Case Study

New Business Assessment

Group Background
 History of Gunung Sewu Group

• Established in 1953 by Dasuki Angkosubroto, Diversified Businesses in

Gunung Sewu Group (GSG) initially focused on Multiple Growth Sectors
trading and distributing staple commodities

• In the 1960s, became one of Indonesia's largest

agricultural commodity traders Property
• GSG has operated successfully over multiple
cycles of political & economic changes while
maintaining solid reputation among local and Other
global partners Insurance
Investments
• GSG is now one of the largest investment and
management groups of companies in Indonesia
with over 25,000 workers
Agri
• Currently operates three core businesses:
agribusiness, life insurance and property, as well
as other investment portfolios

• Headquartered in Jakarta, Indonesia

 Vision
To strengthen and incubate sustainable businesses that
empower employees and benefit stakeholders and society

GSK Strategy Statement

Achieve 3x GDP growth by 2020

 Actively manage portfolio companies through strong operating disciplines,

governance, intra-group synergies

 Incubate agilely and invest selectively in Indonesia multi-growth sectors – Agri,

Resources, Insurance, Consumer, Property, Infrastructure

 Intensify focus on high growth Asian markets

 Secure strategic partners by leveraging Group reputation

 Create empowered and customer centric workplace of choice

Gunung Sewu Group Companies

Agribusiness Insurance Property Other Investments

Yupi Indo Jelly Gum

Great Giant Pineapple Sequislife Farpoint
(gummy candy)

Sepatu Mas Idaman

Great Giant Livestock Sequis Financial
(brown shoes)

Indo Porcelain
Umas Jaya Agrotama Duta Semesta Raya
(tableware)

Nusantara Tropical National Label

Farm (clothing label)

Sewu Segar Nusantara Baramutiara Prima

(Sunpride) (coal)

Pratesis
Bromelain Enzyme
(IT solutions)

Sewu Segar Primatama Emporium

(Rejuve) (wholesaler)
 GSG’s Businesses are Industry Leaders

The first project in

Indonesia that won the
MIPIM Asia award. Yupi Indo Jelly Gum is
Sequislife ranks among
Already LEED Gold and
top 10 life insurance the largest gummy
aiming for LEED candy manufacturer in
Platinum company in Indonesia
ASEAN

3rd largest
2nd Largest cattle producer and the
feedlots in Indonesia largest private label
with a capacity of manufacturer of
150,000 cattle heads processed pineapple
per year globally
Agribusiness

Great Giant Pineapple Nusantara Tropical Farm Other businesses

3rd largest processed pineapple Largest fresh fruit producer
producer globally with capacity of with over 3,757 hectares of Umas Jaya Agrotama
>500k MT annually plantation Tapioca starch producer
Products: with annual production
Products
–Canned pineapple capacity of 105,000 MT
–Cavendish banana of starch
–Pineapple juice concentrate
–Fresh pineapple
–De-ionized clarified pineapple
–Guava
concentrate Bromelain Enzyme
–Other tropical fruits
–Canned tropical fruit salad JV with Enzybel
–Fruit in cup International S.A.
Produces bromelain
Great Giant Livestock Sewu Segar Nusantara enzyme from pineapple
stem
• 2nd largest feedlot with annual • Largest distributor and
capacity of 150,000 heads of marketer of fresh fruits Sewu Segar Primatama
cattle under the brand Retail juice bar, pioneer in
• Feedlot area integrated within “Sunpride” premium healthy F&B
the pineapple plantation • Carried by over 3,000 offerings
• Availability of feed sourced from outlets in Indonesia
pineapple/cassava plantations
 Securing future growth from new businesses

Emporium Indonesia Sewu Segar Primatama (Re.juve)

 First Save Max outlet opened in Oct 2014 and  Four outlets opened since May 2014
two outlets are currently in the pipeline.  Pioneer in premium cold pressed juice
 A new-concept modern wholesaler which offers offerings, smoothies and nutmilks
one-stop shopping solution  Retail juice bar with emphasis on delicious and
 Offers ‘Every Day Low Price’ products to small healthier F&B options;
businesses, allowing direct selling without  Tapping into the ‘Ready to Drink’ segment
intermediary
 Strong synergy with existing agri-businesses
producing fresh fruits

Part of Gunung Sewu's incubation strategy to get closer to end consumers and to leverage the
synergies among its subsidiaries
Strategic shift from production house to consumer products
Case Background
Dairy Business Case: Expectations from BOC and Shareholders

 Giant Great Livestock (GGL) has been performing well

 Revenues and profits have grown consistently

 However, government policies such as import quotas can have a

significant impact on results

 GGL’s BOC and Shareholders support GGL’s efforts to identify and execute
new business opportunities to drive further growth

 GGL has identified dairy as a potential new business opportunity (key

findings are summarized on the following pages)

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 Domestic Milk Consumption by Product Type

2013 Market Size Volume Price Top Product

(By Volume) CAGR CAGR Competitors Characteristics
• Cold value chain
Fresh Milk Greenfields • Modern trade channels
(Pasteurized) 16.7% 10% - 12%
Diamond • Bad stock risks
~165 mio liters • Premium positioning

UHT & Sterilized • Flexible channels

16.8% 6% - 8% Ultrajaya • Product diversification
Longer ~673 mio liters Indomilk
shelf life (size and flavor)
Easier
handling
Sweet Condensed Milk Frisian Flag • Flexible channels
~1.16 bio liters
4.2% ~3% Nestle • Industry usage
Indomilk • Price affordability

Fonterra
Powder milk • Flexible channels
Nestle
~1,3 bio liters 1.6% ~2.5% • Heavy marketing campaign
Danone
for targeted consumers
Frisian Flag

Source: compiled data from USDA, Euromonitor, Tetrapak, various publications; Using equivalent of milk consumed in liquid form

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 Value Chain Analysis

Sales &
Farming Processing Distribution
Marketing

Market • 90% production from • Dominated by large • B2C dominated by • Dominated by several
Structure small holders players (RFC, Nestle, subsidiaries/affiliates of leading brands with high
• Two large scale farms: Indomilk, Danone) global companies or volume
• Few companies (Tetra local groups
Ultrajaya & Greenfields • Higher competition in
(1,500 & 3,500 milking Pak, Hokan) provide • B2B dominated by SCM and powder milk
cows) contract manufacturing Horeca distributors

Challenges • Low productivity level • Limited and unstable • High logistics costs • Targeted marketing by
• Lack of farm raw milk supply outside Java large powder producers
management • High import • Supply-demand forecast • High branding investment
• High capital for large dependency (70%-80%) • Shelf life handling • Trade agreements
scale farm

Success • Farm management • Economics of scale • Distribution coverage • On shelf availability

Factors expertise: environment, • Proximity with source • Optimum logistics costs • Brand quality
nurture, feed, etc. of supply • Efficient working capital
Source: various publications, industry sources

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 Competitive Landscape

Six top companies retain 75% of ~IDR 21 trillion dairy Two brands dominated fresh milk retail sales in
1 2
industry (2013) modern markets (~IDR 5 Tr retail value in 2013)
Market Share Processing Cap. # Milking
(Value 2012) (Mio lt/day) Cows • Est. >35% market share in retail fresh milk
• High presence in Horeca through parent
1,4 N/A company Sukanda Djaya
19.6%
• 27 mio liters/year fresh milk
19,1% 2,5 N/A production; 3,500 milking cows
• ~30% market share in retail fresh milk;
maintain loyal high end B2B customers
14.9% 1,5 Plan: 3,000
Potential new entrants looking to establish large
3
scale farms in Indonesia
8,3% 0.6 N/A
• Modern Group (7-Eleven): 4,500 milking cows in
Current: 1,500 Sukabumi; on construction, target completion: Q1 2014
7,1% 1,2
Plan: 11,500 • ABC: 3,000 milking cows in Sukabumi; on construction,
target completion: Q3 2016
Under
6,0% construction N/A • Top Foods: JV with an overseas dairy company
(undisclosed) to open dairy farm(s) in Indonesia
Source: Bain, annual reports, various publications, industry sources

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 Comparables from China Large Scale Farms and Ultrajaya

# Milking Factory Capacity

Product Mix P/BV EV/EBITDA
Cows (‘000 Tonnes/Yr)

~90,000 580 Raw milk - 97% 6.2x

Farm Focus

18x
UHT

Raw milk - 74%

~65,000 493 Liquid milk – 18% 2.5x 18x
Powder – 8%

Fresh Milk, UHT,

~6,000 500 Powder, Yoghurt, 2.7x 27x
Processing Focus

Butter, Cheese

UHT, Powder, Milk

~5,000 7,590 Beverage, Yoghurt, 4.7x 20x
Ice Cream

~1,500 1,200 UHT, SCM, Powder 6.4x 22x

Assignment
Dairy Business Case: Assignment

Based on the information provided:

 Please prepare a brief document (10 slides) to be presented to Gunung Sewu Leaders
 The document should address the following:
 Should GGL enter the dairy business?
 If yes:
• What product type(s) should GGL offer?
• What should be GGL’s competitive positioning?
• Where in the value chain should GGL focus and which parts of the value
chain should be handled by other players?
 If no:
• What are the reasons why GGL should not enter the dairy business?
• If there anything that GGL could do to reduce risks / make entering the dairy
business more attractive?

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