Dear Shareholders,

Global economic dynamics shifted rapidly amid uncertainty. By early 2024, geopolitical tensions remained high due to the Russia-Ukraine conflict. Following a brief respite, tensions escalated again after an Israeli attack on Palestine. By late 2024, President Trump’s re-election in the U.S., along with his America First policy, could significantly alter the geopolitical landscape and global economy.

Overall, global economic growth in 2024 is expected to moderate to 3.2%, from 3.3% in 2023, with a further slowdown projected to 3.1% in 2025 and 3.0% in 2026.

The US economy, which is expected to moderate in 2024, is projected to rebound in 2025; however, the risk of economic overheating looms due to the widening fiscal deficit and increasing government debt. GDP growth in China and the Euro Area is anticipated to slow down in response to persistently sluggish domestic demand and the potential effects of high trade tariffs imposed by the new US Administration. Economic growth in Indonesia, India, and several other emerging market economies (EMEs) remains relatively robust owing to domestic demand despite export constraints resulting from economic moderation and global trade fragmentation.

Indonesia’s economy has shown strong resilience in mitigating the impact of global spillovers, earning international recognition for its economic performance. First, Indonesia’s economic performance ranks among the best of emerging market economies (EMEs), maintaining macroeconomic stability alongside robust growth. The economy grew by 5.03 percent in 2024, slightly below the 5.05 percent recorded in 2023, displaying resilience despite both global and domestic challenges.

Globally, the polyester industry’s performance remained relatively stable in the first half of the year. However, in the second half, it experienced a significant decline, with overall prices shifting markedly downward. Increased macroeconomic volatility in the second half became a crucial trigger for fluctuations in polyester prices.

Synchronized weakening data from major global economies, including Europe and the United States, heightened fears of an economic recession. The rising likelihood of rate cuts by the Federal Reserve, combined with unexpected tightening from the Bank of Japan, has led to sharp fluctuations in stock, commodity, and currency markets, significantly impacting market sentiment.

The domestic textile industry faced a challenging year characterized by layoffs, factory closures, declining exports, and stiff competition from Chinese imports. The global downturn decreased demand for textile products, while an influx of low-cost imports hampered Indonesian manufacturers. Thousands of factories, both large and small, have been compelled to either shut down operations or lay off numerous workers. Consequently, the upstream polyester industry in Indonesia experienced significant impacts due to reduced operating rates and production cutbacks. These cuts in operating rates have resulted in a severe market glut, exerting pressure on market margins.

Assessment of Performance of Board of Directors

The Board of Commissioners continued to oversee and guide the Board of Directors in addressing the business challenges faced by the polyester sector, particularly in the Indonesian upstream industries, throughout 2024. The commissioners appreciate the Board of Directors for their diligent efforts in discharging their responsibilities in minimizing damages and sustaining the Company’s operations during this challenging period.

Amid market uncertainties, a decline in global trade flows due to geopolitical tensions, and significant disruptions in the domestic market, the Company made considerable efforts to maintain its operations.

However, the serious impact of the company’s inability to complete its defaulted debt restructuring over two decades and the business losses from the adverse effects of the downturn significantly depleted the company’s working capital.

Due to this unsustainable position and the continuous deterioration of market conditions, the company decided to shut down the operation of one of its plants. The Karawang plant was producing raw materials for the filament yarn facility as well as polyester fibers. Consequently, operations at the filament yarn plant in Semarang have been significantly reduced and are now operating at just 30% capacity.

Due to this unsustainable position and the continuous deterioration of market conditions, the company decided to shut down the operation of one of its plants. The Karawang plant was producing raw materials for the filament yarn facility as well as polyester fibers. Consequently, operations at the filament yarn plant in Semarang have been significantly reduced and are now operating at just 30% capacity.

This resulted in a significant decrease in sales revenue to USD192 million, down from USD291 million reported last year, indicating a 34% year-on-year decline. For 2024, the Company reported an EBITDA loss of USD7.67 million, compared to an EBITDA loss of USD6.73 million in the previous year.

The Board of Commissioners acknowledges the continuous efforts and contributions of the Board of Directors and the Management team in maintaining operations despite the substantial financial constraints faced by the Company due to the prolonged delay in debt restructuring.

The Board of Commissioners continues to support and encourage the Board of Directors in their persistent efforts to resolve the long-standing debt restructuring issue with the Ministry of Finance and other secured creditors.

Review and Monitoring of the Strategy of the Board of Directors

The Board of Commissioners regularly assesses and evaluates the strategies and policies implemented by the Board of Directors to manage business operations within a challenging economic landscape and under significant financial constraints. They provide overall direction and guidance for developing strategies in response to changing business and economic conditions. Issues are discussed during regular joint meetings- both virtual and in-person- between the Board of Commissioners and the Directors, held at least quarterly, where decisions are made and monitored regarding the execution of prior resolutions.

Joint meetings of Commissioners and Directors were held 4 times in 2024.

Review of Business Prospects

The Board of Commissioners has conducted a comprehensive evaluation of the market outlook, business strategies, and operational plans for 2025 and beyond, as presented by the Board of Directors, considering existing constraints and limitations regarding working capital. The Board believes that the Company’s continued operations primarily depend on the prompt resolution of its debt restructuring matters and the availability of new working capital facilities from banks and financial institutions.

Nevertheless, the Board continued to guide and support the Company in its renewed discussions with the Task Force team (BLBI) appointed by the Government to achieve a mutually agreeable solution for its debt restructuring.

The Board of Commissioners is concerned that any delays in completing the debt restructuring and obtaining new working capital facilities may jeopardize the Company’s ability to continue as a going concern.

The Board of Commissioners expresses its serious concern about the stalemate in the Secured Debt Restructuring matter, which has led to the company’s current situation and affected the interests of all shareholders, creditors, and other stakeholders. Due to a lack of investments in the past, the company has lost its competitiveness, potential business opportunities, and various growth prospects.

Corporate Governance

The Board of Commissioners has directed the Board of Directors to implement the principles of Good Corporate Governance (GCG) and sustainability strategies, ensuring strict compliance with applicable laws and regulations from various governing and monitoring agencies in the pursuit of all their business transactions and trade practices.

The Board of Commissioners has periodically reviewed and evaluated the company’s GCG and sustainability policies, providing guidelines to enhance corporate governance and management standards. The B.o.C. believes that the company’s internal control systems and procedures, financial reporting systems, risk analysis, and sustainability practices align with its business needs. Despite limitations, the company strives to uphold its governance standards with a focus on sustainability principles.

Change in the Composition of the Directors

The composition of the Board of Directors changed in 2024, as indicated below.

Mr. Peter Vincent Merkle, Director of the Company and CEO of its Chemical & Fiber Division, has resigned from his position effective 27th June 2024 due to personal reasons. The Board wishes to express its deep appreciation for his contributions during his tenure as Director and CEO (Chemical & Fiber SBU) and wishes him the best of health and success.

Appreciations

The Board of Commissioners wishes to express its deep appreciation to the Board of Directors, the management team, and all company employees for their dedication, hard work, and cooperation during this turbulent period of financial constraints. Nonetheless, the management team and employees have worked diligently to maintain the company’s strategic position in the country so far.

Finally, we would like to express our gratitude to our customers, suppliers, and shareholders for their support and the trust they have placed in the company during these challenging times.

Robert McCarthy

President Commissioner