Construction Machinery

Heavy Equipment Distribution

To fulfill market demand of heavy equipment in sectors including mining, plantation, construction and forestry, the Company offers international heavy equipment brands namely Komatsu, Nissan Diesel, Scania, Bomag, Valmet and Tadano. Apart from being the sole distributor of these heavy equipments, the Construction Machinery unit provides dedicated after sales service, component and attachment engineering, machine recondition support, sales of used heavy equipment and farming tractors.

In 2009, commensurate with the incondusive circumstance of global and national economy, Komatsu heavy equipment sales volume declined 28% into 3,111 units from 4,345 units in the previous year. This is in line with the sales condition of national heavy equipment which also slowed down, as explained above. However, amidst decreasing demand and tight competition of heavy equipment market in Indonesia, Komatsu market share continually manages its leadership position at 47%, increased from 45% in the previous year (Based on: internal market research).

The declining demand of heavy equipment that went swiftly as of end of 2008 had caused all heavy equipment distributors in Indonesia encountering excessive inventories and financial liabilities to the principals in the form of payment settlement for the heavy equipments ordered. To find out solution, management of the Company had appropriate response and settled the problem accordingly.

The Company took an immediate step by cooperating with the principals to manage the heavy equipments which have not been sent as well as the excessive inventories. The principals’ supports and sound financial condition of the Company due the successful rights-issue on September 2008, has provided the Company with flexibility to put more attention to working capital management. The result shows that by entering second semester of 2009, inventory level has recovered to its normal level.

Incentive programs to the customers have also been held. With the programs, the Company has been able to maintain the customers’ loyalty. It is proven that heavy equipment demand commenced increasing at a more stable scale, in which most of the demand comes from existing customers who previously postponed their purchase.

Activity enhancement conducted by mining contractors has also brought positive effect to the Scania trucks sales, which increased 26% into 350 units from 278 units during the previous year. However, sales of Nissan Diesel trucks happened to drop by 19% into 634 units from 781 units in the preceding year, due to the depreciation of Rupiah to Japanese Yen which momentarily put the unit price in a less competitive position.

In construction sector, the prevailing economic down turn still stagnate the growth of this sector. The decreasing reference interest rate has not been followed by the same trend in loan interest rate and the under performance of infrastructure development scheme, especially the toll roads, had led the heavy equipment demand for the sector in halt. Komatsu sales in construction sector declined 24%, followed by drop in sales of Bomag vibratory rollers by 49%, to an amount of 130 units from 253 units in 2008. All of those conditions exhibit that heavy equipment demand in 2009 has not fully recovered from the pre crisis condition.


After Sales Service

After sales service, which is dedicated to serve customers needs post purchase of heavy equipment, throughout 2009 has delivered substantial contribution to the total revenue of Construction Machinery business unit.

Services rendered at the after sales service conveying of pre-sales consult, parts supplies, equipment maintenance and training for operators. All of those services are backed up by the Company’s distribution network spreaded in 18 branch offices, 15 site support offices, and 12 representative offices throughout Indonesian regions.

The Company’s after sales service performance that includes parts sales and equipment maintenance services has continually showed encouraging growth. In 2009, amidst inconducive circumstance in new heavy equipment market, the after sales service revenue increased 23%, into Rp3.6 trillion from Rp2.9 trillion in the previous year.

One of the interesting highlights in parts sales performance achievement is sales of generic components or spare parts that are compatible on similar heavy equipment type. These generic parts products are called “all makes products”, covering filter, hose, ground engaging tools/GET, battery, tyre, automatic lubrication system, hydraulic breaker and more. Total sales of all makes throughout the year 2009 has been constantly increasing and rose 9% compared to the previous year, with a total contribution to the parts sales of 18%.

For Komatsu latest product, it has been currently equipped with KOMTRAX facilities (Komatsu Machine Tracking System). The system is a new innovation that utilizes mobile and web base communication technology that enables users to conduct monitoring whenever and wherever the Komatsu product calls for maintenance service.

Moreover, the Company has been continually enhanced its dedication in responding to the customer needs in skilled and qualified human resources, by continually improving the activities of UT School in producing proficient and accredited heavy equipment mechanics and operator.(Refer to UT School elaboration in: “HRD Development”, page 87 and “Sustainability Report” page 246)


Engineering and Fabrication

The engineering and fabrication activities are operated by PT United Tractors Pandu Engineering (UTPE). Affected by global economic condition, UTPE recorded sales decline of 8% to Rp726 billion from amount of Rp783 billion (before the elimination) in 2008. UTPE component products, 37% of them were exported overseas, purchased by General Electric in the United States of America and Alstom in France.

Continuing the innovation scheme, in 2009 UTPE recorded new product addition, that conveys SDT 60 New Generation, Coal Light Vessel HD 785, Pit Stop Mobile for HD 465, Lube Container, and 18,000 Watt Tower Light. In oil and gas sector, UTPE developed T-Stamp certified pressurized vessel product issued by ASME (American Society of Mechanical Engineers), which is a new prime product for further development at the upstream part.

In construction sector, UTPE developed domestic market in cooperation with truck distributor to produce tipper vessel of 24 cubic feet capacity. The sales of tipper vessel increased 90% from 493 units into 937 units. Apart from that, UTPE also conducts export of 28 cubic meter ISO tank to Australia.

Whereas in mining, UTPE developed domestic market in cooperation with truck distributor to produce tipper vessel of 12, 16 & 24 cubic meter capacity. The sales of tipper vessel increased 8% from 1,037 units into 1,124 units. Moreover, for heavy equipment logistic service industry, UTPE developed Low Bed Trailer product with the capacity of 40 tons in collaboration with PT Serasi Autoraya (SERA).

Spare parts maintenance service business in 2009 decreased 1% compared to the previous year. Meanwhile, Pirelli brand tyre sales amounted to 173 on-road units and 5,418 off-road units that contributed 3% to total income of UTPE. UTPE continously conducts production infrastructure development at the Jababeka Cikarang Industrial Estate, to ensure all production activities are carried out in one location, to enhance efficiency, productivity and production growth in the years ahead. Corresponding to the plan, UTPE plant area in Cikarang has currently covered 8.9 hectare of land, with building space of 3.9 hectare.

PT Patria Maritime Lines (PML ) that was established at end of 2008, running in the field of coal barging transportation through river, in 2009 changed its composition of share ownership, into PT United Tractors Pandu Engineering (69.999%) and PT Orion Maritime Lines (30.001%).

Furthermore, the plan of establishing a joint venture company in heavy equipment attachment fabrication, especially big bucket and big blade has been undergoing process. Until 2009, activities of attachment production are carried out in Cikarang area.


Remanufacturing and Recondition

Through its subsidiary, PT Komatsu Remanufacturing Asia (KRA) with its head office and production facility in Balikpapan, East Kalimantan, the Company fulfills the needs of heavy equipment market on quality overhaul service and recondition products. In 2009, total revenue of KRA increased to Rp601 billion (unaudited), or raised 48% from Rp404 billion position in its preceding year.

Rewarding business prospect in line with the activity improvement in mining sector, in which the heavy equipment condition and availability becomes the key of operation, drives KRA to continue improving its production facilities. KRA production capacity has currently growth to 600 machinery units and 2,300 component units.

KRA is currently expanding the second facility and building the third facility, all of which are located in Balikpapan, to be supported by the implementation of integrated SAP system, to improve the production process effectivity and efficiency. Upon accomplishment, the production capacity will increase to 1,200 machines and 3,000 components.

Besides KRA which renders overhaul and recondition service for bigger type Komatsu heavy equipment, the Company is also enhancing its remanufacturing capability through UT Reman that focuses on serving small-medium type Komatsu heavy equipment. Having previously owned the three facilities in the branch office of Balikpapan, Jakarta and Pekanbaru, the Company adds UT Reman new facilities at the Sangatta Site. All of these add up the total facilities owned by UT Reman to 4 (four) units.

In 2009, total production of the three facilities achieved 341 machinery units and 1,706 component units. UT Reman has expanded its new production facilities, in the form of rebuild cylinder in Balikpapan with the capacity of 70 components per month, electric component unit, KAC product (wheel motor, alternator etc) in Sangatta with the capacity of 30 components per month, and turbo balancer and starting motor test bench facilities in Jakarta.

Commensurate with the development, three UT Reman production facilities, in Pekanbaru, Jakarta and Balikpapan, has obtained ISO 9001:2008 certification from SGS certification agency on November 2009.


Leasing and Sales of Used Heavy Equipment

During the year 2009, PT Multi Prima Universal (MPU) that was established in 2008 to run the heavy equipment leasing operation and sales of used heavy equipment, has shown an outstanding performance. Initially MP U was established to serve heavy equipment leasing and used heavy equipment sales which grow fast in line with the increasing activities in construction sector. However in later stages, MPU also serves the needs of used heavy equipment sales and leasing in other sector, such as mining. The added value provided by MPU for leasing is an end-to-end process package, whereas for used heavy equipment is by prioritizing quality and guarantee, through reconditioning process in accordance with the Komatsu plant standard, backed up by appropriate equipments, system and technology.

On the second year of its commercial activities, MPU has been able to lease and sell 151 units of used heavy equipments to the customers. MP U’s total revenue in 2009 achieved Rp117 billion (unaudited).


Farm Tractors Distribution

Through its subsidiary, PT Bina Pertiwi (BP) that was established since 1976, the Company operates the distribution of Kubota farm tractors, Kubota and Komatsu generating sets, Komatsu mini excavators, as well as lease and sales of Patria and Komatsu forklifts. In line with the market development and own competence enhancement, BP has now expanded its operation by providing end-to-end solution to several leading industrial sectors, that covers agribusiness and forestry, material handling industrial machines, and supplies of energy-power-electricity as well as telecommunication infrastructure.

Total sales of BP in 2009 achieved Rp218 billion (before elimination), or increased 14% from the position of Rp191 billion in 2008. The sales of farm tractors, gensets, and forklifts dominated the BP revenue by 92.9% from total sales, whereas forklift lease operation and parts sales contributed 7.1%. Total sales volume of forklift achieved 120 units from 63 units in 2008, and industrial genset sales increased from 430 units into 458 units, whereas farm tractors sales was 228 units from 240 units in 2008.


Mining Contracting

The Company runs the mining contracting service operation through its subsidiary company, PT Pamapersada Nusantara (Pama) with largest revenue market share in Indonesia of 42% in 2009 (source: internal market research). Pama’s customers at present consist of numerous major mining operators in Indonesia, such as PT Adaro Indonesia, PT Indominco Mandiri, PT Kideco Jaya Agung and PT Kaltim Prima Coal.

Pama’s service operations is elaborated in a mining contract agreement, which in general managing the coal production as well as overburden removal target. Pama is in charge of technical operation in the contracted location for mining, conveying activities of drilling and geological research, coal quality control, production planning and scheduling, coal transportation and environmental management in the mining areas.

Pama operates fleet of trucks to transport the overburden and coal, excavator, shovels, dump truck and wheel-loaders, accompanied by supporting equipments, such as bulldozers, motor graders, road compactor, water trucks, service trucks, lighting equipments, pumps, trailer trucks and manhauls. In line with the improving mining activities, Pama has intensified its heavy equipment fleet from 1,651
units in 2008 into 2,079 units in 2009, which among others consisted of 186 units of bulldozer, 241 units of excavator/shovel, 1,471 units of dump truck, 127 units of prime mover and 54 units of wheel loaders. The amount and composition of heavy equipment operated by Pama dynamically changes in line with the condition, location and mining operation plans duly agreed by the operators/mining owners.

Pama’s mining activities has been carried out by implementing world class occupational health and safety standards, which is Pama Safety Management System. The system underscores the importance of danger identification, risk assessment and control system development, to maintain occupational accident rate in Pama’s operational locations at the relatively lowest rate. In 2009, Pama experienced lost time injury rate, which is stated as frequency rate of accident per one million working hours, at 0.27. Moreover, Pama has been able to break the highest production rate record in the annals of its operation history, by producing coal to an amount of 68.0 million tons, while conducting overburden removal to an amount of 597.9 million bcm, or each increases by 15% and 35% compared to the year 2008 performance of 59.0 million tons and 441.9 million bcm. With the phenomenal result, Pama’s revenue in 2009 achieved Rp15.4 trillion, increased by 33% from 2008 of Rp11.6 trillion.

Those achievements are due to the relative stability of coal price which drive the coal mining operators in Indonesia to continue boosting their production, along with Pama’s capability in capturing the gainful opportunities abound.

Pama is consistently stepping forward by implementing a series of continuing improvement and development, that enables to enhance productivity as well as production cost efficiency. Several examples of development programs conducted are:

• Improving mining road quality (all weather road condition) to uplift the productivity of coal production and reduction of equipments maintenance expenses.
• Enhancing efficiency of fuel consumption through the installation of automatic fuel dispensing and auto economode.
• Extending parts usable life-time with fast moving types, and reduction of consumable goods usage to improve efficiency.

The overall development programs execution has contributed to improve efficiency level as reflected on Pama’s fnancial performance (Refer to “Financial Overview, Gross Profit Margin”, on page 58).


Mining

The Company re-entered coal mining operation in 2007 through PT Dasa Eka Jasatama (DEJ), Pama’s subsidiary company located in South Kalimantan. The DEJ mines up to end of 2009 is estimated to have contents amounted to 16 million tons coal reserves with the quality of 6,700 kcal/kg

In 2008, DEJ was able to achieve sales of coal amounted to 3.7 million tons, equivalent to Rp3.9 trillion. However in 2009, in line with the down turn of export market demand, DEJ recorded decline in coal sales volume by 35% to 2.4 million tons, with a total sales of Rp2.8 trillion, decreased 27% from its preceding year. The amount represented 10% from the total consolidated revenue of the Company.

Apart from DEJ, the Company has been endeavoring to improve its performance in coal mining by acquring PT Tuah Turangga Agung (TTA) in 2008. TTA mining areas located in Kapuas regency, Central Kalimantan, with a total concession area of 4,897 hectares. Based on internal research, TTA owns coal reserves to an amount of 40 million tons, which can be exploited throughout the next 12 years. The coal calorific value is amounted to 6,300 kcal/kg that makes it ideal for power plant energy.

The development of TTA infrastructure has been accomplished in 2009. A number of important mining facilities to include crusher plant, hauling road, stock pile and jetty, are ready for use.

The TTA trial production has been successfully carried out on October 2009 and commensurate with the quality a trial-test of coal usage has been conducted in several power plants in Japan, which compose a potential market. According to the plan, the Company will commence launching TTA commercial production activities in 2010.

Considering the strategic value and coal prospect in the future, the Company intends to expand the mining business by conducting further acquisitions. The target is coal mining concession with medium and high calorific content, with production capacity around 3 million tons per year. Therefore, it is expected that the mining business unit can provide significant contribution, which is comparable to other business units.