Indofood CEO sees bright future ahead for food company
Publicly listed food conglomerate PT Indofood Sukses Makmur faces tough challenges this year, ranging from a possible investigation by the Business Competition Supervisory Commission (KPPU) over alleged violations of anti-monopoly legislation, to a brand dispute.
Indofood, he largest instant noodle maker in the world, is 52 percent owned by Hong Kong-listed First Pacific Co. Ltd., while the remaining shares are held by the public.
Indofood's sales last year increased by 12 percent, to Rp 16.5 trillion (about US$1.9 billion), with net profit rising 8 percent to Rp 802 billion. The company's total assets are worth Rp 15.3 trillion.
Noodles are the main pillar of Indofood's business, with a 55 percent contribution to net profit, followed by flour (22 percent), edible oil and fats (19 percent) and miscellaneous items, such as snacks and baby food (6 percent).
The Jakarta Post's Rendi A. Witular interviewed last week Indofood chief executive officer (CEO) Eva Riyanti Hutapea. The following is an excerpt:
Question:How do you anticipate a possible probe by KPPU over allegations of monopolistic practices? How will it impact on your business?
Answer: We are always ready to be investigated by them because first of all, we have never indulged in unfair (business) competition nor unscrupulous business practices. And second, the domestic market for the food sector is still large. The impact? ... For sure we are still thinking positively that nothing will happen.
Q: What about the brand dispute? (In December 1998, one-time partner of Indofood, businessman Djajadi Djaja, filed a lawsuit with the South Jakarta Court accusing Indofood in 1984 of having forced him to sell his 11 brands to the company very cheaply. Among the brands were Indofood's now famous Indomie instant noodles and Chiki snack.)
A: That is just an attempt by a certain party, which is not true. In 1994, before our initial public offering, we made an announcement in the media that anyone who had problems, such as debts or disputes with Indofood, should come to us and settle the matters.
However, no one came and thus it was clear that there was no problem.
In the first round of the trial, we won the case; now we are still awaiting the result from the higher court as the party (Djajadi) made an appeal.
Q: What if you lose the case
A: We are optimistic that we shall win it.
Q: About Indofood's debt level: How manageable is it, as most of it is in U.S. dollars?
A: As of March (2003) our outstanding debt was $435 million and Rp 3.4 trillion.
It is still manageable because we have provided hedging for our U.S. dollar loans. Indofood has a principal-only swap (POS) contract of $310 million with Credit Suisse First Boston and Bank of America Asia Limited, in addition to export revenue last year totaling $259.
Q: How do you view this year's market prospects for your products?
A: In any kind of situation, people need food. Indofood's products are still affordable, even for the poor, compared with other kinds of food, such as from Tegal and Padang warung (street-side restaurants), which sell meals at an average price of Rp 3,000, while Indomie sells for only about Rp 1,000.
For cooking oil, in terms of brand, the price is likely to rise; however, consumption is still low in comparison with other countries. Annually, the consumption here is no more than 10 kilograms (kg) per capita which is equal to Rp 50,000. That is still small.
The same situation is true for flour: Our consumption is still low, at only 14 kg per person per year.
Our domestic market, with 220 million people, is still huge. We are targeting to grow by 15 percent this year.
Q: What is Indofood's focus this year?
A: This year, our focus is on developing products for high-end consumers. The current situation is that rich people eat the same Indofood products as consumed by lower- to middle-income people.
This shows that the rich have accepted our products well. But if we packed the products exclusively and gave them some added value, the rich would accept them at a higher price.
Producing high-end items is all about small volumes, but high spending. We estimate that there are 16 million high-end consumers in the country.
This is a long-term aim: Our target is 30 percent high-end and 70 percent medium-to-low (market composition) by 2010.
For this year, we shall also focus on improving our distribution chains.
Q: What kind of high-end products are you planning?
A: Our main pillars are still instant noodles, flour and cooking oil, but we are also developing other products, such as snacks and baby food.
We shall develop food for infants aged from four months to five years, and also for elementary school children up to the age of 12.
As for snacks, we shall produce indigenous snacks from all provinces. We estimate a maximum of 30 products this year.
For high-end noodles we shall launch about 30 items this year.
Q: Are you planning any acquisitions this year?
A: Well, we'd like to, especially in the food sector, but there are no suitable candidates yet.