BAT forecasts gloomy business ahead

Rendi A. Witular, The Jakarta Post, Jakarta

Cigarette and tobacco producer PT British American Tobacco (BAT) Indonesia said that sales in 2003 would remain weak due to a higher excise rate and weak consumer demand.

"This year will be another challenging year, with the company reinvesting in the business to contain the decline in volume, which will impact our profitability in the short term," BAT Indonesia president Frederick W.C. Combe told reporters on Tuesday.

The government revised in January the excise rate for Class I white cigarettes to between Rp 50 to Rp 75 per stick, and set the minimum price of cigarettes at Rp 250 per stick. The policy is aimed to meet this year's excise revenue target of Rp 27.9 trillion.

Cigarette companies under the Class I category have an installed production capacity of more than 2 billion sticks of cigarettes per year.

Analysts have said that the higher excise tariff would weaken demand, as consumers' purchasing power had been weakened by the slow recovery in the country's economy.

BAT Indonesia's audited 2002 financial report shows that the company suffered a slowing sales volume, with sales for 2002 falling to Rp 688 billion from Rp 713 billion in 2001, and total cigarette sales at 7.5 billion sticks, a drop from 9.4 billion in 2001.

Thanks to an increase in price margin and improved efficiency, however, BAT Indonesia still managed to enjoy a slight increase in its net profit, from Rp 113 billion in 2001 to Rp 118 billion in 2002, and disbursed a dividend of Rp 200 per share.

To anticipate a difficult year, BAT Indonesia launched a restructuring program in January, including cutting 15 percent of its workforce, or about 130 employees.

The company will also focus on increasing its tobacco leaf export to 11,200 tons, expecting to net around US$17 million.

BAT Indonesia's first quarter earnings plunged by 28 percent to Rp 20.9 billion from Rp 29.4 billion in the same period last year.