COVER SHEET PHILIPPINE SEVEN CORPORATION - 7-Eleven

OVERVIEWPhilippine Seven Corporation (PSC or the Company) operates the largest convenience store network inthe country. It acquired from 7-Eleven Inc. of Dallas, Texas the license to operate 7-Eleven stores inthe Philippines on December 13, 1982. Operations commenced with the opening of its first store onFebruary 29, 1984 at the corner of Kamias Road and EDSA Quezon City, Metro Manila. Consideringthe country's economic condition in the early 80’s, the Company grew steadily in the first few years ofits existence. In 1993, PSC, encouraged by the resurgent national economy, stepped up its rate ofexpansion.As of December 31, 2008, our retail chain has grown to 368 stores. We are sustained by a manpowercomplement of 1,048 employees engaged in store operations and in various support service units.Despite the growing competition in the C-store (Convenience Store) business, we maintain ourleadership in the industry.7-Eleven derives its revenues principally from retail sales of merchandise, commissions, rental andfranchising activities. Our primary expenses consist of cost of goods, general and administrativeexpenses, interest expense and income taxes.We seek to meet the needs of our customers and maintain a leadership position in the C-store industryby taking advantage of economies of scale, technology, people and a widely recognized brand.FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN 2008Results of OperationsRevenue and Gross MarginThe Company registered total revenues of P5.41 billion in 2008, an increase of 9% compared to theP4.95 billion in 2007. Cost of merchandise sold rose by P375.3 million to P3.91 billion at the end of2008.System-wide sales, which represents the overall retail sales to customers of corporate and franchiseoperatedstores grew by 12% or P684.3 million to P6.24 billion in 2008. PSC ended the year with 368stores, an 18% increase compared to the 2007 level of 311. Out of the total, 45% or 167 stores arecompany-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 dueto the dilution brought about by the increase in the Company’s sales to franchise stores accounted for atzero mark-up. Real GP% improved in 2008 as a result of better category mix and reduced out of stockposition.Further, the aggregate merchandise transfers through the distribution center subsidiary, ConvenienceDistribution, 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