Good afternoon, ladies and gentlemen. Welcome to Sa Sa year 2012 and 2013 annual results investor presentation. Before the presentation, let me introduce the company representative to you. Dr. Simon Kwok, BBS, JP, Chairman, and CEO.
Hello.
Mr. Guy Look, CFO and Executive Director.
Hi, everyone.
The agenda today will begin with Dr. Kwok go through the annual results highlights, followed by Mr. Look walking us through the key achievement, financial performance, business review, and outlook in details. There will be a Q&A section afterward. Now let me hand over to Dr. Kwok. [inaudible] .
Good afternoon, ladies and gentlemen. Welcome to Sa Sa's annual results presentation for the year ended 31st March 2013. The external environment of 2012 was full of challenges. The Eurozone was in recession. There were persistent weaknesses in the U.S. economy, and the growth in the Mainland and other Asian economies was slowing. The group fully demonstrated its resilience towards adversities in the market, delivering a solid growth for the year. In particular, in our core market of Hong Kong and Macau. The group's turnover and profit both increased by 19.7%, and the retail network grew by 11 to 260 stores in total. We have witnessed remarkable evolution in the cosmetic industry over the past few decades. Cosmetics and beauty products have become more of a necessity for daily life than a luxury item. This means that the cosmetic industry is increasingly resilient to changes in the economic climate.
As a matter of fact, the cosmetics industry now consistently outperforms the overall retail market. Our retail business in the Hong Kong and Macau market has continued to record satisfactory growth. The growth driver has come from the continuous increase in the number of Mainland travelers, in particular day-trippers, who now represent more than half of all travelers from the Mainland. In light of this, we have continued to execute our strategic network expansion plan by identifying appropriate store locations beyond traditional shopping areas to capture both local and Mainland customers in non-tourist areas where rentals are more reasonable, and to gain market share as a result. During the year, we continued to face a difficult business environment with ever-increasing costs. We closely and consciously managed our costs on the one hand, and we successfully improved our product sales mix and increased our gross profit margin on the other.
Both strategies have helped us offset the pressure of rising costs and demonstrated our management strengths. In the Mainland China market, we have successfully established our presence in 26 cities across 13 provinces. We continue to build our foundation and scalability and recorded recurring profits at the store level during the year. Turnover in the Singapore and Malaysia markets grew steadily over the year. We continued our efforts to build our store network and launched a number of marketing and promotion campaigns and collaborated with local suppliers to stimulate sales. We devoted ourselves into extending the customer base for the Sa Sa brand and our exclusive brands at the same time, enriching our product offerings to our customers. In Taiwan, we will actively work with local suppliers to promote reputable brands to further enhance our market position in Taiwan's fragrance and cosmetic markets.
As for sasa.com, our continuous efforts to penetrate into different markets through localized marketing strategies have been successful, and the same strategy has also enabled us to expand into new markets and to broaden our customer segments over the past year. With the objective of diversifying our markets, we actively made use of social media to support our localized marketing campaigns. We activated our customer loyalty scheme to attract and retain customers and to encourage repeat purchases. We also strengthened our partnership with top online media to improve our brand's exposure to drive sales growth and to acquire new customers. Looking ahead, we expect next year to be challenging as economic conditions remain uncertain in many parts of the world. However, we are still confident about the resilience of the cosmetics market and remain cautiously optimistic about the outlook for our business.
Leveraging on the strong foundation of our Hong Kong-Macau core market, the group is committed to further developing our operations in Mainland China and overseas markets. We will continue to improve our operational processes and efficiencies to enhance scalability and achieve sustained growth in the future. This year, we shall keep up our new store opening pace. The group is excited at the upcoming launch of our new lifestyle concept store in Causeway Bay. It emphasizes shopping experience and introduces many new international brands, brings in professional beauty services and an element of lifestyle into the traditional one-stop beauty shop. The concept store is a strong statement that Sa Sa brand image has been further elevated and Sa Sa is becoming a trusted partner amongst international beauty brands.
While we have always catered for the preferences and requirements of our local clientele, this new concept store certainly aims to attract new customers and enhance the loyalty of existing ones. In Mainland China, we will continue to build our business foundation and strengthen our scalability. We are adopting a smaller boutique format with much higher productivity and cost-effectiveness that will help enhance our penetration in the market and strengthen our network. In brand management, we are honored to have appointed famous film and TV stars in Greater China, namely Miss Vivian Chow and Miss Athena Chu, as the new ambassadors for Suisse Programme to further enhance its brand image. We will also strengthen our close collaboration with suppliers in beauty brands, providing them with all-round brand management services and solutions.
Sa Sa places a strong emphasis on staff training and development to realize the full potential of our employees and to create an extraordinary shopping experience for our customers. With our consistently adaptive strategies and sound management, Sa Sa has demonstrated resilience to withstand challenges under different economic circumstances. We will maintain our momentum to proactively expand our operation and to strive for satisfactory returns for our shareholders. I am now going to hand the stage over to Guy, who will explain in detail Sa Sa's financial and operational performance over the past year. Thank you.
Hi. Good afternoon, everyone. Welcome to Sa Sa International Holdings Limited's investors presentation for the year end of 31st March 2013. Our agenda today covers key achievements, financial performance, business review, and outlook and strategies. First of all, key achievements. Our group turnover increased by 19.7% to HKD 7.669 billion.
We gained market share in Hong Kong- Macau, and our retail sales increased here by 20.8% to HKD 5.965 billion. Our group gross profit margin increased from 45.2% to 46.4%. At group level, we maintained net profit margin at 10.8% amidst the fast-rising cost operating environment. Profit for the year was HKD 825.6 million, up 19.7%. For the second year running, we have been included in the constituent member of Hang Seng Corporate Sustainability Benchmark Index. We have had a solid performance for the year. Topline has grown by 19.7% to HKD 7.669 billion. Gross profit increased by 22.8%, and EBITDA increased by 22.6%. Profit for the year increased by 19.7% to HKD 825.6 million, and basic earnings per share increased by 19.1% to HKD 0.293. Return on equity slipped marginally to 41.8%, whereas gross profit margin increased by 1.2% to 46.4%, and net margin is maintained at 10.8%.
We're declaring a final dividend of HKD 0.05 together with a special dividend of HKD 0.09, which together with a HKD 0.07 interim dividend already paid, makes up a total dividend per share of HKD 0.21, representing a payout ratio of 72%. In the Hong Kong- Macau market, we gained market share and increased our gross profit margin. Retail sales increased by 20.8%, and on the same store basis, by 15%. Number of transactions increased by 8.3%, and on the same store basis, by 3.9%. Average sales per transaction increased by 11.5%, and our gross profit percentage by 1.4%. There's been a number of growth drivers, including growth in tourist arrivals, particularly the same-day Mainland visitors. We have been successful in penetrating non-tourist areas, and we have had an effective loyalty program, under which sales to VIP increased by 22.2%.
We have strategically broadened our retail network and increased our multi-brand Sa Sa stores throughout the region to 249 stores by the end of the year. This is made up of 97 in Hong Kong- Macau, 53 in Mainland China, 21 in Singapore, 50 in Malaysia, and 28 in Taiwan. We have, for strategic reasons, closed a number of stores, department store counters in Mainland China, which have been underperforming or are off center as we want to concentrate our effort in pockets of clusters so that we could manage them effectively. We will discuss a bit more later on about how we will start increasing our department store counters again. But as at the end of the year, we have 11 single-brand stores or department store counters. We move on to financial performance. Our group turnover increased by 19.7% at HKD 7.669 billion.
This is made up of HKD 6.1 billion in Hong Kong, representing 79.6%, HKD 356.3 million in Mainland China, representing 4.6%, HKD 255.4 million, representing 3.3% in Singapore, HKD 318.2 million representing 4.2% in Malaysia, HKD 254.6 million representing 3.3% in Taiwan, and for our online business, HKD 383.9 million representing 5%. It is our objective in the long run to increase the sales mix of our non-Hong Kong markets. For this year, Malaysia market and our online business have contributed in this direction. Increasing to 4.2% of group turnover and 5% of group turnover, respectively. In Mainland China, the sales mix remains much the same at 4.6% because of fewer store openings. Whereas in Hong Kong, it edged up by 0.1% to 79.6% because of relatively high growth at exceeding 20% growth rate.
Whereas for Singapore and Taiwan, their sales mix slipped to 3.3% and 3.3% respectively because of slower growth rates.
We believe that with persistent commitment in our overseas markets, these markets will eventually contribute a significant share of group sales mix. We're in a sound financial position. Because of fewer store openings in China, our CapEx is reduced. As a result, cash in bank increased by HKD 153 million to HKD 752 million. We move on to business review. In Hong Kong and Macau, we've had a solid performance. Apart from a fairly slow start in the first quarter, we grew very consistently from the second quarter to the fourth quarter to give us a top-line growth of 20.8% in the retail business with the same-store growth of 15%. This was driven by a healthy increase in sales per transaction of 11.5% and an increase in number of transactions by 8.3%.
You may be interested to know that the average spending by mainland visitors increased by 8.4% per transaction during the year. In terms of customer mix, our mainland visitors accounted for 67.7% of our sales, up by 4%. In terms of transactions, the local residents still accounted for 55.9% of our transactions. We will continue to address both markets, both segments very seriously and offer them the best products and services that we can. We have been consolidating both our multi-brand Sa Sa stores and department store counters in the mainland to enhance the management of our clusters, making the deployment of human resources and logistic function much easier to manage. The biggest impact, as you have seen, is in the closure of a number of underperforming or off-location department store counters because the priority is on productivity.
To this end, we have slowed down store opening in the second half in preparation for a smaller store size format, which we expect will be a lot more productive. Our China sales grew by 27.4% year-on-year. This is a slower growth as compared to the 100% that we did last year, and this is because of slower store opening. It is not the full story. You can see here that in terms of same-store growth, same-store growth profit percentage has increased from 48.9% to 52.6%. If we look at the actual dollar earned on the same-store basis, the same-store growth profit dollar has increased from HKD 80.7 million to HKD 86.2 million. This actually translates into substantial gains in terms of same-store recurring contribution from HKD 4.8 million last year to HKD 9.3 million this year.
It is precisely because of this, which contributes to head office overheads, that we have been able to reduce our losses in the China market marginally from HKD 31.3 million to HKD 30.1 million. For other markets, we have pretty good performance in Malaysia with a top-line growth of 25.9%. In Taiwan, we have had a weaker market and the total growth slowed to 12.2%. As for Singapore, the shortage of staff has led to a slow growth rate of 4.3%. For our e-commerce business, we are growing our diversity and our growth rate was 29.2% as we have successfully opened up new markets. Our executions are increasingly localized and targeted and involves active customer acquisition and retention, building loyalty through CRM, engaging localized and targeted marketing campaigns, and embracing localized social media. We have also partnered with top-tier online media to increase our brand exposure.
Our brand management efforts are yielding results. We're broadening product portfolio to address more market segments, increasing young and mass market product offerings, and focusing marketing resources on house brands with greatest potential. We have engaged major marketing initiatives, including appointment of new Suisse Programme ambassador. We have launched QR codes in WeChat in Hong Kong, mainland China, Taiwan, and sasa.com. As a result of all these, the sales of house brand products has increased by 22% and the mix from 41.9% to 42.5%. The quantity of own-label products sold has increased by a higher percentage of 42%. We move on to outlook and strategies. I would like to reiterate the resilience of the cosmetic markets in difficult economic times. On this graph, you would see that we have consistently outperformed the general Hong Kong overall retail markets.
It is really no coincidence that cosmetic products, including skincare as a category, has become a daily necessity. There are, of course, challenges and opportunities in Hong Kong- Macau. Challenges would include rising costs in the area of rental, depreciation, and staff. There is a staff shortage challenge as well, both in the frontline and in the warehouse. Opportunities for sustained growth are plenty. We believe that the growth in Mainland visitors' arrival will continue as Hong Kong would benefit from the continuing integration with the Mainland. Indeed, only 217 million Mainland residents are eligible under the Individual Visit Scheme to come to Hong Kong as compared to the 1.3 billion Mainland population. We would expand our network, as our network strategy would increase our competitiveness and alleviates rental pressure.
We would enhance our product portfolio to increase our house brand mix and drive our gross profit margin to improve, and we would improve our exclusive brand portfolio. We would also improve inventory management. We would tap local consumer markets and launch a new lifestyle concept store with more professional beauty services to locals. We are very excited with our new lifestyle concept store. It involves a vastly enhanced shopping experience as we offer customers a selection of signature facial and body treatments by professional skincare brands. We would also offer professional hair salon service, nail spa service, and makeup styling services. We would also have facility for a tasteful and lifestyle-driven boutique cafe. The store is big with 20,000 sq ft, and it's in Leighton Centre, Causeway Bay. We expect that we will open store there by late July.
The new lifestyle concept store offers us new business partnership opportunities. We partner with a new landlord and a number of new international brands which have never worked with us. We believe that we all have new customers to offer each other, and we will all mutually benefit from this triangular cooperation. The concept store offers opportunities to reinforce our existing relationships with principals of international brands and local suppliers as it facilitates better product display and services with local consumers, as it enhances loyalty with beauty treatments and other services. With consumers visiting Hong Kong, as it provides more choices and more comfortable shopping experience. There are strategic implications. The concept store signifies acceptance by international brands.
It uplifts our image and positioning in the eyes of customers, suppliers, and landlords, and has potential for the new brands to enter other stores in Hong Kong and throughout the region. It also has potential to bring in more international brands yet into our stores. It enhances competitiveness and scalability for us throughout the region. Our strategy for Mainland China has been laid out, is in place, and it includes a comprehensive plan for steady development, including enhancement of our store network, improvement of our store productivity, improvement of product productivity, improvement of training model, strengthening of customer base, and improvement of scalability. The future emphasis would be to cater for prevailing market conditions. We will have a new image and new spokesman for existing and new department store counters.
We will have a new standalone store for Suisse Programme in China, and we have more productive multi-brand Sa Sa stores in boutique store format. We will focus on products with the best productivity and enrich our product range with sole agent products. We are also excited about this, which is the boutique store format in China to enhance our cost-effectiveness and productivity. Earlier, I explained that we did slow down in store openings, and there were some effects to our same-store sales growth in preparation because it does involve quite a bit of changes. The store area will be about 1,000 sq ft- 1,600 sq ft. The products we will offer will be about 2,500- 3,500 SKUs, which would include up to about 50% of the best-selling products that we currently carry. Our gross profit margin is expected to be enhanced.
Because of smaller space and also fewer products, we expect CapEx to reduce, staff number to reduce, and staff product training requirement to reduce. We expect that the productivity of these stores will be very little compromised. We all know of the 80/20 rule. With the top 50% of our current portfolio, we expect very little compromise in terms of sales. As a result, rental cost, staff cost, and depreciation cost will all reduce as a percentage of sales. What it means is the contribution per store will increase. We target to open more than 20 in this current financial year. We looked at figures just now, but from the operation perspective, we expect that staff learning will be made much easier. Staff will have much less pressure to learn because there is much less to learn. Staff training will be made much easier.
It will make us much more scalable. Inventory management will be made easier because we do not have that many more SKUs to carry, and the logistics support will also be made easier. So it would make us generally more scalable and more profitable. In Singapore, Malaysia, and Taiwan, we will build local team and retail brand equity to gain recognition and broaden our customer base. We will increase our store productivity and build retail network, enlarge our store size, introduce new store concept to build scalability and profit potential. We would invest in brand building of own labels to enhance competitiveness and work closely with local suppliers to increase brand productivity. We would develop closer strategic and operational working relationship with major beauty groups and build relationship with landlords to facilitate network expansion. We would invest in training and IT to enable scalability.
For our e-commerce business, we will engage multiple markets to drive growth. We will consolidate our position in current markets, invest in new and upcoming markets, and improve our competitiveness in targeted markets. Our strategies may be market specific, including improvement of product offerings, development of content strategy, improvement of fulfillment scalability, engagement of targeted sales campaigns, integration of social media with marketing campaigns, further exploring cooperation with top online partners, and enhancing customer retention initiatives. In the area of category management and product development, we would develop operation working relationship with major beauty groups and actively develop official working relationship with international brands and strategic product categories. We would extend existing official supply relationship throughout the region and devote more resources and expertise to develop and market our own brands.
We would develop and roll out signature facial treatments for Suisse Programme in standalones in Hong Kong, and as mentioned earlier, in the Mainland. We will selectively introduce new brands to fill product gaps, adapt product offerings and promotions to suit current consumer sentiment. We would refine inventory management, reduce inventory of product categories with short lead time. As for our network expansion, we expect to have about 290 multi-brand Sa Sa stores by the end of this financial year, with 110 Hong Kong-Macau , 75 in mainland China, 22 in Singapore, 55 in Malaysia, and 29 in Taiwan. We expect to have at least nine single-brand stores or department store counters by this year-end. This actually excludes a number of standalones and department store counters that we are currently considering.
You may say that we are a bit more conservative in this respect, but we haven't really included them. That concludes the—