Philip Morris-controlled Sampoerna Seeks Wider Indonesia Reach with Stronger Cigarettes

Source from:  Reuters 01/21/2016

PT Hanjaya Mandala Sampoerna Tbk plans to aggressively market stronger-flavoured cigarettes this year, its top executive said, as Indonesia's biggest tobacco firm seeks to extend its dominance of one of the world's fastest growing markets for cigarettes.

Sampoerna, estimated to account for a third of overall cigarette sales in Indonesia, is a major source of revenue for its controlling shareholder, U.S. tobacco giant Philip Morris International Inc.

Last year, Sampoerna launched its stronger "U Bold" cigarettes in 10 cities across the populous island of Java and President Director Paul Janelle told Reuters this roll-out would now be extended further.

"Historically I have to admit full flavours have always been difficult for Sampoerna. The competitive landscape has very strong brands there," Janelle said in an interview on Wednesday. "But we've made some very good inroads."

Sampoerna competes with PT Gudang Garam Tbk and privately held Djarum Group.

Around $16 billion worth of cigarettes were sold in Indonesia, a country of 250 million people, last year - a 13 percent increase from 2014, according to consultancy Euromonitor.

Tobacco demand weakened slightly last year as growth in Southeast Asia's biggest economy slowed, but Janelle said he expected the economy to pick up this year thanks to higher government spending.

"The initial signs are that things are looking better in 2016," said Janelle, a Canadian who joined Philip Morris in 1991.

The company had to close two factories in East Java and cut production capacity at its third-party operators over the past two years partly due to shifting consumer preference away from hand-rolled cigarettes, but Janelle said it currently has no plans for further job cuts.

Sampoerna is Indonesia's largest listed firm, with a market value of around $30 billion after it sold shares last year to meet the stock exchange's minimum free-float rule. Philip Morris owns 92.5 percent, and the rest is in public hands.

The government has raised excise taxes for big cigarette companies including Sampoerna by an average 15 percent this year, higher than the average 10-11 percent in previous years.

Janelle described excise taxes as his biggest worry but declined to give details on what Sampoerna planned to do to offset the increase in taxes. He said the industry usually passes part of it to consumers.

Tobacco taxes account for almost 10 percent of government revenues, official data shows. Enditem