Semen Gresik needs consolidation to improve efficiency: CEO
Semen Gresik needs consolidation to improve efficiency: CEO
State-owned firm, PT Semen Gresik, the country's largest
integrated cement producer, is currently faces a daunting task to
make its operations more efficient amid higher energy prices as
well as a lack of consolidation among its subsidiaries. The East
Java-based company has a total installed capacity of 17.2 million
tons at present, with 5.5 million tons and 3.5 million tons
derived respectively from its subsidiaries PT Semen Padang in
West Sumatra and PT Semen Tonasa in South Sulawesi. Semen
Gresik's newly appointed president director and chief executive
officer (CEO), Dwi Soetjipto, shared his views with The Jakarta
Post's Rendi A. Witular about the company's new strategy in
coping with present and future challenges. The following are
excerpts from the interview:
Question: What are the problems in Semen Gresik that you will
need to immediately address?
Answer: The most daunting task I am facing now is to consolidate
the operation of Semen Gresik with its subsidiaries PT Semen
Padang and PT Semen Tonasa.
The problem occurred because the relationship between Semen
Gresik, as the parent company, and its subsidiaries has not been
solid ever since the government decided to unite the three state-
owned companies.
Each of the companies is currently operating as a single and
separate entity. Such a condition has actually created
unnecessary costs, which eventually led to operational
inefficiencies.
In the marketing sector, for example, most often the three
companies compete with each other in the same area. This has
created additional marketing and transportation costs. With
regard to inventories, each company now tends to procure its own
goods and supplies without coordinating with the others. This has
also created inefficiencies.
If not contained immediately, all of these problems will
result in high costs and make our products less competitive. I
expect that with improved consolidation, we can boost our profit
margin.
At present, we are still in the process of consolidating our
marketing, production, procurement, organization, information
technology system, human resources and financial system.
How much do you expect to save from the consolidation program?
We are still calculating the figure. It is too early for me to
say, but we expect the consolidation will help us cover at least
the rise in energy costs. With higher global oil prices and a
possible rise in electricity charges next month, we have
estimated that there will be a rise in production costs of 11
percent. At present, energy costs account for some 30 percent of
our production costs.
The rise in the oil prices concerns us because it will
eventually drive up the price of coal, which is our main energy
driver here. We only use diesel fuel for starting up our
machinery, but for running the entire production process we use
coal.
We are afraid that higher fuel prices may increase our
transportation costs, which account for at least 10 percent of
our operating costs.
Our operations budget this year has not factored in possible
rises in energy and transportation costs. That is why we are
pushing forward with our efforts to boost efficiency.
How will the unresolved dispute between the government and
Mexican cement giant Cemex S.A. -- which has an approximately 25
percent share in Semen Gresik -- affect the company's future
operations?
For the new management, we are going to keep trying to
accommodate the interests of the shareholders, be it the
government, Cemex, or retail investors. The management will also
try to create a working environment that is conducive to all.
What about political interests? Are you willing to accommodate
political requests?
The new management will strongly uphold professionalism. We will
comply with all business regulations.
Are there any plans to revise this year's targets?
There will be no revision in our targets for this year as we
are still concerned about a possible rise in energy costs. We are
sticking to our target of making some Rp 600 billion (US$61.8
million) in net profit this year by boosting our sales and
improving efficiency.
Although there will be some pressures arising from costs, we
will try not to raise our cement price again. We are still
monitoring our competitors. But if the pressure from energy
prices and transportation reaches a certain level, we will have
no other choice but to raise our cement price once again.
What about cement demand this year? How fast will it grow?
The focus of growth in cement demand will remain in Java. Demand
is likely to remain low in other parts of the country because of
various problems, such as natural disasters and local elections
for governors, regents and mayors.
As for next year, I estimate that cement demand will be even
higher because of the reconstruction programs in tsunami-stricken
Nanggroe Aceh Darussalam, as well as government-sponsored
infrastructure projects.
How is the plan going to build a new plant? Any progress?
We are currently in the process of conducting a feasibility
study, which we expect to complete in November or December. The
construction of the plant is scheduled for next year, with a
completion time of three years.
During the study, we will also investigate securing external
resources to fund the project, which it is estimated will cost
about Rp 3 trillion. We expect that 70 percent of the money will
be derived from external sources, while the remaining 30 percent
will be from our cash reserves.
We have yet to decide whether the external funds will be
derived from bonds or bank loans.
Regarding the location for the plant, we are still undecided.
We are still seeking a suitable area that has sufficient
resources and infrastructure. But the plant will definitely be
located in Java.
Like other cement producers, we may build our plant in West
Java or Banten in order to take advantage of the huge demand in
these two areas.
At present, our market share is 44 percent. We expect to
increase that, but with our current capacity it will be
difficult. Our capacity is designed to supply a 33 percent market
share.