Message From President Director
2015 was the year brimmed with challenges for companies of all sectors in Indonesia, including for PT Darma Henwa Tbk. (“Darma Henwa” or “Company”). The sagging global economic growth, as spurred by economic downturn in China and various other countries, such as Russia, Brazil, and India, led to a lower demand for commodity and global energy consumptions.
This condition also directly affected the nation’s economy, which was evidenced in the falling of commodity prices, including petroleum and coal. Based on the data of Indonesia coal production issued in January to August 2015, the country experienced a decrease of 15% in coal production, from 311 million metric tons in the previous period to 263 million metric tons. This happened because many coal companies in Indonesia limited their coal production volume in order to cope with the weakening demands for coal in the global market.
With such decline, coal exporting volume of the nation in 2015 was predicted to undergo a decrease of 18% compared with the previous period. Data acquired from the Indonesian Coal Producer Association (APBI) showed that around 18% of the total coal production companies in Indonesia would temporarily scale down their production volume because of the negative margin in production costs. The Indonesian government had also reduced coal production target in 2015 from 425 million metric tons to 400 million metric tons.
However, we should be grateful that domestic coal consumption in 2015 would remain stable at 71 million metric tons amidst the weakening of coal demand in the global market. This condition was getting better with the development and construction of several new power plants as well as the growth of local industries. At present, almost half of the total power plants in the country utilize coal as their primary source of energy. Moreover, it has been projected that in the next five years, new generators will be established, with the capacity of 35 thousand megawatts, which will absorb the additional coal consumption of around 70 million metric tons per year. Hence, this condition will contribute positively to the stability of national coal demand.
Global coal demand in the years to come is projected to keep on increasing. This is due to the establishment of new coal-fired power plant projects in several Asian countries such as India, Malaysia, the Philippines, Vietnam, Bangladesh, Pakistan, and Sri Lanka.
Parallel with the estimate of energy demand growth, the world’s demand for coal is predicted to rise, since coal is still considered a relatively competitive energy source compared to the other sources. In addition, two billion people of the world – which is equal to 30% of the world’s total population – still have no access to electricity.
Thus, demands from many developing countries to meet their electricity needs will stimulate coal demands going forward.
Based on this prediction, we observe a number of project opportunities that can be seized, particularly the ones that are associated with our line of business and services. Despite the fact that coal prices in the last five years had decreased, Darma Henwa regarded this as a challenge that must be faced, not only for the Company but also for all mining service industries in the country.
To answer this condition and challenge, Darma Henwa, at present, has prepared itself and adjusted its operational cost structure so as to be more effective and efficient. This is neither an easy nor simple task for the Company. Many factors must be taken into account in determining the cost of operations needed for the Company’s activities. Hence, we believe that a combination between Mining Operational Excellence and cost efficiency must be implemented by Darma Henwa in order to face the challenges and to emerge as the winner of the competition.
The Company’s strategy to strengthen its operational excellence on all fronts must be implemented in each business unit. The Company believes that, aside from a competitive mining price, high quality and premium service given to the customers will also serve as the key points for them to consider which mining contractors that can be relied upon. Furthermore, in terms of business development, the Company continues to expand its portfolio projects, both in the business of coals and non-coals. This includes its strategy to acquire projects that engage in integrated mining service.
Performance of Occupational Health, Safety and Environment (HSE)
As a company whose main business line is mining service, the aspects of Occupational Health, Safety and Environment (HSE) are prioritized in conducting the mining activity. Regarding this issue, the Company continuously emphasizes the importance of the fulfillment of Occupational Health and Safety as well as environmental management aspects, including their implementations.
The Company’s performance in occupational safety is manifested in the decrease of Lost Time Injury Free Rate (LTI FR) over the years. The highlight is in 2015 where the rate reached 0 (zero). It means that the Company is capable of reducing Injury Rate significantly compared with the previous periods.
In terms of Occupational Health, the Company has managed to receive various awards from several institutions. The most prestigious ones are the certifications of ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 in the implementation of integrated management system which were obtained in 2010 and, up to present, has been maintained by the Company. The followings are several awards received by the Company in 2015:
1. UTAMA Award for the Safety Management in the Category of Main Contractor of Mineral and Coal Mining for Bengalon site from the Ministry of Energy and Mineral Resources.
2. Second Runner-Up for Confined Space Rescue Competition, Collapse Structure Search & Rescue
Competition, and High Angle Rescue Competition for the Best Captain from Indonesia Fire & Rescue
3. The award of “Best Mining Contractor of the Year” from Indonesia Inspire & Best Company Award.
4. The award from the Governor of East Kalimantan for the Company in the Program of Occupational Health &
Safety 2014 for achieving Zero Accident Rate and Total Manhours of 5,272,715.
5. The award from the Regional Government of East Kalimantan Province for the Company in the Program of
Prevention and Alleviation of HIV & AIDS in Workplace.
Throughout 2015, the Company continues to improve and develop its performance in all fronts, particularly in its operations. Regarding this field, the Company has increased its work equipment to improve productivity and efficiency; thus, production outputs are optimized, both in terms of over burden volume and coals. It is safe to say that the Company managed to properly and effectively solve all operational challenges during the course of 2015, which then brings encouraging performance.
The results of operational performance of the Company in 2015 also showed a significant increase as evidenced in the location of current projects of the Company, namely the Bengalon Coal Project (BCP) and Asam Asam Coal Project (ACP). Up to September 30, 2015, the Company was able to improve its overburden production by 5% to 51.29 million bcm compared with the previous year’s period. The Company was also able to maintain its coal production at 8.8 million metric tons.
As of September 30, 2015, the performance of Bengalon Coal Project increased significantly compared with the same period in the previous year. The production of overburden increased by 23% to 42.1 million bcm while coal production increased by 65% to 5.6 million metric ton compared with the previous period.
The positive production performance of Bengalon and Asam Asam Coal Projects is reflected on the improved Company’s financial performance. As of September 30, 2015, the Company was able to record satisfying revenues amounting to USD 175 million.
The Company was able to decrease its Cost of Revenues by 3.2% and posted a Gross Profit of USD 12.8 million or increased by 22% compared with the same period in the previous year which reached only USD 10.5 million. The increase in this gross profit indicates that the Company’s strategies in improving its efficiency and productivity in 2015 have yielded satisfying results.
To conclude, as of September 30, 2015, the Company was able to record Net Profit of USD 0.3 million. It increased from the same period last year where the Company experienced a USD 2.7 million Net Loss.
Similar improvement also took place at Asam Asam Coal Project location. As of September 30, 2015, the production of Asam Asam Coal Project showed an increase compared with the production of the previous period. Overburden production rose significantly by 80% to 9.2 million bcm while coal production rose by 28% to 3.2 million metric tons.
There are several factors that contributed to this increase, among others, the implementation of DEWA Operational Excellence (DEWA OX) that has been running very well, the addition of work equipment, the increase in productivity of work equipment and operators, and harmonious relationship with the clients, namely PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia (AI) regarding the Production Requirement Notice (PRN) adjustments that have been agreed upon.
Development of Human Resources
The success of the Company in improving its operational performance is attributed to the role of professional and competent human resources in their field. The Company observes Human Resources as one of the keys to its success in maintaining and increasing its productivity.
To develop its Human Resources, the Company conducts various trainings for each level of position. The trainings designed to improve the knowledge and skills of employees are implemented through a series of certified as well as functional training courses. In the managerial level, the Company holds trainings to improve the leadership quality of management in the form of Executive Development Program, Managerial Development Program, and Supervisory Development Program.
Furthermore, to accelerate the performance of its Human Resources, the Company develops a Human Resources Information System (HRIS) that is combined with a performance assessment system that is objective, focused and measurable. The Company also continues to maintain its competitive advantage through a competency-based remuneration program that is implemented in a competitive and objective manner.
As a public company, the Company strives to implement the principles of Good corporate governance (GCG) consistently within all of its business aspects. GCG is a structure and process that are utilized by the Company’s organs, encompassing the Board of Commissioners, the Board of Directors, and General Meeting of Shareholders (GMS), in order to improve business success and accountability of the Company. The Company does this by implementing GCG principles, namely Transparency, Accountability, Responsibility, Independency, Fairness and Equality based on the prevailing regulations as well as ethical values in the society.
GCG practices at Darma Henwa is implemented consistently by issuing Guidance on Corporate Governance Policy, Code of Conduct, the implementation of Whistle Blowing System, Board of Commissioners Charter, Board of Directors Charter, Nomination and Remuneration Committee Charter, GCG Committee Charter, Risk Management Committee Charter, and Audit Committee Charter. Those activities are established as the guidelines for all personnel of Darma Henwa to perform their roles, authorities, and responsibilities so as to realize the Company’s vision and mission based on the Corporate values and the laws and regulations in force.
Corporate Social Responsibility (CSR)
We are proud to say that, as a mining contractor, our commitment to providing benefits to the surrounding community, particularly the ones living adjacent to our project locations, is consistently realized until now. The Company’s social activities are distributed through our Darma Mandiri Program (for the development in economic field), Darma Cerdas Program (development in educational field), Darma Sehat Program (development in health field), Darma Ketahanan Nasional (development in government program of national defence), and development program in Social-Culture and Environmental Field.
Through Darma Mandiri program, the Company provided benefits to the society in the form of the following activities:
• Donation of digital embroidery machine and sewing machine through revolving fund program for Desa
Simpang Empat Sungai Baru, Desa Asam Asam and Desa Pandansari.
• Renovation of badminton facility for Karang Taruna of Desa Asam Asam.
• Recruitment of local community as the Company’s employee.
• Donation for school renovation and assembly hall, and road repair.
Through Darma Cerdas program, the Company provided benefits to the society in the form of the following activities:
• Donation of school supplies for Mansya’ul Huda Islamic Primary School and Assa’adatul Abadiyah Vocational
high School in Muara Gembong, Bekasi.
• Donation of school facilities and transportations, as well as allocation of fund for extracurricular activities in
• Internship program for private and public vocational high schools in the society nearby the mining locations.
Through Darma Sehat program, the Company provided benefits to the society in the form of the following activities:
• Donation for Posyandu (Integrated Health Center) programs, such as provision of additional baby foods in
Asam Asam Site.
• Dissemination and volunteering for HIV / AIDS examination in Tanah Laut Regency (Kabupaten).
• Mass circumcision for children from underprivileged families.
• Mosquito fogging in Bengalon site.
Through the program for the development of Social-Culture and Environment, the Company provided benefits to the society in the form of the following activities:
• Donation of 2,400 mangrove seeds for Pantai Bahagia in Muara Gembong, Bekasi.
• Donation of logistics for the activities of Pesantren Babussalam in Desa Asam Asam and Pesantren
Al-Hasimyiiah in Kintap District (Kecamatan).
• Donation of logistics for Easter celebrations of Public Junior High School (SMPN) 1 & 4 in Bengalon.
• Ramadan Safari activity at An Noor Mosque of Desa Simpang Empat Sei Baru, Jorong District.
• Donation of infrastructure for Karang Taruna of Desa Sepaso Selatan.
• Donation of water tanks for several mosques located nearby Bengalon Site.
• Donation of sacrificial animals for several mosques located nearby Bengalon Site.
• Donation of water truck to handle fire in Desa Simpang Empat.
Through the program DEWA Ketahanan Nasional, the Company provided benefits to the society in the form of the following activities:
• Donation of musical instruments for Komando Garnisun Tetap Jakarta.
• Distribution of Lamtera in Lumbis Ogong area, North Kalimantan, in cooperation with the National Army (TNI)
and PT Kaltim Prima Coal.
These CSR programs are implemented by actively involving the communities living nearby the Company’s operational areas, regional institutions and government, as well as owner of mining locations.
Finally, on behalf of the Company’s Board of Directors, I would like to extend my gratitude to all shareholders, the Board of Commissioners, all employees and business partners for the support, trust and cooperation that have been well-maintained and nurtured so that the Company is able to grow and develop.
I would also like to extend my gratitude to the community and other stakeholders whom I cannot mention one by one. They are the ones that have given their utmost support and encouraged Darma Henwa so that we can achieve our target and bring another positive performance this year.
I sincerely wish that we could continuously foster this partnership in the years to come.
On behalf of the Company’s Board of Directors