Starting from January 2015, Indonesian tobacco products are subject to an average tax rise of 8.7 percent. The excise tax on machine-rolled cigarettes becomes IDR 355 (USD $0.03) and on hand-rolled cigarettes IDR 290 (USD $0.02) per stick. The tax hike is implemented by the government in a move to increase state income through tax revenues. The higher excise tax is expected to have a minor effect on tobacco sales in Indonesia as retail prices for cigarettes remain among the lowest in the Southeast Asian region.

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HM Sampoerna, Indonesia's largest tobacco company, decided to close two of its seven hand-rolled cigarette factories as the company needs restructuring due to its declining market share in the country's hand-rolled cigarettes industry. The market share fell from 30.4 percent in 2009 to 23.1 percent in 2013 as consumers are shifting to machine-rolled cigarettes. HM Sampoerna's hand-rolled cigarette plants in Jember and Lumajang (both in East Java) will be closed on 31 May 2014 and will lead to the termination of 4,900 employees.

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On 18 May 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve political and economic topics such as updates on the presidential election, the revision of Indonesia's macroeconomic assumptions, youth unemployment, palm oil, coal, company profiles of HM Sampoerna and Telekomunikasi Indonesia, and more.

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HM Sampoerna, the largest tobacco company of Indonesia, controls about 29 percent of the Indonesian tobacco market. The company operates nine manufacturing facilities in Indonesia: two machine-made kretek production facilities as well as seven hand-rolled kretek production facilities (kretek cigarettes are the highly popular clove cigarettes, a trademark of Indonesia). The company also distributes the famous Marlboro brand on the domestic market. In 2005, Sampoerna was sold to Philip Morris, an international cigarette and tobacco giant.

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With the new minimum requirement regarding the free float of shares (the portion of shares that are in the hands of public investors) at 7.5 percent of a company’s total enlarged capital, the Indonesia Stock Exchange (IDX) urges companies that do not meet this requirement to conduct a rights issue in order to raise the number of publicly issued shares. One of these companies is HM Sampoerna, Indonesia's largest tobacco company. Currently, 98.18 percent of the company is owned by international cigarette and tobacco giant Philip Morris.

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The Indonesia Stock Exchange (IDX) will increase the minimum ratio of shares that need to be listed on the IDX by a listed company. Through Regulatory No. I-A regarding the Listing of Shares & Equity Securities other than Shares Issued by Listed Companies (Peraturan Nomor I-A tentang Pencatatan Saham dan Efek Bersifat Ekuitas yang Diterbutkan oleh Perusahaan Tercatat), the minimum ratio of publicly issued shares is 7.5% of a company's total enlarged capital. If companies will not comply, they may face de-listing from the IDX.

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After the Indonesian government abandoned the idea to increase excises on cigarettes, the production of cigarettes in Indonesia is expected to increase to between 355 and 360 billion cigarettes in 2014. However, in order to meet that target, it is also important that the country's macroeconomy - particularly the inflation rate - remains stable. This year, Indonesian cigarette production is expected to reach 340 billion cigarettes. Indonesia has one of the world's largest markets for cigarettes.

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Philip Morris Indonesia, Philip Morris International's affiliate in Indonesia, will invest USD $174 million to increase production capacity of white and clove (kretek) cigarettes. About USD $78 billion will be used to enhance production capacity at its two existing factories in Karawang (West Java), while the remaining USD $96 million will be used to establish a new factory, specifically for the production of Marlboro-branded cigarettes. This new factory will be located next to its other two factories in Karawang.

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HM Sampoerna, Indonesia's largest tobacco manufacturer and the country's second-largest company based on market capitalization, will pay out dividend amounting to IDR 2,269 per share (USD $0.23) as agreed in today's shareholders' meeting (18 April 2013). The company will use its full net profit of 2012 for the dividend payout. Last year, HM Sampoerna recorded net profit of IDR 9.95 trillion (USD $1.02 billion), a 23.3 percent increase compared to 2011.

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PT Hanjaya Mandala Sampoerna Tbk (HM Sampoerna), Indonesia's largest tobacco company, posted a 23.32 percent increase in net profit to IDR 9.95 trillion (US $1.03 billion) in 2012. Net profit per share increased to IDR 2,269 from a previous IDR 1,840 per share. Based on a financial report that was published on Friday (15/03/2013), the company's growth in net profit was largely due to a 26.05 percent increase in sales to IDR 66.63 trillion (US $6.90 billion).

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Shareholders of the largest cigarette manufacturer of Indonesia, Hanjaya Mandala Sampoerna (HM Sampoerna), approved the company's plan to execute a 25-for-1 stock split. The move, aimed at making shares more affordable for retail investors thus boosting liquidity, will raise the company's total outstanding shares to 116.3 billion pieces. Since 2005 HM Sampoerna has been owned by international tobacco giant Philip Morris. The US-based company controls a 92.5 percent stake in HM Sampoerna.

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Indonesia's slowing economic growth, weaker purchasing power and an 8.7 percent increase in excise on tobacco products (in early 2015) had a relatively small impact on the financial performance of Indonesia's listed tobacco companies HM Sampoerna, Gudang Garam, Bentoel Internasional Investama and Wismilak Inti Makmur. Whereas companies active in various other sectors of the Indonesian economy were plagued by falling revenue and profit figures, these tobacco firms still posted solid gains in revenue and - to a lesser degree - net profit growth. This shows that Indonesian smokers are faithful to their "death stick".

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One of the last decisions of the Susilo Bambang Yudhoyono administration before being replaced by the new Joko Widodo-led administration was to raise the tobacco excise by an average of 8.7 percent per 1 January 2015. This excise will be applied to all tobacco-related manufactured products. The higher excise, stipulated by a Finance Ministry decree, will boost state income and will also help to curb smoking. About 65 percent of Indonesian men smoke, supported by the cheap price of a package of cigarettes.

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Widespread cigarette consumption among Indonesians (especially men) can have a negative impact on the country’s current demographic bonus. One of Indonesia’s strongpoints in terms of economic make-up is that it has a large and young, thus potentially productive, population. Indonesians in the productive age (15 to 64 years) outnumber those that are categorized as youth (below 15 years) and elderly (over 65 years). This large productive group should provide a boost to Indonesia’s economy in the next two decades.

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