Tobacco Asia

Volume 19, Number 2

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58 tobaccoasia / Issue 2, 2015 (May/June) National Tobacco Corporation [CNTC] on projects and initiatives," said Baark. Else- where, only the cultivation, harvesting, and marketing of certain tobacco types are supervised by the state, while others are not. One example according to Baark would be Indian FCV, which is under the control of the Tobacco Board and 100% marketed over the auction platforms. However, Faasen emphasized that the region does lack some of the flavors for FCV and burley that can be produced in the US, Brazil, and parts of Africa, as well as the top-quality, full-flavored Oriental tobaccos produced in the classical growing areas of Europe. Furthermore, many of the sun- and air-cured tobaccos are only produced specifically for domestic use in specific products, such as Rajangan in Indonesia and the Natu's and Native types in India. There also is a specific niche production such as Kasturi and Besuki tobaccos in Indonesia. Yet it might be just this broad diversity in types, styles, and flavors that may poten- tially intrigue buyers from outside the region. "Some of [the Asian tobaccos] are not grown in any other areas around the world. If customers are looking for something unusual, Asia is an ideal region to start that the search," asserted Sikkel. He added that AOI was also seeing continued improvement in flavors coming from China and Indonesia. Just last year AOI announced its entrance into Myanmar, thus effectively expand- ing its already existing regional production network. "Myanmar is centrally located… and we produce a flavor and style of tobacco that is unlike any other areas where we operate," said Baark. "We are excited about our recent expansion into Myanmar and we look forward to [further] developing our pres- ence in [a] region… that is responsible for two-thirds of global cigarette consumption," added Sikkel. Because customer demands continue to evolve, AOI was always looking for strategic opportunities and partners, he said. And as Asia was a key market for Alli- ance One, the company was committed to maintaining a strong presence in the region. A Vast Blanket of Tobacco Fields "Let's look at the main countries in Asia that supply AOI, primarily China, India, Thai- land, and Indonesia," said Faasen. "The combined total cultivated area under tobacco for these four countries is estimated at 1,545,977 hectares." Among these China represents the overwhelming majority of cultivated land in Asia at an estimated 69.5%, which cor- responds to 1,074,000 hectares. Of that, FCV cultivation covers approximately 1,054,000 hectares, while the balance is made up of Oriental and burley tobaccos. In India, currently AOI's currently second largest supplier produces FCV, burley, sun-cured, DFC, and Oriental tobaccos with a combined cultivation area of around 269,500 hectares. While FCV is the predominant tobacco type covering a production area of 218,000 hectares, Oriental tobacco takes up only an estimated 7,500 hectares, with DFC tobacco standing at a mere 2,700 hectares. The remaining balance of 28,300 hectares is dedicated to a number of sun-cured tobacco types almost exclusively used in local tobacco products. Thailand Sale Partially Affected AOI's 2014 Global Revenues According to its latest available financial statement for the operating year 2014 (which covered the period between April 1, 2013 and March 31, 2014), AOI's total sales and other operating revenues improved by 4.1% to US$1,487.3 million due to increased tobacco sales revenue. Processing revenues were down 3.4% while cost of services increased 2.6% as a result of smaller crop sizes in the United States due to excessive rainfall. To- bacco sales revenue and cost increases were mainly due to larger crop sizes in Africa, higher prices across all regions where the company is active (including Asia), the timing of shipments in North America, and product mix. Nevertheless, higher prices were paid to tobacco suppliers across all regions, which increased average sales prices but also cost per kilo. During the fiscal year ending on March 31, 2014, average costs increased US$0.39 per kilo while average sales prices only rose US$0.29 per kilo, which resulted in a gross margin decrease of 18.5% to US$134.5 million. Gross margin as a percentage of sales declined from 11.6% to 9.0% during the same period. Mainly the result of lower gross margin, operating income also decreased 37.5% to US$47.1 million year-on-year. Sikkel at the entrance of AOI's headquarters. The outer dry shell of the palm seed, a material considered waste in the past, is now providing sustainable fuel energy for flue-cured tobacco growers in Indonesia, thanks to an AOI energy initiative. A field of oriental tobacco planted for AOI grows in Thailand.

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