Philip Morris still upbeat on Phl earnings potential

MANILA, Philippines - Global giant Philip Morris International Inc. (PMI) remains upbeat on the potential long-term growth of its earnings in the Philippines despite dwindling operating margins resulting from down trading or the switching by smokers to low-priced brands.

During the Morgan Stanley Global Consumer and Retail Conference in New York last Nov. 19, PMI CEO André Calantzopoulos said while the group has been struggling to maintain its leadership in the Philippine tobacco industry, it expects the tide to turn on its side with the implementation of the government’s integrated tax stamp system as well as the continued rise in tobacco consumption.

“While the Philippines has been a drain on our recent income performance, we remain bullish over the long term. This optimism rests in part on the fact that the total consumption of cigarettes, as measured by both adult smoking incidence and daily usage statistics, continues to rise in this market of around 100 billion units,” Calantzopoulos said.

The group, through Philip Morris Fortune Tobacco Corp. (PMFTC), saw its market share and earnings deteriorate in the past year as consumers turned to low-cost brands, benefitting its closest rival Mighty Corp.

PMFTC raised prices of its products to cope with the effects of the amended sin tax law, which jacked up taxes of tobacco and alcohol.

The group cited Mighty’s alleged fraudulent transactions that have allowed the Bulacan-based tobacco firm to sell products at extremely low prices.

“In the Philippines, we continue to face what can only be described as a shameful state of affairs. You will appreciate that it is virtually impossible to compete successfully when one’s principal competitor openly flaunts excise tax legislation,” Calantzopoulos said.

“We estimate that this competitor continues to sell some 50 percent of its volume excise tax-free,” he added.

Mighty is under investigation by tax and customs authorities for allegedly evading payment of taxes and engaging in anomalous transactions which include technical smuggling and under declaration of imported tobacco leaf and raw materials.

However, Mighty insists all its transactions have been aboveboard and that it fully supports regulatory authorities’ efforts to combat tax evasion.

 “While regretfully our vigorous efforts to remedy this situation have yet to translate into concrete action by the authorities, we do see some light at the end of the tunnel. Congressional hearings, the advent of tax stamps next month and calls for a minimum price will undoubtedly pressure our competitor to act lawfully,” Calantzopoulos pointed out.