The past year has been a milestone for SMI as we achieved positive EBITDA in FY2018 within the relatively short time span of three years and positioned ourselves towards a consumer-centric business model in Myanmar.
Our focus on consumers and in particular, international travelers has intensified over the last twelve months and these areas will be core to our future growth. We have maintained tight discipline on overheads and improved our underlying gross margins.
The impairment charge for the tower business gives us further impetus to dispose of this non-core business.
It has been the first full year of operation for travel retail and we continue to refine the offer and product mix. Whilst there has been some adverse press for Myanmar which has affected western tourism, Asian travelers have continued to increase and overall airport passenger traffic grew by around 9% in the last calendar year.
It is worth highlighting that we have marked the first full year of operation for our duty-free travel retail business, spanning across 72,000 square feet of retail space in Myanmar’s new international terminal.
Our success within the duty-free travel retail business has attracted the attention of major mall owners and developers in Yangon and it has culminated in the Group’s expansion of our retail presence with eight retail store in Junction City and two retail stores in Myanmar Plaza in FY2018.
We now have responsibility for over 700 staff in Myanmar and we are intensifying our efforts to broaden their workplace skills, introduce international; business practices as well as bring on board returning Myanmar nationals who want to participate in the growth of their domestic economy.
For our Retail business activities, we have worked hard with our business partners to improve our range and product mix and this has resulted in every encouraging results such that their sales of duty free travel retail growing much faster than the growth in passenger traffic. With the impending closure of the other terminal at Yangon International Airport, we will be well positioned for future growth as all the passenger traffic will be diverted through the T1 terminal in which we operate.
Having successfully started our retail operations in Junction City and Myanmar Plaza, discussions have been initiated with leading apparel and lifestyle brands with a view to expanding our presence in a border spectrum of Myanmar’s consumer market.
F&B Franchise business will focus on the rollout our 3 main franchises with a particular emphasis on Coffee Bean and Tea Leaf, now that we have succeeded in signing a national rollout agreement and expanding location for Ippudo, menu innovation will continue to be a key feature for Crystal Jade. We have found that both domestic consumers and international residents have been very receptive to introduction of these new food concepts in Myanmar.
F&B Distribution saw a year of rebuilding as we dissolved the joint venture of Quarto Products Pte.Ltd. and we have begun the process of expanding our F&B distribution portfolio, which notably includes a wine distribution agreement with a major wine supplier MMI.
Auto Services is poised for further expansion as there has been an improvement in passenger car supply with more kit-assembled cars in Myanmar, and it has allowed us to expand our fleet to just under 200 cars whilst growing our corporate customer base.
Construction Services signed a comprehensive exclusive distribution agreement with SANY, a leading construction equipment manufacturer in Changsha, china, on 30 October 2017. Coupled with improved financing option, this business has started to increase its market share despite a competitive construction equipment market in Myanmar.
Logistics a joint venture with one of Japan’s leading logistic companies, SENKO, and we have created the first modern cold storage warehouse in Yangon which has been virtually full since its opening and we have expansion plans to establish more of such warehouses across Myanmar.
Regarding the group’s two non-core businesses; Serviced Offices has seen stable occupancy and reduced operating costs which has substantially reduced losses and as for the Tower business, this is still a business that we are looking to exit, in spite of the last sale having fallen through. During the past financial year, we have reduced operating costs and increased co-lease up to approximately 80%.
The underlying improved performance of our core businesses in FY2018 gives us strong confidence for the next financial year, where we see limited need for capital investments and our five core business pillars are poised to further expand and entrench our business presence in Myanmar.
In our vision to become Myanmar’s leading consumer-centric group, we recognize there is much to do and I am confident of bright future based on our firm foundations in Myanmar.
President and Chief Executive Officer