SET Announcements

Information Memorandum Siam Global House Public Company Limited (GLOBAL) Head office location: 232 Moo 19, Rob Muang, Muang, Roi Et 45000 Tel: 0-4361-9850-99 Fax: 0-4351-9777 Website: www.globalhouse.co.th Listed date : 19 August 2009 (First trading date: 19 August 2009) Listing securities : Common stock: 960 million shares Par value: 1 Baht Total paid-up capital: 960 million Baht (Offering to public investors: 260 million shares, Par value: 1 Baht, Total capital: 260 million Baht) Capital : As of 19 August 2009 (Trading Commencement), Authorized capital: Common stock 960 million Baht Paid-up capital: Common stock 960 million Baht Secondary Market : Stock Exchange of Thailand (SET) IPO offering price : 2.55 Baht Offering Date : 10, 11 and 13 August 2009 Objective and plans for : 1. Store expansion 300 million Baht utilizing the capital increase 2. Working capital reserve 340 million Baht Nature of business GLOBAL is a one-stop shopping home center, which offers construction material, home decorative products, tools and equipment used in construction, home improvement, and household and gardening decoration in modern trade warehouse style. The company operates its businesses under the Global House name. At present, GLOBAL has seven stores in upcountry, covering branches in Roi Et, Khon Kaen, Udon Thani, Chiang Mai, Rayong, Chonburi and Nakorn Pathom. GLOBAL offers a wide range of products with more than 50,000 items, comprising of all product categories for construction, home improvement and decoration as well as covering numerous low-to-high end products. Based on professional and experienced procurement team, all products presenting at GLOBAL s warehouse can be deem as having high quality, meeting customers needs and corresponding to market trend. The mega warehouse concept and inspiration to be a truly one-stop shopping home center have eventually driven to GLOBAL s typically large store size with sellable area approximating 18,000 26,000 sq.m. and more than 200 parking lots. GLOBAL s mega warehouse is generally segregated into two areas: - Shopping area is selling space where customers can comfortably walk and select a various number of products offering at GLOBAL. Within the store s shopping area, there are sufficient staffs who are ready for serving customers and giving advice according to their needs. - Drive Through is area displaying building and construction material for structural work, such as cement and steel. The company also provides folk lifts and overhead cranes for customers in order to better service customers when shopping at GLOBAL s stores. Customers can drive in, purchase, and pick up goods within approximately 10 minutes. GLOBAL s products can be categorized into two groups as following: 1. Construction material for structural work, e.g. cement, steel, nail, wire, roofing, etc. 2. Home decorative products, e.g. door, window, hardware tool, sanitary ware, ceramic tile, paint and finishing, etc. Revenue structure 2006 2007 2008 1Q/2009 MB % MB % MB % MB % Sales 2,671.98 99.23 3,216.71 98.92 3,967.41 99.15 1,014.34 99.11 - Construction Material 1,102.46 40.94 1,398.04 42.99 1,636.51 40.90 415.80 40.63 - Decorative products 1,569.52 58.29 1,818.67 55.93 2,330.89 58.25 598.54 58.48 Other income* 20.77 0.77 35.19 1.08 33.96 0.85 9.07 0.89 Total revenue 2,692.75 100.00 3,251.90 100.00 4,001.36 100.00 1,023.41 100.00 Remark: * Other income includes delivery service fee, installation fee, rental income, interest income, gain (loss) from foreign exchange, gain (loss) from asset disposal, and marketing promotional income Target groups of customers GLOBAL has five target groups of customers as follows: 1. Retail customers end users, such as home owners and small-to-medium-sized contractors 2. Retail stores mom and pop stores which resell products to end users 3. Contractors persons who purchase and use products in construction, home improvement and house decoration for end users 4. Project owners property developers in terms of residential property, hotel, resort and apartment 5. Governmental agencies and corporate customers Revenue breakdown by target groups of customers (2008 and 1Q/2009) Sales (%) Customers 2008 1Q/2009 Retail customers 73.69% 81.52% Retail stores 10.08% 5.81% Contractors 14.01% 10.40% Project owners 1.39% 1.16% Governmental agencies & corporate customers 0.84% 1.11% Total 100.00% 100.00% Retail customer group has gradually gained more shares within GLOBAL s customer base. The increasing proportion of this customer group is considered to eventually benefit GLOBAL in terms of ability to sell goods with high gross margin. Furthermore, the company s cash flow is healthier as these customers typically generate cash sales to GLOBAL via either cash or credit card payment. Distribution channels GLOBAL s stores normally situate within strategic location, which embraces by residential area and appears to be convenient for both customers and retail stores in terms of transportation to GLOBAL s stores. GLOBAL s store format style is similar to typical warehouse with one floor and airy atmosphere. GLOBAL arrays a tremendous number of offering products in a convenient and efficient manner. The company s stores emphasize on modern trade image and leading position in retail business. GLOBAL has planned to develop e-commerce business in the future. To serve outside customers or customers in nearby provinces, the company employs distribution channels via its sales/marketing staffs, who normally visit their regular customers at least two times a month. In addition, the company usually sends journals to its target groups of customers. Supply of products GLOBAL has established a centralized procurement team at Roi Et Branch, responsible for the corporate procurement of all warehouse stores. To better enhance performance efficiency, the company employs a computer system called Minimum Stock to control the corporate purchasing orders. In addition, GLOBAL has recently invested in an improvement program for entire corporate procurement system, resulting in increasing convenience for customers, fastening ordering process with manufacturers and suppliers, improving efficiency of inventory management, and decreasing the overall inventory handling costs accordingly. Product sourcing approach GLOBAL is active in terms of continuously sourcing new products to offers its customers. Generally there are three sourcing approaches utilized by the company as follows: 1. Manufacturers are the ones initiating opportunities and offering products to GLOBAL 2. GLOBAL s procurement team approaches manufacturers both domestic and overseas by structuring site visits to investigate manufacturers products and factories 3. The procurement team sources products based upon customers needs and specification Suppliers GLOBAL operates as a leading retailer of construction material, hardware tools and household decorative products. Currently a number of major manufacturers of building material and decorative products in the country are also GLOBAL s suppliers. Followings are the company s critical suppliers: 1. Domestic manufactures e.g. TPI Polene Plc., TOA Paint (Thailand) Co., Ltd., and Sosuco Ceramic Co., Ltd. 2. International producers are suppliers in China and Indonesia, who offers products, such as granite tile, glass block, spa tub, bathing screen, stainless for bathing ware, ply board, steel door, hardware tool, doorknob, hinge, switch and plug, lighting, insulated sheet etc. The company s purchase orders are divided into domestic and overseas as presented in the below table. 2008 1Q/2009 Purchase orders MB % MB % Domestic 3,393.15 94.89% 845.78 93.36% International 182.70 5.11% 60.12 6.64% Total 3,575.85 100.00% 905.90 100.00% Market competition Market segmentation in industry of retail construction material and decorative products can be categorized as following: 1. Operators of home center 1.1 Home Pro managed by Home Product Center Plc. which operates retail business. Home Pro offers goods and services related to construction, improvement, decoration and renovation of building, home and residential property under the philosophy of one-stop shopping home center. Currently there are 33 Home Pro stores around the country. 1.2 Home Works operated by CRC Power Retail Co., Ltd. Home Works is a retailer under the Central Retail Group with the full-range provision of products and equipment for residential decoration and renovation. At present, the company has 10 stores. 2. Specialty stores are retail shops emphasizing on specific goods in construction and home decorative products. 2.1 Retail stores selling only construction material such as Cement Thai Home Mart, which offers merely goods of Cement Thai Group. Thus, other product categories such as ceramic, sanitary ware, painting, electrical equipment and plumbing, are provided with limited number and variety. 2.2 Ceramic and sanitary ware such as Sukapan Center, Boonthavorn, Decor mart, Grand Home Mart and Inter Sanitary Ceramic, which focus on goods relating to ceramic, sanitary ware and bathing ware. 2.3 Furniture and home decoration such as Index Living Mall and S.B. Furniture which operate retail business concentrating on household decorative goods, furniture, bedding and kitchen ware. These players normally target at customers who have high purchasing power in the market. 2.4 Specialty shops such as painting outlets, plumbing stores, electrical equipment stores and hardware shops. These players provide limited product variety to customers with store layout under generally traditional style of retail business. According to reports of Business and Economic Research Department of Krung Thai Bank in December 2007, there are currently 9 leading retail operators of building material and household decorative products. These players are increasingly active in terms of store expansion and selling agent development, especially in urban area, business zone and department stores in Bangkok, metropolitan arena and various critical regions. As a consequence, stiff competition is pervasive within this industry. Leading retail operators of building material and decorative products (as of July 2009) Operators Brand No. of branches Location Cement Thai Sales & Marketing Cement Thai Home Mart 400* Throughout the country Co., Ltd. Home Product Center Plc. Home Pro 33 17 stores in Bangkok, and 16 stores in upcountry CRC Power Retail Co., Ltd. HomeWorks 10 Bangkok and rural area Siam Global House Plc. Global House 7 Roi Et, Khon Kaen, Udon Thani, Chiang Mai**, Rayong, Chonburi, and Nakorn Pathom Boonthavorn Ceramic Co., Ltd. Boonthavorn 6 Bangkok, Pathum Thani, Samut Prakarn, and Samut Sakorn Grand Home Mart Co., Ltd. Grand Home Mart 4 Bangkok and Nontaburi Decor Mart Co., Ltd. Decor Mart 3 Bangkok Chonburi Kanyong Co., Ltd. Kanyong Home Store 2 Chonburi 5 Ubonwatsadu Co., Ltd. Ubonwatsadu 2 Ubonratchathani and Nakorn Ratchasima Source: Business and Economic Research Department of Krung Thai Bank Remark: * Represent selling agents. ** On 6 November 2008, there was a fire at GLOBAL Chiang Mai Branch. Nonetheless, the company has completely re-constructed and commercially re-operated this outlet since April 2009. GLOBAL has continuously conducted analysis regarding the industry trend, customers needs and leading players in the marketplace. Based on the company s capability assessment of competitors, it is evident that each operator has pursued different strategies in terms of business model, store layout, and products and services offering to customers. Their product positioning is thus diverse in the market and customers perception. Therefore, it appears that these leading players do not compete directly with each other in the industry. Accordingly, GLOBAL has no direct competitor in the marketplace. In fact, GLOBAL s business model is unique and relatively new in the industry. The company has inspired to offer both wide range of product variation and availability at all time to customers, thus resulting in over 50,000 product lists presenting at GLOBAL s mega warehouse stores. The procurement is regarded as one of GLOBAL s key success factors in operating its retail business. The company normally sources high quality products with reasonable prices. All products can be refunded within 30 days. Some products even have life-time guarantee from GLOBAL or its suppliers. All in all, GLOBAL has ultimately poised out as differentiated operator of retail business in the industry. Environmental impact - none Summary of business contract Party: A body of persons Petch Num Nueng by Warunee Suriyawanakul Date: 1 July 2007 Contract summary: - The land owner granted GLOBAL for renting land with title deed no. 23237 for transferring the company s goods. The site is located on Taweewattana (Bangprom), Talingchun, Bangkok with area of 0-2-96 rai. - The contract has 5-year maturity, starting from 1 July 2007 to 1 July 2012. - Monthly rental expense of 20,000 Baht Benefits of renting land: It is crucial for GLOBAL to rent this land from the owner as such location is around the product distribution area of numerous leading manufacturers. The site is also appropriate for supply transportation from suppliers. Consequently, GLOBAL can pursue cross docking management to better enhance the corporate performance efficiency. The cross docking strategy assists in restricting the number of any left over products transferred. Hence, establishment of centralized distribution center is not greatly critical for GLOBAL s operation. In fact, the cross docking has incurred only marginal operating costs relative to managing a distribution center. As a consequence, renting this land is the strategic decision made by GLOBAL. Investment size: GLOBAL has invested in this land in terms of land improvement and concrete pouring which was conducted for the purpose of product arraying. The investment cost is approximately 0.36 million Baht. Feasibility study (if any): - none - Technical assistance - none - and management: Future Projects: GLOBAL has consistently developed store expansion plan. Currently, the company has seven operating stores at Roi Et, Khon Kaen, Udon Thani, Chiang Mai, Rayong, Chonburi and Nakorn Pathom. The company also has a number of new stores in its pipeline, namely, in Bangkok (Chang Watthana), in the Central of Thailand (Ratchaburi, Ayudhaya and Nakornsawan), in the Northeast of Thailand (Kalasin), including in metropolitan area nearby Bangkok and other prime provinces. In 2009, GLOBAL has planed to launch one new store. To develop a typical GLOBAL s branch, the company needs investment outlays around 300 million Baht. Nevertheless, GLOBAL has normally conducted deliberate assessment of investment opportunities in terms of store location, market size, customer behavior, nearby competitors in such area, and detailed financial projection of investment size, sales and profit before making any investment decision. Related transactions From 2007 to the first quarter of 2009, GLOBAL has incurred connected transactions with persons or groups of persons who may have potential conflicts of interest with the company as following: 1. Conflicted party: Inter Concrete Industry Co., Ltd. ( Inter Concrete ) Business description: Operate a factory producing ready-mixed concrete and concrete related products. Relationship: There are four GLOBAL s directors who are directors and major shareholders of Inter Concrete, namely Witoon Suriyawanakul, Anawat Suriyawanakul, Warunee Suriyawanakul, and Tepakul Poonlarp. Individual directors hold shares of Inter Concrete 20.20%. Tepakul Poonlarp is an authorized director of Inter Concrete. There are another two shareholders of GLOBAL who are also Inter Concrete shareholders, namely Nipapan Suriyawanakul and Pathumwan Suriyawanakul. GLOBAL s shareholders account for a total of 86.53% shares in Inter Concrete s capital. Description of connected transactions: 1.1 GLOBAL sold mixed cement powder and products related to construction to Inter Concrete. Size of connected transaction: 2007: 15.54 million Baht 2008: 17.23 million Baht 1Q/2009: 2.92 million Baht Necessity / Rationale: This transaction is related to sales of goods which conditions are comparable to ones when GLOBAL sells products to other non- related companies. This is relatively similar to when retail stores (i.e. mom and pop stores) purchase and then resell goods to end users. By incorporating purchase orders from both GLOBAL and Inter Concrete, bulk purchases contribute to superior discounts from suppliers. Both parties therefore benefit in terms of better gross profit margin. (more)