2018 Mar 23
AEON Stores (Hong Kong) Co., Limited

AEON Stores Announces 2017 Annual Results. Revenue Achieves Historical High. Active Strategic Adjustments to Establish a New Retail Management Model

AEON Stores (Hong Kong) Co., Limited (“AEON Stores” or the “Group”) (Stock code: 984) has announced its 2017 annual results today. As retail markets in Hong Kong and China continued to change in 2017, during the year, apart from continuously implementing effective sales strategies, the Group had also proactively carried out internal adjustments, strategically adjusted and optimised its stores, as well as reformed its supply chain, so as to cement its foundation for supporting long-term growth.

For the year ended 31 December 2017, the Group’s revenue increased by 7% to a historical high of HK$9,665.5 million from HK$9,036.6 million in 2016. This was mainly attributable to the Group’s continuous effective sales strategy plus the drive from the full-period contribution of the renovated Kornhill and Whampoa stores that adopted the “AEON STYLE”, a new business model from Japan, Gross profit margin climbed to 31.3% (2016: 31.2%). However, due to the loss attributable to owners of the Company of HK$72.0 million recorded in the first half of 2017, and affected by one-off expenses in addition to the rise in operating costs, including labour and rental costs, the Group recorded a loss attributable to owners of the Company of HK$54.7 million (2016: loss of HK$23.2 million) for the full year.

The Board recommended payment of a final dividend of HK22 cents. Together with the interim dividend of HK20 cents already paid during the year, total dividend for 2017 amounted to HK42 cents (2016: HK40 cents (excluding special dividend)).

Ms. Yuki Habu, Chairman and Managing Director of AEON Stores, said, “We are pleased to see the progress of the ‘AEON STYLE’ business model, which was introduced from Japan to Hong Kong for the first time, with a satisfactory performance in both sales and gross profit margins. However, there are many challenges at the operational level creating pressure on the Group's earnings. In order to facilitate overall business development, apart from actively reviewing the retail network structure and performance of individual stores, the Group has also made strategic adjustments and optimised the store network, and strived to enrich the portfolio of quality merchandise to meet the different needs of customers. In addition, we had proactively implemented various business strategies to improve our operating performance, such as the successful launch of the ‘Super Wednesday’ initiative, which helps us establish a new retail management model.”

During the year, staff cost increased by 11.9%, mainly attributable to adjustment of staff salaries and additional labour costs incurred because of the increase in number of stores. The ratio of staff costs to revenue rose to 12.7%. Adjustment of lease agreements resulted in a 3.3% rise in rental costs and the ratio of rental costs to revenue decreased from 12.0% to 11.6%.

Hong Kong Operations

In 2017, the Hong Kong economy improved slightly, with sales of the retail industry resuming moderate growth. Driven by growth of the market and with the renovated Kornhill and Whampoa stores bringing in full period contribution, the revenue from Hong Kong operations increased by 11.5% to HK$4,267.7 million (2016: HK$3,826.6 million). With the introduction of the new business model “AEON STYLE”, Kornhill and Whampoa stores provided customers with a unique shopping experience proving to be very popular among customers. In addition, the Group had successfully launched the “Super Wednesday” initiative in Hong Kong, which not only brought a satisfactory revenue contribution, but also improved its supply chain management as well as the overall gross profit margin of the Hong Kong business. By implementing effective sales promotion and procurement strategies, as well as cost control measures, loss of the Hong Kong segment significantly narrowed to HK$47.8 million (2016: loss of HK$82.5 million).

During the year under review, the Group continued to look for suitable locations for opening new stores, resulting in the addition of 10 new small stores. The lifestyle specialty store “ものもの (Mono Mono)”, which opened last December, is a new business model tailored for local consumers craving chic merchandise. As at 31 December 2017, the Group had 64 (2016: 54) stores in densely populated residential and commercial districts in Hong Kong.

PRC Operations

As mainlanders’ income rose and consumption sentiment grew, the retail market in the PRC gradually stabilised in 2017. During the year, the PRC segment’s revenue grew by 3.6% to HK$5,397.9 million (2016: HK$5,210.0 million). However, mainly affected by one-off store closure expenses, pre-operating expenses of new stores and the impairment of property, plant and equipment, the PRC segment recorded a loss of HK$41.5 million for the year (2016: a profit of HK$41.3 million). Excluding the impairment loss of property, plant and equipment and expenses incurred from store closures, the PRC segment would have recorded a profit of HK$15.5 million.

The Group has been actively reviewing the performances of its stores and optimised its store portfolio by strategically closing and opening stores. As at 31 December 2017, the Group operated 32 (2016: 31) stores in South China.

“The Group is well aware of the importance of customer relationship management and Big Data analysis to its business, so it has actively implemented a new Customer Relationship Management (CRM) system as a platform for subsequent precision marketing. Moreover, another important strategy of the Group is to boost gross profit margin by accelerating supply chain transformation. To achieve that goal, the Group has adjusted some of its centralised procurement modes, in the hope of further reducing procurement costs and improving gross profit performance,” Ms. Habu added.

Prospects

Looking forward, with the overall economic environment and retail market in Hong Kong and the PRC continuing to stabilise, the Group remains cautiously optimistic about the prospects of its business in 2018. It will develop business in accordance with established strategies to promote sustainable growth. Moreover, the Group will comprehensively upgrade its internal information technology system to strengthen its infrastructure and provide support to business development. It will also further apply technology in its daily operations, including optimising self-service checkout lanes and offering more mobile payment options, e.g. WeChat Pay and Alipay, to customers. Meanwhile, the Group plans to kick off the study of Robotic Process Automation (RPA) to further boost efficiency and reduce labour costs.

In the Hong Kong operations, the Group will adhere to its strategy of actively opening small specialty stores in order to expand its retail network and embark on transforming, to the extent required, some existing stores, by incorporating “AEON STYLE” elements to help improve their efficiency. At the same time, the Group will actively explore opportunities of opening stores of different models in Hong Kong.

In terms of the PRC operations, the Group will maintain its active store opening strategy and, more scientifically and prudently, identify store locations to expand its business in the PRC. Currently, the Group plans to open five GMS and three GMS in the PRC in 2018 and 2019 respectively, and will introduce the proven “AEON STYLE” business model to its stores in first-tier cities such as Shenzhen and Guangzhou. The Group will, together with “AEON MALL”, strengthen development in new districts, and also cooperate with other well-established shopping mall operators to open GMS in areas with potential to enlarge its market share. Furthermore, the Group will set up a new business development team to help it explore opportunities for opening small specialty stores in the PRC.

Ms. Habu concluded, “The retail market in the PRC and Hong Kong has undergone a lot of changes in the past 30 years. Various aspects, including business models of retailers, as well as customers’ preferences and needs, have all been changing constantly. Looking back, we still found, on the solid foundation we established, significant room and potential for development. With 30 years of successful experience and an innovative spirit, while facing the changing environment and various challenges, we will strive to capture opportunities and apply AEON’s ‘Customer-First’ philosophy, to fully realise the potential of the Group and take its business to new heights, ultimately becoming the preferred retailer of customers.”

- End –

Financial Summary

	For the Year Ended 31 December
	2017	2016
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Revenue	9,665,539	9,036,609
Loss attributable to the owners of the Company Gross profit margin	(54,749) 31.3%	(23,228) 31.2%
Dividends per share
- Final	22.0 HK cents	20.0 HK cents
- Interim      - Normal             - Special	20.0 HK cents Nil	20.0 HK cents 20.0 HK cents
- Total	42.0 HK cents	60.0 HK cents

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About AEON Stores
AEON Stores was established in Hong Kong in 1985 and listed on the Hong Kong Stock Exchange in 1994. The Group is mainly engaged in the operation of general retail businesses (General Merchandise Stores and Independent Supermarkets). Currently, it operates 10 GMS, 2 independent supermarkets, 31 independent Living PLAZA by AEON, 31 independent Daiso Japan, 4 Mono Mono, 4 KOMEDA'S Coffee and 1 JELYCO DO By KOMEDA'S Coffee in densely populated districts in Hong Kong. It also operates 21 GMS and 17 independent supermarkets in Guangdong Province, the PRC.

For more information：
AEON Stores (Hong Kong) Co., Limited
Corporate Communication Department
Tel.：（852）2165 0777
Email：aeonpr@aeonstores.com.hk