MD & A

Archive : Management's Discussion and Analysis.

Management’s Discussion and Analysis (MD&A) for three months and full year 2016

Overall Thai Economy

The overall economy in 2016 continued to expand with public spending as a main driver of economic growth. Exports of goods showed a more robust sign of recovery in terms of both price and quantity. However, the tourism sector slowed down as the number of foreign tourists contracted, especially those from China after the government’s new regulation on illegal tour operators. Despite the temporarily deceleration of private consumption, the situation improved at the end of the year, thanks to the government’s tax break.

Key highlight for year 2016

  • New stores - The Company opened 2 stores; one lifestyle department store in Nakornsrithamarat province and one lifestyle center in Lopburi province. The Company currently operates 44 branches in Thailand and 2 branches in Vietnam.
  • Same-store sale growth of +0.1% - 2016 Same-store sale growth stands at a modest rate of +0.1% due to heavy rainfall, flood, explosion in the south and economic slowdown that impacted to sales and overall consumer sentiment.
  • Higher total income - The Company had a total income of Baht 30,187 million in 2016, which increased by 5.0% when compared to 2015. This income increase can be attributed to a 3.5% increase in net sales from new stores that opened in 2015 and 2016, a 15.4% increase in investment income attributable to higher rent in our lifestyle centers, and an increase of 13.5% in other income attributable to a reversal of allowance for doubtful accounts of Baht 270 million which the Company has already set up allowance in full. The Company arranged activities and renovated stores in order to drive footfall inside the malls. The Company also introduced a new concept of department store under the name “1 Below”, specifically targeted at young millennials. In addition, the online platform is now operational and Click & Collect was successful trialed by many of our customers.
  • Higher GPM - Gross margin continued to expand steadily by 40 basis points to 24.9% in 2016, mainly from continued strength in our product mix and controlled trade discounts during non-promotional periods.
  • Net profit up 30.7% yoy - In 2016, net profit amounted to Baht 2,815 million, a total increase of 30.7% from 2016. Net profit increase from the implementation of our business strategies, efficient operating costs, administrative expense management, higher contribution from shares of associates and also the reversal of allowance for doubtful accounts.

Comparison performance of the Company for 3 months ended 31 December 2016 and 31 December 2015

(Unit: Baht Million)
Consolidated financial statement
4Q16
4Q15
Increase (Decrease)
% Change
Revenue from sale of goods 7,353 7,258 95 1.3%
Investment income 761 670 91 13.6%
Other income 481 357 124 34.9%
Total income 8,595 8,285 310 3.7%
Cost of sale of goods 5,506 5,469 37 0.7%
Selling expenses 1,690 1,649 41 2.5%
Administrative expenses 367 388 (21) (5.4%)
Financial costs 21 22 (1) (4.4%)
Total expenses 7,584 7,529 55 0.7%
Share of profit of associates 208 151 57 37.9%
Profit before income tax expense 1,219 907 312 34.4%
Income tax expense (162) (151) (11) (7.0%)
Net Profit 1,010 701 309 44.0%
Core profit 802 550 251 45.7%

Core profit is net profit excludes share of profit of associates

Comparison performance of the Company for year ended 31 December 2016 and 31 December 2015

(Unit: Baht Million)
Consolidated financial statement
FY2016
FY2015
Increase (Decrease)
% Change
Revenue from sale of goods 26,078 25,185 892 3.5%
Investment income 2,948 2,554 394 15.4%
Other income 1,162 1,024 138 13.5%
Total income 30,187 28,762 1,424 5.0%
Cost of sale of goods 19,574 19,022 552 2.9%
Selling expenses 6,248 5,955 294 4.9%
Administrative expenses 1,309 1,276 32 2.5%
Financial costs 84 79 5 6.2%
Total expenses 27,215 26,332 883 3.4%
Share of profit of associates 580 451 129 28.6%
Profit before income tax expense 3,552 2,882 670 23.3%
Income tax expense (556) (534) (22) (4.1%)
Net Profit 2,815 2,153 662 30.7%
Core profit 2,235 1,702 533 31.3%

Core profit is net profit excludes share of profit of associates.

Total Income

In 4Q16, the Company had a total income of Baht 8,595 million, an increase of Baht 310 million or 3.7% from 4Q15. This increase was an increase of the rental income from new lifestyle malls that opened in 2015 and 2016 and also other income from the reversal of allowance for doubtful accounts.

In 2016, the Company had a total income of Baht 30,187 million, an increase of Baht 1,424 million or 5.0% from 2015. This can be summarized as follows:

  • Total revenue from sales was Baht 26,078 million, which increased by Baht 892 million or 3.5% from 2015 from an increase of net sales from new stores that opened in 2015 and 2016.
  • Total investment income was Baht 2,948 million, which increased by Baht 394 million or 15.4% from 2015. This increase is mainly from a higher rental income.
  • Other incomes totaled Baht 1,162 million, rising by Baht 138 million or 13.5% from 2015 the reversal of allowance for doubtful accounts.

Cost of sales of goods

In 4Q16, cost of sales of goods amounted to Baht 5,506 million, an increase of Baht 37 million from the previous year. The cost of sales of goods accounted for 74.9% of net sales, which decreased by 0.5% from 4Q15 due to higher product mix and control of trade promotion.

In 2016, cost of sales of goods amounted to Baht 19,574 million, an increase of Baht 522 million. The cost of sales of goods accounted for 75.1% of net sales, which decreased by 0.4% from 2015. This was mainly due to the Company’s implementation of product mix strategies since 2015 and our focus on signature categories such as health and beauty, unisex products, jeans, kids products, home products, and lingerie. In addition the Company increased its revenue contribution from international brands and private brands which commanded higher margins. The Company also controlled trade promotion and focused more on signature promotions such as the Pay Day promotion or the Wednesday promotions. These helped increase gross margin to 24.9% in 2016, an increase of 0.4% compared to the margins achieved in 2015.

Selling and Administrative Expenses (SG&A)

In 4Q16, selling and administrative expenses amounted to Baht 2,057 million, an increase of Baht 19 million or 1.0% from 4Q15.

In 2016, selling and administrative expenses amounted to Baht 7,557 million, an increase of Baht 326 million or 4.5% from 2015. This can be attributed to expenses of new stores in 2015 and 2016 such as depreciation, personnel, utility. However the Company was able to efficiently control expenses of existing stores.

Finance cost

In 4Q16, Finance cost amounted to Baht 21 million, a decrease of Baht 1 million or 4.4% from 4Q15.

In 2016, finance costs amounted to Baht 84 million, an increase of Baht 5 million or 6.2% from 2015.

Shares of Profit of Associates

In 4Q16, the shares of profit of associates was Baht 208 million, an increase of Baht 57 million or 37.9% from 4Q15 (which derived from shares of profit of Power Buy Company Limited with amount of Baht 121 million-apart from normal operation, Power buy received flood compensation in 2011 and shares of profit of CRC Sports Company Limited with amount of Baht 87 million).

In 2016, the shares of profit of associates was Baht 580 million, an increase of Baht 129 million or 28.6% from 2015 (which derived from shares of profit of Power Buy Company Limited with amount of Baht 260 million and shares of profit of CRC Sports Company Limited with amount of Baht 320 million). These are in line with their business growth.

Net Profit

In 4Q16, the net profit amounted to Baht 1,010 million, an increase of Baht 309 million or 44.0% while core profit excluding shares of profit of associates amounted to Baht 802 million, an increase of Baht 251 million or 45.7%. Higher net profit was attributable to the efficiency of overall operations, shares profits of associated income, as well as the reversal of allowance for doubtful accounts.

In 2016, the net profit amounted to Baht 2,815 million, an increase of Baht 662 million or 30.7%. Meanwhile, core profit excluding shares of profit of associates amounted to Baht 2,235 million, an increase of Baht 533 million or 31.3%. The key drivers are:

  • Growing rental income.
  • Improved product mix and controlled trade discount led to an increased gross margin of 40 basic points when compared to last year
  • Efficient expense management
  • Shares of profit of associates increased by 28.6% yoy
  • The reversal of allowance for doubtful accounts of Baht 270 million.

Comparison statement of financial position for the year ended 31 December 2016 and 31 December 2015

Unit : Million Baht
Financial position
FY2016
FY2015
Increase (Decrease)
% Change
Cash and Cash equivalents 2,219 2,082 137 6.6%
Current investment 35 35 0.4 1.3%
Other current assets 3,470 3,200 270 8.4%
Other non-current assets 21,277 20,743 534 2.6%
Total assets 27,001 26,059 941 3.6%
Total current liabilites 7,367 9,864 (2,497) (25.3%)
Total non-current liabilites 3,437 1,744 1,693 97.0%
Total liabilites 10,804 11,608 (805) (6.9%)
Total equities 16,197 14,451 1,746 12.1%
Total liabilites and equities 27,001 26,059 941 3.6%

Total assets amounted to Baht 27,001 million, an increase of Baht 941 million or 3.6% compared to the end of 2015. Total liabilities amounted to Baht 10,804 million, a decrease of Baht 805 million or 6.9% compared to the end of 2015. This decrease is due to lower account payable and other payable. Shareholders' equity totaled Baht 16,197 million, an increase of Baht 1,746 million or 12.1%, attributable to an improved financial performance.

Capital Structure

As of 31 December 2016, the Company's capital structure comprised of total liabilities of Baht 10,804 million while the interest bearing debt was Baht 3,267 million, and total shareholders' equity of Baht 16,197 million. The Company had a liability to equity ratio of 0.7, while a net debt to equity ratio was 0.1.

Financial ratio

Key financial ratio
FY2016
FY2015
Gross profit margin (%) 24.9% 24.5%
Net profit margin (%) 9.3% 7.5%
Core profit margin (%) 7.4% 5.9%
Return on equity (%) 19.7% 16.7%
Return on asset (%) 13.7% 12.0%
Current ratio (Time) 0.6% 0.5%
Liability to Equity ratio (Time) 0.7% 0.8%

Future outlook and Prospects for the future malls in 2017

The Company plans to open three new stores in Thailand (one lifestyle center in Petchaburi in the first half and one lifestyle in Kampeangphet and one department store in Mahachai in the second half). By the end of 2017, the Company will have a total forty seven stores Thailand and two stores in Vietnam.