PT Holcim Indonesia Tbk - Holcim Annual Results 2007

Domestic sales increased by 22% to a record 5 million tonnes and market share in Java increased from 18.8% to 22% with the initiation of coverage in East Java. The Company’s ready mixed concrete business achieved a 40% expansion in deliveries.

Profitability and productivity gains
Profitability increased significantly with gross margin improving from 21% in 2006 to 34% for the year in review. The main factors supporting this were the resumption of normal levels of demand in both bag and bulk markets (in sharp contrast to a decline in 2006 and double-digit price contraction) the attainment of a premium price position and increased share in keeping with market recognition of Holcim product quality.

The rate of increase in raw materials and operating costs was contained at 2.5% for the year. On a per tonne basis electricity and fuel costs were reduced by 11% and 10% respectively and maintenance costs were trimmed back by 16% compared to the previous year, reflecting excellent input from staff at all levels of the organisation. Together these three elements account for about 70% of total costs of goods sold.

New production records were set in 2007, with finished cement volume up 23%. Good progress was made in reducing CO2 levels as the Company’s alternative fuels and raw materials programmes gained momentum along with an improvement in clinker factor (a measure of environmental efficiency in energy/materials usage).

Production improvements and capacity development
The installation of process optimizing equipment contributed positively to output, product quality and reduced consumption of thermal and electrical energy on a per tonne basis. Benefits from loss elimination programmes by employees yielded strong savings, in electricity consumption in particular. Systems for handling biomass and fly ash (alternative fuels and materials) and lower grade coal were installed and raw mill and coal mill upgrades were carried out.

The Company’s subsidiary Holcim Beton delivered 1.2 million cubic metres of ready-mixed concrete, an increase of 40%, and maintained a strong market position. A total of 2.2 million tonnes of aggregates (hard rock and sand) was supplied from the Company’s quarries.

Sustainable Development
During the year the Company formally launched the Geocycle business unit, an integral part of Holcim Indonesia, focusing on providing waste management solutions for customers. The use of alternative materials, including a variety of tested waste substances, is a key part of strategy to optimise fuel composition to support energy efficiency, to lessen dependence on fossil fuels and to achieve a lower clinker factor in finished cement.

The Holcim Academy, a centre of knowledge and excellence and a first for the region, was formally opened at the Narogong site. It carried a complete range of personal and organisational development curricula encompassing vocational and leadership skills. Formal training was given to over 9,300 individual participant places through the year, including 133 employees who were sent on overseas training courses.

Safety and Health were paramount considerations during 2007, and are regarded as one of the Company’s most important key performance indicators. Education and training is continuous, in formal courses, on the job and within neighbouring communities. Lost time through injuries was reduced and a company-wide health check programme continued to provide effective standards of care for employees and to encourage healthy living. Social responsibility: in addition to community advisory panels for regular dialogue and informed input, programmes were provided to benefit local communities in developing infrastructure, creating livelihood opportunities through micro finance, providing education and social awareness including disease prevention, child care, anti-narcotics, clean communities and the means to supplement farm income. Humanitarian aid was given regularly and promptly for flood disaster relief in Java and our Affordable Housing concept was introduced in central Java.

Holcim Indonesia received a total of 299 entries for the global Holcim Awards for Sustainable Construction competition after a strong awareness campaign, involving workshops and road shows across Java targeting, among others, architects, engineers, students and landscape/interior designers. Regional winners will be announced in late 2008, and the gold, silver, and bronze winners will be entered into the 2009 Global Finals for awards totaling US$ 2,000,000.

Financial management and forward planning
Work continued on strengthening the balance sheet, improving working capital management, and realizing value through disposals of redundant assets. In addition to scheduled repayments of long term debt, a key refinancing plan has been approved by shareholders the benefits of which include the removal of restrictive covenants, an extension of payment profile to 2012, reduced exposure to exchange rate fluctuations and improved terms.