2017Annual Report - semenindonesia.com · Ikhtisar Utama Laporan Manajemen Profil Perusahaan Analisis dan Diskusi Manajemen Tinjauan Operasional Tata Kelola Perusahaan Tanggung Jawab

Reshaping the Future

PT Semen Indonesia (Persero) Tbk1. The East Building, 18th Floor Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No. 1 Kuningan, Jakarta -12950 T: 62-21-5261174-5 F: 62-21-5261176

2. Gedung Utama Semen Indonesia Jl. Veteran Gresik 61122 East Java, Indonesia T: + 62-31-398-1732 F: + 62-31-398-3209

email: [email protected] @: www.semenindonesia.com

2017Annual Repor t


Annual Repor t

2017

Annual Report

2017


PT Semen Indonesia (Persero) Tbk

The year 2017 provides a momentum for PT Semen Indonesia (Persero) Tbk to make a fundamental overhaul. The Companys position, as the holding company of cement producers that dominate the domestic cement industry in terms of market share, presents an advantage to potentially position the Company, over the medium- and long-term horizon, as a global enterprise.

In aspiring towards a better future, the Company continues to transform in aspects of organization, financial, and operational as well as in production and supply value chain, in the belief that the Companys future is on the potential opportunities of the dynamic domestic cement market.


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PT Semen Indonesia (Persero) Tbk 2017 Annual Report


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Rp19,854 billion

Rp6,992 billion

Cost of Revenue

Cost of Energy

Cost management is one of the important aspects in maintaining business continuity and performance. In the cement industry, energy costs represent the largest portion of the total production cost of about 36%. The higher the production level, the higher the demand for the commodity whose price is determined by the international market.

increased by 22,0% compare to the previous year

increased by 23.5% compare to the previous year

Managing OurProduction Cost

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The Company has sought to reduce the cost of production by developing a more efficient drying technology. In 2017, a number of cement factories operated by the Company have successfully utilized low calorie coals below 4,000 kcal as a source of energy. This has resulted in more efficient plant operational performance.

Packing Plant in Banjarmasin, South Kalimantanwith Capacity of 600,000 tons/year

Cement Mill Activity Semen Indonesia Factory in Padang, West Sumatra

Coal Storage of Semen Indonesia Tuban Factory, East Java

Machine Packer Activity Semen Indonesia Factory in TLCC, Vietnam


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Optimizing ProductPortfolio

Companys brand image is an asset worthy of further enhancement. One betterment approach is to establish online channels and digital media communications. Thus, Companys cement product will be more renowned and gain public trust.

Regionally, the Company possesses an excellent brand image adding a strong advantage for the Company. Currently there are 3 domestic cement brands and 1 regional brand. The Company targets all its product brands to be recognized throughout the region.

Cement Packer of Semen Indonesia at Tuban Factory, East Java

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30,818 thousand tonsTotal Cement Production

increased by 9% compare to the previous year

2,133 thousand tonsRegional Cement Production (TLCC)

decreased by 11% compare to the previous year

28,685 thousand tonsDomestic Cement Production

increased by 12% compare to the previous year


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Ikhtisar Utama Profil Perusahaan Tata Kelola PerusahaanLaporan Manajemen Analisis dan Diskusi Manajemen Tanggung Jawab Sosial PerusahaanTinjauan Operasional

PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017 PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017

5352Laporan Keuangan Konsolidasian

Papua

Grinding Plant

1 Unit Cement Mill

Grinding Plant

4 Unit Cement Mill

Kiln 5 UnitCement Mill 11 Unit




Myanmar

LaosNaypyidaw

Bangkok

Phnom Penh

Kuala Lumpur

Singapore

Sumatera

Jakarta

Jawa

Sulawesi

Kalimantan

Maluku

Dili

ManilaThailand Vietnam

Brunei

PhilippinesCambodia

Malaysia

Indonesia

East Timor

Grinding Plant

1 Unit Cement Mill

Grinding Plant

1 Unit Cement Mill

Bandar Seri Begawan

AreaOperasional

17

25

Ports

Packing Plant

In 2017, one of the Companys implemented strategic initiatives to achieve success was Move Closer to Customer by applying proper Supply Chain Management (SCM) Method. In applying SCM, the Company has integrated a number of business operations within the supply chain to create higher added value for customers, both in term of products and services using the available resources in the supply chain.

17 port facilities owned by the Company

25 packing plants are spread throughout the Companys operations

Integrating OurDistribution Network

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Ikhtisar Utama Profil Perusahaan Tata Kelola PerusahaanLaporan Manajemen Analisis dan Diskusi Manajemen Tanggung Jawab Sosial PerusahaanTinjauan Operasional

PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017 PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017

5352Laporan Keuangan Konsolidasian

Papua

Grinding Plant

1 Unit Cement Mill

Grinding Plant

4 Unit Cement Mill





Myanmar

LaosNaypyidaw

Bangkok

Phnom Penh

Kuala Lumpur

Singapore

Sumatera

Jakarta

Jawa

Sulawesi

Kalimantan

Maluku

Dili

ManilaThailand Vietnam

Brunei

PhilippinesCambodia

Malaysia

Indonesia

East Timor

Grinding Plant

1 Unit Cement Mill

Grinding Plant

1 Unit Cement Mill

Bandar Seri Begawan

AreaOperasional

SCM Implementation is intended to boost revenues and/or lower operational costs, particularly transportation costs to augment the Companys ability to compete.

Special Port of Semen Padang in Teluk Bayur Padang, West Sumatra


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To attain maximum and sustainable business performance, the Company continuously advances its value chain. The Company is not only focused in perfecting its business lines in the mid-stream segment, but the whole line of businesses in the value chain to give rise to business strength.

IntegratedBusiness Line

SIIB

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The arrangement of Companys business lines throughout the value chain still refers to the 3+1 strategy framework. The business lines in the value chain have been grouped into four categories which are Up Stream, Mid Stream, Down Stream and Adjacent.

10Type of Cement Product

4Cement Product Brand

TOTAL SOLUTION

10 Cement Products Ordinary Pozzolan Cement (OPC) Bulk Portland Pozzolan Cement (PPC) Bulk Portland Composite Cement (PCC) Bag Portland Composite Cement (PCC) Bulk Oil Well Cement (OWC) White Cement Slag Cement Special Blended Cement (SBC) Cement Portland Type II Cement Portland Type V

4 Cement Brand Semen Gresik Semen Padang Semen Tonasa Thang Long Cement Company

11 Supporting Product Logistic

- Integrated Logistics- Land Transportation- Sea Transportation- International freight forwarder

Trading- International trading- General Industry Trading- General Mining Trading

Mining & Heavy Equipment rental Industrial area Ready mix concrete Precast concrete Aggregate product Masonry & Other Concrete product Ground Granulated Blast Furnace Slag

(BGGBFS) Packaging Industry Consultation and Services

11Supporting Product

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PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017

Contents1 Reshaping the Future

12 2017 Performance Highlights14 Financial Highlights16 Share Information

18 Management Report

20 Report of the Board of Commissioners28 Report of the President Director

36 Corporate Profile

38 Corporate Identity39 Logo Philosophy40 Vision and Mission41 Corporate Culture42 Semen Indonesia at A Glance44 Milestones46 The Companys Advantages47 Business Activities48 Products and Services50 Supporting Facilities52 Operations Area54 Shareholders Structure and Subsidiaries56 Subsidiaries58 Organization Structure60 Board of Commissioners Profile64 Board of Directors Profile

68 Total Employee69 Shareholders Information70 Share Listing Chronology70 Chronology of Other Stock Listing71 Capital Market Supporting Institutions72 Company Website74 Awards and Certifications78 Significant Events

82 Business Strategy and Development

86 Management Discussion and Analysis

88 Overview91 Operational Review

102 Performance Review Per Business Segment110 Marketing Review116 Financial Performance Review

142 Business Support Review

144 Human Resources Development158 Information Technology168 Research Development and Environment181 Companys Innovation Movement

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184 Corporate Governance

186 GCG Commitment Statement of Semen Indonesia

187 The GCG Implementation Basics188 Objectives of GCG Implementation188 GCG Implementation Roadmap188 Relations and Governance Structure190 General Meeting of Shareholders (GMS)198 Board of Commissioners203 The Board of Directors208 GCG Implementation Assessment210 Remuneration Policy for Board of

Commissioners and Directors213 Meeting of Board of Commissioners, Board of

Directors, and Joint Meetings222 Affiliated Relationship between the

Member of the Board of Directors, Board of Commissioners, and Majority Shareholders and/or Controller

224 Committee Under Board of Directors224 Committees Under the Board of

Commissioners233 The Board of Commissioners Secretary235 Corporate Secretary236 Internal Audit Unit252 Independent Public Accountant254 Risk Management256 Supervisory and Control of Integrated GRC260 Internal Control System264 Access of Company Data and Information265 Code of Conduct266 Whistle Blowing System268 Compliance With The Regulation of

The Financial Services Authority on The Implementation of GCG in Public Companies

272 Corporate Social Responsibility

279 Environmental Responsibility281 Corporate Social Responsibility on Labor,

Health and Safety283 Corporate Social Responsibility to Communities286 Corporate Social Responsibility to Consumers287 Partnership Success Story

288 Consolidated FinancialStatements

291 DIRECTORS STATEMENT LETTER292 INDEPENDENT AUDITORS REPORT294 Consolidated Statements of Financial Position296 Consolidated Statements of Profit or Loss and

other Comprehensive Income297 Consolidated Statements of Changes in Equity298 Consolidated Statements of Cash Flows299 Notes to the Consolidated Financial Statements

470 Statement Letter

472 OJK ReferenceNo. 29/POJK.04/2016:Annual Report of Public Company and SEOJKNo. 30/SEOJK.04/2016: Form and Contentof Annual Report of Public Company

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PT Semen Indonesia (Persero) Tbk Laporan Tahunan 2017

Main Highlights Corporate ProfileManagement Report Management Discussion and Analysis


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Performance Highlights2017

30.8 million tonsThe volume of cement production

in 2017 increased by 9% compare to the previous year

Total Volume Production

31.5 million tons

Cement sales volumes in 2017 rose 8.3% compare to the previous year

Total Sales Volume

In 2017, Directorate General of Mineral and Coal of the Ministry of Energy and Mineral Resources presented PT Semen Indonesia

(Persero) Tbk with the Major Award for environmental management as stipulated in the mining business

permit

Major Award

Rp 27.8 trillionCompany Revenue increased by 6.4%

Revenue

85.6%The Company booked a better

utilization rate than the industrys average of 65%

Cement Utilization

92.45The Company obtained a score

of 92.45 (scale 100) for GCG implementation in 2017 with the

Excellent rating conducted by an independent assessor

GCG Score

Corporate Governance Corporate Social ResponsibilityBusiness Review Consolidated Financial Statements


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30.6 MWIn 2017, the Company has

completed 3 lines of WHRPG (waste heat recovery power generation) project in Tuban

cement plant. This power plant utilizes exhaust gas from the

cement plant to generate 30.6 MW of electricity and has successfully reduced 122,358 tons of carbon

emission annually

WHRPG

As a commitment to environmental conservation, the Company has created Arboretum Bukit Daun recreational park in the former limestone quarry of the Tuban cement plant. Furthermore, the area is now planted with various rare floras serving as conservation, collection, education,

research, recreation and aesthetics purposes

Arboretum Bukit Daun

The Company has launched a new product called MaxStrength Cement;

it is the first innovative Portland slag cement produced in Indonesia. This unique environmentally friendly product is intended to cater major

construction projects requiring high flexural strength

Launching MaxSTRENGTH

Cement

667

The Company obtained a score of 667 from the superior performance

criteria assessment result organized by the SOEs Excellence Forum.

This achievement has placed the Company in the Emerging Industry

Leader category

Superior Performance Criteria

Assessment



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Financial Highlights

In Million Rupiah 2017 2016 2015 2014 2013Consolidated Statements of Financial PositionCurrent Assets 13,801,819 10,373,159 10,538,704 11,648,545 9,972,110 Investments in Associate Entities 83,665 93,985 223,952 146,980 127,510 Fixed Assets 32,523,310 30,846,750 25,167,683 20,221,067 18,862,518 Intangible Assets 1,269,644 1,355,080 1,134,306 1,103,697 1,158,475 Other Non-Current Assets 1,285,065 1,557,922 1,088,474 1,211,386 712,490 Total Assets 48,963,503 44,226,896 38,153,119 34,331,675 30,833,103 Current Liabilities 8,803,577 8,151,673 6,599,190 5,271,930 5,297,592 Non-Current Liabilities 9,720,874 5,500,831 4,113,131 4,054,815 3,784,029 Total Liabilities 18,524,451 13,652,504 10,712,321 9,326,745 9,081,621 Total Equity 30,439,052 30,574,391 27,440,798 25,004,930 21,751,482 Capital Expenditure 3,504,826 5,169,917 5,650,020 2,493,801 2,707,065 Working Capital, net 4,998,242 2,221,486 3,939,514 6,376,615 4,674,518

Highlights of Consolidated Statements of Profit and LossRevenues 27,813,664 26,134,306 26,948,004 26,987,035 24,501,241 Gross Profit 7,959,599 9,855,872 10,645,996 11,578,877 10,944,094 Operating Income 3,343,959 5,227,113 5,945,532 7,142,178 7,062,993 Net Profit for the Year 2,043,026 4,535,037 4,525,441 5,567,660 5,354,299 Total Comprehensive Income for the Year 1,707,594 4,368,344 4,662,164 5,642,318 5,852,023 Net Profit Attributable to Holders of Parent Entity 2,014,015 4,521,596 4,521,491 5,559,902 5,370,247 Net Profit Attributable to Non-Controlling Interests 29,011 13,441 3,950 7,758 (15,948)Total 2,043,026 4,535,037 4,525,441 5,567,660 5,354,299 Comprehensive Income Attributable to Holders of Parent Entity

1,688,437 4,395,314 4,599,417 5,631,171 5,716,494

Comprehensive Income Attributable to Holders of Parent Entity

19,157 (26,970) 62,747 11,147 135,529

Total 1,707,594 4,368,344 4,662,164 5,642,318 5,852,023 EBITDA 5,396,961 6,962,934 7,473,542 8,491,877 8,099,042 Market Capitalization 58,722,048 54,421,696 67,619,328 96,090,624 83,931,008 Weighted Average of Outstanding Shares (in thousand) 5,931,520 5,931,520 5,931,520 5,931,520 5,931,520 Earnings per Share (in Rupiah full amount) 340 762 762 937 905

Financial RatiosGross Profit Margin (%) 28.62 37.71 39.51 42.91 44.67 Profit Margin (%) 12.02 20.00 22.06 26.47 28.83 Net Profit Margin (%) 7.24 17.30 16.78 20.60 21.92 EBITDA Margin (%) 19.40 26.64 27.73 31.47 33.06 EBITDA to Interest Expense (X) 7.13 19.16 20.20 22.20 23.80 EBITDA to Interest Expense & Loan Principal Payments (X) 0.69 2.98 4.64 3.40 5.47 Return on Equity (%) 6.97 15.57 17.11 23.10 25.70 Return on Asset (%) 4.11 10.22 11.85 16.20 17.40 Current Ratio (%) 156.78 127.25 159.70 220.95 188.24 Debt to Equity Ratio (%) 32.92 20.48 14.58 16.30 19.60 Debt to Asset Ratio (%) 20.46 14.16 10.49 11.40 13.30 Debt to Capital Ratio (%) 25.73 17.74 13.15 14.00 15.80



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27,81426,13426,948

201720162015

Revenues(Rp billion)

26,987

2014

24,501

2013

4.11

10.2211.85

201720162015

Return on Asset/ROA(%)

16.20

2014

17.40

2013

6.97

15.5717.11

201720162015

Return on Equity/ROE(%)

23.10

2014

25.70

2013

5,397

6,9637,474

201720162015

EBITDA(Rp billion)

8,492

2014

8,099

2013

2,043

4,5354,525

201720162015

Net Profit for the Year(Rp billion)

5,567

2014

5,354

2013

48,96444,227

34,331 38,153

201720162014 2015

30,833

2013

Total Assets(Rp billion)



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Indonesian Government

Foreign Institutions

Foreign Individual

Domestic Individual

Domestic Institutions

Share InformationShareholders December 2017

No. Shareholders Total Shares %

1. Indonesian Government 3,025,406,000 51.01

2. Foreign Institutions 2,225,889,221 37.53

3. Foreign Individual 1,456,900 0.03

4. Domestic Individual 85,790,954 1.45

5. Domestic Institutions 592,976,925 9.98

Total 5,931,520,000 100.00

Quarterly Share Price2017

Period OpeningRpHighest

RpLowest

RpClosing

Rp Total Shares Volume Market Capitalization

(Rp Billion)

1st Quarter 9,175 9,875 8,575 9,000 5,931,520,000 291,152,700 53,384

2nd Quarter 9,050 10,250 8,600 10,000 5,931,520,000 324,109,000 59,315

3rdQuarter 10,200 11,075 9,025 10,125 5,931,520,000 346,136,900 60,057

4th Quarter 10,200 11,100 9,125 9,900 5,931,520,000 251,563,100 58,722

Quarterly Share Price2016

Period OpeningRpHighest

RpLowest

RpClosing

Rp Total Shares Volume Market Capitalization

(Rp Billion)

1st Quarter 11,400 11,450 10,050 10,175 5,931,520,000 400,668,900 60,353

2nd Quarter 10,175 10,775 8,700 9,350 5,931,520,000 370,424,300 55,460

3rdQuarter 9,350 11,600 8,975 10,100 5,931,520,000 906,019,800 59,908

4th Quarter 10,100 10,675 8,050 9,175 5,931,520,000 387,621,800 54,422

51.01%

37.53%

1.45%0.03%

9.98%

2017



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CORPORATE ACTIONS - SHARESIn 2017, the Company did not take any corporate action on shares, such as: stock split, reverse stock, shares dividend,shares bonus, or change of shares nominal value

INFORMATION ON BONDS, SUBSCRIPTIONS OR CONVERTIBLE BONDSInformation on bonds, sukuk or convertible bonds in 2017 are as follows:

Description 2017

Number of bonds/sukuk/convertible bonds (outstanding) Rp3,000,000,000,000 (bonds)

Interest rate/yield 8.6% p.a.

Maturity date June 20, 2022

Rating of bonds/sukuk in 2017 idAA+

SUSPENSION AND/OR DELISTINGThe stocks of SMGR were not suspended and/or delisted during reporting year.

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1/4/2016 2/4/2016 3/4/2016 4/4/2016 5/4/2016 6/4/2016 7/4/2016 8/4/2016 9/4/2016 10/4/2016 11/4/2016 12/4/2016

SMGR(sharepriceandtradingvolume)vsIHSGJanuary - December 2016

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SMGR(sharepriceandtradingvolume)vsIHSGJanuary-December2017

Volume(per'000)-(RHS) SMGR(LHS) IHSGrebased

Share Price

SMGR (share price and trading volume) vs JCIJanuary - December 2017Price (Rp/Share) Price (Rp/Share)

Key Market Data IDR USDCurrent Share Price 9,90052 Week High 11,10052 Week Low 8,575Market Cap. 58,722 bn 4.33 mn

Key Market Data IDR USDCurrent Share Price 9,17552 Week High 11,87552 Week Low 8,050Market Cap. 54,422 bn 4,017 mn

Jakarta Composite Index is rebased to Semen Indonesia Share Price Note: US$1 = Rp13,548 as per Dec 31, 2017 *middle rate BI

Jakarta Composite Index is rebased to Semen Indonesia Share Price Note: US$1 = Rp13,548 as per Dec 31, 2017 *middle rate BI

SMGR (share price and trading volume) vs JCIJanuary - December 2016

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Management Report

20 Report of the Board of Commissioners

28 Report of the President Director

Suramadu Bridge, Surabaya. The bridge built using Semen Gresik products connects Surabaya and Madura Island.


20Main Highlights Corporate ProfileManagement Report Management Discussion and Analysis

Report ofthe Board of Commissioners

SUTIYOSOPresident Commissioner


21Corporate Governance Corporate Social ResponsibilityBusiness Review Consolidated Financial Statements

Dear Valued Stakeholders,

The Board of Commissioners would like to take this opportunity to submit an accountability report for the Fiscal Year 2017. In accordance with regulation, the inherent tasks of the Board of Commissioners are to oversee Board of Directors member performance and to advise them on behalf of the Company, in line with the Company vision and mission.

OVERVIEWPT Semen Indonesia (Persero) Tbk business activities are an integral part of Indonesias general economic condition, and as such, the Companys business performance will likely improve along with Indonesias dynamic economy. The positive growth of private consumption and the increasing development investments are likely to increase demand for cement for housing and other projects. The contrary may, however, happen due to global uncertainties.

Economic conditions in 2017 showed positive, yet limited, growth. The Indonesian economy, as observed by the Central Bureau of Statistics (BPS), grew by 5.07%, a slight increase from the 5.03% in 2016.

This growth is in line with global growth, which is still marked by a low growth rate, with economic pressure in Europe, Japan and China also curbing growth rates.

From the industry perspective, the condition of the Indonesian cement market has not changed. The supply of cement is still flooding the market, resulting in pressure on product selling price. Data from the Indonesian Cement Association shows that total Indonesian cement production capacity in 2017 reached 107.4 million tons, with consumption at only 66.5 million tons. This gap between supply and demand is thus very high.

Such oversupply may yet increase, as a number of new factories are set to commence operations. In 2017, the negative effects from these market conditions have downwardly corrected the average cement selling price by approximately 8%.

As a result, at the beginning of the year, the Board of Commissioners encouraged the Board of Directors to find strategic and innovative measures to maintain Company performance. These measures should include, among others, reducing structural costs, finding alternative markets, and developing downstream cement-related businesses.

BOD PERFORMANCE EVALUATION In evaluating Board of Directors performance, the Board of Commissioners refers to the Corporate Business Plan and Budget (RKAP), agreed upon at the beginning of the year. The Board of Commissioners also monitors efforts made by the Board of Directors to respond to its recommendations, including on Good Corporate Governance (GCG) and key indicators.

The Board of Directors has proven their capability in maintaining Company performance. This can be seen with the increase in cement sales and with the Companys ability to retain its position as market leader in the domestic cement industry.



OVERSIGHT OF COMPANY STRATEGY IMPLEMENTATION The Board of Commissioners oversees and advises the Board of Directors prior to and after executing strategic initiatives. Through such supervision, the Board of Commissioners ensures that strategies to mitigate risks are put well in place by the Board of Directors.

The Board of Commissioners also ensures that strategy not only seek short term improvement, but also provide and strengthen a sustainable and long term position within the domestic and regional cement industries. The Board of Commissioners is satisfied that the Board of Directors has implemented strategic plans to good effect, enabling the Company to maintain a strong base to anticipate and meet the challenges of changing business conditions. Overall, these improvements leave the Company better equipped in its role as the leading cement company in support of national development objectives.

The Companys main strategy highlights three pillars of growth: growth in the cement industry; growth in the cement support industries, including downstream industries; and market expansion. By prioritizing commercial excellence, and supported by cost transformation, organizational systems development, and availability of qualified, competent human resources, these strategic growth pillars can and will be achieved.

The business strategy initiated in 2016 and implemented throughout 2017 is called Strategy 3 + 1. The implementation of this strategy in 2017 can be measured by three main indicators: domestic market share, cost management and operation of new plants.

In addition to these three parameters, the Board of Directors has laid down the groundwork for the Company to diversify its streams of revenue. This diversification covers sales of downstream cement and other products, as well as services related to cement industry management. As a result, the contribution from non-cement revenue has been increasing since 2016, with such non-cement revenue to become increasingly important in the coming years.

Based on performance indicators, the Board of Directors implemented the recommendations of the Board of Commissioners throughout 2017. These recommendations related to strategic initiatives to limit cost increases, to nurture alternative markets and to develop new business lines.

The Board of Directors also succeeded in maintaining the Companys domestic cement market share. The Company still has the largest market share in the domestic cement industry, namely 40.7%. This is a significant achievement, reflecting an increased sales volume having good effect on overall Company performance.

The Company recorded cement sales of 27.12 million tons in 2017, an increase of 5.5% from the previous year. This increase however was lower than the 7.6% growth in domestic demand, resulting in a slight decrease in market share to 40.8% from 41.7% in 2016.

In terms of finance, the Companys production costs increased by 28.8%, and revenue increased by 6.4%, resulting in an EBITDA of only 76% of 2016s figure. Nevertheless, through the cost transformation program, the Company was able to reduce costs so as to realize 97% of its targeted cost savings for the year.

Furthermore, in terms of operations, Indarung VIs new cement plant in Padang delivered 114% of targeted production. This, however, was not the case with the new cement plant in Rembang, Central Java where non-technical constraints resulted in delivery of only 45% of targeted production.

Based on this, the BOC believes that the BOD could learn a lesson from these tough business conditions and turn them into an opportunity to improve the Companys competitiveness. The Companys performance in 2017 shows that the BOD has implemented the BOCs recommendations to implement strategic initiatives to limit cost increases, seek market alternatives and develop new business lines.

The Board of Commissioners appreciates the performance achievements in 2017, and continues to encourage prompt and appropriate responses to the changes in Indonesias cement industry. All levels of management should remain strong and solid in the face of current business conditions, while continuing to strengthen synergy and the Champion spirit among all staff of the Company.



OVERSIGHT OF CORPORATE GOVERNANCEGood governance is essential to business sustainability, as well as to the growth and maintenance of the trust by stakeholders. To this end, the Board of Commissioners has advised the Board of Directors to continue to make improvements to Good Corporate Governance (GCG) and risk management. Results of such efforts are encapsulated in the growing GCG culture visible in Semen Indonesia, as reflected in daily tasks and the adoption of all GCG principles, based on regional and international standards.

The Board of Commissioners is monitoring that the guidelines, procedures and mechanisms relating to the whistleblowing system are evaluated and improved, and encourage the Board of Directors to disseminate information about the whistleblowing system.

The Board of Commissioners, assisted by the Audit Committee; the Strategy, Risk Management and Investment (SMRI) Committee; and the Nomination and Remuneration Committee (KNR), as well as by the BOC Secretary, is periodically recommending efforts to improve the Companys corporate governance practices.

Semen Indonesias GCG program in 2017 was well-implemented, as evidenced by multiple performance indicators. Based on the Decree of the Secretary of the Ministry of State-Owned Enterprises No. SK-16/S.MBU/2012 on the Indicators of Assessment and Evaluation of the Implementation of Good Corporate Governance of SOEs, the Company reached the score of 92.45.

As for the Corporate Governance Perception Index of the Indonesian Institute of Corporate Governance (IICG), the Company achieved the 4th GCG ranking, under the category of Trusted Company.

OVERVIEW AND ROLE OF THE BOC IN THE WHISTLEBLOWING SYSTEMThe Whistleblowing System (WBS) has been well implemented by the Companys management, starting from the whistleblower protection system to the follow-up of incoming reports.

In 2017, 7 cases were reported through the WBS mechanism, 5 cases received via email: [email protected] and 2 cases via letters addressed to the TP3 Team. These 7 cases have the following status: 5 cases have been resolved and 2 cases are still in progress.

OVERVIEW OF BUSINESS PROSPECTS PREPARED BY THE BOARD OF DIRECTORS In view of the Board of Directors successful performance in 2017, the Board of Commissioners views as realistic the Companys business prospects and performance indicators. We believe that the Companys performance will improve, driven by organizational improvements, operational performance gains and tight financial management.

We are, however, of the opinion that next years demand growth for cement will remain limited. Despite anticipated increased demand for bulk cement to serve infrastructure projects, the overall demand rate will not significantly increase. This is a likely result of the uncertainty within the global economy, which is still hampering the performance of the national economy.

Amid such conditions, the Board of Commissioners remains vigilant to encourage management and all organizational levels to optimize potentials, strengthen internal consolidation, and proceed with the cost transformation efforts so as to ensure positive performance. The Board of Commissioners supports aggressive application of Strategy 3 + 1 in order to provide optimal results. Cost transformation and revenue diversification should continue from the success of 2016 and be strengthened.

The regionalization of marketing areas should also be reinforced with a new and innovative marketing mindset. Operating subsidiaries management approaches should prioritize efficiency, optimizing employee capacity and generating productivity gains.

Moreover going forward, better supply chain management will help ensure effective and efficient provision of goods and result in more accurate inventory management. These improvements will assist newly constructed factories in promoting more independent, cost-effective, and time-effective management.

The Board of Commissioners, along with supporting committees, will continue to assist and advise the Board of Directors with implementing the strategic initiatives set forth in the Companys Long Term Plan (RJPP), all the while monitoring current business conditions and ensuring risk mitigation measures are in place.



The Board of Commissioners oversees Semen Indonesias WBS, as this complaint system plays a very important role in preventing fraud and the supervisory role of the Board of Commissioners is inherently suited to this important monitoring system.

CHANGES IN BOARD OF COMMISSIONER COMPOSITION In 2017, there were changes in the composition of the Board of Commissioners. In accordance with resolution of the Annual General Meeting of Shareholders on March 31, 2017, Sutiyoso replaced Mahendra Siregar as the President Commissioner.

At the same time, the Shareholders also appointed two new commissioners, while respectfully dismissing two others. The details are as follows: Astera Primanto Bhakti was appointed as a Commissioner to replace Marwanto Harjowiryono, and Nasaruddin Umar was appointed as an Independent Commissioner to replace Muchammad Zaidun. The Board of Commissioners would like to thank Mahendra Siregar, Marwanto Harjowiryono and Muchammad Zaidun for their highly valuable contribution to the Company during their term of office as Commissioners. Meanwhile, we welcome aboard Sutiyoso, Astera Primanto Bhakti and Nasaruddin Umar as new members of the Board of Commissioners.

Accordingly, the composition of the Board of Commissioners of PT Semen Indonesia (Persero) Tbk as of March 31, 2017 is as follows:

Name Position Basic First Appointment End Served

Sutiyoso President Commissioner March 31, 2017 AGMS 2022

Astera Primanto Bhakti Commissioner March 31, 2017 AGMS 2022

Nasaruddin Umar Independent Commissioner March 31, 2017 AGMS 2022

Hambra Commissioner May 13, 2016 AGMS 2021

Djamari Chaniago Independent Commissioner May 13, 2016 AGMS 2021

Sony Subrata Commissioner January 23, 2015 AGMS 2020

Wahyu Hidayat Commissioner March 25, 2014 AGMS 2019

Furthermore, the Board of Commissioners received Djamari Chaniagos letter of resignation as an Independent Commissioner. In accordance with the current regulation, Djamari Chaniagos resignation will become effective at the close of the next General Meeting of Shareholders.

BOARD OF COMMISSIONER ADVISORY ROLE TO BOARD OF DIRECTORS The Board of Commissioners oversees the Companys management policies, management procedures and actions performed by the Board of Directors, also providing advice to the Board of Directors. The Board of Commissioners conducts periodic joint meetings attended by the Board of Directors, the Board of Commissioners and the Committees under the Board of Commissioners.

During such meetings, we discuss the Companys progress and challenges, and provide suggestions and issue recommendations to the Board of Directors. On such occasions, we also make decisions about policies that are beyond the authority of the Board of Directors.

The Company schedules periodic joint meetings at least once a month in accordance with the Articles of Association and the Companys Board Manual. The Board of Commissioners can increase the frequency of joint meetings as it deems necessary.

PERFORMANCE OF THE BOC-SUPPORTING COMMITTEES The Board of Commissioners is assisted by three committees, namely the Audit Committee; the Strategy, Risk Management and Investment Committee (SMRI); and the Nomination and Remuneration Committee (KNR). These committees report to the Board of Commissioners, which considers their recommendations before providing advice to the Board of Directors.



OVERVIEW OF CORPORATE SOCIAL RESPONSIBILITY Semen Indonesia believes that business development should be aligned with quality Corporate Social Responsibility (CSR) programs. The Companys CSR programs have been successfully improved in terms of the coordination with and participation of beneficiaries, as different issues require different approaches. Accordingly, CSR activities in each region are first evaluated and later moulded to fit in new locations, properly communicated to respective beneficiaries.

Effective and transparent two-way communication with beneficiaries and other stakeholders improves the Companys commitment and participation in CSR program implementation. The evaluation of any successful programs will improve future programs, in turn improving community welfare in line with the progress of the Company.

The Board of Commissioners supports the managements implementation of sustainability programs, including in the area of environmental sustainability through its environmentally friendly operations. The Companys environmentally friendly operations include the utilization of industrial waste as an auxiliary material in the production process, and reforestation projects near the areas of the Companys operations, as well as in other areas.

The Board of Commissioners welcomes the Companys success in obtaining Certified Emission Reduction (CER) from the existing WHRPG units. These will be further developed through the Clean Development Mechanism (CDM) project, a global CO2 emissions reduction program in Tuban.

The Board of Commissioners periodically assesses the quality of the recommendations and input provided by these Committees. We believe that the Committees performed well in 2017.

Nevertheless, as the Indonesian cement industry has become increasingly more competitive, the Board of Commissioners has mandated improvements of competence and quality of support from all Committees under the Board of Commissioners. Thus, the quality of the recommendations given has continued to improve.

OVERVIEW OF HR DEVELOPMENT Challenging business conditions require competent and flexible Human Resources. Strengthening the organization must include both development of the Company and its human resources. This, in turn, should not be limited to competence development, but also to change personnel perspectives when performing duties. This is an integral success component of the Companys business development strategy.

The Board of Commissioners supports the initiatives of the Board of Directors to strengthen the organization and the capacity of its human resources, thus ensuring the availability of qualified employees. Management has provided all of the Companys employees with an equal opportunity to improve their competence and professionalism, as well as their ability to overcome new challenges as a part of their personal development and career paths.

We believe that all of the Companys human resources should grow together in facing the challenging business conditions, which require the Company to speed up its business diversification. The Company no longer depends solely on the sales of cement, but on the innovative skills of its personnel to capture arising business opportunities.



The Board of Commissioners also wishes to express our gratitude for the trust of the Companys shareholders, who are an important part of our business journey. Likewise, we also wish to express our gratitude to the regulators who have provided us with a direction to ensure that the Companys business journey is in line with the applicable ethical standards, with due regard to the Companys status as a State-Owned Enterprise.

Furthermore, the Board of Commissioners would like to thank the Companys internal and external stakeholders for their input and cooperation.

APPRECIATION The Board of Commissioners anticipates the Board of Directors continuing to innovate and initiate strategies to respond to the increasing competition in the cement industry. Such action will ensure that the Companys performance will grow on a sustainable basis. The Board of Commissioners would like to thank the Board of Directors and all the employees of PT Semen Indonesia (Persero) Tbk. for achieving such good performance in 2017. We are optimistic about the Companys future.

SutiyosoPresident Commissioner



Seated Left to Right

Astera Primanto Bhakti Commissioner

Nasaruddin UmarIndependent Commissioner

SutiyosoPersident Commissioner

HambraCommissioner

Standing Left to Right

Djamari ChaniagoIndependent Commissioner

Sony SubrataCommissioner

Wahyu HidayatCommissioner

Board of Commissioners



Report of the President Director

HENDI PRIO SANTOSOPresident Director



An important strategic initiative undertaken in 2017 was optimising efficiency, from operational to financial matters. This strategy ensured that the Company maintained its positive business performance.

Dear Valued Shareholders,

On behalf of the Board of Directors and the Management of PT Semen Indonesia (Persero) Tbk., we would like to take this opportunity to report on the Companys performance for the year ended December 31, 2017. This performance report is in line with the audit report of the independent auditor Satrio Bing Eny & Partners, Member of Deloitte Touche Tohmatsu Limited, which stated that the financial statements are fair in all material respects.

ECONOMIC CONDITIONS IN 2017Economic conditions in 2017, both at the global and national levels, began to gradually improve, though the improvement was limited. The International Monetary Fund (IMF) estimated that global economic growth would reach 3.7% by 2017, an increase from 3.1% in 2016.

The global economic recovery has had a positive effect on the Indonesian economy. As published by the Central Bureau of Statistics (BPS), Indonesias economy in 2017 grew by 5.07%, an increase from 5.03% in 2016.

The performance of the domestic industrial sector also improved. By 2017, large and medium manufacturing industries grew by 4.74% (yoy) from 2016. This growth was mainly

supported by a 9.93% increase in the food production industry. Meanwhile, the industry that experienced the biggest decline in production, namely 4.51%, was the other manufacturing industry.

At the same time, the rate of household consumption experienced a slowdown, growing only by 4.95%, a decrease from 5.01% in 2016. These conditions affected the peoples purchasing power, including for cement products, particularly in the retail sector. Moreover, production capacity experienced a significant increase, which in turn placed pressure on the selling price.

National Cement Industry Conditions The domestic cement consumption in 2017 experienced a significant increase when compared to the growth of cement consumption during the last 3 years. The increase in domestic cement consumption was triggered by the growth of consumption in the infrastructure sector, which includes: the construction of toll roads, bridges, airport expansion, ports, reservoirs, as well as supporting agricultural facilities and power plants. Meanwhile, consumption in the retail sector was still experiencing pressure, though it was still capable of slight growth.

The domestic cement consumption, which remains promising, has increased the number of industry players competing in the Indonesian market, not to mention foreign companies. At the end of 2017, there were 15 cement companies, both local and global, which operated in Indonesia.

In 2017, the capacity of the national cement industry reached 107.4 million tons of cement per year. Meanwhile, domestic cement consumption was recorded at 66.5 million tons, an increase of 7.6% from 2016, while exports were recorded at 2.9 million tons. This equates to a 65% utilization of the national cement industry, or an oversupply of 38 million tons. This has increased the competition in the national cement industry, affecting the average domestic sale price, which declined by approximately 8% in 2017.



increase in the average price of coal, an increase in electricity cost mainly due to the increase in the average electricity tariff, and an increase of depreciation expenses due to the capitalization of the Rembang and Indarung VI plants.

Gross Profit and Operating Income These cost control efforts resulted in a Gross Profit amounting to Rp7,959 billion in 2017, a 19.2% decrease from Rp9,855 billion in 2016. Meanwhile, the gross profit margin decreased to 28.6% from 37.7 % in 2016.

Operating income was recorded at Rp3,344 billion in 2017, decreasing by 55% from Rp4,535 billion in 2016. The operating income margin decreased to 12.2% compared to 20% in 2016. Such decrease was mainly due to the decreasing cement prices, and the increasing cost of raw materials, fuel and electricity.

Net Income Before Tax In 2017, the Company recorded a net income before tax of Rp2,746 billion, a 46% decrease from Rp5,084 billion in 2016. Meanwhile, the Companys tax expense in 2017 amounted to Rp723 billion, increasing by 28% from Rp549 billion in 2016. This increase mainly reflects a deferred tax benefit from the fixed assets revaluation recorded in 2016.

Thus, the net profit attributable to the owner of the parent entity amounted to Rp2,014 billion, a 55% decrease from Rp4,521.5 billion in 2016. Basic earnings per share thus decreased to Rp340 per share from Rp762 in the previous period.

EBITDA and EBITDA Margin In 2017, the Company recorded an EBITDA amounting to Rp5,396 billion, a 22.4% decrease from Rp6,962 billion in 2016, while the EBITDA margin was 19.40%, decreasing from 26.6% in 2016. The decline in the EBITDA Margin was also due to the increase in non-cement segment revenue, which has a lower margin.

BUSINESS PERFORMANCE In general, the Companys performance is strongly influenced by external conditions outside the control of its management, such as oversupply that leads to price establishment in market mechanisms, rising energy prices, raw material prices and other production support facilities.

Strategic Policy In 2017, the Company implemented a number of strategic policies to achieve successful business performance, including:

Amid such industrial conditions, the Company succeeded in increasing its domestic sales volume by 5.5% to 27.1 million tons. Although the Companys national market share experienced a 0.9 basis point decrease to 40.8%, the Company still dominated the domestic market, with a 33.4% share capacity, controlling the market share of 40.8%. This confirms the Companys ability to utilize its capacity at a much higher level than the average industry players. Such figures also demonstrate the Companys success in implementing one of the pillars of its operational strategy of capacity management, which resulted in the Semen Indonesia Group recording a 85.6% utilization rate, better than the 65% average utilization rate in the cement industry.

The total production volume of the Companys domestic facilities in 2017 reached 28.6 million tons, an increase of 12% from 25.9 million tons in 2016, while production at the Vietnam Plant (TLCC) reached 2.1 million tons, decreasing by 11% from 2.4 million tons in 2016, and resulting in a total production volume of 30.8 million tons, or a 9% increase from 28.3 million tons in 2016.

The regionalization of the marketing area also recorded encouraging results, namely an increase in the Companys total export volume by 58% to 3.054 million tons.

However, the substantial pressure created by the domestic and regional oversupply continued to increase competition, particularly among new players trying to gain their own market share. A tariff war is inevitable. With a focus on maintaining domestic market share, the average selling price on the domestic market declined by 8% to Rp731 thousand per ton. While in the regional market, the average selling price declined by 6.5%, to Rp648 thousand per ton.

The combination of lower average selling prices and higher sales volume resulted in the Company recording consolidated revenue of Rp27.8 trillion in 2017, a 6.4% increase from Rp26.1 trillion in 2016.

Production Costs and Cost of Goods Sold In order to increase its competitiveness and control costs, in 2017, the Company introduced the Cost Transformation strategic initiative with an emphasis on supply chain optimization, operational efficiency and corporate cost transformation. The implementation of cost transformation targets two major cost components that affect the competitiveness of the cement business, namely production costs (particularly fuel and electricity costs) and distribution costs.

Despite its efforts, the Company recorded an increase in cost of goods sold by 22% due to the increasing prices of raw and auxiliary materials, fuel cost increases due to the significant



- The Company has issued bonds valued at Rp3 trillion with 8.6% coupon, the proceeds from which are used, among other purposes, to refinance a syndicated loan by subsidiary (ST) that had a higher interest rate.

- The Company has refinanced a syndicated loan by a subsidiary (TLCC) in order to reduce the interest rate as well as group-wide exchange rate risk.

- The Company has initiated the establishment of a joint borrower facility, enabling the Group to have a funding source with competitive interest rate.

Challenges and Their Resolution In 2017, the challenges encountered by the Company to achieve its business targets arose due to both external and internal conditions. Externally, they included increased competition, limited market absorption resulting in lower sales, and the rising prices of raw materials of primary energy.

Internally, the consolidation process of Semen Indonesia as the holding company (HoldCo) with its subsidiaries or Operational Companies (OpCo) is still on-going. Various actions are still being taken so that the performance of the state-owned enterprises in this integrated cement sector is solidified at a world-class level, providing benefits for the country.

As it is difficult to control external conditions arising from market mechanisms, the Company can only make internal changes to counteract such challenges.

One of the more important activities undertaken by the Company was to reduce the cost of production by making it more efficient. In addition, the Company shortened the payment period from vendors, by working in cooperation with the bank as a guarantor. Thus, the Company has maintained its cash flow.

In terms of production, the challenges encountered in 2017 included the availability of coal for power plants. The management addressed this problem by entering into legally binding contracts with large suppliers, ensuring supplies to optimize production activities.

Awards In 2017, the Company received numerous awards from credible institutions. These include: Indonesias Most Innovative Business Award from Warta

Ekonomi. Main Award of Environmental Management for Mining

Business License from the Ministry of Energy and Mineral Resources.

Business Organization The Company is focusing on the PT Semen Indonesia

(Persero) Tbk function as a holding company through improvements in business organization, such as merging its marketing function. This has played a very important role in terms of the Companys nation-wide network, with its integrated marketing method making business activities more effective and efficient.

Likewise, the supply chain and procurement functions were also incorporated into the holding company by the end of 2017, so that their effectiveness could be measured and give the Company a better bargaining position with suppliers.

Project Development Amid the sluggish market conditions, the Company has

been increasingly more selective in developing projects to support its business achievements. In 2017, the Company decided to review several of its strategic projects, particularly the expansion of organic production capacity. Meanwhile, the Company prioritized the packing plant projects in Bengkulu and North Maluku, as they will support efficiency performance in distribution cost.

The Company has also been continuing the development of the Waste Heat Recovery Power Generation (WHRPG) Tuban power plant project, which utilizes exhaust gas with a capacity of 30.6 MW. In addition to being clean and environmentally friendly, the project will reduce the burden of electricity costs, particularly at the Tuban Plant.

Operations and Production In view of the steadily increasing price of coal as the primary

energy source of electricity power plants, the Company has started developing drying technology. In 2017, a number of plants managed by the Company utilized low-calorie coal, namely coal under 4,000 kcal/kilogram. This has created more efficiency in the plants operating performance.

Finance In terms of finance, the Company has issued a number of

strategic policies to support its business activities. The Company has been capitalizing on Semen Indonesia as the holding company, so that any negotiations with third parties are conducted by Semen Indonesia, and the execution is performed by the Companys subsidiaries. Some of the activities include:

- Renegotiation of insurance facilities. Cement Indonesia negotiates contracts, which are then executed by a subsidiary. Through this initiative, the Company succeeded in saving tens of billions of Rupiah through the reduction of insurance premium, among other savings.



Good Corporate Governance Award from the Indonesia Institute for Corporate Directorship (IIDC).

SOE Performance Excellence Award from SOE Excellence Forum.

Green PROPER Award.

BUSINESS PROSPECT ANALYSIS FOR 2018In 2018, the Company will continue to face intense competition from the domestic cement market. In addition, its operating costs may increase as commodity prices in international markets continue to rise.

Nevertheless, the global and domestic economic recoveries are expected to increase public purchasing power, in turn increasing the absorption of cement products. This is due to the fact that the cement market in Indonesia is an integral part of the development of the countrys economic conditions.

The governments expectation, as set forth in the State Budget (APBN) 2018, is that the economic growth will reach approximately 5.2-5.6%. The Company believes that the governments efforts to encourage such achievement will have a positive impact on business activities, and the economy of domestic households, in turn creating new opportunities for the Company.

Therefore, the Company believes that its business performance in 2018 will be better than in 2017, both in terms of production and finance, if it is supported by the appropriate strategic initiatives, including appropriate operational activities.

To achieve its business targets in 2018, the Company has prepared a number of strategies and initiatives. These include: Tailoring the new organizational structure to respond to the

ever-increasing challenges created by market dynamics. Combining the functions of Marketing, Supply Chain

and Procurement in the holding company to improve effectiveness and control.

Responding to market demand with appropriate products. Maximizing synergy between subsidiaries, so as to create

efficient and effective operations, and provide the best possible services for consumers.

Developing independence and competence of the subsidiaries, particularly in the areas of production and innovation.

Utilizing the Companys brand equity for the products manufactured by the Companys subsidiaries; thus, assuring consumers of the quality of the subsidiaries products.

Continuing the Companys successful performance of 2017, including in aspects of finance, by capitalizing on the parent company when negotiating with third parties to create cost efficiency.

CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS During 2017, the Company changed the composition of the Board of Directors on two occasions. One member of the Board of Directors and three members of the Board of Commissioners were respectfully dismissed at the Annual General Meeting of Shareholders (AGMS) on March 31, 2017:

Name Position

Gatot Kustyadji Director

Mahendra Siregar President Commissioner

Muchammad Zaidun Independent Commissioner

Marwanto Harjowiryono Commissioner

The Annual GMS also appointed three new members of the Board of Commissioners and one new member of the Board of Directors as follows:

Name Position

Sutiyoso President Commissioner

Astera Primanto Bhakti Commissioner

Nasaruddin Umar Independent Commissioner

Agung Yunanto Director of HR & Legal

Furthermore, five members of the BOD were respectfully dismisses at the Extraordinary GMS on September 15, 2017:

Name Position

Rizkan Chandra President Director

Aunur Rosyidi Director of Engineering and Projects

Darmawan Junaidi Director of Finance

Budi Siswoyo Director of Business Development and R&D

Johan Samudra Director of Production and Business Strategy

The extraordinary GMS also appointed new Directors, so that the composition of the Board of Directors as of the end of 2017 has been as follows:

Name Position

Hendi Prio Santoso President Director

Fadjar Judisiawan Director of Finance

Doddy Sulasmono Diniawan Director of Business Strategy and Development

Ahyanizzaman Director of Marketing and Supply Chain

Benny Wendry Director of Production

Agung Yunanto Director of HR and Legal

Tri Abdisatrijo Director of Engineering and Projects



The management wishes to express our deepest gratitude to the previous members of the Board of Directors for their dedication to the Company, which contributed to ensuring its leading positioning in the national cement industry. The management also welcomes the new members of the Board of Directors. We believe that the management and the new Board of Directors will make a solid and successful team.

IMPLEMENTATION OF GOOD CORPORATE GOVERNANCE (GCG)The Company is committed to the implementation of Good Corporate Governance (GCG). The Management actively and consistently monitors, evaluates and refines its GCG practices, and ensures the sustainability of the Companys business activities.

The Company believes that the consistent implementation of GCG does not only improve business performance, but also supports its sustainable performance.

In 2017, the Company implemented GCG with three assessment standards: Based on the Decree of the Secretary of the Ministry of

State-Owned Enterprises No. SK-16/S.MBU/2012 on the Indicators of Parameters of the Assessment and Evaluation of the Implementation of Good Corporate Governance at State-Owned Enterprises issued on June 6, 2012 (BUMN Scorecard ), the Company obtained the score of 92.45.

Based on the Corporate Governance Perception Index (CGPI Index) of the Indonesian Institute of Corporate Governance (IICG), the Company ranked 4th in the category of a Trusted Company.

Based on the ASEAN Good Corporate Governance Scorecard (ASEAN CG Scorecard) of the Indonesian Institute for Corporate Directorship (IICD), the Company reached the score of 93.37.

In 2017, the Company successfully achieved all of the GCG assessment results recommended in 2016. The Company is hopeful that it will fulfill the assessment recommendations of 2017 in 2018.

DEVELOPMENT OF HUMAN RESOURCES As of the end of the fiscal year 2017, the Company, including Semen Gresik, Semen Padang, Semen Tonasa and TLCC, employed 5,553 people. Meanwhile, the employees whose term of office ended in 2017 totalled 294. The turnover rate in 2017 reached 4.98%, a decrease from 5.09% in 2016.

The Company strives to ensure that its employees are given equal opportunities, both in terms of career path and talent development. The employees of the Company represent human capital, which is the Companys most important asset.

The shift in the Companys Corporate Paradigm to a holding company is very important, as it will determine its future. This change includes a shift in the mindset of all employees, enabling them to see the importance of synergy among Operating Companies (OpCo) to the development of the Company.

One of the implementations of this strategy is the change in the function of the learning center of the Corporate University (Corpu), which is about to turn into a business solution provider, whereas previously it only bridged the gap in employee competence.

To ensure this paradigm change, in 2017, the Company, through the Human Capital Directorate, identified three areas of strategic changes. Firstly, there should be a change in the mindset of the employees when it comes to the Companys business processes. Secondly, the Human Capital Master Plan should be reviewed and improved through a better human capital management system. Thirdly, competence development programs should also be improved.

In terms of development, the Company conducted an organizational transformation to allow faster response and agility in the face of challenges in the business, especially with regards to the business transformation being undertaken by the Company.

In view of the importance of continuing talent development in support of business performance, the Company has established a Talent Management System.

The Company also encourage the adoption of 7 Core Behaviour with the business group. This behaviour reflects the implementation of the Companys winning culture, namely Synergy, Militancy, and Integrity.

In support of the achievement of long-term goals, the Company has reorganized the competence set for leadership, using the SOE competence set as standard, so as to ensure alignment between the needs of the Company and those of the SOEs. Plans for 2018In 2018, the Company will continue to improve the capacity of its human resources, in accordance with business processes and model in the new organization structure.

In addition, human resources development will be undertaken through a variety of strategic initiatives, including talent management, succession planning, career path (for both managerial and technical career), as well as internal and external certification.

The Company also strives towards performance-based human resources. At the same time, the Company will intensify the socialization and adoption of the established corporate culture.

In support of these plans, the Company will continue to push the utilization of Information Technology towards more efficient and effective Human Resources processes.



CORPORATE SOCIAL RESPONSIBILITY We are aware that as a company that grows and operates in Indonesia, PT Semen Indonesia (Persero) Tbk. is responsible for making a positive contribution to the environment, both in the areas around the Companys operations and in Indonesia in general. The Company wishes to have a positive and a sustainable impact on the people of Indonesia in the long term, both directly and indirectly.

Therefore, the Company continually counter-balances its business activities by making contributions to the community. This is performed through Corporate Social Responsibility (CSR) activities.

As a State-Owned Enterprise, the Company also takes part in the Partnership and Community Development Program. This is in line with the Regulation of the Ministry of SOE Number Per-02/MBU/0/2017 regarding the Second Amendment to the Regulation of the Minister of State-Owned Enterprise No. Per-09/MBU/07/2015 on the Partnership Program and the Community Development Program of State-Owned Enterprises.

The Company continually strives to align its operational performance and profit growth with social responsibility, development of a clean and healthy environment, and community welfare. The alignment of the Companys performance achievements with these three aspects requires the fulfilment of the Companys responsibility to all of its stakeholders, mainly comprising of: shareholders, investors, employees, communities, customers, partners and local governments.

The realization of the Companys social responsibility program is set forth in the Partnership and Community Development Program (PKBL). In 2017, the Companys CSR and PKBL activities covered the areas of environment, employment, occupational health and safety, social and civic development, as well as a responsibility to consumers, information about this can be found in separate chapters.

DEVELOPMENT OF INFORMATION TECHNOLOGY Information technology is a necessity in todays business world. It ensures more efficient operations, and makes it easier to build relationships between companies and customers. Therefore, the Company strives to continually respond to changes by increasing the role of information technology in its processes.

The Company has been utilizing information technology in various ways, including: the provision of systems and data for market research, forecasting and market simulation, simulation and portfolio of raw material reserves, due diligence in the acquisition of other cement plants, project management, new production facility operations, synergy among production facilities, and monitoring, evaluation and consolidation of performance reports.

In accordance with the Companys vision and mission, the implementation of information systems is also aimed at ensuring stakeholder welfare. Therefore, the Company has implemented the SAP Enterprise Resources Planning (ERP) Information System to handle all business process lines.

As a part of the change in the role of information technology, the Company has established a new subsidiary engaged in information technology, namely PT Sinergi Informatika Semen Indonesia (PT SISI). The main task of this subsidiary is to support the operational activities, and development of information technology, within the Companys corporate environment.

The Company has also devised a long-term information technology development plan under the name ICT Master Plan. Through this development plan, the Company will address the operational needs and development of information technology at its subsidiaries.

APPRECIATION We would like to extend our gratitude to the Shareholders for placing their trust in the Company. We continually strive to ensure that we lead the Company in accordance with their aspirations and for the benefit of the country. We would also like to express our gratitude to the Board of Commissioners for their oversight, advice and assistance.

Our highest appreciation also goes to the management and the Companys employees for their dedication and hard work in realizing the vision and mission of the Company in 2017. We also would like to thank our business partners for their continual cooperation.

Hendi Prio SantosoPresident Director



Board of DirectorsSeated Left to Right

Benny WendryDirector of Operations

Tri AbdisatrijoDirector of Engineering and Projects

Hendi Prio SantosoPresident Director

Fadjar JudisiawanDirector of Finance

Standing Left to Right

Doddy Sulasmono DiniawanDirector of Business Strategy & Development

AhyanizzamanDirector of Marketing & Supply Chain

Agung YunantoDirector of HR & Legal

CorporateProfile

38 Corporate Identity39 Logo Philosophy40 Vision and Mission41 Corporate Culture42 Semen Indonesia in Brief44 Milestones46 The Companys Advantages47 Business Activities48 Products and Services50 Supporting Facilities52 Operations Area54 Shareholders Structure and Subsidiaries56 Subsidiaries58 Organization Structure60 Board of Commissioners Profile64 Board of Directors Profile68 Total Employee69 Shareholders Information70 Share Listing Chronology70 Chronology of Other Stock Listing71 Capital Market Supporting Institutions72 Company Website74 Awards and Certifications78 Significant Events

Semen Tonasa Pangkep Plant, South Sulawesi have a beautiful green open space. Production Capacity of 5.98 million ton/year.



Corporate Identity

Company NamePT Semen Indonesia (Persero) Tbk.

Legal BasisGovernment RegulationNo. 132 year 1961

Authorized CapitalRp2,000,000,000,000

Shareholders51.01% Government of Indonesia48.99% Public

Shares ListingThe Companys share was listed in the Jakarta Stock Exchange through IPO exercised on 8 July 1991

Line of BusinessCement Industry

SWIFT CodeIBBKIDJA

Previous Company NamePT Semen Gresik (Persero) Tbk.

Issued and Fully Paid CapitalRp593,152,000,000

Establishment25 March 1953

Shares CodeSMGR

PT Semen Indonesia(Persero) Tbk1. The East Building, 18th Floor Jl. Dr. Ide Anak Agung Gde Agung Kav E.3.2 No.1 Kuningan, Jakarta -12950 T: 62-21-5261174-5 F: 62-21-5261176

2. Gedung Utama Semen Indonesia Jl. Veteran Gresik 61122 East Java, Indonesia T: + 62-31-398-1732 F: + 62-31-398-3209

email: [email protected] @: www.semenindonesia.com



LogoPhilosophyLogo of PT Semen Indonesia (Persero) Tbk

The logo of Semen Indonesia is a very important asset. The logo symbolizes the characteristics of Semen Indonesia. Not only as a visual representation, it also stand for Semen Indonesia and its core values.

The logo of Semen Indonesia shall be used only in the recognized forms, so as to maintain its identity and integrity.

Logo Philosophy

Triangle Form The inverted pyramid form signifies that work is oriented towards good will and faith to God. A triangle form is also a symbol of strength and perfection

Layered Roof Form An architectural form widely known in Asia, the layered roof form is a symbol for protection or patronage.

Number of Roof Lines - 9The number 9 (nine) is the highest single digit number, and is known as the number for perfection and the desire to reach perfection.

Color - Red Red symbolizes courage, enthusiasm, motivation, determination and passion to always work hard. The red-

colored areas is shaped like a upward-pointing arrowhead, symbolizing a continuously improving (upward trend) performance.

Color - Black Black symbolizes depth, stability and strong confidence. These are the strong values in support of all work processes.

Red-Colored M Depicting a 3-pillar foundation, representing the strengths of the 3 (three) entities that originally established Semen Indonesia.



Vision, Mission

1 Developing cement business and related industries oriented customer satisfaction

4 Providing the best value to the stakeholders

2 Realizing international standard company with competitive advantages and synergies to increase a sustainability added value

5 Build competencies through human resource development

3 Realizing social responsibility and environmentally friendly

Vision

Mission

Being a Leading International Cement Company in Southeast Asia.

Statement of Vision, Mission and Corporate Culture are determined by the Board of Directors on October 25, 2014 and approved by the Board of Commissioners on October 25, 2014.



CorporateCulture

CHAMPS

Compete with Clear and Synergized VisionAble to direct company resources and capabilities appropriately and accurately to compete and realize the goal of corporate synergy

Have A High Spirit For Continuous LearningWilling and is open to continuous learning to consistently enhance work quality, able to adapt to changes, and able to address changes in cement industry landscape

Act with High AccountabilityReliable and accountable for every statement, action, and decision

Meet Customer ExpectationAble to meet expectations, wants, and needs of customers for products and services; deliver focused and responsive assistance according to standard procedures

Perform Ethically with High IntegrityAble to demonstrate philosophy, worldview, and behavior that conform with virtuous moral and ethical values that are held steadfastly without waver

Strengthen TeamworkAble to perform as a team to deliver the best performance that creates added value for the Company and stakeholders

The Company has a corporate culture that is represented in the Acronym CHAMPS-SMI



Activity of cement delivery at Biringkasi port, Pangkep, South Sulawesi

PT Semen Indonesia (Persero) Tbk, previously known as PT Semen Gresik (Persero) Tbk, is a company engaged in cement industry. Inaugurated in Gresik on 7 August 1957 by the first President of the Republic of Indonesia, the Companys initial plant had an installed capacity of 250,000 tons cement per year.

On 8 July 1991, Semen Gresik listed its shares on the Jakarta Stock Exchange and the Surabaya Stock Exchange (now Indonesia Stock Exchange). The Company is the first SOE going public by offering 40 million shares to the public. Shareholding composition at the time was: Government of RI 73% and public 27%.

In September 1995, the Company exercised Rights Issue I, which changed the shareholding composition to 65% Government of RI and 35% shares owned by the public. On 15 September 1995, PT Semen Gresik was consolidated with PT Semen Padang and PT Semen Tonasa. At that time, the Companys total installed capacity was 8.5 million tons cement per year.

Semen Indonesia at A Glance

On 17 September 1998, the Government of RI divested 14% of its stake in the Company through an open tender offer, which was acquired by Cemex S. A. de C. V., a global cement company based in Mexico. The shareholding composition thus changed to 51% the Government of RI, 35% public, and 14% Cemex. Subsequently, on 30 September 1999 the shareholding composition changed to: Government of RI at 51.01%, public 23.46% and Cemex 25.53%.

On 27 July 2006, Cemex Asia Holdings Ltd. sold its shares to Blue Valley Holdings PTE Ltd., thereby changing the shareholding composition of the Company to Government of RI 51.01%, Blue Valley Holdings PTE Ltd. 24.90%, and the public 24.09%,

On March 2010, Blue Valley Holdings PTE Ltd. divested all of its shares through private placements. The Companys shareholding composition then changed to Government of RI 51.01% and the public 48.99%.



Packing plant Celukan Bawang, Baliwith capacity of 2 x 300.000 tons/year

On April 2012, the Company completed the construction of the Tuban IV plant with an installed capacity of 2.5 million tons. Following the commissioning stage, the new plant was handed over in July 2012, followed by the inauguration of its commercial operations in October 2012.

Further, in the third quarter of 2012, the Company has also completed the Tonasa V plant in Sulawesi. The new plant with 2.5 million tons capacity has gone through the commissioning stage since September 2012, and it was targeted for commercial operations in the first quarter of 2013.

On 18 December 2012, the Company officially acquired 70% stakes in Thang Long Cement Joint Stock Company (TLCC) from Hanoi General Export-Import Joint Stock Company (Geleximco) in Vietnam, with 2.3 million tons capacity. Through this corporate action, the Company becomes the first Indonesian multinational SOE.

On 20 December 2012, the Company officially took the role as a Strategic Holding Company. Concurrently, it changed its name from PT Semen Gresik (Persero) Tbk to PT Semen Indonesia (Persero) Tbk.

On 20 December 2013, the Company signed the deed of establishment of a joint venture company, PT Krakatau Semen Indonesia (KSI), which will build a plant to process the slag powder waste as raw material for cement production.

Further, on 24 December 2013, the Company continued its Corporate Transformation process and solidified its role as a Strategic Holding by forming a new subsidiary, PT Semen Gresik.

In 2014, the Company embarked on another business development program by commencing the construction of 2 cement plants in Padang and Rembang. This was followed by the decision to commence the construction of a new plant in Aceh.

The Company, through PT Krakatau Semen Indonesia, also commenced with the construction of a ground granulated blast furnace slag plant at Cigading.

In 2016, as part of the expansion plans in cement and non-cement business, the Company established PT Semen Indonesia International (SII), PT Semen Indonesia Aceh (SIA) dan PT Semen Kupang Indonesia (SKI), and changed the name of PT SGG Prima Beton to PT Semen Indonesia Beton (SIB).

In 2017, the Company established a joint venture which engaged in the building materials sector, namely PT Semen Indonesia Building Industry. The establishment of this joint venture was one of the Companys efforts to capture growth opportunities in the building materials industry, which can be a new growth engine while enhancing synergy among the subsidiaries.

Within the same year, two new factories of the Company namely Rembang Plant in Central Java and Indarung VI Plant in West Sumatra entered its commercial operations period, which have capacity of 3 million tons/year each.



Milestones

1957

1991

19951999

1998 2006 2010

The Company was established with production facility of 250,000 tons per annum (design capacity).

Initial Public Offering (IPO). Market capitalization stood at Rp0.63 trillion.The Companys ownership structure:Government of Indonesia, 73%Public 27%

For the Acquisition of national cement companies, PT Semen Padang (Persero) and PT Semen Tonasa (Persero).

Cemex increased its ownership to 26%,The ownership structure changed to:Government of Indonesia, 51%Public 23%Cemex, 14.0%Market capitalization stood atRp6.6 trillion

Cemex entered as strategic partner with share ownership of 14.0%. The Companys ownership structure changed to:Government of Indonesia, 51%Public 35%Cemex, 14.0%Market capitalization stood atRp4.9 trillion

Blue Valley Holdings purchased Cemexs entire share ownership of SGMR at 24.9% Market capitalization value: Rp21.5 trillion.Ownership:Government of Indonesia: 51%Public : 24.1%Blue Valley : 24.9%Commenced second construction phase of 2 new cement plants and 1 power plant

On March 31, Blue Valley Holdings divested its entire shares in SGMR.Market capitalization (April 2010): Rp72.31 trillion.Ownership:Government of Indonesia, 51%Public 49%



2012

2013

Capitalization as of 31 December 2012 stood at Rp94 trillion. Production capacity (installed) reached 28.5 tons per annum.

Completed the construction of 2 cement plants. Acquired Thang Long Cement Joint Stock Company

(TLCC) in Vietnam. Transformed into Strategic Holding Company.

Changed its name to PT Semen Indonesia (Persero) Tbk.

Established PT Krakatau Semen Indonesia, a joint venture company for slag powder waste management to be re-used as raw material in cement production. Established PT Semen Gresik continuing Corporate Transformation journey.

2014

2016

2015

Commenced physical construction of new plants in Rembang and Padang (Indarung VI).

Estalished PT Sinergi Informatika Semen Indonesia.

Established PT Semen Indonesia International (SII) and PT Semen Indonesia Aceh (SIA), PT Semen Kupang Indonesia (SKI) and changed the name of PT SGG Prima Beton to PT Semen Indonesia Beton (SIB), as part of expansion in cement and noncement fields.

Commenced new plant development in Aceh.

2017 The establishment of a joint venture company,

PT Semen Indonesia Industri Bangunan, engaging in the bulding material businesses. The Company is established to tap into the opportunity presented by the growth in building material industry as the new source of revenue, as well as to improve the synergy between subsidiaries.

The commercial operations of Rembang Plant in Central Java and Indarung VI Plant in West Sumatra, which have a capacity of 3 million tons/year each.



The CompanysAdvantagesThe Companys excellence advantages also includes the following features:

Distribution Reach1The Companys distribution excellence is backed by 17 supporting warehouse units, 25 strategically located packing plants, and 243 national distributors that guarantee the stability of cement supply anywhere in the archipelago. In Vietnam, TLCC has 36 distributors throughout North, Central, and South Vietnam.

Raw Materials2The Companys mining sites have material reserve with the best quality and sufficient amount to ensure long-term continuity of cement production.

Brand Image3The Company is the owner of three reputable brands. It also controls the largest domestic (Indonesia) market share of 43.0%, which reflects the strength of the Companys corporate and brand image.

Financial Fundamentals4The Company has thrived in maintaining strong financial fundamentals, thus providing ample resources to expand production capacity and venture into other related businesses.



BusinessActivities

PRODUCTION PROCESS

Preheat

Coal

Rotary Klin

Clinker

Blending

Raw

Clinker

Cement

Roller Press

Cement Cement

Cement

Transporting

Business activities in cement, production and distribution of cement products and downstream cement products.



Productsand Services

Product TypesThe Company produces several cement types. Its flagship product is Portland Cement Type II-V (Non-OPC). The Company also produces specific types and mixed cement products for limited usage. The following lists all cement types and their usage.

1 Portland Cement Type IAlso known as Ordinary Portland Cement (OPC), hydraulic cement that widely used in general constructions, such as building construction without specific requirements, among others are residential, high-rise buildings, runways and highways.

2 Portland Cement Type IIPortland Cement Type II is resistant to sulfate and medium hydration heat. Its usage includes seaside buildings, in wetlands, docks, irrigation channels, mass concrete, and dams.

3 Portland Cement Type IIIDeveloped for constructions that require high initial compressive strength after pouring and quick setting,Portland Cement Type III is used in projects such as highways, freeways, high-rise buildings, and airports.

4 Portland Cement Type VPortland Cement Type V is used for the construction of buildings on high-sulfate land/water and is highly suitable for waste management plant installation, underwater construction, bridges, tunnels, ports, and nuclear power plants.

5 Special Blended Cement (SBC)Packed in bulk, this specific cement was develope

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