Bilyonaryo Lucio Tan is just like printing money with his 50 percent stake in Philip Morris-Fortune Tobacco Corp. (PMFTC).
Tan’s holding firm LT Group reported that its share of PMFTC’s profits hit P5 billion in the first three months of 2020, up 76 percent from P2.85 in the same period last year. (Tan merged with his rival Philip Morris in 2010 to achieve brand and cost synergies).
At this rate, Tan is expected to generate over P20 billion in profits from Fortune by the end of 2020.
That is more than four times the P4.4 billion Tan earned from Fortune in 2017, the year when Finance Secretary Sonny Dominguez gave the deathblow to Mighty Corp., the second biggest cigarette maker in the country.
Dominguez, with the help of then Customs Commissioner Nic Faeldon, cracked down on Mighty’s counterfeit tax stamps in separate raids of its leased warehouses in Bulacan, Pampanga, General Santos City and other locations in the first quarter of 2017.
Dominguez agreed to drop tax evasion charges against Mighty’s owners, the Wong Chu King family, if they paid their back taxes and leave the industry by selling their operations lock-stock-and-barrel to his designated buyer, Japan Tobacco International for $1 billion.
“Mighty Corporation was forced to sell its business to pay for a settlement of its obligations, which was around $600 million. This resulted in the biggest tax settlement ever. The favorable settlement significantly improved revenue collections in 2017,” said Dominguez in a statement.
He claimed that JTI’s acquisition of Mighty’s tobacco business has jacked up its tax payments by “an average of P2.5 billion per month.”
PMFTC’s massive profits are more impressive when you consider that its volume has been decreasing due to higher taxes to as much as P35 per pack of 20 sticks or a 1,300 percent growth since 2012.
Taxes have increased to P45 per pack this year and further to P60 per pack by 2023.
“With the government keeping the illicit trade in check, PMFTC has been able to operate at a level playing field and has enabled the company to pass on taxes and no longer price our products at economically unsustainable levels.
PMFTC’s profitability has thus returned to the 2012 level prior to the substantial increase in excise taxes and the massive proliferation of the illicit trade,” LT Group said in a statement.
Fortune’s mounting contributions have also come at an opportune time when Tan’s other businesses under LT Group (Philippine Airlines, which has been losing P1 billion a month in 2019, is not part of the holding company) are in decline. In the first quarter this year, profits of Philippine National Bank plunged 30 percent to P1.37 billion, and Asia Brewery slipped by 10 percent to P74 million.
Tan is increasingly dependent on Fortune for profits as it accounted for 80 percent of LT Group’s P6.21 billion net income in the first quarter.
Fortune accounted for 40 percent of LT Group’s profits in 2017, 50 percent in 2018, and 67 percent in 2019.