Sampoerna plans gradual retail price increase
The Jakarta Post, Jakarta
PT Hanjaya Mandala Sampoerna Tbk., the country's second largest cigarette producer, is gradually raising prices to allow consumers to absorb the impact of a government-mandated price hike, according to president director Martin King.
"There are going to be rises... but it will be done in a smooth manner taking into account consumers," he said after the company's annual general shareholders meeting on Monday.
But King declined to provide details of the timing and amount of the planned increases due to reasons related to competition, saying that the firm had already increased prices during the month.
Earlier this month, the government announced it would increase the cigarette retail price, used as a basis to charge excise duty, by 15 percent starting on July 1.
The move is aimed at boosting the government's excise revenue from Rp 29.1 trillion as previously planned to Rp 31.4 trillion this year. Excise duties, of which more than 95 percent come from cigarettes, account for roughly 10 percent of all domestic taxes.
The government also said the raise was aimed at discouraging teenagers from smoking. About 36 percent of Indonesian males under 15 years of age smoke, according to the World Health Organization. The Association of Indonesian Cigarette Producers (GAPPRI) estimates there are 141 million active smokers in the country.
Earlier last week, Gudang Garam, the country's largest cigarette seller with a 28.3 percent market share, increased prices by 2.7 percent to maintain its margins.
Although Sampoerna, which has a 21.7 percent market share, could choose not to increase prices, doing so would cut into the companies' bottom line and profit margins.
"We must increase prices if we want our balance sheet to remain solid," said Sampoerna director Angky Camaro.
He added that the company hoped to gradually pass on the full impact of the price hike to consumers, while at least maintaining the level of last year's sales of 41.4 billion cigarettes.
"We hope the gradual increase will not affect our sales target for the year," said Angky, declining to specify the target.
King, who was named president director following the acquisition of Sampoerna's 98 percent shares by Philip Morris Indonesia, also declined to comment on speculation that Sampoerna would either delist from the Jakarta Stock Exchange or issue more shares.
However, he said that for now, the company was committed to fulfilling all the requirements of a publicly-listed company and delivering value to its shareholders, which included the 2 percent minority.
In May, following the $4.8 billion acquisition by PMI, which is a unit of Altria, the Jakarta Stock Exchange decided not to count Sampoerna's shares in the calculation of its benchmark Jakarta Composite Stock Index, because the company's free- floating shares fell below 3 percent.
King also declined to specify any company targets for the year, citing that it would be "inappropriate" in light of the competition.
He said, however, that the company intended to maintain the momentum of its strong first quarter results.
During the first quarter of the year, Sampoerna's net sales increased by 28.3 percent to Rp 5.72 trillion from Rp 4.1 trillion during the same period last year. This rise led a net income of Rp 752 billion, up 32.4 percent from Rp 568 billion.
The company also agreed to issue a final dividend of Rp 275 per share in addition to its interim dividend of Rp 175, which was paid last December. Last year's total dividend of Rp 450 per share represented a 99.11 percent dividend payout ratio of the company's 2004 net income of Rp 1.99 trillion. (002)