Sampoerna predicts fall of machine-rolled products 20%

JAKARTA (JP): Publicly listed cigarette maker PT HM Sampoerna expects a 20 percent decline in the sales of its machine-rolled cigarettes this year as many consumers are switching to cheaper hand-rolled ones.

The company's finance director and chief financial officer, Ekadharmajanto Kasih, said the change would, however, increase the sales of its hand-rolled brands by about 20 percent.

"People prefer to buy hand-rolled cigarettes due to the sharp increase in the price of machine-rolled cigarettes," Eka said after the company's shareholders meeting.

He said that the prices of machine-rolled brands had increased sharply because 30 percent of their raw materials, such as cigarette paper, were imported.

He said that the sales of Djisamsoe, one of Sampoerna's main hand-rolled brands was expected to increase by at least 20 percent this year.

Eka said that the company made Rp 700 billion (US$47 million) in net sales in this year's first quarter, an increase of 16.7 percent compared to Rp 600 billion in the same period last year.

"The increase in net sales was generated from selling 6.6 billion cigarettes compared to six billion cigarettes in the same period last year," Eka said.

But he declined to make any financial projection for 1998, saying that the sales had dropped by at least 20 percent since May and were still fluctuating this month.

Eka said that the shareholders meeting also agreed to empower the company's board of directors to perform preparatory actions to increase the company's capital through a rights issue, if needed.

He said the move was a contingency plan in case the value of the rupiah continued to fall. This would cause the company's foreign debts to soar.

"We can still pay our debts if the rupiah is traded at Rp 7,000 per U.S dollar. But if the situation gets worse there will be a capital deficiency and we will need fresh funds to strengthen our capital," Eka said.

He said the rights issue might be implemented if the rupiah reached Rp 20,000 per U.S dollar.

He said the company had total liabilities of US$400 million at the end of 1997, which were all hedged at Rp 2,450 against the dollar in June last year.

"Sampoerna pays about $50 million in interest and hedging premiums per year and the company does not have any problem at all with interest payments," he said.

Eka said that the company would not pay a dividend for 1997 as most of the earnings would be retained to strengthening the capital.

"We think the company will survive longer with stronger capital. I hope the effort will enable our company to cope with the current crisis," Eka said.

Sampoerna's net profit plunged 94 percent to Rp 20.34 billion last year from Rp 396.54 billion in 1996 despite the increase in net sales to Rp 3.1 trillion from Rp 2.36 trillion.

He said the decline was partly due to the increase in the company's operating costs and foreign exchange losses. Total foreign exchange losses and swap costs jumped 1,638 percent to Rp 426 billion last year from Rp 26 billion in 1996. (gis)