Diversification the pillar of FFM’s business strategy

by kathy fong

FFM Bhd, which owns the country's largest flourmill, is not only in flour business. It is also into edible oil refinery, animal feeds and poultry farming, shipping and the manufacture of polybags. 

To enhance earnings growth, FFM has crossed borders to tap the Vietnamese flour market, which presently relies heavily on imported flour. The joint ventures formed in Vietnam are also the stepping stone to penetrate the flour market in Indochina. 

FFM is one of the oldest companies in Kuok family's business empire. Kuok Brothers Sdn Bhd holds a 14% direct interest in FFM and it also has interest in PPB Group Bhd, which owns 53.8% of FFM. 

FFM, formerly known as Federal Flour Mills Bhd, began commercial production of flour in 1966. 

The group was listed on both the Stock Exchange of Singapore (SES) and the KLSE in 1982. It decided to delist from the SES in 1990 after the de-merger of the two exchanges. 

FFM appears to be less well-known among the investing community compared with other members in the Kuok stable, such as PPB Oil Palm Bhd, PPB Group (formerly Perlis Plantations Bhd) and Shangri-La Hotels (M) Bhd

But FFM is no less generous in terms of dividends compared with its sister companies. 

An investor who had invested RM5,100 in one lot of FFM shares in January 1990 would have netted a gain of RM7,593 (including RM3,681in dividends) at end-2002. 

The original 1,000 shares would have grown to 1,875 shares after two bonus issues and a rights issue in the last 13 years. 

FFM's expansion plans during the 13 years indicate its business strategy was to create as much synergy as possible via diversification. 

The diversification largely was to meet the group's needs. For example, it moved into plastic bags because such bags are used for packing flour. It ventured into the manufacture of animal feeds to make full use of the by-products, bran and pollard, from its flour milling operations. 

Grain and animal feed milling is the major profit contributor to FFM although edible refinery accounts for a large chunk of its revenue. 

The group's revenue had grown to RM4.53bil in the financial year ended Dec 31, 2001, from RM1.7bil in 1990. Its pre-tax profit nearly tripled to RM177.45mil in 2001 from RM59.8mil in 1990. 

The company's profit margin is rather thin – less than 5% – mainly because FFM's core products of edible oil and flour are controlled items. 

Apart from the constraints on product selling price, FFM's earnings are also affected by the fluctuation in commodity prices, namely wheat and crude palm oil. 

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