By 2024, we should be in a position where we can really call ourselves an FMCG company, says CEO Hishammudin
by NG MIN SHEN/ pic by RAZAK GHAZALI
AS ONE of the largest sugar producers in the country, Central Sugars Refinery Sdn Bhd (CSR) is best known for refining raw sugar into sugar and specialty sweetener products, which are then sold to industry players and consumers.
With a maximum production capacity of 800,000 tonnes per annum across its two refineries in Shah Alam and Kedah, the company has come a long way since its humble beginnings in 1965.
However, being a commodity player is not enough, said its MD and CEO Hishammudin Hasan.
In a recent interview with The Malaysian Reserve, Hishammudin spoke at length about the group’s strategic aim for the future, the biggest challenges being faced by the sugar refining industry, and CSR’s quest to produce healthier sugar for all.
Q: Could you share CSR’s plans for the future?
When I stepped foot into this company, it was very much a commodity-based company. We supply sugar, we bring in raw sugar, we refine and sell it to food and beverage (F&B) players, and then we try to sell it on the retail side.
But that’s not enough. If you remain a commodity player, you’re always going to be part of the chain, but not able to make a difference. Also, as a commodity player, your margins are always squeezed. You’re always going to get the short end of the stick with the thinnest margin.
So, we said we have to move this company into a fast-moving consumer goods (FMCG) company. I was from an FMCG company and that’s why I was invited to come here to make that change. It’s about having a good product and good packaging, building the brand, and having good, wide and deep distribution. These also need to be accompanied by the right mindset of embracing new things and pace.
Refining is just one part of our operations. It produces the sugar that we are packaging. We’re turning into a more FMCG-like company where our competitors may focus on price, (while) we focus on building our brand. Where other players might co-pack, we say we want to produce our own brands.
Q: When do you see CSR becoming a fullfledged FMCG player?
We have a five-year horizon. It’s a journey. It’s not going to be achieved overnight or in one to two years. The folks in this company, to their credit, are really responding.
Looking at our products now and the brand we have, I would say that we are an FMCG firm now. I want us to become a full-fledged FMCG company. By 2024, we should be in a position where we can really call ourselves an FMCG company.
Q: What are your key targets under the FMCG plan?
The aspiration is to produce goods that consumers want. We want to move further away from commodities. Sugar will still be our core. It’s where we started and where we are. We are contributing towards national food security.
While we ensure there’s enough supply at a stable price, as a commodity-based firm, the margin is thin. We’re fortunate because through the low raw sugar price, prudent raw sugar buying, tight manufacturing cost control and a good mindset of our people, we achieved — I would say — profit. But it’s thin because we’re a commodity player.
As we move along on the FMCG journey, it’s about discovering what products meet consumer needs. So, we’ve been producing brown sugar. We’re the first company in the region to have introduced low glycemic index (GI) sugar. Normal sugar has a GI value of about 65 to 75, while low GI sugar is about 55. We’re the only company in Malaysia that is refining and manufacturing this sugar.
Then, we’ll talk about product extension. We can move downstream, we can acquire downstream FMCG companies that use sugar as a key ingredient.
Q: Are you talking to any of these companies you’d like to acquire?
Not at the moment. We kind of know what type of companies we want to move into. However, at our end, there’s still a lot to do. There’s still a lot of products we can and will introduce in the next two years.
Q: Will the majority of CSR’s revenue and profit be derived from the FMCG business?
Moving forward, yes. Right now, refining is our main business. But if you notice our products in the market, they are more branded (now). Our hero product would be our Better Brown Low GI sugar. When we look at product extensions for that, we’re looking into producing other types of solutions based on low GI.
Q: Given that your competitor — MSM Malaysia Holdings Bhd — has been struggling with profits of late, what has CSR’s profit growth been like?
It’s very decent. We had a good year last year. It has been growing at a very good level through prudent raw material purchasing, tight manufacturing costs, tight supply chain and investment in the sales team. All that enabled us to deliver a decent, very respectable result last year.
Q: What kind of growth are you looking at as an FMCG company?
We don’t have a specific target. Already, we are growing our core business. We’ve spent the last one year investing in people. We are in a position now to bring in people from multinational companies. Our COO is from PepsiCo Inc. Our corporate affairs person is from McDonald’s Corp. We are able to attract talent from bigger companies because we have a good story, we have a good path.
Q: What is CSR’s biggest challenge today?
One is managing our currency. We are exposed on that front as we can’t hedge for the long period. Every point (of change in the ringgit) significantly impacts our cost and bottom line because we import such a huge amount of sugar.
The other challenge is, how do we work with the government on the issue of sugar import permits? How do we convince the government to take a step back and consider the sugar industry as a whole? Issuing permits is not going to significantly reduce the costs of F&B players. In fact, with these players who import sugar, you need to ask, is it halal? If they have certification, where’s it from? These are question marks we haven’t looked into.
Q: When will CSR start exporting more? What kind of contribution from exports can be expected?
Hopefully, we can start exporting by the first quarter of next year. There’s still a lot of room in the domestic market, not in white sugar, but in the new types of sugar products. I’d say we want to see quite a significant contribution from exports — maybe 10%, 20%, 30% of revenue and profit. I’m quoting numbers from thin air, but it’s an aspiration.
Q: How about merging with Gula Padang Terap Sdn Bhd (GPT) for economies of scale?
As of two months ago, GPT became a 100%-owned subsidiary of CSR. It’s always been the plan to absorb the company — the question was what to do with it, and now we have this massive plan.
[GPT was previously a unit of Tradewinds (M) Bhd, which is also CSR’s parent firm. CSR operates its Kedah plant through GPT.]
Q: Malaysia began implementing a sugar tax from July 1. There is also a growing school of thought that sugar is bad for you. As a sugar player, how is CSR going to overcome these issues?
First of all, sugar does not cause obesity. Sugar alone does not cause diabetes. It’s one’s lifestyle. Even if you take out cane sugar, F&B manufacturers will want to substitute it with something else because the taste needs to be there.
Now, the sugar tax is one tool to make people think about excessive consumption. Obviously, there’s going to be a short-term impact for us because it’s going to raise prices and people are going to pull back because of this awareness. But I feel there will be a point in time when people get used to the price and will consume anyway — it’s just a matter of what form and how much.
Q: So, the plan is to make Better Brown CSR’s main product?
Yes, we’re pushing it out very aggressively; it’s just that it takes time to reach the whole of Malaysia. We’re investing a lot in communication to create public awareness for this product. We’re even putting advertisements in cinemas.
Q: What’s the breakdown in revenue/profit contribution from the industry and retail segments?
About 60% to 70% is from the industry, and the remaining from the consumer market.
Q: Is there a need to balance this ratio? Which segment provides better margins?
We’re always pushing the boundaries. If it comes to 50:50, (all’s) well and good, but I don’t want 50% to come from white sugar — I want it to come from brown sugar because I want Malaysians to be healthy. Brown sugar constitutes, maybe, about 5% of our total production, while Better Brown is clawing its way to about 2% to 3% of that.
Margins are equal on both (segments), but if we move to brown sugar, it has better margins, plus we own the brand. There is no price control on brown sugar as it’s not a staple, unlike white sugar. You sell it at a slightly higher price than the price control, so you get better margins from that automatically. Volume-wise, we position our brown sugar in the mass market because we believe it will one day be a mass product versus white sugar.
Q: What can Putrajaya do to create a more vibrant domestic sugar sector?
We are moving towards creating an awareness of different types of sugar. For us, we are retrofitting our plant accordingly to produce better sugar, and there’s the opportunity to export.
We’re going to approach the government and say, look, help us with this investment. I’m not asking for a handout, but give us a little incentive to get the investment going and it will turn into a more vibrant segment for sugar. With the right incentive in place, we could venture out and go into exports. Perhaps, the government can assist the sugar refiners in this manner, rather than creating other policies which encourage sugar permit issuances.