2 nd quarter 2003 results presentation a member of the li & fung (retailing) group 28 july 2003
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22ndnd Quarter 2003 Results Pr Quarter 2003 Results Presentationesentation
A member of the Li & Fung (Retailing) GroupA member of the Li & Fung (Retailing) Group 28 July 200328 July 2003
Hong Kong Total Retail Sales ValueHong Kong Total Retail Sales ValueYear-on-year % ChangeYear-on-year % Change
-20%
-15%
-10%
-5%
0%
5%
10%0
1/0
2
02
/02
03
/02
04
/02
05
/02
06
/02
07
/02
08
/02
09
/02
10
/02
11
/02
12
/02
01
/03
02
/03
03
/03
04
/03
05
/03
* Source: HKSAR, Census and Statistics Department* Source: HKSAR, Census and Statistics Department
Jan-May 2003 : - 7%
2002 Total : - 4%
22ndnd Quarter 2003 Result Presentation Quarter 2003 Result Presentation AgendaAgenda
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights
2003 Update & Outlook2003 Update & Outlook
Questions & AnswersQuestions & Answers
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Turnover – 2Group Turnover – 2ndnd Quarter Quarter
1,305.11,393.5
343.4 377.6
0
200
400
600
800
1,000
1,200
1,400
1,600
HK
$ M
illio
n
2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003
No. of Stores :No. of Stores : 146146 166 166 151 151 172 (HK) 172 (HK) -- 2 2 - - 4 (Chin 4 (Chin
a)a)
+ 10%+ 10%
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights144 Comparable Stores Sales144 Comparable Stores Sales
329.5326.3
300
305
310
315
320
325
330
335
340
HK
$ M
illio
n
2nd Qtr 2002 2nd Qtr 2003
- 1%- 1%
144 Comparable Stores Sales144 Comparable Stores Sales2nd Quarter 2003 vs. 2nd Quarter 20022nd Quarter 2003 vs. 2nd Quarter 2002
Product CategoryProduct Category
CigaretteCigarette + 13.1%+ 13.1%
Non-foodNon-food + 12.1%+ 12.1%
Packaged Drinks & BeerPackaged Drinks & Beer - 10.5%- 10.5%
Packaged Ice CreamPackaged Ice Cream - 8.7%- 8.7%
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Turnover – June YTDGroup Turnover – June YTD
1,305.11,393.5
322.6
343.4
349.6
377.6
0
200
400
600
800
1,000
1,200
1,400
1,600
HK
$ M
illio
n
2001 Total 2002 Total June YTD2002
June YTD2003
No. of Stores :No. of Stores : 146 146 166 166 151 151 172 (HK) 172 (HK) -- 2 2 - - 4 (China) 4 (China)
+ 9%+ 9%
666.0 727.2
55.060.5
16.3 16.6
0
10
20
30
40
50
60
70
HK
$ M
illio
n
2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Net Profit – 2Group Net Profit – 2ndnd Quarter Quarter
+ 2%+ 2%
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
****
**
55.060.5
9.9
16.3
7.2
16.6
0
10
20
30
40
50
60
70
HK
$ M
illio
n
2001 Total 2002 Total June YTD2002
June YTD2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Net Profit – June YTDGroup Net Profit – June YTD
- 9%- 9%
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
****
26.2 23.8**
4.2% 4.3%4.7%
4.4%
0%
1%
2%
3%
4%
5%
6%
7%
2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsNet Profit as % of Sales – 2Net Profit as % of Sales – 2ndnd Quarter Quarter
- 0.3%- 0.3%
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
****
**
4.2% 4.3%3.9%
3.3%
0%
1%
2%
3%
4%
5%
6%
7%
2001 Total 2002 Total June YTD 2002
June YTD 2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsNet Profit as % of Sales – June YTDNet Profit as % of Sales – June YTD
- 0.6%- 0.6%
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
****
**
8.59.1
2.5 2.5
0
1
2
3
4
5
6
7
8
9
10
HK
Cen
ts
2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsBasic Earnings Per Share – 2Basic Earnings Per Share – 2ndnd Quarter Quarter
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
****
**
8.59.1
1.5
2.5
1.1
2.5
01
2
3
4
5
67
8
9
10
HK
Cen
ts
2001 Total 2002 Total June YTD 2002
June YTD 2003
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsBasic Earnings Per Share – June YTDBasic Earnings Per Share – June YTD
- 0.4 Cent- 0.4 Cent
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
** **
4.0 3.6**
22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights
22ndnd Qtr 2002 Qtr 2002 22ndnd Qtr 2003 Qtr 2003 ChangesChanges
Group Turnover (HK$ Group Turnover (HK$
Million)Million)343.4343.4 377.6377.6 + 10%+ 10%
Group Net Profit (HK$ Group Net Profit (HK$
Million)Million)16.3 *16.3 * 16.616.6 + 2%+ 2%
Net Profit as % of SalesNet Profit as % of Sales 4.7% *4.7% * 4.4%4.4% - 0.3%- 0.3%
Basic Earnings Per ShareBasic Earnings Per Share 2.5 Cents *2.5 Cents * 2.5 Cents2.5 Cents --
DividendDividend -- 1.0 Cent1.0 Cent + 1.0 Cent+ 1.0 Cent
* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12
31.6%
32.8%33.2%
32.2%
30%
31%
32%
33%
34%
2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003
Gross Margin/Other Income as % of Sales(Excluding Interest)
Why 2Why 2ndnd Quarter 2003 Results? Quarter 2003 Results?Lower Gross Margin/Other IncomeLower Gross Margin/Other Income
- 1%- 1%
Why 2nd Quarter 2003 Results?Why 2nd Quarter 2003 Results?Lower Expenses as % of SalesLower Expenses as % of Sales
Expenses as % of SalesExpenses as % of Sales 2003 vs. 20022003 vs. 2002
Store Operating Expenses - HKStore Operating Expenses - HK 0.80.8 LowerLower
- China- China (0.3)(0.3) HigherHigher
DistributionDistribution (0.3)(0.3) HigherHigher
Administrative ExpensesAdministrative Expenses (0.2)(0.2) HigherHigher
China Start-up ExpensesChina Start-up Expenses 0.40.4 LowerLower
0.40.4 LowerLower
Why 2Why 2ndnd Quarter 2003 Results? Quarter 2003 Results?Net Profit By MarketNet Profit By Market
22ndnd Qtr 2002 Qtr 2002 22ndnd Qtr 2003 Qtr 2003 ChangesChanges
(HK$ M)(HK$ M) (HK$ M)(HK$ M) (HK$ M)(HK$ M)
Hong Kong MarketHong Kong Market 17.517.5 18.718.7 1.21.2
China MarketChina Market (1.2)(1.2) (2.1)(2.1) (0.9)(0.9)
TotalTotal 16.316.3 16.616.6 0.30.3
2003 Update & Outlook2003 Update & Outlook
2003 Update & Outlook2003 Update & OutlookCircle K Hong KongCircle K Hong Kong
SARS Impact MinorSARS Impact Minor
Higher Unemployment & DeflationHigher Unemployment & Deflation
Hong Kong Retail Sales Improving Hong Kong Retail Sales Improving
But Lower Than 2002’sBut Lower Than 2002’s
Growing Pressure on Comparable Growing Pressure on Comparable
Store Sales & Gross MarginStore Sales & Gross Margin
Rental & Labour Cost to DecreaseRental & Labour Cost to Decrease -16%
-12%
-8%
-4%
0%
4%
8%
12%
Jan-
02
Mar
May Ju
l
Sep
Nov
Jan-
03
Mar
May
Hong Kong Retail SalesYear-on-year % Change (Value)
2003 Update & Outlook2003 Update & OutlookCircle K Hong Kong TacticsCircle K Hong Kong Tactics
Defensive TacticsDefensive Tactics
Lower Product Costs & PricingLower Product Costs & Pricing
Maintain Gross MarginMaintain Gross Margin
Reduce Operating ExpensesReduce Operating Expenses
New Store Opening Only with New Store Opening Only with
Right EconomicsRight Economics
2003 Update & Outlook2003 Update & OutlookCircle K Hong Kong TacticsCircle K Hong Kong Tactics
Offensive TacticsOffensive Tactics
More Aggressive Promotions:More Aggressive Promotions:
Micro-wave Lunch BoxesMicro-wave Lunch Boxes
Tie-in Promotions with Coca-ColaTie-in Promotions with Coca-Cola
Increase STF (Speed, Tidiness & Increase STF (Speed, Tidiness &
Friendliness) Gap Versus CompetitionFriendliness) Gap Versus Competition
Localization of StoresLocalization of Stores
““Hot & In” Counters in Commercial Hot & In” Counters in Commercial
AreasAreas
2003 Update & Outlook2003 Update & OutlookCircle K Store GrowthCircle K Store Growth
Hong KongHong Kong
Beginning of YearBeginning of Year 166166
Opened So Far (as at 28 July 2003)Opened So Far (as at 28 July 2003) + 9+ 9
Under Construction / CommittedUnder Construction / Committed + 6+ 6
Target Store Number at End of the YearTarget Store Number at End of the Year 190190
2003 Update & Outlook2003 Update & OutlookCircle K ChinaCircle K China
Strategies of Differentiation and Hard Strategies of Differentiation and Hard
to Copy Very Importantto Copy Very Important
““Hot & In” Right StrategyHot & In” Right Strategy
Increasing Customer Preference & Increasing Customer Preference &
Weekly SalesWeekly Sales
Need Improvement in Category Need Improvement in Category
Management & Marketing/PromotionManagement & Marketing/Promotion
Harder to Find Good Sites with Right Harder to Find Good Sites with Right
Size & Right RentalSize & Right Rental
Circle K China2003 Weekly Total Sales
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week
2003 Update & Outlook2003 Update & OutlookCircle K ChinaCircle K China
Benefits of CEPABenefits of CEPA
1.1. Wholly-owned EnterpriseWholly-owned Enterprise
2.2. Prefectural & County CitiesPrefectural & County Cities
3.3. Lower Qualifying RequirementsLower Qualifying Requirements
4.4. Flexibility & EfficiencyFlexibility & Efficiency
2003 Update & Outlook2003 Update & OutlookCircle K ChinaCircle K China
Add Resources and Expedite Store Add Resources and Expedite Store
DevelopmentDevelopment
Review & Refine Business Model to Review & Refine Business Model to
Cut Down on Investment & SizingCut Down on Investment & Sizing
10 – 15 Stores by Year End10 – 15 Stores by Year End
Developing A Smaller Store ModelDeveloping A Smaller Store Model
Uphold StrategiesUphold Strategies
Available for FranchisingAvailable for Franchising
Quickly Build No. of OutletsQuickly Build No. of Outlets
Add Expertise in Category Add Expertise in Category
ManagementManagement
2003 Update & Outlook2003 Update & Outlook
Tough Hong Kong Market ConditionsTough Hong Kong Market Conditions
Profitability and Cash Flow from Profitability and Cash Flow from
Operations Still HealthyOperations Still Healthy
China Strategies on Track But Need China Strategies on Track But Need
to Refine Model & Speed Up to Refine Model & Speed Up
ExpansionExpansion
Uncertain Profitability Outlook for 2Uncertain Profitability Outlook for 2ndnd
Half 2003Half 2003
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