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Jakarta Post

2015 may be yet another difficult year for Holcim

  • Anggi M. Lubis

    The Jakarta Post

Jakarta   /   Wed, March 11, 2015   /  06:44 am

Publicly listed cement maker Holcim Indonesia (SMCB) will be challenged by tighter competition and high debt levels that could spike costs this year, Bahana Securities has said after the company announced 30 percent lower profits last year.

Holcim saw its net profit plunge to Rp 668.35 billion (US$50.69 million) throughout last year from Rp 952.11 billion in 2013, as costs soared, despite an increase in revenues.

Revenues rose 8.67 percent year-on-year to Rp 10.53 trillion during the reported period, not enough to counter an 18.38 percent jump in cost of sales to Rp 7.5 trillion on the back of higher distribution costs.

Distribution costs soared 22 percent to Rp 817.3 billion as unexpected technical delays when commissioning the company'€™s Tuban I plant had added to freight costs to ensure supply commitments were met by existing plants, according to the company'€™s statement.

The delays, plus higher electricity costs and stronger competition, as well as sluggish demand for construction during the election year in 2014, had also contributed to reduced margins and put pressure on the company'€™s income, the company said.

'€œ['€¦] reflected the lower than expected sales and surplus supply across markets, plus upward cost pressure during this transition year, ahead of new economic stimulus and the full benefit of additional capacity,'€ the statement reads.

'€œTighter credit conditions and rising inflation contributed to weakening sentiment across the retail supply sector for construction materials, while national election activities affected progress on infrastructure and large private sector projects,'€ it adds.

Businesses felt the lagged pinch of Bank Indonesia'€™s 2013 aggressive interest rate hikes last year, as the high 7.5 to 7.75 percent reference rate '€” from 5.75 percent in 2013 '€” had discouraged lending and expansion. Furthermore, 2014 was an election year where most construction and property projects took a rain check in hopes of more stable policies and a new administration.

Bahana Securities has lowered its net profit prediction for Holcim'€™s 2015 and 2016 full-year results by around 12 to 13 percent as it foresees distribution costs to continue to rise higher than expected, exacerbated by rising debts.

Profit may grow to Rp 788 billion '€” compared with Rp 894 billion forecast previously '€” while revenues are seen at Rp 11.05 trillion '€” versus Rp 10.99 trillion in a previous forecast '€” according to the investment banking and brokerage firm.

'€œGoing forward, we expect intense cement price and market share competition in Indonesia to persist, which, coupled with SMCB'€™s high-debt level, should apply pressure on the company'€™s bottom line,'€ Bahana Securities'€™ Bob Setiadi said in the statement.

Holcim'€™s debts may continue to rise by 9 percent to Rp 5.8 trillion this year from Rp 5.4 trillion last year to further finance the company'€™s ongoing Tuban II new facility project in East Java, which is scheduled to commence operations in the second quarter.

Holcim, the country'€™s third-largest cement producer after Semen Indonesia and Indocement Tunggal Prakarsa, also faces the challenge to market its products at lower prices, after President Joko '€œJokowi'€ Widodo instructed to lower cement prices by Rp 3,000 per sack for state-run cement makers. That policy could make private cement firms follow suit and sell at lower prices to maintain its customers and market share.

Holcim holds around a 14 percent market share in the country and has a total annual production capacity of 8.2 million tons of cement in Indonesia and 1.2 million tons in Malaysia. That excludes the Tuban I'€™s cement mill capacity which, together with the Tuban II plant, are designed to bring in an additional 3.4 million tons of cement output per year, with total investment of $800 million.

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