Merged tobacco firm hikes sales above expectations, 13/07/10

THE PHILIPPINE unit of Philip Morris International, Inc., its third biggest by volume around the world, has increased sales faster than the local industry’s average annual 2%-3% growth, its president said yesterday.

In February, Philip Morris merged its Philippine manufacturing operations with unlisted local leader Fortune Tobacco Corp., taking a 50% stake in the new company Philip Morris Fortune Tobacco Corp. (PMFTC), which controls about 90% of the local tobacco market.

“I think they are above what we expect,” Chris J. Nelson, president of PMFTC, told Reuters on sales volumes this year, but declined to give exact figures.

“This year will be somewhat stronger. I think it started off well. I think that’s because of the investments going in, and because of the spending.”

Consumer spending has been strong this year, helped by rising remittances from overseas workers and spending related to the national elections in May.

“The economy is in better shape,” Mr. Nelson said.

Prior to the merger with Fortune Tobacco, Mr. Nelson said the Philippine unit was just within the top 25 globally by volume for Philip Morris, which distributes its products in 160 countries and is the world’s largest non-state-owned tobacco group.

Mr. Nelson said his company was ready to help President Benigno Simeon C. Aquino III, a smoker who took office on June 30, improve the collection of taxes on tobacco sales to shore up weak revenue.

About 85 billion cigarettes are sold each year in the Philippines, and the tobacco industry accounts for around 5% of total government revenues.

Philip Morris is proposing the government adopt a digital technology it has devised which gives each cigarette pack a unique code to ensure the correct taxes are paid. The system has minimal costs for the government and manufacturers, Mr. Nelson said.

“We are obviously happy to bring it and to give to the other manufacturers … It’s the solution that we see as a tracking and tracing method for the government,” Mr. Nelson said. “It would achieve the government aims at a fraction of the cost of the previous proposal.”

The head of the main tax agency said last week the government was no longer considering adopting a security stamp tax on cigarettes due to the high cost for both the government and manufacturers.

The government wants to impose a simpler tax rate structure for tobacco products and adopt an indexing feature allowing for taxes to rise with the price of the product, but Mr. Nelson said a fixed tax was best for the industry. — Reuters

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