Semen Gresik expects infrastructure surge

Semen Gresik expects infrastructure surge
Published: 22 February 2006

PT Semen Gresik, Indonesia’s largest cement maker, expects sales this year to rise on the back of an expected surge in national infrastructure investment, a senior company executive said Tuesday.  "We hope our sales this year will hit around IDR8 trillion, compared with an estimate of IDR7.5 trillion in 2005," Chief Financial Officer Cholil Hasan told Dow Jones Newswires in an interview.
 
The company has a net profit target for 2006 of over IDR1 trillion, which would mark an 11 per cent increase from estimated earnings of IDR900 billion in 2005. It will announce its 2005 results in March.  "(This year) is a challenging year, but there’s still room for growth," Hasan said.
 
Semen Gresik’s sales and profit expectations are rooted in the government’s attempt to revive an ambitious infrastructure investment plan that derailed in early 2005.  Indonesia’s government will seek investment in 25 major infrastructure development projects valued at over $7 billion in 2006, official documents issued Tuesday indicated.
 
The government has said it requires $150 billion in infrastructure investment over the next four years to help deliver an official target of 6.6 per cent average annual economic growth from 2004 to 2009. Indonesia’s government is forecasting on-year economic growth of 6.2 per cent in 2006, outpacing the 5.6 per cent recorded in 2005. Bank Indonesia is expecting a more modest average 5.4 per cent on-year increase in the same period.  Hasan said improved infrastructure, including roads and an expanded electrical power grid, would inspire investors to build housing complexes, factories, and industrial zones which could in turn increase cement demand. 
 
But Hasan said a looming increase in electricity prices later this year could weigh on earnings Hasan and to maintain profitability, Gresik will launch efficiency programs which will include an energy audit to reduce the company’s dependency on electrical power and fossil fuels. "I hope that the energy audit will be completed this year," he said. 
 
Analysts said the audit would help Semen Gresik reduce its largest expenses - power and transportation - which swallow around 50 per cent of the firm’s total annual operating costs. 
 
Semen Gresik, which has a 45 per cent share of the domestic market, is planning to build a new cement plant with an annual production capacity of 2.5Mt.  "We are still doing the feasibility study to build the plant, which will have a value of around IDR3 trillion," Hasan said.  The new facility will likely start production in 2009. 
 
Semen Gresik last year sold 14.28Mt of cement in the domestic market, up 6.6 per cent from 13.40Mt in 2004.  Analysts said the company’s domestic cement sales are likely to increase to as much as 14.7Mt in 2006 and 15.5Mt in 2007.