PT Semen Indonesia Persero Tbk : Transcript Presentasi Korporasi 1H

SIG 1H 2023 Earnings Call

Date: Wednesday, August 2, 2023

Time 09:00 - 10.00 PM JKT Time Zone

Radityo : Ladies and gentlemen, good morning and welcome to the SIG 1H of 2023 earnings call. My name is Radit and I will be the moderator for today. Thank you for joining this call, we will begin shortly.

We have released our 1H of 2023 result on Monday, 31 July 2023 and the reports are available on our website at sig.id under the investor relations menu. Let me begin with a rundown of today's agenda, as well as some functions of Microsoft Teams platform. Today's call will begin with an opening presentation delivered by our GM of Investor Relations, Ibu Febriandita, and followed by a Q&A session. If you would like to ask a question, please press the raise hand button on the top right of your screen. When your name is called upon, I will proceed by giving you access to unmute your mic. Please remember to click the unmute button after that before speaking, alternatively, you can also type your question in the chat box. Let us begin the call,and I would like to give the floor to Ibu Febriandita for the presentation. Thank you.

Febriandita : Thank you Radityo. Aaa..good morning everyone, allow me to briefly update you with the 1H of 2023 achievement of SMGR. So, as you know despite 5% contraction in national demand- cement demand in the 1H of this year, we were able to record slightly positive sales volume growth for..aaa this first semester of this year, which mainly driven by 41% growth in export sales volume. And then the blended ASP up to June still recorded a 2% increase YoY both from the increase in domestic ASP by 5% and export by 0.5% or quite flat. Both volume and revenue increase supported 2% YoY increase in SMGR revenue in the 1H of 2023. And..on the cost side, the increase in energy price still has some impacts on our COGS, especially on our freight cost, which are our distribution cost, which recorded increase around 30% YoY, logistic cost for coal which impacted the coal price to increase by around 7% YoY and raw materials which increased around 12% YoY. SIG consistently conduct efficiency efforts to minimize the impact of the rising cost through operational excellences efforts, both through

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the efficiency in material consumption index such as coal consumption index, which decrease around 4% YoY, the..uh..decrease in PCC clinker factor by 0.4%, decrease in the specific thermal energy consumption or STEC by 2% and the increasing of the..uh..utilization of the AFR or alternative fuel which allow us to increase thermal substitution rate by 0.7% in the 1H of this year. And we also conduct operational cost management in a disciplined manner to achieve operating cost efficiency, which you can see recorded decrease by almost 10% YoY in the 1H of 2023. So, our COGS recorded increase by 5.9% but the incremental were more gentle if we compare to 1Q of 2023 YoY. So, the above efforts and supported by finance cost efficiency which was down by 8% YoY from the deleveraging program has supported SIG..uh..to still be able to record better net profit for 1H of 2023. So..uh..we also see that the industry demand is starting to show improvement where the national demand contraction in June was only -1% YoY, so it's much better compared to the previous months which recorded..uh..almost 6% minus ya, contraction up to May 2023. So, our cement release until the third week of July also showed positive growth around ..uh..low teens high single digit to low teens both in bag and bulk. So, in addition SIG export sales also have continued to increase. We saw around 40% MoM increase in July compare to June to optimize the utilization of our production facility further. So, we also have started calibrating our ASP in several regions by mainly increasing the ASP of fighting brand which has been responded positively by tier 2 competitors and we also continue to conduct efficiency efforts..uh..such as further efficiency efforts in the production index, efficiency in coal cost especially in terms of procurement cost by increasing coal acquisition from nearby location and renegotiating the freight cost, and then efficiency of cement shipping cost by adjusting delivery terms to distributors from free on truck to FRANCO, and increase the use of portion of woven packaging with lower cost than kraft bags. And promotion cost also expected to be lower as we saw that..uh..as we expect that demand will start to improve in the 2H of this year. Uh…G&A cost..uh..its'- it's continually will be maintained, remaining selective in carrying out activities as we did and aim for efficient cost. So, the improvement of demand and the intensity of competition in June and July as well as supported by potential export demand, which is still quite promising, will provide opportunities for SMGR to be able to increase sales volume and conduct price adjustment opportunistically in order to absorb the impact of rising coal while we also continue conduct every cost efficiency to increase profitability. So that's brief update on our performance for the 1H of 2023 and now we can move to the Q&A session.

Radityo : Okay. Thank you, Bu Febri, for the presentation. Ladies and gentleman if you have any questions please press the raise hand button and then I will mention your name and give you access to unmute yourself.

Okay, we have our first question from Kharel from Trimegah. Okay you can unmute yourself, Kharel and ask the question. Thank you.

Kharel : Hi thank you for the opportunity. Good morning and congrats for the results and I want to ask about the- can you care to explain the higher raw materials cost in the 2Q? Thank you.

Febriandita : So…yaa..thank you. Uh..I believe you saw the numbers on QoQ basis, right? So, the system and..and how we record the cost is we..uh..record all the input costs, the materials that been input to the process, and it would be eliminated on the inventory difference. So if you see COGS breakdown at the bottom there would be..uh..inventory differences that to- to

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be matched with the real volume that being sold on that period. So we suggest you to..uh..if you want to make a projection going forward..uh..the basis that will be more representative is to use the per ton basis of raw materials on the year to date- year to date basis. So, it's recorded increase around 11% to 12% if you calculated the year-to-date numbers up to June. So that would be more representative because the fluctuations of the number of the input material volume that we use in each period could be different. So, you can see in our..uh.. notes to the financial statement on the inventory, the inventory of the finished goods recorded increase as well so that's also impact the- the..uh..inventory differences that we adjusted on the COGS breakdown. So, hope that answer your question.

Kharel : Okay thank you, and sorry I have one more question. Can you explain about- can you give me a color about your fighting brand contribution to your total cement sales volume volume revenue? Total cement sales volume sorry.

Febriandita : Okay, so usually in terms of the percentage, we calculate the percentage of fighting brand s from the total domestic volume. It's still around ..uh.. 14 to 15%, a bit higher if we compare to the ..uh.. 4Q of last year because ..uh.. you know that we a bit adjusted in the 1Q because of the competition. But it's starting to..uh.. to go lower and we expect it to be lower in the 4Q of this year because you see that the competition- intensity of the competition expected to be not as intense as in the 1H because in the- we saw that demand start to improve in the second- three- third, and fourth week of June and then start to improve positively in July so hopefully that will support to lower the intensity of the competition and we can adjust down the portion of the fighting brand.

Hosny : In addition to that, I think one note that you have to clearly understand is that, even though the portion of the fighting brand increase, but the price of the fighting brand has also increased aggressively ya.. So, we recorded increase of 7% of the ASP of the fighting brand compared to last year while the main brand increase around 4% ya compared to 1H last year. So overall, despite the increase of the portion of the fighting brand slightly compare to 1H last year, but overall impact to the weighted average ASP increase of the cement bags ya cement bags sale in Indonesia still has increase 3.7%.

Kharel : Okay, thank you, thank you.

Radityo : Okay, thank you Kharel for the question and I believe we also have a question in the chat box which is asked by Onkar but I believe it also had been answered on this previous one. So, moving on, we're gonna have our next question from Akhsay Sugandi. You can go ahead and unmute yourself, Akhsay. Thank you.

Akhsay : Yes. Thank you very much. Um..you said earlier that the demand in July has already started to improve MoM, right? So, what do you see as the driver of the demand growth for the 2H of the year? And what is your updated guidance for the domestic volume growth? I'll start here for the first question.

Febriandita : Pak Gathut, if you have response to the what supported the growth of demand?

Gathut : Yes, of course. Yes, thank you, I'll try to answer your question. I see that there are some good changes in..uh..in the last of second..uh..1H in this year because as you see, there

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are 3 parameters right now, for example. The first is the increase of budget ya, the increase of budget of infrastructure, civil and also building. The second is government confidence getting better, and then the economical also getting better. This is the driver of the increase of the demand. I think the three factors is very influencing to the increase of the demand ya.

Akhsay : Got it, what about…

Hosny : But, in terms of the demand growth, we think still can go up to 1-2%.

Gathut : Yes. 1-2% full year can be achieved. Yes.

Febriandita : So, ya. So..so..in the 1H if we see the demand contracted around 5-6% ya up to June, and we expected- because we started at the low base for the 2H of last year decrease by -7% so if- . We see that the trend that we recorded up to June increasing at high single digit until low teens, so we expect if demand can grow by 6-7% then demand for the full year still end up able to increase by 1 to 2%.

Hosny : But again, I think in terms of the demand drivers, we divided into two segments ya. The bag segment, which goes to the retail market, you know consumers demography, households, that one I think, we think that the growth full year, I think would be around 0.9- 1.2% but the main driver, high holder for this year is actually coming from the bulk, from the direct sales. We have drivers from two main projects in Sumatera and also the IKN, and a couple of other projects in Java especially on the infrastructure side. We are confident that the growth can be up to 10%, even optimistically low double digit, in terms of volume growth compare to last year for full year.

Akhsay : Got it very much. So, you think the bag will around 1% and the bulk will be around 10%?

Hosny : Ya.

Akhsay : Got it and the next question I have is on the margin side. So, umm..after the integration with SMBR, where do you see the full year margin for this year and how do you think the synergies will kick in for next year?

Hosny : Ya, so I think in terms of the synergy already kicks in, in terms of some of the synergies especially on the cost to serve, optimization of the utilization especially on the South Sumatera market. We expect our guidance for EBITDA margin 21-22% still stand. I think pretty much we should be able to deliver that in the 1H. And we believe with the potential leverage on the market growth ya, especially on the bulk and direct sales side, especially if you see one of the key drivers is the toll road projects in the Sumatera area which is very close to the SMBR site. We believe that we should be able to maintain and get this guidance for margins until full year. Next year, we expect this to maintain, even we see a trajectory of even higher margin if we can see a bit of- loosen a bit in logistic side. The problem for logistic currently this year is not only because of fuel, but the availability of the vessels ya. It's very hard now to find tugs and barges to deliver the coal from the sites. The supply is abundant, but the transporters are limited. But we see in the 3Q this year, the supply of the vessels are picking up so hopefully next year we should be able to see a bit lower logistic cost ya compare to this year. And a bit

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on the margin side, would be around 1% additional ya for next year and hopefully the growth for the demand will continue to increase closer to the GDP growth within the next 2 to 3 years and we foresee good freeze again in the margin in the next 2-3 years.

Akhsay : Got it, thanks for that ..umm..just the last one, so you are saying that even though you got the coal at the DMO 100% this year, the main issue is coming from the logistic side from fuel and the cost of the vessels. Is that correct?

Hosny : Yes that's right. Yes, that's right. But..it's- it's because of the availability of the vessels ya..of the...of the fleet, of the tugs and barges, it's quite sparse now in the market. So, we have to compete with the coal trader, sometimes with the CPO trader, CPO producer, and other commodities. Because most of the coal are coming from Kalimantan, some actually from Sumatera but on the lower GAR side, so we have to transport it by sea ya to the Java right, to our Tuban plant, to our Narogong plant, to our Tonasa plant.

Akhsay : Got it and how much is that cost gonna by?

Hosny : Okay, so I think if you see our, what do you call- the coal price..coal price per second, second half- 1H 2023 stands in around IDR 963 thousand and this is has gone up around…

Febriandita : 7%

Hosny : 7%

Febriandita : 7% last year on the 1H.

Hosny : Hopefully we see a bit of a lower coal price composite, we expect in the 2H it can go down to around IDR 883 thousand per ton because we are able to get lower coal price and get closer source of coal compared to the 1H. We see a bit of a lower of coal cost in this 2H, hopefully it will start to kicks in to our inventory by August and September. So we expect the coal price composite will go down to around IDR 883 thousand from currently around IDR 963 thousand.

Akhsay : Got it and how much just the component for the logistic of the vessel going up by?

Hosny : Oh okay, for the logistic itself…

Febriandita : So, last year it could be around USD 10, now could reach USD 15-20 in the 1H. USD/ton.

Akhsay : Got it. Got it. Thanks very much for the comprehensive answers. Appreciate it, good luck.

Radityo : Okay, thank you, Akhsay for your questions and then the next question is from Vivek. You can go and unmute yourself, Vivek. Thank you.

Vivek : Thank you, Sir. Can you hear me?

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