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Message From The President Director

Dear Honorable Shareholders and Stakeholders,

We pray and thank God Almighty for His blessing and grace so PT AKR Corporindo Tbk could achieve a good performance in 2016. We would like to submit the annual report of PT AKR Corporindo Tbk for the fiscal year ended December 31, 2016, together with the Consolidated Financial Statements audited by Purwantono, Sungkoro & Surja (a member of Ernst & Young Global Limited) with a “fairly in all material respects” opinion as a form of Company Management accountability for the period.

We would like to also thank all employees who have contributed their best to the Company, to the Board of Commissioners for all their advice and recommendations, as well as the shareholders who have given us the confidence to manage the Company.

Economic Conditions in 2016

There were still uncertainty in the global economy in 2016. Many macro-economic risks occured including Brexit, the Fed rate, political changes, as well as fluctuations in commodity prices and foreign currency exchange rates. The uncertainty in the global economy in 2016, resulted in developed countries’ monetary authorities issuing policies related to benchmark interest rates to boost their economies. The economic growth in developed countries in 2016 was below expectations. The US economic growth reached only 1.6%, lower than the previous years. Likewise, China’s economic growth only realized 6.7%, the lowest in 25 years. In addition to their economic downturn, China also has implemented clean energy policies from 2014 that have reduced their dependence on low grade coal.

In the midst of these conditions, Indonesia managed to record positive economic growth. In 2016, Indonesia’s economic growth was recorded at 5.02% higher than the previous year’s 4.79%. This achievement was a result of the government’s efforts to maintain economic stability. In the midst of world currency fluctuation, the rupiah in 2016 was maintained at a level of 13,300/$ and even slightly appreciated by 0.6%.

The inflation rate for 2016 was 3.02%, the lowest in the last decade. The BI rate was lowered from 7.5% to 6.5%. Another domestic factor, saw government spending, reaching to 89.3% of budget (APBN). The Indonesia government under new leadership, focused on accelerating infrastructure performance and development to build competitive advantage for Indonesia in terms of logistics. To support efficient logistics infrastructure development, the government successfully introduced a tax amnesty in the mid 2016. Constraints faced by the Company The weak world economic growth and their implications were major constraints faced by the Company in 2016. The decreasing oil prices and world commodity prices, the weak economic growth in developed countries including China, were contraints faced by the Company.

Performance

As per directives from the Board of Commissioners, the Board of Directors took several strategic policies to ensure our business growth remained positive. The Company continued to innovate to generate profits on a going concern basis. In the short term, the Company improved operational efficiency to minimize unnecessary costs. In the long term, in 2016, the Company took strategic steps in the fuel retail segment, as well as in the JIIPE development, to generate sustainable income The Company’s income was below target due to lower domestic fuel prices in the first half of 2016, but the company managed to increase its overall margin through cost control. The Company’s consolidated revenue in 2016 fell by 23% from Rp19.76 trillion to Rp15.21 trillion. While net profit slightly fell by 2% from Rp1,034 billion in 2015 to Rp1,011 billion in 2016. Nevertheless, on the financial side the Company managed to realize some achievements as follows;

  1. Net margin in 2016 improved to 6.6% compared to 5.2% in 2015
  2. Net gearing dropped from 0.35x in 2015 to 0.33x 2016
  3. JIIPE recorded significant growth and contributed to the consolidated revenue and profit. The JIIPE project in 2016 successfully recorded sales of Rp271 billion, an increase from Rp129 billion in 2015.
  4. The company managed to maintain a strong balance sheet with low leverage and an adequate cash position which resulted in Pefindo Rating Agency upgrading the bond rating from idAA-“stable” to idAA- “positive”.

Strategic Initiatives by the Company

In addition, during the year AKR initiated a number of strategic initiatives to maintain and develop its business by expanding its business in retail and aviation fuel, including;

  1. Launching AKRA 92 gasoline at the gas stations during 2016 and being re-appointed for the 6th year in a row to distribute subsidized diesel.
  2.  Signing a joint venture agreement with Air BP (a BP division that deals with aviation fuel) to distribute aviation fuel in Indonesia
  3.  Signing a Heads of Agreement (HOA) with BP to develop the retail fuel distribution business in Indonesia

In 2016, the Company began port operations in JIIPE with total loading and unloading volumes reaching 438,000 tons. The industrial estate land is getting ready to be marketed with progress in infrastructure development. Good progress has been made in attracting new industrial tenants, developing phase 1-23 MW integrated power plant, phase 1-100 m3 water facilities, and phase 1 of the port operations, as well as receiving a KLIK facility.

Business Prospects

In the fuel segment, the Company saw improvements in coal prices and other commodity products. MOPS prices rebound to $60 / bbl by the end of 2016. Coal Prices started recovering in Q3 and reached $101.7 / MT in Q4. With its logistics infrastructure, reinforced by the partnership with BP for retail and aviation fuel, the Company sees a positive outlook for growth in fuel volumes in the existing and new segments.

In the retail sector, the Company continues to develop its retail network. The Company believes that the retail sector has huge potential. Currently, the ratio of SPBU to total population in Indonesia is still very low. In addition, the number of motor vehicles sold each year is growing and vehicle numbers are high. Therefore, the Company will continue to develop the retail network, for stations that use the AKR brand (subsidized BBM and non-subsidized BBM) and the proposed AKR-BP brand (specifically non-subsidized fuel).

From the Indonesia economy side, the increased government spending and infrastructure development programs continued to run and will provide a positive impact on Indonesia’s economy in 2017, in line with the improving regional economy thanks to the improved infrastructure. It is believed that Indonesia’s economy growth will be better in 2017.

The improving economy in 2017 will increase the purchasing power of society and the economic wheels will again move forward. This is an opportunity for the Company to re-stimulate growth in basic chemicals and fuel volumes. With the JIIPE achievements mentioned earlier, JIIPE’s contribution to the Company will be better in the future. Revenue from land sales and supporting infrastructure will be a source of new income for the Company. In 2017, JIIPE is targeted to execute some of the following;

  1. JIIPE will have access from two highways with the Legundi- Bunder-Manyar toll road 9 km extension providing direct access to JIIPE and improved access for customers.
  2.  JIIPE is being considered as a national strategic project in 2017.
  3.  JIIPE has started to develop other utilities for tenants and is scheduled to be operational by mid 2017.
  4.  The JIIPE Port targets more than 1 million MT of general and bulk cargo in 2017 to support the industrial estate tenants and other industries in the region.

Dividend Policy

Based on the Annual General Meeting of Shareholders decision held on Thursday, April 28, 2016, the shareholders’ approved the distribution of cash dividends amounting to Rp474 billion or Rp120 per share from the 2015 profit attributable to owners of the parent. Part of this dividend was distributed on August 21, 2015 totaling Rp394 billion or Rp100 per share. The remaining cash dividend of Rp80 billion or Rp20 per share was paid on May 25, 2016.

Also, based on the Board of Directors decision on July 26, 2016, as approved by the Board of Commissioners on July 26, 2016, the Company declared an interim cash dividend of Rp70 (full amount) per share amounting to Rp279 billion from the 2016 interim profit attributable to owners of the parent, which was paid on August 25, 2016. The cash dividend distribution does not reduce the Company’s financial ability to fund business investments and expansion in the coming years.

Human Resources

The Company has a strong commitment to continually improved their Human Resources (HR) competencies. The Company believes that HR is a key for the Company to succed, both for short term and long term. With an increasing number of subsidiaries, the Company is actively motivating stakeholders to improve their managerial skills and abilities to be ready to grow together with the Company. 2016 was an appropriate moment to improve the human resources quality and implement organization alignment for the Company as a whole.

Based on this awareness, the Company has employee development programs with training provided in line with the needs and development of the business environment. The Company provides opportunities to all employees to follow the competency development. In 2016, the Company held 93 training sessions, attended by 1,572 participants at all levels.

Information Technology

The Company continues its efforts to enhance the role of Information Technology (IT) to support the company’s operations. IT utilization is believed to make operations more effective and efficient.

Using IT, the Company is able to monitor the temperature and volume in the fuel tanks to avoid stock shortages and the risk of work accidents. In addition, the Company also applies an exception report system that reports conditions which are outside the norms. This is intended to avoid SOP violations and reduce the risk of fraud. The IT implementations during 2016 included;

  1. Automated Tank Gauging Visualization System in a single dashboard
  2. Business Intelligence Solution System based on trending analysis with warnings if unusual circumstances occur
  3. Route management using GPS systems

Risk Management

The declining economic conditions resulted in high business risk. Thus, in 2016 the Company further strengthened its risk management. The Company undertook efforts to mitigate the risks faced. Some risk mitigation efforts conducted by the Company in 2016 included:

  1. Intensive marketing of fuel and basic chemicals
  2. Management of Net open position to avoid price fluctuation  risk
  3. Management of Conservative hedging to manage fluctuating foreign currency exchange rates
  4. Monitoring fluctuations in market interest rates
  5. Maintaining liquidity
  6. “Six zeroes” in the SHE (Safety, Health and Environment) implementation

Corporate Governance

The Company ensures that the basic GCG principles are applied in every business aspect and at all levels to ensure that corporate governance is based on the principles of transparency, accountability, responsibility integrity, and fairness.

One form of corporate governance applied by the Company is involving minority shareholders during the General Meeting of Shareholders. The Company actively invites and provides opportunities for minority shareholders to participate in the GMS.

In addition, to increased transparency and accountability, the Company also appoints an external auditor to audit the Company’s performance. The Company has engaged a big four auditor and the Company’s subsidiaries are also using the same auditor ensuring better transparency and accountability.

As the Company continues its efforts to implement GCG principles, it has applied the ASEAN GCG Scorecard, adopted by various international standards and best practices, and used as the basis for assessing the GCG practices in public companies in the ASEAN region.

Committees below the Board of Directors Performance Assessment

The Company does not have any Committees reporting to the Board of Directors. In order to carry out its duties and responsibilities, the Board of Directors is assisted by Advisors and Senior Managers from a number of segments.

During 2016, the Board of Directors considers that the employees below the Board of Directors have shown a good performance in order to carry out their respective duties and responsibilities and have provided input to the Board of Directors related to the Company’s operations.

Changes in the Board of Directors Composition

During 2016, The Board of Directors composition of PT AKR Corporindo Tbk was unchanged. The Board of Directors composition in 2016 is based on the Annual General Meeting decision dated May 5, 2015, namely:

President Director : Haryanto Adikoesoemo

Director : Jimmy Tandyo

Director : Bambang Soetiono Soedijanto

Independent Director : Arief Budiman Utomo

Director : Mery Sofi

Director : Suresh Vembu

Director : Nery Polim

Director : Ter Murti Tiban

Appreciation

2016 was full of challenges that have been successfully passed by with a good performance. On behalf of the Board of Directors, we express our gratitude and appreciation as much as possible to the Board of Commissioners for the direction given to the Boardof Directors. The same reward is also given to the shareholders, customers, bankers, bondholders, and business partners for their support, trust, and cooperation. The Board of Directors also expresses its thanks and appreciation to all employees who have worked with great dedication and passion in carrying out their duties and responsibilities as well as supported efforts to realize the Company’s vision, mission and targets so that the Company achieved a strong and sustainable growth.

Jakarta,

 

 

Haryanto Adikoesoemo

President Director

PT AKR Corporindo Tbk
Head Office

Wisma AKR 8th Floor
JL. Panjang No. 5 Kebon Jeruk
Jakarta Barat 11530, Indonesia

T +62 21 5311110
F +62 21 5311388

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