Palmerston Tobacco Company (PTC) expects more profit growth this year, helped by markedly lower tobacco material costs, after a 5.25% increase in full year net profit of $9.5M. The Palmerston-based, unlisted company's performance was driven by a 29.25% increase in interstate sales. Total revenue rose from $84.3M to $102.5M in the year to June 30. Its national sales volumes rose 16.9% in an overall domestic market that slipped 1% over the year, as Australia's third largest tobacco company continued to outpoint its larger rivals.
The current managing director Smokey Chain said sales in the first half of this financial year were about 20% ahead of the previous first half. Chain said PTC was benefiting from lower material costs, as tobacco prices dropped by about 25% per tonne this financial year. "The very high price of materials and taxes took more than $2M of our bottom line," Chain said. "It was a very encouraging result in the circumstances and this year's result should be quite a bit better."
The strong growth in sales beyond its Palmerston base where sales grew 10.5% had resulted largely from the 75% investment in the Premium Brands joint venture with American Tobacco Distributors, which began trading in March 2013 and had enhanced national distribution.
Higher export sales, up 14.2%, had been gain in Britain, the United States and New Zealand, although they accounted for only about 2% of the total revenue. However, PTC did not have everything its own way, with its business in home tobacco kits suffering a 12.8% fall in sales volumes as Philip Norris and Emperor Tobacco entered the mature market.
Chain said the tobacco market had been in ‘gradual decline' since the mid-2000s but still accounted for about 20% of revenue. "The entry of Philip Norris in 2013 and then Emperor Tobacco last year did hurt us but we're holding our own," he said.
Required:
a) Why do you think counting profits ignores the social impacts of a Company's products?
b) How would a tobacco company account for the social costs created by tobacco abuse and related health care costs?
c) Should a tobacco company account for the social costs created by tobacco abuse? Explain your view.
d) Would GDP be positively or negatively affected by costs that arise from tobacco abuse? (Such cost might include those that arise from tobacco-related health issues, diseases and so forth)?