Philippines: LT Group Says 2014 to Remain ‘Challenging Year’ for Tobacco Business

The holding firm of tycoon Lucio Tan sees another challenging year for its tobacco business which continues to feel the pinch of illegal trading.

On the sidelines of the company’s stockholders meeting on Monday, LT Group president Michael Tan told reporters that issues hounding Philip Morris Fortune Tobacco Corp (PMFTC) is only a temporary setback, adding that the business will remain a significant contributor to the conglomerate’s earnings.

The younger Tan urged the government to “take a more forward-looking action in terms of addressing illicit cigarette trade.”

“There have been some positive developments in the tobacco industry, but illicit trade that has kept prices abnormally low remains an obstacle to a level playing field that will enable the company to grow its profitability over time,” Tan said.

Tan said PMFTC’s competitor, which he did not name, is keeping the price of cigarettes at an “economically unsustainable level,” which is below the cost of excise tax plus value added tax (VAT).

“This flanker brand is estimated to account for 30 percent of the competitor’s portfolio and 6-7 percent share of total market share volume,” he added.

The tobacco business accounted for 45 percent of LT Group’s earnings in 2013. The conglomerate’s equity in net earnings from PMFTC Inc, its joint venture with Philip Morris International, dropped by 43 percent year-on-year, while sales volume declined by 26 percent to pull down its market share to 79 percent last year from 91 percent in 2012.

PMFTC president Paul Riley said the business has already stabilized, but noted the government has lost P7.3 billion in taxes this year due to the illicit cigarette trade.

“We control our own business. We continue to be in the marketplace and we’ll continue to do so to protect our market share,” Riley said.
PMFTC welcomed the government’s efforts to resolve the issue, including the implementation of tax stamps that will require manufacturers to purchase and paste numbered stamps on each pack of cigarettes.

“We look forward to the implementation of tax stamps toward the end of the second quarter of 2014, but will continue to work for the implementation of additional safeguards for the 24/7 monitoring and the third party audit of all cigarette factories,” the younger Tan said.
LT Group controls Fortune Tobacco Corp, which owns 49.6 percent of the outstanding capital stock of PMFTC Inc, a joint venture with Philip Morris Philippines Manufacturing Inc for the manufacture and distribution of cigarettes under the Philip Morris, Marlboro, Hope, Champion and Fortune brands.

Aside from tobacco, LT Group has interests in banking, alcoholic and non-alcoholic beverage, and real estate development. Enditem