Indofood's profit drops by 62% on forex losses

Rendi Witular, The Jakarta Post, Jakarta

The world's largest instant noodle maker PT Indofood Sukses Makmur announced on Friday its net profit in the first semester dropped by 62 percent on-year, mostly on foreign exchange losses and interest burdens.

In a press statement, the publicly listed company said profit dropped to Rp 116.8 billion (US$12.9 million) in the first six months ending June, from Rp 308.9 billion in the same period last year, despite an increase in sales to Rp 8.5 trillion from Rp 8.4 trillion.

Further, the company's gross profit grew by 12 percent to Rp 2.2 trillion from Rp 2 trillion, while operating income increased by 16 percent to Rp 1 trillion from Rp 867.2 billion.

The company said the sharp decline in net profit was mainly due to net foreign exchange losses of Rp 277 billion during the first semester, against net foreign exchange gains of Rp 73 billion a year earlier.

"The approximately 10 percent depreciation of the rupiah and losses on unwinding hedging contracts worth $60 million during the first quarter of this year are the principal reasons for the foreign exchange losses," it said.

The average exchange rate in the first semester was Rp 8,794, weaker than the Rp 8,678 average in the same period last year, the company said.

Although the company reduced its outstanding debts to $383 million and Rp 3.7 trillion as of June, from respectively $400 million and Rp 4.1 trillion as of December 2003, interest burdens remained high.

The company set aside Rp 438 billion for interest expenses in the first semester, down slightly from Rp 461 billion last year.

Newly appointed Indofood president director Anthoni Salim said as part of the ongoing debt management program, Indofood would continue to seek alternative financing sources to lower its interest rates and to minimize its foreign exchange exposures.

The company, which holds an 88 percent market share for instant noodles domestically, continued to maintain its hedging policy by setting up "principal-only swap" contracts of $250 million, he said.

Indofood is 52 percent owned by Hong Kong-based First Pacific Co. Ltd., which is controlled by the Salim family, while the remainder is held by the public.

The company also reported its gross margin improved to 26.1 percent from 23.7 percent, upon an increase in the price of flour, better margins of cooking oils and fats and crude palm oil.

Noodles, flour and edible oils and fats remained the principal contributors to the Indofood sales with a total contribution of Rp 7.4 trillion, or 87 percent of consolidated sales.

Despite tougher competition in the domestic noodle industry, Indofood's noodle sales increased to 4.83 billion packets, as against 4.78 billion in the first half of last year.

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

The company also booked a 12.9 percent increase in flour sales during the first semester to 1.2 million tons.

Indofood shares were unchanged on Friday at Rp 700 on the Jakarta Stock Exchange.