PEFINDO Rating Criteria & Methodology

Retail Industry - Key Success Factors

BUSINESS RISK ASSESSMENT

Market Position
The analysis covers comprehensive assessments on the company's competitive market position, which
could be quantitatively and qualitatively determined using the company's market share, size in terms of
sales value and coverage, brand recognition, as well as its growth history and anticipated growth prospect
going forward. The analysis also cover the assessments on the company's ability in providing good services
and quality merchandises with competitive prices, which would satisfy customer demand and positively
affect the company's performance in both business and financial sides. Moreover, the company's strategy
to address the challenges in response to changes and potential changes in the marketplace is highly
considered, since inability to successfully identify and exploit new markets or opportunities would negatively
influence its future operating results. In addition, types of retailing activities are taken into account, as
different types of retailing vary in terms of barriers to entry, fashion and obsolescence risks, cyclicality and
seasonality. The company's customer base, store concept/format and pricing policy are also considered in
the rating assessments.

Marketing and Distribution Channel

The analysis covers diligent reviews on the company's marketing policy, strategy, and distribution network
in an effort to attract customers and provide good shopping experiences and conveniences for customers.
In general, good and innovative marketing and merchandising, as well as store/layout remodeling and
renovation programs can stimulate sales. The assessments also consider the development of a strong
private-label business as a value alternative for consumers, which could retain customer loyalty and provide
better margins. Moreover, the company's number of outlets and other supporting facilities in strategic
locations in order to come closer to customers, and the company's market expansion strategy (aggressive
vs. conservative) are also incorporated in the rating consideration.

Diversification
The analysis includes risk assessments on the company's diversification strategy and policy in terms of
products, store formats, target customers and geographic coverage in an effort to maintain steady revenue
stream. In general, excellent strategy of product mix/merchandise assortments to fulfill its target market's
necessities, appropriate store formats to cater different customers' segments and sufficient geographic
diversity of the company's outlets to improve sales are important factors in retail industry to successfully
do business.

Operating Management
The analysis include thorough reviews on how well the company manages its daily business operation, as
a failure to effectively and efficiently manage the operation would adversely affect the company's future
operating results. The company's cost control strategy and policy is also diligently assessed, as the
company's strong ability to control costs is crucial, particularly in the fiercer competition business
environment. The analysis on operating margins (EBIT and EBITDA) is also assessed by comparing the
company’s ratios with other players in the same industry or other industry with similar characteristic, which
is important in analyzing the company’s competitiveness. The analysis is helpful to measure operating
efficiency and the company’s flexibility in adjusting selling price. The company's inventory strategy and
policy is also analyzed, as a good inventory management will minimize slow moving and/or obsolete
inventory so that there will be lower inventory costs, thus lead to lower and competitive merchandise prices.
The use of information technology especially in inventory management to monitor flow of goods in order
to have more efficient operation in terms of time and cost and the company's purchasing power with
respect to suppliers are also incorporated in the rating consideration. Generally, larger players have

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 PEFINDO Rating Criteria & Methodology

competitive advantages, as they have stronger bargaining power and economies of scale in transportation,
logistics, purchasing and advertising.

FINANCIAL RISK ASSESSMENT

Financial Policy
The analysis includes a review of management's philosophy, strategy and policies toward financial risk
(historical, current and future). It also includes examination of management's financial targets (growth,
leverage, debt structure and dividend policy), hedging and other policies in an effort to reduce the
company's overall financial risk (historical vs. future). The company's track record on fulfilling its previous
financial obligations is also examined to determine the degree of its commitments and willingness and
consistency to pay obligations on a timely basis.

Capital Structure
The analysis covers careful examination of the company's historical, current and projected leverage (total
and net debt in relation to equity and EBITDA), debt structures and composition (rupiah vs. foreign
currencies, short-term debt vs. long-term debt, fixed rate vs. floating rate). Management of its liabilities is
also thoroughly reviewed.

Cash Flow Protection And Liquidity

The analysis covers thorough reviews of the company's cash flow generation and capability to meet its
short-term and long-term financial obligations. The degree of its debt-servicing capability level is measured
by the company's interest and debt coverage ratio. The degree of its liquidity in fulfilling its short-term
liabilities relative to its sources of cash is also thoroughly assessed. The sources of cash are assessed, which
include cash balance, estimated cash from operations, unused credit facilities, and other sources of cash.
The uses of cash other than short-term liabilities, such as capital expenditure, are also assessed.

Financial Flexibility
The analysis covers combined evaluations of all the financial measures above to arrive at an overall view
of the company's financial health. Analysis of other related factors or figures that are not specifically
examined above, such as insurance coverage, restrictive covenants in loan/bond agreements or parental
linkage and support, are also covered. Other analytical tasks covered are the evaluation of the company's
options under stress, including contingency plans and other capabilities and flexibility to deal with various
adverse scenarios. Shareholder support and commitment are also greatly considered.

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DISCLAIMER
The rating contained in this report or publication is the opinion of PT Pemeringkat Efek Indonesia (PEFINDO) given based on the
rating result on the date the rating was made. The rating is a forward-looking opinion regarding the rated party’s capability to meet
its financial obligations fully and on time, based on assumptions made at the time of rating. The rating is not a recommendation for
investors to make investment decisions (whether the decision is to buy, sell, or hold any debt securities based on or related to the
rating or other investment decisions) and/or an opinion on the fairness value of debt securities and/or the value of the entity assigned
a rating by PEFINDO. All the data and information needed in the rating process are obtained from the party requesting the rating,
which are considered reliable in conveying the accuracy and correctness of the data and information, as well as from other sources
deemed reliable. PEFINDO does not conduct audits, due diligence, or independent verifications of every information and data received
and used as basis in the rating process. PEFINDO does not take any responsibility for the truth, completeness, timeliness, and accuracy
of the information and data referred to. The accuracy and correctness of the information and data are fully the responsibility of the
parties providing them. PEFINDO and every of its member of the Board of Directors, Commissioners, Shareholders and Employees
are not responsible to any party for losses, costs and expenses suffered or that arise as a result of the use of the contents and/or
information in this rating report or publication, either directly or indirectly. PEFINDO generally receives fees for its rating services from
parties who request the ratings, and PEFINDO discloses its rating fees prior to the rating assignment. PEFINDO has a commitment in
the form of policies and procedures to maintain objectivity, integrity, and independence in the rating process. PEFINDO also has a
“Code of Conduct” to avoid conflicts of interest in the rating process. Ratings may change in the future due to events that were not
anticipated at the time they were first assigned. PEFINDO has the right to withdraw ratings if the data and information received are
determined to be inadequate and/or the rated company does not fulfill its obligations to PEFINDO. For ratings that received approval
for publication from the rated party, PEFINDO has the right to publish the ratings and analysis in its reports or publication, and publish
the results of the review of the published ratings, both periodically and specifically in case there are material facts or important events
that could affect the previous ratings. Reproduction of the contents of this publication, in full or in part, requires written approval
from PEFINDO. PEFINDO is not responsible for publications by other parties of contents related to the ratings given by PEFINDO.

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