SEC Form 20-IS - 7-Eleven

System-wide sales, which represents the overall retail sales to customers of corporate and franchise-operated stores grew by 12%
or P684.3 million to P6.24 billion in 2008. PSC ended the year with 368 stores, an 18% increase compared to the 2007 level of
311. Out of the total, 45% or 167 stores are company-owned, while 55% or 201 stores are franchise-operated.
Gross profit stood at P1.5 billion, while gross profit as a percentage of sales declined slightly partly due to the dilution brought
about by the increase in the Company’s sales to franchise stores accounted for at zero mark-up. Real GP% improved in 2008 as a
result of better category mix and reduced out of stock position.
Further, the aggregate merchandise transfers through the distribution center subsidiary, Convenience Distribution, Inc. (CDI) to
franchise-operated stores in 2008 amounted to P1.29 billion, higher by 39% from P926.8 million in 2007.
Commission income amounted to P21.2 million in 2008, 3% lower than last year. This was the result of the consumers being more
updated in technology advancement than they were years ago and competition brought about by other retail channels offering
physical cards.
Other Income
Other income consists of marketing income, franchise revenue and rent income from rentable spaces. The Company’s total other
income increased to P445.7 million as a result of the following;
Marketing income, which pertains mainly to promotional support and display rental, had grown by P38.5 million from the 2007 level.
This can be attributed mainly to the increase in display allowance which grew considerably in 2008. The Company continues its
strong partnership with suppliers in building the profitable preferred brand.
Franchise revenue, on the other hand climbed to P250.9 million at the end of 2008 from P204.3 million in the same period the
previous year. This was the result of the increased number of franchise-operated stores. The number of stores operated under the
conventional franchise package or FC1 increased to 121 stores. On the other hand, stores under labor franchise or service
agreement (SA) increased to 80 stores.
Rent income arising from the stores’ subleased spaces reached P36.5 million or 8% lower than the level posted a year ago at
P39.6 million. This can be attributed to the decline in occupancy rate brought about by unfavorable market condition.
No significant element of income came from sources other than the result of the Company’s continuing operations.
General and Administrative Expense
General and administrative expense which is comprised of store operating and HQ expenses went up by six percent or P105
million and totaled to P1.79 billion in 2008. As a percentage of sales, general and administrative expense is pegged at 33% in 2008
and is lower against the level set a year ago.
Communication, light and water accounted for 18.5% of the total expense and were the highest contributor. This is followed by
rent expense with 15% share, outsourced services with 14.5% and personnel costs with 14% share in the total general and
administrative expense in 2008. Service fees paid to store operators accounted for 40% of the total outsourced services.
Moreover, communication, light and water amounted to P331.7 million or 6.1% of total revenue and grew by one and a half percent
versus the same period in 2007. Bulk of this expense category pertains to electricity which comprises 94% of the total.
Personnel costs aggregated to P250.6 million, versus P316.2 million in 2007. Ratio to sales was 4.6% and 6.4% in 2008 and 2007,
respectively. Personnel costs include salaries and wages at P158 million, employee benefits at P83.9 million and pension costs at
P8.7 million. The company utilized outsourced services to contain costs. Combined personnel and outsourced services showed a
marked improvement in 2008.
Rent expense incurred is pegged P272 million or 5.0% of sales against P260 million or 5.2% in 2007. Operating lease payments
on a monthly basis rose by 3% in 2008 and can be attributable to rental escalations.
Service fees are higher by 24%, from P83.2 million in 2007 to P103.2 million. This is primarily due to SA conversions during 2007,
which operated as SA store, full year in 2008.
Interest Expense
Cost of debt servicing in 2008 totaled P25.3 million, lower by 20% than last year’s level of P31.5 million. Loan pre-termination and
lower interest rates are the factors for the decline. Outstanding loan balance at the end of 2008 was pegged at P330 million, down
from the P375 million a year ago.
Net Income
Net income for the year increased by 54% to P84.3 million primarily due to better sales, contained costs and improved support
from trade suppliers
The Company’s net income translated into a 1.6% return on sales and 11.2% return on equity. The key ratios in 2008 are
improvements from the previous year. Moreover, EPS is pegged P0.32 and P0.21, in 2008 and 2007, respectively.
Financial Condition
Total assets grew by P385.5 million or 20.5% to P2.26 billion at the end of 2008. Cash and cash equivalents increased to P314.9
million from P308.9 million at the beginning of 2008. Receivables went up by P72.8 million as a result of the increase in suppliers’