LTG shores up tobacco venture

The Lucio Tan group has scrapped an exit agreement with the Philip Morris group, affirming its commitment to their tobacco venture. AP FILE PHOTO

MANILA, Philippines—The Lucio Tan group has scrapped an exit agreement with the Philip Morris group, affirming its commitment to their tobacco venture.

In a disclosure to the Philippine Stock Exchange on Wednesday, LT Group Inc. (LTG) said its board, as well as that of Fortune Tobacco Corp. (FTC), has agreed to terminate the exit rights agreement FTC sealed with Philip Morris Philippines Manufacturing Inc. in 2010.

A source from LTG said the termination of the exit agreement by both parties simply meant that FTC was “not about to exit or leave the tobacco business.”

Philippine Morris Fortune Tobacco Corp. (PMFTC), the joint venture firm created in 2010, operates the combined businesses of FTC and Philip Morris.

LTG owns at least 83 percent of FTC which, in turn, owns 49.6 percent of PMFTC.

Recently, LTG expressed its concern over the illicit trade in cigarettes, where a competitor could sell products at an “economically unsustainable” price of P1 a stick.

LTG noted the downtrading by cigarette consumers this year. The share of the low-priced segment, including PMFTC’s brands, increased to 44 percent of the overall market in the three months to July, from only 15 percent the previous year.

LTG’s tobacco business posted a 37.7-percent year-on-year decline in net income from January to September to P2.8 billion, due to PMFTC’s lower equity in net earnings. Volume reached 17.8 billion sticks in the third quarter—20.7 percent lower year on year—compared with the 42.5 percent year-on-year volume drop in the first quarter of 2013, and the 16.5 percent decline in the second quarter of this year.

Next to oil smuggling, LTG believes the illicit trade of cigarettes has become a key concern of the Philippines. Underground domestic manufacturing of cigarettes and the smuggling of products from abroad are seen to fuel the illegal trade.

Also, the boards of FTC and LTG approved an amended dividend policy effective January 2014 that would “substantially increase the benefits to its shareholders.”

FTC already approved the declaration of stock dividend equivalent to 9.62 billion common shares.

Meanwhile, LTG has affirmed its commitment to support its banking arm, Philippine National Bank. Its board approved the subscription to at least 97.8 million shares of PNB through its holding companies pursuant to its stock rights offering.