Despite the growing anti-smoking campaign, the nation’s two largest cigarette makers delivered strong profits in 2009 as demand continued to increase.
PT Gudang Garam, the second-largest producer, announced on Tuesday an 84 percent jump in 2009 net profit to Rp 3.45 trillion ($379.5 million) from Rp 1.88 trillion in 2008. The company is owned by the Wonowidjojo family, one of the country’s richest.
Rival PT HM Sampoerna, the largest producer, announced late last week that net profit increased by 31 percent to Rp 5.08 trillion last year, from Rp 3.89 trillion a year earlier. The company is controlled by US tobacco giant Philip Morris International.
“Gudang Garam posted significant profit growth as sales rose while operating expenses declined,” said Akhmad Nurcahyadi, an analyst at PT Bank Negara Indonesia Securities.
He said demand for cigarettes has remained high with annual growth of 1 percent to 2 percent.
Gudang Garam said its sales rose 8.9 percent to Rp 32.97 trillion last year, compared with Rp 30.25 trillion a previous year.
HM Sampoerna reported a 12.3 percent growth in sales to Rp 38.97 trillion, compared with Rp 34.68 trillion in 2008.
Yohan Setio, an analyst at PT Mandiri Sekuritas, said the consolidation of the company’s distribution operation helped improved Gudang Garam’s profit margin.
Cigarette companies are one of the largest employers and taxpayers in the country. The industry directly employs about 824,000 families.
Gudang Garam paid income tax of Rp 1.34 trillion last year, compared to Rp 775.8 billion a year earlier, while HM Sampoerna’s income tax outlay was Rp 2.1 trillion in 2009, up from Rp 1.9 trillion in 2008.
But amid pressure from health campaigners, the government has begun an increasingly anti-smoking campaign, causing concern among tobacco companies.
Earlier this month Muhammadiyah, the nation’s second-largest Muslim organization, issued a fatwa banning its followers from lighting up.
Both the organization and antitobacco campaigners have targeted cigarette advertising as one of the main culprits behind a generation of new smokers.
The Health Ministry is now drafting proposal to ban cigarette makers making direct communication with consumers, including promotions.
“It is extreme to forbid cigarette makers from promoting as it would hurt all stakeholders including tobacco farmers,” Muhaimin Moefti, head of the Indonesian Non-Clove Cigarette Producers Association (Gaprindo), told the Jakarta Globe.
He said the central government must ensure balanced and comprehensive regulation of the cigarette industry, rather than letting the regional governments and organizations create their own regulations or fatwas.
Sudaryanto, head of the Indonesian Tobacco Alliance (Amti), said he supported some government regulation of the tobacco industry.
“We agree not to sell cigarettes to children, but we do not agree if the government forbids us to make direct contact with our consumers,” he said.
Amti consists of tobacco and clove farmers across the country, cigarette manufacturers and traders.
Anti-tobacco campaigners have urged the government to forbid tobacco promotion in “public spaces” such as television. The coalition stated that there are only three countries in the world that still allow tobacco promotion in public spaces, including Indonesia.
Sudaryanto said the anti-tobacco campaign has yet to significantly affect the industry and tobacco farmers.
“But we need to anticipate the possible loss [of income],” Soedaryanto said.
Last year , Indonesia had an estimated 212,600 hectares of tobacco plantations spreading across eight tobacco centers in North Sumatra, West and Central Java, Bali, East Nusa Tenggara and South Sulawesi.
In the 2010 state budget, the government forecast Rp 55.9 trillion of excise revenue, mostly from cigarette companies, up from Rp 48.44 trillion last year.
Thejakartaglobe, March 30, 2010