Welcome to Indocement Corporate Website

In the era of high-cost energy, sustainable long-term cement production is all about tight cost management and efficiency to optimize operating margin.

Indocement posted consolidated net revenues amounting to IDR9,780 billion in 2008, an increase of 33.5% from IDR7,324 billion in 2007.

Since the entry of the HeidelbergCement Group in 2001 as the majority shareholder of Indocement, the financial strategy of the Company has been to reduce debt-to-equity ratio to manageable level. Indocement has been very successful at this. As at year-end 2008, its gearing ratio stood at merely 0.3%, providing the Company with ample room to undertake capital expenditure through borrowings when and if it decides to do so.

In financial perspective, the year 2008 continued to be a favorable one for Indocement, as it sustained strong revenue streams that boosted cash balance at year-end 2008 to IDR790 billion, up significantly from approximately IDR308 billion in 2007.

Indocement posted consolidated net revenues amounting to IDR9,780 billion in 2008, an increase of 33.5% from IDR7,324 billion in 2007. The increase was attributed primarily to an increase in domestic sales volume as well as better average selling price - both of which were fuelled by an extraordinary robust domestic cement market during the year of 2008. As a result, the Company improved its gross profit margin and operating profit margin in 2008 compared to those of the previous year.

Operating in an extremely dynamic market that was also volatile at times was a challenge for Indocement as it had to manage escalating costs due to significantly higher production. A key concern was the management of energy cost that accounted for roughly 50% of production cost. With the price of crude oil, and coal, climbing to their highest level ever in July 2008, Indocement had to absorb escalating energy cost, even as the Company benefited from locked prices for a sizeable portion of its coal intake during the year.

Up to 50% of the Company's coal supplies that had been originally projected for cement production in 2008 had been locked at favorable prices. However, no one could have foreseen the rate at which the cement market would grow in 2008. By the end of 2007, Indocement had optimistically predicted a 6% growth for domestic cement consumption in 2008, and prepared the budget accordingly to serve such growth. In reality, production for the year increased by 11.0% to serve high domestic demand of 11.4% growth.

Needless to say, the ensuing cost escalation became major financial and management issues for Indocement in 2008. Not least of which was the cost of coal supplies, especially the other 50% portion that was not locked and those that represent additional coal intakes to meet increased production.

In order to offset some of these energy cost increases, Indocement made do with the burning of coals of lower calorific value that are more economical. Certain other cost efficiency measures continued to be implemented and enhanced across the Company’s operations. They include initiatives that have been in progress since 2007, including the use of global positioning system in the trucking of bagged cement, the outsourcing of transportation services for coal and bulk cement deliveries, and greater reliance on cheaper fuel to run chartered ships for inter-island deliveries. From a financial standpoint, the production of the PCC, which in 2008 had increased by 15.9% to 10.8 milliontons, is more cost effective than the production of Ordinary Portland Cement

Entering 2008 with a buoyant mood from record sales that transpired during the months of November and December 2007, Indocement was more than ready to undertake considerable capital expenditure in support of growth. The plan was to build two cement mills in Cirebon. A diesel-to-gas conversion was completed in two power generators at Citeureup. Moreover, Indocement was set to undertake further refitting and modification of equipment similar to those of Plant 8. The Company had both the equity and borrowing capacity to undertake capital expenditure of substantial size and scale.

However, with the onset of the global financial crisis started in September 2008, Indocement took a more cautious stance on development and sharply reduced new investments. By the end of the year, it was clear that the robust sales of 2008 could not be expected to continue in 2009. In all, Indocement spent a total of IDR618 billion in capital expenditure throughout 2008, versus IDR464 billion in 2007.

The global financial crisis of 2008 has led to widespread and pronounced economic recessions in the USA, Europe, Japan, and Singapore, all key trading partners of the rest of Asia including Indonesia. The bullish global commodities markets that stoked local demand for cement to unprecedented levels in 2008 have since receded and are not likely to return soon. The situation calls for a conservative financial management, recognizing the old adage of Cash is King. With a solid balance sheet and the strong cash position that had been derived from its 2008 operating results, Indocement aims to make financial prudence, tight cost control and cut any uncommitted investments as the cornerstones of its 2009 operations.

In 2008, Indocement produced approximately 12.8 million tons of clinker compared to 12.7 million tons in 2007. It produced approximately 12.5 million tons of cement, higher than 11.3 million tons produced in 2007. The utilization rate of the installed capacity during 2008 was 81.6%, increasing from 81.1% in 2007. The respective capacity utilization rates of each factory site were 78.1% for Citeureup, 84.5% for Cirebon Factory, and 94.1% for Tarjun. The table below sets forth the volume of production for cement and clinker at respective factories.

In 2008, Indocement marked a record of its domestic sales volume. In order to cater to the strong domestic demand, especially in the first half of the year, Indocement had to reduce its export sales volume.

The total sales volume increased by a mere 0.7% at 14.7 million tons, compared to 14.6 million tons realized in 2007.

The Company posted a strong growth of 14.7% in domestic sales volume, almost doubled the growth of 7.9% achieved in 2007, and higher than the national growth of 11.4%. As a result, its domestic market share grew from 30.9% to 31.7%. Domestic sales volumes climbed from 10.7 million tons in 2007 to 12.3 million tons in 2008. On the other hand, export sales volume declined from 3.8 million tons in 2007 to 2.3 million tons in 2008, a decrease of 38.8%.

The domestic cement demand grew by 21.1% in the first half of 2008. In the mean time, Indocement domestic sales volume grew by 30.1%. This strong growth was contributed by robust sales in both the Company's home-turf markets and those outside Java. The widespread construction of high-rise buildings in major cities, particularly in Java island and increasing home construction activities due to rising income from booming commodity markets for mining and plantation, spurred the demand for cement.

Although demand subsequently slowed down during the last quarter of the year due to the impact of global economic crisis, the annual growth rate for 2008 was still encouraging.

In order to compensate for the significant jump of 40% in energy cost per ton of cement, the Company managed to increase its domestic sales price gradually, resulting in a 24.6% increase of average domestic sales price, year-on-year. On account of the rise in both domestic sales price and volume, net revenues grew by 33.5% to IDR9,780 billion from IDR7,324 billion in 2007. Bagged cement still accounted for the majority of sales, totaling 85.7% of the total domestic sales volume, while the remaining 14.3% of sales came in the form of bulk cement. The sales composition of bagged versus bulk cement remained largely the same as that of the previous year.

The sales of cement constitute the largest revenue earner for the Company, accounting for 97.8% of the Company's net revenues in 2008. The remaining 2.2% was contributed from the ready-mix concrete and aggregates quarry business segments.

The cost of revenues increased significantly by 26.2% to IDR5,756 billion from IDR4,561 billion in 2007. This was mainly due to the tremendous surge in fuel and power cost, which increased by 40.9% from IDR1,947 billion to IDR2,743 billion. The high purchase price of coal exacerbated the cost of revenues. In addition to this, the Company operated its own power generator at the Citeureup Factory, in which some of its generator consumed unsubsidized industrial fuel. This was in marked contrast to the lower power cost purchased from the national grid, thus placing the Company in an unfavorable position compare to its competitor.

In order to reduce the impact of the significant rise in energy cost, the Company has completed the conversion of two diesel power generating units into gas-fired power generators in 2008 and also strives constantly to arrest energy consumption, among other things by producing PCC that has lower clinker content. As such, the increasing cost of revenues is still manageable. The ratio of cost of revenue to net revenues improved to 58.9% in 2008, from 62.3% in 2007.

Delivery and selling expenses jumped significantly by 37.4% from IDR949 billion in 2007 to IDR1,305 billion in 2008, in line with the increase in sales volume as well as higher transportation cost due to escalating fuel price. Meanwhile, general and administrative expenses rose by 18.4% to IDR260 billion from IDR220 billion. The combined expenses of the two resulted in an increase of operating expenses by 33.9% from IDR1,169 billion to IDR1,565 billion.

The Company's gross profit rose by 45.7% from IDR2,762 billion in 2007 to IDR4,025 billion in 2008. In the meantime, gross profit margin advanced from 37.7% in 2007 to 41.1% in 2008.

Income from operations expanded noticeably by 54.4% to IDR2,460 billion compared with IDR1,593 billion in the previous year. Accordingly, operating margin also improved from 21.8% to 25.2%.

EBITDA climbed by 41.7% from IDR2,158 billion to IDR3,059 billion, while net income soared to IDR1,746 billion, a 78.1% increase from IDR980 billion posted in 2007. This increase was attributed to among other things the growth of operating income as described above, the decrease in interest expense and other financial charges from IDR206 billion in 2007 to IDR124 billion in 2008, and despite the increase in foreign exchange loss from IDR32 billion to IDR73 billion.

Current assets rose considerably by 54.4% from IDR2,249 billion in 2007 to IDR3,471 billion in 2008, mainly due to the significant increase in inventories from IDR996 billion to IDR1,515 billion. In addition, cash and cash equivalent more than doubled from IDR308 billion to IDR790 billion. Trade receivables also rose from IDR797 billion to IDR922 billion as a result of the increase in sales.

The average collection period in 2008 was improved to 32 days from 35 days in 2007.

There was no significant change in noncurrent assets, which only increased by 0.3% from IDR7,789 billion in 2007 to IDR7,815 billion in 2008.

Total assets grew by 12.4% from IDR10,038 billion in 2007 to IDR11,287 billion in 2008.

As the loan to HC Finance B.V. will have matured in March 2009, the current maturities of long-term debts increased from zero in 2007 to IDR548 billion in 2008. In 2008, there was also a short-term loan, in the form of a revolving loan facility amounting to IDR274 billion or equivalent to US$25 million (consisting of US$12.5 million from The Royal Bank of Scotland, formerly ABN-AMRO Bank N.V. Jakarta Branch and US$12.5 million from Standard Chartered Bank, Jakarta). For comparison, there was no short term loan in 2007.

Furthermore, trade payables to third parties rose by 53.5% from IDR189 billion to IDR289 billion in consequence of the increase in cost of revenues, which in turn resulted from the sales increase. Taxes payable almost doubled from IDR221 billion to IDR426 billion, in line with the increase in income before corporate income tax expense. Hence, current liabilities increased by 149.5% from IDR779 billion in 2007 to IDR1,944 billion. Current ratio declined from 2.9 to 1.8 as well. There was no change of the average days payable in 2007 and 2008, which were 19 days.

Non-Current Liabilities

NNon-current liabilities dropped drastically by 65.0% from IDR2,344 billion in 2007 to IDR821 billion in 2008 as the Company prepaid its US$100 million loan to HC Finance B.V. in September 2008. Thus, the remaining loan to HC Finance B.V. amounted to merely US$50 million, which was recorded in current liabilities because of its maturity in March 2009.

Total liabilities declined by 11.5% to IDR2,765 billion in 2008 from IDR3,123 billion in 2007. Thus, net gearing declined from 15.9% to 0.3%, the lowest level in more than a decade. Net Debt to EBITDA also shrank from 0.51 to 0.01 times. While EBITDA to Net Interest Cover tripled from 11.3 to 33.7 times in 2008.

Net shareholders' equity increased by 23.3% from IDR6,894 billion to IDR8,500 billion primarily as a result of significant increase in net income.

The Company’s total capital expenditure in 2008 amounted to IDR618 billion, in which the major capital expenditures, in addition for the clinker grinding project in the Cirebon factory, were used for the followings:

The funding for all of the Company’s expenditures was from internal cash flow, while the risk associated with foreign exchange currency was managed internally.

On 20 January 2009, the Company re-borrowed from the revolving loan facility of US$25 million. The loan bore interest at the annual rate of 1.26% and was due on 20 February 2009. Subsequently, on 20 February 2009, the Company re-borrowed from the revolving loan. The loan bears interest at the annual rate of 1.37% and will be due on 20 March 2009. The proceeds of the loan are used for the repayment of the principal amount of the revolving loan.

In 2006, the Company paid its first dividends since 1998 amounting to IDR50 per share or 24.9% of net income for fiscal year 2005. In 2007, the Company distributed dividends of IDR30 per share or about 18.6 % of the Company's net income for year 2006. In 2008, the Company paid dividends of IDR40 per share or about 15% of net income for year 2007.

On 18 December 2007, Indocement signed a “Conditional Sale and Purchase Agreement and Transfer Rights on the Asset” with PT Handi Perkasa, for the purchase of its aggregates business located in Purwakarta, West Java. Its commercial business operation was transferred to Indocement through PT Mandiri Sejahtera Sentra in November 2008. With the acquisition of the assets and business of PT Handi Perkasa that has an average production capacity of approximately acquisition with the average production capacity of 1,500 tons per day and estimated reserves of approximately 100 million tons, Indocement is poised to secure a 15% market share of aggregates supply in Jabodetabek and West Java. The market share of Indocement in 2008 for its aggregates was roughly 10%.

In 2008, the total amount of recurring transactions with HeidelbergCement AG and its affiliates which contain conflict of interest amounted to IDR52 billion, well below the threshold value of 5% of the Company’s net shareholders’ equity, or IDR425 billion as at year-end 2008.

The cement industry in Indonesia is expected to contract from its robust pace of growth in 2008, in the face of a global economic recession that is likely to impact more on Indonesia's economy in 2009. However, all things being equal, the Company do not foresee a collapse of the cement market in 2009. Instead, there are strong indications - such as recent contracts signings of infrastructure and construction projects namely toll roads, power plants and ports - that still point out to the possibility of the increase of demand for cement and related products.

In the face of these opportunities, the Company remains strategically positioned in the market as the only cement producer in the country with significant upside excess capacity, to meet additional market demand, when and if required.