SIGNIFICANT ACCOUNTING POLICY CHANGE OPERATING SEGMENTS

26

d. Loan interest rate

The interest rate risk of the Company primarily comes from bank and non-bank financial institution loans obtained by the Company as the fair value of future cash flows may fluctuate arising from the changes in market interest rates. The Company manages this risk by constantly monitoring the prevailing market interest rates movements and managing the availability of cash flows used to repay loans and working capital.

3. SIGNIFICANT ACCOUNTING POLICY CHANGE

Starting from January 1, 2016, the Group’s functional currency, according to its expenses and financing activities, was Indonesian Rupiah. Thus, the recording of the Group’s financial statements changed from USD to IDR. In accordance with PSAK 10, when there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change of functional currency, which in the case of the Group is effective since January 1, 2016. Hence, the Group has translated its consolidated financial statements as of and for the year ended on December 31, 2015 and financial statements for prior periods that were issued in USD to IDR using the following procedures: 1 Assets and liabilities for each consolidated statement of financial position presented i.e. including comparatives were translated at the closing exchange rate at the date of that consolidated statement of financial position; 2 Income and expenses for each consolidated statement of profit and other comprehensive income or separate income statement presented i.e. including comparatives shall be translated at the relevant exchange rates at the dates of the transactions; and 3 All resulting exchange differences were recognized in other comprehensive income. The following are the financial ratios which were affected by the change of the Company’s accounting policy: 2015 2014 Before Translation After Translation Before Translation After Translation ROA 2.13 1.91 1.07 1.02 ROE 6.02 5.45 2.72 2.59

4. OPERATING SEGMENTS

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and to assess performance. Segment performance is evaluated based on operating profit or loss and measured consistently against operating profit or loss in the consolidated financial statement. Transfer prices between legal entities and segments are determined in a manner similar to transactions with third parties. The following table presents information regarding the Group’s operating segments: In Rupiah Manufacturing Forestry Retail Distribution Elimination Total For the year ended on December 31, 2016 Sales Export 1,026,540,465,068 - - - 1,026,540,465,068 Local 305,849,159,828 246,350,857,933 36,204,535,529 291,556,039,319 296,848,513,971 Total sales 1,332,389,624,896 246,350,857,933 36,204,535,529 291,556,039,319 1,323,388,979,039 27 Manufacturing Forestry Retail Distribution Elimination Total Reportable segment operating profit 381,358,174,212 63,423,900,972 11,490,391,916 1,886,516,240 458,158,983,340 Profit for the year 248,537,160,026 14,994,971,389 9,644,396,316 112,806,511,081 141,081,224,018 In Rupiah Manufacturing Forestry Retail Distribution Elimination Total For the year ended on December 31, 2015 Sales Export 934,570,856,734 - - - 934,570,856,734 Local 83,967,126,076 116,215,944,705 15,690,047,060 31,747,302,864 184,125,814,977 Total sales 1,018,537,982,810 116,215,944,705 15,690,047,060 31,747,302,864 1,118,696,671,711 Reportable segment operating profit 198,860,792,892 37,425,651,556 4,459,787,060 959,380,867 241,705,612,375 Profit for the year 37,322,106,952 3,597,223,987 1,698,020,145 690,004,637 38,531,306,157 In Rupiah Manufacturing Forestry Retail Distribution Elimination Total For the year ended on December 31, 2014 Sales Export 693,677,348,752 - - - 693,677,348,752 Local 165,867,214,698 201,117,894,571 10,501,664,547 75,058,863,700 302,427,910,116 Total sales 859,544,563,450 201,117,894,571 10,501,664,547 75,058,863,700 996,105,258,868 Reportable segment operating profit 114,205,488,236 40,516,673,349 3,000,749,113 1,465,654,836 159,188,565,534 Profit for the year 8,803,266,034 5,896,324,888 786,265,898 43,212,932 15,442,643,888 The following sets out the detailed production capacity of the Group’s manufacturing activities: 2014 2015 2016 Furniture Installed Capacity m 3 17,763 23,450 35,044 Production Volume m 3 12,588 15,578 16,155 Utilization 70.9 66.4 46.1 Building Component Installed Capacity m 3 17,558 35,558 133,338 Production Volume m 3 15,918 18,120 57,008 Utilization 90.7 51.0 42.8 Source: The Company’s Management Sales In 2016, sales in the manufacturing, forestry and retail distribution segments were 100.68, 18.62 and 2.74 of total consolidated sales, respectively, before eliminating sales arising from inter-company transactions within the Company. In 2015, sales of the manufacturing, forestry and retail distribution segments were 91.05, 10.39 and 1.40 of total consolidated sales, respectively, before eliminating sales arising from inter-company transactions within the Company. In 2014, sales of the manufacturing, forestry and retail distribution segments were 86.29, 20.19 and 1.05 of total consolidated sales, respectively, before eliminating sales arising from inter-company transactions within the Company. The contribution of the manufacturing segment to the total revenue for the year grew by 9.63 and 4.76 in 2016 and 2015, respectively, due to an increase in the export of building components as well as an increase in the sales of local building components, knock-down furniture and set-up furniture. 28 The contribution of the forestry segment to the total revenue for the year grew by 8.23 and -9.80 in 2016 and 2015, respectively, due to an increase in timber sales in 2016 while in 2015 the Company was unable to move timber from logging sites to warehouses due to the drying rivers. Gross profit In 2016, gross profit from the manufacturing, forestry and retail distribution segments were respectively 83.24, 13.84 and 2.51 of the consolidated gross profit, respectively, before eliminating sales arising frominter-company transactions within the Company. In 2015, gross profit from the manufacturing, forestry and retail distribution segments were respectively 82.27, 15.48 and 1.85 of the consolidated gross profit, respectively, before eliminating sales arising frominter-company transactions within the Company. In 2014, gross profit from the manufacturing, forestry and retail distribution segments were respectively 71.74, 25.45 and 1.89 of the consolidated gross profit, respectively, before eliminating sales arising frominter-company transactions within the Company. The contribution of the manufacturing segment to the gross profit grew by 0.96 and 10.53 in 2016 and 2015, respectively, due to improved efficiency in aspects such as the utilization of waste wood as raw material for furniture production, an increase in product prices due to their improved colour and design, reduced sale of low margin products such as rattan baskets and reduced prices in raw materials especially for paint and medium density fiberboards. The contribution of the forestry segment to the gross profit decreased by -1.64 and -9.97 in 2016 and 2015, respectively, due to the fact that the manufacturing segment experienced a more significant increase, causing the gross profit of the forestry sector to decrease from year to year. Profit for the year Profit for the year in the manufacturing, forestry and retail distribution segments in 2016 was 176.17, 10.63 and -6.84 of consolidated profit in 2016, respectively, before eliminating sales arising from inter-company transactions within the Company. Profit for the year in the manufacturing, forestry and retail distribution sectors were 96.86, 9.34 and -4.41 of consolidated profit in 2015, respectively, before eliminating sales arising from inter-company transactions within the Company. Profit for the year in the manufacturing, forestry and retail distribution sectors were 57.01, 38.18 and 5.09 of consolidated profit in 2014, respectively, before eliminating sales arising from inter- company transactions within the Company. The contribution of the manufacturing segment to the profit for the year grew by 79.30 and 39.86 in 2016 and 2015, respectively, due to increase in the export of building component as well as an increase in the sales of local building component, knock-down furniture and set-up furniture as well as improved manufacturing efficiency. The contribution of the forestry segment to the profit for the year in the grew by 1.29 and -28.85 in 2016 and 2015, respectively, due to the fact that in 2015 the Company was unable to move the logs from the logging site to the warehouses due to the drying rivers. 29 The contribution of the retail distribution segment to the profit for the year decreased by -2.43 and - 9.50 in 2016 and 2015, respectively, as the new retail store just commenced its commercial operation in mid-2016, resulting to unmaximized sales and unable to cover its operational expenses. Production Volume In 2016, 2015 and 2014, the production volume of furniture in the manufacturing sector was 16,155m 3 , 15,578m 3 and 12,588m 3 , respectively. The production volume from the manufacture of building component in 2016, 2015 and 2014 were 57,008m 3 , 18,120m 3 and 15,918m 3 , respectively. The year-on- year increase of the Company’s production volume was in line with the increase in sales of the Company.

5. FINANCIAL ANALYSIS