Message from the President Director

Reports of Directors

Dear respected Shareholders and Stakeholders,

I am very pleased to announce a strong performance by AKR in 2020. We have remained strong in a challenging year and overcome all obstacles posed by Covid-19. It is an honor, on behalf of the Board of Directors, to submit the Annual Report of PT AKR Corporindo Tbk for the fiscal year 2020.

2020 Economic Conditions

Along with the Covid-19 pandemic that hit the world, the direction of the global economy has changed from optimism for improvement in early 2020, to weakening. According to data from the World Health Organization (WHO), as per last available official release of December 19, 2020, there were 83,322,449 confirmed cases of Covid-19 with the number of deaths reaching 1,831,412 worldwide. Various countries around the world, such as China as the ground zero of Covid-19, recorded a contraction in economic growth in the first quarter of 2020. China’s economic growth dropped dramatically to negative 6.8% or for the first time since the 90s.

In response to the Covid-19 pandemic, various countries have issued stimulus policies for global economic recovery. According to the IMF, more than 193 countries issued stimuli for handling Covid-19 with a total stimulus of more than US$8 trillion or around 10 percent of world GDP. The United States and Japan also issued a stimulus of more than 10 percent of GDP with Germany being the country that allocated the highest total fiscal stimulus, namely 24 percent of GDP.

The positive developments from the stimuli issued by various countries has increased optimism for economic improvement in 2020. This is in line with the revision of world economic growth projections in 2020 to negative 4.4% by the IMF as stated in the WEO report October 2020. In line with the improvement in world economic growth in the second semester, the IMF estimates that world GDP growth in 2021 will improve to 5.2%.

The Covid-19 pandemic also impacted Indonesia’s economic growth in 2020. Indonesia’s Gross Domestic Product (GDP) contracted to negative 2.07% in 2020, compared to the previous year’s economic growth of 5.02%. For the first time in two decades, Indonesia entered into a recession. However, according to the Ministry of Finance, when compared to the G20 countries, Indonesia is still ranked 16th for the largest GDP. Many other countries recorded negative double-digit economic contractions

Performance of AKR During 2020

AKR delivered a commendable performance in 2020, with strong Net Profit growth, lower Net Gearing, and strong Cash Flows. This was achieved in a difficult operating environment. The pandemic has had a significant impact on the domestic economy, especially in line with the government’s efforts to suppress the growth rate of positive cases of Covid-19 by limiting people’s mobility in the form of Large-Scale Social Restrictions (PSBB) at the beginning of the second quarter. Such a policy had an impact on weakening business activities in a number of sectors where the supply chain was disrupted and the market was shrinking.

The Company is aware that the world will change after Covid-19 and that we have to be one step ahead of other players. We will take full advantage of these changes to direct the  Company to maintain stability and continue to strengthen competitiveness with a focus on achieving the goals we set before the pandemic. Even though the pandemic has forcibly changed the way we undergo daily operations, from the health problems and economic challenges that arise, we will stick to our vision and mission while making any necessary adjustments in the process.

Results were possible due to efforts by the Board of Directors, employees, partners, and support from our customers. AKR has a complete supply chain infrastructure from storage tanks, warehousing, tankers, and trucks whose status and movements have been monitored through our information technology system. Thus, all movement of goods including inventory in each terminal can be monitored in real-time. In addition, we also have a solid operational team in each area of operation that ensures we can make good use of opportunities, even in the midst of disruption, and our sales continue to grow.

With the strength of the Company’s logistics infrastructure and disciplined risk management, we managed to achieve a consistent performance during 2020. In terms of financials, although sales and revenue were affected by falling commodity prices, our profitability continued to grow positively with the achievement of Net Profit of 30% reaching Rp925 billion. AKR maintains strict formula-based pricing and does not take trading positions, hence the changes in oil prices do not have a direct impact on our profitability. Our achievement was also driven by consistent growth in the core business and increasing contributions from new businesses developed with partners. We also successfully managed operating expenses, working capital, and capital structure so our profitability margins improved. In 2020, our gearing ratio went down to 22%.

AKR has been pursuing a Medium-Term Strategy focusing on five key areas as follows:

1. Risk Management
2. Strengthening Alliances & Partnerships
3. Expansion of Product Portfolio Diversification
4. Expansion of the Customer Base
5. Increase in Shareholder Value

Due to the implementation of such strategies, significant progress was made in 2020.

Performance of AKR During 2020

From an operational perspective, in July 2020 the Company succeeded in obtaining the ISO 9000 - 2015 certification from Lloyd’s Register for the category of Industrial Fuel Trading and Distribution. The certification focuses on customer satisfaction standards that include customer focus, people involvement, process approaches in the organization, improvement, evidence-based decision making, and multi-party relationship management. This certification shows that the Company has standard operating procedures for fuel distribution from purchase to delivery to customers. This is also an important step for the Company’s sustainability initiatives, as well as in order to maintain the trust of customers, investors and stakeholders.

This year, we also continued to develop our business portfolio, including the creation of a joint venture (JV) with PETRONAS Chemicals Marketing Sdn Bhd (a subsidiary of Petronas Chemical Group Berhad) in August 2020 as part of the expansion of the chemical distribution business. Based on this agreement, PT Anugerah Kimia Indonesia (AKI) was established in November 2020 and is scheduled to start distributing methanol to customers throughout Indonesia in 2021.

In terms of the retail fuel and aviation fuel business, the joint venture with BP for retail fuel and aviation fuel progressed well in 2020, which further expands our footprint in fuel distribution. We opened three new locations in 2020 to reach a total of 16 locations in Jabodetabek and Surabaya. In the first quarter of 2020, we opened two new outlets and then had to postpone our plans due to PSBB, the general economic slowdown, and postponement of negotiations with potential dealer partners. Overall, BP retail sales achievement at the end of 2020 has almost returned to pre- pandemic levels with a steady growth rate every month. Apart from that, in terms of the aviation fuel business, the Company’s joint venture in Morowali also recovered when air travel re-opened. In December 2020, we held a soft opening for our second site in Cibubur.

In the fourth quarter of 2020, we completed an additional capacity at the Jakarta Tank Terminal of 100,000 cbm increase total to 350,000 cbm. We expect rising occupation for old and new capacities in 2021, both from the Company and third parties.

In the industrial estate business, the Company submitted an application for Special Economic Zone (KEK) status for the Java Integrated Industrial Port Estate (JIIPE) in 2020. The application was approved by the East Java Government in 2020. In March 2021, the National Council for KEK also approved our application. We expect the President of the Republic of Indonesia to give his approval soon. Investments made by the Company since 2013 have now begun to show results. JIIPE is now contributing increase proportion of our revenue and income, via land sales, lease, and utilities.

In 2020, the Company’s management team also managed to control expenses amidst the continuity of business operations to achieve growth. Travel and sales service expenses were diverted to ensure the health of employees while working. The Company also did not carry out layoffs despite being in a challenging business operating environment.

Comparison of the Performance of 2020 against Budget 

The Company’s consolidated sales and revenue during 2020 reached Rp17,716 billion, 18% lower than 2019 and lower than budget. Even though in 2020 the Company recorded an increase in fuel volume, land sales, and land leases, the Company’s revenue decreased in line with the decline in commodity prices, especially chemical fuels as a result of the Covid-19 pandemic.

The Company’s business model is focused on margin optimization and encouraged the Company to book an increase in Gross Profit and Operating Profit of 8% and 15% respectively despite having lower revenues, as well as increasing the Gross Profit Margin to 11,6%, higher than 2019 which amounted to 8,7%. Increased Gross Profit and tight control over expenses in 2020 resulted in a Net Profit that was higher than the target reaching Rp925 billion, much higher than the Rp717 billion recorded in 2019.

Facing Challenges and Obstacles

As stated earlier, the Covid-19 pandemic created many challenges during 2020. With contractions in GDP growth and falling commodity prices impacting the cash flow of many businesses, the Company implemented stricter risk management  and  customer  loan  terms  were  improved to avoid potential bad credit losses. The situation in 2020 gradually improved after the government and Bank Indonesia implemented stimulus measures.

The demand for chemicals was adversely affected as a number of customers had to reduce production or delay expansion. The downward trend in chemical prices during the pandemic also had an impact on the profitability of this segment. We are seeing signs of price recovery in the fourth quarter of 2020 whose situation we are continuing to monitor.

Demand for retail fuel products was also affected, but overall retail fuel sales reported strong growth compared to 2019. Expansion plans with BP in retail and aviation fuel were deferred to 2021 due to prevailing conditions. Our teams are now actively working on them. The pandemic also delayed several agreements of potential JIIPE tenants.

Daily operational activities are also regulated in such a way so that the Company can continue to operate under the risk of Covid-19. In this respect, we also benefit from the Company’s status as an Essential Industry which allows our employees to continue working under strict health protocols. As a precautionary measure, we limited customer meetings, business trips, and matters requiring  mobility. We also carried out routine tests for all employees in order to mitigate the spread of the Covid-19 virus quickly and precisely if it occurs in one of our employee clusters.

Business Prospects

The government predicts economic growth of 4.5% -5.5% in the coming year. This economic growth has been balanced with improved inflation management so that inflation is estimated to reach 3.0%. This projection is supported by Indonesia’s well-managed macroeconomic fundamentals amid the Covid-19 pandemic and projections of improved global growth in 2021.

The improving economy, as well as government support for the downstream mining program and increasing manufacturing competitiveness, will have a positive impact on the growth of the Company’s trading and distribution business. We expect our healthy volume growth momentum of 2020 into 2021. We also hope that the success of vaccines in Indonesia will increase investor confidence so that the Company can continue the agreements with prospective BP- AKR dealers and prospective JIIPE tenants who had delayed their expansion plans.

Regarding regulatory aspects, the government’s commitment to eliminate various investment barriers is expected to get better next year, one of which is through the Omnibus Law. We assess that the implementation of the Omnibus Law will be a stimulus for various sectors in Indonesia. In particular, we are confident that JIIPE will benefit from increasing foreign and domestic investment through the implementation of the Omnibus Law. In addition, investments made in new growth initiatives are expected to generate returns for shareholders. JIIPE is benefiting from a steady momentum of land sales and this is expected to accelerate after the KEK status is approved and ratified by the President of the Republic of Indonesia.

In terms of profitability, we expect to achieve steady growth based on 1) growth momentum of our core businesses and 2) additional contribution from JIIPE. The basis for our assumptions in setting the growth target mainly lies in the availability of the Covid-19 vaccine, stimulus plans, and government policy initiatives such as the Omnibus Law, as well as an increase in government infrastructure spending which is expected to lead to better economic growth.

Environmental, Social, and Governance

Apart from achievements in financials, the Company also places Environmental, Social, and Governance (ESG) as its main concerns. We believe that sustainable growth can only be realized if we are able to grow together with the environment and the surrounding community. On this basis, the Company is committed to carrying out its operational activities based on concerns for the environment and providing a positive impact on the wider community.

Regarding governance, the Company continues to improve the application of the principles of good corporate governance in terms of structure, process, and outcome. Regarding structure, the Company has completed corporate governance units and has carried out its functions as stipulated in Law No. 40 of 2007 concerning Limited Liability Companies. Meanwhile, from the process side, the Company always implements risk management as an important part of managing the Company. We believe that a good outcome can only be achieved through proper process. Therefore, mitigation of operational and financial risks is the main consideration so that the Company can grow on a solid foundation, reflected in a healthy balance sheet, low gearing ratios, and strong management of the Working Capital cycle.

For social issues, the  Company  places  great  emphasis on employees and society. The Company maintains the principles of openness, equality, and fairness in employment. The Company has developed good industrial relations with employees by fulfilling the normative rights of  employees as regulated in Law No. 13 of 2003 concerning Manpower. In the midst of the pandemic, the Company has not carried out layoffs and is still recruiting for subsidiaries that were in the early stages of development. In addition, Occupational Health and Safety (K3) is also a major focus and concern for the Company. With its core business of trading and distributing fuel and basic chemicals, the Company encourages the implementation of K3 in  every  aspect, both for employees who support head office operations, and especially for employees who are directly related to operational activities in the field. The Company also actively builds safety awareness for all AKR personnel regarding the importance of safety at work.

The Company carries out a structured and sustainable Corporate Social Responsibility (CSR) program. In 2020, the Company’s CSR programs were mostly focused on the social and health sectors, especially on efforts to tackle the Covid-19 pandemic to help the government’s efforts to reduce the rate of case growth. In this case, the Company provided direct assistance to the community, focused on efforts to prevent the spread of the Covid-19 virus. The total costs incurred for the Company’s CSR program amounted to approximately Rp9 billion which was disbursed in the form of 4 PCR machines, 10,000 PCR test kits, 150,000 masks, and 13,500 Personal Protective Equipment (PPE).

Dividend Policy

The commitment that we always uphold is to increase shareholder value, actualized by providing optimal dividends for shareholders. Based on the decisions of the Annual General Meeting of Shareholders (GMS) held on April 30, 2020, the Shareholders decided to distribute cash dividends amounting to Rp441,616,441,200 or 61.57% of net profit attributable to owners of the parent entity for the fiscal year 2019. For 2020, the Company has distributed interim dividend of Rp50/share.

Change in the Composition of the Board of Directors

In 2020 there was a change in the composition of the Board of Directors of the Company as the term of office of Arief Budiman Utomo ended. On this occasion, we would also like to express our deepest appreciation for his hard work and contribution to the Company while serving as a member of the Company’s Board of Directors. In line with these changes, the composition of the Company’s Board of Directors as of December 31, 2020 was as follows:

President Director : Haryanto Adikoesoemo

Director : Jimmy Tandyo

Director : Bambang Soetiono Soedijanto

Director : Mery Sofi

Director : Suresh Vembu

Director : Nery Polim

Director : Termurti Tiban

Appreciation

The Company has successfully concluded 2020 which provided challenges that we have never faced before by posting an encouraging performance. For this achievement, our deepest appreciation is addressed to the  Board of Commissioners for all directions given. Our deep appreciation also goes to the shareholders and investors, customers, suppliers, regulators, Government of the Republic of Indonesia, and business partners who have offered their support and trust in the Company during this difficult time.

In particular, the Board of Directors also expresses gratitude and appreciation to all employees who have worked hard with dedication and love in carrying out their respective duties and responsibilities, as well as supporting efforts to realize the Company’s vision, mission, and targets, so that the Company can become an entity that remains focused in the midst of challenging situations.

To conclude, I would like to reiterate that as the leading logistics and supply chain company in Indonesia with a unique set of assets and infrastructure built over six decades, PT AKR Corporindo Tbk has contributed to providing raw materials, energy, and logistics solutions to our customers; AKR group has contributed to the economic growth of Indonesia by significant investments made during the past decade where we have not only invested in ports, storage terminals, transport solutions – ships and trucks, industrial estate and from the past three years jointly with our partners developed retail petrol stations with BP to bring a new customer experience to Indonesian customers; we also have entered into new market areas like aviation fuels, lubricants and a joint venture with Petronas to supply chemicals required for new product applications.

We continue to serve the Indonesian economy and fully support government efforts to attract new industrial growth in the Company by providing a competitive base both in terms of land and also logistics and energy solutions; we also are committed to growing our business in a sustainable manner and adopting good ESG practices to serve our customers and society at large.