JAKARTA -- Holcim Indonesia, a subsidiary of Switzerland's giant cement maker Holcim, announced plans to merge its cement processing and transportation units to regain cost efficiency after reporting a big fall in profits.
According to documents submitted to the Indonesia Stock Exchange, the company will propose the merger of the two subsidiaries, Bintang Polindo Perkasa (BPP) and Wahana Transtama (WT), at Holcim Indonesia's annual shareholders' meeting on May 6. If the proposal gains shareholder approval, the merger will take effect on June 30 and Holcim Indonesia will become the surviving company.
Holcim is trying to bring profitability back on track. Higher salaries and material costs accounted for a 29% decline in net profit of about 950 billion rupiah ($84 million) in 2013, despite a rise in sales. Holcim's two larger rivals, state-owned Semen Indonesia and Indocement, a unit of Germany's Heidelberg Cement, reported steady profits rises.
Holcim said that the merger will improve its profitability by cutting operating costs. The company projects earnings before interest, taxes, depreciation and amortization (Ebitda), a popular measure of financial performance. Thw 2018 projection is for 4 trillion rupiah, nearly double its 2014 forecast. BPP's net profit in 2013 was 31 billion rupiah, while WT reported a net loss of 413 million rupiah.
"In connection with increasing competition in the cement industry, Holcim needs further integration of its businesses," the company said in a statement. "Considering the operational, legal, and financial benefits, the directors and board of commissioners for BPP, WT, and Holcim all agreed on the merger."
BPP operates a cement plant that processes products manufactured by Holcim, causing unnecessary tax liabilities within transactions, said the company. WT, on the other hand, used to transport cement but has ceased operations since 2006 after Holcim pulled out of the business.
On a much larger scale, slimming down is now a global project of the Swiss-based parent, which is preparing for a merger with France's Lafarge. The world's two top cement players announced in April that they were in advanced merger talks to create a global titan, although the deal is likely to face significant regulatory challenges. The companies later said they will aim to meet regulatory requirements through divesting as much as 15% of the merged company's Ebitda.