The Jakarta Post
Publicly listed food and consumer goods giant Indofood Sukses Makmur (INDF) has reduced its capital expenditure (capex) plans amid lackluster domestic economic growth.
Indofood expects to spend Rp 9 trillion (US$686 million) capex for business expansion this year, down from Rp 9.6 trillion last year, which was a 60 percent increase from 2013.
'Capex is usually used for expansion of existing plants as well as constructing new ones. This year, we will use our capex for upgrading our existing factories through installing new machines and so on,' Indofood president director Anthony Salim said at a press conference after the company's general shareholders meeting on Friday.
Indonesia's economy, over half of which is driven by consumer demand, grew 4.7 percent in the first quarter of this year, the weakest growth rate since 2009, and far from the government's 5.7 percent target this year.
Indofood finance director Thomas Tjhie said 30 percent of this year's capex would be allocated to its largest subsidiary and business division, Indofood CBP Sukses Makmur (ICBP), which is among the world's top instant noodle makers.
Other business divisions, such as Bogasari and agribusiness, obtained a 26 percent portion each. The remaining 18 percent will be split evenly for its distribution and cultivation divisions, Thomas added.
'For our agribusiness division, the funding will be used for maintenance upgrade of a new plant, while the production capacity of ICBP and Bogasari will be expanded,' Thomas said, without detailing the
The company, which is run by the Salim family, currently operates five business divisions consisting of consumer branded products (CBP), flour-maker Bogasari, agribusiness, distribution as well as cultivation and processed vegetables.
Anthony said currently the company was in the process of constructing two new facilities for its instant noodle production, Indomie, in Cirebon, West Java, as well as Palembang, South Sumatra, which were expected to be completed and opened either at the end of this year or early next year.
ICBP Sukses Makmur recently launched its new US$700 billion joint venture plant with Japan-based Asahi Group Holdings Southeast Asia Pte. Ltd. in Sukabumi, West Java, which will produce bottled tea Ichi Ocha and bottled coffee Cafela as its flagship products in an effort to tap into the country's growing demand for non-alcoholic beverages.
As Indonesia's economic growth has been lackluster in the past few quarters, Indofood is one of Indonesia's leading consumer firms that has suffered from the weakening of consumer demand as well as rising costs.
Indofood saw a 37 percent decline in net profit to Rp 870.1 billion in the first quarter of this year, from Rp 1.39 trillion in the same period last year.
The company also booked a slight 0.1 percent decrease in sales in the first quarter to Rp 15.02 trillion.
About half of Indofood's sales came from the CBP division, followed by 25 percent from Bogasari, 15 percent from agribusiness and 8 percent from distribution division.
Anthony attributed the decline in net profit to currency pressures from the rupiah depreciation as the company relied heavily on imported wheat as a one of its major raw materials for its instant noodle product ' its biggest business ' while also facing weak economic growth.
Indonesia's rupiah depreciated to Rp 13,000 in early March, which was the lowest level the country has seen since the Asian crisis in 1999.
'Due to the rising costs, we were forced to increase sales prices for several of our products, even though we still maintain the prices of our low-end ones,' Anthony said.
Anthony said the company was still optimistic with the country's future economy, especially after the second quarter as the government prepared for larger spending to infrastructure and other projects to boost growth and trigger consumer demand.
Furthermore, Anthony was convinced that a seasonal rise in demand from the upcoming Ramadhan and Idul Fitri in June and July would also help the company's business, even though he refused to set a specific sales target for that certain period as well as this whole year.
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