In the past few years up until 2018 BUMI has taken strategic measures to optimize its operational and financial performance, and we have seen encouraging outcomes as the result in spite of challenges, due to the global and domestic market situation.
In terms of capital, the Company’s capital structure strengthened and net equity improved further. Debt payment and cost reduction was a focus and market efforts were carefully managed to optimize performance.
The global economy in 2018 began with optimism. Manufacturing and trade sectors visibly continued its 2017 upward trend, while benchmark quality coal price stayed above US$100/ton until February after it had hit the mark in December of the previous year. However, industrial production and trade volumes lost some momentum towards the year-end.
This development occurred due to the impact of the US-China trade war. The increase in protectionist rhetorics in the trade sector created uncertainties related to trade policies. according to the World Economic Forum, the uncertainty weighted down future investment decisions.
Nonetheless, the US economy accelerated strongly in 2018, driven by tax cuts and increases in spending which boosted demand. as a result, the US Federal Reserve resumed its policy of increasing the benchmark interest rate. as a result, the US exchange rate strengthened against other currencies in the world.
In Indonesia, the national economy was robust enough to grow by 5.17% and to maintain the inflation rate at 3.13%. While the rupiah was depreciated as with many other currencies, Indonesia’s foreign exchange reserves remained stable.
BUMI’s management shared the world’s optimism in 2018. However, as events unfolded, it became clear for BUMI that the global economy was affected primarily by the trade wars between major economies. With largely the exception of oil, the prices of natural resource commodities came under pressure.
The challenge, especially in terms of production activities, heightened with torrential rain at the beginning of the year. Moreover, in the second quarter of 2018, the government issued a policy that stipulated domestic market obligation of coal producers to sell to the national power company (PLN) 25% of their production volume at a fixed benchmark quality price of US$70/ton—an obligation that BUMI was able to meet. Towards year’s end, BUMI was motivated to focus its coal sales to the domestic market due to the developments coming from China and India as the world’s top and second-largest coal importers, respectively. In China, its government decided to impose curbs on coal imports, while India’s rupee depreciation reduced the country’s demand and downward pressure on price.
However, the Company’s coal business segment executed through subsidiaries Kaltim Prima Coal, and Arutmin Indonesia demonstrated good performance. The mineral/non-coal business segment developed by BUMI Resources Minerals through three of its operational units continued focusing on asset growth. With stronger assets, commercial production of zinc from Dairi and trial fold production from Citra Palu is planned is the short term.
In view of the overall situation, we can conclude that the steps that BUMI took in 2018 to focus on the domestic market have been prudent decisions in order to move closer to realizing sustainable growth and protect future profit.
Despite a decline in demand, in the end of the year due to impact of China, US trade war, impact curbs by China and currency weakness in India, BUMI’s coal sales were relatively stable and decreased to 80.6 million tons due to controlled production in the 4th quarter, end year inventory was comfortable to protect 1st quarter sales next year. Its selling price rose only by 2% to US$59.2/ton since the products were primarily channeled to the domestic market. Nevertheless, the Company was able to book exponential revenue growth to US$1.11 billion as the Company was able to consolidate Arutmin revenue in its financials from 1 January 2018 in addition to delivering operating income of US$38.64 million after it had recorded a loss of U$21.07 million in the previous year a positive swing of $59.71 million. The capital structure also improved with net equity growth compared to the previous year.
Based on these performance indicators, the Board of Commissioners views that the Board of Directors has controlled BUMI’s business in accordance with the strategies, and tactics and was still able to successfully accomplish satisfactory results in spite of the controlled price to PLN during the year and market challenges.
BUMI understands the importance of having Good Corporate Governance (GCG) principles in place in order for the Company to gain investor’s trust as well as to increase long-term value for the shareholders and other stakeholders. To implement GCG, BUMI employs a top-to-bottom approach. The Board of Commissioners, the Board of Directors, and the shareholders all share the same commitment to applying only the best GCG practices in the Company. BUMI’s organizational structure clearly defines the roles and responsibilities of each person and how each function can be accountable.
GCG implementation in BUMI is periodically reviewed by the Internal Audit Unit, independent party, and prospective investors and creditors with audit result that includes recommendations for improvement. In 2018, BUMI appointed RSM Indonesia as the independent GCG assessor; the review used maturity assessment model developed in reference to, among others, the G20/OECD Principles of Corporate Governance and GRI Standard. The result indicated that BUMI achieved an average score 2.52 out of the highest 4. as a follow-up to the evaluation, BUMI drafted the GCG roadmap that will guide GCG improvement journey for the next four years.
With respect to risk management as part of GCG implementation, the Board of Directors and risk management division have conducted an internal survey to assess the effectiveness of a risk management system in the Company and business units. according to the survey, BUMI has carried out sufficient risk management system and scored 3.54 out of the highest 5.00.
Also in 2018 BUMI reviewed, revised, and recirculated the Speak Up System to all employees and business units. Financial constraints had caused the program to temporarily inactive, however, BUMI expects to revitalize the program in 2019.
Changes in the Board of Commissioners Composition
The Extraordinary Shareholders’ Meeting on 29 November 2018 approved the following composition of the Board of Commissioners:
|Board of Commissioners|
|Nalinkant Amratlal Rathod||President Commissioner|
|Anton Setianto Soedarsono||Independent Commissioner|
|Eddie Junianto Subari||Commissioner|
|Kanaka Puradiredja||Independent Commissioner|
|Y.A. Didik Cahyanto||Independent Commissioner|
|Thomas M. Kearney||Commissioner|
The Board of Commissioners views coal, as one of the world’s primary energy sources, to remain promising as do minerals such as zinc, gold, bronze, and copper. Demands for both coal and minerals are expected to stay high for at least the next several years. Combined this with the Company’s solid operational and financial performance without major hindrances that may harm BUMI as a going concern, we maintain an optimistic view on BUMI’s business sustainability.
The Company is also well prepared to navigate the global economic situation that is already projected to slow down in 2019. BUMI’s strategies include targeting coal production volume growth by 6 to 10%, which we hope can be followed by growth in revenues and profits. The Company will also continue to repay its debts as part of its commitment to maintaining a sound financial position.
As with the previous years, BUMI received a number of awards, which we hope can further motivate the Company’s accomplishments. In 2018, BUMI received asia Gold award for 2018 Sustainable Report, the award for achieving the status of Indonesia’s highest foreign exchange contributor, and the award as the largest royalty payer among 30 largest national taxpayers.
In conclusion, on behalf of the Board of Commissioners, I would like to express the highest appreciation to the Board of Directors, management and all employees of BUMI that have made BUMI’s achievements possible through their hard work and dedication. The Company is also considering a stock option scheme for employees for their hard work. We also wish to extend our appreciation to all committees for their performance and support throughout the years. We believe to achieve sustainable business growth and to continue delivering benefits for the economy, people, and environment.
Jakarta, April 2019
On Behalf of the Board of Commissioners