Report of the Board of Commissioners

Dear Stakeholders,

On behalf of the Board of Commissioners (“BOC”), I would like to recognize PT Matahari Putra Prima Tbk (“Company”) for having navigated a challenging 2017. We also acknowledge the Company’s management and staff who have dedicated themselves to repositioning the business as a customer driven organization with great energy and commitment. A number of key issues were addressed that will support the Company’s strategy to increase market share going forward.

The strategic imperatives are driven and supported through 259 stores consisting of 113 Hypermarts, 4 SmartClubs, 25 Foodmarts, 102 Boston Health & Beauty and 15 FMX convenience stores at year end 2017. This store network reaffirmed the Company’s leading position within Indonesia’s retail industry. The formats are also well positioned to support growing demand from an increasingly urbanized middle class customer while at the same time building volume from the traditional trade.

The Company’s performance in 2017 was hampered by the Indonesian macro-economic environment, which faced a challenging year, especially in the area of consumer spending on goods and services.

The removal of electricity subsidies from 19 million households by the Government and the relatively low increase of annual minimum wages negatively impacted consumer spending power. These conditions were exacerbated by the shift of the peak season of Lebaran closer to the new school year resulting in less overall spending in the retail market.

In addition to the challenging economic environment, the competition from local supermarkets aggressive price cutting and proliferation of minimarts across Indonesia has put pressure on MPPA sales and margin, impacting the Company’s ability to reach its target performance for 2017.

During the year, the BOC has been reviewing the Company’s strategy, acknowledging changes in the market as well as consumer behavior and how the Company should react to those changes.

In order to address the above, we strongly believe that the Company needs to change its focus to a more committed consumer-centric retailer with an enhanced approach to serve the consumer with the right products at competitive prices at the right time. To affect this, the Company launched its pricing strategy in 2017, starting with 5,000 SKUs across all categories to deliver competitive prices to our consumers.

To support the pricing strategy, the Company has re-examined its cost structure to support a lower merchandise margin business by looking at a number of operational efficiencies. These include headcounts, assortment reviews with a goal to focusing on fast moving and productive SKUs, a review of unsupportable costs including a shift of marketing spend from expensive nationwide media advertising to a more cost-effective community based marketing and the development of a low cost store format.

While the above initiatives have allowed the Company to move strongly with its new strategy, it placed considerable pressure on the Company performance in 2017 with some one-off costs being accounted for in that period, including headcount efficiency measures and losses from inventory clearance.

Throughout 2017, the BOC was engaged in and gave advice on the Company’s plans and strategy. In compliance with the Financial Service Authority (OJK) Regulation No. 33/POJK.04/2014, the BOC continued to enforce the compliance of the guidelines to each BOC member. During the year, the BOC held 6 meetings and 4 separate formal meetings with Board of Directors (BOD). Within its bi-monthly internal meeting, the BOC discussed various topics ranging from external market conditions and internal Company ongoing matters well as reviewed reports from the Audit Committee and Nomination and Remuneration Committee (NRC). The four formal meetings with the BOD were held quarterly to review both quarterly and year to date financial and operating performance KPI’s. During these meetings, strategic plans were reviewed and, where necessary, updated. Actions were then designed to insure delivery of the updated strategic plan.

Upon completion of these meetings BOC and BOD members were aligned on the results, strategic plan updates and necessary execution actions.

The BOC was assisted by the Audit Committee, chaired by William Travis Saucer. The Audit Committee has consistently placed high priority on Good Corporate Governance practices (GCG). Within the year, the Audit Committee conducted 4 meetings to review audit reports from Internal Audit, the findings and solutions of which were reported formally to BOC. It is in the opinion of the BOC that the Company has delivered all aspects of GCG according to guidelines. Code of Conduct continues to be strengthened at all levels of the organization, helping to ensure the compliance with external laws and regulations.

Additionally, in compliance to OJK Regulation No. 34/POJK.04/2014, the Nomination and Remuneration Committee (NRC), chaired by William Travis Saucer, assisted the BOC to evaluate and advise on the remuneration of BOC and BOD members. During the year, the NRC conducted 4 meetings whose recommendations have been proposed and communicated to the BOC.

In late October 2017, the BOC received the resignation of Noel Trinder, the Company’s previous CEO. Noel had played a key role in building and growing the Company’s Hypermart since 2004. After an extensive review by the BOC and supported by the NRC’s recommendation, the appointments of William Travis Saucer to act as Interim CEO and Djamel Derguini, existing Chief Operation Officer, to act as Acting President were agreed and announced. Mr. Saucer and Mr. Derguini will work closely with the rest of MPPA management team to lead the Company’s strategic and operational execution. While the search and evaluation for the permanent CEO is ongoing, the BOC has high confidence in the professional expertise and experience of both Mr. Saucer, who has years of international retail experience and was the Company’s CEO several years ago, and Mr. Derguini, for his modern retail experience and strong customer-centric thinking internationally, in navigating the Company during this transition period.

The BOC structure remained unchanged in 2017 and consisted of myself, John Bellis, as the Chairman, Theo L. Sambuaga as the Vice Chairman, William Travis Saucer, Chua Siang Hwee (Jeffrey), Niel Nielson, John Riady and Johanes Jany. As we enter 2018, the BOC will continue to move the Company to higher levels of Good Corporate Governance practices.

We express our optimism for 2018. The middle class continues to grow and the Company’s core hypermarket business is still under penetrated in Indonesia compared to other Asian countries. All actions taken this year should begin to pay off, allowing the Company to “Regain Center Stage” which is the theme of the Company this year.

On behalf of the BOC, I wish to thank each of our dedicated team members for their strong efforts in 2017. To our partners, I would like to reiterate that the Company will continue to work with you in collaborative fashion, enabling us to prosper together in the future. Finally, to our stakeholders, I believe we have taken the important steps in 2017 to reposition MPPA on a positive growth path. Thank you for your continued support and confidence in MPPA.

On behalf of the Board of Commissioners,

John Bellis

Independent President Commissioner