Earnings Call 9M Transcript

SIG Earnings Call 9M2021 Transcript

SIG 9M2021 Earnings Call

Date: Wednesday, November 3 2021

Time: 03:00 - 04:00 PM JKT Time Zone bit.ly/SIG9M21

Panelists:

Mr. Doddy Sulasmono Diniawan - Director of Finance

Mr. Adi Munandir - Director of Marketing & Supply Chain

Mr. Andriano Hosny - SVP of Finance

Mr. Rahman Kurniawan - SVP of Sales

Ms. Ami Tantri - SVP of SMO & IR

Ms. Febriandita Kusuma - GM of Investor Relations

Mr. Radityo Widinugroho - Investor Relations Officer

Ms. Khalisha Anjani - Investor Relations Officer

Radityo: Good evening and Welcome to the SIG 9M 2021 Earnings Call. We have released our 9 months of 2021 results on Monday, November 1st 2021 and the reports are available on our website at sig.id under the Investor Relation 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 statement delivered by our GM of Investor Relations, Ibu Febriandita, 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 mike. Please remember to click the unmute button after that before speaking. Before we start, kindly fill the attendance list using the link provided on the chat box, thank you.

On the line with us today, we have:

Bapak Doddy Sulasmono Diniawan, Director of Finance & Risk Management

Bapak Adi Munandir, Director of Marketing & Supply Chain

Ibu Ami Tantri, SVP of Strategic Management Office and Investor Relations

Bapak Andriano Hosny, SVP of Finance

Bapak Rahman Kurniawan, SVP of Sales

Bapak Hasan Arifin, GM of Accounting

Ibu Febriandita Kusuma, GM of Investor Relations

Anindita Satria Nugroho, Investor Relations team

Nurina Pratiwi, Investor Relations team

and myself, Radityo, also from Investor Relations team.

Let us begin the call, I would like to give the floor to Ibu Febriandita for the opening statement, thank you.

Febriandita: Thanks Radityo,

SIG Earnings Call 9M2021 Transcript

Good afternoon everyone. I am Febriandita, Investor Relation of SMGR, and again thank you for joining our earnings call, and for 9M 2021 result we have published the report on Monday, November the 1st 2021 and the reports are available on our website at sig.id under the Investor Relation menu.

So allow me to briefly update you with the result summary

On sales volume, SIG recorded a 2.5% growth YoY during the 9 months of 2021, mostly from the increase in the regional sales, which grew by almost 15% YoY. Domestic sales volume was relatively flat as the small players being quite aggressive pursuing more volume. The Enforcement Restrictions on the Community Activities or PPKM in the 3rd quarter of 2021 resulted in a much lower industry demand growth, compared to the 1st semester of 2021.

In the revenue line, SMGR experienced a decrease in revenue by 1.1% YoY, mainly due to the lower domestic sales volume composition compared to the regional sales volume, in line with the Company's effort to maintain production utilization through export sales given the low volume of domestic demand.

The Cost of Revenue in 9 months of 2021 was 2.8% higher YoY, in line with the increase in total sales volume during the 9M 2021 period as well as due to the increase in price of some types of the raw materials and coal price, especially in the 3rd quarter 2021.

Despite the increasing sales volume, the Company was able to record lower other manufacturing overhead, which declined by 5.3% YoY in the 9 months of 2021, mainly from the decrease in maintenance cost and the efficiency in distribution cost.

On operating expenses. The operating expenses went down by 3.3% YoY in such period, which mainly related to the lower transportation and handling costs. General & administrative expenses, such as business trip, rental, and entertainment expenses decreased as SIG still conduct the Work from Home and mobility restrictions or PPKM imposed by the government during the 3rd quarter 2021.

Therefore on the profitability:

• Gross Profit Margin decreased by 2.7% YoY.
• EBITDA margin decreased by 2.0% YoY.
• Meanwhile, the lower interest rate and interest-bearing debt balance from the acceleration of debt repayment, has resulted in a decrease in finance cost of IDR 497 billion which provided a cushion to a decrease in net profit by only 0.5% in the 9 months of 2021.

So that was the summary of the SMGR 9 months 2021 result, and we can continue to the Q&A. Back to you Radityo

Radityo: OK thank you Bu Febri for the opening statements. Ladies and gentlemen, if you have any question please press the raise hand button then I will mention your name and give you access to unmute yourself.

Ok we have the first question from Mr. Kevin Karamoy. OK Kevin, you can unmute yourself.

Febriandita: Hello Kevin you can unmute your speaker. Hello, Kevin?

Radityo: Uh.. Ok. Maybe Kevin has technical difficulties. Maybe we will move on to the second questionnaire from Vivek Rahjawani. Vivek you can unmute yourself. Go ahead.

SIG Earnings Call 9M2021 Transcript

Vivek: Hello, can you hear me?

Radityo: Yes we can hear you Vivek.

Vivek: Uh ya good afternoon and thank you so much to management for you know, providing this call. Couple of questions from me, firstly on the ASP side. It would seem that you know that you've seen theres a bit of compression in domestic ASP this quarter. You obviously mentioned that, you know, there has been intense competition, so could you just clarify on how your domestic ASP specifically trended in 3Q and also can you elaborate on how you see your pricing actions for 4Q and beyond. So that's the first question on ASP. The second question I had was on costs, obviously you've done a great job in managing costs, particularly on the manufacturing overheads. Can I just check the savings that you've had on the maintenance and distribution, how much of these initiatives will be sustainable and how much of it will actually come through in subsequent quarters? So those are my two questions, thank you.

Radityo: OK, thank you Vivek for the question. Uh maybe for the first question regarding ASP, Pak Adi or Pak Rahman can help with the answer? Thank you

Adi Munandir: Ya thank you very much Vivek for the question regarding the ASP. For the third quarter, our domestic ASP basically- uhm you can call it we have a slight decrease, but mostly its flattish, but if you compare to the other competitors in the market, I think our ASP is the higher compared to the others. so in this month I think-last month I think, we have some movement in the ASP due to the market dynamics that we are facing right now, due to the coal price situation, so for the fourth quarter regarding the ASP I think, due to the industrial challenge that we are facing right now regarding the increase price of coal- the spike of coal price, I think it's going to be our opportunity to have some correction on the markets since everyone is facing the same problem right now regarding the coal. Its not only about the price, but the problem that we are facing right now also in the industry also regarding the availability. So at the fourth quarter, we are looking to increase our ASP to response on the market situation regarding on the coal prices, so I think that's my response for the first question, thank you.

Radityo: Thank you Pak Adi for the answer, and for the second question regarding the cost, maybe Pak Hosny or Pak Doddy?

Andriano Hosny: I'll take that question Radit. So basically in terms of the cost leadership initiatives that we've been taken since back in 2018 follow up by the acquisition of Holcim and the synergies of the acquisition, which impact to our ability to optimize our cost-to-serve overall across our market and also across our center of the concentrations of our market, impacted to sustainability in terms of managing this cost, and we forsee that it's going to be quite a sustainable impact going forward because basically most of the factors are within our control and I guess in terms of maintenance cost we are able to, going forward, optimize further by looking into details in terms of how we are managing our outsourcings and also resource planning overall in the group and the distribution costs definitely due to the ability to optimize further on the cost-to-serve. So I think regarding that question, yes it is something that we are trying hard to make it sustainable going forward.

Vivek: Thank you sir, I'll come back to the queue if I have any other questions. Thank you

Radityo: Ok thank you Vivek, and the panelists for the answer. Moving on to the next question we have Ricky Ho. Okay Ricky, you can unmute yourself and ask the question, thank you.

Ricky Ho: Thanks Radit, thanks for the management for the call so that we can catch up on the result. I just have couple questions on the Semen Indonesia, on the performance going forward. I understand that in October you raised about 4-5% ASP domestically, any comment on the October volume number? For

SIG Earnings Call 9M2021 Transcript

example what kind of market share should we expect out of the price increase and then on the competitors move after you raised ASP, notice that Conch has been raising ASP 3-4% as well. So can you give color on the competition on the ground, Pak? Especially in the Eastern Java. I think if you are able to provide what's going on, latest update on the Eastern Java post the new-comer into the market, then that would be great as well. Thank you!

Adi Munandir: Ok, thank you Ricky for the questions regarding the ASP competition and all. Okay uhm yes we have increased the price in October and then the result in terms of volume in domestically, we are able to achieve higher than last year, compared to October 2021 and the volume is increase around 11-12% compared to last year, I think we are waiting for the final number right now. Once we are increasing the price, the situation in the competition basically many of the other players are also participating and try to increase their prices also because the driver of the price increase is basically out of the context of competition, right? It's more like the factor that affecting all of the industries, it's a matter of increasing of the production cost because of the coal price, so everyone is facing the same problems. So, we look at the situation as an opportunity to calibrate the industry situation right now by increasing price to mitigate, to compensate on the coal price but also to try to, as an action to reset the industry situation or the market situation. Because of that perspective, I think many players looking at it as an opportunity to compensate the problem that they are also having in terms of coal. But if you look at the market, on the bargaining position side in terms of the coal acquisitions, basically SIG have a better situation compared to other players because we are the-one of- maybe the second largest coal consumption after PLN, in terms of the cement industry right, so we have a better bargaining position if compared to other players who are consuming a much more smaller amount of coal, they have a less bargaining power. So I've seen a lot of players who are struggling to get more coal and pay higher number of coal costs compared to our position. So in many areas, other competitiors are also participating on that price increase. And then in terms of Eastern Java, like I mentioned about new player that coming in, I think it's a normal situation in this very competitive market and I think we have set up our strategy to cope with new players with different kind of price propositions that they are offering right now, just we are now in the phase of optimizing our multibrand strategy so I think we have found the right balance between operation and maintaining the presence of our product and brands in the market, try to leverage our strategic position for each brand because right now we have a very good chance to respond from all of those competitor in each layer. At the old days we have a big problem in responding to the competition, especially from the eco player who are offering a very low price because we only had one brand in one area, so responding to that situation, it will cost us to reset- uhm- adjusting our price and it will impact to the whole market area, to the whole volume, but right now by having a multibrand strategy, so we have a- one brand for each layer of the market, and we can respond to each situation by each brand. So I think we have also increased and refined our position in the market in terms of refining our market fundamental positions like increasing our numeric distributions along java, so we have a better grip on the market, and by having a multibrand strategy also we can- we are able to fulfil all of this store capacity, store space, and also the share of wallet in every retail point. So I think we are able to somehow refine our position in the market and hopefully we are able to respond to the situation- the competition situation much better. Uhm if you look at the price response from the competitors, not all of them are responding in the same manner, because of the different motivation from each player but like I have mentioned earlier, this situation is happening across the industry and happen to all of the players and everyone has the same intention to compensate on the coal price. So it's something that we can optimize, I think, together in the industry, because it's happening to all the players. I think that is my response Pak Ricky, if you have any further questions?

Ricky Ho: Ya, Thanks, thanks a lot Pak Adi. I just want to clarify if I heard this correctly. You were saying that the October volume is up 10-11% YoY, uhm, not month on month right?

SIG Earnings Call 9M2021 Transcript

Adi Munandir: Year on Year, correct.

Ricky Ho: So.. I guess that if it is Year on Year then Month on Month will pick up as well. Uhm.. then if the ASP is also going up by 4-5% on the aggregate level then the top line growth should be about 15, 16, 17% then *cuts off* higher energy cost in the 4th quarter? If I assume correctly.

Adi Munandir: Yeah in terms of volume we have an increase YoY of around 11-12%. The slight increase on ASP- hopefully we can give you the result on the October later on, normally when we have finalized our number then.

Ricky Ho: I see. OK thanks a lot Pak Adi for the great insight. Thanks a lot for answering the question pak.

Radityo: Okay, thank you Ricky for the question and Pak Adi for the answer. We also have questions on the chat box but first I will give the opportunity to Brijesh Siya to ask a question first. Brijesh, you may unmute yourself.

Brijesh: Thank you very much. Thank you for arranging the call. I have 2 questions as well. So the first one is on the prices. So you talked about 4-5% price increase in October, can you tell us with the current coal situation which you have right now, the pricing which you are experiencing in terms of inventory, would that 4-5% be sufficient to cover all that? Or you would need more price increase? If so, if you can quantify what's the kind of price increase required to fully cover this cost inflations which you are seeing in the system? So that's the first one, and second one on volume you helpfully provided on October insight, but looking to for the full year, would you still aim for somewhere around mid-single digit volume growth for this year? Or is that something too much to ask for? Thank you.

Febriandita: Maybe Pak Doddy or Pak Hosny can respond to the first question- for the coal situation and whether the ASP, maybe later Pak Adi can add, whether the increase in ASP would be able to pass through all the coal price increase.

Andriano Hosny: Ok Febri, so basically as you know the problem on the coal supply is not only because of the price but also because of the logistic issues and so basically what we are planning to do- what we are doing now is basically trying to carefully procure coal not absorbing aggressively and taking all the prices basically that is quoted by the vendors, but trying to get the.. you know, stability and harmonization with the market also right? because what we are planning to do is basically trying to use the coal, optimize the utilization of the coal for the higher margin products, which basically on domestic. As you know the increase of coal is now actually our composite is already hitting the 1 million ballpark figure, but I guess with the new DMO regulations by the government and also implying to the reduce in the ICI coal index now already hitting around $100/ton is actually good news for us. So looking at that, 4-5% increase if we are able to get this trajectory of ICI price trend going down until December, I think it would be you know already a good effort for us to be able to get the profitability that we are aiming to get in this Q4. But then again it depends on the market right, I mean like I said to you, it's not only about the price, but also the logistic of getting the coal itself. Now looking at the situations, I guess this q4 for us is basically how we able to again, number 1 is maintain our cost leadership, that's number one. And then secondly we are basically focusing on doing further deleveraging, so we can reduce more- reduce in terms of our finance costs, and of course we would like to look and see very carefully in the market, so therefore the strategy of ASP increase will also not give a detrimental impact overall to our long term strategy. I think that's the plan that we are going to do. Please Pak Adi, if you have further explanation of the ASP and strategy of volume going forward. Thanks.