LT Group net profit down on lower tobacco earnings

Tycoon Lucio Tan-led conglomerate LT Group Inc. posted a net profit of P8.67 billion last year, 32-percent lower than a year ago on a pro-forma basis, on lower earnings from the tobacco, banking and liquor businesses.

The decline in net profit was on a pro-forma basis as LTG’s stake in PNB was included in the 2012 pro-forma income for clearer comparison. Without such inclusion, the unaudited attributable net income of P8.67 billion was 15 percent higher than a year ago.

PNB was folded into LTG in February 2013 and the conglomerate boosted its ownership to 56.47 percent at the end of the year from an initial 45.5 percent.

The banking arm posted a 4-percent decline in 2013 net profit to P6.2 billion largely due to losses incurred by its non-life insurance business. To lighten the bank’s balance sheet, the bank plans to sell this year a substantial portion of its P20 billion worth of acquired real and other properties.

On business mix, the tobacco business accounted for 45 percent of LTG’s total business, followed by PNB with 40 percent. Beer unit Asia Brewery accounted for 12 percent while Tanduay Distillers had a 2.1-percent share. Eton Properties and other units accounted for the rest.

LTG’s income from the tobacco business fell by 43 percent to P3.94 billion. Sales volume of Philip Morris Fortune Tobacco Corp. (PMFTC) reached 68.5 billion sticks last year, 26 percent lower than a year ago, resulting in a decline in market share to 79.3 percent from 90.7 percent, based on Nielsen estimates.

The company explained: “2013 was a challenging year for the tobacco business as the excise tax in the upper tier doubled to P25 per pack from P12 while the excise tax in the lower tier quadrupled to P12 per pack from the P2.71.”

“This was exacerbated by the illicit trade from a competitor who kept the price of low-end cigarettes at an economically unsustainable level of P1 per stick or a truck price of P14.70 per pack,” LTG said, noting that the P12 excise tax plus the P1.58 value added tax (VAT) leaves only P1.12 per pack to cover the cost of production and distribution. If this competitor is paying full taxes, LTG noted that such pricing mechanism was “unrealistic.”

Many consumers thus down-traded to the more affordable cigarettes, eating into PMFTC’s market share.

For Asia Brewery, net income rose by 32.5 percent to P1.04 billion. Excluding a one-time gain from the sale of a property in Pasong Tamo, core income fell by 4.4 percent to P752 million.

The beverage firm’s revenues were flat at P13.4 billion as the volume of some of its products was adversely affected by the price war among popular cola brands as well as the increase in the excise taxes for beer.

Tanduay’s net income fell by 82 percent to P185 million on one-time expenses from the closure of its old plant in Quiapo. Excluding this, core income dropped by 92 percent to P290 million as sales volume was affected by higher excise taxes and stiff competition.

Eton Properties’ net income grew by 123 percent to P105 million on the completion of ongoing residential projects.