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Number : 050/CLD/HMS/V/2019 Attachment : Attendance List, Q&A, Press Release Re. : Perfection on Report on the Implementation of Public Expose of PT Hanjaya Mandala Sampoerna Tbk. (the “Company”)
Jakarta, 15 May 2019
To. The Board of Directors of PT Bursa Efek Indonesia Indonesia Stock Exchange Building Jl. Jend. Sudirman Kav. 52-53 Jakarta - 12190
Attn.: Head of Company Evaluation Division I
Dear Sirs, Referring to Letter of the Company No.048/CLD/HMS/V/2019 dated 13 May 2019 regarding Report on the Implementation of Public Expose of the Company, hereby the Company intends to resubmit the Perfection on the Report on the Implementation of Public Expose, especially in Appendix 2 - Public Expose - Q & A Session where several adjustments has been made to the language and format of the report, and we need to emphasize that the adjustment made does not substantially change the contents of the report, so that the whole of the Company's Public Expose Implementation Report is as follows:
Public Expose of the Company has been held on:
Date : Thursday, 9 May 2019 Time : 11.00 - 12.00 Western Indonesian Time Venue : PT HM Sampoerna Tbk. Ruang Meeting Taman Sampoerna One Pacific Place Lantai 18 Sudirman Central Business District (SCBD) Jl. Jendral Sudirman Kav. 52-53 Jakarta - 12190 Agenda : 2018 & Q1 - 2019 Company Performance
Participants attending the Public Expose (excluding the Management and employees of the Company) are 105 persons, consisting of financial analysts, retail investors, shareholders and media journalists in detail as set forth in Appendix 1.
The material of the Public Expose is presented by the Management of the Company, as follows:
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No Materi Pembicara 1. Highlights of Company Performance 2018 Mindaugas Trumpaitis 2. Highlights of Company Performance Q1 2019 3. Business Overview 4. Financial Highlights of the Company 5. Commitment to Indonesia 6. Awards in the year 2018 7. Question and Answer
After the presentation by Management of the Company, the audience was given the opportunity to ask questions. Questions and answers take place in Bahasa Indonesia and English which are further summarized in Bahasa Indonesia and in detail as attached in Appendix 2.
In Public Expose, the Company did not hold a press conference, but the Company provided Press Release material at the time of registration to the journalist as attached in Appendix 3.
Best Regards, PT Hanjaya Mandala Sampoerna Tbk.
Signed and sealed
Andy Revianto Corporate Secretary
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Appendix 1 - Attendance List
No Name Institution / Origin 1 Pierre Bogor 2 TJoa NA 3 Eddy NA 4 Surja Bogor 5 Kholik D Jakarta 6 Maria Rini Bogor 7 Sarah Bogor 8 Surly Bogor 9 Yongky Jakarta 10 Erick Gunawan Tangerang 11 Ali Zamlikan Tangerang 12 Yudi Agung W Karawang 13 Sukini NA 14 Tjetjino NA 15 Ai Pin NA 16 Liliek N.D Kalibata 17 Budi NA 18 Melly NA 19 Bpk. Aji N AKURAT.CO 20 Ibu Nanda Arin ALINEA.ID 21 Ibu Novita BISNIS INDONESIA 22 Bpk. Andi BISNIS INDONESIA 23 Ibu Azizah BISNIS.COM 24 Ibu Fathiya Dahrul BLOOMBERG 25 Ibu Monica CNBC INDONESIA 26 Ibu Safyre CNNINDONESIA.COM 27 Ibu Lia COGENCIS 28 Bpk. Ahmad Churi EKSEKUTIF 29 Bpk. Elvis EMINTENNEWS.COM 30 Ibu Ester C. Natalia FORBES INDONESIA 31 Ibu Flora GATRA.COM 32 Bpk. Pinto GATRA.COM 33 Bpk. Kholid R IDN FINANCIALS 34 Ibu Vera INDO POS
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No Name Institution / Origin 35 Bpk. Ari INDO POS 36 Ibu Nisa JAWA POS 37 Ibu Anisa (Cetak) JAWA POS 38 Bpk. Ulum KATADATA.CO.ID 39 Ibu Fika KOMPAS.COM 40 Ibu Qalbi KONTAN 41 Ibu Selfy KUMPARAN.COM 42 Bpk. Dadag LISTED INDONESIA MAGAZINE 43 Bpk. Agus Siswanto MARKETPLUS.CO.ID 44 Bpk. Dwi Aditya Putra MERDEKA.COM 45 Bpk. Aditya RAKYAT MERDEKA 46 Ibu Cindy Silviana REUTERS 47 Bpk. Tatang Muchtar SINDO WEEKLY 48 Bpk. Eko Edhi cendo SINDO WEEKLY 49 Bpk. Agoes Sofyan SUARAKARYA.ID 50 Ibu Vina Anggita SWA 51 Ibu Riska THE JAKARTA POST 52 Bpk. Surya TRANSASIA 53 Bpk. Praz VIVA.CO.ID 54 Ibu Anis WARTA EKONOMI 55 Gerry H Deutsche Bank 56 Raja A Deutsche Bank 57 Naomi OCBC 58 Yekti OCBC 59 Linda OCBC 60 Ivan UBS 61 Radit IPS 62 Putri Morgan Stanley 63 Christien F. DBS 64 Christabel Michael DBS 65 Vilhelmina CIMB 66 Janni NA 67 Riyanto Mandiri 68 Adrian Joezer Mandiri 69 Leonardo H. Bahana 70 Vincent Y NA 71 Muhammad Naufal Danareksa Sekuritas 72 Jessica RHB
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No Name Institution / Origin 73 Stella Ciptadana 74 Vivi Citigroup 75 Fariz RHB AM 76 Mega Christina Credit Suisse 77 Deidy Wijaya Credit Suisse 78 Robert Pranata Macquerie 79 Ria Sari Devi CN 80 Yosia Lesley CN 81 Wilbert Sinarmas 82 Steven Ho CLSA 83 William BNI 84 Merlissa CLSA 85 Darien Trimegah 86 Benny JP Morgan 87 Giovanni Bahana 88 Christine Mirae Asset 89 Silvia Mirae Asset 90 Ike Pranata Surabaya 91 Maria Cendra Surabaya 92 Jimmy Panin 93 Felix Ferdian MUFG Bank 94 Adri Indopos 95 Chandra Rustam MUFG Bank 96 Yana UOB 97 Dhea Aditya UOB 98 Maya HSBC 99 Bernard HSBC 100 Rayana SRC 101 Nia Metro TV News 102 Cheppy A.M Kontan 103 Ninis Indriswari BRI 104 Shella Rosalina BRI 105 M. Naufal Danareksa
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Appendix 2 - Public Expose - Q&A Session
Question 1 There are three questions. So the first question is what will be the CAPEX spending plan for this year? Any plan to execute for a specific planning or project? Second one, does Phillip Morris International has the iQOS factory in Malaysia, is there any direction for Sampoerna as an affiliate of Phillip Morris International to move to aerosol or vaping industry? That’s the second question. And the third one, which is the last one is about the consumer goods and consumer preferences. Do you see any changes in the consumer preferences, specifically talking about the value products and the packaging? I think they are the three questions coming from the firm.
Answer: When it comes to investment, average a year we invest about one trillion rupiah, and that goes into machine upgrades and machine improvement. So nothing different estimated for 2019. The guiding number would be 1 trillion rupiah that we invest in average in CAPEX. Now when it comes to iQOS factory in Malaysia, let me correct you, Philip Morris International doesn’t have iQOS factory in Malaysia, they have a third party manufacturing contract. In Malaysia, it’s the devices that are being produced, not the heatstick. But your question is about do we plan to invest in Indonesia? Again, first we need to introduce this product at a large scale. If the product is successful, there’s no reason not to start production in Indonesia. But again, those linked to the volume performance of the products. Today, the product is not commercialized yet at the scale.
When it comes to the consumer trends, again, there are many different indications on what’s happening with FMCG company or retail. So last year, retail sales grew by 3.7% and that compared to double digit growth in 2015 and 2016. So you can see that market is still slightly depressed. Again, we are not talking about cigarettes only, but we are talking about all different goods that are sold through retail. Now the good news that in Q1 2019, we observe the growth of 8.8%. So that is leading into the right direction. Now zooming into tobacco category, specifically, as I mentioned in my presentation, you see that adult consumers are trending towards value product, cheaper product, and what is now unique is, for many years in Indonesia, the low tar segment was growing and we starting to see high tar segment is growing again. In a way, take over from low tar segment. Our interpretation from that is the same, that adult consumer is looking for a value proposition, for higher impact product with lower price. So this is the trend that we observe. So retail sales was depressed in 2018, but starting some recovery, in terms of tobacco industry, the high tar is growing faster than low tar.
Question 2 I would like to ask some questions. First, when HM Sampoerna will launch the e-cigarette? And whether you will launch the iQOS in Indonesia? Also, I would like to ask your view about the cigarette market in Indonesia, because I see, there is a stagnant growth in cigarette market right now. Perhaps can you elaborate more about your strategy and what is your view in the future?
Answer: Now talking about e-cigarette iQOS, again in March this year, we introduced iQOS Club in Jakarta, a small test group. Our objective is to see the adult consumer behavior when it comes to this product, namely what
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type of product that they prefer, is it menthol, high impact, or low impact; what is the comprehension of the messages, meaning, what do we understand about the product. So we’re still in the learning phase, but this product has been introduced in March 9, 2019 to a small panel. And depending on the test market result, we’re going to decide when to expand, because we believe this product can make a very positive impact on adult consumer, on adult smoker in Indonesia. We estimate today we have about 50 million adult smokers in Indonesia. And to offer them, a reduced risk product is a right thing to do.
Now when it comes to your second question about the stagnant volume. Yes, as I stated in my presentation, over the last two years, 2016 and 2017, average annual industry decline was 2%. Now we see the decline is slowing down. What’s driving that is actually, predominantly the excise tax driven price increases. We have significant tax increase in 2016, which was 15% weighted average. And in 2017, it’s 10%, and in 2018 is the same 11%. So what you see is much higher than inflation, so of course, that becomes an issue when it comes to affordability. So the industry decline is driven mostly by the excise tax driven price increases.
When it comes to increasing the market, we compete in the tobacco industry. Our objective is not to encourage new smokers. People should not start smoking. But if you decide to smoke, we encourage them to smoke Sampoerna’s great products like Dji Sam Soe, Dji Sam Soe Magnum Mild, A Mild. That’s what we compete. So when it comes to total industry, that’s how we work, that’s where we compete. We compete for the share of market.
Question 3 My first question is about dividend policy. Is it correct that your dividend policy is Rp13.6 trillion in 2018, while your net profit is 13.5 trillion? How come the dividend policy is higher than the net profit in 2018? And the second one, I just want to make sure that the government has decided not to increase the tax in 2019. What impact to the industry this year if the government doesn’t increase the excise tax this year?
Answer: So dividend is higher than net profit, it is really because of some adjustments in other comprehensive income and equity. I mean, ultimately, we’re paying a 100% undistributed retained earnings, which is consistent year and year.
We believe that our shareholder should be very happy because again, just an hour ago, we announce the increase on dividend. So, again, it’s a good number.
Now when we talk about the excise tax, no increase, yes you’re right. Last year, the government decided to not increase the excise tax for 2019. We support that decision because it was, huge increase in excise tax in the previous year. So it is good to give some breathing room. We always need to remember, that tobacco industry employs a lot of people. In farming, in manufacturing, in the retailing, we estimate about 6 million people are employed in the tobacco industry. So when the government decided on the policy, we always need to consider that the employment is a very important part of this business. And we really appreciate no excise tax increase this year.
Follow up question: So what is the impact to your volume?
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Answer: Again, we are early in the year, I cannot give you the projection about the full year. In the first quarter you saw that our volume declined by 3.7%, it was an interesting phenomenon because our wholesaler, they hold certain inventories for speculation purposes. So meaning, when price goes up, they use that volume to earn additional profit. Now with the absence of excise tax, that speculation of those price increases didn’t happen. So our wholesaler started to adjust the inventory down. That’s why our volume in the first quarter is slightly depressed. Now we still need to see going forward and how the full year is going to evolve. But I can’t give you the number for full year projection.
Question 4 How SRC gives the main support for Sampoerna’s performance and how partnership with SRC in supporting the SME in Indonesia? And the second is relating to how we, as a company, supporting the government industrial revolution 4.0 initiative. In connection with this, involvement from online: what is the name, how does it work? Is off-line a problem for Sampoerna, so that online becomes a platform? How the success of SRC contributes to the success of Sampoerna?
Answer: Let me give a little bit of background. Our long standing Three Hands philosophy talks about our employees, our business partners, and society at large. Those are the guiding principle on how we operate in this market. And using those principles, we are successful for more than 100 years. Sampoerna Retail Community or SRC is designed for a betterment of Indonesia because we want to grow together with retail partners by helping them to operate their businesses, providing the advice, working together. So their success is directly linked with our success; and our success is directly linked with SRC success. So this strong partnership is aligned with our values and working principle, and benefit both, us and our retail partners.
Now when we talk about SRC, now we have a universe of 105,000 retailers connected in the SRC community. We are now using digital tools to connect them among themselves, to connect them with consumers, as well as to connect them with wholesalers and mitra wholesalers. So, that should provide them with opportunity to be more efficient, in terms of supplying the product to the shop. Now they can order the product using our application and they don’t need to close the shop to go and purchase the goods that they need to sell. That fits nicely into the industrial revolution 4.0 that is expected by the Indonesian government, because when you talk about industrial revolution 4.0, then government talks about industrial revolution 4.0, it’s all about upscaling people, it’s all about using digital and technology, to be more competitive against the market, and to grow GDP, to grow our economy. So that’s why, when I was talking during my presentation, we invite the government to put tobacco on the list of priority when it comes to industrial revolution 4.0. I think those are for the 3 questions. And again, I strongly encourage you after we finish the session, to talk to those beautiful ladies and great gentlemen about their business, and how Sampoerna is helping to grow them, and what they do to help us to grow. It’s fascinating. We are always inspired by their stories. Again, if you can, SRC members please to stand up, so they know whom to go to.
Question 6 So the first question is relating to export. Why the export is down? And what’s the strategy to increase export? And the second question, what’s your strategy to increase the medium and low price brands? Is there any plan for new launch in that segment?
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Answer: Again, as I presented, in March this year, we launched Phillip Morris Bold, which is a high tar product, in 12 cigarette pack, and it’s retailing in the low price segment. So the initial result is very promising. Again, we have some data from modern trade accounts, and the share of market is actually tripled compared to U Bold. So we are very optimistic about the performance. So Phillip Morris Bold is a low price segment brand in the high tar segment, then we have Magnum Mild 16s that is performing in the SKM Low Tar segment, and as I also mentioned, this year we extended Magnum Mild to the 20 cigarettes pack and also 50 cigarettes pack in selected areas. So, that’s another tool we are using to further fortify our position in the low price.
From the revenue perspective, we look at our export revenue in 2018, you are right, it declined. However, if you take our first quarter 2019, it started to grow again. It’s driven by the demand in the markets where we are exporting the products. What we are doing is, we are working hard to get more, and more those export markets. So today, we are exporting to more than 40 markets. We are hoping to increase the export. But now when it comes to revenue and volume, it fluctuates, depending on the situation in those markets, depending on the demand of those markets. Our objective is to increase the number of markets we are exporting into and to keep growing.
Question 7 So the question is about the excise tax liability. Why the excise tax liability in quarter one is up from last year December Rp2.6 trillion to Rp8 trillion by the end of March? And this leads to the next question. What is the expected production volume that you’re going to have this year? Is there any projection or profitability that you would like, that you can share?
Answer: So you can see the big increase in the excise tax liability. What happen is, first of all, when you take a look at the year-end, we had 2 weeks credit terms restoration from government regulation, two weeks outstanding payable. When you look at the quarter, you have 60 days. And there’s also some timing of production for some initiatives in the second quarter. But the main driver is the change in the payment terms from government regulation between year-end and the first quarter. When it comes to production volume, we’re going to produce as much as adult consumers are going to buy. I can’t give you a number in terms of absolute production numbers. And when it comes to profitability, we don’t give guidance for Sampoerna. So we report only on the actual. I’m very sorry.
Question 8 The question is, in the presentation, you mentioned about pricing driving the performance. The question was, any plan for the increase? Up to March, how much price has been taken?
Answer: When it comes to pricing increase, we executed one price increase, and that was on Marlboro Filter Black of 2.7% compared to Q4 2018. And I’m very sorry but I will not be able to talk about the future pricing as that’s competitive information, and you don’t want competitor to know.
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Appendix 3 - Press Release
PRESS RELEASE FOR IMMEDIATE RELEASE
Sampoerna Reports 2018 Results
JAKARTA, May 9, 2019 – PT HM Sampoerna Tbk. (“Sampoerna” or “the Company”/IDX: HMSP) announced its full year 2018 and first quarter 2019 results and changes to its leadership today. The company also announced an increase in membership of the Sampoerna Retail Community (“SRC”) to more than 105,000 retailers across the country. SRC members are typically small, mom-and-pop retailers who partner with Sampoerna to improve their management capabilities and store’s performance.
Mr. Mindaugas Trumpaitis, President Director of Sampoerna stated, “We are proud to work alongside so many terrific retail entrepreneurs across the country. Their enthusiasm to improve their livelihoods by enhancing the management and operation of their stores is inspiring for us. It is clear that the success of SRC members directly leads to Sampoerna’s success. The next step in our partnership will be to create digital opportunities for SRC members to expand their businesses via various online platforms. This is aligned with the concept of Indonesia 4.0 and we call on the government to include the tobacco industry within that initiative.”
In addition to our partnership with SRC members, for more than a decade, Sampoerna has been committed to increasing the competitiveness of Indonesia’s entrepreneurs through our “Sampoerna untuk Indonesia” program. Guided by the company’s “Three Hands Philosophy” and leveraging the Sampoerna Entrepreneurship Training Center (“SETC”) in East Java, we encourage the growth and development of micro, small and medium-sized businesses through vocational and management training. Since 2006, Sampoerna has trained over 47,500 people within SETC programs.
“By supporting both SRC and SETC entrepreneurs, Sampoerna is working towards our objective of being a key driver in the success of Indonesia’s small and medium-sized business community. This supports the government’s goal of accelerating economic growth through the empowerment and development of small business in Indonesia,” added Mr. Trumpaitis.
Financial Performance For 2018, the Company maintained its leadership position in Indonesia with 33.0% market share and 101.4 billion units in annual sales volume. Sampoerna’s market share included a 30.2% share in the machine-made kretek segment, a 60.9% share of the white cigarette segment and a 37.7% share in the hand-rolled kretek segment. The Company reported net revenues of Rp. 106.7 trillion and net profit of Rp. 13.5 trillion, up by 7.7% and 6.8% respectively compared to 2017. The Company declared a dividend of Rp 117.2 per share for 2018.
The Company also announced its first quarter 2019 results. The estimated total market decreased 0.8% mainly due to trade inventory movements in the quarter following the absence of an excise tax increase in January 2019. Market share and volume declined slightly to 32.2% and 22.1 billion units, driven primarily by the lower total market and the widened retail price gap of A Mild to competitive brands following its price increase in October 2018. Net revenues and net profit grew 2.9% and 8.4% to Rp. 23.8 trillion and Rp. 3.3 trillion boosted by higher pricing across various brands in the portfolio.
Change in Leadership
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The company also announced Ms. Francisca Rahardja and Mr. Sharmen Karthigasu as new members of the Sampoerna Board of Directors. Ms. Rahardja replaces Mr. Ingo Rose who is appointed Commercial Vice President in Philip Morris International's Asia regional office in Hong Kong. Mr. Karthigasu is replacing Mr. William Giff who is moving to a position in PMI’s North American operations. Mr. Guillaume Popiol replaces Mr. Michael Scharer who is appointed as Vice President Eastern Europe & Asia Manufacturing in Philip Morris International in Hong Kong. Further, Sampoerna is adding two new Commissioners to its Board, including Mr. Paul Janelle and Dr. Luthfi Mardiansyah.
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About PT HM Sampoerna Tbk. (Sampoerna) Founded in 1913, Sampoerna – an affiliate of PT Philip Morris Indonesia and part of Philip Morris International Inc. – is the leading Indonesian tobacco company, focusing primarily on the production and sale of clove cigarettes. The Company produces some of the best-known kretek (clove) cigarette brand families such as Sampoerna A, Dji Sam Soe the legendary “King of Kretek”, Sampoerna U and Sampoerna Kretek. The Company also distributes the Marlboro brand of cigarettes throughout Indonesia, through a long-term distribution agreement with PT Philip Morris Indonesia. Sampoerna operates seven production facilities in Java and partners with 38 Third Party Operators, employing – directly and indirectly -- a total of approximately 65,000 employees, mostly in the production of hand- rolled clove cigarettes. Sampoerna distributes its products via 114 sales and distribution area offices across Indonesia.
Sampoerna is one of the largest companies by market capitalization on the Indonesian Stock Exchange, where it trades under the ticker symbol “HMSP.”
For further information, please visit: www.sampoerna.com
Media Contact:
Inasanti Susanto Head of Corporate Communications PT HM Sampoerna Tbk. Ph. +62 21 515 1234 Fax. +62 21 515 2234 Email [email protected]