2019 Aug 23
AEON Stores (Hong Kong) Co., Limited

AEON Stores Announces 2019 Interim Results - Optimizes Network, Increases Efficiency, Reforms Procurement System to Enhance Profitability And Reinforce Long-Term Competitiveness

AEON Stores (Hong Kong) Co., Limited ("AEON Stores" or the "Group"; Stock code: 984) has announced its 2019 interim results today. In the first half of 2019, the escalating trade dispute between the PRC and the US and the uncertain outlook of the global economy resulted in fluctuations in financial markets. This also caused decline of the economic performance and the retail markets both in the PRC and Hong Kong, bringing negative impact at the consumption sentiment. During the period under review, the Group proactively reviewed the performance of its stores, optimized its store network, and strived to enhance its cost control, in order to reinforce its fundamental strengths and achieve long-term sustainable growth going forward.

In the six months ended 30 June 2019, despite the impacts from unfavourable market conditions, the Group's revenue only decreased slightly to HK$4,829.8 million (2018: HK$4,929.8 million), gross profit margin maintained at 29.5% (2018: 30.7%). Changes of accounting standards during the reporting period resulted in an increase in the expenses related to the leases signed by the Group, and thereby led to significant changes in the performance of the Group compared to the previous year. The Group recorded a loss attributable to owners of the Company HK$149.1 million (2018: a loss of HK$50.5 million) for the period. The Group maintained a strong cash position with cash and bank balances and short term time deposits amounting to HK$1,963.2 million as at 30 June 2019 (31 December 2018: HK$2,009.4 million).

The Board has maintained a steady dividend policy to adhere to its philosophy of bringing stable returns to shareholders. It has recommended payment of an interim dividend of HK22.0 cents (2018: HK22.0 cents) per share.

Ms. Yuki Habu, Chairman of AEON Stores, said, "During the review period, various macroeconomic uncertainties led to weak economic and retail sentiment in the PRC and Hong Kong. In view of such circumstances, the Group reacted actively and continue to implement effective sales strategies, in order to enhance the sales performance of existing stores. Meanwhile, the Group comprehensively reviewed and optimized its store network, and implemented a series of cost control measures, to prepare for long-term business development."

During the period under review, the Group's staff cost declined by 9.3% and its ratio to sales revenue dropped to 11.8% (2018: 12.7%), thanks to implementing good cost control measures. Other operating expenses, including advertising, promotion and selling expenses, maintenance and repair expenses, utility expenses and other expenses, also decreased by 1.3% year-on-year and the ratio of other expenses to revenue was 11.1% (2018: 11.0%).

Hong Kong Operations

Affected adversely by the abovementioned macroeconomic factors, Hong Kong's economic growth slowed quickly in the first half of 2019. A year-on-year economic growth stalling at 0.6% is estimated and this has subsequently dampened consumption sentiment. The winter at the beginning of this year was very warm, which hindered the overall performance of the local retail market. As a result, the value of retail sales in Hong Kong for the first half of the year recorded a year-on-year decrease of 2.6%. These and various uncontrollable factors exerted pressures on the Group's sales for the first half of the year. Even under such circumstances, the Group strived to rejuvenate existing stores. The renovation of the Kowloon Bay store began in phases during the period, and the store will be re-opened after comprehensive renovation completed as planned in the third quarter. During the period under review, the Group continued to formulate a strategy for improvement, in order to mitigate the impact of these external unfavourable factors. Consequently, revenue for the first half of the year dropped slightly by 5.0% year-on-year to HK$2,091.6 million (2018: HK$2,201.3 million). Moreover, besides controlling various operating expenses, the Group made a strategic technology investment and introduced a new ERP system in an attempt to promote digitalisation. However, due to the reduction of revenue and the effects of new accounting standards, the Hong Kong operations recorded a loss of HK$89.0 million (2018: a loss of HK$36.6 million).

During the period, the Group continued to actively improve the performance of existing stores, and focused on opening small stores, with Living Plaza as the emphasis, in terms of store opening. As at 30 June 2019, the Group had 65 stores (31 December 2018: 63 stores) in prosperous neighborhoods across Hong Kong.

PRC Operations

As for the PRC market, amidst the trade war between China and the US, the economic growth for the first half of the year slowed to 6.3%. Nevertheless, the Group proactively renovated its stores during the period. It opened and closed two stores respectively in Guangdong province. At the same time, in addition to Super Tuesday promotion, the marketing strategies were also strengthened to include weekend promotions, which enabled the Group’s revenue and number of customers continue to grow. Revenue of the PRC operations rose slightly by 0.4% year-on-year to HK$2,738.2 million (2018: HK$2,728.5 million) in the first half. Despite such efforts, due to the impact of the new accounting standards which mainly affected the PRC segment performances, the PRC operations recorded a loss of HK$65.6 million (2018: a loss of HK$13.7 million). As at 30 June 2019, the Group operated a total of 33 stores (31 December 2018: 33 stores) in Guangdong province and Shenzhen.

Prospects

Looking ahead, the macroeconomic factors and ongoing uncertainties in the global economy will continue to affect the economic performance as well as consumption sentiment in both the PRC and Hong Kong, while market competition continues to intensify. Starting from this year, merchandise procured from Japan, including TopValu merchandise, has been changed to direct procurement mode. The Group believes that having its dedicated in-house merchandising team will help controlling costs in a more efficient way. The Group has commenced related activities in the first half of this year and it plans to increase the sales proportion of its own branded products and boost its overall gross profit margin in the long run.

Regarding Hong Kong operations, uncertainties in the global economy together with the unstable local political situation have presented greater challenges to Hong Kong's retail industry and operating environment. The Group is diligently executing various internal improvements to promote business development. The "AEON STYLE" initiative has in fact been well received by stakeholders, including consumers, since its launch in Hong Kong. The Group plans to gradually replicate the successful elements of "AEON STYLE" in other stores, including the Kowloon Bay Store, while introducing the latest store models of the Group, with the aim of offering a better shopping experience to customers. It will also further optimise the merchandise mix of its stores so as to stimulate sales and gross profit growth.

The Group will adhere to its core strategy of opening small specialty stores. It will improve operational efficiency of its stores on a regular basis and increase the overall operating effectiveness of its stores. The Group plans to open more small stores in the second half of 2019, and one of them has already started operation in July. The renovation work of the Kowloon Bay Store is to be completed in late September 2019. Customers are expected to have a more satisfying shopping experience in the newly renovated store, which will also help drive the growth of the Group.

The Group is trying to promote digitalisation through increasing the number of mobile members, and plans to start the adoption of mobile payment this year. It also plans to increase the number of self-service cashier systems to reduce checkout time and speed up the checkout process, so as to extend the application of information technology systems in daily business operations to control labour costs in the long run. During the review period, the Group also introduced a new ERP system to improve workflow and offer a more attentive shopping experience to customers. More benefits are expected to be realised from this system in the future.

As for the PRC operations, the ongoing Sino-US trade dispute will continue to hinder the economic development of the PRC. However, the Group believes the spending power of Chinese citizens will continue to rise. In the first half of 2019, national per capita spending registered a year-on-year growth of 5.2% (excluding the price factor), reflecting the huge development potential of the Mainland retail market. Therefore, moving forward, the PRC operations will remain as one of the Group's key growth drivers. The Group will focus on increasing the revenue of its existing stores. In particular, the Group will continue to improve the operational efficiency of its "AEON STYLE" store in East Lake, Shenzhen and introduce successful elements there to existing stores in the PRC, creating an innovative shopping experience for Chinese customers and thereby boosting revenue growth. At the same time, the Group will concentrate on restructuring its supply chain management to lower procurement cost and increase gross profit margin. It will also enhance operational efficiency and reform cost structure in order to strengthen cost control and raise profitability.

Given the unstable market conditions, the Group will adopt a prudent approach in opening new stores. It will review and adjust the existing store portfolio and strategically close underperforming stores in order to improve the overall results of its PRC operations. The Group plans to open one new store in Shunde in early 2020. In the digital business, there are many innovations in the PRC market. The Group closely cooperates with AEON Digital Management Company Limited (DMC) to enhance home delivery service and digital constructions.

Ms. Habu concluded, "The Group believes that consumers will continue to pursue a higher living standard in the long run. As such, the Group will adhere to the concept of 'customer first' and provide quality merchandise at reasonable prices and the best shopping experience to customers. It will continue to take on challenges and consolidate its own fundamental strengths while promoting sales, carry out internal reforms and review and adjust its existing strategies where necessary to enhance operational efficiency. Through these efforts the Group will maintain its long-term market competitiveness."

Financial Summary

	For the six months ended 30 June
	2019(HK$'000)	2018(HK$'000)
Revenue	4,829,780	4,929,803
Loss Attributable to Owners of the Company	149,096	50,484
Gross Profit Margin	29.5%	30.7%
Dividend per Share
- Interim	HK22.0 cents	HK22.0 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