China Resources Enterprise, Limited UBS Conference A Good Yield Through Our Continuing Efforts. 17 January 2006

Transcription

1 China Resources Enterprise, Limited UBS Conference 6 A Good Yield Through Our Continuing Efforts 7 January 6

2 Agenda Results Highlights Financial Summary Business Review Disclaimer pp.3 pp.4 pp.5 pp.9 pp. pp.3 pp.3

3 Results Highlights 3

4 Results Highlights Turnover rose by % to HK$39.4bn, led by the retail and beverage businesses Earnings grew by 78% to HK$,868m with all operations under management showing improvement in profitability Excluding the after-tax effect of revaluation of investment properties, which led to a HK$36m gain, underlying net profit was up 47% Earnings contribution from retail business surged 8% to HK$7m Beverage business registered an 48% earnings growth with beer sales volume up 8% Food distribution business reported a 7% profit growth underpinned by higher gross margin in livestock distribution Textile business recovered and earnings amounted to HK$8m, compared with a HK$8m loss of last year Petroleum business reported an 86% recurring profit growth driven by effective hedging measures in jet fuel and piped gas projects 4

5 Financial Summary 5

6 Results Summary Year end 3 Dec Sep ytd 5 Sep ytd 4 % change Turnover 39,384 35,3 + Earnings,868, Earnings ex property revaluation *,54, EPS (HK ) EPS - ex property revaluation (HK ) * The Sep ytd 5 figure is after deducting the HK$36m net of tax property revaluation gain due to accounting changes 6

7 Turnover Breakdown by Divisions Year end 3 Dec Core business Retail Beverage Food processing and distribution Textile Property Sep ytd 5,95 5,64 4,4 3,65 4 Prop (%) Sep ytd 4,346 4,83 4,6,63 3 Prop (%) 9 7 % change Other business Petroleum and chemicals Less: inter-co transactions Turnover 4,334 39,555 (7) 39, ,7 35,64 (34) 35,

8 Earnings Breakdown by Divisions Year end 3 Dec Core business Retail Beverage Food processing and distribution Textile Property Sep ytd Prop (%) Sep ytd (8) 6 Prop (%) 5 6 () 8 % change na +66 Other business Petroleum and chemicals Investment & others Net corporate interest & expenses Earnings 47 77,35 (68), ,93 (47), Earnings ex property revaluation *,54, * In Sep ytd 5, there was a HK$36m net of tax property revaluation gain due to accounting changes 8

9 Key Financial Data With the proceeds from asset disposals and expanded shareholders' equity, net debt to equity ratio fell by 9 ppt in six months to 4% Capex amounted to HK$3,3m, about 6% of last year's full year total Year End 3 Dec P&L Finance costs Sep ytd 5 3 Sep ytd 4 35 % change +37 FY 4 * 95 Interest income Balance Sheet Net cash/(debt) Shareholders equity Minority interests Book NAV per share (HK$) Gearing ratio (%) Net debt to equity ratio (%) (,483) 8,7 4, (,656) 4,9 4, (4,98) 5,5 4, * The balance sheet figures were as at January 5 9

10 Business Review

11 Retail The three retail operations, including supermarket, retail stores in Hong Kong and brand fashion distribution, reported profit growth of 56%, 5% and 64% respectively Retail business turnover and earnings breakdown Year end 3 Dec Turnover - Supermarket - Retail stores in HK - Brand-fashion in China Earnings - Supermarket - Retail stores in HK - Brand-fashion in China Sep ytd 5,44 54,5, Sep ytd 4 8, , % change

12 Retail. Supermarket Total turnover grew 7% to HK$.4bn of which 48% from eastern China, 3% from southern China, 6% from Hong Kong and the rest from northern China Earnings contribution of HK$58m and EBITDA before option expenses amounted to HK$458m, up 33% Improved gross margin, steady increase in same store sales, stable expense ratio and higher contributions from Suguo accounted for the profit growth Suguo's earnings contribution before goodwill and option expenses amounted to HK$47m, compared with HK$9m in Sep ytd 4 Overall same store growth of 4.7% driven by the 6.% increase of the mainland operation Initial loss incurred by the new format Olé but the first store at Shenzhen has started to show operational profit CR Vanguard opened 44 self-operated stores and 6 franchised stores in Sep ytd 5 (4 and 8 respectively in Sep ytd 4) and Suguo 5 self-operated stores and 83 franchised stores (6 and 85 respectively in Sep ytd 4)

13 Retail Supermarket turnover, EBITDA and earnings breakdown Year End 3 Dec Turnover - HK - China EBITDA - HK - China - option expenses Earnings - HK - China - goodwill and option expenses EBITDA margin (%) - overall - HK - China Sep ytd 5,77 8,735, (5) (4) (5) Sep ytd 4,695 7,6 8, (3) 3 8 () (38) % change na na na

14 Retail. Supermarket Operational Turnaround (5) () Q Q Q3 Q4 Q 3 Q 3 Q3 3 Q4 3 Q 4 Q 4 Q3 4 Q4 4 Q 5 Q 5 Q (5) () % EBITDA before option exp (LHS) EBITDA margin - Hong Kong (RHS) Earnings / (Loss) (LHS) EBITDA margin- China (RHS) 4

15 Retail Supermarket network - CR Vanguard No of self-operated stores No of franchised stores I) Standard supermarkets - Hong Kong - Beijing - Tianjin - Jiangsu Province - Zhongshan / Zhuhai - Shenzhen II) Superstores - Beijing - Tianjin - Jiangsu Province - Zhejiang Province - Zhongshan / Foshan / Zhuhai - Shenzhen / Guangzhou III) Hypermarkets - Zhongshan / Huizhou / Zhuhai - Shenzhen / Guangzhou IV) Olé - Dongguan - Shenzhen Overall - Hong Kong - China 3-Sep Jun Dec

16 Retail Supermarket network - Suguo No of self-operated stores No of franchised stores I) Convenience stores - Jiangsu Province - Anhui Province II) Standard supermarkets - Jiangsu Province - Anhui Province - Shandong Province - Henan Province - Hebei Province - Hubei Province III) Superstores - Jiangsu Province - Anhui Province IV) Hypermarkets - Jiangsu Province 3-Sep ,44 3-Jun ,6 3-Dec Overall in China 46,46,44 39,6 384,48, Total Vanguard + Suguo - Hong Kong - China ,98 739,69,963, ,85,6 6

17 Retail. Retail stores in Hong Kong and brand-fashion in China Amidst the economic recovery, Hong Kong retail business contributed earnings of HK$5m, an increase of 5%, led by CAC At the end of Sep 5, we operated 5 CAC stores, 3 super-sized and 3 smaller-sized CR Care stores Brand-fashion in China continued to improve and reported a profit of HK$4m, a 64% increase, reflecting the success of our brand rationalization program Number of international brands dropped to 8 from at the end of last year Solid performance at Esprit with overall earnings growth of % 7

18 Retail Brand-fashion business in the Chinese Mainland No of self-operated stores 3-Sep-5 3-Jun-5 3-Dec-4 No of franchised stores Alfred Dunhill CK Jeans Esprit / Red Earth Givenchy Kenzo Pal Zileri Polo ATMA Terminated brands: Guess Emanuel Ungaro Total

19 Beverage Turnover growth of 38% with beer sales volume increasing 8% to 3.9m kl, representing a market share of about 3%, ppt higher than that of FY4 Profit increased by 48% to HK$9m Overall average selling price increased by 7.9% to about HK$,6 per kl, including a 6.6% increase in the existing breweries, and overall gross margin was slightly higher Annual production capacity amounted to about 5.8m kl with the acquisition of the, kl brewery in Fuyang, Anhui province and a small brewery near Wuhan, Hubei province Organic sales volume growth was 4% outperforming the market, with strong earnings performance at Sichuan, Anhui and Tianjin breweries 9

20 Beverage There were loss-making breweries, compared with in Sep ytd 4 The newly acquired breweries in Jiangsu and Zhejiang provinces were profitable Sales volume of our national brand, SNOW, surged by 47% to about,76,85 kl, representing 39% of the total volume sold This reinforces our view that SNOW is the fastest growing national brand in mainland China Construction of Dongguan brewery is on schedule and the 5, kl capacity in Phase I will start trial commissioning by the beginning of 6

21 Beverage Sales volume of SNOW brand (including Shenyang sub-brand) and its significance ' k litre CAGR of sales at 3% pa H H H H H 3 H 3 H 4 H 4 H % Sales volume of Snow brand (LHS) Proportion of Snow brand (RHS)

22 Beverage Sales volume by brewery Year end 3 Dec I) Breweries acquired prior to FY4 Shenyang Dalian Jilin Tianjin Anshan Anhui Harbin Liaoyang Meiyue Blue Sword Changchun Snow Leopard Wuhan Dongxihu Panjin Beijing Province Liaoning Liaoning Jilin Liaoning Anhui Heilongjiang Liaoning Sichuan Jilin Hubei Liaoning Area North East North East North East North North East Central North East North East South West North East Central North East North No of breweries 3 Sep ytd 5 k litre Sep ytd 4 k litre % change II) Breweries acquired since FY4 Suining (part of Blue Sword) Qianjiang Longjin Jiangsu Qamdo Wuhan Yichang (part of Dongxihu) Fuyang Less: inter-co transactions and others Sichuan Zhejiang Anhui Jiangsu Tibet Hubei Anhui South West East Central East West Central Central () 3, (), Existing breweries,699,37 +4

23 Food Processing and Distribution Turnover and earnings grew by % and 7% respectively The disposal of our 5.9% stake in Xuzhou VV Food & Beverage generated a net profit of HK$59m in Q 5 With mainland livestock prices stabilizing, operating margin of foodstuff distribution rebounded and operating profit rose by % The improvement in gross margin helped offset the drop in demand for livestock during the third quarter as a result of the outbreak of the pigborne disease Marine fishing operation was affected by high fuel cost, hence the decline in profit from the food processing and stock raising division Operating profit of the abattoir operation was boosted by the initial profit contribution from the Shenzhen operation 3

24 Food Processing and Distribution Turnover breakdown of Ng Fung Hong Year end 3 Dec Sep ytd 5 Sep ytd 4 % change Foodstuff distribution Food processing and stock raising Abattoir operation, transportation and others Inter-co transactions,785,3 43 (9) 4,4,763,53 35 (8) 4, na + Operating profit breakdown of Ng Fung Hong Year end 3 Dec Sep ytd 5 Sep ytd 4 % change Foodstuff distribution Food processing and stock raising Abattoir operation, transportation and others

25 Textile Turnover rose by % and earnings amounted to HK$8m, compared with a HK$8m loss of last year The spinning and weaving division continued to turn around with HK$56m earnings contribution Sales volume of cotton yarns increased by 35% to 49,57 tonnes and fabrics rose by 6% to 98m metres Earnings contribution from the garment division increased by 55% with a 3% increase in sales volume The technology upgrade program is at the early stage of implementation but there is gradually a change in product sales mix towards the higher margin yarns and fabrics To enhance production efficiency, we have re-aligned the textile and dyeing plants so that each of them can specialise in a particular product segment 5

26 Textile Turnover and earnings breakdown of the textile business Year end 3 Dec Sep ytd 5 Sep ytd 4 % change Turnover - Spinning and weaving,79, Garment Others and inter-co transactions ,65,63 + Earnings - Spinning and weaving 56 (56) na - Garment Others and inter-co transactions () - 8 (8) -56 6

27 Property Average retail rent increased by 5.5% but gross rental income decreased by 4% mainly due to the loss in rental income from the property under renovation on Hennessy Road The revaluation of investment properties under Property division resulted in a gain of HK$3m after deferred tax The earnings from rental properties in Sep ytd 4 was boosted by the HK$6m decrease in deferred tax liability Property business turnover and earnings breakdown Year end 3 Dec Sep ytd 5 Turnover - Property development 8 - Rental properties 6 4 Earnings - Property development - Rental properties 5 - Net revaluation gain on rental properties Sep ytd % change na +66 7

28 Property Excluding the Hennessy Road property, occupancy rates of our retail properties were steady generally The disposal of non-retail properties generated net profit of about HK$4m, including HK$66m from the sale of CRE Building, compared to HK$6m in Sep ytd 4 Occupancy rates of the major rental properties (av for the year) Year end 3 Dec CRE Building Argyle Centre Hennessy Road Lok Sing Nan Fung Silvercord Star House Type Off Ret Ret Ret Ret Ret Ret Occupancy rates % Sep ytd 5 Sep ytd

29 Other Business. Petroleum and chemical distribution The residual.5% stake in Qingdao Qirun was disposed to Sinopec, recording a HK$84m profit in Q 5 Excluding this disposal gain, recurring earnings would have increased by 86% with better performance of petroleum wholesaling and petrol station as well as higher profit contribution from piped gas projects Turnover grew by 5% though sales volume of petroleum wholesaling was affected by high oil prices Gross margin increased by about ppt with effective hedging in the jet fuel division With the HK$9m initial profit contribution from Chengdu project, earnings from piped gas projects increased by 3.5 times to HK$5m A financial advisor has been appointed to advise the feasibility of various proposals for restructuring this non-core business, including but not limited to an introduction of a strategic investor 9

30 Other Business Turnover breakdown of petroleum and chemical distribution Year end 3 Dec Petroleum - Diesel - Fuel oil & ocean vessels - Jet fuel - Others LPG and piped gas Chemicals Petrol stations - HK - Mainland China Inter-co transactions and others Total Sep ytd 5,95 5,88, , (9) 4,334 Sep ytd 4,7 4,776, , (63) 3,7 % change

31 Other Business. Investment and others Hong Kong and Yantian deepwater port operations reported stable profit performance 3

32 Disclaimer Data and information contained in this presentation is provided for informational purposes only. Neither China Resources Enterprise, Limited nor any of its subsidiaries shall be liable for any errors or delays in the content, or for any actions taken in reliance thereon. This presentation and subsequent discussion may contain forward-looking statements that are based on the current beliefs, assumptions, expectations, estimates, and projections of the management of China Resources Enterprise, Limited about its business and the industry and markets in which it operates. These forward-looking statements include, without limitation, statements relating to revenues, earnings and stock performance. The words believe, intend, expect, anticipate, project, estimate, predict and similar expressions are also intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, development outcomes, market shares, competition, environmental risks, changes in legal, financial and regulatory frameworks, international economic and financial market conditions, political risks, project delay, project approval, cost estimates and other risks, which are beyond the control of China Resources Enterprise, Limited and are difficult to predict. Consequently, actual results could differ materially from those expressed or forecasted in the forward-looking statements. 3