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Ensuring fertile financial foundations at PT Perkebunan Nusantara

Adrian Dimitri and Mohammad Abdul Ghani
Adrian Dimitri and Mohammad Abdul Ghani • 5 min read
Ensuring fertile financial foundations at PT Perkebunan Nusantara
A plam oil plantation operated by PTPN in Cikasungka, located in Indonesia’s West Java province / Photo: Bloomberg
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Plantation is a critical pillar of Indonesia’s expanding economy, accounting for almost 7% of Indonesia’s GDP as of 2021. That’s why the success of agricultural giant PT Perkebunan Nusantara (PTPN) is not only essential to feeding a growing population in this vibrant, high-growth nation, but also a fundamental element of a robust Indonesian economy.

State-owned enterprise (SOE) PTPN is pivotal to a positive economic future for Indonesia’s vital agriculture sector. This giant agribusiness has a footprint that stretches across Indonesia’s agricultural value chain and beyond, with core business focus on the areas of crude palm oil, palm kernel oil, palm kernel, palm kernel meal, as well as rubber, tea, sugar, cocoa and coffee.

PTPN is currently engaged in a sweeping transformation programme, supported by global consultancy Boston Consulting Group (BCG), to modernise and optimise its end-to-end operations. This transformation sets out ambitions to increase ebitda through multiple streams, and across numerous business units, to embed a sustainable business model that remains competitive in the modern operating landscape.

In a recent conversation with BCG, Mohammad Abdul Ghani, president director of PT Perkebunan Nusantara III, highlights that “a company can only deliver positive results through the lens of shareholder growth by paying attention to that core commitment to essential value creation”.

Financial foundations at PTPN

PTPN is Indonesia’s largest agricultural business, and a key economic player, particularly for rural communities, in a country where more than 40% of the populace live in rural areas. It is one of Indonesia’s most significant SOEs by total assets under management, with land portfolio of over one million hectares, and a revenue of IDR56 trillion ($4.9 billion). These are robust and deep-rooted financial foundations, but have suffered some serious challenges in previous years. PTPN experienced notable losses in 2019-2020 — a IDR2.5 trillion loss in 2019, and a IDR1.1 trillion loss in 2020 — leading to an increased debt burden, largely triggered by financial and operational inefficiencies and poor returns on previous investments.

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PTPN’s finances are now experiencing a significant turnaround, as the company undertakes a full debt restructure, accelerates payment of debts and engages efforts to ensure a more robust cashflow position. The agri-giant has introduced measures to strengthen operational cost and control, and ensure all investments are more rigorously scrutinised to guarantee their effectiveness.

To do this, PTPN has strengthened its internal cash control policies and systems, and installed a number of digital solutions to enhance transparency and real-time financial monitoring. At the same time, PTPN is in the preparatory phases of a seismic initial public offering (IPO) for a key sub-holding of this prodigious SOE.

As a result, PTPN booked positive net profits both in 2021 (IDR4.6 trillion) and 2022 (IDR5.5 trillion, highest in PTPN’s history). The company’s commercial outlook is also in transition, as it looks to expand market share in key commodities. It is developing its retail business by strengthening the distribution network and reinforcing product branding, at the same time as exploring value-adding derivative products such as palm kern oil. The transformation of PTPN’s corporate strategy will underpin these wider demand transitions, as it looks to build downstream business opportunities in areas like cooking oil and bioethanol.

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PTPN is also developing a bio-compressed natural gas plant to build synergy between green solutions and its agricultural footprint, and exploring partnerships to boost new business development in areas like wood pellet fuels. These transformations will be backed by new, ambitious environmental, social and governance (ESG) strategies to allow PTPN to increase its value in a sustainable way.

PTPN has also initiated a restructure to establish three sub-holdings — PalmCo, SugarCo and SupportingCo — as part of wider efforts to streamline the company’s subsidiaries and “grandchildren companies”. It has also committed to investing in stronger training and research institutes to help improve employee capabilities, encourage innovation and inspire talented workers with ideas for the future.

Looking ahead at PTPN

PTPN’s ambitious transformation reflects the shifting nature of the modern operating environment, according to Mohammad Abdul Ghani. “You can’t plan for every scenario you might face during a transformation journey, and you can’t have a firm strategy for all the changes in our complex, dynamic modern business landscape. Leaders need to be flexible because the world isn’t standing still.”

PTPN has ambitious future plans to further improve performance through a number of initiatives, with the goal of growing ebitda by 1.5x over the next five years. Efforts will be focused on continuing to improve efficiency through operational excellence and forward-looking Agri 4.0 initiatives, scaling up downstream potential, building stronger foundations, monetising green and inclusive economic opportunities, and strengthening the organisation through deeper development of digital capabilities, among other strategies.

PTPN is also working to embed and embody the requisite cultural change to sustain these transformation efforts, backed by commitment to capability improvement across the organisation.

As a key pillar of the Indonesian economy, and a major rural employer, PTPN’s transformation will have substantial impact across the country. That’s why ensuring a strong financial base is such a vital part of this journey. The ambition is clear, and the passion is evident in PTPN’s current and future leaders. The next step is harvesting the benefits that a successful transformation can deliver.

Adrian Dimitri is a partner at Boston Consulting Group. Mohammad Abdul Ghani is president director of PT Perkebunan Nusantara III

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