History
Gudang garam Tbk was established
on 1958 at Kediri regency by Mr. Surya Wonowidjojo. In 1979, the company built
its first cigarette manufacturing machines in Kediri regency. Currently, the company has been led by Mr.
Susilo wonowidjojo.
Referred its annual report, the
parent company is Suryaduta Investama. The company is also operating in other
segments such as entertainment, transportation and investment.
Facilities
Gudang garam has maintained good
relationship with stake holder including the tobacco and clove farmers. There have
been more than 4000 farmers who supported raw material for the company. Some portion of raw material was imported from
oversea because of the prolonged wet season which affected harvest of tobacco
and clove. The domestic farmers supplying for the company are located across
archipelago.
Gudang Garam has two main
factories, first facility is located at Kediri regency and second manufacture
facility is in Gempol, Pasuruan regency. In 2016 the company was not extending
its production facilities, the capacity was capable for producing cigarette as
demand in kretek market. Other manufacture facilities are located at Sumenep
and Karang anyar.
The company’s products are
various kretek cigarettes low tar nicotine variant (mild and light) and
traditional hand rolled kretek. The corporation has 4 major subsidiaries, they
are Surya pamenang, Surya Madistrindo, Surya air and galaxy prime and Graha
surya media .
Change in strategy, turning from contender to dodger
In 2017, its subsidiaries,
karyadibya mahardhika and surya mustika nusantara have been acquired by Japan
tobacco. 100 % shares of those subsidiaries have already owned by the japans
company. Gudang garam followed strategy of its competitor in indonesia such as
Djarum and Sampoerna. Djarum has already acquired by Galaher group and
Sampoerna has been owned by Phillip morris international.
Accordance to domestic electronic
newspaper, kontan.co.id, those companies were purchased at USD 667 millions.
The acquisition is done due to
its market share in 2016 which decreased compared to its market share in 2015.
Its market share in 2015 and 2016 were 21.5 % and 20.8 % consecutively.
Besides, the excise tax has been higher compared to tax in the last five years
Accordance to Wikipedia, Japanese
government owns 33.35 % shares of Japan tobacco. It also has more than 66 %
market share in Japan. Japan tobacco also has interest in Gallaher group.
Gudang garam possibly intends to
increase its export through the acquisition as market share indonesia tend to
drop as government increases excise tax once at every years. Many small tobacco
factories indonesia has been closed due to higher excise tax. On other hand, it also change its strategy in
competing with multinational company in clove cigarette market in indonesia
such as phillip morris and Gallaher group and also Japan Tobacco. Wismilak,
another domestic competitor has also been controlled by Japan Tobacco.
If we look at the matrix at
above, we could conclude that Gudang Garam tbk acted as a dodger now. The company sold its subsidiaries to
multinational company to reduce competition to multinational company, at least
the company is not competing to Japan tobacco and its affiliated company now.
The global pressure from phillip
morris and Gallaher are high in tight market. The competition has become more
strict as government regulation for tobacco industry is not friendly. It
reflected on dropped market share in 2016 compared to 2015.
Gudang Garam would like to keep
its position as market leader and it collaborated to Japan tobacco to get more
access in global market value chain.
Macro Indicator
The economic growth in 2016 was
batter than in 2015, it stood at 5.01 %, and it was higher than in 2015 which
were at around 4.9 %. In line with Indonesia’s current account, it increased
from us -17.51 billion to us -16.77 billion. The export of goods and service
was improved, it reflected on its foreign exchange currency; those were IDR
13,864 and IDR 13,503 in 2015 and 2016, consecutively.
Market share
Based on euromonitor in august
2016, the company had 28.8 % market share in local clove cigarette market. Meanwhile
HM Sampoerno and PMI (Phillip morris international) had higher market share
compared to Gudang Garam, it had 35.3 % market share in 2016. Another big
competitor, Djarum was having 12.4 % market share at indonesia.
In Global market, gudang garam
owned 1.2 % market share in 2015. The market leader of global market share for
tobacco product was China National Tobacco Corporation with 42 % market share.
China is the biggest market for tobacco in the world.
The market share of cigarette
reflected as the following graph
In 2016, basically Gudang Garam has already been as market leader in clove cigarette market in indonesia if we split phillip morris international’s product from HM sampoerna brands. Since phillip morris international has acquired HM sampoerna, their product collaboration has been as market leader in the past three years.
Government Regulation
for clove cigarette kretek and Vape
Government has already been
implementing strict regulation for tobacco industry. The reason is protecting
people to consume cigarette which was causing damage to people health. Many
diseases are caused by tobacco.
In july 2018, government will
also charge excise tax for vape product. government argues that vape damaged
people health. It caused damage in lungs. The tax will be 57 percent equal to
clove cigarette product.
Vape is possibly a substitute
product for clove cigarette. it is unlike cigarette which is using fire to burn
clove blended tobacco, Vape is utilizing vaporization of liquid tobacco which
is heated by battery.
The excise tax is charged to
tobacco product which is done based on regulation of UU no. 39 tahun 2007.
Company financial analysis
Revenue
Revenue of the company in 2016
slightly increased more than 8 % compared to revenue in 2015. The biggest
contributor of revenue was contributed by SKM (sigaret kretek mesin) product
which was sold at 68,620 million sticks of cigarette. Whereas, its SKT (sigaret
kretek tangan) was sold at 8456 million sticks of cigarette. those numbers
slightly dropped. The revenue incremental occurred due to higher pricing to skt
and skm products.
The higher excise tax from
government pushed the company to increase its product prices.
Profitability
Net income before tax in 2016
slightly increased than net income before tax in 2015, it occurred as revenue
increased in 2016. The company also reduced its interest expense and it
increased its net profit before tax. The utility of short term debt has been
decreased.
The higher revenue and higher
gross margin in 2016 compared to 2015 were also increasing EBITDA in 2016.
Liquidity
Current ratio in 2016 was higher
than current ration in 2015. It increased from 1.77 to 1.94 in 2015 and 2016,
subsequently. The ability to pay short term liability was improved.
The cash to cash cycle (DR + DI –
DP) in 2016 was also improved compared to cash to cash cycle in 2015 from 246
days to 239 days. The company was able to make shorter its business operation.
Leverage
The leverage ratio (total asset
to equity) decreased from 1.67 to 1.59. The current asset decreased especially
its cash and cash equivalent. The company reduced its utility of short term
loan. It paid some portion of its short term debt in 2016. Meanwhile the equity
portion rose as the company was able to increase its revenue and reduce its
cost.
Capital expenditure
In 2016, the company allocated its internal fund to
purchased fixed asset amounted to more than idr 2 trillion. It purchased spare
part of machine for production, raw material for building development and
information technology product.
Credit Risk
Moody’s rating agency has given credit risk score for Gudang
garam tbk at 6 of 1-10 score. The credit risk score is made based on company’s
balance sheet and input from capital market. It is categorized in medium level.
Conclusion
Gudang garam turned its strategy from
contender to dodger; it sold its subsidiary to Japan tobacco. As a result of
that Gudang garam brand was also sold by Japan Tobacco at oversea. The new
strategy is expected to increase its global market share at oversea. Djarum
group claimed that it have more than 70 % market share of clove cigarette
product at over sea.
Djarum group has collaborated to
Gallaher group which is based on UK. Gudang Garam is expected to be able to
access distribution chain at oversea such USA, Europe and other asian countries.
