Business

Wednesday March 4, 2009

PPB Group sees falling demand for flour


KUALA LUMPUR: PPB Group Bhd sees demand for flour falling 10% to 20% based on trends seen in previous economic crises.

“Consumption is unlikely to fall more than that, as flour is still the ingredient for basic food like noodles. People may cut down on biscuits but will still eat noodles,” chairman Datuk Oh Siew Nam said during the company’s results briefing yesterday.

Notwithstanding softening demand, the group’s flour unit FFM Bhd is going ahead with its capacity expansion this year. Its new factory in Cilegon, Indonesia will be completed in June, according to FFM executive chairman Tan Gee Sooi.

“The Indonesian mill will have a capacity of 1,000 tonnes per day. It’s an increase of 20% to 30% to our total production,” he said.

From left: PPB Group Berhad senior manager (corporate affairs) Kok Mei Lee, Datuk Oh Siew Nam and Tan Gee Sooi at the briefing.

Plans are also underway to build a mill in Kota Kinabalu, Sabah, which is expected to be ready by the first quarter of 2010.

With a daily capacity of 220 tonnes, the mill would help mitigate the impact of freight charges for transporting flour from the peninsula to east Malaysia, Tan said.

Prices of wheat, used in making flour, would remain volatile as consumption was falling more drastically than the slowing down in planting, he added.

Oh said the high price volatility in raw materials and finished products made it difficult to gauge future profitability, as the theoretical belief that higher sales would lead to better earnings was not necessarily true in the present environment.

For the year ended Dec 31 (FY08), PPB achieved operating profit of RM431.2mil on revenue of RM3.5bil. Flour, together with grains trading and feed milling, contributed 39% of operating profits, followed by sugar operations, 36%.

At pre-tax level, its profit for continuing operations rose 84% to RM1.4bil in FY08 compared with RM564mil in FY07. This was due to RM895mil pre-tax profit contribution from 18%-owned plantation associate Wilmar International Ltd.

PPB’s sugar unit, Malayan Sugar Manufacturing Co Bhd is expected to complete upgrading its factory, boosting daily capacity to 3,000 tonnes from 2,500 previously.

Malayan Sugar managing director Chua Say Sin said the company faced stiffer competition from Thailand in the fourth quarter of last year due to firmer freight rates.

“Basic refined sugar is a controlled item in Malaysia and the lowest priced in the world. We’re trying to focus on niche products such as sugar icing, which has better margins,” he said.

On whether PPB would increase its stakes in Wilmar, Oh said now was “not the right time” to buy shares due to the weak market sentiment.

“Wilmar has a share capital of 6.3 billion shares. Even if we were to buy one or two million shares, it only adds less than 1% to our shareholding,” he added.

He said Wilmar’s major shareholder might consider restructuring its holdings in the company. If that happened, PPB may end up as the single largest shareholder.

On dividend this year, Oh said the decision was still pending as the board preferred to conserve cash in the present crisis “until we have a fairly good idea of the situation, which we hope to be around the second half of this year.”

“We prefer to keep cash as getting loans may be difficult. So far, with our track record, we have no problems. But we do not know in six months time,” he added.

PPB has a capital commitment of RM283.9mil this year for expansion, of which RM173mil is allocated for FFM’s new mills as well as new facilities in Prai and Sungai Buloh.


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