Chow Tai Fook Jewellery Group Limited. Stock code: 1929.HK

Transcription

1 Chow Tai Fook Jewellery Group Limited Stock code: 1929.HK June 2017

2 Agenda About Chow Tai Fook Financial Highlights Business Outlook and Strategies

3 About Chow Tai Fook

4 The Story of Chow Tai Fook Launched the gold jewellery products in Hong Kong & Macau, which became an industry standard in 1980s Opened the first POS in Beijing, Mainland China Started e-commerce business Opened our 2,000 th POS in Wuhan, Mainland China Acquired Hearts On Fire, a US premium diamond brand Became a reference price member of Shanghai Gold Benchmark Price Unveiled the Chow Tai Fook T MARK diamond brand Started engaging in the jewellery business Implemented the Fixed Price policy in Hong Kong & Macau which enhanced the pricing transparency Centralised Mainland China operations and established the headquarters in Shenzhen Listed on the Main Board of The Stock Exchange of Hong Kong (stock code: 1929) Unveiled the Cullinan Masterpiece A Heritage in Bloom 4

5 Shareholding Structure Cheng Yu Tung Family (Holdings) Limited Cheng Yu Tung Family (Holdings ll) Limited 49.0% 46.7% Chow Tai Fook Capital Limited 81.0% Chow Tai Fook (Holding) Limited Public Float 89.3% 10.7% Chow Tai Fook Jewellery Group Limited (Stock code: 1929.HK) As at 31 March

6 Our Unrivalled Competitive Strengths Dynamic management team with diversity Vertically integrated business model Iconic & trusted brand Multi-dimensional sales channels Diversified product portfolio 6

7 Board Structure Board of Directors Cheng Kar-Shun, Henry Chairman Strategic direction and overall performance of the Group Wong Siu-Kee, Kent Managing Director Cheng Chi-Kong, Adrian Executive Director Cheng Chi-Heng, Conroy Executive Director Chan Sai-Cheong Executive Director Overall management of the Group Brand identity re-creation and marketing activities Procurement of diamonds & gemstones and production management Mainland China operations Suen Chi-Keung, Peter Executive Director Hong Kong, Macau and overseas operations Cheng Kam-Biu, Wilson Non-Executive Director Chan Hiu-Sang, Albert Executive Director Diamond procurement and operations of Diamond Department Cheng Ping-Hei, Hamilton Finance Director Financial management and company secretarial functions Cheng Ming-Fun, Paul Independent Non-Executive Director Liu Chun-Wai, Bobby Executive Director Business innovation and Mainland China operation management Fung Kwok-King, Victor Independent Non-Executive Director Kwong Che-Keung, Gordon Independent Non-Executive Director Lam Kin-Fung, Jeffrey Independent Non-Executive Director Or Ching-Fai, Raymond Independent Non-Executive Director Nomination Committee Remuneration Committee Audit Committee Executive Committee 7

8 Vertically Integrated Business Model Upstream Midstream Downstream Processed 200,000+ carats of diamonds in FY2017 Produced 60%+ of gem-set jewellery sold Sold 15 million+ pieces of products in FY2017 Procurement of raw materials All rough diamonds sourced are in compliance with Kimberley Process and De Beers Best Practice Principles Rough diamond cutting and polishing In-house diamond cutting and polishing capabilities As at 31 March 2017 Design 580+ employees in Chow Tai Fook Jewellery Creative Centre Jewellery manufacturing 4 production sites in Shunde, Shenzhen, Wuhan and Hong Kong Logistics and distribution Automated facilities in Logistics and Distribution Centre in Shunde enable more frequent inventory replenishment and enhance inventory turnover Retail and wholesale 2,300+ POS in Mainland China, Hong Kong, Macau and other markets 40+ e-commerce platforms 8

9 Extensive Retail Network Mainland China Jewellery business POS by tier of cities Tier I Tier II Tier III and others 12.3% 54.4% 33.3% Hong Kong, Macau and other markets POS by geography Hong Kong Macau Other markets 61.5% 14.1% 24.4% POS by operation model Self-operated POS Franchised POS POS by area in Hong Kong/Macau Touristic area Other area 61.9% 38.1% 69.6% 30.4% During FY2017 Location FY2015 FY2016 Addition Reduction Net FY2017 Mainland China 2,124 2, (168) 67 2,246 Hong Kong (7) (6) 83 Macau (2) (1) 19 Taiwan (1) (1) 22 Korea Malaysia Singapore United States Total 2,257 2, (178) 62 2,381 9

10 Diversified Product Portfolio High-end Luxury HEARTS ON FIRE White Kites Collection Le Labyrinthe Artistique Collection Bridal Collection Charming Gold Collection Mass Luxury HEARTS ON FIRE White Kites & LORELEI Collection CTF Little Gift Collection FOREVERMARK Swan Collection Youth Line Disney Tsum Tsum Collection Hello Kitty & My Melody Collections 10

11 E-commerce Mainland China Jewellery E-commerce RSV 41.4% YoY Contribution to respective RSV 3.3% Retail Sales Volume 9.3% E-commerce Platforms 40+ e-commerce platforms including Chow Tai Fook e-shop 364,000 unique daily visitors Product Offerings Youth line and fashion jewellery products Exclusive online products Data of FY

12 Major Awards & Recognitions Governance Institutional Investor : All-Asia (ex-japan) Executive Team Rankings (Consumer/Discretionary sector) (2016) - Most Honored Company Third Place - Best Investor Relations Third Place (Nominated by the buy side and sell side) - Best Investor Relations Third Place (Nominated by the sell side) - Best CEO - Second Place Kent Wong (Nominated by the sell side) - Best Investor Relations Professional Third Place Danita On (Nominated by the buy side and sell side) - Best Investor Relations Professional First Place Danita On (Nominated by the sell side) - Best Website - First Place (Nominated by the buy side and sell side) The Hong Kong Institute of Directors : Directors Of The Year Awards (2015) Corporate Governance Asia: The 7th Asian Excellence Award (2017) - Asiaʼs Best CEO (Investor Relations) Kent Wong - Asiaʼs Best CFO (Investor Relations) Hamilton Cheng - Best Investor Relations Company (Hong Kong) - Best Investor Relations Professional Danita On Corporate Governance Asia: The 12 th Corporate Governance Asia Recognition Awards 2016 The Best of Asia Asia s Outstanding Company on Corporate Governance (2017) Hong Kong Management Association: Best Annual Reports Awards Best New Entry (2016) 12

13 Major Awards & Recognitions Corporate branding Forbes Global 2000 (2016) Brand Finance Global 500 (2017) IAIR Awards : Best Company for Leadership Luxury Sector, Asia ( ) World Branding Awards : Brand of the Year, Retailer Jewellery, Hong Kong (2016) World Brand Lab : China s 500 Most Valuable Brands Ranked 45 th (2016) World Brand Lab : China s 10 Most Influential Brands (Jewellery) Ranked 1 st (2016) E-commerce and technology HKSAR Government: Hong Kong Awards for Industries Productivity and Quality Grand Award (2016) Asia Pacific ICT Alliance : Asia Pacific ICT Alliance Awards Merit Prize in Retail and Supply Chain Management (2016) L2 : Digital IQ Index Luxury China Digital Competence Ranked 6 th (2017) JNA Awards : Industry Innovation of the Year (2015) GS1 Hong Kong and Guangdong - Hong Kong RFID Technology Service Center : Guangdong Hong Kong IoT Awards Best IoT Applications Award (2014) Asia Pacific ICT Alliance Awards - Winner Award in Retail and Supply Chain Management (2014) 13

14 Major Awards & Recognitions Corporate social responsibility Diamond Empowerment Fund: Diamonds Do Good Awards Community Development Award (2016) World Green Organisation and United Nations Sustainable Development Goals: Green Office Label and Better World Company Label (2016) The Hong Kong Council of Social Service : Caring Company ( ) Hong Kong Productivity Council : The Hong Kong Outstanding Corporate Citizenship Award Enterprise Category Merit Award (2016) GS1 Hong Kong : Consumer Caring Company ( ) Hang Seng Global Composite Index Hang Seng Composite Index Hang Seng China (Hong Kong-listed) 100 Index FTSE Asian Retail Index Hang Seng High Dividend Yield Index Hang Seng Corporate Sustainability Benchmark Index Index constituent 14

15 Financial Highlights

16 Summary Income Statement For the year ended 31 March (HK$ m) YoY Change Revenue 64,277 56,592 51, % Contribution of gem-set jewellery % 26.8% 25.3% -1.5% pts Gross profit 19,072 15,641 14, % Gross profit margin 29.7% 27.6% 29.2% +1.6% pts Adjusted gross profit margin % 28.9% 28.5% -0.4% pts Selling and distribution costs and general and administrative expenses ( SG&A ) 12,344 11,623 10, % SG&A to revenue ratio 19.2% 20.5% 20.1% -0.4% pts Core operating profit 6,691 5,050 4, % Core operating profit margin 10.4% 8.9% 9.1% +0.2% pts Profit attributable to shareholders 5,456 2,941 3, % Basic earnings per share HK54.6 cents HK29.4 cents HK30.6 cents +3.9% Dividend per share HK28.0 cents HK80.0 cents HK51.0 cents % 1 Revenue from jewellery trading and service income from franchisees excluded 2 Adjusted gross profit margin = Gross profit margin excluding the impact of the unrealised hedging gain / loss on gold loans 3 Being a total of full year dividend of HK16 cents per share and special dividend of HK35 cents per share. The proposed final and special dividends of HK30.0 cents per share are subject to the approval of shareholders at the forthcoming annual general meeting 16

17 Revenue Breakdown Reportable Segments (HK$ m) 77,407 YoY Change 57, % 64,277 56,592 51, % 52.8% 58.9% 59.5% 60.5% -7.9% Mainland China Hong Kong, Macau and other markets 47.2% 45.5% 41.1% 40.5% 39.5% -11.8% FY2013 FY2014 FY2015 FY2016 FY2017 (HK$ m) 1H2016 2H2016 1H2017 2H2017 1H2017/ 1H2016 Change 2H2017/ 2H2016 Change Mainland China 16,660 17,011 12,851 18, % 6.8% Hong Kong, Macau and other markets 11,464 11,457 8,675 11, % 0.8% Overall 28,124 28,468 21,526 29, % 4.4% 17

18 Revenue Breakdown Products (HK$ m) 56, % 58.4% 77, % 61.3% 64, % 53.3% 56, % 55.8% 50, % 57.4% YoY Change -9.5% -14.6% -6.8% Gem-set jewellery Gold products Platinum / Karat gold products Watches 14.8% 5.3% 13.4% 14.4% 4.3% 5.3% 12.4% 11.5% 5.0% 5.7% FY2013 FY2014 FY2015 FY2016 FY % 4.6% % of revenue 1H2016 2H2016 1H2017 2H2017 Gem-set jewellery 26.6% 27.1% 27.2% 24.0% Gold products 55.7% 55.9% 53.6% 60.1% Platinum / Karat gold products 12.7% 12.1% 12.9% 10.6% Watches 5.0% 4.9% 6.3% 5.4% 1 Revenue from jewellery trading and service income from franchisees excluded 18

19 Same Store Sales Growth ( SSSG ) Major Markets 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 Mainland China Hong Kong and Macau FY2016 FY2017 SSSG SSSG SSS volume growth Mainland China -9.6% -5.2% -15.8% Hong Kong and Macau -21.7% -12.4% -18.8% 19

20 SSSG Major Products SSSG Mainland China SSSG Hong Kong and Macau -1.8% 21.6% -3.7% -3.5% -2.8% -7.0% -23.5% -12.3% -17.2% -4.2% -28.7% -21.5% -26.7% 7.0% 17.2% 5.1% -16.0% -24.8% 4.0% -16.3% -21.7% -23.8% -23.8% -24.9% 7.8% -11.9% -23.0% -17.3% -27.3% -36.0% 19.2% -17.4% Gem-set jewellery Gold products Gem-set jewellery Gold products Same store average selling price 1 (HK$) FY2016 FY2017 Gem-set jewellery 5,900 6,200 Gold products 3,000 3,500 Same store average selling price 1 (HK$) FY2016 FY2017 Gem-set jewellery 12,100 12,000 Gold products 5,700 6,700 1 Average selling price was rounded to the nearest hundred HK dollar, and was calculated based on FY2017 Same Store count and included value-added tax (VAT) in Mainland China 20

21 Core Operating Profit and Profitability Analysis Core operating profit by reportable segment (HK$ m) Profitability Mainland China 29.1% 29.2% 29.7% 2,913 1,527 3,777 2,006 1,771 1,386 1,582 1, FY2015 FY2016 FY2017 Core operating profit YoY Hong Kong, Macau and other markets 1, ,364 1,782 2,026 1,074 3,575 Hong Kong, Macau and other markets (1H)/(2H) Mainland China (1H)/(2H) 1H2017 2H2017 FY % 8.1% -36.3% Mainland China -2.1% 13.7% 6.3% 19.8% 20.0% 18.9% 10.0% 10.0% 11.5% FY2015 FY2016 FY2017 Adjusted gross profit margin Core operating profit margin 29.2% 28.5% 18.3% 11.0% 26.7% 21.4% 22.0% 7.4% SG&A ratio Profitability Hong Kong, Macau and other markets 5.3% FY2015 FY2016 FY2017 Adjusted gross profit margin Core operating profit margin SG&A ratio 21

22 SG&A Analysis (HK$ m) 19.2% 20.5% 20.1% 12,344 4,057 % 6.3% 11,623 3,881 % 6.8% 10,307 3,550 % 6.9% YoY Change -11.3% -8.5% Staff costs Concessionaire fees 2, % 1, % 1,716 1, % 2, % 1.8% 1.7% 1,830 1, % % 1.6% % % % 2.7% 2, % 2, % 1, % 3.6% 0.9% 1.5% 3.8% -11.9% -11.9% -28.0% -2.9% -13.1% Rental expenses Advertising and promotion expenses Depreciation and amortisation Other SG&A As a % of revenue FY2015 FY2016 FY

23 SG&A Staff Costs (HK$ m) Mainland China Hong Kong and Macau 6.4% 7.2% 6.8% FY2017 Average no. of employees 25, % YoY 6.1% 6.0% 6.4% FY2017 Average no. of employees 3, % YoY 2,403 2,411 1, % 26.1% 2, % 44.0% 1, % 1, % 69.6% 73.9% 69.2% 56.0% 65.6% 63.3% FY2015 FY2016 FY2017 Variable proportion Fixed proportion As a % of respective revenue FY2015 FY2016 FY2017 Variable proportion Fixed proportion As a % of respective revenue 23

24 SG&A Concessionaire Fees and Rental Expenses (HK$ m) Mainland China Hong Kong and Macau 9.4% 9.0% 8.7% 6.1% 8.2% 8.0% 2,231 1,927 1,575 1,779 1,524 1,700 FY2015 FY2016 FY2017 FY2015 FY2016 FY2017 Concessionaire fees As a % of respective revenue Rental expenses As a % of respective revenue 24

25 Inventory Analysis Inventory balances by product 1 (HK$ m) Inventory turnover period by category 2 (day) 39,645 20,767 % 52.4% 31,244 % 29,176 % , % 16, % , % 8, % 8, % 3, % 2, % 2,293 3, % 2, % 2, % 7.6% FY2015 FY2016 FY2017 Gem-set jewellery Gold products Platinum / Karat gold products Watches FY2015 FY2016 FY2017 Finished goods Raw materials ¹Packing materials excluded 2 Inventory turnover days = Closing inventory balances (excluding packing materials) / cost of goods sold x 365/366 25

26 Capital Expenditure (HK$ m) Capex by nature Capex by function 2,768 2, ,662 1, FY2015 FY2016 FY2017 Furniture, fixtures and equipment & leasehold improvements Land and buildings & construction in progress Investment properties Land use right & patents 1,046 Plant and machinery & motor vehicles 862 1, FY2015 FY2016 FY2017 Projects POS Productions Offices 26

27 Changes in Capital Structure (HK$ m) FY2016 As at 31 Mar 16 % to total equity FY2017 As at 31 Mar 17 % to total equity Increase/ (decrease) Non-current assets 6, % 7, % 463 Inventories 31, % 29, % (2,118) Bank deposits and cash equivalents 1 13, % 7, % (5,058) Total borrowings 14, % 10, % (4,424) Bank borrowings 7, % 6, % (1,127) Gold loans 6, % 3, % (3,297) Net debt 2 1, % 2, % 634 Net current assets 30, % 26, % (3,761) Total equity 35, % 32, % (3,248) Bank balances and cash included Aggregate of bank borrowings, gold loans, net of bank deposits and cash equivalents 27

28 Summary Movements in Cash Flows Changes in bank balances and cash (HK$ m) Pro forma free cash flows 1 1,989 FY2016 (31 Mar 16) Bank balances and cash Operating cash flows before movements in working capital Decrease in inventories Net decrease in gold loans Net cash used in other operating activities Purchase of jewellery collectibles Capital expenditure Net decrease in bank borrowings Dividends paid Other movements FY2017 (31 Mar 17) Bank balances and cash 1 Net cash from operating activities less purchase of jewellery collectibles, capital expenditure and net movements for gold loans 28

29 Gold Hedging Policy Revision Old New 100% hedged Seasonal inventory Consigned inventory & others Short-term, volatile in nature and thinner margins 70% hedged Gold inventory Base inventory Long-term cost of capital Fixed hedging ratio 29

30 Gold Hedging Policy Revision Key rationales A more targeted hedging approach is needed to enhance effectiveness Higher reliance on Mainland China operations where seasonality plays a more prominent role Higher proportion of consigned inventory due to unified inventory ownership A relatively low gold price level seen in recent years Shift from a constant hedging ratio of 70% to a floating ratio of 20-50% 100% hedged for seasonal inventory and consigned inventory & others Key changes while 0% hedged for base inventory; Base inventory contributed ~75% of gold inventory balance as at 31 March 2017 ~35% hedging ratio as at 31 March Full implementation of the new hedging mechanism expected in FY2018 Major benefits Reduce volatility on reported earnings due to hedging Reduce finance cost arisen from gold loans 30

31 Business Outlook and Strategies

32 Business Outlook and Strategies Market development Selective openings in Mainland China Optimise retail network in Hong Kong and Macau Reach out to business prospects in soliciting wholesale business in the U.S. Customer experience Strengthen product offerings through promotion of CHOW TAI FOOK T MARK, Hearts On Fire and licensed fashion jewellery collections Store differentiation and multi-brand strategy Foster O2O interactions Smart+ initiatives Promote the use of smart devices to support O2O interactions Leverage on big data analytics for better understanding of customers preference 32

33 Thank you

34 Disclaimer These materials have been prepared by Chow Tai Fook Jewellery Group Limited (the Company ) solely for use at this presentation and are not for public dissemination. The slides and any other materials used in this presentation are the property of the Company and must be treated as such. The information contained in this presentation is being furnished to you solely for your information and may not be forwarded, published or distributed, directly or indirectly, to any other person (whether within or outside your organisation/firm), in whole or in part, for any purpose and may not be reproduced in any manner whatsoever. Any forwarding, publication, distribution or reproduction of this document in whole or in part is unauthorised. The information contained in this presentation does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities or other interests of the Company or its holding Company or any of its subsidiaries in any jurisdiction or an inducement to enter into any investment activity, nor shall it or any part of it form the basis of or be relied on in connection with any contracts, commitment or investment decision whatsoever. This presentation contains forward-looking statements. Such forward-looking statements are based on a number of assumptions about the operations of the Company and other factors, many of which may be beyond the Company s control. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Accordingly, the Company s actual results may differ materially from those expressed or implied by such forward-looking statements. The Company has no obligation and does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this presentation has been compiled as of the date of this presentation, speaks as of the date of this presentation (or earlier, if so indicated) and will not be updated to reflect material developments which may occur after the date of this presentation, and is subject to change, including substantial changes, without notice. This presentation may include measures of financial performance which are not a measure of financial performance under IFRS, such as Core operating profit. These measures are presented because the Company believes they are useful measures to determine the Company s operating cash flow and historical ability to meet debt service and capital expenditure requirements. Core operating profit should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net profit or indicators of the Company s operating performance on any other measure of performance derived in accordance with IFRS. Because it is not an IFRS measure, Core operating profit may not be comparable to similarly titled measures presented by other companies. The information contained in this presentation has not been independently verified. No representation, warranty, or undertaking express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of any information or opinion contained herein. It is not the intention to provide, and you may not rely on this document as providing, a complete or comprehensive analysis of the Company s financial or trading position or prospects. None of the Company or any of its directors, officers, employees, agents, shareholders, affiliates, subsidiary, advisors or representatives shall be in any way responsible for the contents hereof, or shall be liable (in negligence or otherwise) for any loss howsoever arising from any use of this document or the information contained in this presentation or otherwise arising in connection therewith.