Message From Chairman

Dear Shareholders,

Staying Strong

It is with a deep sense of gratitude that I address our valued shareholders to highlight the key achievements of Saratoga in 2017. The year proved to be another extraordinary year for Saratoga amid challenging economic conditions in Indonesia and elsewhere in the world. Perhaps one of the most challenging aspects to our economy as we know it today is the growing proliferation of new technology and artificial-intelligence (AI) that have become the so-called ‘disruptive’ forces.

There is no doubt that new technology is the wave of the future and will provide mankind with boundless growth opportunities in many areas of human endeavors. But for now, we will have to contend with the disruptive effects of this phenomenon, which for the most part in Indonesia has been felt in the consumer retail sector.

Overall, I am pleased to say that by and large Saratoga has done exceptionally well in 2017, surpassing even our previous best performance in 2016. We have remained strong on the basis of our prudent and highly selective investment decisions, stayed true to our investment philosophy of “Invest-Grow-Mone­tize,” and worked relentlessly with our investee companies in the natural resource, infrastructure and consumer sectors.

From Strength to Strength

The net asset value of our investment portfolio increased by 14%, from IDR19.54 trillion in 2016 to IDR22.36 trillion in 2017. This growth is consistent with the performances of our investee companies over the past several years, and reflects the real potential of our investment platform that has continued to grow from strength to strength since we went public in 2013.

As at year-end 2017, Saratoga’s diversified investment portfolio comprised of 22 companies, of which 11 are publicly listed. Several of these companies are leading business entities in their respective industries. Adaro Energy remains one of the world’s largest coal-mining operations in the southern hemisphere, and in 2017 benefitted from the recovery of coal price. Tower Bersama, the leading tower-sharing Base Transceiver Station provider for cellular telecommunications in Indonesia, continues to capitalize on strong market demand. Merdeka Copper Gold entered into full production of gold and silver in 2017, fulfilling a promise made to the Indonesia Stock Exchange that it would start generating revenues two years from listing.

There were other highlights in 2017. Early in the year, Saratoga completed the divestment of the Cipali Toll-road, the single longest stretch of toll road in Indonesia today. After working closely with our investment partners to complete the toll road project, thereby creating value in the asset, we decided that operating the toll road would be best managed by another entity who is expert in the management and the operation of the toll roads. The same reasoning applies to our decision of divesting Medco Power in 2017. After acquiring a 51% stake in Medco Power together with our partners in 2011, we helped the development of completion of the Sarulla Geothermal power plant project. We worked hard to complete the project, thereby creating value, and decided that operating the asset itself would be more suited by professional manager who is the expert in the field.

Infrastructure remains a key pillar of our investment platform. Our disengagement from the toll road and power plant businesses in no way diminishes our commitment to support Indonesia’s drive to accelerate its infrastructure development. Instead, this move has enabled Saratoga to make new investments in what we deem to be the social-infrastructure sector. In 2016, Saratoga acquired stakes in a growing hospital chain and a cold-chain logistics provider. We believe that public health is paramount for any developing nation, whereas Indonesia would benefit greatly from the ability to distribute fresh foods to the far corners of this sprawling archipelago.

In the natural resources sector, we are extremely happy at the way Adaro Energy has managed to navigate through the tough times of rock-bottom commodity prices, and how Merdeka Copper Gold has turned into a producing asset so soon after its listing. With production volume of gold surpassing its target, while production cost was held below budget, the company has truly earned the moniker, good as gold.

In the consumer sector, despite the persistently low consumer confidence, low spending and high saving environment that we were facing, most of the investee companies in our consumer portfolio stood tall and fought hard to grow their businesses. MPMX, Indonesian’s smart mobility company, has performed with resilience both operationally and financially. In addition, we welcomed a new member – Deltomed Laboratories – to the consumer portfolio in the first quarter of 2017.

You might be curious about our thoughts regarding the investment in the new technology sector. We are keenly aware of the ever-evolving environment driven by the disruptive forces of the technology and believe we are in a good position to take advantage of the opportunities if and when they arise.

Good Corporate Governance

The management of Saratoga continues to govern and manage in a proper and prudent fashion. We remain cautious and take careful measures in achieving our financial targets to build sustainable long-term successes. This is consistent with our annual report theme this year, ‘from strength to strength,’ which the Cambridge English Dictionary defines among other things as “to gradually become more successful.”

Indeed, we attribute our success also to good corporate governance. In 2017, the Board of Commissioners met on 6 occasions, and jointly 4 times with the Board of Directors to examine and review Saratoga’s performance. The Board of Commissioners also reviewed the work of the Audit Committee and Nomination and Remuneration Committee and a full account of the work of the other committees is included in this report. There were no changes to the composition of the Board of Directors, neither that of the Board of Commissioners, in 2017.

Placing Our Faith in People

We continue to put our faith in people – whether in Saratoga, our investee companies, or in the communities where we operate. A business is only as good as its people – and the goodness that it brings to people in the surrounding communities. As such, we invest considerably in capacity building and the development of leadership and skills across our group. And I am always delighted to witness the length at which the Saratoga Group is willing to go in its corporate social responsibility initiatives and actions. We will again be able to report substantial undertakings in our social, community and environmental responsibilities in 2017.

Looking Ahead

We remain optimistic about the economic potential of Indonesia in 2018 and beyond, despite having to face a presidential election year in 2019. A study recently published by PriceWaterhouseCoopers places Indonesia as potentially the fifth largest economy in the world by 2030 – behind China, USA, India and Japan, but ahead of the UK, Germany, France and all other erstwhile economic powerhouses.

Should Indonesia fulfill its potential, what better time to invest in Indonesia than today, guided by our in-depth knowledge of Indonesia and its people, and backed by the strength of our diversified investment portfolio that mirrors Indonesia’s economic growth year after year.

As always, we thank the Management and employees of Saratoga and the investee companies for their exceptional efforts in 2017 – chalking up another successful year on the board. I also thank my fellow shareholders and all other stakeholders for their trust and support. God bless us all, and may we look ahead to more successes in the years to come.