Report of the Commissioners

Jonatha Sofjan Hidajat

President Commissioner

Dear Honored Shareholders,

First of all, we would like to praise God Almighty for His mercy and grace, so that PT Industri Jamu Dan Farmasi Sido Muncul Tbk (the “Company”) could go through the year 2019 with notable operational and financial performances. Hereby we deliver the supervisory report of Board of Commissioners regarding the development and management of the Company for the financial year ended December 31, 2019.

View on External Conditions

Global economy in 2019 was uncertain, mainly as a result of the prolonged trade war between the United States (US) and China. The US-China tension triggered economic contractions in many countries and suppressed the world trade volume. Slowing world economic growth led to recession signals in a number of countries, decline of customer trust and market turmoil. Trading partners of the US and China, including Indonesia, experienced economic slowdown as a direct or indirect impact of dispute between the two countries with the world’s largest economies.

Compared to previous years, in 2019, impact of the trade war on Indonesian economy was more significant. Weakening commodity prices in the global market, especially coal, put pressure on export trade. Meanwhile the national economy was still being held back because of the national legislative and PresidentialVice Presidential elections in April 2019. The business community tend to wait for a more conducive situation and for the new cabinet to be formed. A slowdown in the domestic economy was unavoidable. Statistics Indonesia (BPS) announced that Indonesia’s economic growth on an annual basis only reached 5.02%, lower than 5.17% in 2018, as affected by the global economic slowdown.

View on Business Plans Prepared by Board of Directors

Board of Directors prepared a business plan for 2019 with moderate assumptions and realistic growth projections. Board of Commissioners supports the Company’s strategy to expand export market, especially to ASEAN countries whose people have many similarities in social and cultural life. This was proven by the Philippine market’s acceptance of Sido Muncul products which exceeded expectations since the initial export to the Philippines in late 2018. However, the potential of untapped domestic market is still very large, especially in Eastern Indonesia. The Company needs to increase distributor capabilities to expand its customer base in both traditional and modern trade markets

Board of Directors Managed to Drive Growth

External conditions throughout 2019 have certainly come to the attention of Board of Directors to seize the opportunities and challenges and to formulate various strategic initiatives for the Company’s business advancement. In the view of Board of Commissioners, Board of Directors have implemented the right business strategy in response to the dynamic market conditions.

Overall, the performance in 2019 was stronger than the previous year. Despite the challenging economic conditions, Board of Directors managed to maintain the sustainability of positive business growth with sound financial performance. Efficiency initiatives resulted in strong profitability growth.

Export performance improved significantly and contributed 5% to the net revenue, up from less than 2% in the previous period. The contribution of sales through modern trade grew from around 8.5% in 2018 to around 10%. This achievement was a result of the right marketing strategy supported by the optimized production capacity to meet the increasing market demand.

In 2019, the Company recorded net revenues amounting to Rp3.07 trillion, an increase of 11.0% compared to Rp2.76 trillion in 2018. The Company’s revenues were derived from sales of the three business segments, namely the Herbal Medicine and Supplement, Food and Beverage and Pharmacy segments. Herbal Medicine and Supplements segments were still the main contributors to the Company’s net revenues of 67.3%. Food and Beverage segment contributed 29.0% and Pharmacy segment contributed 3.8%.

The Company recorded a net income of Rp807.69 billion, up 21.7% from Rp663.85 billion in 2018 with net income margins grew from 24.0% to 26.3%. Total assets as of December 31, 2019 rose by 6.0% from Rp3.34 trillion at end of 2018 to Rp3.54 trillion.

View on Business Prospect

The Company expects tougher challenges in 2020 as domestic economic growth is still overshadowed by uncertain global conditions. On the other hand, in the early 2020, the world was struck by the outbreak of novel corona virus in Wuhan, China, causing thousands of fatalities and even tens of thousands of people suffering from acute pneumonia. The outbreak of pneumonia due to this virus which was later named COVID-19 spread quickly to other countries. The number of positive cases of corona continues to increase causing thousands of deaths including outside China.

This new virus attack has raised public awareness of the importance of living a healthy lifestyle and consuming health supplements. The Company as a producer of ‘jamu’ and herbal medicine products with clinically tested efficacy must take a leading role in public education to prevent health problems.

The pharmaceutical industry, including ‘jamu’ and herbal medicine industry, is one of the sectors of Government’s concern since this industry has the potential to be a mainstay sector to encourage the national economic growth. The ‘jamu’ and herbal medicine industry has a great potential with raw materials coming from Indonesia’s abundant natural resources. Therefore, the government encouraged the role of research institutions and universities in research and development to innovate new products using raw materials available in Indonesia.

The ‘jamu’ and herbal medicine industry shows an encouraging growth rate in line with the increasing awareness of the public to live a healthy and back-tonature lifestyle. This current market preference has come to the attention of Board of Commissioners and Board of Directors in regular discussions on market overview and sales performance. Board of Directors strives to increase market share, both domestic and export, with various aggressive marketing strategies supported by higher capacity and modern production facilities.

Supervisory Duties

Board of Commissioners performed its supervisory and advisory functions based on the Articles of Association and Board Manual. In 2019, Board of Commissioners held 12 meetings, all of which were joint meetings with Board of Directors. Joint meeting aims to obtain information and direct explanation on matters that need to be explored further so that Board of Commissioners can immediately provide direction and input to Board of Directors in accordance with their functions, duties and responsibilities.

In joint meetings during 2019, Board of Commissioners and Board of Directors discussed and evaluated quarterly and annual operational, marketing and financial performances, planning of Annual and Extraordinary GMS, draft 2020 business plan and 3-year business plan, as well as other agendas that require insights and advices of Board of Commissioners. Board of Commissioners also monitored to ensure that internal control ran effectively, all business risks were mitigated and good corporate governance was implemented.

Communication between Board of Commissioners and Board of Directors is not only carried out through joint meeting, but also through informal communication by phone, teleconference, e-mail, or visits to the Company’s production facilities, subsidiaries and distribution channels. Through intensive meetings and information exchanges between Board of Commissioners and Board of Directors, Board of Directors can immediately report the latest developments regarding the Company’s performance and Board of Commissioners respectively provides guidance and opinion, so that Board of Directors can make the right business decisions.

GCG Implementation and Performance of Board of Commissioners’ Committees

Board of Commissioners continues to provide support so that the Company maintains its commitment to compliance with all applicable laws and regulations in the capital market, including implementation of good corporate governance (“GCG”) practices. Board of Commissioners considers that GCG implementation in the Company is on the right track. Currently, Board of Directors has two Independent Commissioners who come from outside the Company and meet independence requirements as stipulated in Financial Services Authority Regulation.

In performing its duties, Board of Commissioners is assisted by Audit Committee and Nomination and Remuneration Committee. Board of Commissioners believes that the committees of Board of Commissioners worked well in accordance with GCG principles. The Committees worked actively to analyze and respond to changes in the business environment that affected the Company’s performance. The Committees also assisted Board of Commissioners in reviewing and preparing Board of Commissioners’ responses regarding Board of Directors’ requests for approval, support and advice.

During 2019, Audit Committee performed its duties and responsibilities according to with the Company’s Audit Committee Charter. Audit Committee’s duties carried out in 2019 included reviewing and discussing 2018 Consolidated Financial Statements and 2019 Quarterly Consolidated Financial Statements, evaluating performance of public accountant and/or public accounting firm that audited the Company’s 2018 Annual Financial Statements, providing input to Board Commissioner for appointment of public accountant and/or public accounting firm to audit the Company’s Financial Statements for financial year 2019 and providing input to Board of Commissioners regarding formation, procedures, work plans and findings of Internal Audit.

Nomination and Remuneration Committee acts independently in providing recommendations to Board of Commissioners regarding nomination and remuneration of members of Board of Directors and Board of Commissioners. The Committee reviewed formulation of remuneration for Board of Directors as a follow-up on decision of Annual GMS on April 9, 2019 which delegated authority to Board of Commissioners to determine salaries and allowances of the Company’s Board of Directors for financial year 2019, as well as nomination of new Directors of the Company to be proposed and approved in Extraordinary GMS on November 27, 2019. Furthermore, Nomination and Remuneration Committee provided input to Board of Commissioners and management for 2019 Key Performance Indicators (KPI) structure of Board of Directors, evaluated performance of Board of Directors and provided recommendations on nominated members of Board of Directors.

Overview on Whistleblowing System

Board of Commissioners appreciates that the Company has Whistleblowing System (WBS) in place. In addition to providing a means for anyone in the organization to report fraud, WBS also has the role in detecting and preventing potential fraud to prevent losses. Board of Commissioners through Audit Committee evaluated WBS implementation, including the mechanism for handling and following up on complaints. Board of Commissioners views that the existing WBS implementation is adequate as part of the internal control system.

View on Social and Environmental Performance

The Company’s business journey has naturally built an interconnected, mutually influencing, and mutually beneficial ecosystem. Hence, the the Company’s business sustainability has a significant relevance for the balance of its ecosystem economically, socially and environmentally.

Board of Commissioners supports corporate social responsibility (“CSR”) programs initiated by Board of Directors to improve the welfare of farmers and village communities through Herbs Village, Rice Inspiration Village and Fruits Tourism Village programs, as well as exploration of potential village tourism around Ring-1.

Sido Muncul’s Free Homecoming tradition is highly anticipated by herbs sellers, retailers and hawkers. Free cataract and cleft lip surgeries give invaluable new lives to the patients.

In environmental sector, the Company strives to responsibly carry out production activities without damaging the environment and consistently applies high compliance standards in environmental management. In the view of Board of Commissioners, the management has established comprehensive and innovative environmental management programs covering the aspects of energy, water, emissions and wastes (solid, liquid and B3).

Sido Muncul’s success in implementing programs to create a green environment was recognized with Green Proper award from the Ministry of Environment and Forestry of the Republic of Indonesia for three consecutive periods.

Board of Commissioners appreciates Board of Directors’ decision to publish the Company’s Sustainability Report since financial year 2018. Sustainability Report prepared in accordance with GRI Standards can provide stakeholders with a comprehensive description of what the Company has done in the social and environmental fields.

Changes in Composition of Board of Commissioners

There were no changes in composition of the Company’s Board of Commissioners in 2019.


Name Position
Jonatha Sofjan Hidajat President Commissioner
Johan Hidayat Commissioner
Sigit Hartojo Hadi Santoso Commissioner
Ronnie Behar Independent Commissioner
Eric Marnandus Independent Commissioner

Appreciation

Finally, on behalf of Board of Commissioners, I extend my gratitude to the shareholders and all stakeholders for their support and trust. My sincere appreciation goes to Board of Directors and all employees who have shown their hard work, loyalty and dedication for the Company’s success. Hopefully, the Company can continue to provide the best benefits to the customers, business partners, shareholders and all stakeholders in the future.