The Group believes that its business benefits from the following competitive strengths which have contributed to its position as one of Indonesia’s major vertically-integrated agribusiness groups:-
As of December 31, 2012, the Group has approximately 230,919 ha planted with oil palms, of which approximately 24% was planted with immature trees and approximately 19% was planted with oil palms from 4 to 6 years old, which we expect will contribute to the increase of our future production of CPO as these younger trees approach maturity and/or peak production. Our oil palm plantations are strategically located in close proximity to each other and to our processing mills, near deep draft port facilities, and in largely contiguous land, which contribute to more efficient management, and lower transportation and other costs. Substantially all of our plantations are located on flat or mildly undulating terrain, which also reduces our planting, maintenance and harvesting costs.
The Group is a vertically integrated agribusiness with operations spanning the entire supply chain from research and development, seed breeding, oil palm cultivation and milling of palm oil to production and marketing of branded cooking oil, margarine and shortening. We believe our high degree of vertical integration and the large scale of our operations provide us with synergies and competitive benefits in the form of cost efficiencies and stronger relative bargaining positions. Our oil palm plantations supply the bulk of internal CPO requirements to our downstream edible oils and fats division, and reduces our exposure to third party purchases of CPO.
We have 21 CPO mills in Sumatra and Kalimantan with an aggregate processing capacity of 5.2 million tonnes of FFB per year. We are increasingly investing in our own supply chain, including bulking stations, tugboats and barges, fleet of trucks and road tankers to ensure an efficient supply chain of CPO.
We also own and operate integrated refining and fractionation facilities strategically located in major Indonesian cities (i.e. Jakarta, Surabaya, Medan, and Bitung). With the completed Tanjung Priok refinery of 420,000 MT of CPO refining capacity in December 2010, the Group has an aggregate capacity of approximately 1.4 million tonnes per year. Our large business volume enables such facilities to operate at high utilization rates which generate the desired economies of scale. By owning much of our production chain, we are able to achieve greater coordination and efficiency in terms of planning, logistics, production and merchandising.
We have built strong brands over decades of operations in Indonesia and our deep appreciation and intimate understanding of the Indonesian consumer market, including consumer tastes, spending and other preferences, has allowed us to foster loyalty from our customers in our brands. We believe that the trust and loyalty that we have developed in our brands provide us with a competitive advantage in maintaining a large customer base and the selling price of our products. Furthermore, our strong reputation facilitates our ability to develop and market new products or extensions of existing products as we believe customers are more likely to rely on a trusted brand when experimenting with new products. In addition, our well-developed brands and reputation allow us to avoid excessive advertising costs, as our products and brand names already are well-known in the market, and allow us to negotiate favorable terms with distributors given the popularity of our products.
Our brands have won multiple awards over the years. For example, we were awarded:
- Platinum level for Indonesia Best Brand Award from SWA MARS from 2002 to 2012,
- Diamond level of Indonesia Customer Satisfaction Award from SWA Frontier in every year from 2000 to 2012.
We distribute our branded products to approximately 326,000 retailers throughout the Indonesian archipelago through the distribution channels of our parent company, as well as third-party distributors. In addition, our products are sold in 50 countries worldwide. We continue to maintain and grow our relationships with third-party distributors in order to gain wider distribution for our products. The ISM Distribution Arm had approximately 1,100 stock points throughout Indonesia. Each stock point is generally located in areas with a high density of retail outlets and/or near traditional markets serving the retail outlets. We believe that the large number of stock points and their proximity to demand centers provides us with a significant competitive advantage, allowing faster and more frequent deliveries than our competitors, which enhances product availability and freshness. The stock point system also allows us to limit our distribution and transportation costs. In addition, we are able to access ISM Distribution Arm’s management information system, which provides market information to us on a timely basis and allows us to respond quickly to market changes.
We believe that our research and development efforts will assist us to achieve high production yields and cost efficiencies. For example, we have developed high yielding oil palm seeds through our research efforts, and we have capability to produce up to an average of 33 million high quality seeds per year. Our dedicated research and development team carries out research focused on breeding of seedlings to improve FFB yield. We believe that we will be able to continue to leverage our strong and historically successful research and development and seed breeding programs to improve production costs and environmental sustainability and to maximize profit in the long run.
Our experienced management, marketing and technical team has demonstrated the ability to successfully build and integrate our various operating activities through their years of experience, as shown by their successful track record in managing our business. In particular, our management, marketing and technical team has led the process through which we have developed a complementary mix of products, built brand recognition and loyalty, managed price volatilities and identified new business opportunities, including locating suitable sites for the cultivation of oil palms and the establishment of refineries and processing plants. Our senior management team possesses extensive industry experience in Indonesia, with an average of more than 15 years of experience in agribusiness. Under the guidance of our senior management, we have expanded our business in recent years, including by entering the sugar business, and our total planted area has increased from approximately 61,000 hectares in 2005 to approximately 268,725 hectares as of December 31, 2012.