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1. Premium Group is an established player and pioneer in the specialty fats industry in 35 years. Could you share the background of this company?
The Premium Group was set up in 1978 and is indeed regarded as a pioneer in the specialty fats business in Malaysia. The business I represent - Goodhope, which is an upstream plantation company - acquired Premium in 2011 to move down the value chain into specialty fats. In the first few years after the acquisition, we invested to double production capacity at Premium and build a state of the art Innovation Center next to our production facility, where our team would work with our customers to create tailor-made fats to be used in their specific chocolate, ice cream or bakery applications.
For example, if you were one of our chocolate customers, you could work with our Innovation Team to develop the specific fat that is right for your specific chocolate and see, smell, feel, taste and experience this chocolate as it rolled off the lab-scale chocolate line in the Innovation Center. By doing this, we have moved our business model away from a productfocused model to a solution based model. The new management team that we put in place over the last two years have worked incredibly hard to make this happen. More recently, we entered into a partnership with J-Oil Mills, in Japan, by which they invested into our business. J-Oils are one of the top oils and fats manufacturers in Japan with an excellent product range and customer base and we look forward to realizing product and market synergies along with them.
2. Premium Group operates an integrated crushing plant and refinery, processing lauric and non-lauric specialty fats. How does Premium Group compete with the other players in the refinery industry?
There are a few segments in the downstream business. The basic segment is the bulk liquid oil segment, in which crude oil is refined and fractionated and sold in bulk to customers as a basic cooking oil. We don’t play in this space. We crush palm kernel into kernel oil and then further process this into highly customized fats. These fats are primarily used in three key categories: confectionery, ice cream, and bakery products.
Competitive strategy teaches you that you compete in one of three ways: cost, product differentiation, and focus. We don’t have the scale economies that larger players have, so we don’t have a cost advantage. This is also not a game we want to play, because it can be a race to the bottom. So we play on product differentiation (via product quality) and focus (via world-class customer service).
3. Recently, Goodhope Asia Holdings Limited had recently entered a joint venture with J-Oil Mills. What was the main reason behind this endeavour and what are the advantages of this partnership?
As mentioned earlier, J-Oil Mills is one of the top oils and fats manufacturers in Japan. They’ve been in the business for decades and have built up a world-class product portfolio and customer book. Their focus is on high-quality cooking oil (with many excellent technical characteristics like flavor and cloud point) and margarine. The margarine, in particular, is used in Japanese style bakery products, which is softer, more fragrant and I believe, tastier, than “regular” bakery products. Their existing client base is largely concentrated in Japan.
Premium, on the other hand, has a highly specialized business outside of Japan with a product range that serves clients in the confectionery, ice cream, and bakery space. The synergies are obvious: both companies get access to a broader and deeper product and market portfolio along with an ability to fulfil customers from a Malaysian production site, which has clear advantages concerning the sourcing of palmbased raw material and cost of production. We also get a great opportunity to leverage each other’s knowledge and experience to co-create new products and applications for the benefit of our customers.
4. As we all know, the European Union (EU) countries are making the products that consist of palm oil difficult to be branded. How does Premium Group work on sustaining the market and profit of the products?
The EU has raised the bar for our industry to be able to sell in the EU market. It is done in two ways: one point is health; the other is the environment. Starting with health, to be able to sell into the EU, you have to be able to demonstrate 3-MPCD levels below 2.5 ppm. 3-MPCD is a contaminant as a result of the refining process and is considered to be carcinogenic. We have been exploring technologies to achieve this and will be ready for this directive.
We also have a fairly well-diversified market portfolio, as a mode of risk mitigation versus regulatory change in any one market or region. On the environment side, the EU has voted to exclude palm-based biodiesel from their biodiesel mandates, because of concerns of land-use change in Indonesia, as a result of deforestation. This is going to have an impact on palm oil exports to Europe – of the 7MM MT exported to the EU last year, 60% was used in biodiesel, which will disappear.
However, on the other hand, Indonesia has increased its biodiesel mandate from B20 to B30, which should see an extra 3-4MM MT consumed domestically as fuel, which should offset the decrease in EU demand. From our point of view, we service the food industry, so it doesn’t impact us in a big way.
5. What is your opinion on the current market with the outbreak of COVID-19 and its global effects to the economy? How is Premium Group dealing with the present situation?
It has been a massive impact, which is unprecedented in our lifetimes. There are two key drivers: first, on the demand side, all markets have seen large and varying levels of demand destruction as their economies have slowed down in the lockdown scenario; second, on the supply side, there are challenges as businesses have to find ways to secure raw materials, production materials, packing materials, etc., and then be able to dispatch the finished product in an organized fashion, which is getting increasingly difficult as ports, shipping lines, customs clearances, etc., have all been affected.
We, as do many others, think growth is out of the question this year and we will focus on servicing our customers to the best of our ability; keeping our internal discipline; keeping a very close eye on cash; cleaning up organizational and operational loose ends, and making sure we communicate clearly and frequently as a team. A big issue is that no one knows the magnitude; time horizon; or evolutionary pathway of the current situation. You cannot make point estimates or projections in markets like this, you have to do scenario planning. We are fairly ahead of the curve in our use of business technology, so we make sure to continue having frequent video conference catch-ups and online town halls to make sure that everyone knows what is going on at all times.
We have dispatched ventilators, PPE sets, N95 masks and etc., to hospitals and our sites in Kalimantan and Papua in Indonesia and are investigating whether we can repurpose part of our production lines in Malaysia to manufacture product that can be used on the front lines. The reframe for us is that once this pandemic is over (and it will be over) and we emerge into a new, more conscious and more responsible world, we want to be in the strongest possible position to start over.
6. COVID-19 is causing a humanitarian crisis of global proportions with hundreds of thousands of lives disrupted. What were the core focuses of the company as a whole?
Millions of lives will be disrupted. I read an article that referred to the Coronavirus as a neutron bomb, which has kept physical infrastructure intact, but removed all semblance of human activity inside. I thought this was an apt description and I don’t think any of us knows how this is going to play out. In that context, the core focus of our company is to do what is necessary to protect our people and communities.
We setup our internal infrastructure and trialled the Work from Home concept before the governments of Indonesia and Malaysia made it a requirement, so by the time it was made mandatory we were ready for it. At our production facilities we instituted all the required measures – from reducing worker numbers by 50% during the MCO; to drawing lines 2m apart for our people to stand behind; to executing the recommended sanitizing procedures and etc. We setup a Rapid Response Team within our top leadership to make sure that we stay ahead of the curve in our protocols and preparedness strategies.
As I mentioned earlier, we dispatched ventilators, PPE sets, masks, thermometers and etc., to hospitals and sites in remote locations to Indonesia to help bolster the public health infrastructure, before COVID-19 reaches these locations. This virus has humbled countries, governments, the medical community and etc., and has literally brought the planet to its knees. We literally take an hour-by-hour approach to watch the evolution of this thing and try to stay ahead. Honestly, at times, it feels like we’re running on a treadmill that’s going faster and faster and it takes every ounce of strength to not go flying backwards.
I don’t think I’ve answered your question, but I also feel like giving an assured answer would be facetious. The truth is, this virus is far more powerful than we are and we need to give it that respect. This is an exercise in surrender – where we do everything we can to address the things we can control; and surrender everything we can’t to something greater.
7. As the Chair of Premium Group of Companies, how did you lead your team through this crisis and are you planning for what comes after?
That’s a great question. No manager has experienced something quite like this in their lifetimes, so I believe that leading a team through a crisis of this nature is as much an intuitive approach, as it is a rational/ objective one. I say this for a few reasons: firstly, the nature of an emergency is such that it leaves people looking for a voice of reason, which they are familiar with. People look for someone who will tell them the truth, tell it to them straight and talk to them often. For example, I write to the entire company once a week; I am very clear that what I don’t know is far greater than what I know, but I will try to figure it out; I have daily evening video calls with the Covid Rapid Response Team; I have Tuesday and Friday evening video calls with my direct team, during which the only ground rule is that we are not allowed to talk about work; we have once a week town halls, where anyone in the company is welcome to join and ask any question; we have an online form through which anyone in the company can ask a question anonymously and a response is guaranteed within 48 hours.
This intuitive leadership that touches at people’s feelings and gives people a safe space is very important at this time. Having said that, the second prong of remaining rational and objective is critical. Emergencies are emotional, and at times, fearful times; and during this time it is important to recognize emotion for what it is, but to be almost hyper-rational in your thinking and make high quality decisions. Driving for performance is altered, but it doesn’t stop. I’ve seen examples of managers trying to use the crisis as an excuse to paper over fundamental cracks in our business model or organizational capabilities – I won’t have this. You need to do be super disciplined and unforgiving in the assessment of yourself and recognize that the drive to get better doesn’t change. I try to instil this mindset into our teams. If you can come out of this crisis with your mindset intact, you’ve touched divinity – nothing can break you.
Lastly, you need to have a very good understanding of risk – this includes risk factors; how to measure them; their drivers; what is the right model to share risk with your counterparties; and ultimately how to mitigate risk. I spend most of my time thinking about financial and non-financial risk and communicating risk tolerances and risk philosophies to my managers.
8. The three core commitments of Premium Group are on quality, customer service, and innovation. Will the growth of technology enhance business in the next 5 years?
As I mentioned earlier, the key prongs in competitive advantage are cost, product differentiation, and focus. We are a single factory/single location company and don’t have the scale economies to compete on Cost. It takes time to design systems and processes around Product Differentiation and integrate these into our business. It’s something we are working on, but we are conscious of the time horizon required to build a durable and defendable advantage in this prong.
From a tactical perspective, we leverage our small size, flat structure and nimbleness to compete by providing our customers with better focus. The mechanism to do this is to provide an extremely high-quality product with world-class customer service. The feedback that I regularly hear from the market is that our product is a superior quality product – and when you marry that with outstanding customer service offering high levels of reliability, you have a business proposition that is very difficult to replicate.
9. What is the advice you would give to the people who are anti-palm oil?
I start by saying that I can understand why many people are anti-palm oil. Over the last 20 to 30 years, our industry hasn’t done itself many favors regarding deforestation, habitat destruction, and biodiversity loss. According to Global Forest Watch, Indonesia has lost over 10% of its primary forest tree cover over the last 20 years and even though all of it isn’t attributable to oil palm, it gives people an easy target. The haze that takes place every year doesn’t help either. Again, even though it isn’t caused by slash and burn to plant oil palm, it gives people an easy target for a crop that is already in the spotlight.
We need to do better as an industry, demand more from ourselves and take responsibility for repairing the reputation. On the flip side, palm oil has gone from 20% of a 100MM MT vegetable oil market in 1995 to 35% of a 240MM MT vegetable oil market in 2018 - palm oil has taken market share from other oils and is clearly the market leader in this space. It is also the most efficient oil in the market – efficient producers can produce 5-6 MT of oil per year per hectare of land, which is an order of magnitude greater than soy oil or rape oil yields. Similarly, the per MT use of fertilizer, pesticide, and energy input is an order of magnitude lower than soy oil or rape oil. There is also significant social benefit – 40-50% of Indonesian palm oil is produced by smallholders, who earn 5-7x more cultivating oil palm versus what they would earn cultivating subsistence crop.
So there may well be a good reason for other oil producers to paint our industry as one that destroys rainforests and kills orangutans. I would urge people to take a balanced approach and understand the dynamics and drivers of the vegetable oil market before making a decision as a result of reading a “Ban Palm Oil” poster on the platform of a London Underground station. I also recommend against painting all players in the industry with the same brush. Roughly 20% of global output is certified sustainable by the Roundtable of Sustainable Palm Oil (RSPO), which is a multi-stakeholder group that aims to address the viewpoints and concerns of the NGOs, growers, refiners, traders, customers, financiers, and etc. We have signed up to RSPO’s principles and criteria; and have gone above and beyond this, with our commitment to not planting on peatland, non-exploitation of local communities, etc.
At the current moment, we can trace 84% of oil back to the field, and we are working to achieve 100% traceability within two years. This year, we intend to offer a fully segregated/ identity-preserved product so that our customers can be 100% assured of the entire supply chain for this oil. So in summary, learn about the industry; understand the multiple drivers and dynamics in the vegetable oil market; understand the nuances between individual producers, and be aware of economic/political agendas at play when making your decision on palm oil.