Indonesia - Tobacco Reporter

Serving the Spice Islands

Hertz Flavors celebrates its first year of operating in Indonesia.

By Taco Tuinstra

Visiting Indonesia is a multisensory experience. Breathtaking landscapes, bustling traffic and a spicy cuisine will keep the traveler’s eyes, ears and taste buds working overtime. And for the nose, there is the sweet scent of clove tobacco. Kretek cigarettes are almost as synonymous with Indonesia as the country’s ancient temples and majestic volcanoes.

Contrary to the situation in many other countries, tobacco remains unabatedly popular throughout the archipelago, with a substantial share of the adult population lighting up frequently. Indonesia is also a leading producer of leaf tobacco and cigarettes. In 2022, the country’s tobacco growers harvested 225.58 million kg of leaf, and its cigarette companies purchased excise stamps for more than 330 billion sticks, according to the Ministry of Agriculture and the association of white cigarette producers in Indonesia, Gaprindo, respectively (the country also struggles with a sizable illicit market). Vapor and tobacco-heating products have been making steady inroads too lately, especially in urban areas.

Against such a backdrop, it is hardly surprising that industry suppliers have been lining up to set up shop in the country, either to be in closer proximity to domestic manufacturers or to supply international customers—or both. The leading tobacco equipment manufacturers and leaf merchants have been present for some time, and others continue joining their ranks. In June 2022, for example, Smoore Technology, a prominent atomization company serving the global vape market, inaugurated a factory in Malang to supplement its manufacturing base in China (see “Peace of Mind,” Tobacco Reporter, June 2022).

The prevalence of kretek cigarettes, with their complex blends, makes Indonesia an attractive destination, especially for flavor houses. Kretek cigarettes typically contain casings and top flavors with elements such as fruitiness, sweetness, sourness and spiciness. The products on the market are characterized by highly characterizing flavors and strong pack and stick smells along with sophisticated smoke streams. The virtually unlimited combinations of flavors on the market, in combination with Indonesian smokers’ receptiveness to new experiences, makes Indonesia a flavorist’s paradise.

Alert to opportunity, Hertz Flavors of Germany last year inaugurated a $5 million state-of-the-art factory in Mojokerto, East Java, located at only 40 km, or one hour’s drive, from the port of Surabaya and in close proximity to the majority of cigarette manufacturers in Indonesia.

According to Ferdinand Baturusa, president director of Hertz Flavors Makmur Indonesia, the decision to build a local facility was a no-brainer. “The popularity of kretek, both domestically and internationally, has made Indonesia the second biggest market for tobacco flavors in the world—clearly a location we want to be present in,” he says.

With an annual production capacity of 1 million kg, depending on product mix and complexity, the Indonesian plant has significantly boosted Hertz Flavors’ global footprint. The company also manufactures flavors in Hamburg and operates a sales and innovation center in Dubai under the name Flavoriq, which focuses on the vaping market. In addition, it maintains a significant international presence through agents and partnerships.

Baturusa says the Surabaya plant underscores Hertz Flavors’ dedication to upholding top-notch standards in its operations. The facility has been certified ISO 9001 and HACCP in recognition of its systematic approach to quality management and the safety of its products, respectively. ”This accomplishment sets us up to enter the marketplace and provide the best products and services to our Indonesian customers,” says Baturusa.

Aside from following best industry practices, Hertz Flavors adheres to strict internal quality and compliance standards. “We use our knowledge from almost 70 years of our experience to develop products according to international regulations and with a focus on performance and risk reduction,” says Baturusa, adding that Hertz Flavors will also accommodate individual customers’ preferences.

Constructing a factory in a new country 11,000 km away from its home base naturally presented a considerable challenge for a medium-sized firm like Hertz Flavors, but with the help of its skilled and knowledgeable local team, the company successfully navigated the obstacles. Local authorities, too, accommodated the project. Baturusa says he is encouraged by Indonesia’s commitment to reforming the investment climate to make it a safe and attractive destination for businesses looking to set up shop in the country.

In addition to strengthening Hertz Flavors’ global capacity, the investment has boosted the local economy. The Indonesian plant currently has a workforce of more than 30 people with a variety of geographic and educational backgrounds. According to Baturusa, Indonesia’s young and capable workforce, combined with the country’s improving global profile, represents considerable competitive strengths internationally. “As [a] German-speaking Indonesian with a university degree from Berlin, I personally think that this German-Indonesian culture fusion is a great mix,” he says.

The skills and diversity of its Indonesian team will serve Hertz Flavors well as it caters to Indonesian smokers’ discerning palettes. According to Baturusa, current local tobacco trends include fruity and minty flavors (delivered with or without capsules) along with apple, grapes and mango. Tea-flavored products, too, have a wide following in Indonesia as do cigarettes that taste like traditional local sweets, such as ludou and taro (sweet potato).

In cooperation with its vape specialists at Flavoriq, Hertz Flavors is also developing innovative flavors for Indonesia’s vape segment, which has grown considerably in recent years. “Together, we also create customized flavors for this unique market and exclusive solutions for our local customers,” says Baturusa. “Depending on demand, our Indonesian factory manufactures these products also locally.”

Buoyed by the success of its first year in Indonesia, Hertz Flavors is keen to keep growing. For the time being, it intends to focus on domestic sales. “Our main priority is currently the Indonesian market,” says Baturusa. “Indonesia is one of the largest and most vital and innovative tobacco markets worldwide, and we strive to fulfill the necessities and desires of Indonesian customers and cigarette producers. Our commitment is to produce excellent flavors for tobacco and adjacent products and items that comply with the Indonesian market’s exceptional tastes and requirements, resulting in our expanding achievements in this important market.”

The greatest challenge, according to Baturusa, will be to maintain and improve product quality while ensuring a supply of high-quality raw materials. “Maintaining consumer trust and meeting industry standards depends heavily on product quality,” he says. “In addition, managing raw material resources for tobacco and flavoring ingredients is a significant challenge. In particular, raw material availability and pricing are critical. Manufacturers must uphold stringent quality controls throughout their supply chains while devising innovative solutions to overcome these hurdles.”

Dedication will be the key. Continued success, says Baturusa, will require leading innovation, staying ahead of trends and attracting the best people. It also involves looking beyond immediate corporate considerations, as Hertz is adamant that its growth will not come at the expense of the environment. “We feel responsible for the sparing use of resources on our planet and for preserving an intact environment—for present and future generations,” says Baturusa. “Our company takes a long-term view in all its activities to ensure the sustainability of our business. We believe in long-lasting partnerships, superior quality and first-class customer service.”

Taco Tuinstra is Tobacco Reporter’s editorial director. Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors. On his watch, Tobacco Reporter has won several awards for editorial excellence. Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.

November 21, 2023

Peace of Mind

With its first overseas production facility, Smoore has boosted the resilience of its operations.

By Taco Tuinstra

The site that houses Smoore Technology Indonesia in Malang used to be a tobacco factory, but there is little to remind the visitor of its illustrious past. The rattling conveyors have fallen silent, the leaf scraps have been swept away and the sweet scent of clove tobacco has long dissipated, giving way to a serene, almost sterile environment.

Instead of the rumbling of cigarette-making machines, there is the hum of high-tech equipment. Sixteen automated production lines assemble, fill and pack e-liquid pods for the U.S. market, requiring only a minimum of human intervention. According to Smoore, the Indonesian facility is one of the most sophisticated and highly automated in the world.

Though Indonesian plant manufactures nicotine products like its predecessor, the new establishment looks more like a pharmaceutical lab than a factory, with medical-grade standards of hygiene. Entering the production floor requires hairnets and shoe coverings along with a mechanical “wind shower” to remove any contaminants from visitors’ clothing. In addition to a wastewater treatment facility, the compound has its own power generator; in case of a network failure, production can continue for at least 24 hours.

Considerate of the local culture—Indonesia is the world’s most populous Muslim-majority country—the Chinese firm has built multiple prayer rooms throughout the facility as well as a covered parking deck that can accommodate hundreds of motorcycles. Despite its high level of automation, the Indonesian affiliate employs thousands of local people, and two-wheelers remain by a large margin the most affordable and efficient vehicles for commuters to navigate the country’s bustling roads.

Ensuring Business Continuity

Touring the 60,000-square-meter facility (30,000 of which are covered), as Tobacco Reporter did in early October, it is hard to believe that a mere eight months passed between the time that Smoore’s head office in Shenzhen authorized the project and when the first product shipment left the factory in May 2022.

According to Clayton Shen, president director of Smoore Technology Indonesia, the new factory—Smoore’s first outside of its home country—is part of the company’s business continuity strategy, designed to strengthen the resilience of its global operations and guarantee customers uninterrupted supply regardless of geopolitics or other eventualities.

As the world’s leading atomization company with a global market share of almost 20 percent, according to Frost and Sullivan, Smoore already has a formidable manufacturing footprint in China, featuring multiple highly automated production lines. In light of recent global developments, however, the company considered it prudent to expand globally and supplement its Chinese base with an additional site.

While Smoore weathered the Covid-19 pandemic remarkably well, the crisis also exposed the risk of supplying customers worldwide from just one country. Travel restrictions disrupted global supply chains, causing shipping rates to skyrocket and containers to pile up in the wrong locations. China also locked down longer and more severely than many other countries, forcing suppliers to temporarily halt operations and leaving customers scrambling for their products.

Meanwhile, rising political tensions between China—the world’s largest supplier of vaping liquids and hardware—and the United States—the leading destination for such products—resulted in new trade barriers, with Beijing and Washington slapping each other with tit-for-tat tariffs. E-cigarettes and many other Chinese-made imports are now subject to a 25 percent duty in the U.S., saddling buyers with considerable nonvalue-added expenses.

Then, in April 2022, the State Tobacco Monopoly Administration, which had recently asserted jurisdiction over China’s rapidly growing vapor business, published new rules for e-cigarette manufacturing. While Smoore successfully applied for many of the newly required licenses, this development also gave pause to others planning to enter the industry.

Selecting a Site

In July 2020, the company took its business public, raising more than US$1 billion on the Hong Kong Stock Exchange. The cash provided it with the confidence and financial flexibility to explore the possibility of strengthening its Chinese manufacturing base with a facility abroad.

The immediate question was: where? The United States and Europe are Smoore’s biggest markets, but those places are also far from China, where many of Smoore’s suppliers remain based. And their regulatory environments can be intimidating for players unfamiliar with the local laws.

Smoore decided to look closer to home, in Southeast Asia, which like China has a long tradition of manufacturing for exports. Industrial prowess was not the only criterion, however; Smoore also needed a location that was friendly to e-cigarettes. Thailand and Malaysia quickly disqualified as candidates because of their restrictions on vaping. Vietnam, by comparison, is a tolerant country for the nicotine business. It has a large domestic tobacco industry and a famously industrious workforce. However, the state requires foreign investors to not only team up with a local company but also give their Vietnamese partner a 51 percent stake in the business—an unappealing condition for Smoore.

So the choice fell on Indonesia. According to Shen, the country offers multiple advantages. For starters, it is amiable to the nicotine business—a rarity at a time when hostility is the norm in many countries. Indonesia is a major producer and consumer of tobacco products. In 2022, the country’s tobacco growers harvested 225.58 million kg of leaf, and its cigarette companies produced more than 330 billion sticks, according to the Ministry of Agriculture and the association of white cigarette producers in Indonesia, Gaprindo. The tobacco industry and its supporting sectors employ almost 6 million workers and contribute nearly 11 percent of the country’s total tax take. E-cigarettes and tobacco-heating products (THPs) have been making steady inroads in Indonesia, too, lately, especially in urban areas.

On top of that, Indonesia offers a conducive industrial environment for the e-cigarette business. The country is endowed with abundant natural resources, including nickel and copper, which are key materials in battery production. Keen to move beyond mineral extraction, the government has been pushing domestic production of power cells for electric vehicles and other applications.

The economic significance of tobacco to Indonesia means not only that the country welcomes new initiatives in the sector but also that it has a workforce accustomed to handling nicotine products. What’s more, Indonesia offers good logistics and a favorable investment climate. According to Shen, the latter factors are important because Smoore is keen to localize its supply chain as much as possible. Encouragingly, Indonesia’s business-friendly environment is expected to endure regardless of who wins next year’s presidential elections, as none of the candidates running for office appear inclined to reverse the policies that have allowed Indonesia to become one of the world’s fastest-growing economies.

Perhaps the only hesitation was the uncertainty of how Smoore, as a Chinese company, might be received in Indonesia, where throughout history there have been episodes of tensions between the Indonesian people and the country’s ethnic Chinese community. Smoore’s subsequent experience, however, demonstrated that people, regardless of their background, will generally treat you as well as you threat them: The company’s sincere effort to understand the local culture and respect local customs was reciprocated with fierce loyalty from a dedicated workforce. Local authorities, meanwhile, went out of their way to accommodate the investment. When Smoore inaugurated its facility in June 2022, Indonesia’s minister of investment attended as a guest of honor.

Remarkably, labor cost did not feature prominently in Smoore’s decision to set up shop in Indonesia. While an affordable payroll is a nice side benefit, according to Shen, the company’s focus on automation made the price of labor a less important consideration than it might have been for a less advanced player.

Smoore continues to enjoy a significant lead in this area, having set up its automation division in 2014, when manual production still prevailed in the sector. According to Shen, two developments accelerated automation—the debut of ceramic heating in 2016 and the U.S. premarket tobacco product application process. The first replaced the easily deformed wick with a more solid structure, which is easier to work with from a design perspective. The second made it cost-prohibitive to keep changing products for the all-important American market, resulting in a more predictable form factor.

The Yunnan of Indonesia

Having decided on Indonesia, Smoore had to pick a city. Should it be Jakarta, Indonesia’s administrative and financial capital, or perhaps Surabaya, with its large industrial base and busy port? In any event, Smoore chose Malang, the capital of the larger Malang regency in the province of East Java. Though smaller than Jakarta or Surabaya, Malang is strategically located with good connections to the port of Surabaya and other key cities. In addition to reputable universities, the town has a strong tobacco heritage, with leading players such as Sampoerna, Djarum and Bentoel operating in the region. “Malang is the Yunnan of Indonesia,” says Shen, referring to China’s leading tobacco-producing province.

The other consideration that made Malang an appealing choice was the fact that BAT had a piece of land available along with empty buildings that used to house a tobacco factory. This provided Smoore not only with suitable facilities but also placed it in proximity to a prominent customer. BAT’s Bentoel subsidiary continues to manufacture tobacco products on the other side of the road.

The first team from China, which included the project leadership, construction specialists and human resource recruiters, arrived in Malang in November 2021, around the time that the Omicron Covid variant started doing the rounds. While Indonesian pandemic restrictions were less severe than those in China, employees among the first group still had to quarantine in Jakarta for up to 10 days. Shen was luckier. By the time he arrived as part of the second group, Indonesia had relaxed its isolation requirements.

Nurturing Talent

Initially, recruitment appeared to be a challenge. Although Indonesia has a large, well-educated workforce and plenty of experience with tobacco products, Smoore was the first e-cigarette company in the country, and there was no readily available workforce for that segment.

“We found that the people here had good experience in other industries but no idea about e-cigarettes,” says Shen. In addition, getting people to relocate for work proved a harder sell in Indonesia than it is in China. “In China, it’s easy to convince people to leave other cities for job opportunities in Shenzhen,” says Shen. “Pursuading candidates to move from Jakarta or Surabaya to Malang turned out to be more challenging.”

So Smoore decided to set up its own training programs. “We went to the local universities and recruited students who were about to graduate,” says Shen. Then we trained them not just in one department but allowed them to rotate based on their university major and their personal interests and capabilities. After one year of training, we sent them to the appropriate position, whether that be in engineering, quality control or in another department.”

This approach not only creates well-rounded employees but also nurtures a pool of future leaders—an important benefit for a rapidly growing company like Smoore. “For many of our people, Smoore is their first employer; they will be heavily impacted by our culture, and they will grow up very fast,” says Shen. “We believe that, within three [years] to five years, many of them will move into key positions—an opportunity that is not always available in established companies where all the leadership functions have already been filled.”

The investments in people appear to be paying off. When a delegation of senior Smoore officials from Shenzhen visited the Indonesia facility, they asked employees from various departments for honest feedback. According to Shen, 95 percent of respondents indicated that they felt proud and comfortable working for Smoore.

Growing the Pie

Such levels of employee satisfaction bode well as Smoore expands. While the facility across the road from Bentoel currently supplies BAT, the company is keen to serve other customers from Indonesia as well. For that purpose, it has been building a second factory at a different location, which at the time of writing was nearing completion.

By spreading its geographical footprint, Smoore has boosted the resilience of it business. With manufacturing capabilities in both China and Indonesia, the company not only offers security of supply but also allows U.S. customers to avoid costly import duties. Other Chinese e-cigarette companies have taken note, and some have also started exploring the option of setting up shop in Indonesia. For the time being, however, most of Smoore’s competitors are limiting their activities to Bantam, a special economic zone just south of Singapore.

Shen is unconcerned about such actions. “We never worry about competitors because we want to make the industry bigger,” he says. More e-cigarette manufacturing in Indonesia also makes it more interesting for suppliers to establish operations there, which in turn will benefit Smoore. In a testimony to the company’s strategic relationships, three of its Chinese suppliers also came to Indonesia when Smoore set up shop there—but there’s always room for more. “Ultimately, our goal is to grow the pie,” says Shen.

Taco Tuinstra is Tobacco Reporter’s editorial director. Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors. On his watch, Tobacco Reporter has won several awards for editorial excellence. Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.

November 1, 2023

KT&G Celebrates Korea-Indonesia Ties

KT&G celebrated the 50th anniversary of South Korea-Indonesia diplomatic relations by organizing various global CSR activities, including support for university student startups, cultural festivals and improvements in the education environment.

On Sept. 28, KT&G selected the finalists in a competition for business ideas at UNTAR University’s Imagination Entrepreneurship School in Jakarta, Indonesia. A day earlier, the South Korean cigarette maker hosted a similar event at the State University of Jakarta.

Meanwhile, the KT&G Welfare Foundation finished renovating an elementary school in the Bogor region, transforming an old building into a new educational facility with an earthquake-resistant construction.

In 2014, KT&G established the KT&G Korean Language Institute in Indonesia, providing approximately 2,800 people with opportunities to learn Korean. In addition, the company operates Imagination University, which supports the development of the capacity and cultural experiences of Indonesian youth. In 2021, it established the KT&G Vocational Training Center at Malang’s UKCW University, teaching marginalized youth sewing, computer technology and other skills.

“We are taking the lead in promoting communication between the two countries through cultural exchanges in celebration of the 50th anniversary of Korea-Indonesia diplomatic relations,” said a KT&G representative. “We will continue to make efforts to spread Korean culture and enhance exchanges through various platforms.”

Indonesia is an important market for KT&G, which aims to earn half of its sales from overseas business by 2027. The company operates a tobacco factory in Indonesia and recently announced the construction of a second manufacturing facility.

October 31, 2023

Indonesia: Tax Collections Fall Short

Indonesia had collected only half of the targeted tobacco taxes by the end of August, reports Tempo, citing the country’s Directorate General of Customs and Excise.

According to the directorate’s director of communication, Nirwala Dwi Heryanto, the state’s income from tobacco excise reached only IDR126.8 trillion ($14.76 billion) by the end of last month—far short of the IDR232.5 billion anticipated in the 2023 state budget.

Based on the collections to date, Heryanto expected Indonesia’s tobacco tax collections to reach 93.98 percent of its target by the end of 2023.

Heryanto attributed the shortfall to downtrading, a shift from combustible cigarettes to vapor products and illegal distribution of cigarettes.

To reach its target, Customs and Excise is stepping up enforcement and improving its technology and information service, Heryanto said.

September 15, 2023

KT&G to Build Second Factory in Indonesia

KT&G Corp. plans to expand its production facilities in Indonesia, reports the Yonhap News Agency.

The South Korean tobacco company currently operates a factory in Surabaya and plans to build a second one in the Southeast Asian country. The new plant will produce KT&G products for export to neighboring and other countries.

Indonesia’s government is supporting the investment, according to KT&G.

The expansion fits into KT&G’s ambition to earn half of its sales from overseas businesses in 2027. It aims to achieve sales of KRW10 trillion ($7.53 billion) in 2027, compared with KRW5.9 trillion in 2022.

In addition to producing conventional cigarettes, KT&G said it will reinforce its heat-not-burn (HNB) and health functional food product businesses.

The company has exported its HNB products to more than 30 countries since 2020 through the distribution deal with Philip Morris International.

Currently, KT&G earns 90 percent of its overall sales from the cigarette business division and the 10 percent from the HNB division.

The company has four tobacco manufacturing plants, one each in South Korea, Russia, Turkey and Indonesia, whose combined capacity amounts to 13.6 billion cigarettes a year.

September 11, 2023

Indonesia Legalizes E-Cigarettes

The Indonesian Parliament recently passed Health Law No. 17 of 2023, which categorizes e-cigarettes as addictive substances, according to 2Firsts.

Teguh Basuki A Wibowo, chairman of the Indonesian Electronic Nicotine Industry Alliance, stated that including e-cigarettes in the legal framework for solid and liquid tobacco products legalizes industry participants and allows smokers to find alternative products.

The law puts Indonesia on equal footing with countries like the Philippines and the U.K., which have similar legislative frameworks for e-cigarettes, he said.

September 6, 2023

Sampoerna Announces Executive Changes

Sampoerna has appointed Johan Bink as the operations director, succeeding Dina Lombardi, and Gunnar Beckers as marketing director, succeeding Francisca Rahardja.

Previously, Bink served as director of manufacturing at Papastratos, an affiliate of Philip Morris International in Athens, with over 33 years of experience in supply chain management and production planning.

Beckers previously served as PMI global head of consumer experience in Lausanne, Switzerland, with over 20 years of experience in marketing.

“Johan’s extensive experience in operations, from production floor to central functions, and his strong communication and leadership skills will continue to be great assets in his new role,” said Sampoerna President Director Vassilis Gkatzelis in a statement.

“Meanwhile, Gunnar is a well-rounded executive, who has consistently created value across diverse assignments at global, regional and market levels. His strategic perspective, wide international experience, strong collaborative spirit, focus on consumers, and ability to build brands will be great assets in his new role.”

Gkatzelis also expressed his gratitude to Lombardi and Rahardja for their contributions and leadership at Sampoerna. Both will assume new responsibilities within the PMI organization.

“Ibu Dina has always prioritized the safety and development of our people, thus role-modeling the Sampoerna and PMI values during the very challenging pandemic period. She guided Operations in reaching monumental milestones, including the establishment of the manufacturing facility for innovative smoke-free tobacco products,” said Gkatzelis.

“Meanwhile, Ibu Francisca has been leading the Marketing organization through very challenging times in a forward-looking way. In addition, she built solid foundations for the Consumer-Centric Organization. At the same time, she also contributed to the early journey of the innovative smoke-free tobacco products that Sampoerna introduced to adult consumers in Indonesia,” said Gkatzelis.

August 29, 2023

Indonesian Customs Seizes Millions in Goods

Customs in Batam, Indonesia, have seized illicit goods worth IDR1.37 trillion ($89.35 million) in the first half of 2023, including tobacco products, illegal cigarettes, e-cigarettes and alcoholic beverages containing methanol, according to 2Firsts.

The operation was a result of tax operations aiming to ensure compliance of retail tax paying sellers as part of the area’s free-trade zone and free port, according to Anbang Puriyongo, director of Batam Customs.

Three individuals have been named as suspects and undergone trial, according to Puriyongo. He called on citizens to report suspicious activities and actively participate in creating a fair trading environment.

“We will further enhance inter-department coordination and cooperation, leveraging the latest technology,” Puriyongo said. “We aim for such actions to continue in the future, creating a better trading environment for Indonesia.”

August 17, 2023

Sampoerna Sales Up 12.5 Percent

Sampoerna reported net sales of IDR111.2 trillion ($7.38 billion) in 2022, up 12.5 percent from the previous year. Sales volume at the Indonesian cigarette manufacturer increased 4.8 percent to 86.8 billion units, bolstered by the performance of premium brands such as Sampoerna A, Dji Sam Soe and Marlboro.

“The combination of Covid-19 with the impact of the double-digit excise tax increases and widening excise tax gaps has resulted in major challenges for the tobacco industry but Sampoerna remained focused on creating values for its stakeholders, Sampoerna President Director Vassilis Gkatzelis told shareholders at the company’s annual general meeting.

“We evolved our strategy in a forward-looking way and delivered a robust topline performance in 2022 with year-on-year volume growth and stabilization of market share despite the headwinds and accelerated downtrading to the lower-taxed Below Volume Tier 1 segment.

“We also reached a critical strategic milestone with our smoke-free products manufacturing facility in Karawang with an investment valued at more than $186 million, which started operations in the fourth quarter of 2022 to fulfill demands both for the domestic market and Asia Pacific.”

Gkatzelis attributed Sampoerna’s 2022 performance to solid business fundamentals, robust route to market and resilient organization. Although the company’s profitability decreased on a yearly basis and is still significantly lower versus the pre-pandemic levels, key profitability metrics improved during the second half of 2022, both sequentially versus the first half and the year before, driven by returning to net positive pricing as of the third quarter of 2022.

The positive momentum continued in the first quarter of 2023 with IDR27 trillion in net revenues and IDR2.2 trillion in net profit, up by 3.1 percent and by 12.8 percent, respectively, compared to the same period last year. In this first quarter of 2023, Sampoerna grew its market share to 28.5 percent, up 0.2 percentage points compared to the comparable 2022 quarter.

Vassilis praised the Indonesian government for providing business certainty through the issuance of a multi-year tobacco products excise policy for 2023-2024. “We certainly wish the government issues future policies that can support the sustainability of the tobacco industry and enable economic recovery to pre-pandemic levels,” he said in a statement.

According to Vassilis, a predictable environment is key when it comes to delivering sustainable value creation for the broader ecosystem, especially for long-standing investors in Indonesia.

“I am proud to share that early this year Sampoerna completed its investment in building a production facility for the innovative smoke-free tobacco products in Karawang, West Java,” he said.

“Additionally, we recently launched the latest technology and innovation of smoke-free tobacco products, namely IQOS ILUMA, through the continuation of IQOS Club with a limited launch in 10 major cities in Indonesia. These are key milestones to mark Sampoerna’s 110 years of presence in the country.”

Indonesia’s facility for heated tobacco sticks is PMI’s first in Southeast Asia and the seventh globally. “Sampoerna’s investment is a vote of confidence in the investment climate of Indonesia,” said Vassilis. “The new factory in Karawang entails further value creation by increasing research capacity, absorbing high-skilled workers, purchasing local tobacco supplies, operating digital service centers, improving export performance and empowering MSMEs [micro, small and medium-sized enterprises] which includes digitalization support and increasing the capacity of traditional retailers,” said Vassilis.

June 12, 2023

Sampoerna Commits to Value Creation

Sampoerna has reiterated its commitment to creating value and contributing to a sustainable future as the company celebrates its 110th anniversary, reports The Jakarta Post.

Speaking to reporters on May 26, President Director Vassilis Gkatzelis highlighted Sampoerna’s investments in Indonesia.

Since its sale to Philip Morris International in 2005, Sampoerna has invested $6.3 billion in the country. Recently, it constructed a $186 million factory in Karawang, West Java, dedicated to the production of smoke-free tobacco products, such as PMI’s successful IQOS heat-not-burn device.

The facility started operations in the fourth quarter of 2022 and supplies both the domestic market and Asia Pacific.

Sampoerna also has two cutting-edge laboratories—one in Pasuruan, East Java, and one in Karawang. Directly and indirectly, the company operates 45 manufacturing facilities and employs more than 66,000 people in Indonesia. In addition, it works with 22,000 farmers who grow either tobacco or the cloves required to manufacture kretek cigarettes.

Sampoerna also partners with third-party operators owned by local entrepreneurs or cooperatives specializing in hand-rolled manufacturing.

Gkatzelis, who took charge of Sampoerna last year, also touched on the importance of sustainability. “Every time we act, we try to create sustainable value for the long term,” he was quoted as saying. “So, 110 years of Sampoerna’s presence is important, but we need to create values for the next 110 years.”

June 7, 2023

Tag: Indonesia