"By implementing an effective business strategy and leveraging its competitive advantages to execute a comprehensive business transformation, the company will be able to achieve good performance and manage all obligations well in 2023. This will enhance the Company’s value in the eyes of shareholders and stakeholders."

Indonesia’s gross domestic product (GDP) is still expected to grow by 5.05% yoy in 2023. Although lower than last year’s 5.31% yoy, this GDP growth is worthy of appreciation amid the global economic uncertainty influenced by rising inflation due to limited supply as a result of the escalation of the global geopolitical crisis this year. However, the construction industry managed to grow 4.91% yoy, compared to 2.01% yoy in 2022, driven by the government support, especially regarding the equitable infrastructure development in Indonesia, including the National Capital City (IKN).

The Company has been able to optimize the momentum of better growth in the construction industry through comprehensive and sustainable business transformation efforts that are aligned with technological developments and dynamics occurring in the building construction industry. Apart from this, the Company always upholds the implementation of good corporate governance and fulfillment of economic, social and governance (ESG) aspects in its business expansion, as the Company’s active participation and strong support in achieving Indonesia’s net zero emission target by 2060.

As the Directors of the Company, we are honored to present through this Annual Report as a report on the management of the Company for FY2023, which is able to achieve good performance and contribute to the development of the building construction industry in Indonesia.

Global Economic Uncertainty Dampens Optimism for a Post-Pandemic Global Economic Recovery

The optimism for a post-pandemic global economic recovery is gradually fading due to the rapidly changing dynamics of the global economy with a high degree of uncertainty, triggered in particular by the escalation of geopolitical tensions in Europe and the Middle East. This situation is leading to supply constraints and a rise in global inflation.

Moreover, the US Federal Reserve’s response is to gradually increase the federal funds rate, by 100 basis points, to 5.50% over the course of 2023. This high increase in interest rates over a longer period of time (higher for a longer period of time) has led to turmoil in the global financial markets. This was caused by the U.S. dollar strengthening against various currencies around the world, in line with the reversal of capital flows from emerging markets (EM) to developed markets and to more liquid assets.

As a result, a slowdown in the global economy is inevitable, along with a decline in global commodity prices influenced by weakening global demand. According to the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD), the global economy weakened to 3.1% in 2023. In addition, the World Bank reported lower global economic growth of 2.6% for the same year.

Indonesia’s GDP Grew Strongly amid Global Uncertainty

The Indonesian economy also experienced significant inflationary pressures, especially in early 2023. This prompted Bank Indonesia to raise the benchmark interest rate (BI7DRR) by 25bps to 5.75% in January 2023. The next 25 bps increase in the BI7DRR took place in October to 6.00%, which was maintained until the end of 2023. According to Bank Indonesia, this increase in the BI7DRR was undertaken to strengthen the Rupiah exchange rate stabilization policy from the impact of increasing global uncertainty and as a preventive and forward-looking step to mitigate its impact on imported goods inflation.

This policy has been effective and was able to reduce inflationary pressure, making inflation more controlled, which reached 2.61% year-on-year as of December 2023 compared to 5.28% year-on-year at the beginning of 2023. This controlled inflationary pressure has been able to maintain people’s purchasing power in 2023. This can be seen from household consumption expenditure, which grew by 4.94% yoy in 2023, with a contribution of 52.73%.

Household consumption expenditure growth is a key driver of Indonesia’s economic growth, which grew strongly at 5.05% yoy in 2023. Although lower than last year’s 5.31% yoy growth, Indonesia’s gross domestic product (GDP) growth performance in 2023 deserves appreciation amid global economic uncertainty. The policy mix of the Indonesian government and Bank Indonesia has proven to be effective in sustaining Indonesia’s economic fundamentals.

On the other hand, from an industrial origin, economic growth was also supported by several business sectors that managed to achieve double-digit growth despite slow growth, such as transport and storage (13.96% yoy) and accommodation and food services activities (10.77% yoy). Other sectors supporting Indonesia’s economic growth are information and communication (7.59% yoy) and manufacturing (4.64% yoy). This performance is in line with the Prompt Manufacturing Index (PMI) - Bank Indonesia (BI) indicator, which remains strong and is still in the expansion phase (index > 50) in 2023.

Stronger Construction Industry Growth in 2023

In line with Indonesia’s GDP growth, the construction industry, including building construction, managed to grow by 4.91% yoy in 2023. This performance, which is better than the previous year’s growth of 2.01% yoy, is in line with the quarterly growth of this industry since second to fourth quarter of 2023, which managed to grow higher than Indonesia’s GDP growth. Put differently, the construction industry’s growth is back to pre-pandemic levels for all three quarters.

One of the key catalysts driving the construction industry to grow is the strong support provided by the Indonesian Government. The government’s commitment to infrastructure development is realized through the implementation of the infrastructure budget, which reached Rp399.6 trillion or 7.2% yoy from the implementation of the infrastructure budget in 2022, based on data from the Ministry of Finance. The infrastructure budget in 2023 aims to promote the acceleration of infrastructure development that supports economic transformation and new growth centers.

The implementation of the infrastructure budget also supports the development of the IKN, which was officially established on January 18, 2022, when the National Capital (IKN) Bill was ratified as a law by the lawmakers and the Government. It is expected that the new IKN will create new centers of economic growth and maximize the potential of regional resources. The development of the IKN will be carried out in a sustainable manner from 2022 to 2045. It will be divided into five stages. The Company is also a collaborator in the development of the IKN through his involves the construction of various buildings, including the Modular Housing for Construction Workers (HPK), the Kemenko Marvest 1 Building, the Paspampres Housing Complex, and the PUPR Ministry Wing 1 Building.

Another government support is the development of National Strategic Projects (PSN) throughout Indonesia, in accordance with the Minister of Economic Affairs Regulation No. 9 of 2022 on Changes to the List of National Strategic Projects. On the other hand, the successful development of the construction industry is also supported by the availability of financing, particularly from the banking sector. According to data from the Financial Services Authority (OJK), the share of construction loans reached Rp395.10 trillion or 5.57%of the total bank loans disbursed to third parties, which stood at Rp7,090.24 trillion as of December 2023. This performance is slightly lower compared to the previous year which reached Rp396.58 trillion. The increase in the benchmark interest rate was influenced by the investors’ wait-and-see investment decision ahead of the general election.

The Company’s Strategic Policy

In line with the economic growth and the construction industry that grew by 5.05% and 4.91% respectively in 2023, the sustainability of infrastructure development, and the development of national strategic projects and the capital of Indonesia (IKN), the Company is expanding its business by improving the operational performance of each business segment in accordance with the Company’s Budget Work Program (RKAP) for 2023.

The strategic policy of the Company includes 4 (four) main aspects, namely marketing, development, operational and financial aspects. The Company’s marketing strategy includes expanding into the premium market and focusing on the BUMN market. The Company is also selectively targeting the government segment in addition to the private sector by taking into consideration various important aspects, both financial as well as non-financial. The company also strives to optimize the captive market of Build Operate Transfer (BOT).

Meanwhile, the Company’s expansion strategy is carried out through the development of new products in the form of volumetric modular. The Company has also implemented digital transformation through the application of Building Information Modeling (BIM) in all projects, in addition to the implementation of an Enterprise Resources Planning (ERP) system based on System Application and Processing (SAP).

In terms of financial, the Company’s source of Cash comes from the initial public offering (IPO) proceeds.. Moreover, the Company is striving to achieve positive cash flow for all strategic business units (SBUs). Finally, operationally, the Company is focusing on profitability and cash flow, refocusing from a customer-centric to an agile organization, employee engagement, sustainable leadership and ready to work program, key stakeholder engagement, implementation of BIM Level 2 & Lean Construction in all SBUs, and cost efficiency through SCM and tool management.

The application of risk management in all business processes is attached to the implementation of these four aspects of strategy. This is part of the implementation of good corporate governance at all levels of the company’s organization in accordance with ISO 31000:2018 as the Company’s own standard.

The Role of the Board of Directors in the Formulation of Strategy Policy and the Strategy Implementation Process

In accordance with the Corporate Governance Guidelines, the Board of Directors is responsible for preparing the Company’s work program and budget, which is an annual elaboration of the Company’s Long-term Plan (RJP). The Board of Directors ensures that the RKAP includes the Company’s business strategies, policies and work programs/activities for the fiscal year.

The Board of Directors also provide details of the Company’s budget for each work program/activity budget. This RKAP shall also include financial projections for the Company and its subsidiaries. These important matters were discussed at the Board of Directors’ meetings, which were held 12 times during 2023. Furthermore, the strategic policy also be discussed with the Board of Commissioners in a joint meeting in order to receive input prior to its approval by the Board of Commissioners.

The RKAP, which is prepared in accordance with the Company’s vision and mission, is then implemented by the Board of Directors and all employees of the Company. Supported by the oversight and input or advice of the Board of Commissioners, the Board of Directors continues to evaluate the strategic policies and their implementation at all levels of the organization on a regular basis. This is done to ensure that the strategies and policies of the Corporation remain relevant to developments in the economic and business environment and are consistent with the goals and objectives of the Corporation.

The active role of the Board of Directors in ensuring that the strategy of the Company is understood and implemented at all levels of the organization in all areas of the Company’s business is essential. Therefore, in addition to being directly involved in the oversight of the implementation of the Company’s strategy, the Board of Directors also provides a forum for all employees to communicate ideas and innovations so that they can be expected to support the achievement of the Company’s goals.

Achievement of 2023 Targets

The Company has set goals to be achieved in 2023 that are aligned with the projections set forth in the RKAP for that year. Under the guidance of the goals in the RKAP, the Company has been making various best efforts to implement the strategic policies that have been determined for the achievement of the Company’s goals. However, the realization of the operational targets in 2023 such as the new contracts and the order book is lower than the set targets. From the targets set at Rp6.70 trillion and Rp15.63 trillion respectively in 2023, the realization of new contracts and order book reached Rp5.13 trillion and Rp12.09 trillion respectively. This was influenced by the project owner’s decision to wait before the general election to be held in February 2024.

However, in terms of achieving revenue, the company managed to record an 68.19% higher achievement yoy to reach Rp3.98 trillion in 2023 compared to the previous year’s Rp2.37 trillion. Construction Services, as the core business of the company, managed to record a revenue of Rp3.78 trillion in 2023, growing 88.08% yoy. The concessions and property businesses recorded an increase of 14.23% yoy and 83.61% yoy to Rp52.87 billion and Rp16.88 trillion, respectively. Meanwhile, the industrial modural segment recorded a 43.76% yoy decline to Rp127.39 billion.

The Company’s success in completing large and highly complex projects, such as the construction of the Dhoho Kediri Airport and projects for the Ministry of Public Works and Public Housing, played a major role in this revenue achievement. On the other hand, the Company’s competitive advantages are well recognized by both private and government project owners.

The Company’s gross profit reached Rp303.22 billion or lower than the target of Rp424.97 billion, in line with the increase in cost of revenues recorded throughout 2023. However, this performance is able to grow 32.96% yoy to Rp228.05 trillion in 2023.

Meanwhile, the Company’s bottom line performance as seen from the net profit for the year reached Rp46.50 billion or lower compared to the 2023 target of Rp251.36 billion and the 2022 actual figure standing at Rp230.26 trillion. This was mainly influenced by a significant increase in cost of revenues by 71.94% yoy to Rp3.68 trillion and a decrease in other income by 55.62% yoy to Rp123.38 trillion.

Although profit for the year growth has slowed in the current year, the Company is still able to record stronger equity of Rp2.56 trillion in 2023. This performance grew 0.74% yoy from Rp2.54 trillion in 2022. This has a positive impact on a stronger capital structure, which in turn strengthens the ability of the company to pay its financial obligations.

Challenges Faced and Solutions Provided

As a company operating in the construction sector, which requires a large amount of funds from the project owner, the “wait and see” attitude of the project owner before making important business decisions influenced by external conditions also has an impact on the Company’s performance. The situation leading up to the general election has encouraged project owners, especially those in the private sector as project owners, to “wait and see” before making important business decisions. In addition, at the same time, in terms of financing, loans to the construction sector were reduced in accordance with the increase in benchmark interest rates and a cautious attitude before making important business decisions due to domestic political factors.

Furthermore, the firm is also facing inflationary pressure in line with rising prices, which is reflected in the Company’s cost of revenues rising by 71.94% yoy to Rp3.68 trillion, especially in the construction services business.

Facing challenges from external factors, the Company with its long and proven track records and competitive advantages has diversified their business by project owner, project type, and business line. Implementing a diversification strategy has proven to be able to mitigate the Company from being exposed to the risk of concentrating on a certain project owner, project type, and business line. The project owner’s track record and healthy financial position are important considerations for the Company. Therefore, despite the external challenges, the Company was still able to record a good performance in 2023.

The challenge of the Company’s rising cost of revenues can be minimized by the Company’s implementation of BIM and ERP, which have proven to have a significant positive impact on the Company. This positive impact relates to the effectiveness of project planning, more efficient project control in terms of time, cost and resources, and the potential for unexpected delays and costs.

Strong Synergy and Involvement of the Entire Governance Structure

The Company’s commitment to implementing Good Corporate Governance (GCG) is realized by applying the GCG principles of Transparency, Accountability, Responsibility, Independence and Fairness at all levels of the organization. This can be achieved through strong synergies and involvement of the entire governance structure, consisting of the key GCG Organs, which have a collegial nature; governance support bodies, both under the Board of Commissioners and Directors Board; and governance infrastructure, which includes policies (codes), charters, regulations and procedures, and information systems to support the performance of duties and authorities, as well as reporting as a form of accountability to various stakeholders.

The Company promotes appropriate relationships among the Company’s Organs, always respecting and acting in accordance with their respective functions and roles. These relationships are based on the principles of equality and mutual respect. In addition, the Company encourages the Company’s Organs to make decisions and perform their duties on the basis of good faith and in compliance with applicable laws and regulations, as well as awareness of the Company’s responsibilities to stakeholders and the environment.

On this basis, the Company’s commitment to best practices in CGC was realized in 2023 through the holding of GMS, the Board of Commissioners’ meeting, Directors’ meetings, joint meetings. committee meetings, and their respective implementation of duties and responsibilities in accordance with applicable regulations. In addition, the Company’s CGC Organs updated the Company’s Code of Conduct and the Board of Directors Manual, which were ratified on September 11, 2023. Updates were also made to the Charter of the Audit Committee and the Risk Committee, which were ratified on November 13, 2023. The Company’s CGC body also updated the Procurement Procedures as of August 11, 2023 as a form of the Company’s strong commitment to implementing the GCG principles.

The best efforts to implement the GCG also support the achievements of the Company in 2023, which was able to meet all its obligations to third parties, especially to creditors, as reflected in the fulfillment of the debt covenants set by the Banks. In addition, the Company managed to maintain a customer satisfaction index score above the 90.00% level in 2023.

Performance Assessment of Committees Under the Board of Directors

The Board of Directors has not presented the results of the performance evaluation of the Committees reporting to the Board of Directors, as the Committee concerned had not yet been formed as of the period ended on December 31, 2009. However, the existence of the supporting Organs under the Board of Directors has been able to perform its duties and responsibilities well in assisting the Board of Directors in the execution of the management functions of the Company.

TJSL’s Four Program Pillars Positively Contribute to the SDGs.

Recognizing that construction projects significantly impact local communities, the Company actively engages with communities, prioritizing local employment, skills development and community infrastructure projects. In this regard, the implementation of the social and environmental responsibility program (TJSL) is carried out by maintaining a balance between business practices, community welfare and environmental conservation.

The Company’s TJSL program is based on 4 (four) pillars, namely Wege Green, WEGE Health, WEGE Smarth, dan WEGE Cares. Through these collaborative partnerships, the Company strives to create lasting social value and to leave a positive legacy in the communities in which it operates.

Integrating the TJSL program into the Company’s core business according to ISO 26000 and the Sustainable Development Goals (SDGs) plays an active role in achieving the SDGs in this country. Employment aspects aimed at all employees and human resource development are the goals of the TJSL program, which plays a role in realizing the 3rd SDG, namely Good Health and Well-Being, Gender Equality (5th SDG), Decent Work and Economic Growth (8th SDG), and innovation and infrastructure industry.

On the other hand, the fulfillment of environmental aspects through pollution prevention, environmentally friendly renewable energy, and biodiversity is considered to play a role in the realization of the seven (7) SDGs. These seven TPBs are Clean water with adequate sanitation (6th TPB), clean and affordable energy (7th SDG), Industry, Innovation and Infrastructure (9th SDG), Sustainable Cities and Communities (11th SDG), Climate Action (13th TPB), Life Below Water (14th SDG) and Life on Land (15th TPB).

Finally, the community Involvement and development aspect is carried out by enhancing the quality of life, improving the level of education, creating jobs, improving health and social welfare. The implementation of this will realize 4 (four) SDG, namely, No Poverty (1st SDG), Zero Hunger (2nd SDG), Good Health and Well-Being (3rd SDG), and Quality Education (4th SDG).

The Company’s TJSL program implementation, contributing to the SDGs, has been effective and on target. Indeed, the Company’s TJSL program received the Gold Economic Pillar #4 Star Award from BUMN Track at the 2023 TJSL & CSR Award on August 10, 2023.

Estimated Higher GDP Growth and Sustainability of Infrastructure Development

The global economy is expected to continue to be challenged in the coming year amid the geopolitical crisis, which is not expected to get resolved until the first quarter of 2024. Global economic growth is expected to stagnate at 3.1%, according to the International Monetary Fund (IMF). Meanwhile, the World Bank and the Organization for Economic Cooperation and Development (OECD) have reported a more conservative estimate of global economic growth, projecting that global GDP growth will slow to 2.4% and 2.9%, respectively, in 2024.

Meanwhile, the Indonesian government, through the Ministry of Finance, estimates that the Indonesian economy will grow by 5.2% in 2024, or higher than last year’s 5.05%. This GDP growth is supported by the estimated inflation, which is expected to be better controlled at 2.8%. Meanwhile, Bank Indonesia estimates that the Indonesian economy will continue to be well maintained and resilient to the impact of global spillovers with an estimated growth of 4.7-5.5% in 2024.

In line with the estimated economic growth, the performance of the construction sector in 2024 is expected to improve in line with the growth of investment, which is estimated by Bank Indonesia at 5.1% to 5.9%. Moreover, the government has allocated an infrastructure budget of IDR 422.7 trillion or higher in 2024. This is compared to IDR 399.6 trillion in the previous year. One of the policies of the infrastructure budget is to support the accelerated completion of the development of the IKN in a gradual and sustainable manner.

The further development of IKN in 2024 is expected to be one of the driving factors for the Company’s business. With its long and proven track record in the construction industry, the Company’s business continuity in IKN development is expected to be well maintained. The achievement of the housing construction project of the Ministry of Public Works (ASN) and the building construction project of the Coordinating Ministry of Maritime Affairs and Investments (Kemenko Marves) is evidence of the high confidence of the project owner in the Company.

In the medium and long term, the development of IKN is also expected to become one of the Company’s business drivers. It’s planned to take place in five stages from 2022 to 2045. The year 2024 will be the final year of the first stage of the development of the IKN, the purpose of which is the initial stage transfer so that the development of the basic infrastructure will be a priority, and the continuation of the development of priority economic sectors. The growing confidence of investors in the development prospects of the IKN is demonstrated by the total realization of investment interest commitments amounting to Rp41.4 trillion, as reported by the Archipelago Capital Authority (OIKN).

On the other side, the Company will optimize opportunities for construction projects from the private sector and stateowned enterprises (SOE). The prospect of an increase in the number of hospitals, high-rise residential buildings, offices, data centers, and other projects from these two types of project owners is expected to be another key factor for the Company’s business growth in the future.

Changes in the Composition of the Board of Directors in Accordance with the Decision of the AGMS

The Board of Directors reported that the composition of the Board of Directors has been changed for the fiscal year 2023 based on the decision of the Annual General Meeting of Shareholders (AGMS) held on May 10, 2023. One of the decisions of the AGM was the honorable dismissal of Mr. Yulianto as Director of Quality, Health, Safety, Environment and Marketing and the appointment of Mr. Dwi Purnomo as his replacement. The full composition of the Board of Directors as of December 31, 2023 is as follows:

On behalf of the Board of Directors, we would like to express our appreciation to Mr. Yulianto for having served as a Director of the Company. With the current Board of Directors, we are committed to work hard together to add value to the Company and achieve goals that are in line with the Company’s vision and mission.

We are of the opinion that the growth and development of the Company’s business is due to the support of various stakeholders. Furthermore, in line with its vision and mission, the Company’s goal is to be the partner of choice in the creation of space for a better human life. Therefore, the Company is committed to continue to develop sustainable and profitable growth, to optimize the comprehensive business transformation and technological development, and to maintain economic, social, and governmental aspects in the conduct of its business processes.

We greatly appreciate the contributions made by various stakeholders during 2023. On behalf of the management, I would like to express my gratitude and appreciation to all employees of the Company for their dedication and contributions during 2023. We also express our deep appreciation to the shareholders and the Board of Commissioners for the mandate, trust and suggestions given to the management of the Company during 2023.

In particular, we would like to express our gratitude to all project owners for their confidence in the construction business processes we provide. This will enable them to produce a variety of quality and environmentally friendly construction projects. We hope that the support and cooperation of various parties will continue in the future.

On Behalf of the Board of Directors,

HADIAN PRAMUDITA

President Director