TTM to cut costs after tax hikes
Thailand Tobacco Monopoly is focusing on managing costs to prop up its bottom line after sales volume dropped by more than 30 per cent, hit by the recent hike in excise tax.
Torsak Chotimongkol, managing director of TTM, said yesterday that the company was not worried about the sales decline because net profit showed healthy growth. This year it will be higher than last year thanks to the cost-management policy.
The state enterprise has annual revenue of Bt70 billion, of which Bt50 billion is excise tax, so its core revenue is Bt20 billion. It earned Bt5 billion last year and is aiming for a net profit of Bt6 billion this year.
Cost management is the key strategy to reduce the cost-to-income ratio by at least 5 percentage points by 2015. TTM is not only facing a challenge from the excise tax but also from the arrival of foreign cigarettes and the popularity of hand-rolled cigarettes.
The barrier to growth is the rising demand for hand-rolled cigarettes after the increase in the excise tax.
Sales of hand-rolled cigarettes have reached 40 million kilograms per year, surpassing the 30 million kilograms produced by TTM. Sales of hand-rolled cigarettes will increase by more than 33 per cent.
The Finance Ministry should pay attention to this trend, Torsak said.
TTM yesterday signed a supply-chain solutions contract with TMB Bank, which would improve payments among TTM, dealers and sub-dealers. This is the first step in its cost-management agenda. The cash flow of TTM with its nationwide network is Bt200 billion.
In the second phase, TTM plans to improve transport and logistics, which will also be preparation for the upcoming Asean Economic Community.
The third step is to cut production costs. It will install new machinery to adjust the manufacturing process at the existing plant in Rojana Industrial Park.
The second factory, which is expected to start operating in 2015, will also help reduce production costs, Torsak said.
TTM can make up to 32 billion cigarettes per year, he added.
