PT Semen Indonesia Persero Tbk : Earnings Call 1H Transcript

SIG 1H 2022 Earning Call

Date: Wednesday, 7 September 2022

Time: 11:00 - 12:00 AM JKT Time Zone

Panelists:

Mr. Adriano Hosny Panangian - Director of Finance & Risk Management Director Mr. Aulia Mulki Oemar - Director of Business & Marketing

Mr. Hasan Arifin - SVP of Finance

Ms. Johanna Daunan - SVP of Marketing

Mr. Nova Kurniawan - VP of Financial Plan & Analysis

Ms. Febriandita Kusuma - GM of Investor Relation

Radityo : Hello, good morning everyone. We would like to thank you for joining our 1H 2022 Earnings Call. Before we start kindly fill the attendance list using the link provided on the chatbox. Thank you.

We have released our 1H 2022 results on Monday, 5 September 2022. And the reports are available on our website at sig.id under the investor relations menu. My name is Radit and I will be the moderator for today. 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.

On line with us today, we have

• Bapak Andriano Hosny Panangian, Director of Finance and Risk Management
• Bapak Hasan Arifin, SVP of Finance
• Ibu Johanna Daunan, SVP of Marketing
• Bapak Nova Kurniawan, VP of Financial Planning and Analysis
• Ibu Febriandita Kusuma, GM of Investor Relations

and my colleague Nurina and Anindita from IR team. So, let us begin the call, and I would like to give the floor to Ibu Febriandita for the presentation. Thank you.

Febriandita : Okay, thank you Radityo. So, as you know that, maybe we can show the slide please.

Yeah, as you know that there are three main challenges to be addressed in the cement industry, which are contraction in cement demand, which decreased by 1.2%, up to June 2022. And then the aggressive Tier 2 players that shown the market share is increase 3%

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in the first half of this year, compared to last year. And the third is the coal price hike, which increase around 83% in first half year on year. And considering those challenges. During our first half period, we have conducted price adjustment twice in April and June, resulting blended domestic ASP to increase around 4% in first half year on year and 7.4%. year on year in second quarter only. And we also on the cost side we keep securing more coal at DMO price to manage the fuel cost increase, resulting only 50% increase in coal procurement price in first half of 2022, despite 84% increase in coal market price. While in second quarter, coal price only increased 32%. We are also continuing our efforts to reduce clinker factor and increase thermal substitution rate, which are also in line with our decarbonization commitment. So, with those efforts, we were able to record another strong performance with higher EBITDA margin and net profit in first half of 2022.

If we move to the next slide. If we go up our first half performance, more detail, even though our revenue contracted, but domestic revenues still recorded positive growth of 1.8% year on year, contributed by the ASP increase. While on regional sales volume is recorded lower as we are focusing on domestic sales and considering the coal availability. However, we recorded export ASP grew by 25%, which show that the export market is still promising. While on the cost side we book relatively flat COGS despite fuel price increase, as we were able to secure coal consumption partially in first quarter and fully in second quarter 2022. Lower operating expenses from lower transportation, promotion and labor costs and decrease in finance costs which in line with a lower interest-bearing debt balance. Thus, we recorded 0.4% increase in EBITDA margin and 4.4% increase in net profit attributable to owners of parent entities.

And to the next slide. Through our leadership in increasing selling prices, capability in managing fuel costs and overall cause of revenue, our first quarter performance was better than our peers. Here you can see that our absolute EBITDA only contracted by 0.3% compared to our peers, which saw a decline of 12.7%. On EBITDA margin growth, EBITDA margin of SIG improve 0.4% while peers recorded 4.1% decline. At the absolute net profit level, we posted 4.4% increase from the previous year while our peers recorded 52.4% decline. And our net profit margin also increased 0.3% while peers posted a lower 3.7% net profit margin.

Next, on the debt side, we still continue our deleveraging efforts where we have reduced the debt balance by around 1 trillion Rupiah resulting an improvement on net debt to equity ratio from 0.5 to 0.4 times. Debt to EBITDA improved from 2.5 times to 2.1 times and EBITDA to interest improved from 4.5 to 5.8 times. And in July, Indonesia rating agencies Pefindo publish their annual rating assessment on SIG and SIG bond which affirm our previous rating at idAA+ stable.

On sustainability performance, we also track our achievement on decarbonisation initiative as we have set sustainability roadmap and target up to 2030. In first half 2022 we recorded further decrease in CO2 emission intensity per tonne cement equivalent from 607 kilogram in first half 2022, sorry 2021, to 592 kilogram in first half 2022, which was 2.5% lower compared to the first quarter 2022 level. Such achievement was supported

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by the initiative of reducing clinical factor which recorded 0.8% lower in first half 2022 and improving thermal substitution rate by 1.7%.

In July, we also have submitted disclosure to CDP or previously known as Carbon Disclosure Projects for climate and water aspects. And the result should be published by CDP in December 2022. So that was our brief update for SIG first half financial performance and we can now continue to Q&A session. So back to you Radityo.

Radityo : Thank you Bu Febri for the presentation. Ladies and gentlemen, 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.

You can find the raise hand button on the Reactions menu. Okay, we have our first question from Onkar. You can unmute yourself Onkar.

Onkar : Hi, can you hear me?

Radityo : Yes, we can hear you.

Onkar : Yeah, I understand that for the entirety of Q2 you had access to DMO coal. And that's why your performance was way better than the competition. Could you just comment on what the performance would have been had it not been for the DMO coal as in how much better or worse you would have been versus peers in terms of, let's say, EBITDA margin and growth please?

Hosny : Hi, Onkar. Can I answer this question first? So, the coal price composite average in first half, we recorded 900 thousand Rupiah/Ton. Yeah, this is actually in the condition whereby on second quarter, we can get around 80% already. Yeah. 80% already from the requirement of the call using DMO. It's increasing from Q1 because Q1 is only around like 60% increasing. But onwards until end of year we already secured the DMO price. So, if we assume that we didn't get the 80% that means this number will increase to around 1.3 million. So, it's an increase of around another 30% to 40% increase of the energy costs. And this will basically impact to the EBITDA margin dropped to around 19% to 20%.

Onkar : Okay, okay, okay. And also, have you had any indication that some of your competitors are also increasing their share of access to DMO coal? And also, what's the outlook for the access to DMO coal because there has been a lot of chatter in the market whether, you know, anyone other than PLN will get access to DMO call for 2023. So, do

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you have any indication of whether you will have access to it or not, in the next year? And also, your competitors' access to DMO?

Hosny : I think we don't know in in detail about the procurement activity, but I think our competitor will try hard to get the DMO price as much as they can. And I think we have to see. Based on the first half result, it seems like only a couple of our competitors get the DMO price assuming that their book is actually everything is correct. Because we are the only one was audited and they are not. So, I think as you can see, like the in the case of INTP I don't think they get DMO because you know their EBITDA margin drops significantly. And if you see the book of SMBR and Cemindo, seems like I think they can get the DMO price because they can maintain profitability, especially on Cemindo side. Which I saw from the books from their result, it seems like the one that affecting the drop in the earnings is more into the Forex impact right? Next year to impact USD exposure debt.

Onkar : Okay, okay, okay. Couple more questions sorry, short ones, please? What would be the volume outlook? How was August been for you guys? Because July was almost 10% down on YoY basis in July. What is your volume outlook for the year and also have you done any ASP hikes after the one on June and are you planning to take any more price hikes? Thank you.

Aulia : The outlook could be for bag is gonna be very soft. It is going lower than last year. Bulk is definitely going to be increased. in term of the ASP price hike we haven't done any price hikes yet since last time. But the thing the another price hike is quite inevitable, given the increase in the logistic costs.

Onkar : Okay, but can you put some numbers to it as an by the year end on a blended basis? What do you think the domestic volume growth would be or declined would be?

Aulia : The domestic I think, we for bag is going to be negative compared to last year. So probably the overall market probably is going to be flat or probably just at best plus point 5%.

Onkar : Okay, okay. So, on a blended basis, you're saying it could be at best flat?

Aulia : Yeah.

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Onkar : Okay. Okay, and have you guys taken any price hikes after June? Or is there anything on the plans for the remainder of the year for price hikes?

Aulia : I haven't done another cycle of price hikes since June. But like I said, the another price hike is inevitable, given the increase in the cost of gasoline increase.

Onkar : Okay, perfect. Thank you. Thanks a lot. That's it from me.

Radityo : Thank you Onkar for the question, and moving on, next question comes from Robin. You can unmute yourself Robin, and go ahead. Thank you.

Robin : Thank you Radit and hi SIG team. It's a few quick ones from me. Basically, can you comment on BLU updates, any progress and any confirmation of extension to cement industry? And also, since we touched on the volume how about market share, how does the team view market share for this whole year 2022? And also, INTP announced consolidation of Bosowa Maros Sulawesi, two days ago. So, wondering if the team has any views on that since basically, Sulawesi is also an SMGR dominant region. Thank you.

Aulia : Regarding BLU, I think we are more optimistic than-- personally I'm more optimistic than a couple of weeks ago. Because I think it was like, still, there was still what I heard, there's still quite some intense debate between the ministries, whether to include the cement industries. But the latest information that I receive, it seems like tilted toward to include the cement and fertilizer industry into the BLU. We have gonna-- we have also discussed with the relevant industries with the relevant ministries, in this case, the Ministry of industrial industry. So, we are more optimistic it's going to be included.

The market share, last time, I think in July, our market share is up 46%. But you know, we've decided to go after the second tier. I would expect-- ASI number has not yet been released, but I would expect that there would be some increase in in our market shares.

So, the changes was not we're kind of like accept the reality that there was like somewhat kind of like two segments. You know, between main brand and fighting brand and it's going to be staged, it's not it's not going to be on a temporary basis. So, on that for that reason, we are now, you know, trying to gain market share on the fighting brand. Now, we are chasing the likes of you know, the second-tier team whether it's Merah Putih, Singa Merah or even Grobogan. So, we are fighting back starting early end July.

Oh, we see that as a positive. Given the attitude of INTP is not much different from us, we are we do not really compete on the pricing alone. And in the past, Bosowa has been

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