 2007. Pakistan is now the 7th largest producer
of FCV in the world.

As a result of our direct efforts, the current tobacco production in the country exceeds 100
million kilograms per year, although what is perhaps more important is the types of tobacco
grown in the country. The share of higher value FCV, Burley and White Patta as opposed to
lower priced filler tobacco has grown tremendously over the years, drastically increasing the
returns for farmers and eliminating our reliance on imports for higher quality tobacco.

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, we have come a long way.

From being just a single factory operation to a company which is now involved in every aspect
of cigarette production, from crop to consumer, we have evolved and grown with Pakistan.
However, what is significant about these 62 years is the effort that Pakistan Tobacco Company
has demonstrated in the development of the country. By being instrumental in the campaign for
modern agricultural and industrial practices, we have helped in the development and progress of
the agricultural and industrial sector in the country.

We have been supporting and contributing to various causes of national interest. Educating
growers in the latest techniques and technology in agriculture, afforestation and free health care
in designated areas are but a few examples.

Throughout these 62 years, our continuous investment in people, brands, technology, innovation
and the communities in which we operate has borne fruit in many ways. We are deemed as a
partner of choice by many, our Environmental, Health and Safety standards are a source of
inspiration for local companies, our industrial relations practices have led and influenced local
practices, and as a result of all these, our managers are highly valued and sought after people in
the Pakistani corporate world based on the training and exposure we give them from very early
on in their careers.

Suffice it to say that the history of the Pakistan Tobacco Company is closely linked with the
development and history of the areas in which we operate. Be it corporate practices, social
investments, advancements in agricultural techniques, or establishing new ways of marketing
and distribution, we have always been instrumental in establishing the benchmarks against which
others are measured.

Our business principles:

Pakistan Tobacco Company is a commercial enterprise and our primary role is to build
long term shareholder value by meeting consumers preferences for high-quality tobacco
products. However, we believe that by absorbing and balancing a wider range of
expectations, we are best placed to continue building a sustainable tobacco business.

Like other multinational enterprises benefiting from economic globalization, British American
Tobacco also faces increasing demands to be more transparent and to demonstrate high standards
of corporate conduct that might in the past have been taken on trust. In todays rapidly changing
world, large and successful businesses can be perceived as powerful and self-interested and can
face barriers to trust. As a tobacco business, the Group can face more than others. In addressing
these, a further challenge is that major enterprises like British American Tobacco often encounter
varying and at times conflicting stakeholder expectations in different countries and cultures.

To help meet these challenges and following on a commitment made in the first British
American Tobacco p.l.c. Social Report 2001/02, the Group has developed these Business
Principles in consultation with managers from their businesses, as well as with external
stakeholders. The Business Principles and Core Beliefs cover the key issues that underpin
Corporate Social Responsibility (CSR) for a multinational business and, particularly, given the
unique characteristics of a tobacco business.

There are three Business Principles: Mutual Benefit, Responsible Product Stewardship and Good
Corporate Conduct, each of which is supported by a number of Core Beliefs, which explain what
we think the principle means in more detail. Together, these form the basis on which we run our
business in terms of responsibility.

Both the Business Principles and Core Beliefs and the way they have been developed are
consistent with our four Guiding Principles, which collectively express the culture of the Group
and Pakistan Tobacco Company as part of it.

The four Guiding Principles are:

Strength from Diversity

Open Minded
Freedom through Responsibility; and
 Enterprising Spirit

Mutual Benefit
The principle of Mutual Benefit is the basis on which we build our relationships with our
stakeholders. We are primarily in business to build long term shareholder value and we believe
the best way to do this is to seek to understand and take account of the needs of all our
stakeholders.

Core Beliefs

We believe in creating long term shareholder value.

We believe in engaging constructively with our stakeholders.
We believe in creating inspiring working environments for our people.
We believe in adding value to the communities in which we operate.
We believe that suppliers and other business partners should have the opportunity to
benefit from their relationship with us.

Responsible Product Stewardship

The principle of Responsible Product Stewardship is the basis on which we meet consumer
demand for a legal product that is a cause of serious diseases. Therefore, our products and brands
should be developed, manufactured and marketed in a responsible manner. We also aspire to
develop tobacco products with critical mass appeal that will, over time, be recognised by
scientific and regulatory authorities as posing substantially reduced risks to health.

Core Beliefs

We believe in the provision of accurate, clear health messages about the risks of tobacco
consumption.
We believe the health impact of tobacco consumption should be reduced whilst
respecting the right of informed adults to choose the products they prefer.
We believe that relevant and meaningful information about our products should continue
to be available.
We believe that underage people should not consume tobacco products.
We believe that our brands and products should be marketed responsibly and directed at
adult consumers.
We believe in the appropriate taxation of tobacco products and the elimination of illicit
trade.
We believe in regulation that balances the interests of all sections of society, including
tobacco consumers and the tobacco industry.
We believe that public smoking should be approached in a way that balances the interests
of smokers and non-smokers.
Good Corporate Conduct
The principle of Good Corporate Conduct is the basis on which our business is managed.
Business success brings with it an obligation for high standards of behavior and integrity in
everything we do and wherever we operate. These standards should not be compromised for the
sake of results.

Core Beliefs

We believe our businesses should uphold high standards of behavior and integrity.
We believe that high standards of corporate social responsibility should be promoted
within the tobacco industry.
We believe that universally recognized fundamental human rights should be respected.
We believe the tobacco industry should have a voice in the formation of government
policies affecting it.
We believe in achieving world class standards of environmental performance.

Our brands

Our consumers form the basis for all our brand offerings

We have always considered ourselves a consumer focused company. We aim to offer a

product that excels in all aspects and exceeds the expectations of our consumers.

Pakistan Tobacco Company invests in trying to understand the consumers preferences and
ensures that adult smokers make informed choices about different brands available in the market.
We have put in particular effort in promoting two of our Global Drive Brands, Dunhill and Pall
Mall; and two of our great value for money brands, John Player Gold Leaf and Gold Flake.

Dunhill
Dunhill, a premium global brand, celebrated its centenary in 2007.

2008 was an exceptional year for Dunhill in Pakistan as the brand witnessed exponential growth;
fuelled by its re-launch in July. Going forward, Dunhill is poised to strengthen its foothold in the
premium segment.
Benson & Hedges
In 1873, Richard Benson & William Hedges started a partnership in London.

Benson & Hedges was launched in Pakistan in March 2003 and has since been able to build
strong brand loyalty among its consumers showing excellent year on year growth.

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.

John Player Gold Leaf has become an institution in itself, becoming one of the most recognisable
cigarette brands in the country. John Player Gold Leaf has recently been declared the largest
Urban Brand in Pakistan, beating out products across the F.M.C.G. spectrum.

Capstan by Pall Mall

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
Gold Flake, like many of our 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 'soft cup' packaging,
the brand took off when it was repositioned in the Value For Money (VFM) segment and later a
'hinge lid' variant was introduced in 2000.

Gold Flake has grown tremendously as a brand since 2004, making it the largest volume brand in
Pakistan, and the second largest brand in British American Tobacco's Asia Pacific region. The
key to Gold Flakes success has been its novel engagement schemes which have fuelled growth
over the years. Through consumer relevant initiatives, Gold Flake has established itself as a fresh
and modern offering in the VFM segment and is all set to consolidate its position as the major
volume driver for Pakistan Tobacco Company.

Embassy
Embassy, is a leading volume brand in Pakistan, and is most popular in Punjab where it enjoys a
leading position. Having built its heritage over a number of years, Embassy thrives on its brand
loyalty and locally tailored taste characteristics.

OUR VISION

Satisfying consumer moments We believe that by being the worlds best at satisfying consumer
moments, we will become the leader in our industry. Consumers are at the core of everything we
do and our success depends on addressing their evolving concerns, needs and behaviours.
Tobacco and beyond

The second part of our vision tobacco and beyond recognizes the strength of our traditional
tobacco business and the opportunities we see in next-generation tobacco and nicotine products.
There is a great potential business opportunity because consumers are looking for choices and
product categories in which we are uniquely placed to succeed.

OUR MISSION

Champion informed consumer choice We need to continue to ensure that our adult consumers
are fully aware of the choices they are making when they purchase our products. We recognise
that we have a responsibility to offer a range of products across the risk continuum, but we will
also defend peoples right to make an informed choice.

Deliver our commitments to society

As society changes and priorities and needs shift, we must be ready to meet new challenges and
take advantage of new opportunities. We are a major international business and with this status
come responsibilities such as being open about the risks of our products, supporting rural
communities worldwide and minimizing our impact on the environment.

OUR STRATEGIC FOCUS AREAS

Growth
Developing brands, innovations and new products to meet consumer evolving need.
Productivity
Effectively deploying resources to increase profits and generate funds.
Sustainability
Ensuring a sustainable business that meets stakeholders expectations.
Winning organization
Great people, great teams, and great place to work.

Board of Directors:

Mueen Afzal (Chairman and Non-Executive Director)

Mr. Mueen Afzal graduated with first class honours from Government College, Lahore, before
getting his M.A. from Corpus Christi College, Oxford, in philosophy, political science and
economics in 1963. He joined the Civil Services of Pakistan in 1964, and served as Finance
Secretary in the provinces of Balochistan and Punjab. Later, he was Federal Secretary in the
ministries of health and finance. He finally served as Secretary General, Finance and Economic
Affairs between 1990 to 2002. Since leaving Government in 2002, Mr. Afzal has worked in
various capacities in the corporate sector as well as in academia. At present he is on the boards of
Murree Brewery Co. Ltd and Akzo Nobel Pakistan. He joined PTCs Board in 2003 and became
the Chairman in 2007. He was awarded the Hilal-e-Imtiaz (HI) in 2002 for his distinguished
public service.

Syed Javed Iqbal (Managing Director & CEO)

Syed Javed Iqbal has been with the Company for the last 20 years. He joined the Company as a
Management Trainee and has held various key positions in the Finance function within PTC as
well as with British American Tobacco Group first in BAT South Korea as Finance Controller
and later in Global Headquarters in London as Finance Manager for Global Marketing. In 2011,
Mr. Iqbal was appointed as Finance Director for Swiss Business Unit looking after 5 European
markets based in Switzerland. He came back to Pakistan in 2014 as Director Finance & IT for
PTC. In July 2016, he became the Managing Director/CEO of PTC. Mr. Iqbal has an MBA with
majors in Finance & MIS.

Zafar Mahmood (Non-Executive Director)

Mr. Zafar Mahmood, ex-Chairman WAPDA has served the Government of Pakistan for 38 years
at policy formation and implementation level, before assuming responsibilities as Chairman
WAPDA in April, 2014. He has served the Federal Government as Secretary Textiles Industry,
Secretary Industries, Secretary Water & Power, Secretary Petroleum & Natural Resources,
Secretary Commerce and Secretary Cabinet. He has also served as Chairman, Punjab Public
Service Commission, Consul General Istanbul, Vice Chairman Export Promotion Bureau, and
Secretary Punjab Education Schools. Mr. Mahmood holds a Master Degree in Economics, LL.B.
and Post Graduate Diploma in Development Administration from Manchester University. He
joined the PTC Board in 2016.

Hae In KIM (Non-Executive Director)

Ms. Hae In Kim joined BAT Group as a corporate service HR business partner from Korea in
2008 and then held a number of key positions in HR including Head of Talent and Organization
Development of BAT Indonesia (Bentoel Group), HR Director of BAT Japan and HR Director
of BAT Korea. She was appointed as the Regional Head of HR, Asia Pacific in 2014 looking
after over 15,000 employees in eight direct reporting business units across Asia Pacific. She
joined the PTC Board in 2015.

Wael Sabra (Director-Finance and IT)

Mr. Wael Sabra joined BAT in 2003 in Lebanon and since then he held various key senior
positions in the Finance function across Middle East, Africa and most recently South Asia. Mr.
Sabra is a holder of a Masters Degree in Finance from University of Florida and is a Certified
Management Accountant (CMA) from the Institute of Management Accountant. He joined the
PTC Board in 2016.
Michael Koest (Non-Executive Director)
Mr. Michael Koest joined BAT in 2001 in Zug, Switzerland. He has a proven track record in
management, sales & marketing with experience in working across geographies and in complex
market environments. He has built high performing, motivated and engaged teams through his
inspiring and achievement driven leadership style. Mr. Koest has been appointed to the Board of
Directors of Dutch retailer Primera B.V. between 2010-2012. He has also been appointed to the
Board of Directors of the American Chamber of Commerce in Sri Lanka and Pakistan Tobacco
Company Ltd. in 2016

Directors Review

BRANDS PERFORMANCE
PTC remains committed to differentiating itself by investing in its entire brand spectrum.
Significant investments were made in the form of innovative products, new brand launches and
pack changes. In the premium segment, our flagship brand John Player Gold Leaf (JPGL)
delivered a sustained performance. As a testament to its strength and resilience, the brand was
able to rebound and retain a legitimate market share of 15% through the launch of JPGL Classic.

CASH FLOWS
The overall cash position of the business remained healthy throughout the year. The Companys
operations generated sufficient cash to support its investing and financing activities despite
higher payments due to excise & sales tax and dividends.

MANUFACTURING EXCELLENCE
PTC has continued its journey toward manufacturing excellence through the Integrated Work
System (IWS) program. The Companys aim is to constantly modernize its operations by
introducing innovative concepts, optimal processes and latest technology. Further, focus on
consumer centric quality of the product has ensured a significant reduction in consumer
complaints during the year.

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

AUDIT COMMITTEE
The Audit Committee assists the Board in carrying out its responsibilities relating to the
management of business risks, internal controls and the conduct of business in accordance with
the Code of Corporate Governance.

HOLDING COMPANY
British American Tobacco (Investments) Limited incorporated in the United Kingdom holds
94.34% of the shares of the Company.
1ST MULTINATIONAL OF PAKISTAN
A precedence of resilience
Pakistan Tobacco Company Limited (PTC) is a subsidiary of the British American Tobacco
(BAT) p.l.c. The Company was incorporated in Pakistan in 1947 making it the first multinational
in Pakistan. Starting from a single warehouse near Karachi port, the Company is now the largest
cigarette manufacturer in Pakistan. For PTC it has been a voyage in pursuit of excellence since
1947 driven by the vision to be the First Choice for everyone.

PROMOTING INDUSTRIALIZATION & LOCAL BUSINESSES

Pakistan Tobacco Company Limited (PTC) has significantly contributed to the economic
development of Pakistan by continuous investments in the industrial sector. There has been a
ceaseless effort to modernize Companys operations by introducing new and innovative
concepts, optimal processes and state of the art technology thereby increasing investment in the
country. PTC is the first Company in Pakistan which was awarded class A status, as part of the
international total business excellence program called the Manufacturing Resource Planning
(MRPII) Version5. In a re-certification audit by internationally renowned consultants Oliver
Wright, PTC was again awarded MRPII class A status, making it the first Company within
the British American Tobacco Group to have achieved such prestigious recognition. Syed Babar
Ali Chairman Packages Pvt. Ltd PTC has also played a key role in the development of local
businesses through the strong external linkages it has fostered in the last 65 years. From
cultivating a strong relationship with those supplying raw materials and other packing and
printing materials, PTC has built and nurtured forward linkages with those who provide services
like transportation, insurance, distribution, wholesale, retail, banking services, etc.

ESTABLISHING SUSTAINABLE AGRICULTURE

Pakistan Tobacco Company Limited (PTC) strongly believes that the business must demonstrate
responsibility in everything it does. The Company is highly committed to responsible behaviour
which is an integral part of its sustainability agenda. Sustainable business practices are at the
heart of PTCs strategy. It believes that the business has a key role to play in helping society to
achieve the necessary sustainable balance of economic growth, environmental protection and
social progress in ways that will build value for its stakeholders, including shareholders. From
inception, PTC has always worked closely with farmers, who are most valued business partners,
to help them improve their skills and impart to them the best agricultural practices from around
the world.

GENERATING REVENUE FOR GOVERNMENT

Fiscal revenues are a key source of funding for public sector development projects, including
infrastructure (motorways, dams, etc.) and services (social sector programs). Over the last 65
years PTC has consistently contributed billions of rupees in the form of taxes which helped our
country in meeting its developmental objectives. In the last 3 years alone, PTC contributed more
than Rs. 120 billion in the form of federal excise and sales tax to the Government of Pakistan. In
the last financial year, PTC contributed more than Rs. 45 billion as tax to the Government of
Pakistan, making the Company one of the leading tax payers and revenue generators in the
private sector in the country. Its corporate governance is based on the highest of standards. PTC
not only pays all its taxes, but helps develop other businesses by sharing its best practices and
learnings.

GENERATING INCOME AND EMPLOYMENT

Since 1947, PTC operations have employed thousands directly and millions indirectly, thus
supporting the livelihood of millions of people in Pakistan. These include a variety of people
living in Pakistan; such as farmers, factory workers, managers, printers, suppliers, transporters,
distributors, wholesalers, retailers, etc.

Today PTC takes pride in the fact that more than half a million people across Pakistan are
economically associated with its operations. There are very few examples where one Company,
in contrast to an industry or a sector of the economy, plays such a vital economic role in the
country.

TOWARDS SETTING STANDARDS

Leaders create new possibilities and avenues where none existed before. Environment, Health
and Safety (EH&S) journey of PTC has been just that, defining the rules of the game. The
Company has always been committed to conducting its operations in a manner that sustain the
environment and protect the welfare and safety of those involved in production processes. PTC
has a proven history of commitment towards EH&S in order to do business responsibly and
sustainably for a better tomorrow. Not only does PTC have an impeccable national regulatory
compliance record but both the factories, Jhelum and Akora Khattak, and also its Leaf
Operations, received ISO-9001 and ISO-14001 certification many years ago, establishing
compliance to global standards. Both its factories were the first manufacturing facilities in
Pakistan to be certified as 5-S compliant (i.e., Sort, Set, Shine, Standardize, and Sustain) by
National Productivity Organization of Pakistan in collaboration with Asian Productivity
Organization, Japan. PTCs continuous efforts and achievements have been recognised at various
levels and earned it numerous international awards. Companies across Pakistan have looked up
to PTC as a model in EH&S initiatives and practices, which contributes in improving the
national standards in this important field.

ILLICIT CIGARETTE TRADE AT 40%

This year saw an unprecedented increase in the Illicit Trade in Cigarettes in Pakistan reaching
the highest ever share of 40.6% as at December 2016.

The bulk of the illegal cigarettes are local Duty Non Paid (DNP) which represents more than
85% of the illicit market. DNP cigarettes are produced in Pakistan on which duties and taxes
have not been paid to the Government. Price range of the bulk of DNP packets of 20 cigarettes
was from Rs. 20 to 35, whereas the legit Value For Money (VFM) segment pack price for the
year (Dec16) was Rs. 72. The non-payment of taxes on a Rs. 20 to 35 pack is evident from the
fact that the minimum tax payable on a packet of 20 cigarettes is approximately Rs. 43 in
December 2016.
Robust action is required to cease the flow of illicit trade to wholesale and retail outlets.
The unprecedented increase in illicit cigarettes requires active, effective and consistent
enforcement.

Tackling illicit trade

Illicit trade in cigarettes causes revenue losses in excess of Rs. 7 Billion to the Government
The presence of a large and unorganized tobacco sector is impeding the delivery of both the
Government and the legitimate industry's revenue targets. This undermines the viability of
the legitimate players in the industry and is one of the major factors in discouraging
foreign investment.

Illicit Trade is the supply, distribution and sale of smuggled or counterfeit tobacco products, or
tobacco products on which applicable duties and taxes in the country of consumption have not
been paid. Illicit trade essentially takes three forms:

The first is importation for commercial use, also known as International Transient Brands
(ITBs), of tobacco products on which payment of applicable taxes, such as duties, excise and
sales tax is evaded in the country of consumption. These products may have had no taxes paid on
them at all, or may have had lower taxes paid in another country.

The second is undeclared local production or Duty-Non-Paid (DNP) whereby products are
produced and consumed within the same country but without payment of all local taxes. These
products may be manufactured in approved factories but not declared to the authorities, or they
may be manufactured in illegal covert operations.

The third is counterfeit products which are also an infringement of Intellectual Property Rights
(IPR). These are products which are intended to be identical or near identical copies of a genuine
branded product and its packaging so as to appear as the genuine product. By definition such
products are illegal, as the manufacturer is not authorized by the brand owner to use the
counterfeited brand assets. Counterfeits may be produced for the local market or exported.

Pakistan Tobacco Company has always worked closely with the Government to implement laws
and regulations (legislation) to ensure a 'level playing field' for all the companies in the tobacco
sector. As a result, the share of the market held by the illicit sector has come down to 18.4% of
total cigarette sales, which is still high given local market dynamics. The net loss to the national
exchequer is estimated at Rs. 7.46 billion per annum assuming that all the illegitimate products
sell at the minimum price determined by the Government for the purposes of tax collection. The
loss to the legitimate industry amounts to over Rs. 2.0 billion per annum.
The measures taken by the Government to control illicit trade in cigarettes are as follows:

Printing of manufacturers name and retail price

Third party audits
Destruction of machinery and confiscation of conveyance used for counterfeit products
Disclosure of bank accounts
Submission of audited bank accounts to FBR
Sealing of excess capacity
Installation of CCTV cameras

Investment in our people:

Our talent development credentials are further strengthened when almost all of our top team is
local and around 25 of our people are occupying various leadership roles in different BAT Group
Companies internationally.

Talented people, inspiring leaders and diverse teams make PTC a winning business and a
great place to work.

We continued our journey towards manufacturing excellence through the Integrated Work
System (IWS) program. We have been delivering outstanding results in IWS and have set new
benchmarks. PTC has been recognized internationally among other BAT Group companies for
the efforts and outstanding results delivered through this program.

Corporate Social Responsibility

Pakistan Tobacco Company believes to have a good business practice which they think is
attained by good environmental practices. They control their impact on environment by using
3R's principle i.e. Reduce, Recover and Recycle. So now the question arise that how they work
on this principle and what they have done till now regarding environmental practices. They basic
aim of PTC is to control or reduce CO2 (carbon dioxide) which effect the environment badly.
They have several environmental programs which include: (1) Waste management; (2) Energy
conversation; (3) Water management; (4) CO2 emission. PTC also guides other companies to
become environmental friendly and to work on 3R's principle. PTC believes that their approach
to CSR is letting them to survive in the market because by doing business in risk to health
product and still doing business from so long means that they are behaving in socially
responsible way and care for the impact and effect on environment. PTC is also trying to fulfill
society's expectations by taking in account some concern issues. In terms of the transparency to
the stakeholders of the company, PTC Annual Report for 2007 was recognized as the best in its
category by Institute of Chartered Accountants of Pakistan.
3.3 Environment Health and Safety (EHS)
PTC conducts their business operations in a way which is not harmful for their employees or
workers. The management uses clean technologies and safety systems and it is ensured that there
is safe environment for employees by minimizing the use of natural resources, water recycles etc.

and all these are done in NEQS (national environmental quality standards) limits. PTC ensures
that their EHS policy is fulfilling British American tobacco policy which has international
standards and best practices. PTC is also involved in monitoring their environmental
performance for GRI (Global Reporting Initiative) where they communicate their social
performance. In 2006, National Forum for Health and Education (NFEH), a Non-Profit
organization focusing on environmental, health and educational awareness in Pakistan, has
awarded Pakistan Tobacco with the "Environment Excellence Award". Moreover, British
American Tobacco Company has awarded PTC with "EHS Excellence Award" in 2007.
Community Involvement Initiatives
Pakistan Tobacco Company is very much concerned with its community development. In this
regard, the management has taking some somber actions relating to community involvement and
for taking care of the general public. Some of these initiatives are:

i. People believe that hepatitis disease is because of pesticides and it should be avoided in
cigarettes. In response to this, PTC started using pesticides which is approved by
Government of Pakistan. This disease has another cause so for this PTC has also made a
joint venture with NIH (National Institute of Health) to pay attention to the issue.

ii. PTC has also reduced the use of agro chemical in their crops which is another dangerous
element for environment diseases and PTC is leading in this initiative.

iii. PTC has set mobile doctor units to facilitate the people in order to fight against diseases.
This strategy is mainly for people in rural areas because they need medical assistance.

iv. Medical camps are also arranged by PTC in collaboration with LBRT (Leyton
Rehmatullah Benevolent Trust) and Merck Pakistan limited.

v. PTC is providing educational opportunities like scholarships and building schools. The
company has also partnered with two NGO's that is ABES (adult basic education society)
and TCF (the citizen foundation)

vi. PTC is not using child labor in operations of the company because it has prohibition
clauses in contracts with the farmers that don't allow the use of child labor.

vii. They work on new products by in contact with regulators, government and scientists and
to create a less harmful product.

It is evident from the above discussion that Pakistan Tobacco Company has very serious
concerns for the corporate social responsibilities and environment health and safety in the
community in which it is operating. All these initiatives taken by Pakistan Tobacco Company are
letting them to build good image in the mind of the customers despite of their unhealthy products
and service for customers. According to Hackston and Milne (1996) categories of CSD, Pakistan
Tobacco Company is complying with employee s safety, environmental proactive and
community involvement initiatives. They try to come up the expectations of the customers and
Create them socially responsible institutional citizens, as this is an integral part of the green
environment and community involvement policy of Pakistan Tobacco Company Limited.
GIVING BACK TO THE COMMUNITY

Sustainable Argiculture:
The main water source in Buner, Khyber Pakhtunkhwa Province (KPK) is through the lift
irrigation scheme which requires power supply, however, frequent power outages led to lack of
water available for irrigation purposes. To address this issue, Pakistan Tobacco Company Ltd.
signed an MoU with the Irrigation Department KPK, and provided 4 generator sets to support lift
irrigation projects with uninterrupted irrigation water availability. Out of these, 3 generator sets
were provided for tube wells to ensure water availability for irrigation. These projects cover
more than 1,000 hectares of land and provide for improved water availability and thus improving
the farm productivity of the region.

Afforestation:
Starting back in 1981, the Company has successfully planted more than 73 million trees since.
We have four nurseries situated in Mianwali, Swabi and two in Islamabad. These nurseries
provide saplings to the general public, free of cost. We have established smaller nurseries as well
in Firdousabad, Faujoon, Buner and Umerzai (Shergarh). Recently we started our afforestation
efforts on 642 Acres of land in Barakahu, Islamabad, together with the Ministry of Climate
Change.

Mobile Doctor Units (MDUS):

In 1985, we started an initiative called Mobile Doctor Units. Through this programme, we
provide free medical assistance and advice. We operate 7 mobile ambulances with doctors
MDUs in in Akora Khattak, Yar Hussain, Sher Garh, Manshera, Jhelum and Mianwali. In 2016
alone, through this initiative 78,712 people were treated, bringing an average of about 215
people each day. The doctors who are with these ambulances are more than qualified and the
feedback of this Program from patients has always been overwhelming.

Solar Energy Initiative:

In 2015, PTC, in partnership with the Provincial Government of KPK, started a project of
providing solar kits to off-grid villages. The residents of a 300-family village, Peerano Bala,
benefited from the free solar kits we provided. Before our teams visited the area, this village that
is cut off from proper roads and highways, had never experienced electricity in this area.

Water Filtration Plants:

In 2016, we installed another water filtration plant in addition to our three plants, all of which are
operational. According to our survey these four water filtration plants have benefitted more than
2.8 million people in 2016, bringing an average of about 7,671 people per day.

CARING FOR COMMUNITIES

For PTC Corporate Social Responsibility (CSR) is aimed at caring for and working with
communities where it operates in, going beyond commercial relations and legal requirements.
The Company has been one of the pioneers of CSR Programs in Pakistan. The five CSR
platforms PTC focuses on are: sustainable agriculture, afforestation, empowerment, health
services and disaster relief.
Some of the initiatives that have been supported by the CSR Programs are: Learning Resource
Centres, Mobile Doctor Units, and Clean Drinking Water Plants. PTC and its people, not only in
Pakistan but worldwide, have contributed to various relief and rehabilitation efforts.

PTCs Corporate Social Responsibility (CSR) programs have won numerous awards including
the Environmental Excellence Award (2002) the ACCA-WWF Pakistan Environmental
Reporting Award for the Best Sustainability Report (2007), and CSR National Excellence
Award (2011) awarded by the CSR Association of Pakistan.

Youth smoking prevention

PTC has been running Youth Smoking Prevention programs since 1998
We strongly believe children should not smoke, and smoking should only be for adults who
understand the risks associated with it.

British American Tobacco Group companies support and run programmes worldwide tackling
underage smoking. Due to concerns expressed on youth smoking, Pakistan Tobacco Company
has taken initiatives on several fronts such as voluntary withdrawal from electronic media,
prohibiting the use of celebrities in marketing material and embedding a robust marketing code;
the International Marketing Standards (IMS).

We were the first company to pilot a retailer education programme in 1999 and continue to do
so. Additionally, our packs and advertising materials have a voluntary inscription with the legend
under-age sale prohibited. We have supported the Government in raising the minimum age
limit from 16 to 18 through changes in tobacco legislation.

Education programmes aim to give young people life skills to deal with the many challenges
they face during adolescence, including peer pressure to smoke. Such programmes are amongst
the initiatives that British American Tobacco Group companies sponsor worldwide and support
to help convince young people not to smoke. We are willing to work with the Ministry of
Education and the Ministry of Health to develop educational modules for incorporation in the
national curricula, but we feel the programme content is best left to experts and its delivery to
teachers or youth leaders.

Our farmer community

All farmers who contract with us for tobacco production benefit from our full time
extension service. We see our farmers as valued business partners and feel proud
that our relationship has led to many successes for families in the rural community.

Tobacco fields and prosperity

Tobacco cultivation forms the basis for the agrarian economy of the NWFP
Pakistan Tobacco Company is the largest cigarette manufacturing company in Pakistan.
We also have a special relationship with the land and people of the NWFP that goes back
over half a century.

KPK is the focal area in terms of tobacco related activities in Pakistan. It produces around three-
fourths of the tobacco leaf grown in the country, and many of the cigarette manufacturing units
are also located in this province.

Pakistan Tobacco Company plays a prominent role in the economy of KPK by generating
revenue and employment in sectors such as farming, manufacturing and retailing. We also
contribute significantly to the Government exchequer in the form of tax contributions, and to the
social sector through our various Corporate Social Responsibility initiatives. The impact
becomes more pronounced if the large investments made by the company in the form of
machinery and infrastructure development are taken into consideration.

KPK produces around 77% of all tobacco leaf grown in Pakistan. The province also produces
nearly all of Pakistans Flue Cured Virginia (FCV) and Light Air Cured (Burley) tobacco types.
Sun Cured Rustica (White Patta) is also produced on a large scale. We proudly
associate ourselves with the very first tobacco crop planted in the province. Furthermore, in
1948 we pioneered the cultivation of FCV tobacco in Pakistan. Pakistan is now the 7th largest
producer of FCV tobacco in the world.

Within KPK, Swabi district has the largest area (13,584 hectares) under tobacco cultivation
which accounts for 37% of total area utilized for tobacco cultivation in KPK. The district also
leads in terms of the value of the tobacco crop produced i.e. Rs. 1,729 Million (value of crop
produced in 2005), which accounts for 43% of total value of tobacco grown in the KPK.

The other two top districts by value are:

Mardan: Value of tobacco crop produced in 2005, Rs. 813 Million

Charsadda: Value of tobacco crop produced in 2005, Rs. 431 Million
Employment
The number of people engaged in the tobacco industry (full time, part time or seasonal) in any
capacity, show the social significance of the industry in the province, whereas the Full-Time
Equivalent (FTE) jobs denote the economic significance of the industry.

Our involvement in the leaf community

All our farmers benefit from Pakistan Tobacco Company's full time Leaf extension services
Pakistan Tobacco Company growers are amongst the most progressive in the country,
benefiting from our constant support and guidance.

Our farmers are considered by us to be one of our most important stakeholders. As part of an
economy highly dependent on its agricultural sector, Pakistan Tobacco Company takes great
pride in making a positive difference to the lives of those who work in the fields. To improve the
conditions of trade for the farmers, the Company has recently launched a fully integrated,
electronic system for leaf purchasing called BAT Leaf. The system allows for efficient
purchasing during the buying season, ensuring that the farmer gets prompt compensation.

The best farming practices introduced by Pakistan Tobacco Company are also now being applied
to other crops in the NWFP and parts of the Punjab.

In 1948, we pioneered the cultivation of Virginia tobacco in Pakistan with an average yield per
hectare of 861 kg. Through our continuous efforts and the hard work put in by our contracted
farmers, the yields have increased significantly to 2,400 kg/hectare. This compares very
favorably with benchmark yields in the USA and Brazil.

This has been the result of farming best practices facilitated by us, such as:

Research and introduction of high yielding, disease resistant varieties of tobacco and the
free distribution of their seeds to growers.
Polyethylene covers; for tobacco seed production that are now being widely used for
growing vegetables, such as cucumber.
Introduction of compound fertilizers; which contributed to higher yield and quality
improvements.
Introduction of diesel water pumps; as a low cost alternative to supplement irrigation in
the rain fed area of Buner, NWFP.
Introduction of mechanical ploughing for tobacco cultivation in some areas of the NWFP.
 Launching of a fully integrated electronic system for leaf purchasing called BATLeaf.
The system allows for efficient purchasing during the buying season, with the payments
for the farmers labor available to him within the month.

All these initiatives have resulted in reducing the land under tobacco cultivation, while at the
same time producing an exportable surplus through high yield per acre while ensuring greater
returns for our farmers.

Responsibility in the supply chain

British American Tobacco is the only international tobacco company with a significant interest
in tobacco leaf growing. The Group works with thousands of farmers internationally providing
them with agronomy support and guidance in environmental best practices.

Pakistan Tobacco Company is responsible for one of the largest leaf growing operations within
British American Tobacco, and it is our job to convey these international best practices to our
local farming community and also convince them about the economic and environmental
viability of these practices. The benefits of international linkages coupled with local wisdom
have resulted in the creation of a community of tobacco farmers that are at the cutting edge of
agricultural science and productivity.

Our contribution to KPK

Khyber Pakhtunkhwa (KPK) produces approximately 77% of all the tobacco grown in the
country, and as such, it forms the basis for tobacco cultivation in Pakistan. Pakistan Tobacco
Company has a long history of association with the people and land of KPK, where tobacco
cultivation forms a large part of the agro-economy. At the same time, our Green Leaf Threshing
plant and one of our two factories are located in Akora Khattak in the KPK adding to the
industrial base of the province.

Health and science

'Smoking is risky, we believe it should be for informed adults only'
Regulatory Affairs Manager

Cigarettes and smoking

Smoking is risky and is the cause of various serious diseases
Smoking is a cause of various serious and fatal diseases such as lung cancer, respiratory
disease and heart disease.

At Pakistan Tobacco Company, we have long accepted that smoking is risky. Our business is not
about persuading people to smoke; it is about offering quality brands to adults who have already
taken the decision to smoke. We strongly believe that smoking should only be for adults who are
aware of the risks. We also recognize that for many people smoking is difficult to quit.

The risks associated with smoking are primarily defined by epidemiological studies (statistical
studies in large populations) that show groups of lifetime smokers have a far higher incidence of
certain diseases than comparable groups of non-smokers. These risks tend to be greater in groups
that start smoking younger, smoke for longer, and smoke more cigarettes per day.

The statistics, however, do not tell us whether a particular individual smoker will avoid an
associated disease by smoking less, and all smoking behaviors are associated with significantly
increased health risks. Studies also show that the only way to avoid smoking-related risks is not
to smoke in the first place, and the best way to reduce the risks is to quit.

For more about the health risks of smoking see Health risks of smoking.

Tar, nicotine and carbon monoxide

In many countries, tar and nicotine measurements are printed on cigarette packs and in
several parts of the world, tar, nicotine and carbon monoxide have regulated limits. In
Pakistan, the Pakistan Tobacco Company voluntarily prints tar and nicotine
measurements for some of its brands.

But what are tar, nicotine and carbon monoxide? Here we offer simple descriptions.

What is 'tar'?
Cigarette smoke contains tiny particles, which can be collected on a filter pad in a laboratory
when a cigarette is smoked by a machine. Tar is usually defined as the weight of particulate
matter collected in this way, after water and nicotine are subtracted. Tar is a complex mixture of
substances, which includes substances which in sufficient quantities are thought capable of
initiating and promoting cancer.

What is nicotine?
Nicotine occurs naturally in the tobacco plant and is a constituent of tobacco smoke. It can also
be found in some other plants, but at much lower levels than in tobacco. Nicotine has unusual
pharmacological properties; it has both a mild stimulant effect, though less than that of caffeine,
and a mild relaxing effect. At high levels, far higher than in the smoke from a cigarette, nicotine
is toxic. Many public health authorities believe nicotine is responsible for causing an addiction to
smoking through its pharmacological effects.
What is carbon monoxide?
Carbon monoxide is a gas formed when plant materials burn. It can combine with haemoglobin
in blood, reducing the bloods capacity to carry oxygen. Carbon monoxide in tobacco smoke is
thought to be associated with the increased risk of heart disease from smoking.

Measuring cigarette deliveries

Although a machine brings standardization it does not emulate how people smoke
It is widely recognized that machines do not smoke the same way as people do. Not only
this, but people smoke differently from each other, and the same smoker may smoke
differently in different circumstances.

However, most governments still rely on the standard machine method for measuring the tar,
nicotine and carbon monoxide levels in cigarette smoke, which is approved by the International
Organization for Standardization (ISO).

This allows the measurements to be done the same way anywhere and enables uniform labelling
of tar, nicotine and carbon monoxide measurements on cigarette packs, expressed in milligrams
(mg) per cigarette.

The ISO standard method

Using the ISO method, a cigarette is smoked by a machine, which takes a 35 millilitres (ml)
puff of smoke lasting two seconds, once per minute. This continues until the cigarette has been
smoked down to a point close to the filter tip. Tar levels are measured by extracting water and
nicotine from the particulate matter collected on a filter pad.

While this standard method gives a consistent way of ranking tar, nicotine and carbon monoxide
yields among different types of cigarettes, the machines do not measure what tar yield levels
individual smokers actually get from cigarettes.

Smoking behavior
A person may take more puffs, puff more strongly or smoke more of the cigarette than the
smoking machines using the standard ISO method, all of which would result in the smoker
taking more tar than indicated by the standard ISO method.

This means the tar level shown on a cigarette packet does not indicate the actual amount an
individual smoker gets. So, for example, someone smoking a cigarette labeled 5 mg tar cannot
assume they are getting 5 mg of tar (they may take much more), and they should not assume they
will take half the tar of a cigarette labeled 10 mg tar.

Public health community views

The World Health Organization (WHO), the US National Cancer Institute and others in the
public health community have also raised concerns about the fact that cigarette deliveries are not
accurate measures of smokers exposures or health risks.

Some public health reports suggest that, when switching from cigarettes measured as higher tar
and nicotine yields by the current ISO machine method to products measured by that ISO
method as lower tar and nicotine yields, smokers might change their smoking behavior to take as
much tar and nicotine as they would from cigarettes measured as higher tar.

The WHO is investigating whether there are better ways of measuring actual yields. British
American Tobacco believes this is important and is undertaking research aimed at contributing
towards improving measurement standards.

Filter analysis
British American Tobacco scientists are working on filter analysis as a way towards
understanding how much smoke and yield levels people actually take in day-to-day human
smoking conditions.

Estimating yields of different types of cigarettes to allow for human smoking behavior involves
measuring the tar and nicotine in the butts of cigarettes which have been smoked by people. This
provides an estimation of the amount of smoke constituents which actual smokers draw through
the filter.

British American Tobacco is carrying out this type of research in several countries and its
scientists have presented the methodology for their filter analysis study to the European
Conference of the Society for Research on Nicotine and Tobacco, an academic organization
whose members include many of the leading researchers in the field of nicotine and tobacco
science.

Why do people smoke?

The question Why do people smoke? has been asked for many years. An obvious and
simple answer would be that people smoke for nicotine. But for many, the situation seems
more complex.

It is very well known that smoking is an important cause of many diseases and the purchase price
of cigarettes can be very high, so it is reasonable to ask why so many people smoke.

Many in the public health community suggest that people only smoke because they are
addicted to nicotine. Many smokers can find it hard to quit.
The pharmacological effect of nicotine - a mild stimulant effect not unlike that of caffeine, and a
mild relaxing effect - is an important part of the smoking experience, and it is unlikely that
cigarettes without nicotine would be acceptable to smokers.

However, there seems to be more to smoking than just nicotine. Smoking embodies a
considerable amount of ritual involving many of the senses. A smoker will often describe
pleasure from the feel of a cigarette in the hand, and from the taste, sight and smell of the smoke.
Also, especially in social settings, smoking involves a sharing experience with other smokers.

Can people quit smoking?

Smoking can be hard to quit. However, we believe it is important that smokers who decide
to quit realize they can, provided they have the motivation to quit and the belief that they
can.

Many smokers are said to be dependent on cigarettes because they know the real risks of disease
involved but still smoke frequently and find it very difficult to quit.

However, millions of smokers have quit without any medical help, and millions have modified
how often, where and when they smoke in the light of differing social norms. In some countries,
such as the UK, there are now as many ex-smokers as smokers.

While smoking is commonly understood to be addictive, we believe it is important that smokers

who decide to quit realise they can, provided they have the motivation to quit and the belief that
they can. We believe that if you want to quit, you should.

Various ways have been suggested to help people quit, including using nicotine replacement
therapy (patches and gums). While all these forms of assistance may be beneficial, the most
important factors in successfully quitting are having the motivation to quit and the self-belief that
you can do so.

What people should consider about quitting

Smoking can be hard to quit.

Any adult thinking of starting to smoke should consider that it may be difficult to stop
later.
For people wanting to quit, the keys are motivation and self-belief.
There is nothing so powerful about the pleasure of smoking that prevents smokers from
quitting, if they have motivation and confidence in their ability to do so.
Many millions have quit smoking successfully.
Advice on quitting smoking is available from many sources, including public health
authorities and health professionals.
We do not build our business on persuading people to smoke, or trying to stop people
from quitting. We believe that if you want to quit, you should.

Health risks of smoking

Along with the pleasures of smoking there are real risks of serious diseases such as lung
cancer, respiratory disease and heart disease, and for many people, smoking is difficult to
quit.

Smoking is a cause of various serious and fatal diseases, including lung cancer, emphysema,
chronic bronchitis and heart diseases.

Studies
The health risks of smoking are derived from epidemiology. Epidemiology is a statistically based
science, dealing with risks among large groups of people, rather than with individuals. Through
questionnaires and observations of people, epidemiological studies can identify the incidence of
disease in a given group, such as smokers, and compare it with the incidence in another group,
such as non-smokers.

Over many years, epidemiological studies have consistently reported a much higher incidence of
certain diseases among smokers compared with non-smokers. The studies also report that the
risks are reduced after quitting and that quitting earlier has by far the best effect on reducing
risks.

Traditionally, epidemiology has been used to identify associations that point to possible causes
of a disease, providing direction for thorough laboratory investigations. With smoking, the many
laboratory investigations over the years have proved more problematic, and science has not to
date been able to identify biological mechanisms which can explain with certainty the statistical
findings linking smoking and certain diseases, nor has science to date been able to clarify the
role of particular smoke constituents in these disease processes.

This means that science is still to determine which smokers will get a smoking related disease
and which will not. Nor can science tell whether any individual became ill solely because they
smoked. This is, in part, because all the diseases that have been associated with smoking also
occur in life-long non-smokers.

We do not point out these scientific limitations to cast doubt that smoking is a cause of serious
disease. An important point is that the lack of complete understanding about the biological
aspects of the disease mechanisms, and the role of particular smoke constituents, creates
uncertainty for efforts to design less harmful cigarettes. British American Tobacco's own work
for many years has included, and still includes, research into the assessment of potentially less
harmful cigarettes and it remains committed to this work, although the scientific uncertainties
make it a major challenge.

For more about British American Tobacco's research efforts see Harm reduction, Is there a less
harmful cigarette? And Research & Development.

What people should consider about the risks:

Smoking is a cause of various serious and fatal diseases.

 The health risks in groups vary by the amount smoked, being highest in those that smoke
for more years and smoke more cigarettes per day.
The risks reduce in groups of people who quit smoking, and the reductions increase from
quitting earlier.
Experts advise no smoking during pregnancy.
The only way to be certain of avoiding the risks of smoking is not to smoke.

The primary health issues

Over the years, epidemiological studies have associated smoking with many different
serious and fatal diseases. The diseases most studied have been lung cancer, chronic
obstructive pulmonary disease and coronary heart disease, mainly because these are all
important causes of death in many countries.

Lung cancer
These statistical studies consistently report very strong associations between smoking and lung
cancer, such that it is reasonable to conclude that smoking is an important cause of lung cancer.
The statistics report higher incidence of lung cancer in groups that smoke for more years and
smoke more cigarettes per day, with the length of time people have been smoking thought to be
the most important factor. It has been estimated (though estimates vary considerably) that around
10-15 per cent of lifelong smokers get lung cancer, and that of all the people who get lung
cancer, around 90 per cent are smokers. After quitting, risks begin to decline and will vary
according to a persons smoking history. A former smokers level of risk may approach that of a
non-smoker after about 10 years or so of abstinence.

Chronic obstructive pulmonary disease (COPD)

COPD includes chronic bronchitis and emphysema. The statistical studies consistently report
strong relationships between smoking and COPD that are of similar magnitude to the risks
identified between smoking and lung cancer. As with lung cancer, the incidence is highest in
groups that smoke for longer and smoke more cigarettes per day. Quitting is thought to slow the
progression of the disease. Risks in groups of ex-smokers tend to remain higher than for non-
smokers, but lower than for those who continue to smoke.

Coronary heart disease (CHD)

Smoking is one of the causes of coronary heart disease. Heart disease is linked with many factors
along with smoking; health authorities also regard high cholesterol, high blood pressure, obesity
and lack of exercise as important. Some studies have reported that the risks for heart disease are
greater in groups of people that have more than one of these risk factors (for example, smokers
who take little exercise). The smoking-related risks of heart disease reduce relatively rapidly
after quitting.

Smoking in pregnancy
Public health authorities advise that pregnant women should not smoke, and have publicised this
widely. Many statistical studies have reported a link between lower birth weight in babies and
mothers who smoke throughout pregnancy. Some statistical studies have reported, amongst other
factors, links between smoking in pregnancy and infant mortality, premature birth, miscarriage
and stillbirth.

Other health issues

Epidemiological studies have reported various increased risks of other diseases amongst
smokers. These include stroke (cerebrovascular disease), heart attack, aortic aneurysm, diseases
affecting the circulation (such as peripheral vascular disease) and cancers of the throat, mouth,
bladder, stomach and kidneys. The strength of the evidence linking these illnesses with smoking
varies amongst the diseases and amongst different groups of people in different countries.

What people should consider about smoking

Smoking is a cause of various serious and fatal diseases.

The health risks in groups vary by the amount smoked, being highest in those that smoke
for more years and smoke more cigarettes per day.
The risks reduce in groups of people who quit smoking, and the reductions increase from
quitting earlier.
Experts advise no smoking during pregnancy, and we agree.
The only way to be certain of avoiding the risks of smoking is not to smoke.

Second-hand smoke
The World Health Organisation, the United States Surgeon General and other public
health bodies have concluded that exposure to environmental tobacco smoke (ETS),
sometimes called second-hand smoke, is a cause of various serious diseases, including
lung cancer, heart disease and respiratory illnesses in children.

They conclude that there is no known safe level of ETS exposure and hence advise that public
health policy would be best served by bans on public smoking.

Our views of the science

The risks associated with ETS have been measured in epidemiological studies. These mainly use
questionnaires to compare the incidence of diseases such as lung cancer in non-smoking women
whose husbands were smokers, with non-smoking women whose husbands were non-smokers.

For lung cancer, the major studies report that relative risk associated with prolonged non-smoker
exposure to ETS is 1.3. A relative risk of 1 means no risk, and prolonged active smoking is
typically associated with a relative risk of lung cancer of the order of 20 or higher.

For heart disease, the major studies also report a relative risk for ETS exposure of around 1.3.
The relative risk for active smoking and heart disease is typically of the order of 3 to 5.

Many epidemiologists say that relative risks below 2 are weak associations and are more difficult
to quantify than stronger associations. Perhaps because the relative risks reported in individual
studies tend to be below 2, many studies do not reach statistical significance.
Studies of respiratory illnesses in children whose parents smoke, and research into whether ETS
exposure exacerbates symptoms for people with conditions such as asthma, suggest that ETS can
increase risks of respiratory illnesses in children and can affect people with pre-existing
conditions such as asthma.

Harm reduction
The use of tobacco products poses real and serious risks to health. The only way to avoid
these risks is not to consume tobacco at all. However, the concept of harm reduction is
increasingly being considered in relation to tobacco use and it is a key element of our
business strategy.

Harm reduction is about finding practical ways to minimize the health impact of an inherently
risky activity or behavior, without seeking to stop it entirely. An example of harm reduction in
action that is familiar to most of us is the use of seat belts and airbags in cars.

Harm reduction and tobacco

Regulatory policies based on discouraging people from starting to smoke and encouraging them
to quit have been and continue to be effective. While the proportion of adults who smoke is
likely to continue declining, widely accepted estimates suggest that in 10 years time, as a result
of global population growth, there will still be as many or more tobacco consumers globally as
there are today.

In the context of tobacco and health, few governments currently support the development of
reduced risk tobacco products. Most governments simply argue for prevention and cessation.

British American Tobacco thinks its important to work towards producing consumer-acceptable,
potentially reduced risk products. We believe there could be further public health gains if
tobacco regulatory policies included harm reduction, for the millions of adults globally who will
continue to consume tobacco products.

Some regulators and tobacco control advocates actually reject the concept of reduced risk
tobacco products altogether, suggesting that the approach is inappropriate, as such products may
discourage smokers from quitting, or lead people to become tobacco consumers who would not
otherwise have done so.

The Group continues to seek common ground on harm reduction with health policymakers, who
are looking to achieve a reduction in the net public health impact of tobacco use.

Research and development

The science of tobacco harm reduction is complex, extremely challenging and spans many
scientific disciplines. British American Tobacco has significantly expanded it's research
capabilities over the past few years to reflect the continued importance of work in this area.

Is there a less harmful cigarette?

We believe that producing a potentially less harmful cigarette, particularly one supported
by public health authorities, could contribute to reducing the net harm of tobacco use.

British American Tobacco considers work towards developing such products as one of its
priorities.

It also recognizes how important it is to seek engagement with regulators, health authorities and
other scientists to discuss which product changes would be supported by public health groups
and might gain consumer acceptability, how new products may be tested, and how their
attributes might be communicated to consumers.

Research over decades

Over the years, British American Tobacco has conducted a major research effort to see if
cigarettes could be modified to reduce harm through cigarette design.

From the 1950s, while the academic and medical community was addressing the general health
aspects of smoking, British American Tobacco's laboratories, in response to the emerging
assessments of health risks, have focused on the product and particularly what could be done to it
to reduce some of the risks.

Over time, the Group's scientific work has been in response to external findings, with large parts
of it carried out in alliance with governments and independent scientific bodies.

Reducing specific smoke constituents

The Group's research has included investigating how specific constituents of cigarette smoke
might be selectively reduced or removed, and developing innovative products including
replacements for tobacco.

The benefits of reducing elements of smoke need further work and understanding. Regulatory
bodies, including the World Health Organization, are considering which constituents of smoke
are most important and how they should be measured.

British American Tobacco continues actively to explore ways to reduce specific smoke
constituents, while monitoring regulatory and scientific thinking and seeking to engage
constructively to establish new measurement standards.

Exposure
Measuring exposure to smoke and its constituents is one important step towards developing
lower risk products. Another understands how reduced exposure might reduce harm in the
human body. British American Tobacco is researching potential new tests that may be able to
predict harm reduction in the human body; tests that could assess whether reduced exposure
might result in actual reductions in harm.

These testing methods are still evolving and the Group is working to engage with external
scientists and public health authorities to discuss them, with a view to establishing their potential.
Funding external research
British American Tobacco continues to fund independent research through the Institute for
Science and Health, a not-for-profit scientific research trust, into biomarkers in the human body
of exposure and harm, the toxicity of tobacco smoke constituents and tobacco harm reduction.

Lower tar products

Historically, the main modifications to cigarettes that proved acceptable to consumers,
governments and health authorities have been lowering tar yields, as measured by a standardized
machine method. This included introducing filtered cigarettes.

It was found that a practical and simpler way to reduce deliveries of individual smoke
constituents would be to reduce smoke yields overall, with machines measuring this in a
standardized way. The work, therefore, focused on using filters, ventilation and other design
features to reduce tar.

In lower tar products, there has been an overall reduction in the levels of most of the constituents
of concern to governments and health bodies as measured by standardized machine tests.
However, many public health bodies no longer support the theory that lowering cigarette tar
deliveries somewhat lowers the risks of smoking. Recent reports by the World Health
Organization and the US National Cancer Institute conclude that smoking lower tar delivery
cigarettes does not reduce the risks.

While the hypothesis that reducing exposure should reduce risks remains, questions are currently
being asked as to whether low tar yielding cigarettes, as measured by machines, actually result in
reduced exposure when in the hands of smokers.

The Group's scientists have been developing a filter analysis technique that they believe may
help in measuring the levels that smokers draw through the filter in day to day smoking
conditions. Find out more in Measuring cigarette deliveries.

The future
British American Tobacco's research continues, although the science is very challenging and
there is no certainty about what might constitute a potentially reduced harm cigarette. Through
dialogue with public health groups and others, the Group seeks ways to characterize the relative
risks of new types of tobacco products to inform it's research efforts.

CULTURE OF DEVELOPING NATIONAL TALENT

Pakistan Tobacco Company Limited (PTC) has always considered people as its most valuable
asset. It has been focusing on driving high performance and encouraging greater productivity.
The excellence of its people increases the Companys competitive advantage and strengthens its
culture and values. Hence, the emphasis is on continuous learning. There is a constant effort to
develop the skills of people at all levels. The growth and learning opportunities provided by the
Company for its people include Growth Academy, International Assignments, Leadership
Programs, etc.

All these programs foster a culture of talent development, making PTC a virtual talent
development institution. For decades, working for PTC has been one of the aspirations of the top
graduates of most colleges and universities in Pakistan. Since 1947, a multitude of managers
have been hired and undergone rigorous training at PTC. These managers not only worked for
PTC but used their skills and experiences wherever they chose to work, thus making their
contribution to the national development.

Statement of Compliance

WITH THE CODE OF CORPORATE GOVERNANCE YEAR ENDED: DECEMBER 31,

2016

This statement is being presented to comply with the Code of Corporate Governance (CCG)
contained in Regulation No. 5.19 of listing regulations of Pakistan Stock Exchange for the
purpose of establishing a framework of good governance, whereby a listed company is managed
in compliance with the best practices of corporate governance.
The Company has applied the principles contained in the CCG in the following manner:

1. The Company encourages representation of independent, non-executive directors and directors

representing minority interests on its board.

2. The directors have confirmed that none of them is serving as a director on more than seven
listed companies, including this Company.

3. All the resident directors of the Company are registered as taxpayers and none of them has
defaulted in payment of any loan to a banking Company, a DFI or an NBFI or, being a member
of a stock exchange, has been declared as a defaulter by that stock exchange.

4. A casual vacancy occurring on the board on the resignation of Graeme Amey was filled in by
Mr. Wael Sabra within ninety days.

5. The Company has prepared a Code of Conduct namely Standard of Business Conduct
(SoBC) and has ensured that appropriate steps have been taken to disseminate it throughout the
Company along with its supporting policies and procedures.
6. The Board has developed a vision/mission statement, overall corporate strategy and significant
policies of the Company. A complete record of particulars of significant policies along with the
dates on which they were approved or amended has been maintained.

7. All the powers of the Board have been duly exercised and decisions on material transactions,
including appointment and determination of remuneration and terms and conditions of
employment of the CEO, other executive and non-executive directors, have been taken by the
Board/shareholders.

The Board arranged training of one director during the year. Training of all directors will be
completed by June 2018.

10. The Board has approved appointment of the Chief Financial Officer (CFO), Company
Secretary and Head of Internal Audit, including their remuneration and terms & conditions of
employment.

11. The Directors Report for this year has been prepared in compliance with the requirements
of the CCG and fully describes the salient matters required to be disclosed.

12. The financial statements of the Company were duly endorsed by CEO and CFO before
approval of the Board.

13. The directors, CEO and executives do not hold any interest in the shares of the Company
other than that disclosed in the pattern of shareholding.

14. The Company has complied with all the corporate and financial reporting requirements of
the CCG.

15. The Board has formed an Audit Committee. It comprises of five members, all are
nonexecutive directors and the Chairman of the committee is an independent director

16. The meetings of the Audit Committee were held at least once every quarter prior to approval
of interim and final results of the Company and as required by the CCG. The terms of reference
of the Committee have been formed and advised to the Committee for compliance.

17. The Board has formed an Human Resource and Remuneration Committee. It comprises of
three members, of whom two are non-executive directors and the Chairman of the Committee is
also a nonexecutive director.

18. The Board has set up an effective internal audit function who are considered suitably
qualified and experienced for the purpose and are conversant with the policies and procedures of
the Company.

19. The statutory auditors of the Company have confirmed that they have been given a
satisfactory rating under the quality control review program of the ICAP, that they or any of the
partners of the firm, their spouses and minor children do not hold shares of the Company and that
the firm and all its partners are in compliance with International Federation of Accountants
(IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountant of
Pakistan (ICAP).

20. The statutory auditors or the persons associated with them have not been appointed toprovide
other services except in accordance with the listing regulations and the auditors have confirmed
that they have observed IFAC guidelines in this regard

21. The closed period, prior to the announcement of interim/final results, and business
decisions, which may materially affect the market price of Companys securities, was determined
and intimated to directors, employees and stock exchange.

22. Material/price sensitive information has been disseminated among all market participants at
once through stock exchange(s).

23. The Company has complied with the requirements relating to maintenance of register of
persons having access to inside information by designated senior management officer in a timely
manner and maintained proper record including basis for inclusion or exclusion of names of
persons from the said list.

24. We confirm that all other material principles enshrined in the CCG have been complied with.

PROVIDING LEADERSHIP IN CORPORATE GOVERNANCE

Pakistan Tobacco Company Limited (PTC) is committed to good corporate governance and to
achieving its business objectives in a manner which is responsible and consistent with its belief
in honesty, transparency and accountability. Corporate governance for PTC is not simply an
exercise in compliance, but is considered as a key element underpinning the sustainable, long-
term growth of its business. Accordingly the Company has always endeavoured to stand for
conducting its operations with integrity and responsibility.

PTCs meticulous compliance credentials, be they in the field of taxes, laws, regulations, or
industrial relations, all are considered of the highest level not only by other companies, but also
by those organizations that examine such affairs. The transparency of PTCs operations, systems,
processes, and the efforts put in place to ensure rigorous adherence to the internal standards of
conduct and the full compliance of prescribed regulations are well-recognised. That is why PTC
has consistently been certified as one of the best managed companies in Pakistan.

Auditors Report to the Members

We have audited the annexed balance sheet of Pakistan Tobacco Company Limited (the
Company) as at 31 December 2016 and the related profit and loss account, statement of
comprehensive income, cash flow statement and statement of changes in equity together with the
notes forming part thereof, for the year then ended and we state that we have obtained all the
information and explanations which, to the best of our knowledge and belief, were necessary for
the purposes of our audit.
It is the responsibility of the Companys management to establish and maintain a system of
internal control, and prepare and present the above said statements in conformity with the
approved accounting standards and the requirements of the Companies Ordinance, 1984. Our
responsibility is to express an opinion on these statements based on our audit. We conducted our
audit in accordance with the auditing standards as applicable in Pakistan.

These standards require that we plan and perform the audit to obtain reasonable assurance about
whether the above said statements are free of any material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the above said
statements. An audit also includes assessing the accounting policies and significant estimates
made by management, as well as, evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion and, after due verification,
we report that:

(a) in our opinion, proper books of account have been kept by the Company as required by the
Companies Ordinance, 1984;

(b) in our opinion: (i) the balance sheet and profit and loss account together with the notes
thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in
agreement with the books of account and are further in accordance with accounting polices
consistently applied; (ii) the expenditure incurred during the year was for the purpose of the
Companys business; and (iii) the business conducted, investments made and the expenditure
incurred during the year were in accordance with the objects of the Company;

(c) in our opinion and to the best of our information and according to the explanations given to
us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow
statement and statement of changes in equity together with the notes forming part thereof
conform with the approved accounting standards as applicable in Pakistan, and give the
information required by the Companies Ordinance, 1984, in the manner so required and
respectively give a true and fair view of the state of the Companys affairs as at 31 December
2016 and of the profit, its cash flows and changes in equity for the year then ended; and

(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII
of 1980) was deducted by the Company and deposited in the Central Zakat Fund established
under section 7 of that Ordinance. The financial statement of the Company for the year ended 31
December 2015, were audited by another auditor whose report dated 19 February 2016 expressed
an unmodified opinion on those statements.