Chow Tai Fook Jewellery Group Limited. 2016/2017 Annual Results Presentation

Transcription

1 Chow Tai Fook Jewellery Group Limited 2016/2017 Annual Results Presentation

2 FY2017 Results Highlights Revenue Same Store Sales Core operating profit 1 HK$51.2 bn 9.4% Mainland China 5.2% Hong Kong and Macau 12.4% HK$4.6 bn 7.9% Profit attributable to shareholders HK$3.1 bn 3.9% Basic EPS HK30.6 cents FY2016: HK29.4 cents Dividend per share Dividend per share for the year 2 HK51.0 cents including special dividend per share HK35.0 cents 1 Core operating profit = Aggregate of adjusted gross profit and other income, less selling and distribution costs and general and administrative expenses 2 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 1

3 FY2017 Operational Highlights Retail network CHOW TAI FOOK T MARK diamond brand 2,381 POS Net openings ( 62) Disruptive innovation Presence of T MARK Mainland China 67 7 Hong Kong and Macau Mainland China 75 POS Hong Kong and Macau 27 POS Mainland China Jewellery E-commerce RSV % 2 Hearts On Fire s global retail presence 187 SIS/CIS 3 Contribution to respective RSV 1 3.3% 9.3% Retail sales volume POS 21 Retailer locations RSV = Retail Sales Value measures the sales at the ending price (VAT inclusive, if any) of products sold to customers in the POS network and other channels 2 RSV YoY change measures at constant exchange rates 3 SIS/CIS = shop-in-shop / counter-in-shop format Note: Data for retail network and presence were as at 31 March

4 Financial Review

5 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 4

6 Revenue Breakdown Reportable Segments (HK$ m) 77,407 YoY Change 57, % 64,277 56,592 51, % 52.8% 47.2% 45.5% 58.9% 59.5% 41.1% 40.5% 60.5% 39.5% -7.9% -11.8% Mainland China Hong Kong, Macau and other markets 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% 5

7 Revenue Breakdown Products 1 (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% 4.3% 14.4% 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 6

8 Same Store Sales Growth ( SSSG ) Major Markets 5.9% 3.9% 11.9% 4.2% -7.0% -6.3% -2.0% -13.1% -16.9% -21.5% -23.8% -23.1% -25.4% -20.2% -27.3% -30.3% 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% 7

9 SSSG Major Products SSSG Mainland China SSSG Hong Kong and Macau 21.6% -1.8% -2.8% 7.0% -3.7% -3.5% -7.0% -23.5% -12.3% -17.2% -4.2% -28.7% -21.5% -26.7% 17.2% 5.1% -16.0% -24.8% 4.0% -23.8% -16.3% -21.7% -23.8% -24.9% -11.9% -27.3% -23.0% -36.0% 7.8% -17.3% 19.2% -17.4% 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 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 8

10 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, ,575 3,364 1,782 2,026 1, % 20.0% 18.9% 10.0% 10.0% 11.5% FY2015 FY2016 FY2017 Adjusted gross profit margin Core operating profit margin SG&A ratio 1,771 1,386 1,582 1, FY2015 FY2016 FY2017 Core operating profit YoY 1H2017 2H2017 FY2017 Hong Kong, Macau and other markets Hong Kong, Macau and other markets (1H)/(2H) Mainland China (1H)/(2H) -81.1% 8.1% -36.3% Mainland China -2.1% 13.7% 6.3% Profitability Hong Kong, Macau and other markets 29.2% 28.5% 18.3% 11.0% 26.7% 21.4% 22.0% 7.4% 5.3% FY2015 FY2016 FY2017 Adjusted gross profit margin Core operating profit margin SG&A ratio 9

11 SG&A Analysis (HK$ m) 19.2% 20.5% 20.1% 12,344 % 11,623 % YoY Change 4, % 3, % 10,307 % -11.3% 2,257 1, % 2.9% 1,949 2,078 1, % % % 3.7% 1.2% 1.4% 1.8% 1.7% 1.6% 2.8% 2.7% 3,550 1,716 1, , % 2, % 1, % 3.3% 3.6% 0.9% 1.5% 3.8% -8.5% -11.9% -11.9% -28.0% -2.9% -13.1% Staff costs Concessionaire fees Rental expenses Advertising and promotion expenses Depreciation and amortisation Other SG&A As a % of revenue FY2015 FY2016 FY

12 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 11

13 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 12

14 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, % 8,459 3, % 2, % 2,293 3, % 2, % 2,224 FY2015 FY2016 FY2017 Gem-set jewellery Gold products Platinum / Karat gold products Watches 29.0% 7.9% 7.6% FY2015 FY2016 FY2017 Finished goods Raw materials ¹ Packing materials excluded 2 Inventory turnover days = Closing inventory balances (excluding packing materials) / cost of goods sold x 365/366 13

15 Capital Expenditure (HK$ m) Capex by nature Capex by function 2,768 2, ,662 1,162 1, FY2015 FY2016 FY2017 Furniture, fixtures and equipment & leasehold improvements Land and buildings & construction in progress Investment properties Land use right & patents Plant and machinery & motor vehicles 1, FY2015 FY2016 FY2017 Projects POS Productions Offices 14

16 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) 1 Bank balances and cash included 2 Aggregate of bank borrowings, gold loans, net of bank deposits and cash equivalents 15

17 Summary Movements in Cash Flows Changes in bank balances and cash (HK$ m) Pro forma free cash flows 1 1,989 5, ,023 13, ,112 5, ,943 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 16

18 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 0% hedged Base inventory Long-term cost of capital Fixed hedging ratio Floating hedging ratio 17

19 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 & Key changes others 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 18

20 Business Update

21 Retail Network Update FY2017 Mainland China Hong Kong and Macau Other markets Net 67 POS Net 7 POS Net 2 POS POS network 1 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 1 Shop-in-shop and counter-in-shop excluded 20

22 Updates on Mainland China Jewellery Business RSV and POS by tier of cities RSV and POS by operation model 22.8% 33.3% 17.9% 12.3% 54.4% 59.3% % of % of POS RSV Tier I cities Tier II cities Tier III cities & others 32.8% 5.2% 38.1% 3.3% 17.4% 18.3% 43.8% 41.3% Self-operated (Department store) Self-operated (Shopping mall) Self-operated (Standalone store) Franchised % of % of POS RSV RSV YoY POS movement Tier I cities 0.7% +8 Tier II cities -2.5% +47 Tier III cities & others -4.6% +17 Self-operated (Department store) Self-operated (Shopping mall) Self-operated (Standalone store) RSV YoY POS movement -8.8% % % -4 Franchised 1.4%

23 Updates on Mainland China Jewellery Business Selected jewellery POS openings in FY2017 Business strategies Guiyang Guizhou Province ( 貴州省貴陽市 ) Xixian New Area Shaanxi Province ( 陝西省西鹹新區 ) Retail network management Selective POS expansion, mainly in shopping malls Fewer closures expected due to an easing trend of consolidation of traditional distribution channels ~ net POS openings in FY2018 Store differentiation Continue to refresh store image and upgrade POS to luxury and elegant styles Multi-brand strategy Gradual rollout of Monologue and SOINLOVE Pingxiang Jiangxi Province ( 江西省萍鄉市 ) Zhengzhou Henan Province ( 河南省鄭州市 ) 22

24 Updates on Hong Kong, Macau and Other Markets HK and Macau RSV and POS by area 1 Business strategies 32.3% RSV settled by China UnionPay or RMB 45.8% (FY2016: 52.6%) Retail network management HK & Macau: Expect closures of 9-10 POS in FY2018; Opportunistic to openings in 30.4% residential neighbourhood 69.6% 67.7% Touristic area 2 Other area % of % of POS RSV Other markets: Expand presence in overseas markets to tap into the demand of Chinese customers there RSV YoY POS movement Touristic area % -7 Other area -4.0% - Rental cost management Benefit from renewal reduction shall continue in FY2018 Wholesale business in the U.S. Gradually reach out potential prospect in soliciting wholesale business 1 Total number of POS in Hong Kong and Macau as at 31 March 2016 and 2017 were 109 and 102 POS, respectively 2 Touristic area includes Causeway Bay, Tsim Sha Tsui, Mong Kok, Yau Mei Tei, Shatin, Sheung Shui, Hong Kong International Airport, Hong Kong Disneyland and Macau 23

25 Updates on Hearts On Fire Retail presence of Hearts On Fire as of March 2017 Hearts On Fire - New collections 509 Retailer locations SIS/CIS 24 Mainland China Hong Kong, Macau and other markets Collaboration with Stephen Webster 21 POS Selected POS and SIS/CIS Hearts On Fire by Stephen Webster - White Kites Collection Launch of Triplicity Collection POS Nanjing SIS/CIS Hong Kong Triplicity Collection 24

26 CHOW TAI FOOK T MARK Diamond Brand A revolutionised industry breakthrough TRACEABLE Traceable origin CHOW TAI FOOK T MARK Retail network management COLOUR CLARITY Since inception in August last year, T MARK products were covered in 75 and 27 POS in TRANSPARENT Unconcealed history To Tell The Truth TRUTHFUL Credible source Mainland China and Hong Kong and Macau, respectively CUT CARAT Target to further expand to over 300 POS by the end of FY2018 THOUGHTFUL Pleasant customer experience Patented nano-inscription technology with no chemical residue Unique serial number, a resume of the diamond from procurement to production Marketing events Viral marketing campaigns with microfilms featuring 4Ts VIP visits to T MARK experiential zone Traceable and transparent history of a diamond accessible to customers 25

27 E-commerce, Marketing and Branding

28 Updates on E-commerce of Mainland China Jewellery Business FY2017 update Collaboration with online partners E-commerce RSV 41.4% YoY E-commerce contribution 3.3% of respective RSV 9.3% of respective retail sales volume Strengthened collaborations with existing online platform partners to seize the opportunities arising from e-commerce and extract O2O synergies Online order distribution initiatives with JD.com and Tmall to mobilise our extensive physical retail network in achieving full O2O interactions Unique daily visitors 1 364,000 Number of followers 2 ~3.0 million Joint promotional event with JD.com Super Brand Day with JD.com 1 Source from Chow Tai Fook e-shop, Tmall and JD.com 2 Source from official Sina Weibo, Tencent Weibo and WeChat accounts 27

29 Marketing and Branding One-of-a-kind high jewellery auction Le Labyrinthe Artistique Collection Franco-Chinese Branding Forum Chow Tai Fook x Bonjour Brand gala dinner Continual collaboration with Disney Launch of Wedding Gift Card Disney Tsum Tsum Collection Disney Beauty and the Beast Collection New POS opened at Hong Kong Disneyland Resort Engaged celebrities in online promotional videos 28

30 Customer Relationship Management Mainland China Hong Kong and Macau Members as at 31 March ,015,000 % of members in top 3 tiers 3.6% Repeat purchase as a % of RSV in FY2017 All members 27.2% Members in top 3 tiers 8.7% Members as at 31 March ,000 % of members in top 3 tiers 2.4% Repeat purchase as a % of RSV in FY2017 All members 29.5% Members in top 3 tiers 11.5% 29

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 31

33 Q&A Session

34 Thank You

35 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.