PRESS RELEASE: PT Timah Tbk: Surviving the turbulence of the business environment
Thursday, February 28 2002 - 02:00 PM WIB
Surviving the Turbulence of the Business Environment
PT Timah Tbk reported net profit for the year 2001 of Rp 36,8 billion or 11% of year 2000 net profit
Jakarta, 28 February 2002 - During 2001, the Company has experienced serious threat such as a turbulence in the business environment - the impact of which is reflected in the Company?s entire operation and financial results presented in the attachment of this release. The turbulent has not only happened in the global environment - which was triggered by the economic slowdown of the industrial countries, but it also happened in the national environment in the form of regulatory inconsistencies and tack of law enforcement, as well as in the local environment with the peak of various events that forced us to react accordingly subject to management authority.
Turbulent of the business environment
As we have reported in our previous press releases accompanying our quarterly results, the company?s performance during 2001 has been declining sharply compared to that of the 2000 as a result of the steep downfall in the tin prices.
In the first quarter of 2001, the tin pike on the London Metal Exchange (LME) remained above US$ 5,000 per tonne level, but entering the second quarter it broke that level and immediately even into the US$ 4,000 level on 4 August 2001, and quickly reached the lowest level in the last three decade to US$ 3,595 on 20 September 2001. Since then, the price fluctuated between USS 3,800 ? US$ 4,200 per tonne, but the build-up of inventory level on the LME has been worrying since it indicates that price volatility is vulnerable to possible downward trend.
Since the company remains dependent on the contribution of tin business in its portfolio, and as a commodity producer the company acts only as a price taker, it is undeniable that the global turbulent would impact the company?s financial performance that is very sensitive to changes in the international tin prices. This has been reflected in the progress of the Company?0s financial performance, whereby the company still posted a net profit of Rp 116.4 billion at end at the first quarter, but by the end of the second quarter there was no proportional increase in net profit to only posting Rp 126,2 billion. After the tin price broke the US$ 4,000 level, the accumulated net profit from the first half of 2001 was heavily deteriorated to only Rp 254 billion at the end or the third quarter of 2001.
Financial and Share Performance
By end of the year 2001, the Company is still able to post a net pout of Rp 36.8 billion; a decline of 89% compared to the previous year of Rp 331.6 billion as a result of such a great turbulence. Consequently, net earnings per share also declined by the same percentage to Rp 73. per share from Rp 659 per share or in terms of GDR from Rp 6.590 in 2000 to Rp 730.
Meanwhile, earnings before tax for 2001 accounting period reached Rp 106 billion, 78% lower than that of first year, which was Rp 494 billion. Operating profit amounted to Rp 136 billion, 65% lower than last years operating profit of Rp 385 billion. Gross profit of 2001 reached Rp 413 billion, 34% lower than that posted in 2000 of Rp 624 billion.
The strengthening of the US Dollar towards the rupiah in 2001 largely contributed to the company?s net profit. On average, actual foreign exchange rate of US Dollar to Rupiah received by the company from the sates of metal was 8% higher than that of 2000, from an average of Rp 8,327 per 1150 in 2000 to Rp 10,273 in 2001.
Average tin price received by the company was US$ 4,408 per metric tonne, or 20% lower than realized price received in 2000 of US$ 5520. - per metric tonne. In 2001 tin price fall to a low of USS 3,595 per metric tonne while reaching a high of USS 5,250 per metric ton. The average LME tin price in the international market was USS 4,916 per metric ton.
During the course of 2001 fluctuation of tin price at the LM~ differ from the general trend within the last 5 years. Since 1996 to 2000, tin price disparity between the highest and the lowest was, on average, US$ 1,000. However in 200i the different reached US$ 1,655 per metric tonne or 65% higher than its normal range.
The Company?s sales revenue was 14% higher from Rp 1637 billion in 2000 to Rp 1,867 billion in 2001. Similar to previous years tin sales remains the largest contributor, which is 98% or Rp 1,827 billion, an increase of 2% compared to 2000 of Rp 1,567 billion. The contribution was derived from sales volume during 2001 amounted to 39,999 metric tonnes, or 17% higher than the previous year of 34,106 metric tonnes. Meanwhile, the contribution from the sales of construction services, electricity, workshop, and docking facilities from the company?s Engineering Services Group was only 2% of total revenue, or Rp 40 billion, compared with revenue from the Engineering Service Group in 2000 amounted to Rp 69 billion.
Although the company?s revenue increased in 2001 however, the company?s operating profit declined primarily due to an increase in the cost of goods sold. The cost of goods said increased by 44% from Rp 1,013 billion in 2000 to Rp 1,454 billion in 2001. From this figure, the company?s mining expenditure attributed 86% or Rp 1,239 billion which is an increase of 29% or Rp 959 billion from 2000. This increase is mainly due to higher production cost when compared to last year?s production cost.
There are three main factors that contributed to the escalation of cost of goods sold. First of all increase in expenditure for the purchase of concentrate. Second, a higher royalty payment due to implementation of the 3% royalty tariff in the beginning of the year while in 2000 the tariff was imposed in the month of March. Third, a higher depreciation and amortization due to asset capitalization.
Operational Performance
Tin-in-concentrate production in 2001 reached 40,353 tonnes Sn, consisted of 14,897 tonnes of dredges production and 25,638 tonnes of inland production. Compared with last year production of tin-in-concentrate of a 40,050 tonnes, this year production was an increase of 1.2%.
In 2001, actual tin-in-concentrate production from dredge operation amounted to 14,576 tones, a drop of 15% from the previous year or 17,070 tones. This is a result of an unattainable dredge operation hours due to technical problem encountered of supporting facilities coupled by the cessation of 12 high-cost dredges deemed uneconomical due to the drastic drop in tin prices.
Actual dredge running time reached 111,928 hours, a decline of 17% from the previous year which reached 135,427 hours. The suspensions of 12 dredges were also a factor in lower operating hours performance. In addition bad weather also contributed to an unattainable operating hours. Meanwhile, the actual volume of earth moved 44,887.597 meter cube, a decline of 18% compared to last year, which is in line with lower operating hours.
Actual tin-in-concentrate produced from inland mining in 2001 amounted to 25,638 tonnes or an increase of 15% compared to the same period Last year. This level was achieved as a consequence of Timah?s policy to allow its inland contractors to purchase from partners. Of that amount, 7,382 tonnes or 29% was contributed by the Company?s inland mining contractors, while the remaining 18,256 tonnes was from peoples panning / unconventional mines.
In 2001 total unit of inland mining in operation which were operated by contractors declined. From 271 unit of inland mining scheduled to be in operation, only 185 unit operated. The main reason was because insufficient reserves were found due to illegal mining activities. Of 185 units inland in operation, total operation time amounted to 418,876 hours, or only 66% compared to last year operating time performance. Decline in operating hours of inland mining consequently result in the decline of earth moved. Total earth moved from inland mining amounted to 18,317.884 meter cube, or only 62% compared to last years performance.
Conversely metal production decrease by 3% from 35.550 metric ton to 34,550 metric ton. Metal production in 2001 amounted to 38,081 metric tonnes, 7.1% higher than the production figure of last year. The amount consisted of 34,550 tonnes production of our Mentok Smelting Plant, and the result of toll smelting of the Company?s tin-in-concentrate in MSC (Malaysia) and Thaisarco (Thailand) amounted to 1,276 tonnes and 2,255 tonnes respectively. In addition, our Mentok Smelting Plant also received toll smelting service of Koha Tin?s tin-in-concentrate amounted to 2,120 metric tonnes.
The decline in metal production of the Company?s smelter was the results of irregular incoming tin-in-concentrate that often do not correspond to the plant?s smelting schedule. This is more profound during the end of the year. Delay in the installation of a new ?cooling system? was also a factor in the decline in production.
Business Diversification
The course of PT Timah Tbk?s diversification still hinge on its vision, mission and strategy as stated yearly in our annual report since the Company?s going public, which is to diversify in to other business so as not to rely heavily on the tin industry, while still focusing on our core competence which is the mining industry and its associated activities. Our diversification strategy consist of three approaches, i.e. greenfield exploration, joint ventures, and acquisition of mining company already in operation, as well as utilization of excess capacity of assets supporting the company?s operation.
Recent progress in the Company and the changes in the business environment necessitate a revision on he focus and priorities of our business development strategy. Confronted by such critical condition, for the near term - between six to 12 months, the company will focus on effort sustenance, for its survivability and its future business.
Future Prospect and Way Forward
With the progress in dealing with the turbulent by the end of 2001 and toward 2002, the Company should still be alert to various possible events in the business environment by keeping to take internal steps in responding to such possible turbulent.
Although the tin prices has reached its turning point upward and all weaknessing factors have been taken into account by market participant, it seemed that recovery rate remained difficult to assess considering the high overhanging stock in both the exchange warehouse as welt as in the hand of producers and customers, while the recovery of demand has not been visible.
In the short-term between six months to one year, the Company will focus on its effort to cut operating costs and to control its cash flows through a series of business restructuring program.
Keeping the above conditions in mind, the business restructuring to be carried out forward will include:
- business reorganization with a view to refocus each subsidiary company?s goal in maintaining sustainability of our tin business and developing new business in accordance with its competence and assets, including the relocation of activity centers to achieve control efficiency and effectiveness,
- divestment of redundant assets as well as equity participation affiliated companies which are either unprofitable or unsuitable with the company?s diversification target,
- reengineering the business processes of each subsidiary companies to achieve operating efficiency and cost reduction, while the corporate center maintains its role in assessing investment and funding for the diversification into other business outside tin.
Although diversification remains the core strategy to maintain company?s sustainability and future growth, we have to take a realistic stance in dealing with post turbulent of the business environment by reviving the tin business in the medium term as a seed capital to develop into other than tin business.
-end of release-.