68.48 Laporan Tahunan | Semen Indonesia AR SI English 2014

Corporate Governance Implementation Report Corporate Social Responsibility Report Corporate Data Management Discussion and Analysis Financial Statements Assuring the Move Into Next Level 179 Economic, Industry, and Business Outlook Review Corporate Governance Implementation Report Corporate Social Responsibility Report Corporate Data Pembahasan Dan Analisis Manajemen Financial Statements Assuring the Move Into Next Level 179 Management Discussion and Analysis Business Development Report Management Reports Company Information Information For Investors Operational Review Assuring the Move Into Next Level 180 Business Review The Company and subsidiaries’ business activities comprise two segments, namely Cement Production and Non-Cement Production. Cement production is the core segment that contributes over 97 of the Company’s total consolidated revenues. Non-Cement production consists of: limestone and clay quarrying, production of cement packages, industry cluster development, and ready-mix concrete. Limestone and clay quarrying as well cement production packages are mainly conducted to fulfill the Company’s raw material needs and packing needs for owned-produced cement. Meanwhile, industry cluster development activities consist of commercial activities to convert post-mining sites into areas that can be utilized for public facilities, reforestation, and commercial purposes. The Company currently focuses on cement and non-cement industry. With more business opportunities and supported by human resource competence as well as strong financial condition, the Company continues to explore other potential business segments that are related with the cement industry as the core business, in order to build Semen Indonesia as a leading corporation with an integrated business structure and notable performance “ “ Corporate Governance Implementation Report Corporate Social Responsibility Report Corporate Data Management Discussion and Analysis Financial Statements Assuring the Move Into Next Level 181 Business Review Company’s revenues by business segment in 2013- 2014 are as follows. Company’s Revenues by Business Segment in Rp million Business Segment 2014 2013 Cement 26,335,351 97.6 24,151,908 98.6 Non-Cement 651,685 2.4 349,333 1.4 Total Revenues 26,987,036 24,501,241 As the table illustrates, during reporting year there was no significant change in the composition of the Company’s revenues. The following section primarily discusses business initiatives and realization of operational performance of cement business segment. CEMENT BUSINESS SEGMENT Marketing and Distribution Sales Volume In order to achieve optimum sales performance, the Company focused its sales activities in Indonesian cement market. Backed by geographical advantage, in which the Company owns production units in strategic areas in the west, central, and eastern regions of Indonesia, the Management built synergy around sources of supply, brands, distribution efficiency, and regional sales to obtain best prices with optimum profit margin. The Company’s sales volume in Indonesia in 2014 amounted to 26.2 million tons, grew by 2.8 from 24.5 million tons in 2013. Sales growth was fairly significant in Java at 5.9, which reflected the Company’s efforts to optimize profitability of sales, considering that the market in Java region contributed the highest margin and market demand. Overseas, from its plants in Indonesia, the Company’s sales volume was in the amount of 197,284 tons to Timor Leste and Srilanka. Export from TLCC for clinker amounting to 292,281 tons, with destination countries: Malaysia, Bangladesh, and Taiwan; while cement export reached 434,021 tons to countries of Singapore, the Philippines, and Papua New Guinea. From its Indonesian plant, the Company made regular cement export to Timor Leste, considering Timor Leste’s geographical location that is close to Tonasa Plant in South Sulawesi. The Company only performs cement export to regions other than Timor Leste when domestic demand lowers in the period leading to and around Eid-ul Fitr celebration. Company Market Share in Indonesia National cement supply in 2014 grew by 3.3, while the Company’s sales increased by 2.8. The Company’s market share slightly decreased from 43.8 in 2013 to 43.7 in 2014. However, the Company’s market share in Java was the largest throughout Indonesia, and increased from 39.4 in 2013 to 40.4 in 2014. Management Discussion and Analysis Business Development Report Management Reports Company Information Information For Investors Operational Review Assuring the Move Into Next Level 182 Marketing Distribution The Company continues to improve its network and distribution supporting facilities across Indonesia to enhance supply reliability for customers. These are also part of the Company’s efforts to maintain market share. To support Company’s endeavors, in 2014 the Company has completed the construction of 1 packing plant unit in Mamuju, West Sulawesi; and 1 unit in Kendari, South East Sulawesi. In total, the Company now has 23 packing plant units spread from the West, Central, to Easten part of Indonesia. Having packing plant units located strategically across the archipelago allows the Company to have better market presence. In 2014, the Company started the operations of packing plant units in Mamuju, West Sulawesi and Kendari in South East Sulawesi. The Company also constructed several packing plant units in other potential areas to optimize the Company’s market reach. Price Policy and Selling Price The Company periodically assesses its selling price. The Company determines selling price based on a number of considerations, among others: • Consumers’ purchasing power. • Demand • Competition. • Increase of production cost. See discussion on “Company Revenues” page 192 Marketing Strategy The Company undertakes various efforts to boost brand equity and customer loyalty in order to maintain its market leadership position in the domestic market. To that end, the Company applies three marketing strategies, consisting of: marketing communications, promotional programs, and expansion of distribution network. Business Review • Marketing Communication The primary goal of marketing communication programs is to maintain customers’ awareness and cognitive loyalty. Promoting tag line, brand communication mainly utilizes outdoor media billboard and signboards of distributorsshops and printed media, while electronic media is mainly used to communicate and promote corporate messages and brands. In terms of products, use and specific information on products are printed on the packaging, and technical specifications, procedures, and material mixtures are printed in brochures delivered addressed to certain customers. Marketing communication activities utilize the media and are focused on the use of electronic media, printed media, and outdoor media above the line in order to enhance awareness and brand image. Meanwhile, marketing programs are delivered through meetings with customers, customer service, award, and certification for workers – aimed to increase customer loyalty as well as to attract potential customers. To measure effectiveness of on going communications programs, feedback, and to learn of customers’ expectations, the Company conducts periodical market survey to garner information as basis to improve the design of its marketing communication programs. Corporate Governance Implementation Report Corporate Social Responsibility Report Corporate Data Management Discussion and Analysis Financial Statements Assuring the Move Into Next Level 183 Business Review Presently, technology and social media development has changed customer behaviour, providing customers the access of interactive search on product information. Therefore, community is now considered as an effective medium to drive customer preference towards certain products. Survey is also conducted to determine the most effective media that would promote loyalty and brand image. Based on the survey, the Company has selected a number of media as platform of its marketing communication activities, i.e.: television, outdoor media billboard, neon box, banner, signboard, printed media newspaper, magazine, tabloid, poster, and radio. Marketing communication strategy is then focused on the utilization of media that would lead to community building and customer loyalty. In 2014, the Company carried out the following marketing communication programs: • Advertisement broadcasts on national and local TV stations • Used print media to educate the public, which included monthly production communications in nagional magazines and bi-weekly communications on product application on “Rumah Kokoh” colum in newspapers and magazines • Used outdoor media and signboards for shops outside of the Company’s marketing region. • Promotion Promotional programs, targeted for building materials shops, included merchandising and shop tours. Not only to encourage shops to maintain availability of cement in the market, promotional programs also specifically aimed to manage demand fluctuation considering that distributors and construction supplies shops are typically willing to manage high volume of stock in certain period. • Expansion of Distribution Network and Supporting Facilities The Company continues to enhance its distribution network and supporting facilities located throughout Indonesia. The goal is to ensure cement supply for all of its customers. To support the effectiveness of distribution network, which consists of main distributors, sub-distributors, and building material shops, the Company continuously builds and adds the number of ports, packing plants, supporting warehouse, and other modes of transportation both land and sea that are available across Indonesia. See “Distribution Supporting Facilities”; see also “ConsumerCustomer Responsibility” on page 370. PRODUCTION Production Capacity and Volume The Company’s total cement production capacity until the end of 2014 was stood at 31.8 million tonnes, consisting of 29.5 million tonnes in Indonesia and 2.3 million tonnes in the region. The total installed capacity accounted for 41.3 of national producing capacity amounting to 71.5 million tonnes. Management Discussion and Analysis Business Development Report Management Reports Company Information Information For Investors Operational Review Assuring the Move Into Next Level 184 Tinjauan Kinerja Business Review Types Volume ton Change 2014 2013 Clinker Indonesia 21,301,171 20,813,258 2.3 Regional 1,913,325 1,817,122 5.3 23,214,496 22,630,379 2.6 Cement Indonesia 26,435,136 25,558,676 3.4 Regional 1,825,413 1,355,131 34.7 28,260,549 26,913,807 5.0 Installed Capacity Indonesia 29,500,000 27,700,000 6.5 Regional 2,300,000 2,300,000 0.0 31,800,000 30,000,000 6.0 Utilization Indonesia 89.6 92.3 -2.7 Regional 79.4 58.9 20.4

88.9 89.7

-0.8 The Company’s cement production in Indonesia in 2014 grew by 3.4 from 25,558,676 tonnes in 2013 to 26,435,136 tonnes. The increase of production was contributed by the operations of Tuban IV plant and Tonasa V plant, improved equipment performance, successfully upgrading program that the Company carried out to boost the volume of installed capacity. Energy Consumption Cement production uses two types of energy, thermal and electricity. Heat is resulted from coal as the main fuel. With increase of clinker production and substitution of coal used from medium to low calorie, the Company’s total domestic coal consumption in 2014 amounted to 4.8 million tonnes, or up by 1.4 from coal consumption in the previous year of 4.7 million tonnes. Energy Types Unit Domestic Change 2014 2013 Coal Tonne 4,817,263 4,737,931 1.7 Electricity MWh 2,702,915 2,665,393 1.4 The increase of coal consumption was related with the increase of clinker production by 2.3. Meanwhile, regionally, the Company’s total coal consumption in 2014 stood at 315,698 tonnes. In terms of electricity, the Company’s domestic electricity need in 2014 increased by 1.4 to 2,702,915 MWH from 2,516,368 MWH of electricity utilized in 2013 on the back of growth of cement production. Corporate Governance Implementation Report Corporate Social Responsibility Report Corporate Data Management Discussion and Analysis Financial Statements Assuring the Move Into Next Level 185 Tinjauan Kinerja Business Review The total energy costs accounted for 38 of the total cost of revenue. Taking into account the increasing trend of electricity tariff base, the Company consistently carried out efficiency measures to reduce energy cost. Clean Production To implement eco-conscious production process, the Company carries out environmental management activities in sustainable manner by applying standards of environmental management system, including: SML ISO-14001:2004, Safety and Health at Work Management System SMK3, and OHSAS 18001:2007. The Company also oversees continual improvement, adopts 5R cycle, and provides Suggestion System. These measures are integrated in Semen Indonesia Management System SMSI. The Company also takes active participation in efforts to mitigate impacts of global warming as support to the Government’s goal to reduce carbon emissions by 26 until 2020 unilateral, pursuant to the President’s commitment made in the G-20 forum in Pittsburgh and COP15 in Copenhagen. To that purpose, the Company has implemented the following programs: • Use of biomass chaff, coir, corncobs, tobacco waste, oil sludge, shoe waste, and others as source of alternative fuel. • Waste Heat Recovery Power Generation WHRPG technology, a power-generating unit that runs on the heat produced by production equipment. • Gradual substitution of ozone depleting substances, such as APAR, halocarbon, etc. • Increase production of blended cement Management Discussion and Analysis Business Development Report Management Reports Company Information Information For Investors Operational Review Assuring the Move Into Next Level 186 Business Review WHRPG Project: Optimizing Energy Efficiency Potential and Advancing Environmental Quality Clinker burning process produces waste heat that can be used as source of power generator, producing electricity for own use. The Company has successfully utilized this energy potential from waste gas by installing WHRPG in Semen Padang production site. WHRPG unit has been operating well and has proven to generate benefit of reducing electricity cost from PLN. It is also CER-certified for reducing CO2 gas emission in the amount of 43,000 tonnes per annum and has a potential as additional source of revenue. Considering the multiple benefits from WHRPG installation, construction of second installation is currently underway. The Company is building a new WHRPG unit in Tuban production plant, East Java. Agreement for WHRPG construction in Tuban was signed in October 2013 at the JFE Engineering Corporation Headquarter in Yokohama. The agreement is fully supported by the Japan Government and is under Joint Credit Mechanism JCM scheme, funding aid from Japan provided for companies in South East Asia with proven track record of developing eco-friendly technology in order to mitigate impacts of green house gas. Pursuant to the agreement, WHPRG Tuban Unit will have sizeable capacity of 30.6 MW and construction started on 22 October 2014. There are for key aspects relating to the second development of WHRPG: first, efficiency. Following project completion, the Company expects to save up to Rp120 billion per year in electricity cost, derived from less electricity consumption from PLN by 152 million KWh per year. Secondly, utilization of waste heat from Tuban I-IV plants will reduce CO2 emission by 122 thousand tonnes annually. Third is the job creation aspect. The overall project requires sufficient number of workers to complete construction period of an estimated 26 months. Aside from direct hiring for construction, 52 of equipment consists of local supplies that also drive job creation. Fourth is transfer of technology; this second project is an opportunity for Indonesia and particularly personnel from Semen Indonesia to gain new knowledge and experience, therefore WHRPG technology design can be done locally in the future.