INDF 2015

First Pacific

First Pacific indirectly owns 50.1 % of total stock of Indofood which is its head office located in indonesia. First Pacific is also shareholder of several companies, among of them are located in Philippine. Those subsidiaries run in various sectors, those comprise consumer foods (Indofood, goodman fieder), Telecommunication (PLDT), infrastructure (pacific light, Metro Pacific) and Natural Resource (Philex and RHI).

Within 50.1 % of total stock in Indofood, the company controlled the company’s business from its head office which is located at Hongkong.

In 2015, the company and wilmar made a joint venture to purchase Goodman Fieder, a food company based at Australia. Goodman Fieder produced various food and beverage products such as bread, milk, margarine, condiments, dips, mayonnaise, frozen pastry, cake mix, pies, savories, desserts, sauces and etc. 43 % of total revenue of Goodman Fieders is from Australia.

The company expanded to Australia in order to aim increase in sales at Asia as the region has high potential economic growth. The company considers that demand of food and beverage product in asia will increase at the future.

Indofood

In 2015 indofood has stagnant sales growth; it increased 0.7 % in comparison to sales in 2014. The slowdown of economic growth is as a reason of the slower sales growth. Decline in commodities demand may decrease the performance of agribusiness unit of the company. Turnover of agribusiness unit decreased 6.8 % in comparison to turn over in 2014. So did the flour unit, Bogasari, its revenue in 2015 decreased 3.51 % compared to revenue in 2014.

Consumer branded product unit as its key driver of sales growth is still growing at 6.02 % up in 2015. 

Acquisition of goodman fieder by the parent company is expected able to increase agribusiness unit and CBP unit in the future.

In 2015 the exchange rate rupiah to US dollar tends to drop as the export at that year decreased. The imported raw material, wheat, the main raw material for production of noodle, experienced higher price in 2015. In 2015 the company was able to maintain gross margin and current ratio at the same rate with in 2014.

In 2015 the profit margin decreased because it used more debt which increased the interest rate. In 2015 the company allocated the fund to acquire fixed asset for plantation and to finance its development. The company has acquired 50 & of CMAA in brazil, CMAA is a company which run in producing sugar and ethanol in brazil.

INDOFOOD - INDF

Rupiah attained IDR 14,000/USD: Economic condition walk to negative growth?

As the prediction of some economist that after quantitative easing pace US dollar will be stronger again compared to other currencies. Rupiah attains its psychological level again in Monday, august 24. Government tends to blame global economic effect as the reason of currency’s fall. The peers are also experienced the same condition, other currencies at south east asia region are shrinking and investors seem run after US dollar to save their investment.

Jakarta stock index has depreciated in to lower level since the early of 2015. Despite the stock market capitalization in Indonesia is only 50 % of its GDP, the psychological effect is important to be considered. People who invested money in capital market usually are categorized at the middle up class who have bigger portion of asset in Indonesia. Based on Guillaume de Gantes, Partner, McKinsey Indonesia, Indonesian consumers are family oriented, they take decision investing or purchasing based on advice from their family. If Singapore is more attractive the rich people could remove their money Singapore and rupiah will be more depreciated again as more US dollar is purchased.

In crisis of 1998, Indonesian economic growth was merely -12 %, this crisis may be occurred again after about 20 years. There were many companies which had declared their bankruptcy. Unemployment is serious threats for stability of economic and politic circumstance. In 1998 rupiah was destroyed by George Soros, the well known Fund Manager who has sophisticated skill in derivative product such as future and etc. Soros and his global investor was betting rupiah fall to US currency. And it was occurred and Soros got gain from the crisis.

Food and beverage manufacturing: highest growth rate in 2010-2014

Manufacture industry which produces food and beverage product segment advanced at highest growth rate among other manufacturing industry. According to euromonitor its CAGR in 2010-2014 was more than 8 percent. On other hand GAPMMI predicted sales of food and beverage product in Indonesia will over than rp 1000 trillion in 2015. Ice cream and ready to drink coffee are beverage products which are forecasted at more than 16 % growth in between 2013 until 2017.

The food and beverage manufacturing industry may concern to produce those kinds of beverage products. Meanwhile, frozen processed food and canned food are products which are predicted with high growth rate in period of 2013 – 2017.

Company analysis: club and milkuat strengthens brand portfolio  

Consumer branded product segment is still the key success factor which has sales contribution more than 46 % of total sales in 2014. In the same year the company was able to improve its gross margin from 26 percent in to about 29 percent. Low commodity product and high margin company acquisition may be as the key factor to improve margin. In 2014 the company was also able to increase sales more than 14 % compared to sales in 2013. The sales growth in 2014 is also higher than sales growth in 2013 which is at about 10 %.

In 2014 the company acquired bottled water product, Club and also acquired danone dairy Indonesia which has several strong brand include milkuat. In cultivation segment, the company acquired Madusari Lampung indah which operates in sugar cane cultivation.

For cultivation and granulation segment, the company has agreement to sale its 52% share in CMFC in to CMZ BVI. CMFC is operating in vegetable cultivation and granulation in china. The company decided to leave this segment. Based on annual report of 2014, the company categorized the segment as discontinued operation due to sale agreement of its 52 % share in CMFC to CMZ BVI. The disposal asset may be conducted after March of 2015.

The company has several plantation in china which are located in Fujian, Sichuan, Inner Mongolia, Tianjin, Jiangxi, Shanghai , Yunnan, Hubei and Jiangsu.

Indofood is owned by CAB holding which has about 50 percent of total share and the rest is owned by public. CAB is subsidiary of First Pacific holding in hongkong which is listed in its stock index.

As the weakened rupiah the price of imported raw material such as wheat may increase significantly. Wheat is used to produce noodle in CBP segment and wheat flour for bogasari. Hedging is used to protect the cost from the currency exchange risk which very fluctuates in the recent time due to currency war between China and US.

Based on euromonitor the frozen food and canned food are having good demand in the market. The company could enter the segment to capture the demand from consumer. Based on BPS in 2014 the each person uses more than 26.4 percent of total monthly average food expenditure per capita for purchasing prepared food and beverage. The people start to consume more prepared food and beverage product due to its easy way of consumption. They do not need to cook for eating the food, they only need do simple thing.  

INDOFOOD - INDF

Industry Analysis

Retail Trades is considered growing slightly, 60 % of retail trade is fast moving consumer goods

Based on data of BPS, the wholesale and retail trades industry has average growth at 14.7 % (at current price) between in 2006 to in to 2012. Despite of higher BI rate, the retail trade will still grow slightly. For modern retail segment, accordance to aprindo, the modern retail will rise slightly at 10 % up than previous year. The fast moving consumer goods is biggest portion in modern retail trade; it is 60 % of total demand of consumers.

Manufacturing: Food, beverage and tobacco

The graph illustrates that the manufacturing industry growth tend to follow the trend of economic growth. It could be saw that since 2005 the growth of manufacturing industry is under economic growth. According to World Bank, Indonesian economic growth will increase at 5.2 % in 2015. In conclusion, the increase of manufacturing industry is predicted fewer than 5.2 %.

Based on National statistical bureau, in between 2006 -2012, the average growth of food, beverage and tobacco industry is at 19 %.( at current price). As long as the population increases, the demand for food and beverage will advance. Moreover, the biggest portion of GDP is domestic consumption includes food and beverage.

As a result of those, the manufacturing industry in food and beverage segment is expected raise slightly in 2015 as the demand of it is rising at 10 %, the higher BI rate in 2015 could reduce demand.   

The ASEAN Economic Community which will be conducted in indonesia may make the competition more tight. The country needs to look at the potential segment that could be comparative advantage of indonesia to others country in south east Asia. 

INDOFOOD

High Cash to sales ratio and faster cash to cash cycle

 Accordance to annual report of 2013, the sales has increase 15 % up than sales in 2012. The gross profit margin has fallen in to 27.1 % in 2013, lower than 2012, which it was at 29 %. The higher inflation rate increases the cost of raw material which is bought from oversea.

The key driver of sales is consumer branded product segment which is 43.1 % of total sales. It consists of familiar branded product such as indomie, supermie, lays, pepsi etc.

The account receivable has increased sharply in 2013 up than 2012. The sharp increase may possible be driven by the acquisition of few companies in 2013, in agribusiness segment and in consumer branded product segment.

Cash to cash cycle has improved in 2013; it is faster than cash to cash cycle in 2012. From 76 days in 2012 becomes in to 67. The supplier expands its time for payment. The company has high cash to sales ratio in 2013, 23.7 % of sales, the company may possibly have several plans to purchase other company share and more fixed asset to increase its production capacity due to big available cash.

Forecast

The increase of sales in 2014 until 2016 are predicted at 10 % as the retail trade predicted advance at 10 %. The inflation rate in 2015 is expected fall as the central bank increase interest rate. As a consequent, the demand decrease and people tend to keep their money in the bank.

Accordance to the standard chartered research, the inflation rate will fall in 2015 than 2014 as the central bank will increase its rate in anticipating the rise of fund fed rate in next year.