Report of the Board of Directors

Dear esteemed shareholders and stakeholders,

It has been a decade that WEGE has become the preferred partner in creating space for better human life. We are well pleased to announce that in 2018 the Company has accomplished an encouraging achievement. In spite of being up against with multiple challenges and dynamics throughout 2018, the Company has managed to make a good close of year 2018 with appreciative achievements. It is such an honor for me on behalf of the Board of Directors to present the Annual Report of PT Wijaya Karya Bangunan Gedung Tbk for fiscal year 2018.

Amidst such challenging circumstances, the Company had managed to display encouraging performance due to the effective business strategies implementation and sustainable efficiency.

Global and Indonesia’s Economic condition

In the beginning of 2018, the global economy is projected to experience an unevenly grow with a sluggish tendency. On one hand, the US economic growth remains substantially strong, while the economic axis of European, Japanese, and Chinese disclose a moderation.

The downward projection of global economic growth is influenced, among others, by tightening liquidity due to the increase in Federal Funds Rate (FFR), the increasing intensity of trade wars between the US and China, and rising oil prices as a result of US sanctions on Iran. Such uncertainty, in its turn, has the potential to increase capital outflow risk from emerging markets and to result in a decrease in the volume of world trade transactions.

The US economics expanded steadfastly, for it was driven by the rising of domestic demand. The deliverance of a fiscal stimulus to the US government made the business world more expansive, propelling the unemployment rate to the lowest level. The increase in domestic demand made US inflation expectations remain high and prompted the Fed’s response to increase the FFR.

As of the end of 2018, the Fed has raised the FFR fourtimes to reach 2.50%. It is estimated that the Fed will raise the FFR up to three times in 2019. Meanwhile, the economies of Europe, Japan, and emerging markets, especially China, were slowing down. The slowdown in Europe and Japan was generally predisposed by the restrained consumption, which was indicated by a decline in consumer confidence levels, as well as a slowdown in investment reflected in the decline in the PMI.

On another account, the downturn of the economic of China was mainly due to the slowdown in public investment as a result of the government’s deleveraging policy. The rising tensions of trade wars with the US has as well had an impact on falling retail sales, manufacturing performance, and stagnant growth in China’s exports, relatively.

Implementation of Business Strategy

Amidst such challenging circumstances, the Company had managed to display encouraging performance due to the effective business strategies implementation and sustainable efficiency. In carrying out its business in the fields of construction, investment, and concessions, the Company has established four main strategies which are actualized in gradual and in continued motions from year to year. The application of the four strategies is as follows:

  1. Business Development Strategy
    In broadening its business, the Company manifested the Core Business pattern, Backward Integration, and Forward Integration. The Company’s core business is as a provider of building construction services carrying out end-to-end services (total solution) which covering feasibility study, planning, design, construction, operation, and maintenance services. The backward integration strategy is designed to enhance the supply chain for the Company’s core business in which WEGE develops off-site construction technology in the form of precast building and; thus, it becomes a pioneer in design and concept. While the forward integration strategy is proposed through the transformation of the property business to the concession to obtain all construction work from the concession and to generate recurring income.
  2. Marketing Strategy
    The Company designed a long-term strategic partnership with developers, such as WIKA Realty, a repeat customer market, and an immense developer market by offering a “Total Solution Service”. The Company, too, plays an active role within the government programs in providing one million homes through construction industrialization via precast and modular.
  3. Operational Strategy
    The operational strategy is pursued through meeting international standards, developing human resources both in terms of meeting capacity and capability, and advancing information technology systems by preparing new IT infrastructure, updating the Company’s website appearance, and centralizing documents. Another operational strategy is the division of regions into three operational areas as well as procurement and financial centralization policy.
  4. Financial Strategy
    In order to maintain business continuity, the Company is selective in choosing customers. Additionally, the Company possesses standard contracts exerted to cooperate with each of its customers, hence it could bridge the Company to monitor the services provided. While in funding matter, the Company focuses on rapid and healthy growth where the Company does not only prioritize profit and loss, but also put financial balance capabilities on the top course. The Company also increases its equity, so it could amass the funding capacity of projects both for existing and future projects as well as business advancement. The Company consistently spends capital expenditure in productive activities, supports operations, and prepares long-term business while carrying out prudent processes.

Target and Actual Performance in 2018

With the implementation of the aforementioned strategies, the Company succeeded realizing decisive performance which could be seen through the realization of the Order Book in 2018 amounted to Rp16.42 trillion or 98.97% of the plan of Rp16.59 trillion. The realization of the Order Book consisted of the previous year’s Carry Over contract of Rp8.96 trillion and a new contract of Rp7.45 trillion. Net sales were enlisted at Rp5.822,50 billion with the achievement of net income of Rp444.50 billion, transcending the target of Rp425.70 billion.

Even though it is still in the transition/business transformation stage, in 2018 the business in the concession (property) sector contributed more than 17% to the Company’s net income.

The acquisition of contracts during 2018 experienced a significant increase. Several new contracts highlighting the Company’s performance in 2018 include the Hotel and Office of Benhill Central, Cibubur Transpark, Tamansari Emerland Surabaya, Syamsudin Noor Banjarmasin Airport, WIPERTI (Graha Pertamina), School Building Packages 1, 2, and 5.

Along with the Company’s ascended record in having excellent performance. The accomplishment of a few key indicators of the Company disclosed a significant increase should it be compared to the target and to the realization of the previous year. The details of the achievements are as follows:

  1. The new contract in 2018 was Rp7,453.94billion, growing up to 1.74% from 2017 which amounted to Rp7,326.76 billion. The new 2018 contract came from a new non-JO contract of Rp5,483.38 billion, a new JO contract of Rp1,010.00 billion, and a new internal contract of Rp960.56 billion.
  2. The Order Book in 2018 was Rp16,416.32 billion, growing up to 26.80% from 2017 amounted to Rp12,942.74 billion. The order book in 2018 consist of carry over contracts of Rp8,962.38 billion and new contracts amounted to Rp7,453.94 billion.
  3. Net sales in 2018 was reaching to Rp5,822.50 billion, growing up to 49.32% from 2017 which amounted to Rp3,899.29 billion. Net sales in 2018 consisted of Rp5,454.06 billion in sales of construction services and Rp368.44 billion in property sales.
  4. Laba kotor sebesar Rp596,76 miliar, tumbuh 28.67% dari tahun 2017 sebesar Rp463,77 miliar.
  5. Laba bersih Perseroan sebesar Rp444,50 miliar, meningkat 50.30% dari tahun sebelumnya sebesar Rp295.74 miliar.

Above all, in 2018 the Company managed to exceed the target set in Company’s Work Plan & Budget (RKAP) with a promising result. The four business strategies implemented by the Company in terms of business development, marketing operations, and finance have attested their credibility in leading the Company to achieve a better growth.

During 2018, the Company has received a 3 (three) awards which include Indonesia Public Relations Awards 2018, Indonesia Property Awards 2018, and Anugerah BUMN for the category of the Best Business Innovation II.

Facing Challenges

Primarily, the challenges encountered by the Company in 2018 could be divided into two layers. Firstly, from the external manner, the Company is confronted with challenges emerging from the high level of competition in the industry. As such, in this case the Company proceeds to increase its capacity and capability to enact a competitive advantage by maintaining the importance of quality in every project undertaken in particular. Secondly, from the internal point of view, the Company is repelled with challenges in terms of fulfilling human capital’s capacity. In this issue, in middle of 2018, the Company has recruited and conducted training regarding to fresh graduates and experienced ones, thus by 2019 the Company is to be well-prepared to compete and to achieve a significant performance.

Upon entering 2019, the challenges encountered by the Company will also vary. These challenges include the condition of the global economy with its sluggish growth trend, the economic condition in Indonesia which will be highly impacted by political activities making the investors tend to wait & see, as well as challenges from the internal side as mentioned earlier. On the other hand, business development in terms of off-site construction is also still relatively new, thus it requires market education so that these products could be well received in the market. In addition, the business transformation of property into concession also has an impact on the transition of generating revenue and profit from short term to long term.

Business Prospects

Indonesia’s economic growth in 2019 is predicted to continue upsurging to the range of 5.0-5.4%. Inflation is estimated to remain under control at the target range of 3.5 + 1% with sustained price pressures on the demand outlook, volatile foods and administered prices, inflation expectations, and stable Rupiah exchange rate. The current account deficit in 2019 is presumed to go down around 2.5% of Gross Domestic Product (GDP) with import control measures and an increase in exports as well as tourism. Even in the midterm, economic growth in 2024 is projected to be higher, reaching the range of 5.5-6.1%, and the current account deficit would wane to 2% of GDP. Based on such projections, the Company scrutinizes that Indonesia’s economic condition in 2019 stands in a good stance with the country’s foreign exchange reserves being quite large and above the international adequacy standard, which is a minimum of three months of financing for imports. The exchange rate of Rupiah, however, is conjectured to be relatively stable next year, in the range of Rp15,000 as assumed by the 2019 State Budget.

Meanwhile, the process of establishing a holding company for State-Owned housing and urban development that have gone into the finale is figured to be a decisive sentiment for the infrastructure and construction SOE companies which will become the members. The establishment of the holding could boost the capacity of SOEs in supporting national development. That is due to the existence of asset values prediction, which then is to increase leverage capabilities and would lead to the ability improvement of SOEs. The Ministry of SOEs has set the National Housing & Urban Development Corporation as the holding company with PT Wijaya Karya Tbk (WIKA), which is WEGE’s parent company, will be one of its members.

For 2019, the Company has had a preparation in carrying out several projects which are carry-overs from the previous year as well as for new projects commenced in 2019. The realization of the project has been budgeted into the target net sales and net income; thus, in 2019 the Company is urged to embody greater achievements compared to the previous year. In addition, we wish the productivity is to increase in 2019 as we acknowledge our business activities have enormous convenience for throngs of parties, especially for the surrounding community who are indeed as one of the main stakeholders.

Implementation of Good Corporate Governance

The implementation of Good Corporate Governance (GCG) has always been the main groundwork within the entire elements of the Company. We belive that by administering the principles of transparency, accountability, responsibility, independence, and equality/fairness in a constant flux within every business process, we could manage excellent performance and also deliver added value to the stakeholders.

The implementation of GCG within the Company’s business processes is aimed at having the efforts to internalize to make all elements in the Company could comprehend their functions, properly. Thus, the synergy among functions in the Company are able to yield output which are more controlled and accountable. Not to mention, the Company’s commitment to improve the implementation of GCG is measured through targeted assessments in attaining a value above 85 (very reliable).

Such commitment was also expressed by the Company in an effort to improve the quality of information and governance through the preparation of the Annual Report. The Company believes that accurate information in the Annual Report is not only a form of corporate reporting accountability to stakeholders, but also as an embodiment of beyond governance commitment.

Changes in the Composition of the Board of Directors

In 2018, there was no any change in the composition of the Board of Directors; thus, the composition of the Board of Directors as the end of 2018 is as follows:

  • Nariman Prasetyo as President Director
  • Nur Al Fata as Director of Human Capital and Development
  • Widhi Pudjiono as Director of Operations I
  • Djaka Nugraha as Director of Operations II
  • Abiprayadi Riyanto as Director of Finance

Closing Remarks

The Board of Directors would like to extend most appreciation and gratitude to PT Wijaya Karya (Persero) Tbk as the parent company, shareholders, stakeholders, and business partners. A profound gratitude shall as well be addressed to the Board of Commissioners, the related committees, and the entire employees whose contributions to the Company’s growth and development are monumental. In other respects, our appreciation also goes to the government, regulators, and the people at large for all the support which always propels the Company’s progress. With each party’s involvement, the Company is committed to personifying the vision of becoming a preferred space provider for better human.

On behalf of the Board of Directors,

PT. Wijaya Karya Bangunan Gedung, Tbk

Nariman Prasetyo

President Director