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CHAPTER 3

COMPANY PROFILE

3.1 History of ACE Hardware Indonesia

PT. ACE HARDWARE INDONESIA Tbk., which was a family own company

headquartered in Jakarta, went public on 27 November 2007. It is one of the subsidiaries

of the Kawan Lama Group which has the experience of more than 50 years in the

market. Their branch consist of 22 retail stores and covering more than 60,000 sq meters

retail space in 13 cities.

Table 3.1 location and size of the retail stores

Outlet Date of City Size (Sq m)Karawaci 02/04/96 Tangerang 1,225Pasaraya 01/06/96 Jakarta 3,165Puri Mall 05/07/97 Jakarta 4,046

Balikpapan 28/11/99 Balikpapan 1,199Galaxy 24/01/00 Surabaya 795Batam 27/05/00 Batam 1,096

Panglima Polim 08/09/00 Jakarta 1,265Kelapa Gading 09/11/00 Jakarta 946

Istana Plaza 28/11/01 Bandung 1,477Istana Kuta 12/10/03 Bali 1,584Sun Plaza 13/03/04 Medan 1,470

Pondok Indah 23/09/04 Jakarta 2,077Artha Gading 06/06/05 Jakarta 10,158Metropolitan 26/12/05 Bekasi 1,750Panakukang 19/03/06 Makassar 3,349

IBCC Building 18/06/06 Bandung 8,742Pluit 20/10/06 Jakarta 1,901

Royal Plaza 15/12/06 Surabaya 5,211Tunjungan 01/02/07 Surabaya 846

Radio Dalam 30/06/07 Jakarta 1,822Pakuwon 07/06/07 Surabaya 4,075Pejaten 06/09/07 Jakarta 2,451

[AMM Square] 15/09/07 Cirebon 1,600[Marganda 08/10/07 Depok 2,630TOTAL 60,650

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This ware house is the centre of the logistic of ACE across the Indonesia. ACE is

the brand used by the company in Indonesia under the license agreement with the ACE

Hardware Corporation. The agreement allows ACE Hardware Indonesia to sell the ACE

brand products, Kawan Lama Products, and several brands that ACE has the exclusive

distribution right, also the product supplied by the third party.

PT ACE Hardware Indonesia was established in 1995 with the name of PT

Kawan Lama Home Centre based on Deed of Establishment No. 17 dated 3 February

1995 made in the presence of Benny Kristianto SH, Notary in Jakarta. The Deed of

Establishment was approved by the Minister of Justice of the Republic of Indonesia

pursuant to Decree No. C2-6190 HT.01.01.Th.95 dated 17 May 1995, which was

registered in the Register Book of the District Court of West Jakarta under No. 1668 /

1995 on 13 September 1995, and was published in State Gazette No. 102, dated 22

December 1995, Supplement No. 10484. The first outlet was opened in Kawaraci in

1996, before the economic crisis and riot. Later on 1997, Kawan Lama Group has a new

agreement with ACE Corporation and according to the new regulation that preventing

the use of foreign language on the name of the company by the government, PT Kawan

Lama Home Centre was changed to PT ACE Indoritel Perkasa. PT ACE Hardware

Indonesia was finally used by the company in 28 August 2001.The Company’s Articles

of Association have been amended several times, most recently by Notarial Deed no. 33

dated 29 August 2007 made in the presence of Fathiah Helmi SH, Notary in Jakarta

concerning the amendment of the Articles of Association of the Company to comply

with Law No. 8 relating to the Capital Markets.

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Table 3.2 Milestone, awards, and events of the company

Source: ACE Hardware Indonesia

Year Milestones / Events

1995 • Incorporation and establishment

1996 • Entered into License Agreement with ACE Hardware Corporation

• Opened first retail outlet in Karawaci

1999 • Opened first retail outlet outside of Jakarta in Balikpapan

• Introduced standalone and shophouse format for retail outlets

• Introduced ACE Loyalty Membership Programme

2003 • Opened 10th retail outlet with store in Istana Kuta Galleria, Bali

2004 • Achieved ISO 9001 : 2000 certification for the Company’s headquarters,

warehouse and certain of its retail outlets

• Awarded Million Dollar Club recognition by the ACE Group for aggregate

purchases

2005 • Introduction of ACE Home Centre Concept with opening of ACE Mall

ArthaGading

• ACE Mall ArthaGading awarded Largest Hardware Retail Outlet in

Indonesia by the Indonesian Museum of Records

• Enters into first joint initiative with Index, a member of the ACE Group

2007

• Opened 20th retail outlet in Radio Dalam, Jakarta

• ACE Hardware Indonesia go public

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ACE Hardware Corporation, headquartered in Oak Brook, Illinois, U.S, is

retailer-owned company that was incorporated in 1928 in the United States, and which is

principally engaged in the wholesale of hardware products and franchising of the ACE

Hardware brand. The relationship between Kawan Lama and Ace Hardware Corporation

began in May 1996, the both parties entered to a License Agreement for 15 years time.

The agreement allows Kawan Lama Home Centre to use ACE Hardware Brand and hold

an exclusive distribution of ACE’s product in Indonesia. In return, Kawan Lama will

have to pay ACE Hardware Corporation the royalty fee which is based on the retail

revenue sales. Furthermore, the agreement offer the advance payoff for its retailer

member such as attending its twice annual buying shows and obtaining marketing

materials, other retail operations know-how and training for its procurement team. This

license agreement has been a mutual relation for both parties, the renewal for another 15

years agreement is due in 2011, both parties agrees to continue this long term relation.

3.2 Business Activity

ACE Hardware Indonesia runs one of the biggest retailers in Indonesia,

especially in providing the home improvement products and lifestyle products. Not

many of the competitors in market, ACE has been successfully maintaining its growth

over the years. There a few competitors such as DepoBangunan, Rumah Kita, and Mitra

10; but, none of them provides the market by the product ACE offered. ACE’s products

are focusing on the multi-brand range of the high-end product. Another possibility of

competition might come from the hypermarket such as Carefour or Hypermart, but the

availability of the product couldn’t meet ACE’s standard. By 2010, ACE forecasted that

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they will have 45 stores, which are spread in the country. The company’s business are

increase from 60,650s m in 2006 to 130,278 square m in 2010. These huge amounts of

area are divided by two kinds of retail stores:

• ACE Home Centers – retail outlets of more than 3,000 sq m, where the Company

has sought to tailor the ‘big box’ super store concept pioneered by US retailers, such

as Home Depot and Walmart, to meet local demands. As at the Latest Practicable

Date, the Company operated seven such stores, located in Pasaraya, Puri Mall, and

ArthaGading Mall in Jakarta, IBCC Building in Bandung, Royal Plaza and Pakuwon

in Surabaya, and Panakukang in Makassar; and

• ACE Hardware Stores – retail outlets of less than 3,000 sq m. As at the Latest

Practicable Date, the Company operated 15 such stores, located across Indonesia,

eight of which were in Jakarta.

ACE Hardware Indonesia business activities scope is general trading activity

includes working as an agent or distributor. In the more specific condition, the company

follows the ACE Hardware Stores in US, is focusing on providing the market home

improvement and lifestyle product, in which by time, they improves their stores into a

one stop for any households and small industry needs. They have more 60,000 range of

items under 15 main categories. These varieties of products include the product from

ACE Hardware Corporation that ACE Hardware holds the exclusive distribution rights,

Kawan Lama Group’s products, and several brands supplied from the third party. As

part of the agreement between ACE Hardware Indonesia and ACE Hardware

Corporation, the company is required to buy ACE’s brand from US even though there is

no minimal quantity, ACE’s stores in Indonesia must carry ACE Hardware Brand

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products. Kawan Lama is one of the supplier for commercial and industrial tools, indoor

and outdoor furniture. Kawan Lama carries 30 international brands such as Karcher,

Rubbermaid, Victorinox and Brabantia to distribute in the Indonesian Market. Thus,

ACE becomes an exclusive retailer for products that Kawan Lama and Ace Group carry.

In addition with the mutual relationship with PT Kawan Lama, ACE enters several

transactions with other subsidiaries of Kawan Lama Group such as Index and PT Multi

Rental Indo; in which ACE use its service as the provider of the logistic fleet of vehicle.

3.3 Organizational Structure

Figure 3.1 Organizational Chart

Source: ACE Hardware Indonesia

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Board of Commissioners

President Commissioner: Kuncoro Wibowo

Independent Commissioner: Tjiptono Darmadji

Commissioner: Ijek Widya Krisnadi

Board of Directors

President Director: Prabowo Widya Krisnadi

Director of Operations: Paulus Ong

Director: Rudy Hartono

Director of Finance: Hartanto Djasman

Departments

The Company’s business is the operation of retail outlets selling home

improvement and lifestyle products in Indonesia. This business operates through five

principal departments:

• Operations;

• Procurement and Logistics;

• Marketing;

• Development and Controllers; and

• Finance and Support.

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3.3.1 Operation

Most of the activities of the company are carried out remotely from each

store. Activities such as supervising inventory control, and logistic are centralized in

the ACE headquarter, located at Fifth Floor, Kawan Lama Building, JI Puri Kencana

No. 1, Meruya-Kembangan, Jakarta 11610, Indonesia. General Manager of Store

Operation is the one who is responsible to supervise the overall retail activities,

including maintain the stores performance to meet their budgeted and targeted result.

The GM is also responsible to report the result regarding all of the operations in the

company to the boards. By far, there are four Area Manager who are based in

Bandung, Surabaya, Medan, and Balikpapan to monitor the activities in each area

and report to the General Manager. Along with the expansion and increasing number

of branches, it is required to have more supervisors in each area. Each store managed

by a store manager, who is responsible on the daily activities of the store operation

and to make decisions required on behalf of the store. In providing a solution for the

customer, the each store has fifteen supervisors who are divided by each product

category. Each supervisor is an expert on his/her product category.

The Company sources its products from the ACE Group, Kawan Lama, and

third party suppliers, both domestically and internationally. The Company’s cost of

goods sold (“COGS”) comprised approximately 67.25%, 66%, 68.98% of total

revenues the financial years ended 31 December 2007, 2006, and 2005, respectively.

As a retailer, ACE receives its inventory in a ready to distribute and sell condition,

even with the packaging. The Company receives its products, including products

branded under license from Kawan Lama, packaged and ready for distribution and

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sale. Price from the suppliers, freight and import duty will determine how much the

COGS. In order to improve the cost of supply, the company continues to increase its

product offering, keep introducing new product, expanding the existing product and

retiring the out-of-date products. In addition, with the good performance of the

company in expanding its stores, the purchasing power to acquire more products and

achieve more volume from by the supplier.

The company performance shows a constant growth in sales as well as the

operating profit from year to year. Selling expenses comprise the majority of the

Company’s operating expenses, and consist primarily of staff salaries and wages,

rental expenses, marketing, distribution, and royalties, traveling, renting, etc. The

Company’s selling expenses constituted approximately 18.0% of total revenues in

2006. In 2006, the company had more approximately 2,838 workforces in total, or

with the average of 18 employees per square meter. The company is trying to

maintain its productivity and efficiency by maintaining its employee productivity. In

2006, each employee could generate 225 million rupiah in average; it is a huge

improvement from 2005 which was only 189.7 million rupiah per employee.

According to the Indonesian law and regulation, the company employs most of their

staff base on the contractual basis, and pay at least on their minimum wage

requirement by the government. This wage regulation by the government is

considered by the company as one of the factor that could drive the company’s

profitability.

ACE has never acquired any land or building to conduct their business

activity, instead, they rent a huge amount of space primarily in malls. The company

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believes that the targeted market for ACE could be approached by the size of the

ACE’s to increase their brand awareness toward ACE. In year 2007, ACE could

maintain its rent cost as much as 3.9% to total revenue.

3.3.2 Purchasing and Logistic

The Company’s purchasing department of the products that it sells is

centrally run from the Company’s headquarters in Jakarta. The procurement

function contains the Company’s approximately 50 buyers, who are separated

into 15 buying departments based on each product category, as follows:

Home Improvement products:

- Hardware

- Home Appliance

- Cleaning Aids

- Lawn and Garden

- Lighting

- Miscellaneous

- Outdoor Living

- Paint

- Plumbing Supplies and fixtures

- Electrical supplies

- Tools

Lifestyle Products:

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- Automotive

- Furniture

- House ware and Gifts

- Sporting Goods and pet Supplies

The role of the purchasing department is to source products from the

ACE Group, the Kawan Lama Group and third party suppliers, domestically and

internationally, principally in China, Europe and the US. Principle

responsibilities of the buyers include the following:

• Purchasing of new and existing products – Buyers from each purchasing

department should make their purchasing decision based on several factors

such inventory level, margin, turnover, and revenue to meet the projected

budget. Buyers are kept informed by the centralized inventory system that

consists the inventory level at all stores. Order from each store to the

company warehouse is collected on daily basis, and order to the third party

supplier is made on weekly basis.

• Identification of new products to be sold in the Company’s various outlets –

Buyers are responsible for identifying and sourcing new products within their

department that they consider will be complementary to the Company’s

existing product offering. Procurement of new projects is subject to approval

by the head buyer from each department, whose budget is agreed annually by

the Board. To the extent that a new product exceeds a buyer’s budget,

approval of such purchase is required from the Director of Procurement. An

important source of new products are the twice yearly run trade shows run by

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the ACE Group, where more than 3,000 suppliers offer their products to

franchisees of the ACE Group. In addition, buyers attend a number of other

independent shows, including shows in China, the US, Europe and India;

• Developing and maintaining relationships with the Company’s suppliers –

Buyers are responsible for developing and maintaining relationships with the

Company’s suppliers, which includes negotiation of commercial terms and

agreeing marketing initiatives, such as sales formats and promotional

activities;

• Educating store employees about their product specialties– Upon the

introduction of a new product type, the buyers are responsible for ensuring

that staff in the retail outlets is properly trained in relation to that product.

• Coordinating marketing and promotion of new products – Buyers are also

responsible for working with the sales and marketing department, as well as

the suppliers to coordinate marketing and promotion initiatives for new

products; and

• Ensuring quality of supplied products – Particularly with new products or

new suppliers, the buyers are responsible for inspecting the supplier’s

facilities and ensuring the quality of the products that the Company will

acquire.

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Logistics

The Company operates a centralized logistics and distribution network.

Principal warehousing of stock is carried out at the Company’s 6,500 sq m

facility at Tangerang, which it leases from Kawan Lama. Recently, the company

rent a new facility in Surabaya that covers around 2000 square meters provide

the logistic in the eastern Indonesia area.

When a customer buys a product, inventory levels, both within the store

and across the Company as a whole are adjusted accordingly. Once levels reach a

certain predetermined level, store managers are alerted through the centralized

inventory system and requested to approve a replenishment order from the

central warehouse. Depending on the location of the store, orders made from the

warehouse are usually delivered within three working days if the store is within

Java or Bali and ten working days otherwise. In order to support the decision

process regarding the purchasing, the company uses the inventory controller

system that reports the buying patter from all of the stores in timely basis.

In order to deliver its products to the various stores, the Company

operates a fleet of approximately 35 motor vehicles from its central warehouse.

These vehicles are owned by PT Multi Rental Indo, a member of the Kawan

Lama Group and leased to the Company. In addition, in certain circumstances,

for a fee (or free in the case of members that satisfy certain minimum order

requirements), the Company also delivers its products directly to customers,

either from the store in question, or from the central warehouse. To manage such

deliveries, each store also operates two vehicles.

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3.3.3 Marketing

The Company’s marketing expenses include television and newspaper

advertising, mobile advertising on its delivery vehicles, and brochures. The

Company typically seeks to limit marketing expenses at a target of 1.6% of sales,

which includes the additional marketing expenses that are incurred in promoting

the opening of new retail outlets and raising awareness among consumers in the

area of the new store. With the Company’s plans to increase its floor space by up

to 130,000 square meters by the end of 2011, the Company has sought to increase

its marketing capacity to deal with such expansion.

Royalty costs to ACE Hardware Corporation have remained relatively low

as the royalty is structured on a tiered basis such that royalty rates decrease as the

Company’s revenue increases. Royalty payments amounted to 1.5 billion rupiah in

2006, and forecasted to be 2 billion rupiah in 2007.

General and Administrative costs make up the rest of the Company’s

operational expenses and consist of fixed overheads from the head office. The

Company’s primary G&A costs are salaries and employee benefits relating to

employees in the G&A department, as well as utilities and printing costs. These

costs are relatively stable, as the growth in retail volumes and retail outlets has not

required substantial growth to existing management and administrative capacity.

Most of the head office staff are full-time employees and provide the majority of

the Company’s management and administrative functions. Full-time staff generally

undergo a three month probation period before permanent appointment. G&A

costs as a proportion of total revenue is 8.3% in 2006, as productivity gains have

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been achieved from existing infrastructure, despite growth in retail sales. In 2007

and the rest of the projection periods, the G&A expense are estimated to be 7.4%

out of total revenues.

The Company’s marketing department has over 30 full time professionals,

who are responsible for running marketing strategies to promote the Company’s

retail outlets, as well as specific brands that it sells. The objective of the

Company’s brand marketing is to develop brand awareness and market

acceptance, as well as to continue to educate the market as to the concept of a ‘one

stop’ solution for all home improvement and lifestyle product needs. Because

brand management and marketing are the key to the Company’s ability to

command better margins for its products, the Group is able to analyze information

on targeted customer groups and spending patterns with data obtained from the

more than 35000 active members of the Company’s membership programmed.

The Company’s in-house advertising and promotion team works with each

department of the procurement and operations teams to derive the creative input

required to advertise and promote the various brands and products. Promotions are

determined based on national promotions, territory promotions and store

promotions, as well as promotions for particular departments within the stores.

The Company seeks to run five key month-long promotional campaigns during the

year, with a number of smaller ongoing promotions at other times.

Advertising and promotion is carried out through a comprehensive mix of

media that varies depending on the brand and nature of product. The various media

used by the Company includes the following:

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• Above-the-line advertising – advertisements are placed by the Company

in various widely-distributed newspapers, magazines, interior design

publications, billboards, mobile advertising, television and radio

• Below-the-line advertising – in-store and outdoor visual displays, in-

store events and promotions, including gift with purchase promotions, all of

which are ongoing within the Company’s various outlets as well as direct

mailing through brochures and electronic means

• Product and event sponsorships – the Company sponsors and

participates in a number of charity events, where it joins up with international

charities, such as UNICEF and the World Wildlife Fund (WWF)

As well as advertising brands that it sells, the Company also seeks to

develop the ACE Hardware and Home Center store brands. The Company operates

a membership program, which as at the Latest Practicable Date had more than

350,000 registered members, of which more than 100,000 are considered to be

active. For an initial fee of a hundred thousand rupiah, and an annual renewal fee

of fifty thousand rupiah, members accumulate points, which may be redeemed for

future benefits, special discounts that are available for members only and other

benefits including waiving of membership fees and free installation and delivery

on purchases of more than a million rupiah. Membership details are stored in a

central database and purchasing patterns of the program’s members provide a

useful tool to assist the Company in determining the most appropriate marketing

initiatives.

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In addition to its retail membership, the Company is planning to launch a

corporate membership program, which is aimed at customers buying products for

larger scale projects. The program, for customers likely to spend an aggregate

amount in excess ten billion rupiah offers a number of benefits, including VAT tax

benefits and the ability to set up tailored purchasing packages. The Company is

considering introducing a credit card scheme for its corporate customers, through

which the issuing card company will offer credit terms of up to 45 days on

purchases. This program is being developed by a team of five executives.

3.3.4 Development and Controllers

Development

This department is principally involved in the development and expansion

of the Company’s retail outlets, as well as the identification of other new

opportunities to grow the Company’s business. Company considers a number of

factors when opening a new store or redeveloping or expanding an existing retail

outlet, including the following:

• Socio-economic and other demographics of the proposed area;

• Availability of suitable premises for the store;

• Presence of competing home improvement and lifestyle product retail

outlets;

• Capital expenditure required to open the new retail outlet; and

• Accessibility to the Company’s logistics and distribution infrastructure.

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Once the development department identifies a store or business

development opportunity, it carries out research and prepares a report containing

pertinent facts, including forecasts, SWOT analyses, capital expenditure

requirements and other relevant information. Much of this, particularly with

relation to expansion or development of stores, is determined based on the

Company’s standard guidelines, which it has developed through the opening of its

45 retail outlets since 1996.

The Board meets regularly to discuss new opportunities identified by the

development department, whether for a new store, development of an existing

outlet or other new business development opportunities. Once the Board has

determined to proceed with a new project, the Company goes through the process

of identifying suitable premises, in the case of a new retail outlet, and negotiating

appropriate terms to lease the property. The term of the lease is typically between

three and 15 years, depending on the nature of the property.

Upon agreeing terms of the lease, which are reviewed by the General

Affairs department or outsourced to external counsel, the Company typically aims

to fit out and open a new retail outlet within four months. Training of new staff

typically starts two months before the anticipated opening of the store. The

Company also runs a marketing campaign to promote awareness of the store, with

banners and leaflets being distributed three months prior to opening. Marketing

initiatives are stepped up in the month prior to opening and the Company offers a

number of promotions in the period immediately after opening the store. New

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stores are set initial targets of productivity per sq m, and these are reviewed

quarterly by the Board following the opening of the store.

As well as store development plans, the Board also considers new

business development initiatives on an ad hoc basis and approves budgets and

implementation plans for any such projects.

Controllers

This department provides the Company’s safety checks and measures

function, through four principle areas:

• Quality Assurance – the principle role of this team of ten professionals is to

ensure that the Company uniformly implements standardized procedures

across its retail outlets, headquarters and other infrastructure in accordance

with its best practice and the requirements of its ISO certification. It is

responsible for ensuring that the Company’s standard procedure manual

reflects current best practice and to ensure that such practices are being

carried out in both the day-to-day running of the Company’s retail outlets, as

well as in headquarters;

• Loss Prevention – this team coordinates the Company’s security function,

particularly in relation to inventory at the retail outlets and the warehouse, as

well as other assets that the Company has. It coordinates the training and

management of the Company’s in-store security personnel and its safety

management program;

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• Audit– this team is responsible for carrying out regular audits of stock and

petty cash at both the retail outlets and the warehouse. Petty cash is audited on

a quarterly basis, and stock is audited twice yearly. The audit team reports its

findings directly to the Board; and

• Inventory Control – The purpose of this team is to analyze the Company’s

inventory flows, principally to assist buyers in making informed purchasing

decisions.

3.3.5 Finance and Support

The Company’s finance and support department provides a number of

centralized support functions, including finance and accounting, human resources

and training, IT, general affairs and legal. As at the Latest Practicable Date, the

finance and support department comprised 61 professionals.

Finance and Accounting

The Company’s finance and accounting team is responsible for producing

daily sales reports, as well as management accounts on a monthly basis. It is also

responsible for producing the financial data that the procurement team and the

Board require for budgeting and other planning purposes.

In addition, the finance team is also responsible for managing the

Company’s cash levels at the retail outlet and Company-wide level. Each retail

outlet has a head cashier, who reports directly to the finance and accounting

team. They are required to make daily reports of cash levels, relative to sales

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reports and ensure that such cash is correctly deposited into the appropriate

financial institution. The finance and accounting team also ensures that payments

to suppliers are made on a timely basis.

3.4 Research Methodology

3.4.1 Unit Analysis

PT. ACE Hardware Indonesia Tbk.

Gedung Kawan Lama Lantai 5

Jl. Puri Kencana No. 1 Meruya Kembangan

Jakarta 11610 – Indonesia

Phone: (62-21) 5822222; Fax: (62-21) 5824022

Website : http://www.acehardware.co.id

3.4.2 Data Collection

• Audited Financial Statements year 2004, 2005, 2006, 2007 (prior IPO)

Consists of:

• Balance sheet

• Statement of income

• Statements of changes in stockholders’ equity

• Statements of cash flows

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• Notes to the financial statements

• Interview with the Independent Commissioners of PT. ACE Hardware

Indonesia, Tjiptono Darmadji.

3.4.3 Data Variable

Table 3.3 Data Variables

Data Variable Measurement

1. Inventory Turnover COGS / Inventory

2. Days of Inventory

Outstanding 1 / Inventory Turnover

3. Account Payable

Turnover COGS / Trade payable

4. Days Payable

Outstanding 1 / Account Payable Turnover

5. Account Receivable

Turnover Revenue / Average

6. Days of Sales

Outstanding 1 / Account Receivable Turnover

7. Operating Cycle Account Receivable Turnover + Account Payable

Turnover + Inventory Turnover

8. Return on Assets Net Profit / Average Total Assets

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9. Return on Equity Net Profit / Average Total Equity

10. Operating Cashflow

Net Profit + Depreciation + Deferred Tax - Nett

Change in Operating Assets and Liabilities

11. Capital Expenditure

Total Fixed Assets previous year - Total Fixed Assets this year - Total Depreciation

12. Free Cash Flow

Operating Cash Flow + Capital Expenditure

13. Cost of Equity )( pfre RRr β+=

14. Cost of Debt

∑=

=n

tnnd rwr

1

15. Weighted Average Cost of Capital (WACC)

)()( eedd rwrwWACC ×+×=

16. Terminal Value )(1

gWACCFCFTV n

−= +

17.

Discounted Free Cash Flow

18. Earnings per Share Net Income / number of outstanding shares

19. Market Price per

Share Discounted Cash Flow per Share

20. Price Earnings Ratio

(P/E Ratio) Market Price per Share / EPS

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3.4.4 Data Assumptions

Table 3.4 Data Assumptions

o. Account Assumption

1. Revenue (Sales)

• New Stores expansion

o 2007 13,426 sq meters realized in 2007 prior IPO

o 2008 28,305 sq meters projection from prospectus



o 2011 10,000 sq meters projection from company




• Blended Same Store Growth (SSG)

Growth of the existing stores space. Stores which is equal or less than 5 years are assumed to grow at 10%.

• Existing Stores Sales per square meter

Blended SSG X previous year

• New Stores sales per square meter

Assumed to be half of the Existing

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Stores Sales per square meter on the same year

2. Inventories

• Inventory days turnover Average of the last three years Inventory Days Turnover Ratio prior to IPO, which is 66 days.

• Purchased Inventory Average of the last three years Purchased Inventory percentage compared to Total Revenue, which is 72.3%.

• Ending Inventory Inventory Days Turnover X Total Revenue

3. Expenses

• Salaries and Employees' Welfare

5.4% to sales. Average from the last three years prior to IPO

• Rental

3.9% To sales. Average from the last three years prior to IPO

• Freight Out


• Maintenance


• Advertising and Promotion


• Royalty


• Consumption


• Insurance


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• Renovation


• Others


• Salaries, Bonus and Employees' Allowances


• Telephone, Electricity and Water


• Post Employment Benefit Expense


• Travelling

0.6% to sales

• Depreciation and Amortization


• Internet


• Transportation


• Office rent


• Photocopies and Printing


• Others

0

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4. Interest Income

• BI Rate 8.6%, from the year of the IPO

• Discount to BI Rate 2%.

• Effective Deposit Rate 6.6%

5. Membership Registration Fee

1% to sales

6. Others Income

• Gain on foreign exchange-net

0

• Interest expenses

0

• Other Financial Charges

0

• Gain on disposal of Fixed Assets

0

• Miscellaneous-net

0

7. Account Receivables

• Account Receivable Turnover Days

7 days. Average from the last three years prior to IPO

• Other Receivable 0.1% to sales. Average from the last three years prior to IPO

8. Other Assets

• Prepaid Expenses

0.8% to sales. Average of percentage from the last three years prior to IPO

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• Advances Payments


• Due from related Parties


• Long term Prepaid expenses


• Deferred tax expenses


• Others


9. Property, Plant, and Equipment

• Land

0.0%, the company does not plan to acquire land.

• Buildings

0.0%, the company does not plan to acquire building.

• Building Renovation and Improvement

1.0%, the growth of the renovation and improvement projected by the company.

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• Store and office equipment

1.0%, the growth of the equipment as part of the expansion projected by the company.

• Vehicle

0.0%, the company does not plan to acquire new vehicle.

• Construction in progress

0.5%, the projection by the company in executing the construction progress.

10. Debts

Long Term debt The average of the last three years prior to IPO

Short Term debt 0, the company planned to repay all of the debt from the proceeds of IPO

11. Account Payables

• Account Payable Turnover Days

35 days, from the average of Account Payable Turnover Days three years prior to IPO.

• Other Payable 2.5% to total COGS. This is the average of three years percentage of Other Payable account to the total COGS prior to IPO.

• Tax Payable 41% to the Total Tax Expense. The rate is the average percentage of the last three years prior to IPO.

12. Other Liabilities Accounts

• Advances from Customers

0.2% to sales. This is the average of

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the last three years percentage prior to IPO.

• Accrued Expense 0.6% to Total Costs. This is the average of the last three years percentage prior to IPO.

• Post Employment Benefits

1% to sales. This is the average of the last three years percentage prior to IPO.

13. Discounted Cash Flow

• Risk Free Rate 8.5%, the assumption is taken from the Government Bonds interest rate for 10 years period.

• Risk Premium 6.5%, the assumption uses the GDP growth, because there is not market return on the stock yet, the investors would use the GDP growth as their based.

• Beta 0.52; the assumption was given by the company.

• WACC 11.9%. This assumption is equal to the Cost of Equity because there is no Cost of Debt.

• Long Term Growth 6.5%; this assumption follows the growth of GDP as well.

chapter 3 company profile 3.1 history of ace hardware …thesis.binus.ac.id/doc/bab3/bab...

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