Indofood's success indicative of increase in local purchasing power

While the country as a whole clearly benefits from the resilience that comes with a population of 240 million, so too does its most recognisable total food solutions company, Indofood Sukses Makmur. Indofood has grown steadily throughout the global financial downturn, boasting a compound annual growth rate of 12.9% from 2007 to 2011. The company also exports its products as far afield as the Netherlands due to the size of the Indonesian diaspora there.

Indofood is active throughout all stages of food manufacturing – from the production of raw materials and their processing, through to the packaging and distribution of the finished consumer goods – with its ‘consumer branded products’ arm responsible for 44% of revenue attained during the first quarter of 2012. “We have very strong brand equity,” says Werianty Setiawan, Director and Corporate Secretary of Indofood. “Our portfolio consists of consumer-branded products as well as commodities that provide a balance in terms of earning quality, and resistance to the volatility of international commodity prices.”

“Our portfolio consists of consumer-branded products as well as commodities that provide a balance in terms of earning quality, and resistance to the volatility of international commodity prices.” Werianty Setiawan, Director and Corporate Secretary of Indofood

With 50% of the population below the age of 29 and only 9.3% above the age of 55, Indonesia has a young population. Coupled with indications that GDP per capita will break the $4,000 threshold in 2012, these facts help to explain why 14.5 billion packages of instant noodles were consumed in the country in 2011. As the world’s largest instant noodle-maker – with 15 factories in Indonesia and one in Malaysia – Indofood is perfectly positioned to profit from the country’s economic growth. A pack of instant noodles sells for between 1500 and 2000 rupiah (approximately 27 euro cents) which ensures that the company’s sales success is fairly immune from inflation, and due to the comprehensive production and distribution network maintained by the company, logistics costs remain low compared to those of competitors.

Indofood Sukses Makmur is in sound financial form, with a cash position of 13.05 trillion rupiah at the end of 2011 (EUR 1.09 billion), and has increased its dividend pay-out ratio in 2012 to 175 rupiah per share – 50% of 2011 net income. The company has assigned 6.4 trillion rupiah (EUR 530 million) for capital expenditure this year.

“Half of this has been allocated for agribusiness,” says Ms Setiawan, “as we aim to plant 15,000-20,000 hectares of crude palm oil, rubber and sugarcane a year.”

Indofood has historically preferred to raise capital through the capital markets, and has performed a number of stock splits since incorporation. At the time of writing, Indofood Sukses Makmur was in the process of issuing Bond VI. “Where else can we get five years’ money with an indicated rate of 7.75%?” asks Ms Setiawan.

Indofood is always open to new joint ventures. “We want to capture the rising middle-income market with products we call ‘affordable premium’. Any opportunity that will allow us to do that – we are more than happy to look into,” she says.