Convenience Retail Asia reports encouraging growth in turnover and profit for first half
Focus on store network expansion in Pearl River Delta in next six months
Hong Kong, 3 August 2005 - Convenience Retail Asia Limited ("CRA" or "the Group"; SEHK: 8052), operator of the Circle K convenience stores in Hong Kong and on the Chinese Mainland, announced encouraging growth in both turnover and profit for the second quarter on the back of buoyant market sentiment.
For the three-month period ended 30 June 2005, the Group's turnover increased by 20% to HK$515.4 million when compared to the corresponding period last year. Net profit attributable to shareholders rose by 15% to HK$20.9 million. Earnings per share were 3.1 HK cents.
For the six months ended 30 June 2005, the Group's turnover and profit were HK$969.6 million and HK$29.8 million respectively. Earnings per share were 4.4 HK cents. In view of the Group's profitability and strong cash flow, the Board of Directors has resolved to raise the interim dividend from 1.25 HK cents per share in 2004 to 1.5 HK cents per share this year.
Mr. Richard Yeung, Chief Executive Officer of CRA, said, "The favourable retail market sentiment in both Hong Kong and the Chinese Mainland, which has been fueled by positive economic prospects and strong consumer confidence, is expected to continue into the second half of the year and provide a good momentum of sales growth for the Group. We are well placed to capitalise on the upbeat and booming market environment in the Pearl River Delta by laying solid groundwork of strategic planning in the first half.
Business Review
During the three months ended 30 June 2005, the increase in turnover was achieved both through the opening of new stores and an increase in turnover among comparable stores (stores in existence throughout the first and second quarter of 2004 and 2005) which registered growth of 8.7% in Hong Kong and 8.8% in Guangzhou.
Robust sales growth in the retail market in Hong Kong was well sustained by strong consumer confidence in the second quarter of 2005, thanks to the continuously improving labour market and a generally optimistic economic outlook. The Group was able to maximise the buoyant market trend and positive consumer sentiment with aggressive consumer promotions that generated satisfactory sales results despite unreasonably high retail rentals.
A noteworthy campaign launched during the quarter was the McMug "Spell It Out" promotion starting from mid-April through June, which brought about a strong increase in comparable store sales. The McMug promotion proved to be one of the most successful campaigns ever run by Circle K Hong Kong.
In Guangzhou, strong economic growth amid relatively low inflation was reflected in the double-digit increase of cumulative retail sales from January to May 2005. The progress of the Group's operations in the province is well on schedule. Seven new stores were opened during the quarter and another seven new store sites have been committed to and are at different stages of renovation. With the increased number of stores, significant sales growth for the whole chain was well supported.
The business license application for operating Circle K stores in Dongguan was also successfully concluded in June. The Group will soon launch initiatives for entering into the market in the coming quarter to open 100% company-owned-and-managed Circle K brand convenience stores. These stores will be operated side by side with the franchised business to be run by joint venture partner DG Sun-High. The Group expects to be able to obtain approval from the Central Government and finalise this joint venture in the third quarter of 2005.
By the end of June 2005, there were a total of 218 stores in Hong Kong and 29 stores in Guangzhou compared to 192 stores in Hong Kong and 12 in Guangzhou as at end-June 2004.
Outlook
Looking ahead, Mr. Yeung commented, "We believe that the health of the Hong Kong economic environment, the strong performance of the property market and a stable equity market would continue to nurture a "feel good" wealth effect and boost consumer confidence. Incremental sales trends in the Group's operation in Hong Kong will be sustained into the second half of 2005 against such a backdrop. Strategically planned marketing promotions together with target-driven category management will drive top-line sales volume growth."
In Guangzhou, the Group will focus resources on store network expansion while managing its market entry into Dongguan.
"The Group will spare no effort to actively expand into the Pearl River Delta markets as set by the three-year plan at the beginning of the year. The latest opening of three Circle K stores in Zhuhai this July is a clear indication of the determination of the Group to bring the plan to fruition," Mr. Yeung concluded.
To date, CRA owns a total of over 250 Circle K stores in the Pearl River Delta including Hong Kong, Guangzhou, Macau and Zhuhai. The Group expects that the number will increase to around 300 by the end of 2005. Together with the acquisition of the franchised convenience store chain operated by DG Sun-High, there will be a total of over 400 convenience stores within the Group in the Pearl River Delta by the end of 2005.
About CRA
Convenience Retail Asia Limited (CRA, SEHK stock code: 8052), a member of Li & Fung Retailing, 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 218 company-owned-and-managed stores as of 30 June 2005
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. As at the end of June 2005, 29 Circle K stores were in operation in Guangzhou.
CRA corporate Website: 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. Under Li & Fung Retailing, there are Circle K and Toys "R" Us; fashion retailing business Branded Lifestyle which manages retail sales of Ferragamo, Country Road, Mango and Calvin Klein Jeans in key markets in Asia; and also a brand licensing unit that specialises in licensed products. Li & Fung Retailing's business extends from Hong Kong to Taiwan, Singapore and Malaysia, with plans for expansion into the Chinese Mainland and other South East Asian countries.
Li & Fung Group Website: www.lifunggroup.com
For more information, please contact: Convenience Retail Asia Limited Telephone: 2991 6000 Mrs. Louisa Kwan Direct line: 2991 6229 CRA corporate Web site: www.cr-asia.com
Convenience Retail Asia Limited
Half Year Results
For The Period Ended 30 June 2005
Three Months Ended 30 June
2005
2004
(Restated)
Group Turnover +20% HK$515,416,000 HK$428,411,000 Group Profit Attributable to Shareholders +15% HK$20,873,000 HK$18,172,000 Earnings per Share (Basic) +15% 3.1 cents 2.7 cents Interim Dividend Per Share +20% 1.5 cents 1.25 cents
Six Months Ended 30 June Change
2005
2004
(Restated)
Group Turnover +17% HK$969,618,000 HK$826,734,000 Group Profit Attributable to Shareholders +12% HK$29,787,000 HK$26,632,000 Earnings per Share (Basic) +10% 4.4 cents 4.0 cents Interim Dividend Per Share +20% 1.5 cents 1.25 cents
HIGHLIGHTS
Strong growth in turnover and profitability on the back of robust retail market growth in Hong Kong.
Number of stores in Hong Kong increased by six to 218 during the quarter.
Number of stores in Gunagzhou increased by seven to 29 during the quarter and new store opening programme is well on track.
Strong surge in retail rentals in Hong Kong may put pressure on net profit margin.
Obtained business licence to incorporate 100% foreign-owned subsidiary to operate Circle K stores in Dongguan.
- Awaiting Central Government approval on the formation of 60% JV with DG Sun-High to operate franchise stores in Dongguan under an alternate brand.
- Strong cash position with HK$566.9 million and no bank borrowings as at 30 June 2005.
Convenience Retail Asia Limited
Unaudited Consolidated Profit & Loss Account
Turnover Cost of sales
Gross profit Other revenues Store expenses Distribution costs Administrative expenses
Profit before taxation Taxation
Profit after taxation Shareholders of the Company Minority interests
Profit attributable to shareholders Dividend Earnings per share for profit attributable to the shareholders of the Company during the period - Basic
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