Report from the Board of Commissioners

Dear Stakeholders,

While the Covid-19 situation with its latest Omicron and Delta variants still impacting the global market and Indonesia, the Board of Commissioners (“BOC”) is pleased and put its high values to the Directors, Management and staffs of PT Matahari Putra Prima Tbk (“Company/MPPA”) for their relentless efforts in bringing the Company to achieve several important milestones within the Year 2021 despite having to operate in such a challenging situation.

Through a series of solid execution strategy carried over from the previous year, MPPA continues its unwavering focus in bringing and delivering outstanding results of its four important retail business strategies. Focus on Fresh products remains as top priority to its consumer retailing strategy to meet the great household demand for quality daily food necessities with great prices. More importantly, the Company marks an important milestone for the successful transformation of its online business as part of its omni-channel strategy with more expansion and collaboration with leading marketplaces in Indonesia making it as one of the Indonesian food retailers with most penetrated to online marketplaces at 2021 yearend. The online business now captures great opportunities to serve the new digital lifestyle being adopted by more Indonesian consumers nowadays as they have been practicing Social & Physical Distancing measures and health protocols toward Covid-19.

Macroeconomic Overview

Year 2021 continued to become another challenging yet difficult year both globally and in Indonesia with the continuance of wide-spreading Covid-19 pandemic. Throughout the year, the confirmed cases totaled to 4,262,720 while recovered cases reached 4,114,334 while death tolls to 144,094. The significant peak of the pandemic happened in mid-year with the Delta variants hitting into most regions although the situation started to taper down within third and fourth quarters of the year.

To mitigate the overall risks, the Government has enforced health protocols and supervision significantly, which became the important factors for Indonesia to have a relatively better Covid-19 situation compared to other countries globally.

The continuance of usage of masks, handwashing, social & physical measures as well as Large-Scale Social Distancing enforcement, the Government also successfully implement the PPKM based on Level 1-4 criteria to each specific region along with various limitation in order to control the people mobility. The status of PPKM was reviewed continuously and updated every 2-3 weeks depending on the prevailing situation and vaccination rate of specific region.

More importantly, the Government also enforced the Covid-19 vaccination program nationwide in order to achieve the important herd immunity. At 2021 yearend, the national vaccination program was successful with 161,082,857 first-dose vaccine, 113,666,327 seconddose vaccine and 1,288,890 third-dose vaccine given to public. The additional enforcement for the use of PeduliLindungi smartphone app was also mandatory to enter to public areas, shopping malls, offices and others in order to both monitor people mobility and control contact tracing digitally at nationwide basis, which proves to become an effective digital tool for the stakeholders.

The continued Covid-19 condition in 2021 led to most businesses, including retail industry, had to face significant performance impact due to several regional lockdowns and mobility limitation, which resulted to lower consumers’ traffic to stores/malls, overall purchasing power and consumption rate. The above situation along with local retail competition, impacted on MPPA performance in 2021, despite the Company’s key initiatives for its business strategy have been implemented and it continued its strict cost efficiency measures in order to mitigate the overall business condition.

Performance Evaluation

Throughout 2021, the Company has put tremendous efforts in ensuring the solid strategy execution for important changes and implementation into sustainable business actions. These were carried out despite great uncertainties and significant drop of customers’ in-store traffic and consumption rate as the results of the peak infection rate of Covid-19’s Delta variant in mid-year where it inevitably led the Government to implement several PPKM lockdown measures affecting MPPA’s business sustainability due to less operating hours, shopping malls had to be shut down and children under 12 year-old not allowed into public places until mid-Q4.

During Q3 and Q4 2021, MPPA was able to resume its offline store expansion and closure plan as the Company successfully closed 9 underperforming mall-located stores and opened 9 standalone stores from previous Giant stores with encouraging results. These was done to capture the next growth phase opportunity as the Covid-19 situation in Indonesia got better with more relaxed PPKM measures and encouraging national vaccination progress imposed by the Government during the period.

Additionally, the Company continued reinforcing its online businesses (Hypermart Online and Chat & Shop by Whatsapp) and collaborating with more leading marketplaces (GoMart, BliBli, JD.ID, HappyFresh and enlarged area of Tokopedia) in 2021 in addition to the existing collaboration with Tokopedia, Grabmart and Shopee in 2020. These efforts were prudently implemented to bring the unparalleled and complete online retail offerings nationwide to Indonesian consumers through both MPPA’s own Hypermart Online and Chat & Shop online businesses as well as virtual stores at online platforms of those leading marketplace operators.

At 2021 yearend, MPPA operates its strong national network of 101 Hypermart, 7 Primo, 12 Foodmart, 11 HyFresh, 55 Boston HBC, 13 FMX convenience stores and 1 SmartClub outlet, and supported by its online presence with Hypermart Online e-commerce at 113 stores, Chat & Shop at 128 stores, active operation of 78 virtual stores at GoMart, 103 virtual stores at Tokopedia, 105 virtual stores at Grabmart, 106 virtual stores at Shopee, 108 virtual stores at Blibli, 99 virtual stores at JD.ID and 38 virtual stores at HappyFresh nationwide.

The BOC has been closely monitoring and reviewing the Company’s strategy, acknowledging market changes and advising the Directors and Management in executing key actions. In December 2021, MPPA has successfully completed its rights issue process which is an important foundation to sustain the Company’s capital base in order to support its next phase of growth. MPPA has also secured the approval from shareholders and Financial Authority Services (OJK) for a private placement plan, which could be exercised within the next 2 years - another important factor to support the Company in executing its retail business direction going forward.

We are also delighted to see that the Company able to continue its commitment as consumer-centric retailer with right merchandise assortments focusing on Fresh products, competitive pricing, offline and online promotions 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. The reinforcement of Hypermart Online and Chat & Shop as well as collaboration with more leading online marketplaces also demonstrate positive traction sustainably to support the key pillar of MPPA’s retailing business as we move into New Normal situation going forward.

Cost control measure was continued being examined to support a lower merchandise margin business by prioritizing toward operational efficiencies. These include headcount productivity at stores, distribution centers and head office, optimization of store rental expenses, intensive focus of marketing promotion into cost-effective online social media, digital promotion approach and community-based marketing as well as tight control of overall expenses. With these cost efficiency actions, the Company was able to achieve a further 13% 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 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 Indonesian Limited Liability Company Law and the Company’s Articles of Association, primarily through scheduled meetings and maintains other channels for frequent, open and constructive communication.

Throughout 2021, the BOC continued its engagement 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 7 meetings and 4 separate formal meetings with BOD, in which all of the meetings were conducted online via video conferencing, emails and other online communication methods.

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 (AC) and Nomination and Remuneration Committee (NRC). 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

The BOC is assisted by the Audit Committee, which has consistently placed high priority on Good Corporate Governance practices (GCG). Within the year, the Audit Committee conducted 4 online meetings via video conferencing and emails 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 (NRC) assisted the BOC to evaluate and advise on the remuneration of BOC and BOD members. During the year, the NRC conducted 4 online meetings whose recommendations have been proposed and communicated to the BOC.

In 2021, the Nomination and Remuneration Committee submitted several proposals to the BOC in order to strengthen the overall structure of BOC, BOD and Management team. The BOC approved the appointment of Roy Nicholas Mandey as the Company’s Independent Commissioner, as well as Suwartono SE and Wirawan Winarto as the Company’s Directors.

Those appointments were also approved by shareholders at the Company’s Annual General Meeting of Shareholders held on July 2021. Roy returned to assume the Independent Commissioner with his strong leadership and positive networking with the government as well as his current role as Chairman of Indonesian Retailers Association (APRINDO) to give more insights to the Company. Both Suwartono and Wirawan are experienced executives with long-term knowledge about the Company’s aspect to bring their outstanding experience and execution capabilities in store operations needed to build MPPA in this fastchanging 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

In order to continue strengthening its supervisory duties, the BOC believes that changes in its structure is necessary and important. Throughout the year, BOC received formal assessment from NRC and had made changes accordingly. Those changes were approved by shareholders at the Company’s AGMS in July 2021, as follows:

  • Respectfully discharged and released from supervisory duties of Dicky Moechtar;
  • Appointed and affirmed Roy Nicholas Mandey as Independent Commissioner.

In December 2021, John Bellis, the Company’s Independent President Commissioner, passed away in South Africa due to his long-term illness. The Company already sent its official Information Disclosure to Financial Services Authority (OJK), Indonesian Stock Exchange (IDX) and public through the Company’s official letter No. 137/XII/2021-CSExt dated December 14, 2021. Based on POJK No. 31/POJK.04/2015 dated December 16, 2015, the Company will hold an Extraordinary General Meeting Shareholders (EGMS) within 90 days post the announcement for the appointment of new Independent President Commissioner. The BOC, BOD and entire staffs of MPPA sent the condolences to John’s family in South Africa for the loss of great leader.

The Company has held an Extraordinary General Meeting of Shareholder (EGMS) on March 11, 2022. The Meeting has approved the new structure of Company’s Board of Commissioners and Board of Directors including the appointment of new Independent Commissioner. Rudy Ramawy replaced John Bellis as President Commissioner and Navin Chandra Nathani joined the Company’s Board of Commissioners as Independent Commissioner.

As we enter 2022, the BOC will continue to move the Company to higher levels of GCG practices.

Perspective On the Company’s Prospect

Moving into 2022, we believe that economy and business outlook will resume its positive prospect as the Covid-19 case situation will get better in-line with the vaccination rate, relatively low rate of daily new cases, availability of Covid-19 medicines as well as Government’s continuing proactive measures to control the pandemic into endemic.

We are optimistic that MPPA would resume its growth path. We are pleased that Directors and Management team were able to grab the opportunities and continued the solid execution in developing its omni-channel strategy during the challenging period in 2021. The demographic, socio-economic trends and increasingly urbanised population and expanding middle class, signal the potential for sustained consumption growth in the medium to long term. It brings the Company in a better position to further implement both online and offline business operational excellence.

For the coming year, MPPA is well-positioned to capture its potentials when consumer spending recovers. Management proposes to maintain the strategic business focus in maximising the value proposition in consumer retailing, continuing to control costs and developing further its omni-channel strategy. 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 is optimistic that the strategy proposed by the BOD and Management team for 2022 will put MPPA in the right track to optimise its retail focus as well as to deliver sustainable results to the stakeholders.

The BOC wishes to thank each of MPPA’s dedicated team members for their strong efforts in 2021. The Company would continue to work with its business partners collaboratively, to prosper together in the future. To all stakeholders, the BOC believes that important steps have been taken in transforming and bringing MPPA back to its positive growth path. Thank you for the continued support and confidence in MPPA.

On behalf of the Board of Commissioners