Report of the Board of Directors

"IN LINE WITH THE INCREASE IN OPERATING INCOME UP TO 29.25%, THE COMPANY ALSO MANAGED TO RECORD A SIGNIFICANT INCREASE IN NET PROFIT AT 42.94%"

Dear Respected Shareholders and Stakeholders,

First of all, I’d like to express my gratitude to God the Almighty for His blessing that has allowed the Company to maintain its business continuity throughout 2018.

It is an honor for us, the Board of Directors of the Company on this occasion to be able to submit the 2018 Annual Report to shareholders and stakeholders. This Annual Report describes the performance and diverse achievements of the Company throughout 2018.

Macroeconomic Conditions

Amid the global slow down throughout 2018, domestic economy showed a positive growth. Entering the first quarter, Indonesia’s economy grew at 5.06% and went up in the second quarter to 5.27%. This figure was the highest in the last five years. Although economic growth in the third quarter was 5.17% or lower than in the second quarter, this figure was better than the same period in the previous year of 5.06%.

Up to the end of 2018, the IMF projected Indonesia’s economic growth of 5.1%. This is because Indonesia has been affected by global economic sentiments, such as rising interest rates in the United States, oil prices also trade wars of the United States.

Meanwhile, the inflation rate was relatively stable at 3.13%, declining when compared to inflation in 2017 of 3.61%, while the exchange rate of the Rupiah against the US Dollar remained under considerable pressure. The Rupiah throughout 2018 fluctuated in the range between Rp13,224 – Rp15,329 and was closed at the level of Rp14,481 per USD on December 31, 2018.

The fluctuations of the average Rupiah exchange rate in 2018 was the lowest in recent years, due to the uncertainty in the global financial market. Meanwhile, in the capital market, the JCI was closed at the position of 6,194 or decreased by 2.54% from 2017 at the level of 6,355.65 points.

In general, it is fair to say that the development of the domestic macro economy was quite positive, because of the acceleration of infrastructure development programs that had an impact on the growth of the construction sector, which remains being the main focus of the government. The rise of infrastructure projects is a good momentum for precast concrete producers to increase their production capacity in accordance with data from the Association of Indonesian Precast and Prestressed Companies (AP3I).

Excellent Performance of the Company

With a fairly conducive macroeconomic condition, we should be proud of the performance achievement of all the Company’s employees throughout 2018.

The Company commenced the year 2018 by ratifying the Company’s Work Plan and Budget (RKAP) while officially introducing the new Corporate Value, namely ACE (Agility, Caring, Excellence). It is hoped that every member of the Company could act with optimising its skills and agility toward business opportunities and changes, be proactive and caring toward the stakeholders, and be able to present excellent performance not only to customers, but also to all stakeholders.

Throughout 2018, the Company was able to present positive performance both from financial and operational perspectives. From the Audited Financial Statement Fiscal Year 2018 in the Consolidated Income Statement, the Company booked an Operating Income amounting to Rp6.93 trillion, an increase of 29.25% compared to the previous year of Rp5.36 trillion. As the Company’s core business, the concrete segment remains being the principal contributor to the Company’s Operating Revenues, while the contribution from the installation service segment showed an increase at 3.04% compared to the previous year. This increase indicated the success of the Company’s strategic initiation in the field of Engineering, Production, Installation (EPI), where the Company has been taking business innovation efforts in the installation service segment since 2017. Meanwhile, the Quarry segment contributed 15.45% to the Company’s Operating Revenues, an increased compared to 0.84% in 2017.

In line with the increase in Operating Income, the Company also managed to record a significant increase in Net Profit at 42.94% from Rp340 billion in 2017 to Rp486.6 billion in 2018.

Meanwhile, from the Consolidated Financial Statement perspective, the Board of Commissioners considers that the Company has recorded an increase in Total Asset to Rp8.88 trillion, an increase of 25.66% compared to the previous year of Rp7.07 trillion. The increase in Assets was mainly due to an increase in the amount of Current Assets from Rp4.35 trillion in 2017 to Rp5.87 trillion in 2018. The Company’s capital showed growth, where Total Equity went up at 14.15% from Rp2.75 trillion to Rp3.14 trillion.

The achievement of other financial ratios in general is positive and is in line with the target that had been set; Current Ratio increased at 8.39% to 111.86% from the previous year of 103.20%; EBITDA margin rose at 13.49%; Net Profit Margin of 7.02%; and Return on Investment of 8.18%. Furthermore, the Company was also able to maintain a gearing ratio below 1 which reflected the Company’s very healthy financial condition.

So far, we have been able to generate relatively strong Cash flows to fund future projects. Our positive Cash flow also reflects that the Company’s business was running well, as we may presume that cash flow problem is a major issue that a company may face. Going forward, we have the flexibility to select any funding portfolio according to the Company’s business needs.

Comparison of Target against Realization

Compared to the 2018 Work Plan and Corporate Budget’s target, in overall we recorded performance that was in line with those targets. Realization of Net Income in 2018 booked an increase of 99.79% from RKAP target, while realization of Profit of the Year was 103.48% of the RKAP target. Meanwhile, the Assets and Equity of the Company amounted to 103.85% and 89.12% respectively, compared to the RKAP target.

Strategic Policy

As a subsidiary of a State-Owned Enterprise, the Company actively contributes to supporting government programs in economic development through infrastructure projects. Up to end of 2018, the Company recorded acquisition of new contracts worth Rp7.66 trillion, increased at 6% or Rp433.86 billion from the previous year amounting to Rp7.23 trillion. Of the total projects handled by the Company, WIKA Group remains the main contributor with a share of 22.21%, followed by other SOEs with 0.26%, while the remaining 53.40% derived from national and foreign private companies.

One of the projects that are currently ongoing is the AP Pettarani Makassar flyover toll road project. For the construction of the project, the Company increased its production capacity in one of the factories located in the Makassar Industrial Area (KIMA) by 90,000 tons , to a total of 300,000 tons/year. This additional capacity is applied in the existing factory environment by utilizing the stockyard land area which is converted into a production line. This additional production line will add to the Company’s production of Non-centrifugal Precast Concrete products.

In addition, we also supported the Jatigede Sumedang Hydroelectric Power Plant Project in West Java with a capacity of 2x55 MW and is planned to supply to Java - Bali electricity system and is targeted to be completed by the end of 2019. For the project, the Company contributes through the supply and installation of PC Bridge Crane Girder products that will function as Runaway Bridge Crane in the main building of the hydroelectric power plant.

We are aware that the business challenges in the coming years will be even tougher, where the demands of Shareholders will go higher. Therefore, we took efforts to lay a stronger foundation in 2018. Throughout the year, the Company has implemented various innovations to improve the competitiveness of companies both domestically and internationally, one of which is presenting concrete product innovations namely Box Culvert for road trajectories especially in underpass structure as a substitute to conventional methods (casting at project sites).

One of the first projects to apply this product was the 62.5 meter Depok–Antasari Toll Road project. Besides the guaranteed quality of the products as these have been tested at the factory before being distributed to the project site, another advantage is that the construction time of the road trajectory is shorter compared to the conventional method. This is because the field work is transferred to the factory and project preparation can go simultaneously. Going forward, we will continue to innovate to develop products and technologies that adapt different project needs, including through the development of Box Culvert products.

In addition, we also strived to develop our Engineering business line through investment in the Research Laboratory worth Rp21 billion in the forms of material Research Laboratory, structure and engineering to produce efficient and competitive new products, also to support the production, installation and testing of building structures. Not only in the field of product development, the Research Laboratory is also able to become a strategic partner in the field of research and engineering in order to improve the Company’s engineering solution service. We hope that this laboratory would later be a precast concrete technology research center in Indonesia.

Business Process Transformation

We recognize that today’s customers do not only need products, but also comprehensive engineering solutions that would solve all the problems faced. We no longer only offer products, but have proactively offered completion of engineering problems that the customers would tackle. So when customers need a product, we can also provide services ranging from design concepts to product installation at site.

Changes in customer behavior are much influenced by technological advancement. We realize that to grow sustainably, the Company must be able to keep up with changes. For this reason, we transformed ourselves from conventional core business namely Precast Concrete Industry to Engineering, Production, and Installation. It is expected that this transformation would be able to take the Company towards the development of a Strategic Business Unit (SBU) of products and services based on potential market segmentation demands and to accelerate the Company’s growth sustainably.

In the next five years, the Company is expected to grow between 20% and 25% on average, as directed by its holding company. With such expectations, we endeavours so that the existing products can be accepted by consumers. We make every effort of using the latest technology and also work with a Malaysian company; this is aimed at utilizing the technology they own. This is part of the Company’s business innovation process to develop the installation service segment which includes the activities of inner boring, post tension, and launching gantry in order to increase customer satisfaction when receiving products in preinstalled conditions.

Business Constraints and Strategy in 2018

In the course of business activities, business constraints were inevitable throughout 2018, particularly the increasingly tight business competition. However, we were able to maintain our position in the pre-cast concrete industry while realizing sustainable performance growth. This is due to fundamental strengthening efforts and the implementation of various strategies as follows:

  • Synergize with the holding company, to which it contributes 32% as part of WIKA Group.
  • Optimizing Human Resources and Production
  • Using the latest automation production systems to increase productivity.
  • Performing cost efficiency on all fronts.
  • Strengthening the existence of the Company in businesses outside the core business, namely Ready Mix concrete, natural material sources (quarry) and installation services.
  • An effective marketing strategy in managing products, brands and customers.

Awards in 2018

The commitment and hard work of all the Company’s employees have led us to a very prideful achievement. Closing the year 2018, we achieved a number of awards that marked our success, namely:

  • Being the only winner of the Top 100 Most Valuable Indonesian Brands 2018 award in the precast concrete industry at the award ceremony organized by Brand Finance and SWA Magazine.
  • As an enterprise with the Second Best BUMN Tbk Talent Development in the 7th BUMN Awards 2018 that was initiated by BUMN Track and supported by PPM Manajemen.
  • Indonesia Fast Growing New Public Company 2018 for the Basic Industry & Chemical category at the Best Public Companies Award 2018.
  • Bronze Winner of “Promising Company in Branding Campaign” in BUMN Subsidiaries category in the BUMN Marketeers Awards event.
  • Indonesia Most Creative Companies 2018.
  • Indonesia Most Innovative Business Award 2018 as Excellent Company for Business Process Innovation in Cement Sector.
  • For the third time ranked one of the top 25 Companies in the SRI KEHATI Index and received appreciation from SWA and KEHATI Foundation.
  • Gold Flag and Certificate of Appreciation for Occupational Health and Safety Management System OHSMS from the Manpower Ministry
  • Top 5 Social Business Innovation Company 2018 for the Cement category.
  • Two awards from the BUMN Branding & Marketing Award 2018 event, namely The Best Branding and Enhancing Competitiveness through Technology for the Agro, Manufacturing & Mining Sectors.
  • Two awards from the Top IT & Top Telco Award event, namely Top IT on WTON Mobile App and Top Digital Transformation Readiness.
  • Top 50 Mid-Cap Issuers in the 10th IICD Corporate Governance Conference and Award 2018.

We made these extraordinary achievements a catalyst to continue to work better in the future so that we can remain being a subsidiary of a reputable and trusted SOE.

Implementation of Best Governance

For us, the implementation of GCG is not just complying with laws and regulations, but is a fundamental matter that refers to international best practices. The Management believes that by implementing GCG, the Company will be able to create better value and increase competitiveness.

Throughout 2018, we have taken efforts to implement GCG by referring not only to the applicable regulations, but also our internal utilities such as Board Manual, Code of Conduct (CoC), Code of Corporate Governance (CoCG) and Committee Charters. The increase in GCG practices of the Company is inseparable from the full commitment of the entire management and employees of the Company to the implementation of GCG principles as a foundation in carrying out business activities, including Transparency, Accountability, Responsibility, Independence as well as Fairness and Equality.

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 shows significant progress and can be seen in the Assessment score of the Company’s GCG that goes higher year by year.

Commitment to Community and Occupational Safety

Our Corporate Social Responsibility (CSR) programs focus on 4 (four) main aspects, namely the environmental, social and community, responsibility to consumers, as well as Occupational Health and Safety (OHS) practices. Every year, we design CSR programs along with the budget allocation.

Natural disasters that occurred in Lombok and Donggala caused sadness to many people, including the WIKA Beton family. For this reason, we strove to provide humanitarian contributions that could help the communities in the affected areas.

For the disaster in Palu-Dongala, we helped support the fulfilment of the basic needs of the victims, especially residents around the WIKA Beton Donggala Crushing Plant Work Unit such as blankets, tarpaulins, emergency lights, mineral water, generators, food ingredients, snacks, and medicines.

We also collaborated with Basarnas to deploy heavy equipment in the form of breakers from the WIKA Beton Donggala Crushing Plant Work Unit which was mobilized to help demolish the rubble of infrastructure facilities in Palu-Donggala and support the reconstruction of infrastructure at various points in Palu- Donggala.

As regards earthquake in Lombok, the Company was trusted by the Ministry of Public Works and People’s Housing to restructure the houses that were damaged, in late July and early August through Simple & Healthy Houses (RISHA) project. The Company was assigned to be one of the suppliers of RISHA, and was expected to be able to construct around 5,000 housing units within a period of 6 months.

As for the Sunda Strait tsunami disaster, with agility we distributed aid of basic necessities for people affected by the disaster, such as blankets, worship equipment, tents, sleeping mats, emergency lights, either handed directly or through the BUMN Peduli Post. In addition, we also collaborated with PLN to accelerate the recovery of the electricity grid in disaster-affected locations through deployment of crane and send special teams to the field to install concrete electric poles along Tanjung Lesung Beach.

In terms of Occupational Health and Safety (OHS), we are also committed to provide a conducive work environment for employees. Our engagement in this matter is demonstrated in the establishment of the QSHE Bureau, which is one level below the Board of Directors. This bureau would control all QSHE urgent works in the entire implementation of the Company’s business processes.

Our commitment in applying OHSMS in the work environment which aimed to improve productivity and welfare of the employee, is reflected in the success of the Company through PPB North Sumatra and PPB Pasuruan WIKA Beton in obtaining Gold Flag and Certificate of Management System for Occupational Health and Safety.

Effectiveness of Risk Management and Risk Alertness Culture

In order to increase added value in the regard of stakeholders, we always strive to anticipate various risks to which the Company’s business activities are exposed, both non-systematic risks that can be controlled internally and systematic risks that are beyond the Company’s control. Efforts to control non-systematic risks are carried out by observing prudent principle and risk management principle. Whereas systematic risks, i.e. their potential and impact on the Company are carefully identified.

We recognize that the Company’s resilience to risk depends on how we prepare ourselves for risk exposure. Therefore, we always strive to instill the culture of risk alertness to all the people of the Company by transmitting an adequate understanding of risk factors related to their daily work or function. On various occasions, such as in evaluation meetings from the lowest level up to the Board of Directors level, risk opportunities that have the potential to disrupt the final results, are discussed.

In addition, in order to improve competencies in the field of risk management, the Company facilitates employees to attend inhouse training, seminars or Risk Management discussion groups.

Reaffirmation of the Board of Directors Composition

We would also like to report that the composition of the Board of Directors has not changed based on the results of the Decision of the Annual GMS on March 19, 2018, as follows:

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

Human Resource Development Initiative

One of the important keys to supporting the Company’s transformation is the existence of human resources (HR) who are ready to compete and highly competent. The Company faces 3 (three) important issues in the HR field, namely Competence, Cadre Formation, and Mindset. In order to overcome these, we are focusing on conducting training programs both in-house and trainings held by external parties, in which we facilite the employees to participate. In addition, we also try to optimize the Coaching, Mentoring, and Counseling (CMC) program and develop our own programs in the form of special training and collaborating with training institutions or professionals. We are aware that the rapidly changing business environment demands us to focus more on customers (Customer Oriented) and no longer on the product itself (Product Oriented).

Information Technology Strategic Program

In 2018, the Company set a different strategic program compared to the previous year. The program is aimed to improve Information Technology which includes smart office implementation, internal communication based on multipoint video conferencing and geotagging applications. In addition, we also conducted the development of subsidiary’s information systems and integrated project information system. Given the importance of information technology as a supporting function of the Company’s business processes, we also strove to improve the quality of Information and Communication Technology services through the implementation of the WTON Mobile.

Business Prospects for 2019

In 2019, global economic growth, especially in developed countries such as the United States, is estimated to begin to slow down as compared to previous year, and then followed by European countries, Japan and China.

According to IMF, the aggregated economic growth for five ASEAN countries, namely Indonesia, Malaysia, the Philippines, Thailand and Vietnam, is estimated to be 5.2% in 2019. While the Indonesian government projects domestic economic growth would reach 5.3%, as stated in the 2019 State Budget Act. The government’s consumption growth for next year is estimated to be 5.4%, while the gross fixed capital formation component is to grow at 7%. However, exports remain a burden on economic growth in the next year where the government sets a projection of diminishing export growth of only 6.3% in line with global trade problems.

Although it is no longer the main priority agenda of the government, the government will endeavour to continue and complete the infrastructure development that have been initiated in 2014; where the budget allocation for this matter will be increased to Rp420.5 trillion in the 2019 Draft State Budget. This certainly has a positive impact on the development of the concrete industry in 2019 and drives optimism for the Company to perform better next year.

In the 2019 Work Plan and Corporate Budget (RKAP), we project operating revenues to increase from 14.77% compared to the realization in 2018, and the current year’s profit to grow at 15.08% compared to the realization in 2018.

We are optimistic about the target set for 2019, even though competition is increasingly severe, especially at the international scale. With our past experience, we are confident that we can go through the year 2019 well even though some challenges pose.

Regarding the good business prospects, we have set the strategic focus in the short-medium terms as follows:

  • Development of Human Resources in order to improve competitiveness, in line with the development focus of the Government in 2019
  • Development of Information and Communication Technology which includes:
    1. Cloud services in all of the Company’s activities which include subsidiaries and projects
    2. Development of automation systems in core business processes.
    3. Development of support services at top level management in decision making.
    4. Development of customer focus strategy and innovation competitive advantage.
  • Better synergy with WIKA Group and other SOEs to penetrate the Southeast Asia market.

Closing

Finally, all the Board of Directors would like to express our appreciation and gratitude to the shareholders, stakeholders, and business partners. Our deep appreciation also goes to the Board of Commissioners who has been our adviser and has carried out the oversight function well, the committees under the Board of Commissioners and Directors, as well as all of the Company’s employees who have contributed to the Company’s achievements as at present. At the age of 21 years, the Company is increasingly committed to being a global player through the development of targeted and sustainable growth strategies. It also strives to realize its vision, namely “Becoming the Leading Company in the Field of Engineering, Production, Installation (EPI) Concrete Industry in Southeast Asia.

On behalf of the Board of Directors,

Hadian Pramudita

President Director

SUBSIDIARIES

WIKA Beton's subsidiaries