P

ublicly listed state cement giant Semen Indonesia (SMGR) saw its net profit contract 20.63 percent year-on-year (yoy) to Rp 2.18 trillion (US$161.5 million) in the first semester of this year on weak sales, lower margins and soaring costs.

Revenues dropped 1.9 percent to Rp 12.64 trillion in the Jan.-June period of this year from Rp 12.88 trillion in the corresponding period last year, according to a company announcement on Thursday.

That was after President Joko '€œJokowi'€ Widodo intervened in the cement market, ordering state cement makers to lower prices by Rp 3,000 per sack at the start of the year to support the government'€™s planned large-scale infrastructure projects, the slow realization of which has drawn sharp criticism. Semen Indonesia lowered prices by 10 percent from Rp 60,000 per sack at the start of the year.

'€œSales volume dropped 4 percent and prices cannot increase. In fact, prices were lowered in January,'€ Semen Indonesia corporate secretary Agung Wiharto told The Jakarta Post following the announcement.

Nationwide cement consumption, a key indicator in Indonesia'€™s domestic-consumption-driven economy, dropped 2.9 percent in the Jan.-June period this year to 28.09 million tons yoy as So utheast Asia'€™s largest economy grew the least in more than five years.

'€œAnother big factor was the increase in electricity costs, which rose by 30 percent,'€ Agung said, adding that electricity costs accounted for 20 percent of the company'€™s cost structure.

Overall, costs of revenue rose 6.78 percent to Rp 7.63 trillion in the first six months of this year from a year ago.

'€œThere was also an increase in the minimum wage for our third-party suppliers, which increased our costs,'€ Agung explained, referring to a 8.8 percent yoy increase in payments to suppliers, reaching Rp 7.99 trillion in the first half of this year.

He added that the poor first-half financial performance was attributable to a debt restructuring measure at the Vietnam-based Thang Long Cement Company, which was acquired for $157 million in 2012, as Semen Indonesia'€™s payment of interest and finance charges rose 11.3 percent to Rp 177.65 billion in the first half.

Semen Indonesia, which is the holding company of cement firms that include Semen Gresik, Semen Padang and Semen Tonasa, Agung claimed, was confident about the future, as domestic consumption of cement remained low and ripe for boosting when the economy improved.

'€œWe cannot create demand. We don'€™t sell consumer goods products that can draw demand when prices are cut. Cement is not like that. You buy cement when you need [to build]. This industry is market-driven,'€ he said, adding that a stronger rupiah and higher consumer confidence would embolden businesses to expand and consume cement.

NH Korindo Securities Indonesia head of research Reza Priyambada was meanwhile pessimistic about the near-term outlook as government projects lag behind target, with budget disbursement so far this year remaining weak.

'€œThe cement business is a supporting business. It supports businesses such as property developers and infrastructure [contractors]. So unless you see a significant increase in new projects, cement sales will continue to be muted,'€ he told the Post. (est)