Sampoerna Strengthens Investment Commitment for Sustainable Value Creation in Indonesia
In line with the Government’s priorities to encourage down-streaming, innovation, and workforce absorption to create sustainable value for the community and the broader ecosystem
Jakarta, 22 November 2023 – PT HM Sampoerna Tbk. (Sampoerna/IDX: HMSP) strengthened its position as one of the major employers, investors, and leading companies in the tobacco industry in Indonesia. This is realized through the company’s commitment to creating sustainable and long-term value for its key stakeholders: adult consumers; employees, business partners, and shareholders; as well as society at large. With 110 years of presence in Indonesia, Sampoerna has been implementing the Sustainability Principles covering Environmental, Social, and Governance topics.
“This framework is integrated into every aspect of our business and activities through the "Sampoerna for Indonesia" umbrella program to ensure our role in implementing programs that have real impacts on the economy, environmental sustainability, and society at large,” said President Director of Sampoerna, Vassilis Gkatzelis.
As a company that has invested more than US$6.3 billion in Indonesia since 2005, Sampoerna realized an additional investment earlier in 2023 through the construction of a new production facility for innovative smoke-free tobacco products in Karawang, West Java, focusing on exports to Asia Pacific and the domestic market. A month later, Sampoerna introduced the latest science-based innovation with the most advanced technology for smoke-free tobacco products, IQOS ILUMA. In Q3 2023, along with the production facility, Sampoerna also completed the establishment of a world-class R&D Laboratory with state-of-the-art facilities, specifically for innovative smoke-free tobacco products. "These milestones are major steps in providing scientifically substantiated, smoke-free products that, although not risk-free, represent better alternatives for adult smokers who would otherwise continue to smoke," Vassilis said.
The realization of this investment is part of Sampoerna’s efforts to support the government's priority to encourage investment, increase exports of finished products with a high added value, and enhance the industry down-streaming. “Sampoerna’s long-term investment is proof of our vote of confidence in the investment climate of Indonesia. We are delivering our commitment to creating economic value and social impact through R&D capability expansion, advancement of scientifically substantiated smoke-free products, job opportunities for highly skilled workers, purchasing local tobacco supplies, MSMEs development, operating a digital hub, as well as increasing export performance,” said Vassilis.
National Tobacco Industry Dynamics
Aligned with the company’s commitment to value creation for its stakeholders, Sampoerna also strives to maintain its competitive position and address pressure in the broader tobacco industry, mainly due to the impact of double-digit cigarette excise tax increase that is significantly above the inflation rate, the widening excise tax gap between Volume Tier 1 (V1) vs. the lower-taxed Below Volume Tier 1 segments, as well as the increase in circulation of illegal cigarettes. Overall, in the period January to September 2023, the industry’s cigarette volume declined by 5.0% compared to the same period last year.
Meanwhile, the hand-rolled clove cigarettes (SKT) segment has started to show signs of recovery with the market share going up to around 27% until Q3 2023. SKT segment’s improvement has started in the past few years after experiencing a continuous decline in terms of market share from 37% in 2006 to 17% in 2019. The SKT segment recovery is supported by the Government's excise tax policy for tobacco products, especially since 2021, which considers employment absorption.
Absorption of Tens of Thousands of New Workforce with the Opening of SKT Production Facilities
In line with the SKT segment recovery, as the manufacturer of Dji Sam Soe and Sampoerna Kretek SKT brands, Sampoerna announced its plan to create additional employment for tens of thousands of new workers for SKT production facilities that will be spread in East Java, Central Java, the Special Region of Yogyakarta, and West Java provinces. The workforce absorption will directly open new job opportunities and create multiplier effects for the local communities.
This plan will be first realized with a new Sampoerna SKT production facility in Blitar City, East Java, and in Tegal Regency, Central Java, with operations scheduled to commence in H1 2024. Currently, the decision on the locations and preparations are ongoing, including the plan to recruit employees.
"As a company that has been operating for 110 years in Indonesia, the new addition to Sampoerna's SKT production facilities through an investment of up to Rp638 billion (around US$42 million) will strengthen Sampoerna's SKT portfolio which has been present since 1913. With a total new workforce of tens of thousands of workers, directly and indirectly, we are optimistic that this action by Sampoerna will increase employment opportunities in the formal sector for the local community while creating a strong multiplier effect for economic development and becoming one of the growth drivers in those regions," said Vassilis.
"We appreciate the Government's efforts to ensure a conducive, sustainable and predictable business and investment climate in Indonesia, including policies that are encouraging for the performance of SKT’s labor-intensive sector. This effort delivers a direct positive impact on employment creation in the formal sector and regional economic turnover which contributes to further improving the national economy," continued Vassilis.
On separate occasions, Sampoerna has conveyed this plan to the Heads of Regional Governments and to relevant local agencies. "We are thankful for the positive response and the support of the local government for our investment plan to increase the workforce absorption in Blitar City and Tegal Regency. We hope that the support from local and national government continues through policies that are supportive of the labor-intensive SKT industry sector,” Vassilis added.
Currently, Sampoerna operates 4 SKT manufacturing facilities in Surabaya, Malang, and Probolinggo; 2 machine-made cigarette production facilities in Pasuruan and Karawang; and 1 innovative smoke-free tobacco product production facility in Karawang. In addition, Sampoerna also partners with 38 Third-Party Operators (TPO) across 28 regencies/cities in Java. TPOs are owned and operated by local entrepreneurs and/or local cooperatives to produce Sampoerna's SKT brands. Sampoerna currently has more than 76,000 direct and indirect employees, about 90% of whom are working in the SKT production facilities.
In addition to opening Sampoerna’s new SKT production facilities in Blitar City and Tegal Regency, there will be additional employment of tens of thousands of people in existing TPOs in East Java, Central Java, the Special Region of Yogyakarta, and West Java, as well as with the opening of 5 new TPOs in East Java and Central Java in H1 2024.
"In 2024, our partners in SKT manufacturing will be 43 TPOs for SKT production spread across 31 Regencies/Cities in Java. Sampoerna’s new SKT manufacturing facilities and additional TPOs will not only add new partnerships with local entrepreneurs/cooperatives as well as open new employment opportunities but will also increase raw materials absorption of tobacco and clove from Indonesian farmers. As is known, hand-rolled cigarettes require twice as much tobacco and cloves as machine-made cigarettes," explained Vassilis.
Vassilis said, Sampoerna consistently supports the welfare of SKT employees. "We are proud of Sampoerna's consistent value creation in Indonesia for 110 years. The vast majority of our SKT employees are women, with most of them carrying a dual role as the backbone of their families," said Vassilis.
The sustainability of the national tobacco industry relies on a predictable, evidence-based framework for investment and business. In this respect, excise policy, tobacco product regulations, and broader policies that enable innovation, technology, and science to benefit adult consumers, manufacturers, and the entire value chain are essential. These will also have a direct positive impact on employment and utilization of tobacco and cloves, creating economic value at regional and national levels.
"We hope that the additional tens of thousands of new workforces through the opening of Sampoerna’s factories in Blitar City and Tegal Regency, 5 new TPOs, and additional workforce in the existing TPOs will increase formal employment absorption and contribute to the local and national economy. This is another realization of Sampoerna’s commitment to the broader economic value chain," Vassilis concluded optimistically.
About PT HM Sampoerna Tbk. (Sampoerna)
Founded in 1913, Sampoerna – an affiliate of Philip Morris International Inc. – is the leading tobacco company in Indonesia. The scope of activities of the Company consists of manufacturing and trading kretek cigarettes as well as smoke-free tobacco and nicotine-containing products. Sampoerna produces several well-known Kretek brands such as Sampoerna A, the legendary “King of Kretek” Dji Sam Soe, and Sampoerna Kretek. Sampoerna also distributes Marlboro, the leading international cigarette brand, throughout Indonesia through a long-term distribution agreement with PT Philip Morris Indonesia.
Sampoerna operates seven owned production facilities in Surabaya, Probolinggo, Malang, Pasuruan, and Karawang, including a production facility to manufacture innovative smoke-free tobacco products focusing on export to Asia Pacific and domestic market. Sampoerna also partners with 38 Third Party Operators all over Java, which employs–directly and indirectly–more than 76,000 employees, mostly in the production of hand-rolled kretek cigarettes. Sampoerna distributes the product through 109 sales and distribution offices throughout Indonesia.
Sampoerna is a publicly listed company on the Indonesia Stock Exchange (IDX). Sampoerna's stocks are traded with code “HMSP”.
For more information, please visit: www.sampoerna.com