2019 Mar 20
AEON Stores (Hong Kong) Co., Limited

AEON Stores Announces 2018 Annual Results; Revenue Again Reached Historical High

AEON Stores (Hong Kong) Co., Limited ("AEON Stores" or the "Group"; Stock code: 984) has announced its 2018 annual results today. In the second half of 2018, consumption sentiment became more cautious following the escalation of the US-China trade conflict and the fluctuations in financial markets. A number of uncontrollable factors also have posed strong pressure on the Group's profit. Despite this, the Group continued to achieve revenue growth and recorded a strong performance through implementing effective sales strategies. The Group also continued to implement internal business restructuring, strategically adjust its store portfolio and execute cost control measures, all of which contributed to better results than last year.

For the year ended 31 December 2018, total revenue increased to a new historic high of HK$9,675.9 million from HK$9,665.5 million last year, mainly due to the Hong Kong segment achieving sales growth. Gross profit margin was maintained at a stable level of 31.0% (2017: 31.3%). The Group succeeded in narrowing the loss owing to higher sales growth and a series of cost control measures. Loss attributable to owners of the Company for the year was HK$49.2 million (2017: HK$54.7 million).

The Board has maintained the dividend policy of paying stable dividends to shareholders as a reward for their support. The Group has recommended payment of a final dividend of HK22.0 cents per share. Together with the interim dividend, the Group has paid total dividends of HK44.0 cents in 2018 (2017: HK42.0 cents).

Ms. Yuki Habu, Chairman and Managing Director of AEON Stores, said, "In order to continuously respond to market changes and customer segmentation, the Group has comprehensively reviewed its previous marketing strategies, focusing on boosting sales on "Super Wednesday" and weekends, while refreshing 52-week merchandise plans in order to provide customers with a portfolio of products and promotions that suit their needs. Despite the market instability in the second half of the year, the Group's same-store sales (including direct sales and concessionaire sales) increased by 3.1% year-on-year. The Group also improved cost control during the period, apart from a slight increase in rental cost, other operating costs (including employee costs and other expenses) decreased by 3.9% during the year.

"In terms of the merchandise mix, the Group has focused on restructuring its supply chain management, it not only enhanced its negotiation ability and reduced costs. But also expanded the proportion of direct procurement, as well as actively utilising AEON's global supply chain network to successfully introduce and launch its new private brands in Hong Kong and the PRC, which have enjoyed an overwhelming response from customers. The Group also took an initiative in innovating its business along with its business restructuring. To improve employee productivity, the Group is currently working on the automation of some daily repetitive processes. As for the digitalization of operations, the Group has strengthened its digital loyalty membership system. During the year, new user registrations in the PRC recorded a growth of 73%, reaching a total number of 2.2 million members."

During the year under review, the Group saw a decline in various cost items due to the impact from the closure and opening of stores. Staff costs decreased by 4.2% and its ratio-to-revenue dropped to 12.1%, thanks to effective cost-saving measures. Operating lease rental expenses increased slightly by 0.6% and its ratio-to-revenue maintained at 11.6%.

Hong Kong Operations

In the first half of 2018, the Hong Kong economy showed stable growth with improving retail sentiment. However, the onset of US-China trade friction, other external uncertainties and fluctuations in the financial markets contributed to a notable economic slowdown of growth in the second half of the year. During the year under review, the Group has continued to implement effective marketing and promotion strategies, actively adjusted its merchandise mix and improved management of its supply chain. Coupled with the contributions from the "AEON STYLE" stores in line with expectations and the closure of the Wo Che store, revenue from Hong Kong operations climbed steadily by 2.6% to HK$4,376.9 million (2017: HK$4,267.7 million). Operations in Hong Kong have also achieved a turnaround from the loss of HK$47.8 million recorded last year to a profit of HK$9.06 million mainly attributable to the Group's overall sales growth and its successful cost control measures.

During the year under review, the Group continued to actively review the performance of its stores, optimise its store network and focus on opening small stores such as Living PLAZA by AEON. As at 31 December 2018, the Group had 63 (2017: 64) stores in densely populated residential and commercial districts across Hong Kong.

PRC Operations

The continuous development of the "New Retail" business model intensifying competition within the retail industry and the uncertainties arising from the US-China trade war presented challenges to the development of the Group's PRC operations. During the year, revenue from the PRC operations dropped slightly by 1.8% to HK$5,298.9 million (2017: HK$5,397.9 million). It closed the stores in Nanshan, Shenzhen and Shunde after the expiry of the lease agreements and opened three new GMS in Foshan, Guangzhou and Zhuhai. As the new stores remained at the investment stage and the intense competition led to a drop in gross profit margin, the Group's PRC operations recorded a loss of HK$59.8 million (2017: loss of HK$41.5 million) during the year.

Riding the success of the "AEON STYLE" business model in Hong Kong, the Group has replicated elements of that model in the PRC. As for the country's first "AEON STYLE" store in East Lake, Shenzhen, renovation was completed in December 2018 and it is ready to offer a brand new shopping experience to local customers. As at 31 December 2018, the Group operated a total of 33 stores (2017: 32 stores) in South China.

Prospects

In the coming year, the Group expects the uncertainties in the PRC and Hong Kong economies, in particular those arising from the ongoing US-China trade conflict, will continue to affect consumption and retail sentiment in both places. At the end of last year, the Group has signed an agreement with AEON TopValu Co., Ltd ("TopV"), a subsidiary of AEON Co., Ltd., the controlling shareholder of the Company. Pursuant to the agreement, starting from 2019, the Group is to purchase both house brand products and other products directly from the manufacturers or suppliers of TopV and sell them in Hong Kong and the PRC. The Group expects that the having its own merchandising team will further help to increase the sales proportion of the products bearing house brands and to boost overall gross profit margin.

As for Hong Kong operations, the "AEON STYLE" concept has been well-received in the Hong Kong market and its business has advanced along the right track. In view of this progress, the Group plans to gradually replicate the successful elements of AEON STYLE in other stores, with the aim of offering a better retail experience to customers. At the same time, the Group will further enhance the merchandise mix of all stores and will better utilise the procurement network of the Japan-based AEON Group, so as to stimulate sales growth by offering enriched and appealing Japanese merchandise. To bolster operating efficiency, the Group will extend the application of information technology systems in daily business operations, including improving a self-service cashier system and installing more self-service cashiers. It also plans to launch a new ERP system in the first half of 2019 to improve the workflow and offer a more attentive shopping experience to customers. The Group opened a small store during the first three months of 2019, and plans to open two new stores in the second quarter. In the future, the Group plans to continue to adjust the existing store portfolio and explore opportunities to open more small stores across Hong Kong.

Regarding the PRC operations, the Group is positive about the development potential of South China, particularly Guangdong Province. The PRC government's active efforts to drive the development of the Guangdong-Hong Kong-Macao Greater Bay Area, coupled with the completion of the infrastructure projects in the area, notably the opening of the Guangzhou-Shenzhen-Hong Kong Express Rail Link and Hong Kong-Zhuhai-Macao Bridge, are believed to create new opportunities for the Group’s business in South China.

Looking ahead to 2019, the Group will accelerate initiatives for digitalized operations, including constructing an omni-channel platform and cross-border shopping business. Besides maintaining the pace of opening stores in a deliberate manner, the Group will continue to enhance its store portfolio and bolster operational efficiency in the PRC through reviewing the performance of existing stores. The Group plans to open a new store in Shenzhen and two stores with new business models in Shunde within this year, as well as actively explore the opening of "Cloud Warehouse".

The Group expects its total capital expenditure in the PRC and Hong Kong to reach approximately HK$240 million in 2019, mainly earmarked for opening new stores, renovating existing stores and enhancing back-office support such as information technology systems to boost business efficiency and provide support for further business development.

Ms. Habu concluded, "We believe that the operating environment will remain challenging in the coming year. Meanwhile, the retail landscape has also experienced great changes in the past few years. In particular, the emergence of the 'New Retail' model has intensified competition in the retail market. Nevertheless, we believe that as customers pursue a higher living standard, the Group will excel in the market through its quality merchandise mix and attentive services. Looking ahead, the Group will build on its solid foundation established over the years to conduct internal reviews and implement restructuring, hoping to maintain its competitiveness in the changing retail market and offer an extraordinary retail experience to customers."

Financial Summary

	For the Year Ended 31 December
	2018 (HK$'000)	2017 (HK$'000)
Revenue	9,675,891	9,665,539
Loss Attributable to Owners of the Company	(49,224)	(54,749)
Gross Profit Margin	31.0%	31.3%
Dividend per Share
- Final	HK22.0 cents	HK22.0 cents
- Interim	HK22.0 cents	HK20.0 cents
- Total	HK44.0 cents	HK42.0 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