Unlike many industries, additional production capacity in the cement industry is extremely time sensitive. The time required to add significant production capacity often hinges on the construction of new cement kilns - which in the best of times could take up to two or three years. Adding to cement production capacity, therefore requires broad oversight, good planning and timely execution.

The successful revamping of Plant 8 in Citeureup gave Indocement additional designed production capacity of some 600,000 tons cement per year.

Indocement has the second largest factory complex in the world, which is located in its Citeureup site.

Citeureup is home to nine operating plants in which between 1975 – 2007 have been gradually enhanced with advanced technology and some of the most efficient kilns in operations today.

A major achievement in production in 2008 was the way in which Indocement successfully managed to raise cement production by as much as 11.0% from existing production volume in less than a year’s time. The logistics and management of increased raw materials, higher energy input, and almost constantly operating kilns require levels of commitment, coordination and collaboration that had to be raised accordingly. The successful execution and orchestration of this ramping up in production was a feat in itself.

Indocement produced approximately 12.8 million tons of clinker and 12.5 million tons of cement in 2008 compared to 12.7 million tons and 11.3 million tons, respectively, in 2007. Production of Indocement’s mainstay product, the Portland Composite Cement (PCC), continued to make grounds, increasing by 15.9% from 9.3 million tons in 2007 to 10.8 million tons in 2008.

Opportunities Gained.

Indocement was able to raise its production in time to capture the lion’s share of Indonesia’s cement market boom in 2008. This was very much in line with expansion plans that had been carried out by the Company over the past few years, namely the modernization and refitting of kilns and major equipment that not only increased production capacity but also enhanced its efficiency. A case in point was the successful revamping of Plant 8 in Citeureup that gave Indocement additional designed production capacity of 600,000 tons of cement per annum.

Re-commissioned of the production trains of Plant 8 in 2007 came onstream just in time to pick up the increased production pace in 2008. This enabled Indocement to parlay its production capacity strength to meet extraordinary market demand during the year, capitalizing fully on the opportunities that arose.

Although production growth in 2008 came mostly from Plant 8, Indocement was also successful in carrying out production efficiency measures that contributed to faster and more streamlined flows of production. This was undertaken thoroughly, even to the extent of redesigning the structure of older kilns in order to get rid of bottleneck configurations in the system that tend to restrict the movement of free-flowing production.

Furthermore, since Plant 8 has been specially fitted with equipment allowing more use of alternative materials and alternative fuels, Indocement has begun to address both the need for increasing production and energy cost savings simultaneously. This goal was in part achieved by the increasing use of alternative fuels for cement production, which in 2008 accounted for 4.7% of total energy consumption, significantly higher than 3.4% in 2007.

Indocement remains the leading cement manufacturer in the country that has used both alternative fuels and alternative materials in significant amounts. The use of rice husk, palm kernel shell, sludge oil and other alternative fuels for kiln burning continues to grow in importance and, of late, has even been tied to an innovative Corporate Social Responsibility (CSR) initiative programs involving solid waste processing in ever growing amounts from villages surrounding the Company’s plants.

Strategic Move Towards Aggregates.

Indocement is well positioned to increase production to meet market demand in 2009 and beyond. In addition to ample capacity for cement production, Indocement has taken a strategic position to develop an aggregate business line by acquiring a majority controlling stake of 51% in PT Gunung Tua Mandiri, a company in aggregates business, with estimated reserves of approximately 30 million tons and current annual production of approximately 1.5 million tons.

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%.

Other Capacity Enhancement.

To cope with the expansion of our quarry activities to support cement operation, Indocement purchased several mobile equipments including two large crusher units at Hambalang quarry at Citeureup.

In addition, Indocement began construction of two additional cement mills in Cirebon that will provide up to 1.5 million tons of additional designed production capacity starting at the end of 2009.

Production Outlook

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.