Indofood profit plummets by 25 percent

The Jakarta Post, Jakarta

The world's largest instant noodle maker PT Indofood Sukses Makmur announced over the weekend that its audited net profit last year declined by 25 percent, mostly because of an increase in interest expense, financing charges and foreign exchange losses.

In a press statement, the company said that its profit dropped to Rp 603 billion (about US$71.7 million) in 2003 from Rp 803 billion in 2002, although its sales were up by 9 percent to Rp 17.9 trillion from Rp 16.5 trillion.

The company's operating income jumped to Rp 2 trillion from Rp 1.88 trillion.

Publicly listed Indofood said the decline in profit was mainly attributable to a 22 percent increase in interest expenses and other financing charges, which reached Rp 996 billion from Rp 817 billion in 2002.

The increase in the company's interest expense was due to the replacement of maturing U.S. dollar-denominated debt with a $280 million Eurobond. The debt was obtained before the country's financial crisis in 1997 with a lower interest rate, while the bond carried a higher interest of 10.375 percent.

As of last year, the company's dollar-denominated debts reduced to $400 million from $458 in 2002, with 77 percent of the debt set to mature in 2007. The company also has around Rp 4.1 trillion of rupiah-denominated debt.

Additional working capital loans obtained in late September 2002, which had a full year effect in 2003, had also contributed to the decline in profit, Indofood said.

Other factors that shrunk the company's profit was a foreign exchange loss of Rp 102 billion, from a gain of Rp 216 billion in 2002. The rupiah appreciated by 5.6 percent to Rp 8,465 against the U.S. dollar as of Dec. 31, 2003 from Rp 8,940 in 2002.

The average exchange rate in 2003 was Rp 8,574 from an average of Rp 9,264 in 2002, the company said.

Despite tougher competition in the domestic noodle industry, the company's noodle sales increased by 4 percent to Rp 6 trillion last year on higher prices. The company sold 9.8 billion packs of noodles, the same volume as 2002.

Noodles are one of the country's main staple foods after rice, and the main pillar of Indofood's business.

The company also booked a 3 percent increase in flour sales to Rp 6.1 trillion, although its sales volume declined to 2.2 million tons due to lower industry growth.

But the company's sales of oil and fats declined by Rp 5.4 trillion from Rp 5.7 trillion.

Indofood plans to propose a 30 percent dividend payment from its net profit -- the same as 2002 -- at its upcoming annual shareholder's meeting in May.

The company, which holds an 88 percent market share in the country, previously said that the board of commissioners would recommend the replacement of the company's chief executive officer Eva Riyanti Hutapea to shareholders prior to the annual meeting.

Eva had tendered her resignation from the company late last year, amid reports of growing disagreement with the Salim family, the founder and controlling shareholder of the company.

The company is 52 percent owned by Hong Kong-based First Pacific Co. Ltd., while the remaining shares are held by the public. First Pacific is controlled by the Salim family.