Report from the Board of Commissioners

Dear Stakeholders,

The Board of Commissioners (“BOC”) values the continuing efforts demonstrated by the Directors, Management and staffs of PT Matahari Putra Prima Tbk (“Company/MPPA”) in bringing the Company to overcome the retail market challenges in 2019. Throughout the year, MPPA continued a series of important actions to stay focus in bringing best of Fresh products to its consumer retailing strategy. Further streamlined changes within organization structure and continued cost controls were also carried out. These would support the Company in strengthening its strategic foundation and business direction going forward.

The Company has put tremendous efforts in making important changes its renewed strategy as well as relaunching several Hypermart, Foodmart and Boston stores to achieve store operational excellence as well as to meet the demand of increasingly urbanized middle-class customers and to adapt to the changing retail market environment. These resulted to MPPA’s strong national strong network of 102 Hypermart, 9 Primo, 17 Foodmart, 8 Hyfresh, 69 Boston HBC, 16 FMX convenience stores and 1 SmartClub outlet actively operating at 2019 yearend.

Macroeconomic Overview

Year 2019 saw an important milestone for the democracy in Indonesia as the country completed its successful presidential election. The new presidential cabinet is expected to bring foundation for structural reform programs to improve the country’s economic fundamentals.

The consumers spending on goods and services sector remained as challenging situation for business operators. Relatively low increase of annual minimum wages, unemployment rate and relatively high electricity and fuel tariffs as well as shift of Eid Al-Fitr holiday peak season and changing customer modern lifestyle seeking for new experiences contributed to lower household retail spending during the period.

The competition from local supermarkets with aggressive price cutting, proliferation of minimarkets across the country and high growth of online marketplaces have also put pressure on MPPA sales and margin, impacting the Company’s performance for 2019.

Performance Evaluation

The BOC has been closely monitoring and reviewing the Company’s strategy, acknowledging changes in the market and advising the Directors and Management in executing key actions to bring the Company aligning toward consumer retailing.

We are delighted to see that the Company is starting to deliver good progress as the result of its focus and commitment being consumer-centric retailer through a solid execution of right merchandise assortments with great focus on Fresh products, competitive pricings, promotions and store activities tailored to meet the daily household needs. The Company also continued its focus in assortment reviews and inventory management with a goal to focusing on fast moving, productive SKUs and to reducing slower unproductive items for better cash flow. Intensive reviews and implementation were carried out in store operation with the re-launch of selected Hypermart, Primo and Foodmart formats to adapt the market changes as well as further reduction the Company’s exposure from unprofitable B2B business.

Cost structure was continued being examined to support a lower merchandise margin business by looking at a number of operational efficiencies. These include headcount productivity optimization in organization structure, a shift of marketing spending from conventional nationwide media advertising to a more cost-effective social media approach and community-based marketing as well as the development of online O2O e-commerce to adapt the changing consumer lifestyle. With these cost efficiency actions, the Company was able to achieve a 14.3% savings in its selling, general, and administrative expenses compared to the previous year.

In summary, we are pleased and commend the Directors and Management team for their leadership and unwavering focus during the year to deliver the Company’s value proposition for the consumers. Their positive steps to leverage some of the Company’s core capabilities during the year would certainly bring MPPA to another level of future growth path.

Supervision Of Strategy Implementation

The BOC performs its supervisory duties over BOD and Management, as specified in Indonesia’s Company Law and the Company’s Articles of Association, primarily through scheduled meetings and maintains other channels for frequent, open and constructive communication.

Throughout 2019, 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 BOD. Within its bi-monthly internal meeting, the BOC discussed various topics ranging from external market conditions and Company’s on-going matters as well as reviewed reports from the Audit Committee and Nomination and Remuneration Committee.

The 4 formal meetings with the BOD were held quarterly to review both quarterly and year to date financial and operating performance. During these meetings, strategic plans were reviewed to adapt to market and Company’s situation. 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.

Corporate Governance

In performing its duties, the BOC is 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 2019, 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. The Code of Conduct and Whistleblowing system continue 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, chaired by William Travis Saucer, assisted the BOC to evaluate and advise on the nomination and remuneration of BOC and BOD members. During the year, the NRC conducted 3 meetings whose recommendations have been proposed and communicated to the BOC.

During 2019, the NRC submitted several proposals to the BOC in order to strengthen the overall structure of BOC, BOD and Management team. In 2019, the BOC approved the appointment of Adrian Suherman as the Company’s new President Director. The appointment of Adrian was also approved by shareholders at the Company’s Annual General Meeting of Shareholders held on April 2019. Adrian brings strong vision and leadership, passion for the consumer, and execution capabilities needed to build MPPA in this fast-changing environment.

Assessment of GCG Effectiveness

The BOC has concluded that, in general, the Company’s GCG practices are being implemented effectively. However, within the dynamic development of the business environment, it is inevitable that the Company’s risk exposures might increase. The BOC continues advising the BOD to address any incompliance identified during the year and to adjust and strengthen the Company’s internal control and risk management systems going forward.

Changes In The Composition Of Board Of Commissioners

Based on the NRC proposal to the BOC, which was approved by shareholders at the Company’s AGMS in 2019, the structure of BOC has changed in order to strengthen the execution of supervisory duties. New BOC members are:

  • Bunjamin J. Mailool as Commissioner. Bunjamin has served as the Company’s President Director since 2001 and his leadership and knowledge about MPPA would certainly strengthen the BOC in performing supervisory duties
  • Rudy Ramawy was reappointed from previously Independent Commissioner to become Commissioner. With his extensive experience in digital business, Rudy continues to contribute to BOC with his broad professional insights over the Company’s online business as well as potential benefits with third party’s digital resources.

The remaining members of the BOC in 2019 consisted of me, John Bellis, as the Independent President Commissioner, Roy Mandey, William Travis Saucer, Chua Siang Hwee (Jeffrey), John Riady, Liu Wai Ling and Hendry Liando. As we enter 2020, the BOC will continue to move the Company to higher levels of GCG practices.

Perspective On The Company’s Prospect

Indonesia is expected to have a better prospect in 2020 with a more conducive market outlook. The demographic and socio-economic trends, including young, growing and increasingly urbanised population and expanding middle class, signal the potential for sustained consumption growth in the medium to long term. MPPA is well-positioned to capture its potentials when consumer spending recovers.

For the coming year, Management proposes to maintain the strategic business focus in maximising the value proposition in consumer retailing as well as continuing to control costs. Management will also continue to explore opportunities to improve the overall business efficiency and profitability.

Incorporating market outlook and MPPA’s strategy above, the BOC are optimistic that the strategy proposed by the BOD and Management team for 2020 will put MPPA in the right track to optimise its retail focus as well as to deliver sustainable results to the stakeholders.

On behalf of the BOC, I wish to thank each of our dedicated team members for their strong efforts in 2019. To our partners, I would like to reiterate that the Company would continue to work with you collaboratively, enabling us to prosper together in the future. To our stakeholders, I believe we have taken the important steps in transforming MPPA back to its 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