Good afternoon, ladies and gentlemen. Welcome to Sa Sa year 2015/16 Interim Results Investor Presentation. Before the presentation, let me introduce the company representative on stage, Dr. Simon Kwok, SBS, JP, Chairman and CEO.
Hello.
Dr. Guy Look, CFO and Executive Director.
Hi, everyone.
The agenda today will begin with Dr. Kwok going through the interim results highlights, followed by Dr. Look walking us through the financial performance, business review, as well as the outlook and the way forward in details. There will be a Q&A forum afterward. Now, let me hand over to Dr. Kwok. Dr. Kwok, please.
Good afternoon, ladies and gentlemen. Welcome to the Investors Presentation of Sa Sa's Interim Results for the financial year ending 31st March 2016. During the past six months, the overall tourism and retail industry of Hong Kong has faced a number of challenges, and Sa Sa was no exception, as its financial results for the first half of the year were affected significantly. The group's turnover dropped by about 10% year-on-year to HKD 3,777.9 million. Profit also dropped by 55% to HKD 153 million. In Hong Kong and Macau markets, we saw Hong Kong's tourism industry gradually losing its competitiveness. In contrast, other countries are actively enhancing their policies on tourism and improving their tourist-related infrastructure.
Furthermore, the strong Hong Kong dollar and a depreciated renminbi led to a decrease in mainland Chinese tourist arrivals, and a drop for the first time in the number of transactions from mainland tourists during the first half of the year. In addition, the purchasing power of mainland customers has weakened, resulting in a persistent decrease in the average sales value per transaction. These negative factors greatly affected our sales in the Hong Kong and Macau markets. In a weak market environment, strict control over rental costs is at the top of a retailer's agenda. However, it takes time for the rental market to adapt to changes in the retail market, and our rental costs continued to rise in the first half of the year. This rise in rental costs and our increased efforts in promotional sales, and thereby affecting our gross profits, caused our profit to decline.
Nevertheless, we believe there are always opportunities in hard times. We are in the midst of taking key measures to tackle the difficult business environment. We will continue to monitor market trends closely and will speed up the launch of new products that are more in tune with the markets. Furthermore, we will open fashionable boutique stores to attract young customers to expand our customer base. We will improve our product display to make it more convenient for customers to browse and make their own purchase decisions. We will adopt new technology and embrace digital marketing to provide a more comprehensive, engaging, and interactive shopping experience to our customers. In the mainland China market, the overall profitability of our stores continued to improve, but operation effectiveness and product management were rather weak, leading to a drop in turnover and affected our profitability.
In the overseas markets, we will continue to enhance management and increase resources in order to support the long-term development of our businesses. As for our online business, after we shifted the focus of sasa.com to the mainland market last year, sales into the mainland market grew steadily at the rate of approximately 24.5%. However, the decrease in sales in the overseas markets offset this growth. We will actively initiate and develop more O2O initiatives to connect with cross-border customers, thereby expanding our customer base and driving sales growth. This will strengthen our existing markets beyond Hong Kong and increase the turnover and profit contribution from our online business. Given the current difficult business environment, Sa Sa will once again do its best to turn adversity into opportunity.
We will further strengthen our competitive edge with the aim of achieving steady and healthy growth in the future and generating satisfactory returns to our shareholders. I am now going to pass the floor to Guy, who will explain in detail Sa Sa's financial and operational performance for the first half of the year.
Thank you. Good afternoon, ladies and gentlemen. Welcome to Sa Sa International Holdings Limited's interim results presentation for the six months ended 30th September 2015. Our agenda today covers financial performance, business review, and outlook and the way forward. First of all, our financial performance. Our turnover declined by 10.6% to HKD 3,777.9 million. Profit for the period declined by 55% to HKD 153 million, and earnings per share declined by 55% to HKD 0.054 a share. Gross profit margin declined by 1.7% to 42.9%, and net profit margin declined by 3.9% to 4.1%.
We are maintaining our basic dividend of HKD 0.05 a share, together with HKD 0.04 of special dividend per share, making up HKD 0.09 of total interim dividend, representing a payout ratio of 167%. Together with this, we are offering our shareholders an option to take scrip instead of cash with a 5% discount. In terms of geographical mix, Hong Kong and Macau account for 80.8% of group turnover, Mainland China 3.9%, Singapore 3%, Malaysia 3.8%, Taiwan 3.4%, and our online business 5.1%. We are still in a sound financial position. Our CapEx reduced by HKD 8 million to HKD 50.5 million. Net cash generated decreased by HKD 373 million to HKD 84.6 million. This is represented mainly by a reduction in earnings, as well as changes in working capital.
I believe it is more revealing to look at the healthy net cash position that we have as at the end of the six months at HKD 783.5 million, which is HKD 117.3 million less than that of last year, after paying off last year's final dividend. Then we move on to our business review by market. In Hong Kong and Macau, retail sales declined by 11.1%, and on a same-store basis, by 8.5%. The strength of the Hong Kong dollar makes visiting overseas more attractive for both local consumers and Mainland residents. The total tourist arrivals have been dropping since June 2015. As a result, the total number of transactions that we have recorded for this period very much reflects that trend, with a reduction in transactions of 2.6%. The average ticket size has declined by 8.7%.
Basically, that is made up of 13.8% reduction in the average ticket size of Mainland shoppers here in Hong Kong. There has been significant changes in consumption pattern, exacerbated by cross-border e-commerce. If we look at this diagram, we can look at the first quarter and second quarter tourist arrivals and number of transactions. The line in the middle in black represents the change in PRC tourist arrivals. It was still positive in the first quarter, with a positive growth of 1.4%, and this declined to a - 7.3% in the second quarter. Our transactions with the Mainland Chinese visitors correspondingly has declined as well to a + 3.7% growth in the first quarter and - 4.1% in the second. Of course, both beating the tourist arrival numbers. The average ticket size has remained negative in the double-digit area, and I will elaborate on that.
Again, the strong Hong Kong dollar and the substantially strengthened tourist facilities and convenient travel policies offered by other destinations have adversely affected Hong Kong's tourism competitiveness. As mentioned, Mainland tourist arrival has been recording in the red in terms of growth since the second quarter of our financial year. The lower ticket size basically reflects changes in consumption behavior. In China, the retail sales has declined by 8.6% in the first half. The store contribution, however, has continued to improve despite slower sales. Weak management in products has led to a decline in inventory, to weaknesses in inventory and therefore increase in inventory provisions. The total loss has increased slightly from HKD 17.6 million to HKD 20.1 million. In other markets, in Singapore, we have recorded a similar level of sales as for last year. In Malaysia, sales increased by 2.1%. In Taiwan, sales declined by 2.7%.
The weaknesses in Singapore and Taiwan in general would be due to changes in management in their local regional offices and the fast-changing market demands for new products. In e-commerce, our sales declined by 1.4%. During this period, we have put more focus on the China market, which in itself, excluding other markets, grew by 24%. We have enhanced the flash sale channel to attract market attention. We are enhancing marketing capability and optimizing our channel advertisements and improving interactions with our VIPs to retain them and to boost sales. The increase in sales in the China market, however, has been offset by decline in overseas markets, giving us an overall decline of 1.4%. The profitability has been affected by a lower gross profit percentage and investments to build competitiveness.
In the area of brand management, we have historically been more focused on higher-priced products from outside of Asia, primarily European and American products at a higher price level. Market preference has now changed to lower-priced products, especially those from Asia. So the house brand product mix has declined to 41.3% from 43.3% of last year. In terms of quantity sold, the house brands quantity sold has actually increased by 7.4%, but because the average selling price has decreased by a higher percentage, that gave us a decline in dollar sales for the house brands as a whole. We move on to outlook and the way forward. There are challenges ahead in Hong Kong, Macau. There is a change in demographics and slowdown in mainland tourist arrivals, meaning lower spending as sales witnesses. The effect of once-per-week permit for Shenzhen residents has yet to be fully manifested.
The Hong Kong dollar strength and Hong Kong travel restrictions drive mainland tourists to visit markets with weaker currencies and increasingly friendly travel policies. The political situation in Hong Kong and anti-mainland tour sentiment add uncertainty. The consumption preferences are trending towards low or mid-price new concept products with short product life cycle. Cross-border e-commerce in new product trends are broadening the battlefront. On our part, we are engaging in various strategies to tackle these challenges, one of which is to improve shopping experience. We are opening trendy boutique stores to attract younger customers and to broaden our customer base. We would put emphasis on new products and product display to cater to new demand trends. We would provide more comfortable shopping environment to improve shopping experience, and also facilitate browsing and attract impulse purchases. We would adopt new technologies to increase exposure, customer engagement, and interactivity.
We would have a lot of initiatives on the O2O front. Primarily, these involve cross-border initiatives on multiple fronts. We would engage non-Hong Kong customers with a view to serve them after they leave Hong Kong. We would facilitate cross-border online purchases using China stores. We would operate physical stores in free trade zones to promote online sales and increase presence of duty paid products. We would leverage on the digital resources of our online operations for marketing and thereby also lending our strong brand name to our online operations. We would leverage on major mainland online platforms and payment gateways to gain exposure and broaden customer base. In China, we recognize the need for improving management resources. We are currently using external management resources for store operations based on contract and seconding experienced staff from Hong Kong to improve attractiveness of product offerings and inventory management.
We would build management structure, improve matrix reporting, improve control process, improve standard of reports, and improve training. Our store portfolio management will involve more emphasis on effective management. All new stores will open in areas, especially down south, where we have existing and effective management. We would adopt a lower cost and more effective boutique store format for new store openings to enhance profitability and speed up O2O business development to match government directions. In Singapore, Malaysia, and Taiwan, team building and products are the keys. In Malaysia, fundamentals are strong. They were affected in the short term by GST at the beginning of the year, but since we have recovered. Work on team building and succession planning, continue to build store network and product portfolio, and broaden customer base to target the Malay population.
In Singapore and Taiwan markets, we would have more management attention to address various issues, including reducing staff turnover and building management structure, improving our product portfolio, and building and enhancing our store network. In e-commerce, the primary objective is to fully utilize opportunities and manage the risks of cross-border e-commerce. The opportunities would be that cross-border e-commerce provides huge business opportunities. There are, of course, risks to be managed. Fast reaction is needed to the direction of government policy changes, and quick adaptation is also needed to market product and technological changes. Initiatives would involve ironing out technicalities of free trade zones and cross-border fulfillment. This is in terms of cost and the speed of delivery.
We would have more emphasis on new product launches to attract traffic and drive sales, adopt new marketing channels and optimization of old, build partnerships and alliances, develop content strategy and improve user experience, develop and improve systems, including business intelligence and customer relationship management to enhance operation effectiveness, and launching of a new mobile app. In the area of category management and product development, we would have new dedicated team to source new and trendy products. We would improve our reorder process and speed up new product launches to adapt to fast-changing market trends, and we have better usage of business and market intelligence. We will restructure our house brands to satisfy market preferences for low and mid-priced Asian products. Our store network strategy would vary between markets.
In Hong Kong and Macau, our primary objective is to rationalize our stores in tourist locations, build stores in residential locations, and modify the size of specific stores to enhance productivity and profitability. In Malaysia and Taiwan, we would be in an expansion mode to increase penetration. In mainland China and Singapore, we would be in an optimization mode to enhance our store contribution. Thank you.