Report of the Board of Commissioners

Dear respected Shareholders and Stakeholders,

Praise and gratitude to God the Almighty, the Most Gracious, and the Most Merciful. May His blessings and mercy always be bestowed upon us all. The Board of Commissioners is grateful that the Company has managed 2018, with distinction amidst the challenges from global and national economics. It is an honor for me, on behalf of the Board of Commissioners, to hereby submit the Annual Report of PT Wijaya Karya Bangunan Gedung Tbk for fiscal year 2018.

The Board of Commissioners acknowledged the Board of Directors’ performances in terms of RKAP 2018 achievement amongst the dynamics and challenging economics conditions.

Global and Indonesia Economic Development

The global economic condition in 2018 was full of challenges and of uncertainties due to several reasons, such as The US Federal Reserve increasing the interest rate four times during 2018, the US – China trade war, the crisis in Turkey, and a political feud as well as financial crisis in Italy.

These all had an indirect effect on the domestic economic conditions, as can be seen from the weakening of the Rupiah against the USD. Despite the external pressures, the growth of Indonesia’s economy was still in line with expectations, as can be seen from the real GDP growth which was above 5%.

Such achievement was a great sign that despite the external pressures, Indonesia’s economy can still have strong growth. In every quarter for the last three years household consumption has remained strong and in 2018 helped GDP growth to be above 5%, which is higher than in 2017 and 2016, when growth was below 5% in a few quarters. This achievement was supported by low inflation which was successfully controlled at the level of 3.13% lower than the target of 3.5%. In detail, the economic growth in 2018 reached 5.15% slightly below the State Budget 2018 target of 5.4%. The difficulty to exactly match the macro assumption was the result of the uncertainties in the global economy.

We are grateful for the well publicized government efforts to drive faster economic growth through their infrastructure development program. This program has become an imperative to create a multiplier effect for development and economic growth in Indonesia. Through the development of infrastructure such as toll roads, ports/piers, airports, and others, access to and mobility of communities will be increased and there will be a multiplier effect when the development of the toll roads is followed by property development including industrial estates, offices, residential, and commercial areas. The challenge for our Company is to seize these increasing opportunities.

With the background described above, it is our view that the Company’s growth was extremely impressive in 2018, as can be seen from theCompany’s capability in acquiring new contracts as well as revenue and profit achievements that are beyond target.

Assessment on the Board of Directors’ Performance

The Board of Commissioners has undertaken an assessment of the Board of Directors performance. The assessment includes the performance of operations, finance, and other aspects with regard to the sustainability of the Company’s business activities. The basis of the assessment performed by the Board of Commissioners was achievement of the Company’s Work and Budget Plan (RKAP).

The Board of Commissioners acknowledges the success of the Board of Directors’ performances in terms of RKAP 2018 achievements within the tough macro economic context. Key targets stipulated in RKAP 2018 were not only met, but were even exceeded. This has brought great benefits as the Company has not only achieved an excellent performance in 2018 for itself but has also delivered a key contribution towards the success of WIKA, our holding company, and to both sets of shareholders.

Based on the audited Financial Statements for Fiscal Year 2018, the Company recorded net sales of Rp5,822.50 billion or grew by 49.32% compared to sales in the same period of 2017 which amounted to Rp3.899,29 billion. Along with the growth of net sales, the Company has also managed to record a significant increase in net income in 2018 by 50.30% to reach Rp444.50 billion compared to the previous year’s achievement of Rp295.74 billion. In addition, the Company’s assets grew 27.84% from Rp4,607.73 billion in 2017, to Rp5,890.30 billion in 2018. The Company’s equity also grew 23.97% from Rp4,607.73 billion in 2017 to Rp5,890.30 billion in 2018. While the cash flows from operating activities in 2018 showed a surplus of Rp861.54 billion, higher than the previous year of Rp636.37 billion.

From the Board of Commissioners’ perspective, the Board of Directors have executed their responsibilities well, in each of their respective fields. The Board of Commissioners have also assessed that the coordination and cooperation amongst the Board of Directors was highly effective which helped the whole Company to achieve a positive performance. The strategy to shift the Company’s business into the fields of investment and concessions to generate recurring income was the right move to bring the Company’s growth into a more sustainable direction. Even though the economic challenges which emerged throughout the year meant some changes had to be made, the Board of Directors were able address the situation and to adjust the strategy accordingly.

Although the Company’s performance during 2018 displayed good growth, the Board of Commissioners believes that the management also needs to always put its attention to the business development (investment) of the Company that could drive better business continuity in the long run.

Supervision on the Implementation of Board of Directors’ Strategy

The Board of Commissioners has focused during the year on supervising the strategy of the Board of Directors. This is in line with the role of the Board of Commissioners to ensure that the implementation of the Company’s strategy is on the right track and complies with applicable regulations. The authority of the Board of Commissioners in supervising the Company’s business activities is based on the Law, Articles of Association, GCG’s Code of Conduct, and guidelines of the Company.

In order to perform the oversight of the Company strategy and see it has been well-governed, the Board of Commissioners regularly implemented “on the spot” supervision and attended Joint Meetings of the Board of Commissioners and the Board of Directors where the information on the Company’s strategic issues and performance were presented. In addition, the Board of Commissioners, on the initiative of the Board of Directors, also conducted meetings and discussions on urgent matters which required the approval of the Board of Commissioners.

The supervisory and oversight function of the Board of Commissioners has always been carried out in order to better maintain the Company’s growth direction. The Board of Commissioners also strives to maintain intensive communication with the Board of Directors, thus supervision of the Company’s business activities can be more focused and betterplanned.

Recommendations/Advices provided to the Board of Directors

In addition to carrying out a supervisory role, the Board of Commissioners provides advice and suggestion to the Board of Directors regarding the business and the implementation of the Company’s strategy. The mechanism of providing input is via the periodic joint meetings of the Board of Commissioners and the Board of Directors as well as meeting with the committees under the Board of Commissioners. Functionally, the Board of Commissioners through the Audit and Risk Committee is responsible for monthly meetings to discuss findings and to conduct supervision to ensure that the Company’s operation is in compliance with the existing rules, policies, and procedures. Additionally, the Board of Commissioners also undertakes discussions and interviews with the Board of Directors where the Board of Commissioners asks the Board of Directors to provide information regarding the issues requiring advice.

In the recent digitalization era, the improvement of information technology implementation is needed to accelerate the flow of information that is accurate and up-to-date as well as improving the Company’s performance. This is carried out by the Company through the application of Building Information Modeling (BIM) and e-procurement. In addition, it is also necessary to increase the implementation of risk management, thus the arising risks could be identified and risk mitigation could be formulated.

Opinion on GCG and Whistleblowing System Implementation

The implementation of good governance is another duty and responsibility of the Board of Commissioners together with the Board of Directors. In practice, the Board of Commissioners is not only responsible for final results, but also constantly monitoring the processes used to achieve the results. The Board of Commissioners, together with the Board of Directors, are committed to implement a good corporate governance with the hope that the results of the assessment carried out by the BPKP show an increase by a score of 80 in 2018, higher than in 2017 of 76.

The Company has a well-established whistleblowing system. In 2018, the Board of Commissioners did not receive any reports of violations through this whistleblowing system, evidence that compliance in the Company is running well. The Board of Commissioners works with Internal Audit (SPI) to supervise implementation of the violation reporting system in the Company. Any findings through the whistleblower violation mechanism reporting system are followed up jointly through a meeting of the Board of Commissioners with the SPI.

Assessment on the Performance of the Board of Commissioners’ Committees

In terms of executing its duties and responsibilities, the Board of Commissioners is assisted by two committees, namely the Audit & Risk Committee as well as the Nomination, Remuneration, and GCG Committee. During 2018, both committees showed a fine performance and brought advice and suggestion to the Board of Directors so that the Company’s growth is still on the right track.

The Audit & Risk Committee was established to support the Board of Commissioners in promoting corporate governance, establishing a proper internal control structure, improving the accountability of financial statements, and monitoring the audit process of financial statements so that the financial statements audited by the Public Accounting Firm is reported in the annual report according to a predetermined time and with an unqualified opinion.

The Nomination, Remuneration, and GCG Committee was established in order to assist the Board of Commissioners in providing opinions related to the evaluation of GCG policy implementation, refinement of organization structure, nomination process for key positions in the Company, preparation of salary/honorarium and bonuses proposal for the Board of Directors and Board of Commissioners to the shareholders, and reviewing human resource development based on the Company’s strategic plan.

Besides their regular work, the role of each committee was also implemented regularly to provide input to the Board of Commissioners so that the Board of Commissioners could effectively dicussed the agenda in the meeting. With the support of both of these committees, the Board of Commissioners is able to implement good governance standards in all layers of the Company’s operations.

Changes in the Composition of the Board of Commissioners

We would like to inform you that in 2018 there was a change in the composition of the Board of Commissioners. Based on the Annual General Meeting of Shareholders (GMS) dated March 26, 2018 Mr. Gandira Gutawa Sumapraja joined the Board as Commissioner. We welcome his arrival and expect that he can help provide further direction for the Company’s future growth.

As of December 31, 2018, the composition of the Company’s Board of Commissioners is as follows:

  • Destiawan Soewardjono as President Commissioner
  • Mudjiadi as Commissioner and concurrently serving as the Chairman of Nomination, Remuneration, and GCG Committee
  • Gandira Gutawa Sumapraja as Commissioner and concurrently serving as the member of Nomination, Remuneration, and GCG Committee
  • Dini Yulianti as Independent Commissioner and concurrently serving as the member of Audit and Risk Committee
  • Adji Firmantoro as Independent Commissioner and concurrently serving as the Chairman of Audit and Risk Committee

Business Prospects

The Board of Commissioners is optimistic that Indonesia’s economic prospects will remain positive next year, bolstered by the economic stability shown in 2018. Bank Indonesia predicts that Indonesia’s economic growth in 2019 will be between 5-5.4% with inflation at 2.5-4.5%. The current account deficit (CAD) is expected to decrease to 2.5% of GDP.

Bank credit growth is estimated to be between 10-12% and third party fund collection (DPK) is projected to rise by 8-10%. The Indonesian economy will still confront multiple challenges next year. First, the Fed’s policy interest rate normalizing as it is possible that the Fed will raise the rate 2 or 3 times more. The second challenge is the level of world economic growth which is predicted to decline as is the economic growth of the United States (US) which is predicted to be lower than this year due to the slowing fiscal expansion. This slower growth may result in commodity prices falling.

In addition, the increasing development programslaunched by the government through SOE/ROE investments, Public Private Partnership (PPP) schemes, as well as direct investment, especially to the construction of hospitals, airports, ports, and others serve as opportunities and challenges for the management to grab existing market opportunities.

For 2019, the Board of Commissioners regards that the Board of Directors has designed a suitable strategy, particularly for developing the Company’s business in investment and concessions. This will be a source of recurring income which will contribute significantly to the Company’s future profitability. The strategy has received approval from the entire Board of Commissioners as it will help offset future challenges and will contribute to the betterment of the Company.

Our Appreciations

We would like to extend our appreciation to PT Wijaya Karya (Persero) Tbk as the parent company, as well as to shareholders and stakeholders for their trust and support. Our deepest gratitude is also addressed to the entire Board of Directors, employees, and business partners who always support the Company to grow and thrive. The Board of Commissioners is determined that the accomplishment of the Company in the future would rest on our determination to take WEGE up to be the Company we all wish for.

On behalf of the Board of Commissioners,

PT. Wijaya Karya Bangunan Gedung, Tbk

Destiawan Soewardjono

President Commissioner