Report of the Board of Commissioners

"THE BOARD OF COMMISSIONERS CONSIDERS THAT THE BOARD OF DIRECTORS HAS SHOWN GOOD PERFORMANCE THROUGHOUT 2018. THIS SUCCESS WAS CLOSELY RELATED TO THE EFFECTIVELY IMPLEMENTED STRATEGY AND WAS IN LINE WITH THE TARGETS THAT HAD BEEN SET."

Dear Respected Shareholders and Stakeholders,

Representing the Board of Commissioners, first of all I would like to take this opportunity to express my gratitude of His blessings for the achievement of the Company’s positive performance in 2018.

Entering 2018, the dynamics of the global economy occurred especially in the first and second quarters, due to the normalization of the policies of the Central Bank of the United States (US) or The Federal Reserve (Fed) which ultimately had brought an impact of liquidity tightening.

Expansive policies implemented by the United States by cutting taxes and encouraging expenditures, coupled with trade wars between the United States and China has increasingly made global economic conditions uncertain. The global economic turmoil has quite brought an impact on the national economy.

The IMF projected Indonesia’s economic growth at the end of 2018 at 5.1%, in its October 2018 World Economic Outlook (WEO) report, lower than the economic growth targeted by the Indonesian government in the 2018 State Budget, i.e. at 5.4%.

In contrast, the precast concrete industry grew significantly in 2018 due to very rapid infrastructure growth which had a positive impact on the Company’s overall performance.

Evaluation in Performance of the Company and Board of Directors

The Board of Commissioners considered that the Board of Directors has shown good performance throughout 2018, as reflected in the financial indicators presented in the Audited Financial Statement for Fiscal Year of 2018. From the perspective of Consolidated Income Statement, the Company booked Operating Revenues that increased by 29.25% to Rp6.93 trillion from the previous year of Rp5.36 trillion. This increase was due to the success implementation of sales strategy, by achieving timely production and distribution, and the Company’s ability to maintain product quality which consequently could maintain the customers’ trust. The Company was also able to book a Net Profit of Rp486.64 billion, an increase of 42.94% compared to the previous year of Rp340 billion, which exceeded the Work Plan and Corporate Budget (RKAP) target of 3.48%.

Meanwhile, from the Consolidated Financial Statement perspective, the Board of Commissioners considered that the Company has recorded an increase in Total Assets to Rp8.88 trillion, an increase of 25.66% compared to the previous year of Rp7.07 trillion. Such increase in Asset was primarily due to the increase in Current Asset at 34.92% from Rp4.35 trillion in 2017 to Rp5.87 trillion in 2018, and the increase in Non-Current Asset at 10.84% from Rp2.72 trillion to Rp3.01 trillion. The Company’s capital showed growth, where Total Equity went up at 14.15% from Rp2.75 trillion to Rp3.14 trillion. The Company’s Assets booked an increase of 103.85% from the RKAP target for 2018.

The Board of Commissioners was of the opinion that this success was closely related to the effectively implemented strategy and was in line with the targets that had been set, including the strategy of the Company’s breakthrough in new business lines such as Ready Mix and Installation Service.

The Board of Commissioners also supported the strategic steps which has taken by the Board of Directors to work on the Design and Construction of A.P. Pettarani Flyover Toll Road (Section III) Makassar where the Company will increase the production capacity by 90,000 tons in one of the factories in the Makassar industrial area to realize 300,000 tons/year. In addition, the Company also played a role in Engineering, Production and Installation (EPI) in this first flyover toll road project in Makassar. This is considered in line with the Company’s vision to become a leading company in the field of Engineering, Production and Installation (EPI) for concrete industry in Southeast Asia.

The Board of Commissioners also saw that the Board of Directors has been able to carry out effective risk management. The periodical and continuous efforts of the Board of Directors to continuously develop a framework of risk management systems and an integrated and comprehensive internal control structure are considered having provided early detection of potential risks that may affect the Company’s performance.

In terms of information technology, the Board of Directors has demonstrated its capabilities through the use of automation technology in production systems in order to increase productivity. The Board of Directors is also considered to have applied the precautionary principle to encourage the growth of non-organic business in accordance with input from the Board of Commissioners, in order to contribute optimally to the Company’s performance.

In addition to providing full support for strengthening the installation service segment and increasing production capacity from existing factories, the Board of Commissioners also handed special appreciation to the Board of Directors by launching the latest concrete product innovation, namely Box Culvert, applied on the underpass structure of the Depok - Antasari Toll project.

The Board of Commissioners is pleased with the achievements of the Company as evidenced by various awards the Company received throughout 2018, including Top 100 Most Valuable Indonesian Brands 2018, Second Best BUMN Tbk Talent Development on the 7th BUMN 2018 Award, Indonesia Fast Growing New Public Company 2018 for the Basic Industry & Chemical category in the Best Public Companies Award 2018, Bronze Winner “Promising Company in Branding Campaign” in the category of SOE Subsidiary in the BUMN Marketeers Awards, Indonesia Most Creative Companies 2018, and Indonesia Most Innovative Business Award 2018 as Excellent Company for Business Process Innovation in Cement Sector. In addition, the Board of Commissioners also appreciated the Company’s achievement for the third time being placed as one of top 25 companies in the SRI KEHATI Index.

The Board of Commissioners viewed that this success was also due to the good synergy with the WIKA Group. The Board of Commissioners expected that the synergy that has been well established can continuously be maintained in order to support national economic development more optimally so enables the Company to deliver a positive impact on the wider community.

Supervision over Corporate Strategy Implementation

The Board of Commissioners actively monitored the implementation of the Company’s strategy through the committees under its aegis, namely the Audit and Business Risk Committee, the Remuneration and Nomination Committee and the Good Corporate Governance (GCG) Committee.

Periodically, the Board of Commissioners conducts reviews on the implementation of the strategies executed by the Board of Directors and always provides input to the Board of Directors to evaluate each program carried out to determine which programs that should be continued and which ones requiring further evaluation. This is aimed so that the programs can drive the company’s performance in the coming year.

Frequency and Method of Advisory to the Board of Directors

Advice to the Board of Directors is provided through formal meetings and informal discussions. The formal meetings are held at least once in four months, where throughout 2018 joint meetings with the Board of Directors have been held 12 times, while informal discussions can be held at any time without passing through a meeting mechanism.

The focus of the discussion in the joint meetings includes evaluating the results of the business and the performance of the Company, investment plans, realization of the RKAP, preparation of the GMS implementation, progress of the compilation of Audit Reports and other matters.

Performance Assessment of Committee under Board of Commissioners

For the financial year of 2018, the Board of Commissioners considered that the Audit and Business Risk Committee, Remuneration and Nomination Committee as well as the Good Corporate Governance (GCG) Committee have carried out their duties and responsibilities effectively according to the charter which applies to each committee, among others is providing recommendations and report to the Board of Commissioners on matters that require attention and follow-up of the Board of Commissioners.

In 2018, the Audit Committee and Business Risk have carried out its responsibilities in helping the Board of Commissioners to evaluate the effectiveness of internal control performed by internal audit and external auditor. In addition, the Audit and Business Risk Committee has also provided recommendations regarding the appointment of the Public Accountant Firm (KAP) which will conduct an audit of the Company’s Financial Statement Fiscal Year 2018. Based on recommendations from the Audit and Business Risk Committee, the Board of Commissioners has appointed KAP Amir Abadi Jusuf, Aryanto, Mawar and partner (RSM Indonesia) to carry out the general audit into the Company’s Financial Statements 2018 and compliance audit against with legislation and internal control. KAP Amir Abadi Jusuf, Aryanto, Mawar and partner (RSM Indonesia) was appointed to replace KAP Satrio Bing Eny & partner (Delloitte) due to administrative sanctions for canceling the registration to the latter.

Meanwhile, the Remuneration & Nomination Committee has reviewed, proposed and determined the amount of tantiem for the Fiscal Year 2017 and determined the salaries/honorarium, benefits and facilities for the Board of Directors and Commissioners in 2018, and provided suggestions regarding the nomination process for the Board of Directors and the composition of the Board of Commissioners. As for GCG Committee, it has evaluated the effectiveness of GCG in the Company referring to the GCG principles and guidelines.

We informed that as of April 30, 2018 the composition of the Audit Committee was changed, where Ms. Rosmala and Mr. Soemartojo were no longer held the position of Audit Committee member. The two persons have been replaced by Mr. Herry Trisaputra Zuna and Mr. Tarcicius Sawardi, based on Letter of Board of Commissioners No. SK.03/DK-WB/IV/2018 dated April 30, 2018.

Effectiveness of Corporate Governance Implementation

The Board of Commissioners saw that the implementation of Corporate Governance (GCG) within the Company has shown adequate quality. Every member of the Company is considered to has understood the importance of applying the five principles of GCG in daily operational activities. This is inseparable with the Company’s commitment to continue to conduct GCG dissemination to employees at various lines.

The success of the Company in implementing GCG effectively is reflected in the achievement of a high score of GCG Assessment conducted by the trusted Assessor Team of the BPKP of Jakarta Province, i.e. 88.46 with the “Very Good” rating. GCG implementation in the Company has shown significant progress and can be seen in the Assessment score of the Company’s GCG that goes higher year by year.

Progress in GCG implementation has been proven to have a positive impact on the Company, such as increasing the Company’s performance and competitiveness, as well as stakeholders’ trust.

In the future, the Board of Commissioners hopes that the implementation of the Company’s high-level GCG can continue to be refined through strong commitment and active participation from all the Company’s employees. The objective of this is to maintain the trust and interests of stakeholders in a sustainable manner.

Commitments to Shareholders

The Board of Commissioners saw that the Company could maintain its commitment to maintaining returns for the Company’s shareholders through the distribution of cash dividends for the 2017 financial year of Rp12.13 per share, with the total share values amounted to Rp101,140,994,048 and was paid on April 20, 2018. This proves the consistency of the Company in maintaining trust and providing added value to Shareholders given that the existence of the Shareholders is very important for the business continuity of the Company.

Changes in the Composition of the Board of Commissioners

On this occasion, the Board of Commissioners would also inform that the composition of the Board of Commissioners has been changed, following the Decision of Annual General Meeting of Shareholders held on March 19, 2018, where Mr. Gandira Gutawa Sumapraja and Ms. Tumik Kristianingsih were no longer members of the Board of Commissioners. The position of President Commissioner has been taken over by myself and the Commissioner, by Mr. Yohanes Babtista Priyatmo Hadi. The reason for this changes is the organization needed fresh air for improving the Company’s performance.

The Board of Commissioners' Outlook and Role on the Company’s Implementation of Whistleblowing System (WBS)

The Board of Commissioners considered that the implementation of the Whistleblowing System (WBS) has been running well where all the elements involved understand better what their respective roles, duties and responsibilities are. More and more of the Company’s employees are aware of the existence of this WBS, due to the information provided by management every year. The Management always strived to encourage employees not to be hesitate and fear in filing complaints if they are aware of any irregularities that occur in their work units.

Related to the WBS, the Board of Commissioners plays a role in receiving reports along with data and facts from the department that receives a violation complaint. In addition, the Board of Commissioners also evaluates complaints of violations, to see whether further investigation is needed or penalty may be imposed.

Business Prospects in 2019

According to economists, the world economic growth in 2018, which reached 3.8% is predicted to slow down to 3.6% in 2019. This figure is slightly lower than the International Monetary Fund (IMF) projection of 3.7%. Meanwhile, World Bank projected Indonesia’s economic growth will be approximately 5.2%, slightly lower than the government’s projection of 5.3% as stated in the 2019 State Budget.

However, these macroeconomic conditions do not seem to be an obstacle to the pace of the precast concrete industry. Conversely, the intensive development of infrastructure by the government has actually encouraged the high demand for materials, including precast concrete.

The Board of Commissioners urged the Management to be optimistic but remain cautious in executing various programs given the yet uncertain macroeconomic conditions.

The Board of Commissioners welcomed the Board of Directors’ business prospect analysis and strategic plans for 2019 and assumed that these are feasible to realize. The Board of Directors is considered to have carefully and cautiously set the main strategies and targets for 2019.

The Board of Commissioners also appreciated the Board of Directors’ strategy in exploring cooperation with other holding companies and BUMNs to penetrate Southeast Asia market. In addition, the Board of Commissioners also provided input to the Board of Directors to continue prioritize business sustainability in the long term rather than aggressive growth.

Regarding future business development, the Board of Commissioners advised the Board of Directors to always evaluate every investment made by involving consultants in order to obtain more accurate study results. This is aimed to facilitate the Board of Directors to make strategic decisions in business development to improve competitiveness in the future.

In 2018, the Company has laid good foundation for 2019 both in terms of production and financial conditions. To that end, the Board of Commissioners is confident that the Company is ready to accept challenges for overseas production and develop business lines outside of products such as contractor services in the coming year.

Appreciation

Concluding this report, on behalf of the Board of Commissioners, I would like to express my highest appreciation to the Board of Directors for their outstanding performance in managing the Company, and to the employees for their dedication and loyalty to the Company. I also immeasurably thank the customers, business partners, shareholders and other stakeholders for the trust and support provided to the Company. Hopefully with wellestablished synergy supported by continuous innovation, the Company would be able to accelerate positive business growth in a sustainable manner in the coming years.

Bambang Pramujo

President Commissioner

SUBSIDIARIES

WIKA Beton's subsidiaries