Sampoerna Remains Committed to Long-Term Investments, Sustainability, and Economic Value Creation for the Tobacco Industry Amid Various Challenges
Jakarta, 1 November 2022 – PT Hanjaya Mandala Sampoerna Tbk. (“Sampoerna” or “the Company”/IDX: HMSP), as a corporate citizen that has been operating for 109 years in Indonesia, is committed to contributing to Indonesia with long-term investments, increasing economic value for the entire tobacco industry ecosystem, as well as for a broad range of stakeholders through the Company’s sustainability programs. Since 2005, the Company has invested a total of around US$ 6.1 billion in Indonesia.
President Director of Sampoerna Vassilis Gkatzelis, at the Company’s Public Expose on Tuesday (1/11), conveyed his utmost appreciation to the Indonesian government for its great work in ensuring post-pandemic national economic recovery. He further said, “Sampoerna is committed to supporting the government in accelerating national economic recovery through sustainable, long-term investments. Our investments in Indonesia are a vote of confidence in the archipelagic nation’s investment climate and economy. We believe that sustainable investment can create added value for the Indonesian economy, as well as open new job opportunities.”
“The realization of the US$166.1 million investment in a production facility for IQOS tobacco sticks under the HEETS brand in Karawang is on track. In addition to the investment to build the HEETS production facility that will become the 7th factory in the world, we are also committed to creating economic added value consisting of research capacity improvement, local tobacco supply purchase, operating a digital service center, traditional retailers’ development, and providing entrepreneurship training for Indonesian MSMEs,” Vassilis said.
The investment for a production facility that has been built since 2021 is scheduled to be operational in the fourth quarter of 2022 to supply both domestic and the Asia-Pacific export markets. This HEETS production facility will strengthen the Company’s export performance which currently reaches around 40 destinations globally.
On top of investing, Sampoerna has also implemented a comprehensive portfolio of initiatives under Sampoerna Untuk Indonesia (Sampoerna for Indonesia) sustainability umbrella program. The commitment is reflected in four sustainability pillars, namely driving operational excellence, managing social impact, reducing environmental footprints, and business transformation.
In the first pillar, for example, the Company has introduced Good Agricultural Practices (GAP) to around 22,000 farmers through its supplier. In managing social impact, Sampoerna has been long committed to developing Indonesian MSMEs through Sampoerna Entrepreneurship Training Center (SETC) and Sampoerna Retail Community (SRC). SETC has provided entrepreneurship training for over 64,000 participants across Indonesia, while SRC has around 200,000 retailers as members across all provinces in Indonesia as of the end of September 2022.
As part of the efforts to reduce environmental footprint, Sampoerna is committed to achieving zero waste to landfill (2024) and carbon neutrality (2025). Last but not least, under the business transformation pillar. Sampoerna, alongside its corporate parent Philip Morris International (PMI), continues to innovate and provide scientifically substantiated, non-combustible products that represent better alternatives for adult smokers who decide to continue consuming tobacco and nicotine-containing products.
Sampoerna, as one of the major players in the Indonesian tobacco industry with a significant economic impact throughout the industry chain, has recorded a market share of 28.0% until the end of third quarter of 2022 (YTD), with a total shipment volume of 65.6 billion cigarettes. The Company reported net revenue of Rp83.4 trillion, up by 15.0% compared with the same period last year.
Vassilis said that Sampoerna saw a sequential, quarter-on-quarter improvement in sales volume performance, market share, and revenue in YTD September 2022. This performance was driven by the Company’s strong portfolio in Sampoerna A, Dji Sam Soe, and the Marlboro brand families. In addition, Sampoerna continues to strengthen its sales network throughout Indonesia, including by increasing access to digitalization through the Sampoerna Retail Community (SRC) ecosystem with a coverage of around 200,000 traditional retailers spread across all provinces in Indonesia.
“Sampoerna is currently facing challenging dynamics, mainly due to the excise tax increases well above the inflation rate, as well as the widening excise tax gap between volume tiers, especially with the volume tier 2 machine-made kretek cigarette segment which has an excise rate of ~40% lower than volume tier 1 (V1). These factors, coupled with the weakening purchasing power of adult smokers due to the pandemic, have led to a significant downtrading trend as adult smokers have switched to products with lower excise tariffs and lower prices,” said Vassilis.
The market share and sales volume of V1 products have decreased significantly since 2019. This contrasts with the increasing market share for products with lower excise tariffs and lower prices (volume tier 2 and volume tier 3), from 20% in 2019 to 36% in the third quarter of 2022. Such condition has had a direct impact on the Company’s financial performance, causing Sampoerna’s net profit to decline over the last three years.
Vassilis added, “Sampoerna’s profitability has shown signs of stabilization and a sequential, quarter-on-quarter improvement, but overall, it is still significantly below pre-pandemic levels. Sampoerna recorded a net profit of Rp4.9 trillion in the first three quarters of 2022, or down by 11.7% compared to the same period in the previous year, mainly due to the inability to fully pass-on excise tax increase to the adult smokers.”
In consideration of the direction of excise policy and the acceleration of the downtrading trend over the last 3 years, an intervention in excise policy is very important to address objectives of economic recovery, public health, employment, and state revenue.
Fiscal policy is one of the key elements to secure investments and business sustainability of Volume Tier 1 manufacturers, which directly impact employment, state revenue, and maintain a balance of value for the entire tobacco industry ecosystem chain including, among others, absorption of tobacco and clove, the provision of goods and services from local suppliers, the development of traditional retailers and the improvement of export performance.
Throughout 2021 Sampoerna paid a total of Rp78.7 trillion in taxes and, from the first quarter to the third quarter of 2022, the Company paid Rp66.2 trillion, consisting of excise tax, value-added tax (VAT), regional tax, and income tax.
About PT HM Sampoerna Tbk. (Sampoerna)
Established in 1913, Sampoerna – an affiliate of Philip Morris International Inc. – is the leading Indonesian tobacco company in the 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 66,000 people, mostly in the production of hand-rolled kretek cigarettes. Sampoerna sells and distributes cigarettes through 110 location of zone branch offices, sales offices, and distribution centers as well as 25 third-party Exclusive Zonified Distributors (EZDs) 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.