Dear Honorable Shareholders and Stakeholders,
First of all, let us say thanks to God Almighty, that PT AKR Corporindo Tbk once again prevailed through this dynamic year and recorded a good performance in spite of a number of constraints during the year.
Furthermore, let us as the Board of Commissioners convey the main points of the Company’s Supervisory Report of operations in the fiscal year 2016, as part of the Board of Commissioners’ duties and responsibilities.
2016 Economic Conditions
Global economic growth in 2016 experienced a slow down compared to the previous year, which had a considerable impact to the Indonesian economy. The decrease in commodity prices and the economic slowdown in developed countries also impacted growth in of the Indonesian economy. Nevertheless, the Indonesian economy in 2016 still grew by 5.02%, higher than the previous year’s growth of 4.79%. Indonesia’s economic growth in 2016 was heavily influenced by domestic factors. There were government efforts to accelerate growth through infrastructure spendings, reducing in inflation, lowering interest rates and government spending. Also, the government actively raised funds to support its infrastructure development.
Board of Directors Performance evaluation
The Board of Commissioners realized that the macroeconomic conditions in 2016 would impact the performance of the Company. Decreases in world commodity prices resulted in some industries which are customers of the Company cutting production, with some mining companies choosing to temporarily stop production. This condition resulted in lower demand of petroleum which is the Company’s main business.
Besides, the slowing economic growth in China had an impact on the Company, as the Company has river ports and a factory producing Sorbitol and starch derivatives located in China. The loading and unloading volume for bulk commodities at the ports owned by the Company experienced a decline due to slowing down economic growth in China. Likewise, sorbitol production declined due to a decrease in demand as a result of the economic downturn.
In the midst of these conditions, the Board of Directors took several strategic initiatives that resulted in the Company recording positive results during the fiscal year. The Board of Directors’ policies to increase operational efficiency and to manage risk effectively were appropriate in addressing the very dynamic economic conditions during 2016.
The Board of Commissioners also evaluated the Board of Directors’ policy to continue investing in infrastructure development in Java Integrated Industrial and Port Estate (JIIPE) and felt that the strategy was appropriate. This further strengthened JIIPE’s position as an integrated industrial is estate which will provide added value for its customers. In the long term, the policy will also have a positive impact on the Company’s overall performance.
The Board of Directors’ strategy to establish cooperation with BP in terms of non-subsidized fuel distribution is also considered a good step by the Board of Commissioners. Although this cooperation did not contributed to the 2016 performance, this cooperation will have a positive impact in the coming years. Besides, the Company may also get other benefits from this cooperation related to the management of non-subsidized retail business.
With several strategic initiatives, by end of the financial year, the Company recorded net income attributable to owners of the parent of Rp1.011 billion. Even though it was slightly lower than the previous year, the Company still could achieve higher margins, lower leverage and recorded an increase in the revenue of JIIPE. These achievements were very commendable considering the unfavorable conditions during 2016. The Company’s achievements during 2016 and outlook for coming years resulted in Pefindo Rating Agency upgrading the bond rating from idAA- “stable” to idAA- “positive”.
The Company’s operational and financial performance was quite satisfactory during 2016, and the Board of Commissioners gives its high appreciation to the Board of Directors and all employees in managing the Company for the year 2016.
Supervisory Strategy Implementation
The Board of Commissioners actively monitored the implementation of the strategies defined by the Board of Directors and the performance and achievements of the Company during 2016.
In all Joint Meetings, the Board of Commissioners requested explanations from the Board of Directors related to the progress of budget, constraints faced by the Board of Directors and steps taken. The Board of Commissioners also monitored progress through visits to the business units.
During 2016, the Board of Commissioners evaluated whether the Board of Directors had implemented the right business strategies in accordance with the Company’s plan.
As part of its duties and responsibilities, the Board of Commissioners provides advice to the Board of Directors related to management strategy of the Company. The Board of Commissioners considers the recommendations given to the Committees below the Board of Commissioners to be conveyed through the joint meetings between the Board of Commissioners and Board of Directors.
During 2016, some of the advice given by the Board of Commissioners to the Board of Directors included:
Business Prospects Overview
For 2017, the Company has established plans and business development strategies so that targets can be achieved. The Board of Commissioners considers that the Company has a huge potential to grow.
Logistics and distribution still remain the main focus for the Company. Distribution of fuel and basic chemicals in 2017 again will increase in line with the better growth in the national economy. Government efforts to continue to develop infrastructure will make the economy in some regions better. This condition will impact the demand of fuel and basic chemicals positively. In the retail sector, the Company also sees potential to increase its sales volume. Growth in the number of motor vehicles is still high and is a very good market potential for the Company. Therefore, the Company will continue to strengthen its existing retail and petroleum stations network and those to be developed together with BP.
In the logistics infrastructure sector, JIIPE will contribute positively to the Company’s performance in 2017. Revenue from the sale of industrial estate land is expected to increase with commissioning of new utilities and new tenants. In addition, the loading and unloading volumes at the JIIPE port will continue to increase along with the development of the regional infrastructure.
Good Corporate Governance (GCG) implementation in the Company continues to develop. The Company continues to improve its GCG mechanisms, structures and supporting bodies. The Company is committed to implementing GCG in all Company business activities. The Board of Commissioners is confident that the corporate governance practices already implemented are in accordance with the standard GCG principles.
The Board of Commissioners has encouraged the Board of Directors to maximize the role of all Company bodies to create a business environment that complies with the principles and rules. Therefore, the Board of Commissioners has requested that the Board of Directors strengthen the Violation Reporting System (Whistleblower System) in order to avoid fraud.
Evaluation of Committees Below The Board of Commissioners’ Performances
In carrying out its duties and functions and responsibilities, the Board of Commissioners is assisted by committees under its supervision, namely the Audit Committee and Nomination and Remuneration Committee that are headed by an Independent Commissioner. During 2016, the Board of Commissioners evaluated that these committees performed their duties and responsibilities well and gave opinions to the Board of Commissioners, including:
The Audit Committee
Nomination and Remuneration Committee
Determine the remuneration based on performance of the Board of Directors and Board of Commissioners, related to the implementation of GCG, suitability of targets and achievements, the company’s performance and work alignment.
Changes in the Board of Commissioners composition
During 2016, there were no changes in the Board of Commissioners of PT AKR Corporindo Tbk. The Composition of Board of Commissioners for the fiscal year 2016 is based on AGMs resolution dated May 5, 2015:
President Commissioner : Soegiarto Adikoesoemo
Commissioner : Mahendra Siregar
Independent Commissioner : I Nyoman Mastra
On behalf of the Board of Commissioners, we wish to thank the Board of Directors and convey our appreciation to all employees for their vision, commitment and hard work in realizing the good performance during 2016. We also would like to express our appreciation to shareholders for their trust, and hope to see their full support to the Company in the future.