Astra Agro plans to play in downstream businesses

Astra Agro plans to play in downstream businesses

Rendi A. Witular, The Jakarta Post, Jakarta

Publicly listed plantation company PT Astra Agro Lestari is
considering engaging in downstream business to offset a possible
business downturn due to unfavorable government policies in the
crude palm oil (CPO) sector, a company official said.

Astra Agro vice president Benny Tjoeng said the company was
planning to integrate its upstream plantation activities with
downstream processing businesses, such as producing cooking oil,
margarine and soaps.

"The management is considering the plan, just in case we are
treated unfairly. We hope that a decision on the matter will be
available by the middle of this year," said Benny on the
sidelines of an analysts meeting on Tuesday.

Benny said if the plan was executed, there was the possibility
of a business reorganization, including setting up a subsidiary
to deal with the downstream business.

The company is unlikely to have difficulty entering the
downstream business, as it is already producing cooking oil under
the "Cap Sendok" brand. Sales of Cap Sendok jumped by 57.6
percent last year. This year, the company hopes to produce 20,000
tons of cooking oil.

Benny said if the company decided to fully engage in the
cooking oil sector, it would need new investment of US$20 million
to $25 million in order to process 500,000 tons of CPO into
cooking oil.

The company's plan to enter the downstream business is driven
by the government's unfavorable policies toward CPO producers,
such as the proposed imposition of an export tax of between 3
percent and 60 percent, Benny said.

With such policies, CPO exports will be limited because the
prices will be higher, undermining the competitiveness of
Indonesian CPO on the global market.

Benny said the export limitations would force local CPO
producers to engage in processing in order to accommodate their
own CPO production, while at the same time compensating for lost
revenue.

About 75 percent of CPO is used for cooking oil, while the
remaining goes for margarine, soap and other types of oils.

Astra Argo said its CPO production this year was projected to
reach from 700,000 tons to 720,000 tons, up from 633,425 tons
last year.

The company plans Rp 200 billion in capital expenditures this
year for, among other activities, planting oil palm trees on
8,765 hectares of land, expanding its mill capacity and
infrastructure development.

During the analysts meeting, the company said its unaudited
net profit for 2003 jumped 22.3 percent to Rp 280 billion from Rp
229 billion in 2002.

Its sales also surged 25 percent to Rp 2.54 trillion from Rp
2.03 trillion, due to a 16.6 percent increase in CPO production
and an 11.2 percent price rise.

The company also said it planned to issue bonds worth Rp 350
billion to Rp 400 billion to refinance part of its long-term
debts, totaling Rp 704 billion.

However, Benny said the plan would only be executed if the
price of CPO declined to below $350 per ton this year. If the
price remains stable at $480 a ton, the company will seek Rp 150
billion to Rp 200 billion in refinancing funds from banks, with
the remaining money to come from the company.

The company plans to repay Rp 500 billion of its debt, which
is scheduled to mature in 2005, this year.