Indofood to cut jobs, flavors on competition

Indofood to cut jobs, flavors on competition

Soraya Permatasari, Bloomberg/Jakarta

PT Indofood Sukses Makmur, the world's biggest instant noodle maker, said it plans to cut jobs and unpopular flavors as rising competition in Indonesia and a slump in the currency erode profit.

Indofood fired 2,000 workers in the past year and may cut a further 1,000 jobs, Vice-President Director Franciscus Welirang said in a Sept. 8 interview. Indofood, whose noodles include chicken curry and meat balls, will "stop producing flavors that don't sell well in the market," Welirang said.

Jakarta-based Indofood's Indomie, Sarimie and Supermie brands are losing sales to lower-priced noodles from rivals such as the Wings Group. The rupiah's 8.1 percent decline against the dollar this year has meanwhile raised raw material prices and the cost of paying back foreign currency debt. Slowing economic growth amid higher global oil prices is also hurting demand.

"Indofood is losing out to its competition," said Arfan Karniody, who helps manage the equivalent of US$241 million at PT Niaga Aset Manajemen in Jakarta. "At the same time, the weaker rupiah is hurting margins."

The job cuts will probably reduce Indofood's employees to 42,000 by the end of next year, Welirang said. The company has scrapped noodle flavors, including the Taliwang spicy chicken, a typical dish in West Nusa Tenggara province, and the Manokwari chicken, popular in the province of Papua, to 160 from more than 200, he said.

"Cutting down the number of noodle varieties in the market sounds like a good move as it will help the company to focus," said Karniody, who sold his entire Indofood stake earlier this year. "Cutting jobs, especially the plant workers, may not reduce costs by much."

Indofood, which gets a third of its sales from noodles and another third from selling wheat flour, also plans to this week increase flour prices by at least 3 percent, or Rp 70, a kilogram, to protect earnings amid higher wheat prices and the weaker rupiah, Welirang said.

Indofood may also increase noodle prices to pass on rising costs to customers and close less-profitable units, he said.

Wings's Mie Sedap fried noodles sell for Rp 1,000 (10 U.S.cents) a packet, 16 percent cheaper than Indofood's similar product Indomie Goreng.

Indofood's Indonesian market share last year fell to 78 percent from about 88 percent in 2003. "Realistically, our market share is now below 78 percent," Welirang said.

The company may sell 9.4 billion packets of instant noodles this year, fewer than the 10 billion-packet estimate the company had in March. The company also said it plans to sell as much as 2.5 million tons of flour, about the same as last year.

Indofood will probably delay the sale of its unit, PT Bogasari Flour Mills, to next year until "the market is more favorable," Welirang said. Bogasari owns the world's biggest flour mill, with the capacity to produce 3.7 million tons of flour a year.

The delay in the initial public offering will cause the company to postpone repaying its debt, "which is necessary at this time as the decline in the rupiah puts pressure on the company's debt payment ability," said Laksono Widodo, an analyst at Macquarie Securities, who cut his recommendation on the stock to "underperform" from "outperform."

The cost of servicing dollar-denominated debt rose because the company earns mostly in the local currency, Welirang said. About 60 percent of Indofood's costs are linked to the dollar, making it sensitive to currency fluctuations.

Indofood had $172 million of outstanding U.S.-dollar debt as of June 30, including $154 million in bonds by its Mauritius unit, Indofood International Finance Ltd., Djoko Wibowo, a company director, said at the same interview. The amount has declined from $310 million after Indofood bought back some of the Mauritian bonds earlier this year.