|
IndoAgri 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 at 31st December 2009, the combined Group has a land bank of approximately 549,287 hectares (excluding land under the Plasma Programme). Of this, approximately 193,613 hectares are planted with oil palm which are mostly contiguous and provide the benefits of being easier to manage, better security and lower costs. Approximately 132,560 hectares out of the planted area are mature areas where the oil palm trees produce commercial harvests. The Group thus has considerable undeveloped plantation land which can be developed to increase its future production of CPO.
IndoAgri has established a vertically integrated agribusiness model that spans from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. IndoAgri believes that the high degree of vertical integration and the large scale of its operations provide it with various synergies and competitive benefits in the form of cost efficiencies and stronger relative bargaining position. These include the following:-
- IndoAgri’s oil palm plantations cultivate and principally produce high quality CPO with less than 3% free fatty acid (FFA). Such plantations supply approximately 77% IndoAgri’s internal CPO requirements in FY2009. This provides IndoAgri with an assured supply of its key raw material and reduces IndoAgri’s exposure to unfavourable changes or volatility in CPO prices.
- Many of IndoAgri’s production facilities are strategically located near sources of raw materials and near deep draft ports to minimise its transportation costs for the obtaining of raw materials and to facilitate the shipping of its products. IndoAgri also owns and operates its own jetties, ports and fleet of trucks and road tankers to meet a portion of its transportation requirements.
IndoAgri undertakes its own branding and marketing of products which involve extensive market data collection to increase understanding of consumer preferences and needs. This enables IndoAgri to manufacture products which effectively satisfy consumer demands in various segments thereby building brand loyalty. IndoAgri has also deployed its market knowledge to develop a wide product range to cater to various customer segments in Indonesia.
- By owning much of its entire production chain, IndoAgri is better able to achieve greater coordination and efficiency in terms of planning, logistics, production and merchandising. IndoAgri is also better placed to control and maintain the quality and image of its products
IndoAgri has a dedicated team of researchers to carry out research and development activities that focuses on
- breeding of oil palm seedlings with characteristics that could lead to improved FFB yields and self-sufficiency in terms of oil palm seedlings;
- improving harvesting practices to optimise collection of FFB;
- preventive maintenance programs for all mills;
- optimising biological methods of pest and palm tree disease control;
- plantation mechanisation; and (vi) the usage of organic fertilizers.
- continuously improving the quality and consistency of its branded products;
- developing new branded products to meet the consumers’ demands; and
- including the development of new packaging materials and design to support the products appearance and cost efficiency programs
IndoAgri believes the above efforts will ensure it continues to achieve high production yields, cost efficiencies and value added creation in branded products.
As one of the earliest domestic mass producers of branded edible oils and fats in Indonesia, IndoAgri has over the years developed a deep appreciation and intimate understanding of the Indonesian consumer market including its consumer tastes, culinary, spending and other preferences. This has enabled IndoAgri to develop effective production, pricing, distribution and marketing strategies to achieve strong brand recognition and deep market penetration for its products as borne out by its strong market share in the country.
IndoAgri believes that its products and brands have developed a high degree of consumer trust, and loyalty in Indonesia. These attributes provide IndoAgri with a competitive advantage in terms of, amongst others, its ability to:-
- maintain its customer base and the selling price of its products as consumers are less inclined to switch to newer unknown brands;
- promote and grow new products or extensions of existing products as consumers are more prepared to experiment with new products from a trusted brand;
- avoid having to incur a disproportionate amount of advertising and promotion expenses (“A&P expenses”) as the brands are already well known; and
- negotiate selling terms with existing distributors and attract more distributors with the desired network and abilities given the popularity of the products with end-consumers.
Given the size and geographically dispersed nature of the Indonesian market, IndoAgri distributes its products mainly through external distributors. IndoAgri currently has approximately 120 distributors which together with IndoAgri’s own direct sales channels serve approximately 255,000 retail outlets throughout Indonesia. These include the extensive sales distribution network established by its controlling shareholder, PT Indofood Sukses Makmur ("ISM"). IndoAgri supports its distribution network by providing, inter alia,
- a reliable supply of products;
- commercially sound sales, credit and returns policies; and
- extensive consumer marketing strategies involving advertising and promotion as well as caring and responsible community involvement.
This extensive sales and distribution network enables IndoAgri to serve the vast Indonesian consumer market in nearly all localities and segments in an efficient and effective manner. It also enables IndoAgri to sustain high production levels and to be less reliant on any single province or geographical area within Indonesia.
IndoAgri has an experienced management, marketing and technical team which has over the years demonstrated the ability to build and integrate the various activities of IndoAgri, develop a complementary mix of products, build brand recognition and loyalty, establish distribution networks in Indonesia and abroad, manage price volatilities, reap costs savings from economies of scale and efficiencies, and identify new business opportunities including sourcing for suitable sites for the cultivation of oil palm and the establishment of refineries and processing plants. IndoAgri believes that the quality of its management team is vital in sustaining and growing the success of IndoAgri business in the midst of increasing competition in the market.
IndoAgri’s major shareholder, PT ISM, is one of Indonesia’s largest processed food companies, with leading domestic market shares for most of its products, including instant noodles, wheat flour, baby foods and snack foods. PT ISM also produces food seasoning products. Currently, PT ISM is Indonesia’s largest instant noodles manufacturer and its flour milling facilities is Indonesia’s largest and amongst the biggest in the world, with installed capacities of approximately 13 billion packs and approximately 3.8 million MT per annum, respectively. The PT ISM Group also has an extensive distribution network in Indonesia.
As part of the PT ISM group of companies, IndoAgri is able to tap PT ISM’s market knowledge, management expertise, collective bargaining strength and business
infrastructure. These provide IndoAgri with important operational efficiencies and competitive advantages. In particular, IndoAgri intends to leverage on PT ISM to further penetrate the domestic Indonesian markets through PT ISM’s “stock point” distribution system. IndoAgri also intends to leverage on PT ISM in identifying and exploring new business opportunities and implementing best practices relating to risk management, environmental and social responsibilities.
|
