Convenience Retail Asia reports turnover growth for first quarter

Defensive strategy prepares for a quick rebound
when conditions improve

Hong Kong, 28 April 2003 - Convenience Retail Asia Limited ("CRA" or "the Group"; HKEx: 8052), operator of the Circle K convenience store in Hong Kong and the Chinese Mainland, announced the Group's results for the three months ended 31 March 2003. Turnover increased by 8% to HK$349.6 million from HK$322.6 million in 2002 first quarter. Quarterly net profit was HK$7.3 million, down 27% from HK$9.9 million for the same period in 2002. The decline in profit was attributable to the severe market conditions in Hong Kong.

Dr. Victor K. Fung, Chairman of CRA, said, "We are now in a very challenging period. Our business, like many other businesses and retailers in Hong Kong, has inevitably been affected by the news of the war in Iraq and the outbreak of atypical pneumonia in Hong Kong since the latter part of the quarter. We have already adopted a defensive approach, focusing on cost control and ensuring a healthy and efficient organization that is capable of rebounding quickly when conditions improve."

Mr. Richard Yeung, Chief Executive Officer of CRA, said, "The quarter in review began with healthy sales growth for the overall retail market. However, local market conditions rapidly deteriorated as consumer sentiments were adversely affected by the damaging events. Circle K was less affected when compared with other retailers."

Business Review

Comparable stores (stores in existence throughout the first quarter of 2002 and 2003) showed a decrease in turnover of 1%. Two new stores were opened in Hong Kong and another two in the Chinese Mainland during the first quarter of 2003. At the end of the quarter, there were a total of 168 stores in Hong Kong and four stores in the Chinese Mainland compared to 148 stores in Hong Kong and none in the Chinese Mainland as at the end of the first quarter of 2002.

Gross margins and other income decreased marginally by 0.1% of turnover to 31.4% of turnover during the quarter. This was due to a change in the product mix. Sales of cigarettes which is a low-margin category increased while packaged drinks and beer, both higher margin categories, declined during the period.

Store operating expenses increased during the quarter led by increased spending in advertising and promotion, a decrease in comparable store sales and higher depreciation expenses as renovations at most Hong Kong stores were completed. The increase in administrative expenses during the quarter was mainly due to an increase in administrative expenses in China.

The combined impact of a lower gross margin and higher store operating and administrative expenses caused a decline in profit attributable to shareholders during the quarter.

In China, market acceptance of "the new generation of convenience store" has been very favourable. Sales performance is in line with expectations. A mid-year review and adjustment of the business model and sales performance will be conducted before the Group embarks on an aggressive store opening plan in the second half of 2003.

Outlook

The outbreak of atypical pneumonia has created considerable negative impact on the economy in Hong Kong and the retail market has been adversely affected by weak consumer sentiments and significant decrease in traffic flow.

The Hong Kong market outlook for the second quarter is quite pessimistic, anticipating volatile sales performance. Mr. Yeung said, "In view of the uncertainties arising from the crisis, we are exercising very tight control on expenditures including rental and payroll expenses and adjusting our advertising and promotion activities accordingly."

As the Guangzhou market is relatively less affected by the outbreak, the Group expects that the warmer months ahead will provide the potential for solid sales growth in existing stores and new stores. "We are pushing ahead with the new store development programme and expect to finish the year with 20-30 new stores," Mr. Yeung said. "Financially, the Guangzhou market is expected to finish the year close to expectations."

"The profitability outlook for the second quarter of 2003 is likely to be unfavourable because of external market conditions. However, the Group is well prepared for a quick rebound in the second half of 2003 if market conditions improve," Mr. Yeung concluded.

About CRA
Convenience Retail Asia Limited (CRA, HKEx stock code: 8052), a member of Li & Fung Retailing Group, is engaged in the operation of one of the leading convenience store chains in Hong Kong under the brand name of Circle K. The Circle K store chain in Hong Kong comprises 168 company-owned-and-managed stores as of 31 March 2003.

In October 2002, CRA established Convenience Retail Southern China Limited in joint venture with Guangzhou Grain Group Limited and Shanghai Shenhong Corporation to develop the South China market. By the end of March 2003, four Circle K stores were in operation in Guangzhou.

CRA corporate Web site: www.cr-asia.com

About Li & Fung Retailing
Li & Fung (Retailing) Limited, the holding company of Convenience Retail Asia, was formed in 1985 as a company wholly-owned by Li & Fung (1937) Limited. There are two chains within the retailing group: Circle K and Toys "R" Us. The retailing group's business extends from Hong Kong to Taiwan, Singapore, and Malaysia, with plans for expansion into the Mainland of China and other South East Asian countries.

For media inquiry, please contact:

CRA corporate Web site: www.cr-asia.com

Convenience Retail Asia Limited

First Quarterly Results
For the Three Months Ended 31 March 2003

• Growth in turnover but decline in profitability caused by start-up loss in the Chinese Mainland, adverse market conditions and increase in store operating expenses in Hong Kong.

• Number of stores in Hong Kong increased by two to 168 during the quarter with an additional two stores opened in April and four store openings planned.

• Number of stores in Guangzhou increased by two to four during the quarter with two additional store openings planned.

• While the overall outlook is clouded by economic uncertainties and the outbreak of atypical pneumonia in Hong Kong, the company has deployed aggressive tactics to reduce operating expenses and to increase sales potential.

• Profitability outlook for the second quarter is not favourable.

• Strong cash position with HK$379.5million and no bank borrowings as at 31 March 2003.
  

Convenience Retail Asia Limited

Unaudited Consolidated Profit & Loss Account