Challenging year in store for Holcim Indonesia?

Holcim Indonesia will be challenged by tighter competition and high debt levels that could spike costs this year, according to a report by Bahana Securities has said after the cement producer announced 30 per cent lower profits last year.

Indonesia's third-largest cement producer saw its net profit plunge to IDR668.35bn (US$50.69m) in 2014 from IDR952.11bn in 2013, as costs soared, despite an increase in revenues which were up 8.67 per cent YoY. However, the rise in revenues was could not offset an 18.38 per cent jump in cost of sales to IDR 7.5trn on the back of higher distribution costs which jumped 22 per cent. Technical delays when commissioning the company's Tuban I plant had added to freight costs to ensure supply commitments were met by existing plants, according to Holcim. The delays, plus higher electricity costs and stronger competition, as well as sluggish demand, also contributed to reduced margins and put pressure on the company's income, the company added.

The Jakarta Post reported yesterday that Bahana Securities has lowered its net profit prediction for Holcim's 2015 and 2016 full-year results by around 12-13 per cent as it foresees distribution costs to continue to rise higher than expected, exacerbated by rising debts.

Profit may grow to IDR788bn compared with IDR894bn forecast previously, while revenues are seen at IDR11.05trn versus IDR10.99bn in a previous forecast, according to the investment banking and brokerage firm.

"Going forward, we expect intense cement price and market share competition in Indonesia to persist, which, coupled with SMCB's high-debt level, should apply pressure on the company's bottom line," Bahana Securities' Bob Setiadi said in the statement.

Holcim's debts may continue to rise by nine per cent to IDR5.8trn this year from IDR 5.4trn last year to further finance the company's ongoing Tuban II new facility project in East Java, which is scheduled to commence operations in the second quarter.

Holcim also faces the challenge to market its products at lower prices, after Indonesian President Joko idodo instructed to lower cement prices by IDR3000 per sack for state-run cement makers., which could lead to private players following suit to maintain market share