Altria to boost output of high-tar clove cigarettes

Altria to boost output of high-tar clove cigarettes

Bloomberg, Jakarta

Altria Group Inc.'s Philip Morris division, the world's biggest
cigarette maker, may increase production of cigarettes with
higher tar and more nicotine as the company enters Indonesia's
US$7.4 billion market for clove-flavored kretek cigarettes.

Philip Morris International Inc.'s $5.1 billion offer for PT
HM Sampoerna, announced on March 14, would give the New York-
based company 19 percent of the Indonesian market for kretek, the
type favored by nine out of 10 of the country's 141 million
smokers.

Altria Chief Executive Officer Louis Camilleri said he plans
to invest in increasing kretek production capacity.

As U.S. sales of tobacco decline amid lawsuits and health
concerns, Philip Morris is expanding in the world's fifth-largest
cigarette market, where there is no age limit and few other
restrictions on smoking.

Sampoerna's top-selling Dji Sam Soe brand, an unfiltered,
hand-rolled kretek, has more than twice the tar and nicotine of
Philip Morris's Marlboros.

Sampoerna, the nation's third-biggest cigarette maker, PT
Gudang Garam, the biggest, and PT Djarum control more than 80
percent of the market in Indonesia, according to the Association
of Indonesian Cigarette Producers (GAPPRI).

Only 8 percent of Indonesia's smokers prefer Western brands
such as Marlboro, which Philip Morris this week said accounts for
50 percent of the non-clove cigarettes sold in the country.

"I wish we had the power to change the consumers," Matteo
Pellegrini, Philip Morris's president for Asia Pacific, said on
Monday. But "in Indonesia, kretek are part of the fabric and the
tradition. The kretek market is growing."

Kretek cigarettes deliver more nicotine, carbon monoxide and
tar than conventional cigarettes, the U.S. Center for Disease
Control said in a July 2004 fact sheet on its Website.

Dji Sam Soe contain tar levels as high as 39 milligrams per
stick and deliver as much as 2.3 milligrams of nicotine. That
compares with 14 milligrams of tar and 1 milligram of nicotine in
Philip Morris's top-selling Marlboro brand in Indonesia.

"With regard to kretek and whether cloves have more harmful
compounds than tobacco, our internal assessment suggests that
there is no difference whatsoever," Altria Chief Executive
Camilleri said on Monday conference call.

"We have been very clear in every country in which we do
business that there's no such thing as a safe cigarette," David
Davies, senior vice president for Philip Morris, said on Tuesday
by telephone. "A low-tar cigarette is no safer than any other
cigarette and consumers should simply be guided by an
understanding that there is no safe cigarette."

Indonesia produced 214.6 billion cigarettes last year, 196.2
billion of which were kretek, according to the GAPPRI.

Sampoerna sold 41.38 billion cigarettes last year, a 13
percent increase from a year earlier. Sales of its A Mild brand
rose a quarter to 16.68 billion, while sales of Dji Sam Soe rose
4 percent to 16.81 billion.

Philip Morris this week said the 40 percent stake it bought in
Sampoerna came mostly from shares owned by the Chairman Putera
Sampoerna, 57, a grandson of the founder. Philip Morris said it
is offering Rp 10,600 a share for the remaining 60 percent, and
plans to complete the purchase within 90 days.