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MDRN 3Q15 Newsletter
31 Oct 2015

30 September  2015

Flash Note : Streamlining Business Process to Ensure Long Term Profitability.

Upon entering its 7th year of operation in upcoming 11th Nov, 7-Eleven business continued to be the focus of the PT Modern Internasional Tbk (“Company“) business as it keeps strengthening its position as the biggest contributor of revenue to the Company.

This challenging achievement has been attained by the hard work, trust, cooperation and commitment from all stakeholders including shareholders, employees and all business partners. In this current state,   7-Eleven business has expanded into 189 stores focusing in Jakarta area, having an integrated warehouse and logistic system that enables for a daily delivery, a Central Kitchen that continues to produces new products which are delicious, fast and hygiene to support up to 500 stores expansion and IT System enabling Retail Initiative to meet up customers’ needs and expectation at any 7-Eleven store at any time. Hence, The Company would like to express its gratitude to all stakeholders who has make this achievements possible.

Reporting Company achievement for 3Q15, 7-Eleven business contributes a strong 71.3% to total Company’s revenue, focusing in serving its positioning as Fresh Food Destination. In this early learning years, the 7-Eleven business shows a promising growth of its fresh food focused business by having a strong fundamental business proposition and infrastructure to ensure long term growth and profitability. Yet, both top and bottom line has dropped marginally due to global impact of economy slow down causing a drop in consumer confidence, in addition to recovery period upon the ban on sale of alcoholic drinks and increasing operational costs. For the rest of 2H15, The Company will focus its effort to improve operation efficiency and streamlining business process to ensure long term profitability.

I. Unaudited Consolidated Financial Highlights 3Q15

(In Rp bill unless otherwise stated )

 

3Q14

%

3Q15

%

Growth

Consolidated revenue

1037.0

100.0%

962.8

100.0%

-7.2%

- 7-Eleven business

697.6

67.3%

686.6

71.3%

-1.6%

- Trading business

339.4

32.7%

276.2

28.7%

-18.6%

           

Gross profit

415.5

40.1%

416.0

43.2%

0.1%

EBITDA

 208.0

20.1%

194.6

20.2%

-6.4%

EBIT

120.5

11.6%

77.3

8.0%

-35.8%

Net profit

 39.0

3.8%

 11.9

1.2%

-69.5%

           

Gearing ratio

71.2%

 

70.5%

   

 

 

 

 

 

 

 

II. Highlights 7-Eleven Business 3Q15.

(In Rp mil unless otherwise stated )

 

2014

2015

1Q

2Q

3Q

4Q

1Q

2Q

3Q

3Q YOY Growth

Sales

 226,593

467,152

697,602

971,801

242,007

462,468

686,660

-1.6%

Gross profit

 86,406

188,340

275,663

378,528

92,290

179,935

263,388

-4.5%

Gross profit margin

38.1%

40.3%

39.5%

39.0%

38.1%

38.9%

38.4%

 

Operating income

 15,849

 40,333

 57,075

 77,861

 26,773

 42,380

49,349

-13.5%

EBITDA

 39,790

 80,434

120,018

159,360

50,533

 84,167

115,893

-3.4%

EBITDA margin

17.6%

17.2%

17.2%

16.4%

20.9%

18.2%

16,9%

 

Net Income/Loss

2,387

5,465

3,672

4,272

7,186

1,780

(11,091)

-402.0%

No. of operating stores

160

170

175

190

190

200

189

8.0%

SSSG

5.3%

9.0%

6.5%

8.0%

4.1%

-4.7%

4.70%

 

 

  • The Consolidated financial performance recorded a minus growth of -7.2% which was mainly affected by the  loss of FUJIFILM trading business, i.e. photography business division and industrial printing business division as a result of 1st stage of FUJIFILM business divestment which the agreement was signed between the Company & FUJIFILM on July 2015.

 

  • Although in short term the Company will loss a chunk of contribution from these FUJIFILM business, the divestment will help the Company to focus by using all available resources to grow the 7-Eleven business. As per 3Q15, the inventory of FUJIFILM was valued at IDR 77,7 bill which will be gradually sold and transferred to FUJIFLM. Also, per 3Q15, the AR from FUJIFILM business was recorded at IDR 103,2 bill which will be collected gradually from the consumers. The divestment of FUJIFILM Business will help the Company to ease the working capital needs which usually takes a longer time for the inventory to sit in the warehouse and longer collection for the AR account.

 

Per FY14 ( In Million IDR)

Per 30 Sept 15 ( In Million IDR)

7-Eleven

Trade Fuji

Trade Non Fuji

Total

7-Eleven

Trade Fuji

Trade Non Fuji

Total

Revenue

971,771

313,504

152,666

1,437,940

686,661

186,440

89,702

962,803

Rev %

67.6%

21.8%

10.6%

100%

71.3%

19.4%

9.3%

100%

Net Profit

4,272

27,458

7,891

39,621

(11,091)

34,117

(11,040)

11,986

NP %

10.8%

69.3%

19.9%

100%

-92.5%

285%

-92.1%

100%

Inventory

90,516

85,436

72,571

248,523

103,241

77,780

35,754

216,774

Inv %

36.4%

34.4%

29.2%

100%

47.63%

35.88%

16.49%

100%

AR

224

91,963

44,783

136,970

0

104,272.8

32,970

137,243

AR %

0.2% 67.1%

32.7%

100%

0%

76%

24%

100%

  • The 7-Eleven business recorded a slight negative growth of -1.6% compared with 3Q14 YOY. This was mainly due to the continuation from the effect of the loss of alcoholic sales ban and its affiliated sales. In this recovery period, new Fresh Foods SKU launch will be done continuously, and regularly to cover up the lost sales. In 3Q15 a total of 160 new SKUs launched since completion of its Central Kitchen Phase II.

a. New SKUs Launch.

Category ( SKU no)

1Q15

2Q15

3Q15

Total

a. Fresh Food

 

 

 

 

- New Addition

+ 48

+ 53

+59

+160

- Deletion

-11

-62

-9

- 82

- Total Existing

203

194

244

 

b. Prop. Beverage

 

 

 

 

- New Addition

+3

+5

+5

+13

- Deletion

-3

-9

-12

-24

- Total Existing

57

53

46

 

c. COS

 

 

 

 

- New Addition

+502

+298

+230

+1030

- Deletion

-208

-8

-225

-441

- Total Existing

1949

2237

2247

 

TOTAL Stores SKUs

2209

2484

2537

 

 

b. YTD Sept 2015 SSSG

 

YTD June 15

YTD Sept 15

Overall SSSG

-0.3%

+0.57%

Fresh Food

14.48%

10.52%

Proprietary Beverages

-2.23%

0.44%

COS – Center of The Stores

-7.32%

-4.55%

 

c. SSSG With vs Without Alcohol

SSSG

With Alcohol

Without Alcohol

Total SSSG YTD June 2015

-0.30%

4.70%

Total SSSG YTD Sept 2015

 0.57%

 7.25%

1Q15

4.10%

5.10%

2Q15

-4.70%

3.80%

3Q15

 4.71%

 11.89%

Fresh Food Sales especially in chilled food category and bakery category continued to grow, covering the declining trend of hot food fried items.

       
       

  Within the Fresh Food Category, Chilled Food Category ( Rice Bowl, Sandwich, Salad, Nasi Tenggo, etc) recorded growth of 31-40% compared to last year as a result of changing customer preferences to “Grab & Go” products offering.

  • Bakery category also recorded a growth of 11%-15% compare to last year.
  • These positive increment  has been helping to mitigate  the slowing down on sales of Hot Food Category ( Fried items) on around 30-35% y-o-y
  • As customer’s increasing awareness towards healthy food and drinks, sugary carbonated drinks sales has been slowing down between 10-15% y-o-y. While our fresh grounded coffee continues to increase its popularity, boosting the growth of Hot Drinks category to 8-10% y-o-y
  • The increased contribution of fresh food and proprietary beverage products however didn’t lead  to an increase in gross profit margin due to the increase of raw material price and an under-capacity production of 2nd Central Kitchen. While on the other hand, due to the increase competition from other QSR, the high SRP increase would be considered unwise.
  • 7-Eleven SSSG for 3Q15 was 4.71% compare with 6.5% in 3Q14, still in  a recovery period from the loss of sale on alcoholic drinks and its affiliated sales of salty snacks  (used to contribute around 15-20% to COS Category and associated effects on the sale of snacks contributes around 10-15% to COS Category). Maintaining price competitiveness has helped the positive SSSG through volume increase but at the expense of decrease of Gross Profit margin. Closing down underperforming stores also helped the positive SSSG for this quarter.
  • Both Consolidation and 7-Eleven business recorded a decline to IDR 11,9 Bill and IDR (-11,0 Bill) respectively on bottom line.  This was an immediate result of streamlining business process which incurred upfront cost and expenses and loss of a chunk of revenue from the closed stores ( total 16 stores were closed up to 3Q15),  but it is believed to improve the financial result in the long run.
    • Major factors causing this decline in Consolidation due to the increase of operating expenses & SG&A  which  included :
  •  

- THR (Holiday Payment Bonus) payment (+/-IDR 10 Bill)

  • ( PBB) (IDR +/- 2.5bill)) .
    • While on 7-Eleven side , the decline was mainly affected by :

- The decline of gross profit from 38.9% ( in 2Q15) to 38.3% at the value of IDR 4,1 Bill

- THR payment ( +/- IDR 7 Bill)

 

III. Operation Updates 3Q15

  • 15 new stores were opened and 16 under- performed stores were closed until 3Q15 , bringing the total operational stores to 189. Under- performed stores   were closed due to frequent flood incidents ,  significant loss on alcoholic drinks and its affiliated sales as well as increasing rental rate for the finished store’s rental contracts which caused the stores weren’t able to sustain their operation costs as an independent business unit.  Store opening will be done in more cautious manner amid the uncertainty of economy in the future and will be continued to focus on small compact format (100 – 120 sqm) to reach better capex efficiency as well as store productivity.
  • 3 new store opening in October 2015 in a high density commercial area with compact format ( < 100sqm) , includes 7-Eleven Kalibata City, 7-Eleven BRI2, & 7-Eleven Wisma Mulia

 

< = 100 sqm

> 100 Sqm

Total Store

68 stores

121 stores

 

  • Store Productivity Review (In Rp) :

 

YTD Dec 14

YTD Mar 15

YTD Jun 15

YTD SEP 15

Revenue/sqm Overall

162.815

135.084

125.382

119.938

Rev/sqm (after Jan 2014)

 

124.741

128.786

133.162

Rev/sqm (before Jan 2014)

162.815

138.650

122.991

115.665

 

Store productivity for newly opened stores (more on compact format) continued to show better results continuing the Company’s decision to focus more on opening small format stores in commercial area with Grab & Go concept.  

 

  • Efficiency in Business Operation

MSI ( Store Level)

YTDE14

MTD JAN15

MTD FEB15

MTD MAR15

MTD APR15

MTD MAY15

MTD JUN15

MTD JUL15

MTD AUG15

MTD SEP15

Store No

190

190

188

190

194

197

199

198

198

189

New

 

 

1

2

4

3

2

3

0

0

Closed

 

 

3

 

 

 

 

6

5

2

Opex/sqm (Rp)

(48,114)

(41,002)

(41,944)

(37,745)

(33,902)

(32,480)

(37,072)

(35,340)

(34,621)

(38,879)

Salary/sqm (Rp)

(17,465)

(12,629)

(14,305)

(13,266)

(12,898)

(12,237)

(13,255)

(13,864)

(14,509)

(13,195)

Utilities/sqm(Rp)

(9,349)

(8,646)

(9,067)

(7,467)

(7,829)

(7,768)

(8,316)

(8,093)

(8,087)

(8,463)

Rental/sqm (Rp)

(8,952)

(8,454)

(9,166)

(8,230)

(7,861)

(7,919)

(8,128)

(8,052)

(7,879)

(8,002)

WO/Revenue

3.89%

2.62%

2.66%

3.50%

3.85%

3.87%

4.12%

3.68%

3.38%

3.41%

 

  • Efficiency in business operation has been continuously attained with several possible ways, which includes opening smaller stores only, rightsizing existing store sizes and closing under-performing stores.
  • Immediate impact on closing underperforming stores felt on the decreasing contribution on total revenue and in the near future will increase the associated cost of store closing, in the long run it will ease on the operation cost and will improve store cash flow.
  • There’s a declining trend in operation cost/sqm from Dec 2014 to Aug 15 from Rp 48,114/sqm to Rp34,621/sqm as a result of efficiency from salary, utilities and rental cost.
  • Wastage cost maintaining at a similar percentage level as a more new fresh product launch requires some time for both sales associates and customers to adjust to their liking and preferences.

 

IV. Outlook and Focus for the remaining of 2015

  • The management team will keep its commitment and focus to build, develop and expand the business of 7-Eleven and ensure its long term success.

 

  • At a strategic level, streamlining business operation to ensure long term profitability will be the Company focus for the rest of 2015 and 2016. Focus remains on 7-Eleven business unit. Store opening plan will be done in more cautious manner, efficiently utilizing the existing cash flow instead of increasing borrowing, in facing the economic uncertainty and adjusting with ever changing customer behavior and needs.

 

  • Emphasis will be placed on:
  1. Development of fresh food & proprietary beverages offerings with “Grab & Go” Concept while maintaining the hygienic, delicious and fast proposition as well as product range development under the private label of 7-Select to offer better value for customers.
  2. Promoting digital services through Sevelin Digital Kiosk & NEX KITA by expanding offerings to improve the convenience proposition to our customers.
  3. New Initiative : Grab Bike Payment Gateaway.

 Text Box: GrabBike and GraB Taxi Drivers can use 7-Eleven stores as their payment getaway to pay their deposits in order to keep their applications open to customers. This is a commision-based cooperation which brings more cash –received to the stores.

 

 

       4. Deeper engagement with customers through digital and mobile marketing, social media interaction, active

           engagement and in-store events

 

  • Operation cost efficiency through :
    • The labor cut-down/un-renewed contract and transferred to FUJIFILM Indonesia as a result of FUJIFILM business divestment as well as closing down on underperforming stores of 7-Eleven. This initiative will continue where deemed necessary.
    • Tighter control on store operating cost which includes, utilities cost, supplies cost, and wastage cost by assigning target to stores to be an independent business units.

 

  • New store opening will be concentrated within high density commercial area (office, apartments, train stations, trade malls), with a small store format to reduce both capital expenditure and operational cost needs, hence  increasing store/ sqm productivity.

 

  • Continue to review underperforming stores with a followed up action either to close down and relocate or to right size the existing stores.

 

  • Continues training and coaching to all sales associates and store managers to better understand their customers needs and anticipate their changing needs, to serve them in a better way, hence improve store performance as a whole.

 

  • To deal with high leverage on borrowing and cost of borrowing, the Company will strategies which will includes :
    • Selling Non core assets, especially those fully depreciated assets located outside Java area which cannot be utilized for 7-Eleven business
    • Selling core assets where deemed necessary.
    • Negotiating and processing with banks to reschedule the principle payment (principle payment relaxation) to be able to manage usage of existing cash flow for 7-Eleven expansion and operation as well as servicing the current borrowing obligations.

 

 

Investor Relation Division

PIC : Tina Novita

Email : tina.novita@moderninternasional.co.id

PT. Modern Internasional Tbk

JL Matraman Raya No 12, Jakarta 11350

Phone 021 -2801000 ext 753