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Competitive Strengths &
Business Strategies Print ThisPrint this page

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:

Competitive Strengths

One of the largest plantation companies in Indonesia with an attractive growth profile and strategically located and largely contiguous plantations
Extensive vertically integrated operations
Among the leaders in market share in Indonesia, a high-growth market and one of the world's most populous countries, supported by strong brands and loyalty

As of 31 December 2016, the Group has approximately 247,430 ha planted with oil palms, of which approximately 23% was planted with young tree below 7 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 24 CPO mills in Sumatra and Kalimantan with an aggregate processing capacity of 6.4 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). 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:

  1. Platinum level for Indonesia Best Brand Award from SWA MARS from 2002 to 2016,
  2. Diamond level of Indonesia Customer Satisfaction Award from SWA Frontier in every year from 2000 to 2016.
Access to extensive distribution network across Indonesia
Established research and development capabilities and seed breeding program
Experienced management, marketing and technical team

We distribute our branded products 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 25 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 300,536 hectares as of 31 December 2016.

2016 Business Strategies And Expansion

2016 Business Strategies And Expansion

Plantation Division
Edible Oils & Fats Division

The Plantation Division will continue to expand through new planting, while commencing on progressive replanting of its older palm trees in North Sumatra and Riau.

To cope with higher FFB production, we are expanding our milling capacities by constructing a 30 tonnes per hour mill in South Sumatra and a 45 tonnes per hour mill in Kalimantan, with target completion in 2017.

We have also initiated action plans and measures to improve yield and productivity, tighten costs and review the supply chain to improve efficiencies. These initiatives include conducting 30-hectare block analyses to enhance crop management and planting densities, optimising fertiliser and herbicide usage, adopting crop management and harvesting best practices to maximise FFB collection and production, leveraging biological methods to improve pest and palm tree disease control, and improving mechanisation to increase efficiency and reduce costs.

In the year ahead, we expect to further utilise our downstream production by enhancing the Division's specialty fat output and production capability to meet rising demand. The Division will also continue to improve its pricing competitiveness, review its supply chain to enhance customer service, and grow the distribution network.

We are expanding the capacity of our Surabaya for completion by 1,000 tonnes per day, scheduled in 2017. The additional production capacity will enable the Group to capture sales opportunities in Eastern Indonesia.

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