Report from the Board of Directors


Dear Shareholders,

2017 was a challenging year for us. The overall economic condition in 2017 remained difficult for the year, which impacted the level of investment and consumer confidence in Indonesia. This also impacted the overall retail market, especially the Fast Moving Consumer Goods (FMCG) sector, which also continued to experience many obstacles throughout the period.

Within the year, the Company faced several market challenges. The shift in consumer shopping behaviors within modern retail market where consumers are trading down on their purchases to save money has led to a challenging situation to the Company’s overall retail business operation. Furthermore, the rising competition in regional areas from local supermarkets offering aggressive pricings as well as the dominatingpenetration of minimarkets in the same areas where our stores operate add more challenges to our business this year. The rapidly increasing modern digital lifestyle allowed online retail businesses, which provide convenience and favorable pricings, to grow their presence significantly which both directly and indirectly affected the modern offline stores.

In anticipation of changing market environment and overcoming the challenges above, the management believes that it is critical for the Company to go back to its core value propositions and become a customer-centric retailer.

The theme for the year is to “Regain Center Stage” which means changing our business to be more relevant to our customers. The key initiatives include:

  1. New pricing strategy to provide the best prices on all products offered at our stores compared to other retailers. This strategy was carried out in-line with the current consumers’ shopping behaviors who are increasingly becoming price conscious.

  2. Streamlining number of SKUs offered to ensure efficiency and effectiveness within the business. Stricter rules on purchases and inventory management were also put in place.

  3. Continuous review and implementation of cost efficiency measures.

The BOD views that the above is a key foundation as the Company continues to build a sustainable retail management platform that is necessary to support future growth. We are optimistic that improved macroeconomic conditions in 2018, coupled with the new strategy will position the Company to regain its market leadership going forward.

Performance Highlights In 2017

Net Sales reached Rp 12.6 trillion in fiscal year 2017, which was 7.1% below the Rp 13.5 trillion level reached in 2016. However, the Company’s profitability was under pressure registering a net loss of Rp 1.2 trillion. This was driven by the lower sales and margin contraction driven by the pricing strategy and slow marketing activities from suppliers due to slow retail market, coupled with one-off costs related to headcount efficiency and losses from inventory clearance.

During 2017, MPPA opened 3 new Hypermarts, 1 SmartClub, 2 Foodmart supermarkets, 7 Boston Health & Beauty outlets and 3 FMX convenience stores. The Company also remodeled 2 Hypermarts, 1 Foodmart and 2 Boston stores. During the same period, 4 Hypermarts, 3 Foodmarts, 14 Boston and 34 FMX outlets were closed. One other Hypermart store was caught on fire leading to that particular store remained closed.

The Company sees e-commerce as a positive opportunity to drive sales beyond what can be realized in the existing conventional store formats in the future. The Company continued to strengthen its internal e-commerce business development team in preparation of building up its organic online business function to cater to the fast changing modern customer’s digital shopping behaviors as well as to support the Company’s traditional retail formats.

In 2017, the Company made additional investment in MatahariMall.com. We believe that the Company is well positioned to reap the benefits of the large e-commerce opportunities in Indonesia via the collaboration with MatahariMall.com.

Governance

The Company continued its steps to uphold Good Corporate Governance (GCG) throughout the organization in 2017. Company information is communicated transparently and professionally to shareholders and stakeholders in a timely manner. Internal control measures are continually being refined and strengthened to provide a strong foundation for MPPA’s businesses. The function and importance of Internal Audit has also been elevated to ensure good governance practices are executed following proper procedures.

The BOD worked closely with the Management under the guidance of the BOC and Audit Committee to deliver company-wide standard operating procedures, which in turn ensuring proper implementation of GCG aspects into daily business operations.

In compliance with OJK Regulation No. 33/POJK.04/2014, the BOD continued to enforce its guidelines and work conducts for each Board member. During the year, the BOD conducted 12 meetings among its members and 4 separate formal meetings with the BOC.

In late Q3 2017, Noel Trinder, who was the Company’s Vice President Director & CEO, resigned. Formal notification of his resignation was submitted in a timely manner to the regulating authorities and communicated to the shareholders/public.

Review and recommendation from the Nominee and Remuneration Committee (NRC) to the BOC suggested that the existing BOD structure is still in-compliance with regulations and effective in supervising the Company.

The Company has appointed William Travis Saucer, the current Independent Commissioner, as Interim CEO with strong support from Djamel Derguini, the existing Chief Operation Officer, who has also been appointed as the Acting President to manage the Company’s strategy and operation. The existing BOD members Bunjamin J. Mailool, Lina H. Latif, Carmelito J. Regalado, Ishak Kurniawan dan Widhayati Hendropurnomo remained unchanged.

Remuneration Policy

The BOD remuneration is determined by the BOC and is granted by the shareholders through the AGMS. The remuneration is calculated after taking several factors into consideration, including collective and individual performance, market conditions and the capacity of MPPA.

As regulated by OJK Regulation No. 34/POJK.04/2014, the Nomination and Remuneration Committee (NRC) has been established by the BOC and chaired by William Travis Saucer. During the year, the NRC conducted 4 meetings assisting the BOC to formulate, evaluate and advise on the nomination and remuneration of BOC, BOD as well as key members of MPPA’s management team.

Corporate Social Responsibility

The Company always prioritizes its role as a good corporate citizen for all stakeholders and continues to address Corporate Social Responsibility (CSR) in its daily activities.

The Company involves in various social activities, which focus on community development, education and environmental preservation through long term cooperative partnerships. Working with several Indonesian NGOs, it reaches out to communities managing certain CSR programs.

On the environmental preservation issues in 2017, MPPA continued its cooperation with Unilever Indonesia introducing the recycling efforts of used plastic bottles and packaging/sachets in East Java region.

The CSR effort is expected to widen to several other cities in 2018 along with other similar CSR efforts conducted previously by the Company with other third party partners.

Other Social Activities

During 2017, the Company also had other social activities. The Company has cooperated with Dompet Dhuafa since 2006 through “Program Infaq via Kasir.” Conducted by Dompet Dhuafa, this program enables consumers and the public at large to provide donations while shopping to help the community development programs.

The program has successfully repaired several infrastructures of elementary schools and educational institutions within Greater Jakarta and outer Java islands as well as supporting the job repairs of kiosks owned by selected local entrepreneurs during the year. Additionally, the Company continued its cooperation with Yayasan Pendidikan Harapan Papua (YPHP), a non-profit organization in Indonesia, to support the development of school infrastructure and children education in remote areas of Papua island.

Awards in 2017

MPPA’s position as the multi format retailer in Indonesia was validated by the receipt of another eight awards in 2017:

  • SWA: Net Promoter Score Leader Award 2017 - Hypermarket Category

  • Indonesia Prestige Brand Award 2017 from Warta Ekonomi

  • Indonesia WOW Brand Award 2017: Gold Champion: - Hypermarket Category

  • Most Valuable Indonesia Brands 2017 from Brand Finance

  • Top 10 Retailers 2017 Certificate of Distinction from Retail Asia-Pacific

  • Indonesia Corporate PR Award 2017: The Most Popular Company - Retail Category from Warta Ekonomi

  • Indonesia Best Corporate Reputation Award 2017 from Warta Ekonomi - Retail Category

  • IICD Corporate Governance Award 2017: Top 50 of Mid Market Capitalization Public Listed Companies from Indonesian Institute for Corporate Directorship

The Company was honored to have been selected for these awards and proud to receive these positive recognitions for its efforts to be one of the leading multi-format retailer in Indonesia These awards were welcome recognition for the management and staff who had put their endeavors and dedication to the Company.

Forecast for 2018

We have strong belief and optimism for MPPA as it continues to strengthen its position as the Indonesia’s leading home-grown hypermarket group. MPPA currently operates more than 259 multi format stores nationally from Binjai to Papua, with an unparalleled world class logistics infrastructure and employing directly more than 10,000 staff and store associates. It has a reputation of entrepreneurship, professionalism, discipline and is obsessed with customer satisfaction, innovation and excellence in operations.

The Company is Indonesian-grown, Indonesian managed and certainly has a clear winning formula to capture the bright market outlook ahead. Its success and progress have been supported by business partners and hard-working staffs with a solid track record of partnership and collaboration. Despite the current challenging market situation and changing consumer shopping behaviors, the management believes in the clear winning formula of MPPA to capture and capitalize the market opportunities ahead.

The Company is moving into 2018 with an optimistic outlook. We are excited to see a resumption of business for MPPA. The primary focus is to regain our market leadership by being obsessed with its customers.

Appreciation

On behalf of the BOD, we would like to extend our recognition and gratitude for the dedication and hard work of the Company management and staff. We would also like to thank our many partners in the business community and government for their continuous support toward our business. We also would like to thank the BOC for their guidance and supervision. We are grateful for the trust and confidence exhibited by our shareholders. And we are thankful for the millions of customers throughout Indonesia who trust their retail needs with us throughout the year.

On behalf of the Board of Directors,

Bunjamin J. Mailool

President Director