Report of the Board of Directors

Dear Shareholder and Stakeholder,

Year 2017 is the fourth year after PT Wijaya Karya Beton Tbk, hereinafter referred to as “ Company “ or WIKA Beton, entered the transformation phase since Initial Public Offering (IPO) which was conducted in 2014. This process became a big leap for the Company, both transformation in business processes, as well as a leap in the organizational order embodied through Good Corporate Governance (GCG).

As a business entity engaged in the manufacture of concrete, the acquisition of funds from corporate action is certainly very influential on the performance of operations and business. Especially with the condition of the infrastructure sector that continues to show its development, the need for concrete products will grow simultaneously. Increased production and funding capabilities will be a major boost for the Company to participate in meeting the needs of quality concrete products.

In general, 2017 is a continuation of the situation in previous years, especially the infrastructure sector that grew in line with the accelerated development program of the Government of Indonesia. With such promising conditions, the Company recorded an increase in sales and financial performance, as will be described in this year’s 2017 Book Year’s Annual Report.

Strategic Policy of 2017

The Company is a business entity that produces and sells concrete products. The Company’s core business is derived from the development of precast concrete products, in which the Company is the market leader of this product. Based on Precast Concrete Market research in Indonesia released by Spire Research & Consulting, the Company controls 27.8% of the total actual amount of precast concrete production; while the remaining 72.2% is divided into 9 (nine) other producers.

As market leader, the Company strives to continuously innovate portfolio and product quality. Currently, the Company is known as a precast concrete producer supported by innovation and leading technology. This innovation forms the basis for the development of the Company’s strategy, both for operational and production development as well as business development that enables the expansion of business.

Supported by these two elements, the Company operates the business of manufacturing concrete products and becoming a leading concrete producer in Indonesia. Until the end of 2017, the Company’s production capacity from 14 Concrete Products Plant (PPB) spread across Indonesia reaches 3 million tons, up 20.00% from its production capacity in 2016 of 2.5 million tons. Utility or productivity reached 103.0%, a significant increase from productivity in 2016 which amounted to 85.1%. In terms of quality, the Company is able to deliver precast concrete products to meet the specific needs of its customers.

To be able to expand its product portfolio, in 2017 the Company initiated a new initiation through Ready Mix concrete products. This product is not really a superior product of the Company. However, with the large market demand for Ready Mix concrete products, the Company took the initiative to expand its portfolio to meet market demand for Ready Mix concrete products. The broad market niche of this product provides an overview of profitability that could be one of the driving factors for the Company’s future sales.

In order to meet the above production needs, strong funding is needed, which can ensure profitability for the Company. The funding strategy becomes an important thing, especially to be able to meet production and demand targets for the products produced by the Company.

Capital Structure, 2016 and 2017

The above chart shows the changes in the composition of the capital structure between 2016 and 2017. The change in the composition of Liabilities and Equity in the Company’s funding capabilities demonstrates the Company’s commitment to strengthening its production capability underpinned by an appropriate funding strategy. As can be seen in the financial review in the Management Discussion and Analysis section, 2017 funding is used in a number of Asset investments, in particular Fixed Assets. In addition, changes in the composition of funding capabilities show optimism of the Company through appropriate calculations to grow in the future. Of course, risk management considerations have accompanied the strategic decision.

However, the promising development of the infrastructure sector sparked a tight competition in the concrete industry. This is reasonable, given the massive development of infrastructure in Indonesia has attracted many investors and business actors to take part in this market niche. The Company then formulates a business expansion strategy derived from internal strength, namely the development of services segment as a supporting business activity.

This strategy is then embodied in the vision changes made in 2017. The old vision, “Being the Best Company in Precast Concrete Industry” has been sharpened into a new vision, “Being Leading Company in Engineering, Production, Installation (EPI) Concrete Industry in Asia Southeast”.

NEW VISION

“Being Leading Company in Engineering, Production, Installation (EPI) Concrete Industry in Southeast Asia”

The vision change includes 2 (two) aspects expansion, ie business aspect embodied in EPI, as well as aspect of marketing area extending to Southeast Asia. In a simple perspective, these two extensions illustrate the Company’s optimism to expand its business portfolio in the EPI field, as well as expand its market niche to the regional level.

Implementation of Engineering, Production, Installation (EPI)

The above graphic illustrates how the EPI will work and sustain all of the Company’s resources to move together. This strategy is actually nothing new. Services have been recorded as one of the business segments run by the Company, either in the Articles of Association as supporting business activities, or in the audited financial statements recorded in the operating segment. The new vision formulation will further sharpen and optimize the ability of the Company, both in the core manufacturing business of concrete, and other supporting segments.

The above graph shows the contribution growth of the Services segment to the Company’s Revenue. With the composition, the Company expects that the vision changes will have a positive impact on the performance of all segments owned by the Company.

Comparison between Target and Realization 2017

At the beginning of the year, the Company is required to formulate the Work Plan and Corporate Budget (RKAP) as the target and development direction for the next 1 (one) year. The 2017 and 2017 RKAP targets are set at the end of 2016 and early 2017, in line with the Management Contracts drafted and endorsed by the Board of Directors and the Board of Commissioners.

Realization of Business Income in 2017 recorded achievement of 104.76% compared to the target of RKAP in 2017, while Profit of the Current Year recorded an achievement of 94.42%. The gap between the achievement of Business Revenue is above the target, and the Current Profit is slightly below target, mainly due to the large and strategic projects handled by the Company in 2017 with a small level of profitability. In addition, the initiation of new Ready Mix products developed by the Company in 2017 will have an impact on the Company’s profitability towards the RKAP targets.

Realization of Assets in 2017 recorded 118.59% achievement when compared to the target of RKAP 2017. Realization of Liabilities reached 168.03%, while the realization of Total Equity in 2017 posted 81.09% achievement when compared to the target of RKAP 2017. The decision to strengthen the capital structure through funding banks have an effect on the significant increase of Liabilities. The magnitude of projects and employment gained by the Company in 2017 has a positive impact on Business Revenue as described above, which also affects the capital structure of the Company.

Obstacles, Challenges, and Solutions

In 2017, the Company was able to record good performance growth. The main challenges arise from the funding aspect to be able to meet the need to increase the Company’s production capability. As illustrated above, the Company has established a capital structure through the composition of Equity and Liabilities that can guarantee its funding capabilities.

In implementing the new vision, the Company finds obstacles and challenges related to the business processes of new business activities, particularly the Services segment through the installation services. Learning from a variety of experiences is very meaningful, which will bring improvement for improvement until it becomes an established and tested business process.

External challenges precisely arise from the level of competition in the rising concrete industry. In order to continue to maintain its position in the concrete industry the Company is working to increase its Ready Mix concrete portfolio. In addition, targeted marketing strategies will provide a strong foundation for the development of market achievements made by the Company. In addition to strengthening its production capability, the Company is committed to producing high quality concrete products that will differentiate the Company’s branding in the concrete industry market.

MARKET MAPPING EFFORTS

“Entering the premium market, a market that has high purchasing power, and consistent to produce premium products through brand development strategy.”

Another obstacle is Human Resources (HR). With the passion of the infrastructure sector today, the need for professional and quality human resources is increasing. As one of the business actors supporting the infrastructure sector, the Company feels the lack of skilled and professional manpower, especially in the business field undertaken by the Company. Various initiatives have been undertaken, such as education and training for the Company’s internal HR, as well as extensive recruitment opportunities in the labor market. The Company is also seeking cooperation with educational institutions to be able to spawn a skilled workforce in the field of infrastructure, especially concrete.

Development of Corporate Governance Implementation Year 2017

As described earlier in this report, the 2014 IPO process provides a major leap for the Company, especially in the organizational setting embodied through GCG. Given the status of a public company, the Company is required to comply with capital market regulations and legislation, particularly related to risk management, audit and oversight process, and information transparency to shareholders and the wider community.

This compliance has been carried out by the Company, which has a positive impact on the management and management of the Company. The strategic partnership through oversight by the Board of Commissioners impacts on a more balanced management of the Company. The General Meeting of Shareholders (AGM) that provides a forum for shareholders-to minority shareholders-to make strategic decisions also promotes the practice of implementing GCG principles based on transparency and accountability.

The Company has equipped itself with risk management and internal audit. Both approaches function like two sides of one eye coin serves to provide early detection of possible risks faced by the Company, as well as providing evaluation and supervision on the business processes that have been running. Especially with the risk profile of the Company’s considerable production capacity, risk management has become an inevitable requirement.

Information transparency to shareholders is also a concern of management. Through the Corporate Secretary function, the Company provides comprehensive information to shareholders and all stakeholders. The Company recognizes that information transparency is an integral part of sustainability development supported by stakeholder engagement in the indirect supervision process.

Comprehensive information transparency is also done through the presentation of Audited Financial Statements, which have been audited independently by public accountants. The appointment of public accountants is also done through a series of tiered mechanisms, involving shareholders through the GMS. This is done to maintain the independence of public accountants, which in turn will provide opinions in accordance with the provisions of Financial Accounting Standards (SAK) applicable in Indonesia.

For the implementation of GCG principles to be measurable, the Company conducts annual periodic assessments. This assessment, both independent assessment and self assessment conducted by the internal team, will be an evaluation and input for improving the application of GCG principles within the scope of the Company. Assessment for year 2017 done by BPKP with result 88.46 “Very Good”

Corporate social responsibility

Sustainable development requires an entity that owns and embodies the Corporate Social Responsibility (CSR) aspect. In the Annual Report prepared under the Financial Services Authority Regulation no. 29 / POJK.04 / 2016 on the Issuer’s Annual Report or Public Company, the implementation of CSR program is based on 4 (four) main aspects, namely environmental aspect, employment aspect, occupational safety and health (K3), social aspect and community empowerment, responsibility to consumers.

The above four aspects are in fact based on shareholder and stakeholder attachment in the Company’s business processes, particularly indirect supervision. Through these aspects, there will be a harmonious relationship, which will be the foundation for sustainable development.

The above four aspects have been the concern of the Company. On the environmental aspect, PPB and Crushing Plant owned and managed by the Company have complied with Environmental Impact Assessment (AMDAL) and other related permits. Utilization of waste from the results of PPB and Crushing Plant has also been conducted in line with the innovation that continues to be developed by the Company.

In the aspect of employment and Occupational Safety and Health, the Company is concerned about safety and health aspects particularly safety. The Company’s concrete production process involves measurable technology, which allows the socialization of K3 to be more focused. In addition, the fulfillment of employment aspect is done with the fulfillment of employees’ rights and welfare, as well as the development of competencies that will positively impact the development of each individual employee’s talents.

For the social aspect, the Company provides an opportunity for the community around the business location to be involved as a workforce. In addition to cost efficiency, community involvement around the business location will encourage local economic levels, which will ultimately improve the quality of life better. In addition, the Company also held a number of donation activities to provide direct assistance to the community.

In the aspect of customer responsibility, the Company continues to equip itself with responsive customer service. The entire implementation of the Company’s CSR program is expected to create harmonious relationships with shareholders and stakeholders.

Changes in the Composition of Members of the Board of Directors of 2017

The composition of the Board of Directors in 2017 shall be subject to 2 (two) changes, decided through the Annual General Meeting of Shareholders dated 13 March 2017 and the Extraordinary GMS on May 24, 2017. The following chronology is presented in the composition of the Board of Directors throughout 2017.

Chronology of the Board of Directors in Year 2017

1 January - 12 March 2017 13 March - 23 May 2017 24 May - 31 December 2017 Explanantion
Wilfred Imanuel Adisulung Singkali
(President Director)
Wilfred Imanuel A. Singkali was dismissed as President Director at the Annual GMS March 13, 2017
Hadian Pramudita
(Director)
Hadian Pramudita
(President Director)
Hadian Pramudita
(President Director)
Hadian Pramudita was appointed as President Director at the Annual GMS March 13, 2017
Entus Asnawi Mukhson
(Director)
Entus Asnawi Mukhson was dismissed as Director at he annual GMS March 13, 2017
Fery Hendriyanto
(Director)
Fery Hendriyanto was dismissed as Director at annual GMS 13 March 2017
Hari Respati
(Director)
Hari Respati
(Director)
Hari Respati
(Director)
-
Sidiq Purnomo
(Independent Director)
Sidiq Purnomo
(Independent Director)
Sidiq Purnomo
(Independent Director)
-
Kuntjara
(Director)
Kuntjara
(Director)
Kuntjara was appointed as Director at annual GMS 13 March 2017
Mohammad Syafii
(Director)
Mohammad Syafii
(Director)
Mohammad Syafii was appointed as Director at annual GMS 13 March 2017
Siddik Siregar
(Director)
Siddik Siregar
(Director)
Siddik Siregar was appointed as Director at annual GMS 13 March 2017
Agung Yunanto
(Director)
Agung Yunanto was appointed as Director at annual GMS 13 March 2017, then dismissed at Extraordinary GMS 24 May 2017
Mursyid
(Director)
Mursyid was appointed as Director at Extraordinary GMS24 May 2017

Therefore, the composition of the Board of Directors as of December 31, 2017 is as follows:

  • President Director : Hadian Pramudita
  • Director : Hari Respati
  • Director : Kuntjara
  • Director : Mohammad Shafi’i
  • Director : Siddik Siregar
  • Director : Mursyid
  • Independent Director : Sidiq Purnomo

The change of the Board of Directors is entirely the shareholder’s decision as outlined in the General Meeting of Shareholders mechanism (RUPS).

Business Prospects of 2018

The passion for infrastructure development will still continue in 2018 and in the following years. Acceleration of regional development by the Government of Indonesia requires adequate infrastructure. This condition will also have a positive impact on the development of the concrete industry as the main support of infrastructure development.

With conditions that are still promising, the Company is optimistic to grow well. The 2018 RKAP, which has been drafted and approved by the Board of Commissioners and the Board of Directors, projected optimistic growth. Business Income Projection 2018 increased to 29.52% compared to the realization in 2017, and the projection of Profit of Current Year 2018 grew up to 36.56% compared to the realization in 2017. Smeentara The amount of Comprehensive Income Attributable to Owners of the Parent Company is projected to grow 35.74%, and for Non Controlling Interest of 39.78%.

The vision change strategy is expected to encourage Business Income through the intensification of concrete manufacturing activities and business expansion through the implementation of EPI. The expansion of the Ready Mix concrete portfolio is also expected to contribute positively to the performance of the Company’s Business Income in 2018.

final word

For the achievements made in 2017, allow the Board of Directors to express their respect and gratitude to the Board of Commissioners, as well as the main shareholder, PT Wijaya Karya (Persero) Tbk. The Board of Directors also thanked the trust given by the shareholders. Thank you also to regulators, customers, suppliers, and business partners, for the cooperation that has been created. To all employees of the Company, the Board of Directors expresses their highest appreciation for the intelligent work that has been demonstrated. Hopefully this achievement will inspire all parties to be able to continue to optimize their capabilities and become the Company’s capital to continue to grow into the future.

Jakarta, February 2018

Hadian Pramudita

President Director

SUBSIDIARIES

WIKA Beton's subsidiaries