M

ajor tobacco firm Gudang Garam says the company expects to see its short-term loans balloon by more than Rp 9 trillion (US$660.33 million) in December as new excise regulations have forced the company to scramble for credit.

Gudang Garam treasury and investor relations director Heru Budiman said that with excise payments due in December, the company would seek around Rp 9 trillion of loans to add to its current Rp 14 trillion of short-term loans, as recorded in its September book.

The additional loans could mean that the company'€™s short-term loans will rise by 63 percent in three months. Heru said, however, that the short-term loans would be significantly reduced in the subsequent quarter, and the company would repay the loan with income generated in the early months of 2016.

'€œWe usually pay excise in January or February [in the subsequent year], however the new excise regulation stipulates that excise payments for the current year should be made by December. Don'€™t be surprised to find our short-term loans ballooning in December,'€ he told investors and reporters at a press conference on Thursday.

Heru was referring to a 2015 Finance Ministry regulation that stipulates that tobacco companies must pay their excise by Dec. 31 at the latest. The regulation revised a clause in a 2009 regulation that gave local producers two months to pay excise without mentioning a specific deadline, meaning if a company ordered their excise ribbons in December, it could pay the excise by the following February.

'€œHowever, with the new regulation, there we will be no payments made in January and February, thus we can use our income initially used for excise to pay the debts. The debts will eventually decline,'€ he said.

Heru said his company would source the debts from syndicates and bilateral bank loans. He added that excise and raw materials remained key factors in cost growth, with excise making up around 68 percent of its Rp 40.4 trillion cost of goods sold (COGS) as of September.

Excise, value-added tax (VAT) and cigarette tax stood at Rp 27.29 trillion during the first nine months of the year, rising by around 2.4 percent yearly, according to the company'€™s documentation.

Gudang Garam'€™s COGS rose by around 5.04 percent year-on-year from Rp 38.49 trillion last year.

The government has increased tobacco excise by 8.7 percent this year, and has set another increase of 11 percent for next year.

Heru said the company would pass on increases in excise to its customers by adjusting its prices by around Rp 100 to Rp 300 per pack.

The rising costs, coupled with flat growth in sales, have led the company booking flat growth in net profits, up by only around 1 percent from Rp 4.04 trillion in January to September last year to Rp 4.11 trillion the same period this year. In contrast, Gudang Garam booked an increase of around 25 percent on an annual basis in net profits in the first nine months of last year.

Gudang Garam booked a 5.9 percent year-on-year increase in sales this year during the first nine months to Rp 51.01 trillion, the growth was lower than the around 20 percent in the same period last year.

Heru attributed the decline in revenue to weakened purchasing power amid the economic slowdown and a 3.5 percent decline in sales volume on an annual basis.