Philip Morris still bullish despite illicit tobacco trade

MANILA, Philippines - Global cigarette giant Philip Morris International (PMI) remains optimistic about its prospects in the Philippines even as it continues to face problems in fighting illicit tobacco trade.

“Despite a difficult 2013, we remain confident in the excellent growth potential of our business in the Philippines,” said Matteo Lorenzo Pellegrini, president of PMI Asia region.

Pellegrini said the company has the right strategies and plans in place to regain momentum and deliver increasingly strong business growth in the years to come.

He noted that total shipment volume in the Philippines rose 6.1 percent  in the first five months of the year, mainly driven by the strong performance of its Marlboro brand.

Total sales volume reached 28 billion units from January to May, higher than the 26.4 billion units sold in the same period last year.

Marlboro saw a 10.3 percent jump in sales volume while the company’s other brands combined posted a five percent growth.

Pellegrini said the growth was achieved despite the widespread availability of illicit tobacco, which the group considers its third largest competitor in Asia.

Illicit trade creates a cheap source of tobacco products as these products do not meet the manufacturing and regulatory standards that are applied to legal products.

It resulted in a significant loss of government tax revenues estimated at around $4 billion in 2013 and an industry profitability loss conservatively estimated at around $1 billion in Asia which has a growing population of nearly four billion.

Pellegrini said the Philippines remains as one of PMI’s key markets in Asia, where the cigarette maker operates in 24 markets.  The confidence is anchored on the Philippines’ growing adult population and steady economic growth, backed by a stream of foreign remittances and urbanization.

“Notwithstanding the ongoing illicit trade issue, we continue to be the undisputed market leader and we are well positioned for future growth, leveraging our outstanding portfolio with which we hold a clear leadership position in all price segments,” Pellegrini said.

“Key to this performance has been the marketing support behind our main brands and the significant price investment in order to maintain competitive gaps to Mighty Corp.’s brands.  The latter has substantially impacted our margins which are currently well below 2012 levels.  We are encouraged by the recent price increases that have occurred at the bottom of the market although certain Mighty brands still retail below the level of current excise tax and VAT combined,” Pellegrini said.

PMI has accused Filipino-owned Mighty Corp., its main competitor, of declaring only half of its output and evading payment of excise taxes.

Mighty which gained a significant 20 percent of the country’s tobacco consumer market, denied all allegations, saying its books are open for inspection to the government.

Pellegrini said has repeatedly PMFTC would continue to complement and further strengthen its portfolio through the introduction of innovative products relevant to adult smokers.

PMFTC, a joint venture between PMI and Fortune Tobacco Corp. of taipan Lucio Tan, also intends to leverage on a superb nationwide distribution network that will continue to enable efficient trade coverage and effective penetration of its brands across the country.