Chow Tai Fook Jewellery Group Limited
1H2019 Results Highlights Revenue Same store sales 20.0% Mainland China Hong Kong and Macau HK$29,703 million 4.9% 24.4% Core operating profit 1 24.7% Profit attributable to shareholders 2 8.8% HK$2,989 million HK$1,936 million Basic EPS Dividend per share HK$0.19 1H2018 HK$0.15 Payout ratio HK$0.18 77.5% 1 Core operating profit = Aggregate of adjusted gross profit and other income, less selling and distribution costs and general and administrative expenses 2 A net foreign exchange loss of HK$326 million was recorded in 1HFY2019 (1HFY2018: a net gain of HK$115 million) 1
1H2019 Operational Highlights Retail network 2,822 POS 237 Net openings Multi-brand strategy Introduction of ARTRIUM Mainland China 233 Hong Kong and Macau Other markets 4 T MARK 456 CIS 1 RSV 2 Mainland China 2 POS Hong Kong and Macau 134.8% 156.7% Mainland China e-commerce RSV 2 12.7% 3 Contribution to respective RSV Retail sales volume 5.1% 14.0% 1 SIS/CIS = shop-in-shop / counter-in-shop format 2 RSV = Retail Sales Value measured the sales at the ending price (VAT inclusive, if any) of products sold to customers in the POS network and other channels 3 RSV YoY change measured at constant exchange rates Note: Data for retail network and presence were as at 30 September 2018 2
Summary Income Statement For the six months ended 30 September (HK$ m) 1H2017 1H2018 1H2019 YoY Change Revenue 21,526 24,754 29,703 +20.0% Contribution of gem-set jewellery 1 27.2% 24.2% 23.4% -0.8% pts Gross profit 6,828 7,166 8,529 +19.0% Gross profit margin 31.7% 28.9% 28.7% -0.2% pts Adjusted gross profit margin 2 30.1% 28.7% 28.1% -0.6% pts Selling and distribution costs and general and administrative expenses ( SG&A ) 4,941 4,887 5,517 +12.9% SG&A to revenue ratio 23.0% 19.7% 18.6% -1.1% pts Core operating profit 1,708 2,396 2,989 +24.7% Core operating profit margin 7.9% 9.7% 10.1% +0.4% pts Profit attributable to shareholders 1,222 1,779 1,936 +8.8% Basic earnings per share HK$0.12 HK$0.18 HK$0.19 +8.8% Dividend per share 3 HK$0.21 HK$0.12 HK$0.15 N/A 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 loss (gain) on gold loans 3 Dividend per share included a special dividend of HK$0.15 for 1H2017 4
Revenue Breakdown Revenue by reportable segment (HK$ m) Revenue by product (HK$ m) (Excluding jewellery trading and service income from franchisees) YoY Change YoY Change 29,320 58.0% 42.0% 28,124 59.2% 40.8% 21,526 59.7% 40.3% 24,754 60.4% 39.6% 29,703 60.7% 39.3% 20.0% 20.6% 19.1% 29,240 28,023 21,301 1H2015 1H2016 1H2017 1H2018 1H2019 1H2015 1H2016 1H2017 1H2018 1H2019 28.1% 49.6% 16.2% 6.1% 26.6% 55.7% 27.2% 53.6% 12.7% 12.9% 5.0% 6.3% 24,127 24.2% 57.8% 11.3% 6.7% 29,309 23.4% 60.5% 10.5% 5.6% 21.5% 17.5% 27.2% 12.5% 1.4% Mainland China Hong Kong, Macau and other markets Gem-set jewellery Gold products Platinum / Karat gold products Watches 5
Same Store Sales Growth ( SSSG ) Major Markets 26.0% 23.0% 17.4% 11.4% 13.0% 5.4% 9.0% 5.2% 5.0% 6.8% 3.8% 5.7% 1Q 2Q 3Q 4Q 1Q 2Q FY2018 FY2019 Mainland China Hong Kong and Macau 1H2018 1H2019 SSSG SSSG SSS volume growth Mainland China 10.3% 4.9% -0.8% Hong Kong and Macau 9.5% 24.4% 13.1% 6
SSSG Major Products SSSG Mainland China SSSG Hong Kong and Macau 30.9% 40.7% 16.1% 14.8% 8.1% 13.6% 10.8% 11.1% 8.5% 20.6% 22.2% 17.8% 15.6% 26.4% 3.3% -1.4% -1.4% -7.7% -3.8% 1.0% -4.4% 7.4% -0.9% -2.3% 1Q 2Q 3Q 4Q 1Q 2Q FY2018 FY2019 1Q 2Q 3Q 4Q 1Q 2Q FY2018 FY2019 Gem-set jewellery Gold products Gem-set jewellery Gold products Same store average selling price 1 (HK$) 1H2018 1H2019 Same store average selling price 1 (HK$) 1H2018 1H2019 Gem-set jewellery 6,400 6,700 Gem-set jewellery 10,800 10,400 Gold products 3,700 4,100 Gold products 7,100 8,200 1 Average selling price on 1H2019 same store basis, was rounded to the nearest hundred HK dollar and measured at constant exchange rates; Value-added tax (VAT) in Mainland China included 7
Core Operating Profit and Profitability Analysis Core operating profit by reportable segment (HK$ m) Profitability Mainland China 32.9% 30.7% 29.7% 1,853 2,062 21.8% 19.2% 18.9% 1,549 12.1% 12.4% 11.4% 926 1H2017 1H2018 1H2019 159 543 Adjusted gross profit margin Core operating profit margin SG&A ratio Profitability Hong Kong, Macau and other markets 1H2017 1H2018 1H2019 Mainland China Hong Kong, Macau and other markets Core operating profit YoY 1H2018 1H2019 Mainland China 19.6% 11.3% Hong Kong, Macau and other markets 242.2% 70.5% 25.8% 25.5% 25.5% 24.6% 1.8% 20.5% 5.5% 18.1% 7.9% 1H2017 1H2018 1H2019 Adjusted gross profit margin Core operating profit margin SG&A ratio 8
SG&A Analysis (HK$ m) 23.0% 19.7% 18.6% 5,517 % YoY Change 12.9% 4,941 4,887 % % 2,035 6.8% 15.0% 1,731 8.0% 1,770 7.1% 771 3.6% 809 952 4.4% 817 180 0.8% 178 385 1.8% 383 3.3% 3.3% 0.7% 1.5% 860 769 313 413 2.9% 2.6% 1.1% 1.4% 6.3% -5.8% 75.7% 7.8% Staff costs Concessionaire fees Rental expenses Advertising and promotion expenses Depreciation and amortisation Other SG&A As a % of revenue 922 4.4% 930 3.8% 1,128 3.8% 21.2% 1H2017 1H2018 1H2019 9
SG&A Staff Costs and Related Expenses (HK$ m) Mainland China Hong Kong and Macau 8.5% 7.6% 7.2% 1H2019 Average no. of employees 1 20,320 +3.8% YoY 7.8% 7.1% 6.7% 1H2019 Average no. of employees 1 3,140-1.6% YoY YoY Change YoY Change 1,092 27.7% 1,133 34.3% 1,303 32.8% 15.0% 10.0% 624 31.2% 625 36.9% 725 39.5% 16.1% 24.0% 68.8% 62.3% 63.5% 17.3% 61.1% 57.5% 54.0% 9.0% 3.5% 3.4% 3.6% 22.7% 7.7% 5.5% 6.5% 36.9% 1H2017 1H2018 1H2019 1H2017 1H2018 1H2019 Variable staff costs Fixed staff costs Other staff related expenses As a % of respective revenue Variable staff costs Fixed staff costs Other staff related expenses As a % of respective revenue 1 Employees in production function excluded 10
SG&A Concessionaire Fees and Rental Expenses (HK$ m) Mainland China Hong Kong and Macau 9.2% 8.8% 8.6% YoY Change 9.8% 7.4% 5.2% YoY Change 761 801 853 6.4% 801 667 575-13.7% 1H2017 1H2018 1H2019 7.7% 5.5% 6.1% 1H2017 1H2018 1H2019 Concessionaire fees As a % of respective revenue Rental expenses As a % of respective revenue 11
Inventory Analysis Inventory balances by product 1 (HK$ m) Inventory turnover period by category 2 (day) 35,735 % 34,818 % 38,356 % 372 296 331 18,305 51.2% 18,179 52.2% 20,458 53.3% 283 240 261 12,684 35.5% 11,819 33.9% 13,202 34.4% 2,539 7.1% 2,723 7.8% 2,895 2,207 6.2% 2,097 6.0% 1,801 1H2018 FY2018 1H2019 Gem-set jewellery Gold products Platinum / Karat gold products Watches 7.5% 4.7% 89 56 70 1H2018 FY2018 1H2019 Finished goods Raw materials 1 Packing materials excluded 2 Inventory turnover period = Closing inventory balances (excluding packing materials) / cost of goods sold x 183 (for 1H figures) or 365 (for FY figures) 12
Capital Expenditure (HK$ m) Capex by nature Capex by function 528 528 109 398 410 398 410 334 126 117 262 265 299 136 159 77 148 118 18 68 46 1H2017 1H2018 1H2019 38 61 47 98 73 73 1H2017 1H2018 1H2019 Furniture, fixtures and equipment & leasehold improvements Land and buildings & construction in progress Plant and machinery & motor vehicles Projects POS Productions Offices 13
Changes in Capital Structure (HK$ m) As at 31 Mar 18 % to total equity As at 30 Sep 18 % to total equity Increase/ (decrease) Non-current assets 8,258 24.2% 7,963 26.7% (296) Inventories 34,929 102.4% 38,484 129.0% 3,554 Bank deposits and cash equivalents 1 7,944 23.3% 4,831 16.2% (3,113) Total borrowings 13,258 38.9% 16,789 56.3% 3,531 Bank borrowings 7,923 23.3% 9,783 32.8% 1,860 Gold loans 5,335 15.6% 7,006 23.5% 1,671 Net debt 2 5,314 15.6% 11,958 40.1% 6,644 Net current assets 28,593 83.9% 23,955 80.3% (4,638) Total equity 34,098 100.0% 29,823 100.0% (4,275) 1 Bank balances and cash included 2 Aggregate of bank borrowings, gold loans, net of bank deposits and cash equivalents 14
Summary Movements in Cash Flows (HK$ m) Pro forma free cash flows 1-79 3,124 2,992 1,860 4,561 7,944 317 528 333 4,831 FY2018 (31 Mar 18) Bank balances and cash Operating cash flows before movements in working capital Net cash used in inventories 2 Net cash from other operating activities Capital expenditure Net increase in bank borrowings Dividends paid Other movements 1H2019 (30 Sep 18) Bank balances and cash 1 Net cash from operating activities less capital expenditure and net movements for gold loans 2 Net cash used in inventories included net change in inventories, gold loan raised and repayment of gold loans 15
Retail Network Update 1H2019 Hong Kong and Macau POS movement 1 1H2018 FY2018 Addition Reduction Net 1H2019 Mainland China 2,358 2,449 286 (53) 233 2,682 Hong Kong 75 80 3 (3) 80 Macau 20 19 19 Taiwan 21 22 22 Mainland China 233 POS Korea 5 7 1 1 8 Japan 2 2 1 1 3 Malaysia 2 2 1 1 3 Singapore 1 1 1 1 2 Other markets 4 POS United States 4 3 3 Total 2,488 2,585 293 (56) 237 2,822 1 Shop-in-shop and counter-in-shop excluded 17
Updates on Mainland China CHOW TAI FOOK JEWELLERY POS RSV and POS by tier of cities RSV and POS by operation model RSV and POS by self-operated model 23.7% 35.0% 11.8% 17.1% 36.6% 42.0% 5.9% 4.4% 53.2% 59.1% Tier I cities Tier II cities Tier III cities and others % of % of POS RSV 58.0% 63.4% Self-operated Franchised % of % of POS RSV 36.0% 38.0% 57.6% 58.0% Department store Shopping mall Standalone store % of % of POS RSV RSV YoY Net POS movement Tier I cities 13.7% +34 Tier II cities 13.3% +95 Tier III and other cities 15.7% +91 RSV YoY Net POS movement Self-operated 9.1% +78 Franchised 23.4% +142 Department store Shopping mall Standalone store RSV YoY Net POS movement 2.0% +1 27.0% +79-6.4% -2 18
Updates on Mainland China CHOW TAI FOOK JEWELLERY POS JEWELRIA, Beijing ( 北京 ) Retail network management Net openings of 220 CHOW TAI FOOK JEWELLERY POS in 1HFY2019; FY2019 net openings expected to be ~400 POS Continue to deepen market penetration in lower tier cities through franchised model Store segmentation with ARTRIUM and JEWELRIA to complement the classic CHOW TAI FOOK JEWELLERY POS ARTRIUM, Changsha, Hunan Province ( 湖南省長沙市 ) 19
Updates on Hong Kong, Macau and Other Markets HK and Macau RSV and POS by area 1 40.1% 34.3% RSV settled by China UnionPay, Alipay, WeChat Pay or RMB 45.4% (1H2018: 42.6%) Retail network management Hong Kong and Macau Nil change in the total number of POS in 1HFY2019 ~1 net POS opening expected in 2HFY2019 Other markets 65.7% 59.9% Touristic area 2 Other area % of % of POS RSV Net openings of 4 POS in 1HFY2019 Opportunistic in future expansion to Asia- Pacific region RSV YoY Net POS movement Touristic area 2 20.4% -1 Other area 26.5% +1 1 Total number of POS in Hong Kong and Macau was 99 as at 31 March 2018 and 30 September 2018, respectively 2 Touristic area includes Causeway Bay, Tsim Sha Tsui, Mong Kok, Yau Ma Tei, Shatin, Sheung Shui, Hong Kong International Airport, Hong Kong Disneyland and Macau Vivo City, Singapore Shinsegae DF Gangnam, Korea 20
Products and Brands Multi-brand Strategy ARTRIUM Artisan jewellery pieces with meticulous craftsmanship JEWELRIA International jewellery product offerings HOUSE 1929 One-of-a-kind artistic high jewellery pieces HEARTS ON FIRE US premium diamond brand with exquisite cutting craftsmanship CHOW TAI FOOK JEWELLERY Iconic brand with classic product offerings T MARK In pursuit of true diamond authenticity and traceability MONOLOGUE Stylish fashion jewellery for young generation SOINLOVE Top of mind jewellery gifting product of millennial girls 21
Updates on T MARK and HEARTS ON FIRE T MARK, Shanghai Mainland China Hong Kong and Macau 405 CIS 1 POS 44 CIS 1 POS RSV 134.8% YoY 156.7% YoY of diamond 18.6% product RSV 25.2% of diamond product RSV 192 SIS/CIS 165 27 Mainland China Hong Kong, Macau and other markets POS Retailer locations 21 516 HEARTS ON FIRE, Causeway Bay 22
Updates on SOINLOVE and MONOLOGUE SOINLOVE, Guangzhou, Guangdong Province 6 POS were opened in 1HFY2019 Expect ~20 openings in FY2019 A net of 5 POS were opened 1HFY2019 Expect ~20 openings in FY2019 MONOLOGUE, Guangzhou, Guangdong Province 23
Retail Experience Gifting experience shop Experience shop Themed CHOW TAI FOOK JEWELLERY experience shops will be gradually introduced in Mainland China in 2HFY2019 Self-service experience corner Rolled out in 5 cities in Mainland China to reach out to potential customers in various locations Inheritance experience shop Self-service experience corner, Chongqing 24
-
Updates on E-commerce Mainland China Unique daily visitors 1 E-commerce RSV 12.7% YoY 405,000 Number of followers 2 4,889,000+ Contribution to respective RSV 5.1% Retail sales volume 14.0% Average selling price HK$1,300 1H2018 HK$1,400 1 Source from Chow Tai Fook e-shop, Tmall and JD.com 2 Source from official Sina Weibo, Tencent Weibo and WeChat accounts 26
Customer Relationship Management Mainland China Hong Kong and Macau 1,744,000 22.3% Members as at 30 September 2018 Repeat purchase as a % of RSV in 1H2019 932,000 32.6% 27
Business Outlook and Strategies Market outlook Growth momentum is expected to moderate in 2HFY2019 following the escalating comparison base and macro headwinds The Chinese government has ramped up efforts in deploying a series of measures that should vitalise domestic consumption and counteract slowing economy Cautiously optimistic about the prospect of the Greater China jewellery market for the foreseeable future Smart+ 2020 strategic plan Multi-brand strategy and innovative retail experience Conversion to an agile C2M business model to enable customer engagement along the supply chain Investment in data analytics to drive insights and values along business operations Incubation of innovative and entrepreneurial culture 29
Retail Network Update Mainland China 1H2019 POS movement by store brand 1 FY2017 FY2018 Addition Reduction Net 1H2019 CHOW TAI FOOK JEWELLERY 2,118 2,317 268 (48) 220 2,537 CTF WATCH 117 106 4 (3) 1 107 Mainland China 233 POS T MARK 1 1 1 HEARTS ON FIRE 8 6 1 (1) 6 SOINLOVE 9 6 6 15 MONOLOGUE 3 11 6 (1) 5 16 Total 2,246 2,449 286 (53) 233 2,682 1 Shop-in-shop and counter-in-shop excluded 33
Retail Network Update Hong Kong, Macau and other markets 1H2019 Hong Kong and Macau POS movement by store brand 1 FY2017 FY2018 Addition Reduction Net 1H2019 CHOW TAI FOOK JEWELLERY 118 119 5 (1) 4 123 Hong Kong 80 78 1 (1) 78 Macau 18 18 18 Other markets 20 23 4 4 27 CTF WATCH 4 3 (2) (2) 1 T MARK 1 1 1 HEARTS ON FIRE 13 14 1 1 15 Other markets 4 POS Total 135 136 7 (3) 4 140 1 Shop-in-shop and counter-in-shop excluded 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. 35