Corporate Presentation 2011 Interim Results
1 Disclaimer and Forward Looking Statements
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2 Presentation Outline
Business Overview P. 4
Financial Highlights P. 1 0
Future Plan and Strategy P. 1 8
Q&A Session P. 2 3
Appendix P. 2 4
3 Business Overview
4 Company Structure
• Physical Metals Trading Service Precious • Commission Based Metals • Generated 30% of total revenue Wholesale for 2011 1H
Jewelry Retail
• 8 HK offices • Commission based Securities Brokerage • No Proprietary trading • Main business segment • Generated 0.3% of total • Near 300 self operated revenue for 2011 1H shops in Greater China • Operates under “Chow Sang Sang” and • Investment Properties “Emphasis Jewelry” Other • Shares of HKEx • Generated 69% of total Investments • Generated 0.7% of total revenue for 2011 1H revenue for 2011 1H
5 Business Overview: Jewellery Segment
6 Product mix: Jewellery
Gold based Items
Gem-set Items
Licensed Products (Hello Kitty)
International Brands (Rolex, Tudor, Versace)
7 Distribution Network Complementing the extensive retail network, the eshop.chowsangsang.com offers an online shopping Beijing service Surrounding Provinces Chow Sang Sang directly runs & controls all of its retail 26 stores with no franchise operations Heilongjiang Beijing Flagship Store
Inner Mongolia Jilin
Xinjiang Beijing Liaoning
Tianjin Shanghai Flagship Store Gansu Hebei Ningxia Shanxi Qinghai Shandong Eastern Northern Shaanxi Jiangsu 37 58 Henan Tibet Hubei Anhui Shanghai Chongqing Sichuan Zhejiang Jiangxi Guizhou Hunan Fujian
Kunming Flagship Store Guangdong Taiwan Yunnan Guangxi Chow Empasis Hong Kong Flagship Stores Hong Kong Sang Sang Jewellery Macau China(1) 193(2) – Hainan HK / Macau 42 11 (1) Covered cities Southern Taiwan - 21 72 (1) Excluding Hong Kong and Macau (2) Reached 201 as of August 18, 2011 8 Focus on Strong Growth in Mainland China
Increasing No. of Stores in Mainland China
(No. of Stores)
200
150
New shops +14 New 100 193 shops 181 +43 New 143 120 shops 50 +29
0 2008 2009 2010 2011 1H
Same-store Sales 23% 14% 23% 43% Growth
9 Financial Highlights
10 Improving Operating Performance and Profitability
Revenue Gross Profit
(HK$ mm) (HK$ mm) 10,000 2,000 25.0%
20.8%
8,000 18.4% 20.0%
18.1%
6,000 15.0%
1,000
4,000 8,280 1,525 10.0%
5,244 1,089 4,610 2,000 834 5.0%
0 0 0.0% 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H
Gross Margin
11 Improving Operating Performance and Profitability (Cont’d)
Operating Profit Net Profit (1)
(HK$ mm) (HK$ mm) 800 10.0% 600 7.0%
6.1% 700 8.3% 5.8% 8.0% 6.0% 500 8.0% 5.4% 600 6.8% 5.0% 400 500 6.0% 4.0% 400 300 687 4.0% 507 3.0% 300 200 421 2.0% 200 303 315 2.0% 247 100 100 1.0%
0 0.0% 0 0.0% 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H Operating Margin Net Profit Margin
(1) Total group net profit 12 …Driven by the Retail Segment… Revenue Breakdown Results Breakdown
0.5% 0.4% 0.7% 0.5% 0.1% 0.6% 100% 100% 0.8% 0.6% 0.3% 3.7% 1.8% 7.1% 2.0% 2.3% 90% 90% 6.6% 28.3% 29.6% 80% 80% 42.8%
70% 70%
60% 60%
50% 50% 94.2% 95.3% 85.9% 40% 40% 70.7% 69.4% 30% 30% 55.8%
20% 20%
10% 10%
0% 0% 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H
Retail Wholesale Broking Other Retail Wholesale Broking Other
13 …with High Growth and Improving Margin…
Retail – Revenue Retail – Operating Results
(HK$ mm) (HK$ mm) 6,000 700 12.0% 10.9% 10.0% 10.2% 600 5,000 10.0%
500 4,000 8.0%
400
3,000 6.0% 5,749 300 626
2,000 4.0% 3,705 200 377 2,574 256 2.0% 1,000 100
0 0 0.0% 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H Profit Margin
14 …and Robust Demand from PRC Consumers
2009 2010 2011 1H
Others Others Others 1.5% 1.3% 0.9% HK/Macau HK/Macau China China 42.1% 38.2% HK/Macau 31.7% 33.4% China 38.4% 32.4%
HK/Macau HK/Macau (PRC Customers) (PRC Customers) 24.7% HK/Macau 27.1% (PRC Customers) 28.3% Sales Attributable to PRC 56% +4% 60% + 7% 67% Customers(1)
Mainland customers’ contribution continues to increase
15 (1) China sales + HK/Macau sales by PRC customers Stable Working Capital Trends Average Inventory Turnover Days Average Receivables Turnover Days
(No. of Days) (No. of Days) 150 139 12 11 128 120 10 10 120 8 8 90 6 60 4 30 2 0 0 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H Average Payables Turnover Days Cash Conversion Cycle
(No. of Days) (No. of Days) 10 150 143 8 7 133 6 5 125
4 3
2
0 100 2009 1H 2010 1H 2011 1H 2009 1H 2010 1H 2011 1H
16 Financial Highlights
For the 6 months ended
or as at Jun 30, % Growth
(HK$ mm) 2009 2010 2011 09 vs 10 10 vs 11 Turnover 4,610 5,244 8,280 13.8% 57.9% Jewellery Retail 2,574 3,705 5,749 43.9% 55.2% Other businesses 2,036 1,539 2,531 (24.5%) 64.5% Gross profit 834 1,089 1,525 30.6% 40.0% Gross margin 18.1% 20.8% 18.4% Operating profit 315 421 687 33.7% 63.2% Operating margin 6.8% 8.0% 8.3% EBITDA 355 474 738 33.5% 55.7% Net income 247 303 507 22.7% 67.3% Net margin 5.4% 5.8% 6.1% EPS (HK cents) 40.1 47.6 73.3 18.7% 54.0% Dividend per share (HK cents) 7.0 8.0 11.0 14.3% 37.5% Capital expenditure 80.0 40.0 55.0 (50.0%) 37.5% Gearing ratio (1) 12.0% 11.0% 19.3%
1) Total borrowings to equity holder ‘s including non-controlling interests. Total borrowings includes interest-bearing bank and other borrowings. 17 Future Plans and Strategies
18 Expansion in PRC
50 new stores per year until 2012 in the PRC
Capitalize on Existing Self-Run Store Model Expansion Philosophy Presence
• Selective shop positioning • Minimize risk of theft, • Target mid – high end and careful geographic plagiarism consumers spacing to avoid overconcentration of stores • Leverage on high-end • Goal is not to maximize shopping malls and number of stores, but to fine • Large potential for growth; department stores’ tune brand positioning smaller store count as positioning to enhance compared to competitors image
• More flagship, star stores
19 Product Mix and Branding
Target higher margins and product differentiation
Higher GP Focus Licensed Products International Branding • Direct sales of higher margin • Continue sales of licensed • Pursue an East-meets-West gem-set items products, such as Hello Kitty marketing approach via a with comparably higher global image / platform • Differentiate from gold-based margins competitors • Collaborate with international brands for unique products for more differentiation
• Increase presence and visibility of international brands in the product portfolio
20 Improving Operating Efficiency
Emphasize initiatives to lower costs
Implement efficient Improving human Enhancing logistical manufacturing capital support methodologies
• Implementing extensive • Utilization of sub centers • Maximize investment in training programs to retain Shunde land by turning it into promising middle one-stop operational HQ for: management staff in PRC • Designing • R&D research • Introduce incentive schemes • Manufacturing to attract and retain effective sales people
21 Further Marketing Initiatives
Employing local and international means of marketing
International Initiatives Greater China Initiatives Regional Initiatives
• Leverage and continue • Continue to market the • Sponsorship of cultural partnership with Antwerp international perspective via events Diamond Museum, the print and TV commercials largest in the world • Customized consumer events • Aggressively target Chinese to raise awareness visiting the HK & Macau tourist hubs • Utilize local marketing expertise to support regional centers
22 Q&A Session
23 Appendix
24 Company History
1930-1970 1970-1980 1980-1990 1990-2000 2000-2011
1934 1973 1998 2005 2006 2009 2011 1H
Chow Sang First company Re-entered Became Launch brand Opened the Accelerated Sang in the the Mainland sightholder of revamp first growth in Goldsmith industry China market Diamond campaign Flagship China established listed on Trading Store in in Hong Kong Company Beijing Guangdong Stock Exchange
No. of 9 267 Stores
Turnover 130 8,280 (HK$ mm)
25 Industry Analysis – Overview of Growth
Market Ranking by Country Fast growing PRC Luxury Goods Market 600 35% 140 120 30% 120 CAGR: 26.4% 500 96 25% 100 400
20% 80 74 300 61 15% 60 47 Value (RMB Billions) Value (RMB Billions) 200 10% 40
100 5% 20
- 0% - USA Japan Greater France Italy China Great Germany South Russia Hong China Britian Korea Kong 2007 2008 2009 2010 2011F
Value Growth 29% 31% 20% 30% 25%
Greater China industry growth outpaces rest of the world Continued Strong Growth into 2011: •China exhibited 2010 growth rate of 30%, Hong Kong’s 25% estimated growth rate for Chinese luxury goods market in growth at 15% is the highest after USA 2011 •Greater China growth stands at 23% for 2010
26 Source: Bain & Company Luxury Industry Overview 2011 Industry Analysis – HK & PRC Jewelry Industry Sales Trend (HK) 9,000 60% 8,000 50% 7,000 40% Revenue generated from Chow Sang Sang jewelry sales in 6,000 30% HK grew 36% in 2010, beating the total jewelry retail sales 5,000 20% 4,000 10% growth in HK of 28% 3,000 0% 2,000 -10% 1,000 -20% - -30% Apr - Jun - Aug - Oct - Dec - Feb - Apr - Jun - Aug - Oct - Dec - Feb - Apr - 09 09 09 09 09 10 10 10 10 10 10 11 11
Sales (HKD Billion) %change Jewelry Industry Sales Trend (PRC) 20 50.0% Source: HK Census & Statistics 18 40.0% 16 30.0% 14 12 20.0% 10 10.0% Growth rate of retail sales for jewelry products in 8 0.0% 6 -10.0% China stood at 18% for 2010, whereas the growth in 4 retail revenue from Chow Sang Sang’s China 2 -20.0% operations hit 47% 0 -30.0% Apr - Jun - Aug - Oct - Dec - Feb - Apr - Jun - Aug - Oct - Dec - Feb - Apr - 09 09 09 09 09 10 10 10 10 10 10 11 11
Sales (RMB Billion) % Change Source: Bloomberg
27 Industry Analysis – Recent Developments
• Internationalization • Chinese are becoming more attached to quality foreign western brands • CSS – Uses a strategy of “East-meets-West” sophistication and westernized approach in its marketing and product designs to cater to demand for both traditional and modern uses • Digitalization • Strong investments in digital marketing to target younger luxury consumers • CSS – Launch of online shop to take advantage of increasing web traffic • No Fakes • Demand for counterfeits decreases with raising income and sophistication • CSS – Stringent quality controls and self run store model ensures utmost quality • “Retail-tainment” • Multi-format retail spaces to elevate the shopping experience and enhance individual shop identity • CSS – Well planned geographic positioning of stores in high end shopping malls and department stores allows for a more complete experience
28 Source: Bain & Company Luxury Industry Overview 2011 Distinctive Brand Strategy Chow Sang Sang Group carries two jewellery brands :
Chow Sang Sang Emphasis Jewellery
Brand revamp in 2006: From a traditional goldsmith store to a Creative jewellery platform for discerning customers whose focus is on contemporary and sophisticated jewellery brand distinctiveness and taste
Affordable luxury: Positioned as the most desirable jewellery brand with Operates via a small network of shops with its own brand management international standing and quality at affordable price point and product team in premier locations including new stores in Harbour City, Pacific Place and IFC malls in Hong Kong Targets: Medium to high end markets
29 Unique Product Offerings House Flagship Product Lines
Licensing for IP of Popular Platform for International Fine Jewellery Product Line Characters Brands
30 Strong Relationship with Renowned International Brands Strong partnerships with 16 distinctive international jewellery brands from Europe and Japan. Exclusive distribution rights for 10 of them including V&A and Regalo in Greater China Official agent of Rolex and Tudor in Hong Kong and Mainland China
31 2011 New and Strategic Stores Set up
isquare, HK MartitmeSquare, HK Macau
Xiamen,, China Hefei, China Huizhou,China
Shijiazhuang, China Chendgu,China Jilin, , China 32 Branding Campaign– A Lifetime of Joy Launched in China Nationwide and HK in Apr 2011
TVC
33 Highly Recognized Brand Name over85awards Attained in the past 7 years in areas of Service, Management, Quality, Design & Branding
34