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President Commissioner
Although the performance achievement in 2022 was not as high as in 2021 when the market was still influenced by the sentiment of an increase in COVID-19 cases, the Board of Directors was able to maintain business continuity with intensive and innovative marketing programs to boost sales, especially for flagship products with high margins.
Hereby we deliver the supervisory report of the Board of Commissioners regarding the development and management of PT Industri Jamu Dan Farmasi Sido Muncul Tbk (the “Company”) for the financial year ended December 31, 2022.
Global economic recovery from the impact of the COVID-19 pandemic starting in mid-2021 has raised optimism that 2022 would be a year of recovery. However, the emergence of the Omicron variant of the SARS-CoV-2 virus at the beginning of the year and the Russian invasion of Ukraine on February 24 caused the global economy to return to a state of uncertainty.
The war in Ukraine, followed by sanctions from the United States and a number of Western and Asia-Pacific countries against Russia, triggered geopolitical tensions and impacted global economic activities. The food and energy crisis quickly became a new threat as Russia and Ukraine have crucial positions in the global food and energy supply chain. Supply chain disruptions caused commodity prices for raw materials, energy (including oil, natural gas, and coal), and food to soar beyond unprecedented levels, driving up inflation. The global inflation rate reaches highest level since the 2008 financial crisis.
Global dynamics certainly affected the Indonesian economy. According to the Central Statistics Agency (BPS), Indonesia’s inflation rate in 2022 reached 5.51%, higher than the government’s target of 3.0+1% and much higher than inflation in 2021 of 1.87% and 1.68% in 2020. The increase in inflation was mainly influenced by the policy of adjusting the price of fuel and non-subsidized LPG, which had a subsequent impact, especially on the price of basic commodities and transportation costs. With relatively stagnant income levels, people, especially the lower middle class, prioritized spending on basic needs and postponed other non-urgent needs.
On the other hand, pandemic control in Indonesia improved. Implementation of health protocols and massive vaccinations, as well as quick and effective handling of suspected cases of COVID-19 through telemedicine services in the PeduliLindungi application, encouraged Indonesia to declare a transition from pandemic to endemic. On December 30, 2022, the government officially lifted the public activity restriction (PPKM) across Indonesia. This condition also impacted decreasing demand for vitamins and health supplement products compared to demand in 2021.
The Board of Commissioners appreciates outstanding performance in 2022, although lower than the 2021 achievement when the market was still influenced by the sentiment of an increase in COVID-19 cases. However, the Board of Directors was able to maintain business continuity with intensive and innovative marketing programs to boost sales, especially for flagship products with high margins. In 2022, the Company also launched seven new products in response to consumer needs and strengthened its digital marketing platform to reach the targeted millennial consumers.
At the end of 2022, the Company recorded net sales of Rp3.87 trillion, down 3.9% from Rp4.02 trillion in 2021. Jamu Herbal & Supplement segment experienced a slightly decreased of 2.2% from Rp2.69 trillion in 2021 to Rp2.63 trillion, and Food & Beverages segment decreased by 8.5% from Rp1.19 trillion in 2021 to Rp1.09 trillion. Meanwhile, the Pharmacy segment grew 4.3% from Rp137.15 billion in 2021 to Rp143.05 billion.
The Company earned a net income of Rp1.10 trillion, which decreased by 12.4% from Rp1.26 trillion in 2021, in line with a decrease in sales. Net income margin also fell from 31.4% in 2021 to 28.6%.
The Board of Commissioners also noted several admirable achievements. The Company’s strong commitment to environmental management was rewarded Gold PROPER Award of the Ministry of Environment and Forestry for the third time and won the Leading Green Leadership Award from the Ministry of Environment and Forestry for company leaders who optimally carry out environmental management programs in business operations and community development while dominating Gold PROPER awards acceptance.
In addition, the Company also received the “Level 5” Green Industry Award for the fifth time from the Ministry of Industry and 2022 Indonesia’s SDGs Action Awards as the Best Winner I, Big Business Player Category from the National Development Planning Agency.
The Board of Commissioners performed supervisory functions of the management of the Company by the Board of Directors from the stage of formulating strategies and setting performance targets before the beginning of each financial year. The strategic planning process is performed in joint meetings of the Board of Commissioners and the Board of Directors, which includes discussing business developments and determining short and long-term strategies.
On this occasion, the Board of Commissioners actively performs supervisory and provides advice, insights, or recommendations to the Board of Directors regarding business plans that will be determined and mutually agreed upon. The Board of Commissioners’ recommendations complements the Company’s strategy formulation process. The strategies and strategic policies agreed upon and approved are translated into performance targets, operational planning, and cascaded work programs down to the lowest structure in the form of key performance indicators (KPI) to be achieved in the respective financial year.
The Board of Commissioners and the Board of Directors intensively communicate to ensure that the Company’s performance targets are achieved. Formally, implementation of the supervisory function of the Board of Commissioners on the performance of the Board of Directors is carried out through joint meetings of the Board of Commissioners and the Board of Directors and regular meetings of the Audit Committee with the Finance Director and Internal Audit Unit.
During 2022, the Board of Commissioners held 12 joint meetings. In this forum, the Board of Directors reports the results of monthly operational performance, quarterly financial performance, encountered challenges and solutions, as well as plans for further improvement.
Involvement of the Board of Commissioners since the beginning of formulation is intended to open a wider perspective or point of view in various aspects of the Company management to assist the Board of Directors in formulating strategic initiatives and cascading performance targets according to the needs of organizational development to achieve the Company’s goals.
In the view of the Board of Commissioners, the Board of Directors has implemented business strategies with appropriate and effective initiatives, taking into account the advice and recommendations of the Board of Commissioners, as well as developing external factors so that the Company was able to maintain admirable growth this year.
The world economy in 2023 will still face severe challenges, and even the threat of a recession is imminent. Several factors will weigh on global economic growth, from tight monetary policies in many countries, ongoing geopolitical conflicts, high-interest rates, and spikes in inflation due to rising energy prices, industrial raw materials, and food to slowing global trade.
Multinational institutions, such as IMF and World Bank, have repeatedly corrected their projections for global economic growth in 2023. IMF cut its 2023 global economic forecast from 4.4% in January 2022 forecast to 3.2% in April 2022, then to 2.7% in October 2022. Meanwhile, World Bank January 2023 announced its 2023 global growth forecast to be 1.7%, down sharply from 3% in June 2022 forecast.
In the midst of global economic turmoil, Indonesia’s economy shows good prospects. Bank Indonesia estimates that Indonesia’s economic growth in 2023 will remain strong in the range of 4.5-5.3% and will increase to 4.7-5.5% in 2024, supported by private consumption, investment, and positive export performance amidst slowing global economic growth. Inflation is expected to decline and return to the target of 3.0 ± 1% in 2023 and 2.5 ± 1% in 2024, in line with controlled import prices inflation with a stable Rupiah exchange rate and quick, anticipatory, and forward-looking monetary policies.
The Board of Directors and the Board of Commissioners discuss business prospects prepared by the Board of Directors. In the joint meeting forum, the Board of Directors elaborates on business opportunities to be pursued for further discussion and analysis. The Board of Commissioners conveys their considerations and recommendations according to their professional capacity. The Board of Commissioners believes that the Company has positive business prospects in line with increasing consumer awareness of health supplement products derived from natural ingredients. The domestic market is still wide open, especially in the youth segment. This segment must be approached with a digital marketing method different from conventional marketing. Meanwhile, the export market is also increasingly in line with the Company’s strategic initiatives to seek new sources of growth outside the Indonesian market.
The Board of Commissioners ensures that the Company implements good corporate governance (GCG) principles at all organizational levels and in every business process. Overall, GCG implementation in the Company has been going well, especially in compliance with the applicable laws and regulations. To improve GCG quality, the Board of Commissioners reminds the Board of Directors to safeguard effective internal control from the first line of defense (operations) irrespective of an audit by the Internal Audit Unit. The role of the Internal Audit Unit should not only be as a watchdog but must become a strategic partner to provide advice and added value to the Company.
The Company implements financial and operational internal control systems that adopt the framework of The Committee of Sponsoring Organizations of the Treadway Commission (COSO). Periodically, the Board of Commissioners evaluates the effectiveness of internal control through Audit Committee in coordination with Internal Audit Unit. In implementing its work programs, Internal Audit Unit always ensures that internal control systems have been developed and embedded in each business process because effective internal control is an important and absolute requirement in GCG implementation. In parallel, through the Audit Committee, the Board of Commissioners carries out a supervisory role to achieve this goal.
The Board of Directors implements a risk management system that refers to best practices to manage all risks effectively and efficiently. Overall, the Board of Directors considers risks in formulating strategies and managing the Company. However, the Board of Commissioners recommends that the Board of Directors consider establishing a risk management function since the Company is currently in an increasingly volatile, uncertain, complex, and ambiguous (VUCA) business environment. The risk management function will help the Board of Directors perform risk management procedures in a more comprehensive, planned, and systematic manner so that the Company will be able to anticipate more swiftly and be better prepared to face loss probabilities.
During 2022, there were no changes in the composition of the Board of Commissioners.
The Board of Commissioners is well aware that the Company owes every achievement to stakeholders’ support. Therefore, on behalf of the Board of Commissioners, allow me to express my deepest gratitude to all stakeholders for the trust given so that the Company is able to go through every difficult and challenging period.
We also appreciate the Company’s Board of Directors, management, and all employees for their performance, contribution, and dedication to the Company’s business sustainability. Hopefully, the Company can continue to provide value-added and greater benefits for the shareholders, employees, customers, business partners, and all stakeholders in the future.