2022 Mar 25
AEON Stores (Hong Kong) Co., Limited

AEON STORES RECORDS RESILIENT PERFORMANCE WITH REVENUE AT HK$ 9.6 BILLION IN 2021 AMID CHALLENGES

 AEON Stores (Hong Kong) Co., Limited (“AEON Stores” or the “Group”; Stock code: 984) hasannounced today its annual results for the year ended 31 December 2021.During the year under review, the novel coronaviruspandemic (“COVID-19”or the “pandemic”) continued, slowing down the global economy and adversely affecting the Group's business in Hong Kong and Mainland China (“PRC”). Despite the continued challenges, the Group still remained resilientinfinancial performance,with continued monitoring on market shifts and forward-lookingmeasures to adjust its business strategies to ameliorate the impact of the pandemic on its business operations.

In the year 2021,the Group’s recorded a revenue of HK$9,554.9million(2020: HK$9,961.9million), decreasing4.1% year-on-year. Gross profit margin was 28.9% (2020: 28.9%).Lossattributable to owners of the Company for the year increased toHK$470.0million(2020: loss of HK$36.8million).The Group maintained a strong cash position with cash and bank balances and short term time deposits amounting to HK$1,833.6million (2020: HK$2,001.6 million).

The Board has recommended payment of a final dividend of HK2.0cents (2020: HK5.0 cents) per share. Together with the interim dividend, the Group will paya total dividend of HK5.0cents (2020: HK10.0 cents) per share in 2021.

Mr. Isao Sugawara, Managing Director of AEON Stores,said, “2021 was a challenging year for us with the COVID-19 variants continuing to spread, jarring the retail market and inevitably hitting our business sales. Furthermore, market competition intensified in both Hong Kong and Mainland China, which led to a decline in revenue and gross profit of the Group. Amid the difficulties posed, wecontinued to challenge ourselves tostrivefor more. Weopened new stores and upgraded existing ones to better serve our customers,enhanced our digitalization processand focused on introducingmore healthy and convenient items for a happier shopping experienceas customer consumption behaviour continued to changerapidly.”

During the year, its staff cost increasedby 3.8% and its ratio to revenue increasedto 11.5% (2020: 10.7%). Other operating expenses, including advertising, promotion and selling expenses, maintenance and repair expenses, utility expenses, administrative expenses and other expenses, also increasedby 6.7%year-on-year and the ratio of other expenses to revenue was 11.6% (2020: 10.4%).

Hong Kong Operations

In 2021, as the COVID-19 pandemic was gradually brought under control and daily social, business and economic activities resumed, the sales of clothing and household appliances have rebounded to a certain extent, although the sales performance of some merchandise spurred by the pandemic was also affected. Sales of food-related products dropped below those of 2020 after dining out restrictions were relaxed. Sales of cleaning and hygiene-related products also declined due to reduced public demand for related items.At the same time, due to the prolonging of the pandemic and its serious disruption of the public, the local economy has been slowly recovering, and public sentiment is generally cautious about consumption.

In the third quarter of 2021, with the assistance of the launch of the first round government consumer voucher scheme and arelatively stabilized pandemic environment, sales performance recorded a slight improvement but such improvement were relatively weaker in the subsequent rounds of consumer voucher scheme launched in the fourth quarter of 2021.

During the year under review, the Group completed small-scale renovations in three stores in Hong Kong, and opened Hong Kong's third "AEON STYLE" store in Gala Place, Mongkok; the largest-scale store to commence operation in recent years. In order to promote the business of small specialty stores, the Group signed a long-term licensing agreement with Daiso Japan (“Daiso”) to launch a new strategic cooperation in the city. The Group will continue to expand the network of such stores, accelerating related development of AEON Hong Kong.

Revenue from Hong Kong operations for the year decreasedby 7.7% to HK$4,516.2million (2020: HK$4,894.3million). Segment resultschanged from profit of HK$62.3 million last year to loss of HK$184.1million this year, mainly due to the Group did not receive the same amount of government grants from the Hong Kong Government in the year as compared with last year.

The Group opened 6“Daiso Japan” outlets, 3 specialty storesand one“AEONSTYLE” storeduring the year.As at 31 December 2021, the Group had 81stores in densely-populated districts acrossHong Kong.

PRC Operations

Against the backdrop ofthe volatile pandemic, and affected by stronger e-commerce marketing and continuous iteration of new business models, the pedestrian flow of the Group's shopping malls and stores in the PRC has trended downward, and recovery has been slower than expected. Under the influence of the pandemic, not only has the number of customers lessened butthey have become more conservative in spending and turn toonlineshopping. Furthermore, competition in some regions havebecome more intense, and the attraction of oldershopping malls has decreased significantly, which hasvastlyimpacted the sales of existing large-scale stores.

In order to cope with the government's pandemic preventive measures, some of the Group's stores also temporarily suspended operationsduring the period. In terms of storeopenings, the Group will focus on supermarkets and six supermarkets have been opened during the period.The Group implementeddifferent measures to boost sales and revenue, such as improving e-commerce marketing activities, attracting customers by selling a larger variety of fresh items,strengthening merchandise differentiation, as well as enhancingloyalty membership management.Revenue of the PRC businessfor the year dropped0.6% year-on-year to HK$5,038.7million(2020: HK$5,067.6million),with a loss ofHK$265.0million (2020: loss of HK$73.0million).

The Group continued with its store expansion plan and opened sixsupermarkets, setting a new record high for new store openings within a year for the Group.As at 31 December 2021, the Group operated a total of 38stores in Guangdong Province and Shenzhen.

Prospects

The Group believes that the economy is expected to return to a normal levelin 2022, and consumer sentiment will recoveraccordinglyas the COVID-19 outbreak is contained. Looking ahead, the Group will remain focused on product reform, advancement in digitalisation, new store development and revitalisation of existing stores. In merchandising particularly, it is imperative for the Group to transform and procure merchandise from its own supply chain, so as to improve sales and its gross margins, increase direct sales less reliance on consignment products, while achieving differentiation by providing specialty merchandise in each department. Endeavours will also be made tospeed updigital enhancement for internet businessand in-store optimisation, customer servicing, and cost control.

In Hong Kong,due to outbreak of the pandemic fifth wave in early 2022 and the further implementation of social distancing measures, the Group expects that restrictions on dining out and work-at-home arrangements will encourage citizens to stay at home. Demand for food, cleaning products and related items are likely toincrease again in 2022.The Group will continue to expand its network of small specialty storesaccording to its pre-set investment plan, aiming to at least open the same number of small specialty stores in 2022as in 2021. The Grouphas also opened the fourth "AEON STYLE" store at Domain Mall, Yau Tong in February 2022to service patrons in the area.In order to improve operational efficiency and control costs, the Group will optimise its“Mobile Assistant”for employees and increaseits utilization rate. In addition toincreasethe use of self-service cashier systemtoover 300 sets, the Group will further deploy various kinds of self-cashiering machines toimprove front and back store automation, so as toreduce the workload of manual processing, make better use of humanresources and improve service quality.

Regarding the PRC operations,the Group believes the retail and consumer marketwill gradually improve in 2022but customers may engage in more cautious and rationalconsumption behavior. The Group is determined to carry out structural reform measures, including accelerating and upgrading digital transformation and greater product differentiation, so as to increase revenue and profitability and consolidate the foundation for long-term business development.The Group will continue with its store development plan, with aim to openingno less than twosupermarkets in the Greater Bay Area in the second half of 2022. It will also continuously review store portfoliosandtake appropriate action, such as closing one underperforming store in Shunde, Guangdong in the second quarter of 2022 to improve operational efficiency.In the long term, the Group believes that the PRC market still possesses huge growth potential, andwill remain an important driver of the Group’s business development.

Mr. Sugawaraconcluded, “Although the global economy is still overwhelmed by uncertaintiesposed by the pandemic,with visible and rapid changes inconsumer spending habits,the Group willadhere to its“Customer First” philosophy to differentiate from our peers amid the intensecompetition in the retail and department store industry.We will continue to promote innovation while excelling in ourbusinessstrategies, so as to bring novel retail experiencesto customers. The Group will need to respond even more swiftly to market changes, and will invest in more resources to promote business digitalisationand optimise customer relationship management of the AEON Appto capitalise on rising online shopping trendsand boostthe overall competitiveness of the Group.The Group will continue to enhance itshouse brands and private label merchandise to improve sales and gross margins. We are confident in our navigation through the difficultmarket challenges with our solid business and years of experience. We look forward to delivering more personalised, healthy, convenient and comfortable shopping experiences to all AEON Stores customers.”

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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