The Jakarta Post has launched a biweekly corporate review on publicly listed companies, with the first edition on Aug. 11 focusing on diversified group PT Astra International. Today's edition is on state-controlled cement producer PT Semen Gresik. Here are the stories.

Clouded with ongoing internal consolidation issues, rising energy costs and tough competition, PT Semen Gresik Group (SGG) is doing remarkably well as it expands to take further advantage of the growing domestic demand for cement.

Having seen net profits grow 36 percent last year from 2006 and more than 29 percent growth the year before -- thanks in part to its efficiency-boosting consolidation plan -- the nation's largest cement maker weathered peaking energy costs in the first semester to net a 62.7 percent growth in net profits.

Gresik Group's first semester net profits rose to Rp 1.13 trillion (US$125.43 million), nearing last year's Rp 1.77 trillion.

"We hope by the end of this year, it (net profit) will be well over Rp 2 trillion," president director Dwi Soetjipto said in an interview last week, arguing that commodity prices were expected to recede in the later half of the year.

Higher coal prices in the January-June period increased the company's spending on fuel (comprising almost entirely of coal) for every ton of cement by 20 percent to Rp 82,115 (from Rp 69,653 per ton one year earlier).

The cost of electricity also increased by 13.5 percent in the same period from the previous year. Spending on coal and electricity accounted for more than a third of a total production cost.

Dwi estimated that in line with the recent downward trend of oil prices, the prices of commodities including coal would ease in the second semester. That should bode well for domestic demand which climbed by 21.1 percent in the first semester.

BNI Securities analyst Maxi Liesyaputra said demand in the second half would remain on the increase due to a trend of construction projects being started in the second semester.

For 2009, Dwi said, the company has set a conservative growth target of 5.5 percent in the domestic market. However, in the export market he saw more opportunity for expansion.

"The export market is relatively open, but we will keep exports at between 5 and 10 percent of the total production."

This year, the group's exports represent 5 percent of the company's total sales, as it is focussing on the domestic market and maintaining its status as national market leader. As of the end of June, the company held a 44 percent share in the Indonesian market.

SGG, through its three producing units -- Semen Gresik, Semen Padang and Semen Tonasa -- produced a total 8.9 million tons in the first half. National production meanwhile stood at 21.2 million tons.

During the past six years, national cement consumption has grown by an average 4.86 percent a year, including the 1.8 percent growth in 2006 when the economy was suffering from the impact of fuel price increases in late 2005.

On the back of infrastructure projects, the Indonesian Cement Association has predicted national cement consumption to grow by at least by 7 percent this year from 32.05 tons last year, despite the latest fuel price rise in May.

To take advantage of the expected robust demand, particularly domestic demand, SGG plans to build two new plants with a total capacity of 5 million tons. The first will be in Sulawesi near the Semen Tonasa plant, with a capacity of 2.5 million tons, and is scheduled to commence operation in 2011.

Second, will be a 2.5 million-ton plant in Central Java, targeting to start operation in 2012.

The group will require a total $670 million for the two new plants. It expects to acquire most of this from external sources, including loans and/or bonds.

Aside from these plants, SGG will continue to upgrade its existing capacity by 2 million tons. It targets to finish the upgrade program in 2010.

The company will also build five power plants in its existing factories and new ones, costing an estimated $573 million. The plants, which will have a total output of 410 megawatts (MW), are expected to start operating in 2011.

With so much work to be done, re-organization is in the pipeline with the creation of a holding company for the three units. This is hoped to bring added value to the group by making its units' focus more on business development.

"We hope (with the holding company) the group will become more and more efficient," Dwi said.

However, Trimegah Securities analyst Stanley Tjiandra doubted this, saying the company already had good synergy with its existing organizational structure.

"They have performed very well with the current structure. What kind of added value are they looking for?"

Stanley projected this year the company would be able to enjoy a 40.2 percent increase in profits to Rp 2.5 trillion.

The group is 51 percent owned by the government, 24.9 percent by the public and 24.1 percent by Blue Valley Holdings -- a unit of the Rajawali Group conglomerate.

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