For the Year 2017 COL Public Company Limited
(Translation) No. COL.001.004.2017 23 February 2018 To: Re: President The Stock Exchange of Thailand Management Discussion and Analysis for the year 2017 of COL Public Company Limited COL Public Company Limited ( COL ) would like to submit the audited financial statements of COL and its subsidiaries for the year 2017 ended 31 December 2017, together with the Management Discussion and Analysis for the period with the following results. In 2017, COL and its subsidiaries ( Company ) reported total revenue at 12,214 million Baht, an increase of 3.6% from last year, and net profit to the owners of the Company amounted 502 million Baht, an increase of 30.7% from last year. As of 31 December 2017, the Company reported total assets at 8,862 million Baht, total liabilities at 3,066 million Baht and total shareholders equity at 5,796 million Baht. Details to the financial and operating results are provided in the enclosed Management Discussion and Analysis. Please be informed accordingly. Sincerely yours, (Phanthep Luangwiriya) Phanthep Luangwiriya Company Secretary Page 2
Overview Executive Summary Thai economy in 2017 grew 3.5%-4.0% from last year. The major factor of the economic growth was the export expansion, increasing by 9.3% from last year. This was in line with the growing trend of the global economy. Continuous growth of the tourism sector from the increasing in number of tourist arrival, particularly Chinese tourists. Additionally, the public investment and private investment expanded rapidly during the second half. While, the private consumption grow approximately 3.1% from last year. This was because consumers gained more confidence due to recovery of Thai economy, reflected by the Consumer Confidence Index (CCI), which rose up since August 2017. However, retail market continued to grow gradually due to weak purchasing power. Certain consumer groups were affected by the drop of agricultural product price while the household debt remained high. Thai E-Commerce in 2017 increased approximately by 9.9% from last year. Major factors were derived from the development of technology resulting in the change of consumers behavior and the rapid growth online retail market. Also, the growth of E-Commerce attracted the international online retailers enter into this market, for instance, investment in Lazada by Alibaba Group, and the announcement of joint venture between Central Group and JD.com. These factors caused E-Commerce market competition to grow vigorously. Source: - Bank of Thailand - Center for Economic and Business Forecasting, University of the Thai Chamber of Commerce - Fiscal Policy Office - Electronic Transactions Development Agency Summary of the Financial and Operating Results In 2017, COL and its subsidiaries ( Company ) reported total revenue at 12,214 million Baht, an increase of 3.6% from last year, and net profit to the owners of the Company amounted 502 million Baht, an increase of 30.7% from last year. This was due to an increase in sales revenue from its same stores and new stores, an improvement of its profitability, particularly an expansion of gross profit margin resulting from Own Brand, a higher operating efficiency, and a result of the termination of the online Business to Consumer business ( B2C ). After the discontinue operation in this business, this benefit to the Company in the long run due to no need to bear on loss from this business. In 2017, the Company followed the business plan, presented to the 2017 Annual General Meeting of Shareholders, with a refocus on its field of expertise under the Business to Business ( B2B ) market and discontinue the operation of the online B2C business since 1 August 2017. The Company will no longer sell and distribute products through the domain names of other persons. The Company will continue to sell and distribute products and services through the domain names of the Company, which comprise but are not limited to officemate.co.th, b2s.co.th, b2s.com.vn and mebmarket.com. Page 3
Table of Summarized Financial Results Summary of Financial Performance () Increase/(Decrease) Sales revenue 11,207 10,840 +3.4% Total revenue 12,214 11,785 +3.6% Gross profit 2,895 2,685 +7.8% Earnings before interest and tax 626 486 +28.6% Net profit to the owners of the company 502 384 +30.7% Earnings per share (Baht) 1.57 1.20 +30.7% Total Stores Open 68 173 105 Total Stores As of 31 December 2017 5 1 1 7 New Closed Sales Revenue by Business Unit OfficeMate B2S* 11,207 2% 36% Stores Activities during 2017 Closed Total Revenue by Channel Total Stores New Online Store Non-store 10,840 4% 36% 12,214 11,785 38% 38% 62% 60% 62% 62% *Sales revenue from B2S and MEB Corporation Co., Ltd. Page 4
Sales Revenue by Business Unit OfficeMate Business Sales Revenue through Store Channel 3,606 3,405 8% 5% 92% 95% New Same store Sales revenue through Store Channel In 2017, sales revenue through store channel amounted 3,606 million Baht, an increase of 202 million Baht or 5.9% from last year, mainly comes from improved same store sales performance with 2.6% growth from last year. The growth is a result from the success in offering products with styles and function that match with customers demand, boosting the sales volume of office furniture, and organizing marketing activities to boost sales. In addition, OfficeMate gains an income raised by new stores sales. In 2017, OfficeMate has expanded a total of five new stores. Sales Revenue through Non-Store Channels 3,354 3,100 34% 26% 66% 74% Sales Mix by Product Category 18% 17% 39% 40% 43% 43% Online Call Center Furniture and Other Electronic Equipment Office Supplies Unit: % Sales revenue through Call Center and Online Channels In 2017, Sales revenue through call center and online channels amounted 3,354 million Baht, an increase of 254 million Baht or 8.2% from last year, mainly comes from higher orders received through online channel (E-Procurement platform, E-Ordering platform, Mobile Application, and website). As a result, the percentage of sales revenue through online channels to total sales revenue through non-store channels increased to 34% in 2017 from 26% in 2016. Sales revenue by Product Category In 2017, OfficeMate s total sales revenue amounted 6,960 million Baht, an increase of 455 million Baht or 7.0% from last year. Sales revenue of all product categories has improved positively from last year. Especially, the sales volume of office furniture has a tendency to grow consistently due to the demand in home-office related products, among which the owned brand products that have a positive growth rate are comprised. Page 5
B2S Business Sales Revenue through Store Channel 95% 98% 3,886 3,829 5% 2% New Same store Sales revenue through Store Channel In 2017, sales revenue through store channel amounted 3,886 million Baht, an increase of 35 million Baht or 1.5% from last year. This was mainly due to an increase of sales revenue according to the store expansion. In 2017, B2S has expanded a total of 7 new stores (6 in Thailand and 1 in Vietnam). Besides, B2S focuses on store renovation and in-store activities, leading to an increase in the overall sales revenue from previous year. While, same store sales decreased by 1.4% from last year mainly due to the impact of store closed for renovation. Sales Mix by Product Category 26% 25% 27% 29% 47% 46% Unit: % Lifestyle & Edutainment Books Stationery Sales revenue by Product Category In 2017, B2S total sales revenue increased by 1.5% from last year. The sales volume of lifestyle and edutainment products and stationery products has a positive a growth rate, owing to the offering of products that match with customers lifestyle and demand. This leads to an increase in the proportion of sales revenue of lifestyle and edutainment products and stationery products to 47% and 26% of B2S sales revenue respectively. Online B2C Business In 2017, sales revenue from online B2C business accounted for 2% of total sales revenue, decreased from 4% in 2016. This was mainly due to the discontinued operation of the online B2C business since 1 August 2017 as mentioned. Gross Profit In 2017, the Company reported gross profit at 2,895 million Baht, an increase of 210 million Baht or 7.8% from last year. The Company s two core businesses, namely OfficeMate and B2S, leads to an increase in gross profit margin when compared to last year. This was due to an emphasis on selecting and offering owned brand products, particularly the office furniture and stationery products. Besides, the product mix has been effectively adjusted. This resulted in an increase in gross profit margin from 24.8% in 2016 to 25.8% in 2017. Page 6
Rental and Services Revenue and Other Revenue In 2017, the Company reported rental and services revenue at 310 million Baht, an increase of 12 million Baht or 3.9% from last year. This was mainly due to the higher services revenue rendered by Cenergy Innovation Co., Ltd. ( CNG ), which conducts digital marketing and advertising, as well as information technology. Regarding with the disposal of CNG on 1 August 2017, as a result, no CNG s revenue was recorded since the date of disposal. In 2017, the Company reported other revenue at 687 million Baht, an increase of 61 million Baht or 9.8% from last year. This was mainly due to a higher advertising income and promotion income. Selling, General and Administrative Expense ( SG&A ) In 2017, the Company reported SG&A expense at 3,192 million Baht, an increase of 107 million Baht or 3.5% from last year. This was mainly due to an increase in personnel expense, marketing expenses, store rental expense as the store expansion, and the expenditure in preparation of the Company s business expansion. However, the Company manages to achieve higher operating efficiencies through further development of the E-Procurement system and E-Ordering system, which customers responded positively. As a result, the SG&A to sales revenue ratio was at 28.5% in 2017, same level as in 2016. Net Profit In 2017, the Company reported net profit attributable to the owners of the Company at 502 million Baht, an increase of 118 million Baht or 30.7% from last year. This was due to higher revenue from OfficeMate and B2S, better profitability, especially an increase in gross profit margin, higher operating efficiencies, and a result of the termination of the online B2C business since 1 August 2017 as mentioned. Loss from the online B2C business in 2017 and 2016 amounted to 238 million Baht and 327 million Baht respectively. The Company had net profit excluded loss from online B2C business amounted 741 million Baht, an increase of 29 million Baht or 4.1% from last year (please see notes to the financial statements for year ended 31 December 2017 no. 23) Page 7
Cash and cash equivalent Current assets Financial Position 8,321 8,862 672 938 2,451 2,946 2,652 95 2,967 99 Current Liabilities Non-current liabilities Non-current assets 5,198 5,280 5,271 5,796 Shareholders Equity Assets As of 31 December 2016 As of 31 December 2017 As of 31 December 2017, the Company reported total assets amounted 8,862 million Baht, an increase of 541 million Baht compared to that of 31 December 2016. The movement primarily came from: - An increase of 468 million Baht in current assets mainly driven by higher cash on hand by 266 million Baht and higher accounts receivable and inventory by 133 million Baht as an increase in sales revenue. - An increase of 73 million Baht in non-current assets mainly driven by higher land, building, and equipment as the new store expansion of OfficeMate and B2S. While, investment in an associated company decreased by 89 million Baht mainly due to the disposal of CNG, which included Central Group Online Company Limited and its subsidiary (49% associated company indirectly held by CNG), in 1 August 2017. Liabilities and Shareholders Equity As of 31 December 2017, the Company reported total liabilities amounted 3,066 million Baht, an increase of 25 million Baht compared to that of 31 December 2016. This was mainly due to an increase in account payable as the Company s business expansion. As of 31 December 2017, the Company reported total shareholders equity amounted 5,796 million Baht, an increase of 516 million Baht compared to that of 31 December 2016. This was due to the net profit in this year, an increase in non-controlling interest, the surplus on common control transactions, partly offset by dividends paid. Page 8
Cash Flows As of 31 December 2017, the Company reported cash and cash equivalents amounted 938 million Baht, an increase of 266 million Baht compared to that of 31 December 2016. The movement primarily came from: - Sources of funds amounted 1,211 million Baht as a result of cash received from business operations at 995 million Baht, as well as cash received from financing activities, particularly on the short-term loan of 175 million Baht, increase in non-controlling interest of 43 million Baht. - Uses of funds amounted 945 million Baht as a result of cash paid includes investments and capital expenditures, mostly on account of equipment at new stores and renovation of OfficeMate and B2S, amounted 398 million Baht. Additionally, this was due to an increase in net working capital and taxes paid amounted 371 million Baht. Dividend to shareholders was also paid in the amount of 176 million Baht. Investment Net received from other financing activities Net received from operating activities (From profit and loss only) In 2017, the Company had 11 new stores in Thailand and 1 new store in Vietnam as follows, New stores in Thailand Bangkok and vicinities 1,211 0 217 995 INFLOW Sources of Funds OfficeMate - Central Plaza Mahachai - Jewelry Trade Center OUTFLOW Uses of Funds B2S Central Plaza Mahachai Central region - - Robinson Kampangpetch - Tops Plaza Pichit North-Eastern region Central Plaza Nakornratchasima (Korat) - Central Plaza Nakornratchasima (Korat) - Tops Plaza Nonghan Western region Robinson Petchaburi Robinson Petchaburi Southern region Tesco Lotus Krabi - New store in other country Vietnam - Ho Chi Minh City 945 398 370 176 For year ended 31 December 2017 Net paid for investing activities Paid for net increase in working capital Dividend paid Page 9
Key Financial Ratios Liquidity Ratios as of 31 December 2017 as of 31 December 2016 Current Ratio times 1.2 1.1 Days Receivables Outstanding days 11.5 10.8 Days Inventories Outstanding days 77.6 74.8 Days Payable Outstanding days 99.9 98.4 Cash Cycle days (10.8) (12.8) Total Liabilities to Shareholders Equity time 0.5 0.6 Efficiency and Profitability Ratios Gross Profit Margin % 25.8 24.8 EBIT Margin % 5.6 4.5 Net Profit Margin % 4.5 3.5 Return on Assets % 5.8 4.7 Return on Equity % 9.1 7.4 Remarks: Current Ratio = Current Assets / Current Liabilities Days Receivables Outstanding = (Trade Accounts Receivables (average) / Sales and Services Revenue) x days in period Days Inventories Outstanding = (Inventories (average) / Cost of Goods Sold) x days in period Days Payable Outstanding = (Trade Accounts Payable (average) / Cost of Goods Sold) x days in period Cash Cycle = Days Inventories Outstanding + Days Receivable Outstanding - Days Payable Outstanding Total Liabilities to Shareholders Equity = Total Liabilities / Total Shareholders Equity Gross Profit Margin = Gross Profit / Sales Revenue EBIT Margin = Earnings before Interest and Tax / Sales Revenue Net Profit Margin = Net Profit / Sales Revenue Return on Assets = Net Profit / Total Assets (average) Return on Equity = Net Profit / Total Equity (average) Page 10
Business Outlook in 2018 Thailand s overall economy in 2018 is tended to grow for 3.9-4.2% approximately from 2017. The growth continues to be positive due to supporting factors, for instance, the expenditure from government sector to invest in mega infrastructure projects and the investment from private sector which gains improvement thanks to the confidence in the economic conditions. Concerning the export, the volume is tended to expand in accordance with the global economic conditions. The tourism sector is also tended to grow consistently in correspondence with the increase of tourists. Consumption in private sector remains gradual expanding and is expected to increase by 3.1-3.5% from 2017. Regarding e-commerce, it has a growing trend as compared to the year 2017, owing to supporting factors including technology development, self-adjustment of retailing enterprises towards the online market and changes in consumer buying behavior which promotes the e-commerce market value to grow continually. Source: - Bank of Thailand - Electronic Transactions Development Agency - Fiscal Policy Office The Company s Business Directions 1) Elevate the Company s product and service offerings to become a complete Total Business Solution Provider. In 2018, the Company plans to distribute a more variety of new product categories. 2) Expand the Company s business into logistics services through the investment in the new warehouse, which is located on Suwinthawong Road, with state-of-the-art technology to improve the efficiencies in the logistics operation. Currently, this warehouse has completed its building construction and is now under the process of equipment and machinery installation. The progress is on the planned schedule. It is expected to operate in the second quarter of 2018. Additionally, with the capabilities of existing warehouse in Nong Chok District and the new warehouse as mentioned, the Company plans to provide logistics services to external parties, covering the depository, warehouse management, delivery and payment collection services. 3) Develop the OfficeMate business into a franchise model to expand nationwide more rapidly. 4) Enhance the online platform of OfficeMate to become the center of products and services in the business segment, as well as provide the opportunity for external suppliers to join the Company s online platform. The Company constantly monitors the progress of business plans and adopts a flexible investment plan to cope with the fastchanging environment, as well as to mitigate certain business risks to acceptable levels. The Company aspires to establish a strong business foundation that can contribute to sustainable growth and create attractive returns to its shareholders and stakeholders. Page 11