Indofood to boost food business with expansion

JAKARTA (JP): The Salim Group's publicly listed Indofood Sukses Makmur said its plan to buy the group's edible oil and fat plantations and distributors was aimed at strengthening its branded consumer packaged foods business.

Indofood CEO Eva Riyanti Hutapea said Saturday with the acquisition, Indofood would also benefit from the Salim Group's edible oil and fats business' dormant position in the local market.

"In addition, it is the largest supplier of quality industrial cooking oil and margarine with customers such as Indofood's Noodles and Snack foods Divisions, Nabisco, Unilever, and Kong Guan," she said.

Indofood, which is listed on the Jakarta Stock Exchange, expects over Rp 5 trillion (US$2.07 billion) in net sales from the proposed acquisition.

She estimated net profits would increase by over 45 percent and earnings per share by close to 20 percent this year because the cost of Indofood's integrated operations would be greatly reduced.

The consumer and industrial cooking oil business' turnover reached almost Rp 600 billion in 1996.

She said with that scale of business and with attractive margins and brands "the acquisition is a good fit and will be profitable for Indofood".

To secure Crude Palm Oil (CPO) supply at a stable price the company also plans to buy a 63,000 hectares of edible oil and fats plantations.

Eva said the proposed acquisition would improve the Plantations Group's efficiency and productivity would increase the commodity's yield and outputs.

"The further increase is probably 70 percent of the plantations mature hectares is at the very early stage (eight to nine years) of peak production," she said.

Peak production age is up to 14 years.

The remaining 30 percent of the planted area would reach ideal productive age within the next three years, she said.

She said without the Plantations Group, Indofood would face difficulties finding quality CPO source of sufficient volume and price needed in the long term.

"With increasing demand for vegetable cooking and a commodity market share position of over 55 percent for branded cooking oil, the supply of CPO is critical," she said.

The cyclical production of CPO in Indonesia caused the government to semibuffer its price during low harvest seasons to prevent a shortage and price escalation, she said.

She said the existing tax on CPO, which could be lifted at any time, also affected the commodity's availability in the domestic market. (02)