Cigarette makers blame costs for lower profits

JAKARTA. Cigarette manufacturers have blamed higher production costs and currency fluctuations for the slow-down in their business throughout 2012.

Revenues at PT Gudang Garam (GGRM) increased by 17.1 percent to reach Rp 49.03 trillion (US$5 billion). However, their spending also increased, jumping 25.6 percent to Rp 39.84 trillion. The higher spending and losses from currency fluctuations ultimately saw the company book Rp 4.01 trillion in net profits in 2012, an 18 percent decline from the previous year. 

At a press conference last November, Gudang Garam said it expected the country’s clove harvest to improve, which should stabilize prices.

Another cigarette maker, PT Bentoel Internasional Investama (RMBA) announced that its revenues fell slightly by 2.2 percent to Rp 9.85 trillion. Along with Gudang Garam, it also posted higher costs of goods sold (COGS) last year, which were up 5.5 percent to Rp 8.18 trillion.

Bentoel said that it suffered Rp 323.35 billion in net losses, compared to Rp 306 billion in net profits in 2011. In a statement submitted to the Indonesia Stock Exchange, it attributed the net losses to the significant increase in the clove price. At the same time, it added, sales dropped as a result of higher excise duties.

Meanwhile, PT HM Sampoerna (HMSP) reported a 26 percent rise in revenues to Rp 66.63 trillion in 2012, as a result of higher sales. Last year, it managed to sell up to 107.7 billion cigarettes, a rise of 17.4 percent from 2011.

Sampoerna’s COGS were up by almost 28 percent to Rp 48.12 trillion and its net profits surged 23.3 percent to Rp 9.94 trillion in 2012. The increased COGS pushed the company’s net profits-to-revenue margin down to 14.9 percent from the previous 15.3 percent in 2011.

Separately, PT Wismilak Inti Makmur (WIIM) reported that its revenues climbed 20.9 percent to Rp 1.12 trillion from 2011, thanks to higher sales, which grew 11 percent to 2 billion cigarettes. With higher sales, the company also reported a surge in its COGS, which increased 22.6 percent to Rp 814.42 billion.

However, despite recording positive growth in revenue, Wismilak suffered from lower net profits in 2012, which slumped 40.3 percent to Rp 77.2 billion. 

Its latest financial report shows that Wismilak suffered from higher interest costs, foreign exchange losses and reduced gains from the sale of fixed assets.

According to Wismilak corporate secretary Surjanto Yasaputera, in 2011, it sold assets, such as land and houses, which in turn provided the company with a significant non-operational income.

“In 2012, we did not receive that much non-operational income,” he said in a telephone interview. The company’s gains from the sale of fixed assets stood at only Rp 6.42 billion last year, while in 2011, the figure was Rp 77.86 billion.

This year the government plans to increase excise duty by 8.5 percent. It will also require cigarette producers to start using 40 percent of their packaging for pictorial health warnings by mid 2014 as mandated by the new tobacco control regulation.

Surjanto said that the company did not expect the duty and warnings to impact significantly on sales. “Excise duty always increases, so it is not something new. With the warnings, consumers will probably be surprised at first, but then things will be back to normal,” he said.

According to Trust Securities analyst Reza Priyambada, overall, the cigarette makers faced similar problems throughout 2012 with increasing raw material prices and higher excise. “It was like they were ‘attacked’ from the top and from the bottom,” he said.

He added that the companies had time to strengthen their brands’ presence before the new tobacco rule was fully implemented.

(Tassia Sipahutar/The Jakarta Post)