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Semen's profit may drop 2% as margin squeezed
State-run cement giant Semen Indonesia expects its net profit to drop throughout this year as slowing demand and rising costs put pressure on the companyâs margin
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tate-run cement giant Semen Indonesia expects its net profit to drop throughout this year as slowing demand and rising costs put pressure on the company's margin.
Semen Indonesia president director Suparni told reporters on Tuesday that while he was upbeat infrastructure projects would progress in the second half and demand would increase to balance slow sales in the first half, ballooning costs would trim its bottom line as annual sales volume was expected to remain flat this year.
'We expect revenue to be maintained [at the same level as last year's]. However, our EBITDA [earnings before interest, tax, depreciation and amortization] margin might be squeezed by around 3 percent and our profit might be lower by about 2 percent,' he said.
Semen Indonesia, according to Suparni, saw its domestic sales slip by 5.9 percent year-on-year (yoy) to 12.2 million tons as of August.
President Joko 'Jokowi' Widodo instructed state-run cement makers early this year to deflate their prices by Rp 3,000 per sack, or around 5 percent of the initial price.
Semen Indonesia saw its net profit contract 20.63 percent yoy to Rp 2.18 trillion (US$161.5 million) in the first semester of this year. 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 its financial statement.
Overall, revenue costs rose 6.78 percent to Rp 7.63 trillion in the first six months of this year from a year ago. 'Electricity rates increased by around 5 to 6 percent along the year. Electricity costs make up around 60 percent of our total spending, which is quite a lot,' he explained.
Semen Indonesia's financial performance reflects contraction in overall domestic cement sales, which slipped 4.12 percent on an annual basis to 31.34 million tons along the year.
Cement demand ' one of the parameter's of the country's economic growth ' had been constrained as there was a slowdown in property and construction industries, as infrastructure progress has been slow throughout the year. Economic growth, meanwhile, is at its slowest pace since 2009.
Mimi Halimin from KDB Daewoo said that she expected the cement sector to remain bearish given increasing competition amid entries of new players and oversupply, however gave a positive outlook for Semen Indonesia.
'Our bearish stance reflects an unfavorable macroeconomic backdrop and slower property market, which should be a drag on cement consumption, large swings in oil price and foreign exchange rates, which should collectively increase expense pressures, and increased competition due to newcomers in the industry,' she said.
'We believe [Semen Indonesia] will be able to excel under intensified competition supported by high production capacity and wide distribution coverage across Indonesia.'
Semen Indonesia expects to increase its production capacity to 40 million tons by 2017, which will be supported by its two new facilities in Rembang, Central Java, and Indarung, West Sumatra, which are slated to commence operations in the second half of next year.
