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Grim forecast for tobacco firm
(Bangkok Post (Thailand) (KRT) Via Thomson Dialog NewsEdge) Mar. 14--Profits for the state-owned Thailand Tobacco Monopoly are expected to fall more than half to just two billion baht per year within five years due to competition from foreign producers and declines in cigarette smoking.
The TTM, which posted 2007 net profits of 4.5 billion baht, produces the market-leading Krong Thip brand, and enjoys significant tax advantages over foreign imports. Sales last year totalled 30.9 billion cigarettes.
Pradit Pataraprasit, a deputy finance minister, said the market share for foreign brands had increased by around 1 percent per year over the past several years to around 25 percent now. Declining rates of smoking and new depreciation charges that the TTM must now book on recent machinery upgrades would further affect profits over the next several years, he said.
"It's quite obvious that business will not be expanding significantly in the future. But how can we maintain profitability? Production costs must be reduced and distribution made more efficient," Mr Pradit said.
He said the TTM also needed to consider expanding related businesses to supplement income and even explore possible production partnerships with major international cigarette producers.
"Competition in the market will continue to increase, particularly as tariffs continue to decline under the Asean Free Trade Area," Mr Pradit said.
One of the most popular foreign brands, Philip Morris's Marlboro, is produced in the Philippines and enjoys preferential import tariffs under the Afta programme.
Mr Pradit, speaking after a visit with TTM executives yesterday, said the Finance Ministry had no plans to list the state enterprise on the Stock Exchange of Thailand, given that the government maintained a policy to actively campaign against cigarette smoking.
"But corporatisation is a possibility, if it helps make operations more efficient," he added. Corporatisation refers to the legal process in which a state enterprise is turned into a public company.
The TTM, currently located in central Bangkok just off Rama IV Road, is planning to relocate its production facilities outside of the capital this year.
Authorities have set aside a 6.82- billion-baht budget for the relocation, which is expected to be to a new plant located within 200 kilometres of Bangkok and within an industrial estate.
The Thaksin Shinawatra government had earlier approved the relocation of the TTM to Chiang Mai under a contract with China Yunnan Corp. The deal was later scrapped by the Surayud Chulanont government due to questions about the transparency of the deal.
To see more of the Bangkok Post, or to subscribe to the newspaper, go to http://www.bangkokpost.com.
Copyright (c) 2008, Bangkok Post, Thailand
Distributed by McClatchy-Tribune Information Services.
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