Good afternoon, ladies and gentlemen. Welcome to the investor presentation of Sa Sa International Holdings Limited's annual result for the year end March 31st, year 2017. Before the presentation, let me introduce the company representative on stage, Dr. Simon Kwok, BBS, JP, Chairman and CEO.
Hello. Hello, hello.
Dr. Guy Look, CFO and Executive Director.
Good afternoon.
The agenda today will begin with Dr. Kwok going through the annual results highlights, followed by Dr. Look walking us through the financial performance, business review, and outlook in details. There will be a Q&A forum afterward. May we now invite Dr. Kwok to go through the annual results highlights for us. Dr. Kwok, please.
Good afternoon, ladies and gentlemen. Welcome to the investor presentation of Sa Sa's annual results for the year ended 31st March 2017. The retail market in Hong Kong remained weak during the year against a backdrop of continued decline in tourist arrivals in Hong Kong, and local outbound traffic stimulated by Hong Kong's strong currency. The retail market continues to evolve rapidly, and consumers now expect a more seamless shopping experience and more trendy products than ever before. These expectations have presented challenges to our operations. Despite our strenuous efforts to adapt to the dynamic market by adjusting our strategies, the group's results have been affected to a certain extent. The group's turnover slightly decreased by 0.6% year-on-year to HKD 7,746.2 million. Profit declined by 14.8% to HKD 326.7 million.
Nonetheless, we have seen growth in tourist arrivals in recent months, while retail sales rebounded in March following a decline in the previous 24 consecutive months. Although there are still uncertainties in the market, it is gradually stabilizing and showing initial signs of improvement. The group has implemented stringent rental cost controls and adjusted its retail network as the retail adjustment cycle continues. However, as the retail network adjustment involves both store openings and closures and would involve parallel running new and old stores, the group's rental cost reduction will only begin to be visible in the results for the year ending 31st March 2018.
As the weakened retail market begins to show signs of stabilizing, we will ride on the positive trend and continue to adjust our retail network, streamline our product portfolio, focus on the launch time of new products, and enhance interaction with customers with a more comfortable shopping experience and environment. In the Mainland China market, the THAAD issue negatively affected the group's sales of Korean products. We have adjusted our product mix as well as marketing focus and replaced some Korean products with comparable items from other countries to mitigate the impact.
We will further develop O2O business, leveraging our Hong Kong resources to introduce a more differentiated range of offerings for our physical stores in the Mainland markets. In our overseas markets, we have successfully restructured our management team and operations, and we are beginning to reap the benefits of integrating the Singapore with the Malaysia team.
In Taiwan, with the restructuring of our management team and operations, coupled with consolidation of our store network, store productivity showed improvement in the second half of the year. We will continue to fine-tune our strategic developments in response to different markets in order to strengthen our overseas operations and achieve growth in market share. In regard to our online business, sales returned to their growth trend in the second half of the year, following a decrease in the first half as a result of the group switching to a new logistics provider.
We are restructuring operation flow to support multi-platforms and warehouses. Automation of processes is being implemented to improve efficiency and reduce costs. Our O2O business remain the focus of our future development, and alignment of our teams in Hong Kong, Mainland China, and our online business will be key to our success in the long run. In this regard, studies are underway to install new digital backend systems and infrastructure. We will also integrate our online and offline CRM platform. This will lay a firm foundation to provide a more tailored shopping experience to our customers.
We will enhance utilization rates of our Zhengzhou warehouse, increase the number of stores with O2O experience zone in Mainland China, and explore strategic alliances with external parties to boost capacity, increase brand exposure, and extend distribution channels. Looking ahead, the market environment will continue to be challenging despite signs of stabilization. However, I firmly believe that with the group's financial robustness, flexibility, and resilience, we will be able to turn difficulties into opportunities and continue to maintain our competitiveness. We remain firmly committed to enhancing the shopping experience of our customers and to generating sustained returns for our shareholders. I am now going to give the floor to Guy, who will explain in detail Sa Sa's financial and operational performance for the year ended 31st March 2017. Thank you.
Good afternoon, everyone, and welcome. Welcome to Sa Sa International Holdings Limited's financial results presentation for year ended 31st March 2017. The agenda today covers our financial performance, business review by market, and outlook and the way forward. First of all, the group's financial performance. Our turnover was more or less flat with a slightly negative growth of 0.6% at HKD 7,746.2 million. Profit for the year was HKD 326.7 million, a reduction of 14.8%, and earnings per share was HKD 0.112, a reduction of 16.9%. Gross profit margin was 41.7%, a reduction of 1.6%, and net profit margin 4.2%, a reduction of 70 basis points.
We are proposing a final dividend of HKD 0.08 per share, which together with HKD 0.09 of interim dividend already paid out, makes up a total dividend for the year of HKD 0.17, representing a payout ratio of 155%. Geographically, Hong Kong and Macau made up 80.9% of group turnover, whereas Mainland China contributed 3.6% of group turnover, Singapore 2.6%, Malaysia 4.3%, Taiwan 2.5%, and our online business 6.1%.
We are in a sound financial position. Despite cash reducing by HKD 110 million, we still have HKD 968.7 million of cash at hand, of which 78% are free cash. We move on to business review by markets. Sales are stabilizing in Hong Kong and Macau to the extent that sales was flat for the full year, and same-store sales declined marginally by 1.8%. But it is really the half-yearly figures that tell a better story.
In the first half, sales declined by 3.6% with same-store sales losing by about the same amount, 3.6%. By the second half, sales growth picked up to a + 3.4%, and same-store decline narrowed significantly to 0.2%. The improvements in the second half are attributable to continued growth in transaction volume and also basket size reduction gradually easing off. In the first half, transaction number grew by 2.3%, and this increased to 3.4% in the second half. In terms of ticket size, the improvement was more dramatic. In the first half, ticket size reduced by 5.8%, whereas in the second half, this turned flat. There is a bigger gap between same-store sales and overall sales performance due to new stores.
PRC tourists have been a very important sales growth driver, and the black line, which denotes the year-on-year change in PRC tourist arrival, has been on a recovery path throughout the year, turning positive in the fourth quarter. At the same time, we have been improving our product offerings and display to further drive up transaction volume. You can see in the pink line, which denotes transactions of Sa Sa with Mainland Chinese, that transactions with Mainland Chinese have significantly outperformed the improvements in PRC tourist arrival in Hong Kong as a whole. The blue line denotes basket size, and although still in negative territory, you can see that it is gradually recovering. This may be a good sign that the weak PRC tourist spending is finally bottoming out. In the China market, profitability is trending better.
The total operating loss for the year amounted to about HKD 13 million, a reduction of HKD 19.7 million from last year. In other markets, we have had mixed performances, mainly due to management changes in these markets. In Malaysia, where it was the first market to go through with management changes and where the effect was quick and effective, we opened five stores, ending with 71 stores, and achieved a top-line growth of 12.5%, together with a same-store growth of 6.2%.
It is noted that in the second half, the growth has slowed down in Malaysia markets, but that is in line with the markets, and we have continued to outperform the market during this time. In the Singapore market, we have consolidated our local team together with the Malaysian team, which has now taken up the responsibility to manage Singapore and Malaysia as a region.
Following that, we have rationalized some of our stores in Singapore, resulting in a reduction of three stores, ending with 20 stores at the year-end. You can also see improvements in same-store sales performance. In the first half, there was a decline of 13%, and this narrowed to 2.3% in the second half. As you can see later on in the post year-end performances, the improvement has continued.
The Taiwan market, meanwhile, has improved slightly, and there is more work in this area. In terms of e-commerce, our sales recovered in the second half. You might recall that in the first half, the change in logistic service provider has affected our sales capacity and logistic costs, resulting in a very low first half sales of about HKD 188 million. This recovered to HKD 286.8 million in the second half.
In about August of 2016, just before the end of the first half, we started operating our Zhengzhou Free Trade Zone warehouse to support cross-border e-commerce. In September, we launched a new app and also started cooperation with Kaola of NetEase. As we ran into the second half of the year, as sales picked up, we decided it would be prudent to take action against negative operating margin in our online operation.
As a result, we started hiking prices in April of 2017. At the same time, we lifted the minimum spending for free delivery at the same date. As we will share later on, of course, there has been some effect, but we believe that the effect is manageable and is justifiable. In the area of brand management, our house brand mix has declined, and this we have been very open about it.
We have also said that it is really because consumer preferences have turned away from traditional areas where we have focused on, towards more lower price Asian products. As a result, the group house brand mix has declined to 38%. We will discuss what action we will be taking in the outlook section. Here we are in the outlook section. Looking ahead, there remains challenges, but there are also opportunities.
First of all, let us just talk about the challenges. For one, the fast-changing consumer journey and preferences continues to be a challenge, and the THAAD missile incident, or saga, has affected last year's key growth driver, being the Korean products. A weaker Chinese economy and renminbi has affected mainland tourist spending, and a strong Hong Kong Dollar is driving local consumption overseas. Keen competition from online and offline retailers continues to be a challenge.
Opportunities are with us because there are signs that stabilization is taking place in Hong Kong and Macau. We stand to benefit from the loss of mainland tourist traffic in Korea and Taiwan. The Hong Kong-Zhuhai-Macau Bridge will be open to traffic in December 2017. The high-speed rail link, linking Guangzhou, Shenzhen, Hong Kong, will be completed by the third quarter of next year.
We move on to the store strategy for Hong Kong-Macau. We believe in continuing to increase our penetration in store network while controlling our costs. We will fight for reasonable rent and relocate stores to prime streets to increase our brand exposure at reasonable rental levels. We would add stores in residential areas to capture local market share and also stores near the mainland border. We would also optimize our store size to increase penetration and improve store profitability.
We recognize that consumer behavior is changing, and we are moving along to adapt to it, and we believe that it would provide opportunities for growth. We would increase our online exposure and interactivity, increase our in-store interactivity and also integration with online operation. We would improve visual merchandising with new store formats and streamline our SKUs, and improve our CRM to retain customers, build loyalty, and facilitate targeted marketing.
We will speed up new product launches to satisfy the latest demand trend. In China, we recognize that there are two pillars for core competitiveness. One is store operations. In terms of store size and operating mode, this is pretty mature and established. We are quite comfortable with that. The store opening risk and also area management costs are also quite established and under control.
We would have to strengthen our store management and structure to be more effective and more profitable. It is at the supply chain part that we believe we have a lot of upside. This would include strengthening product competitiveness, enhancing supply stability, and reducing supply chain costs. In e-commerce, let's share our short and medium-term actions. In the short term, we have to take measures to contain our losses.
We would increase the minimum spend on free shipping, which we've shared. We would reduce reliance on discounts and reduce cost on operations. We would have to increase certain area of competence, including emphasis on customer experience, optimizing the supply chain, reducing the cost of fulfillment, and also cutting the lead time, and also overhaul our back-end system.
Future growth would require effective and scalable base, and we would explore strategic alliances with external parties to improve competitiveness, capacity, increase exposure, and distribution channels. In terms of O2O development, this will be the main focus for future development. It involves Hong Kong, China, and our online team to align and integrate over time. We would build our CRM database to enhance shopping experience, retain customers, and drive sales.
We would increase the usage of our Zhengzhou Free Trade Zone warehouse and increase the number of PRC stores with O2O experience zone. In Singapore, Malaysia, and Taiwan markets, in Malaysia, to start off with, we have achieved better market performance amid weak local market in recent years. We are the leading beauty specialty store in the market, but competition is heating up.
We will strengthen our makeup offerings to broaden our customer base, in particular Malay segment, and strengthen marketing resources, including digital media. In Singapore and Taiwan markets, we are in a consolidation mode. We would rebuild our team, stabilize operations, and reduce losses, and aim for smaller but more effective operation, including store network consolidation.
In the area of category management and product development, we would be using business and market intelligence to improve product offerings. For our own brands, our new products during the first half will mainly be from Japan, Korea, and Taiwan. Whereas in the second half there will be more new Swiss products and new brands to be launched. In the area of agent brands, we would focus on promoting our top 30 best brands and be ready to develop the next top 10 brands with the most potential.
We would be streamlining our product offering, and this is already underway. We will reduce carry and display cost, enable more effective management of products, and enable more focused and effective marketing. This is the network. We have decreased the number of stores by one. Of course, depends on the market. In Hong Kong and Macau, we continue to expand. In mainland China, we intend to. Singapore and Taiwan, consolidating. In Malaysia, we are expanding. I think that's about it. Thank you