Duty Free store in Cebu among 6 losing outlets

CEBU, Philippines - The Duty Free Philippines Corporation (DFPC) outlet at the Waterfront Cebu City Hotel and Casino was among the six provincial outlets identified by the Commission on Audit to have incurred losses last year.

  In its 2015 audit report, COA said that six provincial outlets of DFPC did not make money resulting in total net losses of P31.945 million. The amount was 32.33 percent higher than the P24.141 million net losses in 2014.

The Waterfront outlet has incurred over P18 million losses in 2015. The other DFPC losing outlets are Embarcadero de Legaspi in Legaspi City; Market Mall Store in Puerto Princesa, Palawan; Clark International Airport Pre-departure and arrival area in Pampanga; Laguindingan International Airport in Cagayan De Oro City; and Laoag International Airport.

DFPC is mandated to operate the duty and tax-free merchandising system in the Philippines to augment the service facilities for tourists, generate foreign exchange and revenue for the government as established by the Department of Tourism under Executive Order No. 46.

As of December 31, 2015, DFPC was operating 18 stores nationwide, including three in Cebu--Waterfront Hotel, SM City Cebu and Mactan Cebu International Airport.

 "Of the three DFPC stores operating at Cebu City, only the store at Waterfront Hotel sustained a loss amounting to P18.710 million," read the COA report.

 Expenses of the losing regional stores were from 124.23 to 398.08 percent of gross profit on sales, resulting in substantial net losses of 24.23 to 298.08 percent of gross profit.

 Total expenses of the store at the Waterfront Hotel was P29.005 million consisted mainly of the cost of rent and Concession Privilege Fee (CPF) amounting to P11.185 million or 38.56 percent and P1.827 million or 6.30 percent of total expenses, respectively. CPF is part of rent expense computed on net sales.

 The outlet also incurred high cost of personal services in the amount of P5.801 million or 19.99 percent of total expenses. Other material expenses incurred by the store were security services of P2.040 million and amortization of leasehold improvements of P1.692 million.

 In MCIA, total expenses of the store went up to 99.65 percent of gross profit on sales. This was due mainly to the CPF of P41.838 million which was 50.98 percent of total expenses.

 COA said the increase in the CPF was due to the change in the management of the airport.

 The Department of Transportation and Communication (DOTC) and Mactan Cebu International Airport Authority (MCIAA) entered into a Concession Agreement on April 14, 2015 with GMR-Megawide Corporation granting the latter the exclusive right and authority to operate, develop, upgrade, modernize, finance and manage the airport.

 The Concession Agreement executed between DFPC and the private company provided that a minimum CPF of 10 percent of gross sales shall be paid by DFPC effective November 1, 2014 to May 31, 2017. From June 1, 2011 to October 31, 2014, DFPC had been exclusively operating duty free shops at the airport with CPF at only five percent of gross sales.

As COA noted in 2014 Annual Audit Report, it still observed during its inspection in 2015 that there was no wide array of merchandise for sale.  Only a few brands of chocolates, cigarettes and wines were reportedly on display.

 DFPC is mandated to remit a minimum of 50 per cent of the annual net profits to the Office of the Department of Tourism Secretary to fund tourism programs and projects, in lieu of its statutory remittance to the national government under Republic Act No. 7656, 70 percent of which shall be given to the Tourism Promotions Board.

 "The mandatory contribution of DFPC to DOT depends on the results of operations of the former. As a government business enterprise, it is expected that the bottom line of DFPC's operations is income and not loss," COA said.

 The DFPC commented that they were aware of the losses incurred by the mentioned stores. However, they cannot stop its operations and give up the spaces due to the need to comply with its mandate as provided for under Tourism Act of 2009; and its commitment to support the DOT in its endeavor to showcase the Philippines.

 DFPC also endeavors to lessen the losses by necessary cuts in the operating expenses. — (FREEMAN)