Gudang Garam ups prices before tax increase

Gudang Garam ups prices before tax increase

Bloomberg, Jakarta

PT Gudang Garam, Indonesia's biggest cigarette maker, raised
prices by as much as 2.7 percent this month to cope with a
planned tax increase, said a company director.

Indonesia's government on June 8 said it will raise retail
cigarette prices by 15 percent from July 1 to boost revenue from
tax levies, a move that will likely dent earnings at Gudang Garam
and its rivals. The government sets the minimum price at which
cigarette makers can sell and uses the price as a benchmark to
levy excise duties.

"We decided this month to raise prices just a little," said
Heru Budiman in Pasuruan, East Java province. "This is in
relation to the government's plan to raise excise tax."

A 20 percent increase in cigarette prices and the consequent
rise in excise tax will reduce Gudang Garam's net income by 12
percent, Ben Santoso, an analyst at PT Namalatu Cakrawala
Securities, said on May 27, when the government first announced
the plan. The government initially said it may increase cigarette
prices by between 15 percent and 20 percent.

Indonesia doesn't have age restrictions on the sale of
cigarettes and allows smoking in restaurants and bars. More than
69 percent of Indonesian men older than 20 smoke regularly, the
World Health Organization (WHO) estimates.

Gudang Garam raised the price of a pack of hand-rolled
cigarettes, containing 12 sticks, by 2 percent to Rp 3,750 (39
U.S. cents), while raising the machine-rolled pack by 2.7 percent
to Rp 4,800, Budiman said. It raised the average selling price by
5 percent in February, the first increase in more than two years.

The price increase won't affect Gudang Garam's sales in 2005,
Budiman said. "We expect we will at least reach the 2004 sales
level, which was about 69 billion sticks."

Gudang Garam competes with Altria Group Inc.'s PT H.M.
Sampoerna and Djarum Group in the world's fifth-biggest cigarette
market.

Philip Morris Intl., a unit of Altria, in May completed its
$4.9 billion acquisition of PT H.M. Sampoerna, Indonesia's third-
biggest cigarette maker. Altria has said its goal is to overtake
Gudang Garam.

Sampoerna, Gudang Garam and Djarum control more than 80
percent of the market in Indonesia, according to Gappri, the
industry association.

Gudang Garam shareholders today approved paying Rp 962 billion
($99.7 million), or 54 percent of 2004 net income, as dividends,
said President Director Djajusman Surjowijono. Each share will be
entitled to a Rp 500 dividend, he said. The payment will be made
on Aug. 8.

Gudang Garam's net income fell to Rp 1.79 trillion in 2004,
from Rp 1.84 trillion a year earlier. Sales rose to Rp 24.3
trillion, from Rp 23.1 trillion in 2003. Budiman didn't give a
net income forecast for 2005.