Press Release: Timah posts 2002 net profit of Rp 11.3 billion

Following is a press release from PT Timah Tbk:

Jakarta, 31 March 2003, PT Timah Tbk announced today that the company posted a net profit of Rp 11.3 billion for the period ending 31 December 2002, or 69.3% lower than that of 2001 of Rp 36.8 billion. This was partly due to 163% higher net profit in the fourth quarter of 2002 of Rp. 50 billion, from a net loss of Rp. 91.1 billion in the same period in 2001, a turnaround on profitability compared to the proceeding two quarters in 2002. This improvement was attributed to improvement of world tin prices in the fourth quarter of 2002 as well as the successful containment of expenses in key aspects of its operation.

Financial performance

A positive net profit for 2002 was achieved despite lower sales during the year which reached Rp 1,581 billion or 15.3% lower than that of the same period last year of Rp 1,867 billion. This was due to lower average tin price and average exchange rates received, although sales volume was slightly higher.

Sales volume of tin metal realized by the company in 2002 reached 42,832 metric ton, which is 7% higher than that of the previous year of 39,999 metric tonnes. The LME price during 2002 fluctuated between a low of US$ 3,700 per metric tonne and a high of US$ 4,500 per metric tonne, with an average of US$ 4,074 per metric tonne. Meanwhile, average tin price received from the sale of tin metal was US$ 4,195, i.e. 4,8% lower compared to the previous year of US$ 4,408 per metric tones, and the average exchange rate of US Dollar to Rupiah was 15.2% lower, from Rp 10,273 per US dollar in 2001 to Rp 8,708 per US dollar in 2002.

Cost of goods sold for 2002 was Rp 1,393.0 billion, or 4.2% lower than that of Rp 1,454.2 billion in 2001, as a result gross profit was Rp 188.0 billion, or 54.5% lower than that of Rp 413 billion in 2001. This was due to higher production expenses and tin inventories.

Production expenses for 2002 was Rp 1,658.5 billion, or 15,3% higher than that of Rp 1,438.2 billion in 2001, which was in line with 14.3% higher production of tin metal of 43,528 metric tones compared to that of 38,081 metric tones in 2001.

In addition, tin inventories was 76.4% higher, from Rp. 381.3 billion at end of 2001 to Rp 672.6 billion at end of 2002. With the sprawl of unconventional mining activities since the end of 2000, the company anticipated lower than expected supply of concentrate thus sales and production target in 2002 were set lower than normal. In actuality, after the Minister of Trade of Industry decree which prohibits the export of tin concentrates - thus obligating the company and its affiliates to receive production from these unconventional miners - the influx of concentrates from these unconventional miners were inevitable. As a result, although the company?s production and sales already exceeded its original target, tin inventories also accumulated toward the end of 2002.

Containment of operating expenses - which resulted to 43% lower operating expenses of Rp 157.6 billion from Rp 276.5 billion in 2001, also contributed to positive operating profit of Rp30.4 billion in 2002 - although it was 77.7% lower than that of 2001 of Rp. 136.4 billion. On a per ton basis, cost of refine tin production was 8.4% lower from US$ 4,149 per metric ton in 2001 to US$ 3,801 per metric tones. Delivered cost per tonne was 1.5% lower from US$4,220 to US$ 4,157 per metric tonne, while delivered cash cost per tones declined by 1.9% from US$ 3,847 per metric tonne to US$ 3,773 per metric tonne.

Higher net other income of Rp 24.2 billion in 2002 from net other expenses of Rp 30.2 billion in 2001, contributed to profit before tax of Rp 54.6 billion, even though it was 42% lower than that of Rp 106.2 billion in 2001.

Operating Performance

Total tin in concentrate produced in 2002 amounted to 55,038 metric tones Sn, 35.78 % higher when compared to the previous year of 40,535 metric tones Sn. Of the total tin-inconcentrate production, only 24.6% or 13,531 tonnes of Sn was contributed by the company?s offshore dredge operations, while the remaining 75.4% or 41,507 tonne was obtained from inland sources.

Production from offshore dredge operation in 2002 was 9.2% lower from the previous year, which was 14,897 metric tones Sn. Lower offshore production was attributed to lower than targeted working hours primarily due to temporary stoppage of several dredges in the months of January through March 2002; and again in November through December 2002.

Meanwhile, production from inland sources increased to 41,507 metric tonnes of Sn or 61.9% from 25,638 metric tonnes the previous year. Of the total inland sourced tin-in-concentrate, only 6.6% or 2,758 metric tonnes of Sn were produced from the company?s 95 units contracting partners, while the remaining 38,749 metric tones were sourced from the unconventional miners working on the company?s mining licenses which comprised of an estimated 6,500 units. The increase was owing to the company?s responsibility in receiving concentrates produced by unconventional miners as a consequence of the Minister of Trade and Industry decree issued on June 1 2002 banning the export of tin in concentrate.

Refined tin production in 2002 amounted to 43,528 metric ton, an increase of 14,3% compared to the same period last year, which was 38,081 metric tones. In addition, in 2002 the company?s smelter in Mentok also received toll smelting for PT Koba Tin concentrates totaling 2,095 metric tones of metal. Higher metal production figures was due to increased availability of tin-in-concentrate supply following the issuance of export ban of tin-inconcentrate on 1 June 2002.

At the end of 2002, the reported total inventory of tin-in-concentrate increased by 283% amounting to 10,491 metric tonnes of Sn from 2,736 metric tonnes of Sn the previous year.

Correspondingly, slag inventory increased by 79.5% from 4,808 metric tonnes to 8,632 metric tones, while refined tin inventory increased by 19.4% from 3,613 metric tonnes to 4,316 metric tonnes.

A notable impact of higher amount of tin inventories on the company?s balance sheet at end of 2002 was higher total current assets, i.e. Rp 1,186.4 billion at end of 2002, an increase of 19% from Rp 995.8 billion at end of 2001. Correspondingly, short-term bank loan on the current liabilities was increased by 48.9% to Rp 203.4 billion at end of 2002 from Rp 136.6 billion at end of 2001.

Current Condition and Outlook

While we remain prudent in mitigating expenditures, we remain positive in our outlook for 2003 in light of recent developments in the local legislation. We hope the full impact of the Ministerial decree prohibiting the export of concentrates will come into fruitition and influence the local as well as the international market in 2003.

So far there is positive signs such as the decline in export, illegal smuggling from Indonesia, and the draw down of stocks in LME warehouse. However we remain cautious in our strategy forward particularly with the uncertain world economic condition and the strengthening of the rupiah against the US dollar, which can hamper diversification efforts and further curb capital expenditure. (*)

-End of release-