Sampoerna supports the Government’s efforts to overcome the pandemic and drive the local and national economy, which include maintaining the business stability and continuity of Hand-Rolled Kretek Cigarette (SKT) segment that has broad impact on job creation.
Jakarta, September 9, 2021 – Throughout 2020 and up to the 1st half of 2021, PT Hanjaya Mandala Sampoerna Tbk. (“Sampoerna” or “Company”/BEI: HMSP) continues to strengthen its commitment to navigate during the pandemic by managing the company's business performance and operations in the midst of a dynamic and challenging situation during the Covid-19 pandemic. This commitment is supported by measurable strategies and tactical decisions taken by Sampoerna to maintain business stability, ensure employee safety through vaccination and other programs, and to support national economic recovery.
President Director of Sampoerna, Mindaugas Trumpaitis explained that the COVID-19 pandemic has unfavorably impacted the Tobacco Products Industry (IHT) that represents approximately 4% of total employment of the country . The negative impact of the pandemic was amplified by the impact of the double-digit excise tax increases over the last 2 years. The current situation of the IHT segment remains very vulnerable, hence, the decision on excise tax policy for 2022 will be crucial for business sustainability and employment in the tobacco sector.
“The performance of the IHT in 2021, after experiencing close to a 10% decline in 2020, is still highly influenced by the unfavorable impacts due to negative Covid19 affects. With regard to this, the Government needs to particularly mull over the plan to raise excise tariffs in 2022 in order to enable the IHT to recover from the crisis and take part in the national economic recovery and securing employment” said Mindaugas in the virtual Public Expose on Thursday (9/9).
By implementing concrete strategies, Sampoerna’s performance in the first semester of 2021 showed an increase in net sales of 6.5% to Rp47.6 trillion. However, due to significant increase in excise tariffs, the Company’s gross profit in the same period experienced a decline of 9.3% in comparison to semester 1 2020. This resulted in a decline in the Company’s net profit of 15.4% to Rp4.1 trillion in semester 1 2021.
“The reduced people mobility and negative economic impact on population have impacted the Company’s financial condition and tax contributions. Despite the challenges, Sampoerna strives to maintain business stability by continuing its commitment to strengthen innovation and investment strategy, including in the Hand-Rolled Kretek Cigarette (SKT) portfolio,” explained Mindaugas.
To ensure the continuity of the labor-intensive SKT segment, Mindaugas hopes the Government will exempt SKT from the increases in excise tariffs and Retail Price (HJE) in 2022. This will improve the competitiveness of SKT against machine-made cigarettes. Not only is it labor-intensive, the workers in the SKT segment are predominantly female who are most at risk when the industry is facing pressure. Therefore, it is very important to maintain policy that protects the continuity of the SKT segment next year.
“Sampoerna highly appreciates the Government’s decision to not raise excise tariff increase for SKT in 2021. This has allowed Sampoerna to grow its SKT production capacity through third-party operators and have absorbed over 6,000 additional workers. We believe that the increase in the number of workers in the SKT industry and protection of this segment are in line with the Government’s priorities,” said Mindaugas.
At the same time, Mindaugas further explains, “The plan to raise state income target from excise by 11.9% next year is part of the Government’s efforts for the recovery of national economy. This plan should be complemented with policies to avoid sole reliance on the tobacco products industry. In addition, the Government needs to continue reforming excise structure to increase the productivity of tax increases which significantly slid down vs past years; particularly, for the machine-made cigarettes segment,”.
Over the past three years there has been a further downtrading, whereby adult smokers switch to products with lower excise tariff and price. This has caused Sampoerna’s market performance to decline by 1.3 percentage points to 28.0%. However, Sampoerna A, the Company’s main product, and its SKT portfolio experienced an increase in market share by 0.5 percentage points to 12.5% and 0.3 percentage points to 7.0% in semester 1 2021.
The downtrading acceleration is further caused by the difference between excise tariffs between Tier 1 and Tier 2 machine-made cigarettes that has increased to approximately 40% in comparison to the lowest tariff in Tier 2. This condition has caused sales of Tier 1 companies that pay the highest rate of excise tariff to decline, and as a result, reducing state income from excise.
“The Government can optimize excise income and overcome further downtrading in the machine-made cigarette segment by, among others, reducing the difference in excise tariffs between the Tier 1 and Tier 2 machine-made cigarettes, and resuming the plan to combine production threshold for Machine-made Kretek Cigarettes (SKM) and White Cigarettes (SPM) as previously planned to be implemented in 2019,” said Mindaugas.
Mindaugas further says, “A moderate increase in excise tax in 2022 would support the sustainability of the industry and provide room to recover from the impacts of the COVID-19 pandemic. The Government should be mindful that an excessive excise tax increase in the current economic environment might trigger the increased demand and presence of the illicit cigarettes. Sampoerna hopes that in 2022, the Government reinstates the multiyear excise policy roadmap which would create a more predictable business environment and in that way help attract more investment,”.
Sampoerna Supports Vaccination Program
To maintain the stability of the Company’s operations and business during the pandemic, Sampoerna is actively supporting vaccination program for its employees, which includes tens of thousands of cigarette hand-rolling workers in SKT industry. By the beginning of September 2021, around 65,000 direct and indirect employees of Sampoerna have received at least the first dose of vaccinations. Sampoerna believes this initiative is supportive of the Government’s efforts to reach herd immunity, albeit affecting the Company’s operational costs. Prioritizing the well-being of workers is in line with one of the Government’s five considerations for excise target increase in 2022 on the aspect of manpower, specifically workers in the IHT.
Moving forward, Sampoerna will continue to support the Government’s efforts in accelerating the economic recovery in Indonesia through creating synergy between all stakeholders, including its employees, business partners, and the society at large.
About PT HM Sampoerna Tbk. (Sampoerna)
Established in 1913, Sampoerna – an affiliate of Philip Morris International Inc. – is the leading Indonesian tobacco company on manufacturing and trading of kretek (clove) cigarettes. Sampoerna produces some of the best known kretek brands such as Sampoerna A, the legendary “King of Kretek” Dji Sam Soe, Sampoerna U, and Sampoerna Kretek. Sampoerna also distributes products from cigarette brand Marlboro throughout Indonesia under a long term distribution agreement with PT Philip Morris Indonesia.
Sampoerna operates six production facilities located in Surabaya, Pasuruan, Probolinggo, Malang, and Karawang. Sampoerna also partners with 38 Third-Party Operators throughout Java, employing – directly and indirectly – approximately 65,000 people, mostly in the production of hand-rolled kretek cigarettes. Sampoerna distributes its products through 112 sales offices and distribution area offices across Indonesia.
Sampoerna is one of the largest issuers by market capitalization on the Indonesia Stock Exchange. Sampoerna shares are traded under the ticker symbol “HMSP”.
For more information, please visit: www.sampoerna.com
Head of Corporate Communications
PT HM Sampoerna Tbk.
Email : email@example.com