chow tai fook jewellery group...
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Chow Tai Fook Jewellery Group Limited Stock code: 1929.HK
November 2017
Agenda
About Chow Tai Fook
Financial Highlights
Business Outlook and Strategies
Appendix
About Chow Tai Fook
2016
2015
2014
2011
2010
2003 1990 1929
1956 1998
Started engaging in the jewellery business
Launched the 999.9 gold jewellery products in Hong Kong & Macau, which became an industry standard in 1980s
Implemented the “Fixed Price” policy in Hong Kong & Macau which enhanced the pricing transparency
Opened the first POS in Beijing, Mainland China
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)
Opened our 2,000th POS in Wuhan, Mainland China
Acquired Hearts On Fire, a US premium diamond brand
Unveiled the Cullinan Masterpiece “A Heritage in Bloom”
Started e-commerce business
The Story of Chow Tai Fook
Became a reference price member of Shanghai Gold Benchmark Price
Unveiled the “Chow Tai Fook T MARK” diamond brand
4
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)
Shareholding Structure
As at 30 September 2017
5
Board Structure
Cheng Kar-Shun, Henry Chairman
Strategic direction and overall performance of the Group
Wong Siu-Kee, Kent Managing Director
Overall management of the Group
Cheng Chi-Kong, Adrian Executive Director
Brand identity re-creation and marketing activities
Cheng Chi-Heng, Conroy Executive Director
Procurement of diamonds & gemstones and production management
Chan Sai-Cheong Executive Director
Mainland China operations
Suen Chi-Keung, Peter Executive Director
Hong Kong, Macau and overseas operations
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
Liu Chun-Wai, Bobby Executive Director
Business innovation and Mainland China operation management
6
Cheng Kam-Biu, Wilson Non-Executive Director
Cheng Ming-Fun, Paul Independent Non-Executive Director
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
Audit Committee Remuneration Committee Nomination Committee Executive Committee
Board of Directors
Vertically integrated business model
Diversified product portfolio
Iconic & trusted brand
Dynamic management team with diversity
Our Unrivalled Competitive Strengths
Multi-dimensional sales channels
7
Produced
60%+ of gem-set jewellery sold in FY2017
Procurement of raw materials
All rough diamonds sourced are in compliance with Kimberley Process
Rough diamond cutting and polishing
In-house diamond cutting and polishing procedures are in compliance with De Beers Best Practice Principles
Retail and wholesale
Multi-brand strategy – Including Chow Tai Fook, Hearts On Fire, SOINLOVE, Monologue and CTF Watch 2,300+ POS in Mainland China, Hong Kong, Macau and other markets 40+ e-commerce platforms
Sold
15 million+ pieces of products in FY2017
Processed
200,000+ carats of diamonds in FY2017
As at 31 March 2017
Upstream Midstream Downstream
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
Vertically Integrated Business Model
8
Multi-brand Strategy
• Multiple brands with differentiated marketing strategies
• Enhanced product offerings catered to different customer clusters
9
Diversified Product Portfolio
10
Diversified Product Portfolio
“Le Labyrinthe Artistique” Collection
HEARTS ON FIRE “White Kites” & “LORELEI” Collections
“Bridal” Collection
Disney “Tsum Tsum” Collection
MONOLOGUE “Be-You-Tiful” Collections
Gemmmagioia “Gemmma Bag” Collection
SOINLOVE “Love Me” & “Princess S” Collections
“Charming Gold” Collection
High-end Luxury
Mass Luxury
Youth Line
HEARTS ON FIRE “White Kites” Collection
“TRI-Light” Collection
57.7% 15.4% 26.9%
67.4% 32.6%
POS by geography Hong Kong Macau Other markets
11.6% 54.3% 34.1%
61.4% 38.6%
POS distribution1 1H2017 FY2017 Addition Reduction Net 1H2018
Mainland China 2,190 2,246 172 (60) 112 2,358
Hong Kong 84 83 2 (10) (8) 75
Macau 19 19 1 - 1 20
Taiwan 23 22 - (1) (1) 21
Korea 5 5 - - - 5
Japan - - 2 - 2 2
Malaysia 2 2 - - - 2
Singapore 1 1 - - - 1
United States 2 3 1 - 1 4
Total 2,326 2,381 178 (71) 107 2,488
Extensive Retail Network
POS by tier of cities Tier I Tier II Tier III and others
Mainland China – Jewellery business Hong Kong, Macau and other markets
POS by area in Hong Kong and Macau Touristic area Other area
POS by operation model Self-operated POS Franchised POS
11 As at 30 September 2017 1 Shop-in-shop and counter-in-shop excluded
120.4% YoY
Contribution to respective
RSV 5.4% Retail Sales Volume 13.4%
E-commerce
60+ e-commerce platforms
including Chow Tai Fook e-shop
345,000
unique daily visitors
Youth line and fashion jewellery products Exclusive online products
E-commerce Platforms Product Offerings
As at 30 September 2017
12
Mainland China – Jewellery E-commerce RSV
Financial Highlights
For the six months ended 30 September (HK$ m) 1H2016 1H2017 1H2018
YoY Change
Revenue 28,124 21,526 24,754 +15.0%
Contribution of gem-set jewellery1 26.6% 27.2% 24.2% -3.0% pts
Gross profit 7,857 6,828 7,166 +4.9%
Gross profit margin 27.9% 31.7% 28.9% -2.8% pts
Adjusted gross profit margin2 28.5% 30.1% 28.7% -1.4% pts
Selling and distribution costs and general and administrative expenses (“SG&A”)
5,782 4,941 4,887 -1.1%
SG&A to revenue ratio 20.6% 23.0% 19.7% -3.3% pts
Core operating profit 2,422 1,708 2,396 +40.3%
Core operating profit margin 8.6% 7.9% 9.7% +1.8% pts
Profit attributable to shareholders 1,557 1,222 1,779 +45.6%
Basic earnings per share HK15.6 cents HK12.2 cents HK17.8 cents +45.6%
Dividend per share3 HK50.0 cents HK21.0 cents HK12.0 cents -42.9%
Summary – Income Statement
14
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 Dividend per share included a special dividend of HK42.0 cents and HK15.0 cents for 1H2016 and 1H2017, respectively
Revenue by product 1 (HK$ m) Revenue by reportable segment (HK$ m)
15
59.7%
59.2%
28,124
40.8% 40.3%
21,526
60.4%
39.6%
Hong Kong, Macau and other markets
Mainland China
24,754
29,320
58.0%
42.0%
37,768
51.4%
48.6%
16.3%
YoY Change
15.0%
13.1%
1 Revenue from jewellery trading and service income from franchisees excluded
28,023
21,301
29,240
28.1%
55.7%
27.2%
49.6%
16.2% 12.7% 12.9% 5.0% 6.3%
53.6%
26.6%
37,693
17.4%
65.4%
13.2%
4.0% 6.1%
24,127
24.2%
11.3% 6.7%
57.8%
0.9%
21.9%
-0.6%
YoY Change
13.3%
21.3%
Platinum / Karat gold products
Gem-set jewellery Gold products
Watches
Revenue Breakdown
1H2017 1H2018
SSSG SSSG SSS volume growth
Mainland China -19.2%
Hong Kong and Macau -25.7%
Mainland China Hong Kong and Macau
1Q
Same Store Sales Growth (“SSSG”) – Major Markets
16
2Q 3Q 4Q 1Q 2Q FY2017 FY2018
-27.3%
-23.0%
-17.3% -17.4%
-4.4% 7.4%
-11.9%
-36.0%
7.8% 19.2%
8.5%
20.6%
Gem-set jewellery Gold products
Same store average selling price1 (HK$)
1H2017 1H2018
Gem-set jewellery
Gold products
-12.3% -17.2%
-4.2% 5.1% 3.3% -1.4%
-21.5% -26.7%
7.0%
17.2% 16.1% 14.8%
Gem-set jewellery Gold products
SSSG – Major Products
17
SSSG – Mainland China SSSG – Hong Kong and Macau
1Q 2Q 3Q 4Q 1Q 2Q
FY2017 FY2018
1Q 2Q 3Q 4Q 1Q 2Q
FY2017 FY2018
1 Average selling price was rounded to the nearest hundred HK dollar, and was calculated based on 1H2018 Same Store count and included value-added tax (VAT) in
Mainland China
Same store average selling price1 (HK$)
1H2017 1H2018
Gem-set jewellery
Gold products
Core operating profit YoY 1H2017 1H2018
Mainland China
Hong Kong, Macau and other markets
28.6% 32.9%
30.7%
20.0% 21.8%
19.2%
9.5% 12.1% 12.4%
1H2016 1H2017 1H2018
Profitability – Hong Kong, Macau and other markets
1,582 1,549
1,853
840
159
543
1H2016 1H2017 1H2018
Mainland China
Hong Kong, Macau and other markets
Core operating profit by reportable segment (HK$ m)
28.5% 25.8% 25.5%
21.4% 24.6%
20.5%
7.3% 1.8%
5.5%
1H2016 1H2017 1H2018
18
Adjusted gross profit margin SG&A ratio Core operating profit margin
Core operating profit margin Adjusted gross profit margin SG&A ratio
Profitability – Mainland China
Core Operating Profit and Profitability Analysis
1H2016 1H2017 1H2018
Staff costs
Concessionaire fees
Rental expenses
Advertising and promotion expenses
Depreciation and amortisation
Other SG&A
2.2%
5.0%
-14.2%
-1.2% -0.4%
0.9%
5,782
4,941 4,887
1.7%
1.6%
2.8%
1.8%
2.7%
%
% 6.9%
1.2%
3.9%
3.5%
3.7%
1.4%
8.0%
0.8%
4.4%
3.6%
4.4%
1.8%
%
7.1%
0.7%
3.8%
3.3%
3.3%
1.5%
19
YoY Change
As a % of revenue
-1.1%
SG&A Analysis (HK$ m)
Hong Kong and Macau
SG&A – Staff Costs and Related Expenses (HK$ m)
Mainland China
20
1H2016 1H2017 1H20181H2016 1H2017 1H2018
27.0%
69.9%
27.7%
68.8%
34.3%
62.3%
1,133 1,092
1,234
1H2018 Average no. of
employees1
19,880 -6.0% YoY
34.6%
59.2%
7.7%
61.1%
5.5%
57.5%
707
624 625
3,190 -9.6% YoY
3.0% 3.5% 3.4%
As a % of respective revenue
Variable staff costs
Fixed staff costs Other staff related expenses
6.2%
31.2% 36.9%
As a % of respective revenue
Variable staff costs
Fixed staff costs Other staff related expenses
1 Employees in production function excluded
1H2018 Average no. of
employees1
893
801
667
1H2016 1H2017 1H2018
Rental expenses
8.1% 9.8%
7.4%
As a % of respective revenue
21
9.1% 9.2% 8.8%
976
761 801
1H2016 1H2017 1H2018
Concessionaire fees
As a % of respective revenue
SG&A – Concessionaire Fees and Rental Expenses (HK$ m)
Mainland China Hong Kong and Macau
83 59
89
324
235
283
1H2017 FY2017 1H2018
Finished goods
Raw materials
2,413 2,224 2,207
2,427 2,293 2,539
10,304 8,459
12,684
17,575
16,200
18,305
1H2017 FY2017 1H2018
Gem-set jewellery
Gold products
Platinum / Karat gold products
Watches
Inventory balances by product1 (HK$ m) Inventory turnover period by category2 (day)
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
29,176 %
294
32,719 %
53.7%
7.4%
7.4%
407
31.5%
%
51.2%
6.2% 7.1%
35.5%
372
55.5%
7.6% 7.9%
29.0%
35,735
Inventory Analysis
22
1H2016 1H2017 1H2018
ProjectsPOSProductionsOffices
1H2016 1H2017 1H2018
Furniture, fixtures and equipment & leasehold improvementsLand and buildings & construction in progressPlant and machinery & motor vehicles
23
410 398
489
398
489
410
Capital Expenditure (HK$ m)
Capex by nature Capex by function
(HK$ m)
FY2017 As at 31 Mar 17
% to total equity
1H2018 As at 30 Sep 17
% to total equity
Increase/ (decrease)
Non-current assets 7,133 21.9% 7,807 24.4% 674
Inventories 29,259 90.0% 35,838 112.0% 6,579
Bank deposits and cash equivalents1 7,943 24.4% 5,079 15.9% (2,864)
Total borrowings 10,009 30.8% 14,374 44.9% 4,365
Bank borrowings 6,793 20.9% 8,108 25.3% 1,315
Gold loans 3,216 9.9% 6,265 19.6% 3,049
Net debt2 2,066 6.4% 9,295 29.0% 7,229
Net current assets 26,480 81.5% 26,836 83.8% 356
Total equity 32,502 100.0% 32,007 100.0% (495)
Changes in Capital Structure
24
1 Bank balances and cash included 2 Aggregate of bank borrowings, gold loans, net of bank deposits and cash equivalents
Net Increase in bank borrowings Dividends paid Other movements
25
7,943
2,869 5,864
2,916 187 553 410
1,297 3,027
95 5,079
FY2017(31 Mar 17)
1H2018(30 Sep 17)
Bank balances and cash
Bank balances and cash
Pro forma free cash flows 1 -1,229
Capital expenditure Increase in inventories Operating cash flows before movements in working capital
Net cash used in other operating activities Net increase in gold loans
Purchase of a jewellery collectible
1 Net cash from operating activities less purchase of jewellery collectible, capital expenditure and net movements for gold loans
Summary – Movements in Cash Flows
Changes in bank balances and cash (HK$ m)
Business Outlook and Strategies
27
Market development
• Continue retail network expansion in Mainland China
• Optimise POS efficiency in touristic area and selectively open stores in residential neighborhoods in Hong Kong and Macau
• Progressively expand wholesale business with reputable branded retailers in the United States
Customer experience
• Differentiate product offerings through innovations, exquisite craftsmanship and compelling designs
• Carry on with multi-brand strategy and store differentiation
• Enhance production and operations from a customer-centric perspective
• Elevate customer relationship through our membership programme
Business Outlook and Strategies
Appendix
Appendix – Major Awards & Recognitions
• 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 12th 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)
Governance
29
Appendix – Major Awards & Recognitions
• Forbes Global 2000 (2016) • Brand Finance Global 500 (2017) • IAIR Awards : Best Company for Leadership – Luxury Sector, Asia (2013 - 2017) • World Branding Awards : Brand of the Year, Retailer – Jewellery, Hong Kong (2016 - 2017) • World Brand Lab : China’s 500 Most Valuable Brands – Ranked 45th (2016) • World Brand Lab : China’s 10 Most Influential Brands (Jewellery) – Ranked 1st (2016)
Corporate branding
• 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 6th (2017) • JNA Awards : Industry Innovation of the Year (2015,2017) • 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)
E-commerce and technology
30
Appendix – Major Awards & Recognitions
• 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
• 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 (2013 - 2017) • Hong Kong Productivity Council : The Hong Kong Outstanding Corporate Citizenship Award
– Enterprise Category – Merit Award (2016) • GS1 Hong Kong : Consumer Caring Company (2013 - 2016)
Corporate social responsibility
31
Thank you
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.
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