ASEAN KEY DESTINATIONS
Big players mull price hikes in 2015
Indonesia: Major pharmaceutical firms PT Kalbe Farma (KLBF) and PT Kimia Farma (KAEF) are considering whether to increase the price of their products to cope with rising costs.
Kalbe finance director Vidjongtius said the private company might raise their prices by between 2 percent and 3 percent in the first quarter of 2015.
“Several factors will affect the decision, including higher electricity and labor cost, and the recent increase in subsidized fuel prices,” he said.
The government raised electricity prices for the industrial segment in May and it is currently assessing another rise for next year. A new provincial minimum wage for 2015 has also been set, triggering recalculations among businesses.
Meanwhile, in terms of distribution, Vidjongtius acknowledged that higher subsidized fuel prices would increase Kalbe’s transportation costs by an average of 0.5 percent next year.
“The fuel price increase will surely have an impact on our distribution, though only by a little. Overall, transportation-related expenses make up 2 percent of our total operational costs,” he added.
He said the company would operate more efficiently by increasing the load volume of its trucks and by reorganizing goods traffic between its factories and branch offices.
Kalbe, the largest drug maker listed on the Indonesia Stock Exchange (IDX), will also assess the rupiah exchange rate, as that will influence its spending on raw materials.
As with other drug makers, Kalbe sources 90 percent of its raw materials from overseas, meaning rupiah volatility is a crucial element in its finances. It estimates that for every 10 percent depreciation of the rupiah it faces a rise in its costs of about 3.5 percent.
The rupiah has depreciated by 2.3 percent in the past year and the rapid fluctuations throughout 2014 have had an impact on its net profits.
The company recorded a hit to its bottom line during the January to September period in its nine-month financial report.
Separately, Kimia finance director Farida Astuti said the state-owned firm was currently formulating its 2015 business plan, which would detail several price increases.
“We have not decided on the new prices, but they will applied to our OTC [over the counter] products,” she said in a telephone interview, adding that the company adjusted product prices once every year.
To help reduce production costs, Kimia has begun replacing diesel fuel at its factory in Watudakon, East Java province, with gas. Farida said the move had been effective in slashing costs by around 30 percent.
“Similar actions will also be implemented at our other factories next year,” she said.
Kimia’s other factories are located in Bandung, West Java, Semarang, Central Java, and Medan in North Sumatra.
Kimia also plans to use hedging to reduce risks stemming from exchange rate volatility. Data from the company shows that 90 percent to 95 percent of its total costs relate to the purchase of imported raw materials.
Meanwhile, according to the IDX, Kalbe’s shares were down 1.1 percent to Rp 1,780 (14 US cents) on Friday, while those of Kimia fell 1 percent to Rp 1,425 per share.
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