After endeavoring through four challenging years, the Company’s performance eventually started to take off in 2018. We were indeed able to maintain our operational performance despite significant, weather, and global market challenges associated with the continued trade war between China and the United States.
Financial-wise, the Company’s capital structure was stronger as evident from a twofold increase in equity to US$503.61 million following debt restructuring and rights issue exercised in 2017. Debt reduction strategy was continued in order to ensure the Company’s financial condition stays robust. The Company also strived to book higher profits and created value for the shareholders.
After demonstrating consistent acceleration as of the end of 2016, the global economic growth slowed throughout 2018. The International Monetary Fund (IMF) estimated that the world’s economy in 2018 will only grow by 3.7%, a slight decline compared to the previous year at 3.8%. Consumption, investment, and net export activities in various countries experienced depression due to the tightening of financial condition and escalation of the trade tension.
The trade war between the US as a superpower country and its trade partners weakened the world’s trade transaction volume. Consequently, global commodity prices, with the exception of oil, dropped throughout 2018. The price of oil remained high due to the limited supply following Venezuela’s supply cut and Iran being subjected to another trade ban.
In terms of coal, Newcastle coal price fell to US$101.9 per metric ton (MT) at the closing of the year-end trading after it had surpassed US$120 in the middle of the year. One of the factors that influenced the global coal price was the Chinese government policy to impose restrictions on coal import. China’s abundant coal stocks combined with its intention to keep domestic coal prices high prompted the Chinese government to limit its coal import. To note, China is the world’s largest coal producer and consumer, consuming more than half of the world’s coal demand.
Although the global economy experienced a slowdown, the inflation rate in fact increased. Oil price hike affected the increase in transportation costs and drove the general surge in prices, including prices of food products. Inflation suppressed the pace of economic growth in the European Region, Britain, Japan, and China. On the other hand, inflation in the US and India tend to be restrained as the US oil production improved and food supplies increased in India.
Amidst the dynamics of the global economy and fluctuating commodity prices, Indonesia’s economy grew by 5.17% in 2018. This was the highest achievement in the last 5 years with the household consumption being the driving force of growth. The inflation rate was under control while the foreign exchange reserves at the end of the year were sufficient to support imports and payment of the government’s foreign debts.
Similar to other currencies, Rupiah also depreciated as the US’ Federal Reserve prolonged the increase of its benchmark interest rate and China deliberately weakened the Yuan exchange rate as a strategy to deal with the trade battle with the US. While Indonesia’s domestic capital market witnessed massive capital outflows, the government continued to launch a series of economic policy packages in an effort to attract direct investment to support a more resilient growth in the future.
Coal prices in the global market exceeded US$100/ton in 2017 based on Newcastle Index. The average selling price reached around US$107/ton, higher than US$88/ton in 2017. The price fluctuation was mainly influenced by Australia’s lower coal import from China, China’s coal restriction policy, and weakening of Indian Rupees— the currency of the second-largest coal consumer behind China.
As coal prices grew, producers also raised their production volume. The total amount of national coal production reached 528 million tons in 2018, a 14% hike from 461 million tons in 2017. However, the government required coal producers to allocate 25% of their total production volume for the domestic market in advance of their international sales. The government also set the maximum purchase price of coal for power plants at US$70/ton in order to maintain the affordability of electricity tariff and industrial competitiveness.
Despite the upward trend in the national production, the Company’s coal production was relatively stable at 83.3 million tons, or slightly decrease from 83.7 million ton in 2017. High rainfalls in mine areas at the beginning of the year, and supply coal obligation to the national power company PLN at a price fixed since March were some of the main factors that led to production decline.
The Company’s sales volume reached 80.6 million tons with an average selling price of US$59.2/ton. Sales volume dropped 4% while sales price increased by 2% compared to 2017. Meanwhile, overburden removal level rose by 11% to 7.9 bcm/tmined and a total of 656 million bcm. In compliance with the government’s policy, the Company supplied 25% of its coal production to the domestic market. The decline of prices in the global market particularly in the last quarter of the year caused the Company to shift its strategy, focusing sales to the domestic market in order to offset the loss of demand from China and India.
In 2018 fiscal year, the Company adopted the Statement of Financial Accounting Standards (SFaS) 66 on the Joint arrangements following an increase in ownership over our business unit, Arutmin Indonesia from 70% to 90% ownership. Arutmin was fully accounted in the Company’s consolidated financial statements, while KPC 51% owned by the Company, was accounted as equity participation. In the previous year, both business units were equity accounted in the Company’s consolidated financial statements.
As a result, the 2018 revenues in number was smaller at US$1.11 billion after adjustment of US$17.4 million. Sales expenses stood at US$965.32 million, whereas operating income rose to US$38.64 million from a loss of US$21.07 million or a positive swing by U$59.71 million. Net profit for the year decreased by 34.82% to US$158.22 million from US$242.75 million.
Weather, especially heavy rains around the mine areas, was an inevitable natural challenge. The coal production process in open mines as the Company carries out is vulnerable to weather condition.
The uncertainty that overshadowed the global situation, in addition to the trade war between the US and China, was the most prominent effect the global coal market and the movement of the selling price.
In Indonesia, the government policy that required producers to prioritize domestic market combined with the selling price stipulation posed a challenge of its own.
The global economy is projected to decelerate in 2019 but coal prices are predicted to remain higher than US$ 80/ton. Coal’s position as an energy source that is easy to obtain and relatively affordable compared to other energy sources is yet to be irreplaceable. Globally, many developed and developing economies remain reliant on coal as an energy source and this condition is likely to persist for more than another decade.
The Company expects to increase its production volume to around 88 million tons. according to the Company’s estimation, the cash expenses for coal production amounting to US$36/ton remain more economical than the price of petroleum.
To solidify the Company’s financial condition, BUMI has provisioned free cash flows of up to US$250 million to repay high-cost debts.
The Company strives to comply with the regulations and provisions applicable for limited liability company in Indonesia as well as acknowledges the importance of meeting the international governance standards for the fulfillment of shareholders and global investors’ interests. Consistently, the Company implements transparency of information as part of good corporate governance fulfillment.
Pursuant to the resolution of the Extraordinary GMS on November 29, 2018, the Meeting approved the resignation of Wen Yao as the Company’s Director, which further appointed as the Commissioner of the Company. The Meeting also approved the appointment of Linjun Zhang as the Company’s Director, which appointment shall take effect as of the closing date of the Meeting until the expiry of the term of office of the replaced member of Director. As such, the Company’s Board of Directors’ composition is as follows:
|Saptari Hoedaja||President Director|
|Andrew C. Beckham||Director|
|Dileep Srivastava||Independent Director|
|R.A. Sri Dharmayanti||Director|
HR management is key in the company’s efforts to realize all of its targets. The Company therefore intensively builds the competencies of its human resources across all lines of business through education and training programs.
The Company realizes that its presence needs to benefit the public at large and especially the communities around the coal mines. This ensures that the Company’s existence is meaningful for the communities and brings added-value for the people.
The implementation of corporate social responsibility program in 2018 aligned with the government’s aims to meet the sustainable development goals. In executing CSR programs, KPC and Arutmin as Bumi’s subsidiaries adhere to ISO 26000.
Furthermore, the sustainable development goals are further expanded into seven programs, including the development of agribusiness, the development of small and medium enterprises, improvement of the capacity of government institutions and society, healthcare, education and training, infrastructure as well as natural and cultural preservation. The ultimate goal of these activities in BUMI, KPC, and Arutmin is to nurture independent and sustainable community.
In education, the Company is committed to improving the education quality of youth and females and opening mini and mobile libraries. In terms of healthcare, the Company intends to improve the community’s health by organizing free medical and dental check-up, improving the nutrition of children and mothers, holding free cataract surgery, organizing circumcision for children from poor families, and organizing blood donation event. With respect to preserving the environment, The Company organized Bumi Clear Day reforestation program and engaged in disaster recovery activities. as for the economy, the Company strives to improve the local economy through 3R movement: reduce, reuse, recycle, and held women empowerment activities as well as vocational training.
Throughout 2018, the Company received various awards which reflected public acknowledgment for the Company’s quality and financial performance as well as its good corporate governance. The Company received the Asia Gold award for 2018 Sustainable Report, awarded as the highest foreign income and the biggest royalty earner payer among the 30 largest national taxpayers.
In conclusion, please allow us to express our deepest appreciation to all shareholders for their trust us in managing the Company. We would also like to extend our appreciation to all of the management teams who have endeavored to deliver an improved outcome. Finally, we would like to sincerely convey our appreciation to all of our employees, business partners, government, and stakeholders who all take important role in the growth of the Company.
Jakarta, April 2019
On Behalf of the Board of Directors