PHILIPPINES. Duty Free Philippines (DFP) expects a +3% growth in net profits this year, despite rising operating costs and the effect of the country’s controversial new “˜sin tax’. And it is set to unveil a range of new-look stores* and speciality sections.
“We project full-year net profits to hit PHP650 million (US$11.9 million) to surpass last year’s PHP632 million (US$11.6 million),” DFP General Manager Michael Kho told local reporters last week.
He said the erosion of the price-saving advantage over local retailers caused by December’s sin tax, allied to rising operating costs, made for a challenging business environment.
As reported, in December President Gloria Macapagal-Arroyo approved the new tax on “˜duty free’ products, which is designed to raise an additional PHP15 billion (US$267 million) in annual excise taxes on alcohol and tobacco products. The new legislation puts approximately US$4 on a carton of 200 premium cigarettes or US$9 on a bottle of Johnnie Walker Black Label Scotch whisky. Over 70% of Duty Free Philippines’ sales are generated on arrival, mainly to overseas Filipino workers.
“The higher tax rates on excise and sin taxes, in the case of cigarettes and liquors, have slightly diminished our price advantage over other retailers,” Kho said.
However, Kho said he was hopeful that planned improvements in existing stores allied to the introduction of new brands, products and specialty sections this year will enable DFP to hit its US$150 million sales target for 2005. That would represent an increase of +8.6% over last year’s US$142 million.
Kho said that sales had performed better last year than for nearly a decade. “It is the first time since 1995 that DFP experienced revenue growth of +3% (up from 2003’s US$132 million). One-time rebate deals from suppliers enabled us to book higher sales. Profits, however, are still on a decline [in 2004] amid higher operating costs, largely due to higher rental fees.”
*COMING SOON ON THE MOODIE REPORT: One of Duty Free Philippines’ leading concessionaires, Chim Esteban’s Landmark Management P&C, talks about forthcoming retail developments and why the Philippines duty free market is set for an exciting new phase.
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