The Lucio Tan Group expects to spend about P10 billion for its capital outlays this year, mostly to revitalize the property business while strengthening its consumer-related concerns.
LTG sees an improvement in its cigarette venture with Philip Morris, which has been grappling with cutthroat competition arising from what has been described as “illicit” trading by a low-priced competitor.
“The problem of the tobacco business has yet to be resolved, but recent developments point to a more positive outlook that will hopefully lead to a level playing field and enable us to improve earnings,” LTG president Michael Tan reported during the company’s annual stockholders meeting.
Paul Riley, president of PMFTC Inc. —the joint venture between Philip Morris and LTG’s Fortune Tobacco—announced that the group would launch by next month a low-priced product that contained a menthol-flavored capsule. The product, “Fortune Tribal,” will be sold at P2 per stick or in line with the price point of the competitor at the low-end segment of the cigarette market.
Riley said PMFTC’s market share had been steady at 72 percent over the past five quarters. Since the implementation of higher excise taxes in 2013, the group’s market share has declined from more than 90 percent due to competition posed by cigarettes that were said to be priced below cost.
The focus now is to increase profitability and grow market share through PMFTC’s portfolio of brands, Riley said. By market segment, PMFTC is estimated to have 100 percent of the premium cigarette market, 70 percent of the low-end and 50 percent of the discount/ultra low-end market.
The introduction of the stamp tax had helped improve the competitive environment in a market where cigarette consumption remained resilient at 100 billion units last year. Riley said the cigarette market would likely be flat but resilient.
This year, Tan said most of the capital spending—which was higher than last year’s P7 billion to P8 billion—would go to the property business.
In the last two years, he said LTG’s property arm, Eton Properties, had suspended its sales activities to “maximize values,” citing an “oversupply” in the vertical or high-rise residential development. The focus in recent years had been to grow recurring earnings by increasing inventory of leasable office space for business process outsourcing.
This year, growing recurring earnings will remain the focus of Eton but it will also embark on new residential projects, he said. Eton plans to restart selling residential projects this year.
“For the property sector, we will remain cautious and selective, as we continue to develop existing projects and expand to other areas. We are mindful of the possibility of overheating in some segments of the residential sector, and are mitigating the risk by increasing our recurring income base,” Tan said.
For the beverage business, he said, the group was expanding its bottled water production capacity. The group is also putting up a soy milk plant.