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:
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
First
Quarterly Results
For the Three Months Ended 31 March 2003
|
Change |
2003 |
2002 |
|
Group turnover |
+
8% |
HK$349,600,000 |
HK$322,585,000 |
|
Group profit |
-
27% |
HK$7,256,000 |
HK$9,888,000* |
|
Basic earnings per share |
-
27% |
1.1
HK cents |
1.5* HK cents |
|
-
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$379.5million and no bank borrowings as at 31
March 2003.
* |
Re-stated
for Income Tax effect per Statement of Standard Accounting Practice
No. 12 "Income Taxes" issued by the Hong Kong Society
of Accountants. |
Convenience
Retail Asia Limited
Unaudited
Consolidated Profit & Loss Account
Three months ended 31 March |
|
2003
HK$'000 |
2002
HK$'000
(Restated) |
Turnover
|
349,600 |
322,585 |
Cost of
sales |
(264,638) |
(243,614) |
|
|
|
Gross profit
|
84,962 |
78,971 |
Other revenues
|
24,919 |
22,583 |
Store expenses
|
(84,559) |
(73,392) |
Distribution
costs |
(5,080) |
(4,396) |
Administrative
expenses |
(12,770) |
(10,739) |
Start-up
costs for China operations |
- |
(1,076) |
|
|
|
Profit before
taxation |
7,472 |
11,951 |
Taxation
|
(1,473) |
(2,131) |
|
|
|
Profit after
taxation |
5,999 |
9,820 |
Minority
Interest |
1,257 |
68 |
|
|
|
Profit attributable
to shareholders |
7,256 |
9,888 |
|
|
|
Basic earnings
per share |
1.1 cents |
1.5 cents |
|
|
|
|