Good afternoon, ladies and gentlemen. Welcome to Sa Sa's interim results presentation for the six months ended 30th September 2020. To cope with the raging COVID-19 pandemic across the world, many countries have implemented strict entry/exit control measures. As a case in point, Mainland China has suspended the Hong Kong and Macau Individual Visit Scheme. As a result, the group recorded a loss in its core markets of both Hong Kong and Macau special administrative regions. Overall, the group's turnover decreased by 62% year-on-year to approximately HKD 1.29 billion for the first half of the year. The group recorded a loss for the continuing operations of approximately HKD 200 million, which excluded the impairment for retail store assets of approximately HKD 46 million.
The Hong Kong SAR still maintains stringent border control measures. The number of Mainland Chinese visitors has dropped to nearly zero. Moreover, the government social distancing initiatives have also impacted local customer spending, which in turn has led to a sharp fall in retail sales in the Hong Kong markets. The Macau SAR has benefited from the government's measures to stimulate local consumption and the resumption of the Individual Visit Scheme in August. As a result, sales at the group's Macau retail sales stores nearly doubled in the second quarter compared to those in the first quarter. Total sales for the group's operations in both the Hong Kong and Macau markets dropped by around 70% year-on-year in the first half of the year.
Retail stores have been the core of the group's business, but rents have been increasing significantly over the years to the point that they have become the biggest expenditure of the group's retail business. The group has therefore been actively reducing the number of stores in Hong Kong SAR since last September to reduce operating costs. With the outbreak of the pandemic, the group sped up the development of e-commerce business, making use of social media and live broadcasts to increase publicity. This has not only enabled business diversification, but also reduced both the proportion of sales and total revenue and costs at our physical retail stores. This initiative is conducive to the group's healthy development in the long term.
Sa Sa has been rooted in Hong Kong for many years. Local consumers always account for a significant portion of the sales of the group. Now that they dominate the group sales, we are introducing new products in order to cater to their needs and preferences, all with the aim of enhancing customer loyalty and increasing our market share. The pandemic has waxed and waned, making the operating environment volatile. Therefore, sufficient working capital is the key to tiding the group's business over this situation. The group has strictly managed and controlled inventory and costs. Inventory clearance has enabled us to effectively slow down our cash outflow.
As of the end of September, the group maintained the level of cash on hand at about HKD 590 million. However, the inventory clearance has also inevitably exerted downward pressure on gross profit margin. As the inventory level has fallen sharply, the group has been actively introducing new products since the second quarter to improve both gross profit margin and sales performance. The gross profit margin, therefore, started to rebound in October. Although the group's business in Mainland China was affected by the pandemic, it recorded only a slight year-on-year decline in same store sales in the first half of the year.
With the pandemic being brought under control, our sales performance in this market has been improving and began to stabilize in August, recording positive growth in same store sales in the second quarter. The five newly opened stores in Mainland China also performed well. We are confident about the future development of this market. The group's e-commerce business registered the fastest growth among all of our businesses. During the pandemic, Mainland tourists did not visit Hong Kong and Macau, and local customers seldom went out shopping. We therefore sped up the development of our e-commerce business by combining the advantages of Sa Sa's teams at physical stores and those of our e-commerce business to boost sales through the O2O business model. We used social media, third-party platforms, and our own website to increase interaction with customers.
The move paid off as sales in the second quarter increased around 36% year-on-year and by approximately 39% quarter-on-quarter. The group's e-commerce business in the Hong Kong SAR had a particularly outstanding performance, as sales there more than tripled year-on-year in the first half of the year. This rapid growth was mainly due to two factors, namely the low comparison base from last year and the launch of the sales of protected products on our Hong Kong website in May this year. Such products have boosted both footfall and sales at our online store.
In Malaysia, the government implemented a Movement Control Order in mid-March. The group's stores were forced to temporarily suspend operations. This dealt a heavy blow to Sa Sa's business. For the first half of the year, the group's retail sales in Malaysia fell by around 36% year-on-year. Our stores in the country have reopened since May. The group sales performance improved in the second quarter when the year-on-year decline in retail sales narrowed to around 29%.
For the future, there is tremendous growth potential in the Mainland China market, as consumer sentiment has returned to normal after the pandemic was brought under control. Sa Sa's management and product procurement teams have continued to improve their performances, thus enabling positive growth in same-store sales from the second quarter to the present, as well as satisfactory performance at the newly opened stores. All these positives provide us with a good foundation to expand our business in Mainland China.
Since there is a higher chance to rent shop space in good locations on more favorable terms now, the group will actively expand the store network in Mainland China. At the same time, the group will make full use of online channels to gradually progress towards the ultimate goal of growing our O2O business network across China in the long run.
The group's e-commerce business has also made good progress. Sales at the Double 11 festival this year rose by 68% compared to those last year, driving sales growth of this business in the third quarter. We will continue to commit resources to our e-commerce business. We will seek to boost online sales and at the same time actively step up the integration of traditional retail operations and e-commerce business to reap complementary benefits. To extend our social commerce and O2O operations, the group will strengthen the training of both frontline and back-office employees in our traditional retail teams, improve the commission and reward system, and adopt new technologies to give support to business development.
As for the retail markets of Hong Kong and Macau, although we are optimistic about the long-term prospects of Hong Kong's markets, the difficult business environment of the physical retail stores is not likely to turn around in the next few months. We will actively close stores located in tourist areas with expensive rents to lower rental costs and to enable to recover sales online. Through online touchpoints and riding on the cooperation of our online and offline operations, we will also formulate better strategies for procurement, improve store display, and open new stores in suitable locations in residential areas to increase our market share of local customers.
In Macau, the government has gradually reopened the border. Although the recovery in the retail market there is slower than expected, the group hopes to make up for some previously missed business in the peak seasons of Christmas and Lunar New Year. We also hope group tours of Mainland Chinese visitors will be resumed very soon, for this will accelerate not only tourist arrivals in Macau SAR, but also the recovery of our business. For the future, despite the economic headwinds that still lie ahead, Sa Sa will relentlessly implement a strategic reform plan, supporting the group to overcome adversity in a flexible manner while developing its new retail model, thereby delivering long-term value to its stakeholders.
Now I would like to pass the floor to Guy, who will explain Sa Sa's financial and operational performance in detail for the first half of the year. Thank you.
Good afternoon, everyone. Welcome to Sa Sa's interim results presentation for the six months ending 30th September 2020. Our agenda today covers our financial performance, business review, and outlook and future plans.
First of all, our financial performance. Our turnover for the six months was HKD 1.286 billion, a reduction of 62.1%. Gross profit was HKD 419 million, a reduction of 67.3%, and our gross profit margin was 32.6%, a reduction of 5.1 percentage points. We incurred a loss for the period, including store impairment charges of HKD 242 million, and if we exclude the store impairment charges, the loss would have been HKD 201.8 million. Basic loss per share amounted to HKD 0.078. The number of stores decreased by 13 to 231 for the group as a whole. Sales in Hong Kong and Macau SAR contributed 66.6% of group turnover, while e-commerce contributed 14.4%. Mainland China made up 9.1% of group turnover, and Malaysia contributed 9.9%.
The fall of the sales mix contribution from Hong Kong and Macau is due to the decline in sales relative to the other markets under the impact of COVID-19. While we expect the sales at Hong Kong and Macau SAR to recover, we aim to grow the other markets to the extent that their sales mix will maintain. It is strategically important to have a more balanced geographical sales mix for long-term sustainability and development.
T he group's 231 stores are made up as follows: Hong Kong and Macau has 106 stores. Mainland China, 48 stores. Malaysia, 77 stores. We have closed 12 stores in Hong Kong SAR this first half, of which 11 are in tourist areas. The group incurred a loss for the period of HKD 242 million. This includes accounting for store impairments of HKD 46.1 million. Operating losses would be HKD 201.8 million if we exclude such items, and is made up of HKD 192.5 million in Hong Kong, HKD 4.5 million in Mainland China, HKD 2.6 million e-commerce and HKD 1.6 million in Malaysia.
The group's financial position is sound. We have cash on hand of HKD 593.6 million and no bank borrowings. The net cash used in operating activities of HKD 40.3 million is much less than reported loss in the last 12 months because of the HKD 666 million of inventory reduction. The reduction in cash on hand of HKD 195.1 million is also the result of dividend paid amounting to HKD 265.8 million that was declared last year, but paid this year, and is after a CapEx of HKD 20.8 million spent in the last six months. The reduced inventory represents 126 days of sales, an increase of nine days from last year. This reflects more aggressive purchases in recent months as our focus has turned away from inventory reduction to repositioning of inventory to drive sales.
We move on to business review. For the Hong Kong and Macau SAR markets, COVID-19 brought visitation to Hong Kong and Macau to a standstill, while social distancing and poor employment environment severely affected our local consumption. We have introduced protective personal care and health supplement products to mitigate the impact. The two different SAR governments have rolled out different supports with different outcomes. In the first quarter, retail sales declined by 75% year-on-year, and in Macau, tourist accounted for a higher proportion of retail sales, and as such, was affected more by border controls.
In the second quarter, retail sales decline slightly narrowed to 65.5% year-on-year, and on a quarter-on-quarter basis, there was an improvement of 12.1%. However, in Hong Kong SAR, we have seen no improvements in quarter-on-quarter performance, whereas in Macau SAR, sales improved by 95.6% quarter-on-quarter. This is due to the consumption subsidy stimulating local consumption and the resumption of mainland visitation bringing gradual recovery.
In Hong Kong and Macau, our loss of HKD 200 million before store impairment charges was incurred due to a loss of sales as well as loss of gross profit margin. All our efforts are made to reduce cost on all fronts to mitigate losses. Actions taken during the pandemic have all been detrimental to margin. Sales drives are very promotion-driven, and they focus on discounting of parallel imported products. We have reduced our inventory successfully, but this involves aggressive discounting.
Our gross profit margin bottomed in the first quarter. As you can see in the graph, our gross profit in the first quarter and second quarter before provisions have seen an improvement in the second quarter. This is because inventory reduction has been achieved in the second quarter, and the current restocking mode is expected to see continuing improvement in gross profit margin.
As mentioned, all our efforts have been made to reduce cost on all fronts. Total rental savings amounted to HKD 217.9 million, and this includes reversal of provision for store impairment of HKD 67.6 million. Staff costs have been reduced by HKD 185 million due to internal measures as well as government subsidies amounting to HKD 73.3 million. Logistic cost in Hong Kong SAR has been reduced by HKD 35.4 million due to space savings.
As explained in the last slide, total rental savings amounted to HKD 217.9 million, which includes HKD 67.6 million of store impairments provision reversals. Actual savings obtained include mainly HKD 57.4 million of temporary rental concessions, and rental saved from store closure amounted to HKD 56.2 million.
In mainland China, overall sales declined by 10%, mainly due to temporary store closures amid COVID-19. Same-store sales declined by 4.2% in the first quarter, then started to recover in the second quarter by 2%. As a result, same-store sales declined marginally by 1% for the first half. Improved product management structure, revamped product portfolio, and revised incentive structure for frontline staffs have led to sales productivity per sales staff increasing by 15.9%. This gives sales staffs a 14.9% increase in their take-home pay per head. The increased productivity also results in a 2.5% reduction of sales staff cost as a proportion of sales and puts us in a good position to build our store network amid market weakness.
In mainland China, as mentioned earlier, the improving operating efficiency highlighted has enabled us to reduce recurring losses three years in a row to HKD 9.8 million in the first half of this year, despite recurrence at store-level contribution declining slightly due to temporary store closures under COVID-19. A continuously improving operating efficiency puts us in a position to speed up new store openings. As a whole, total operating loss has also reduced three years in a row from HKD 13.5 million in 2018, to HKD 11.5 million last year, to HKD 4.3 million this year.
For our online business, sales declined by 9.5% in the first half. In the first quarter, sales declined by 13.8% due to closure of our website serving mainland consumers and a change of ownership of a major third-party platform. In the second quarter, sales started improving by 36% year-on-year and by 38.7% quarter-on-quarter. The huge demand for protective products in Hong Kong SAR has boosted traffic and sales online. The O2O sales made by our store-based beauty consultants took off in Hong Kong and Macau SARs, accounting for 20% of our online sales in the first half.
In Malaysia, we have rationalized our operation and are awaiting business rebound following the control of the pandemic. In the first half, retail sales dropped by 35.4% as all our stores had to be closed under the Movement Control Order imposed in mid-March during the COVID-19 outbreak. We proactively reduced costs and negotiated with landlords for rental concessions and controlled our staff costs. We shifted focus to protective products and offered attractive promotions to drive sales, and we sped up our online initiatives.
We move on to outlook and future plans. The global COVID-19 pandemic has brought about far-reaching impacts. They have impacted on work, life, and shopping. For work, staff are often working from home. For life, citizens are going out less. In terms of shopping, online shopping is becoming popular and customers' shopping needs are changing. There are direct impact on retail business, especially those retail stores in tourist areas, which are impacted by border control and social distancing measures.
Market forces are driving changes in resource allocation. The rapid growth of online shopping has led to reduced traffic and increasingly apparent high costs of retail stores, especially in tourist areas. Businesses are forced to reduce costs of retail stores and increase investment in online business technology and marketing. The changing consumer needs are demanding adjustments to product offerings. We are increasingly focusing on mainland China, where we will be expanding our retail network, developing social commerce, and building product brands.
In Hong Kong and Macau SARs, we are shifting towards a lower long-term cost structure, which would be sustainable and also a more balanced customer mix. This involves reducing our operating and management costs by streamlining our management structure and automating stores and offices to improve and simplify work processes. This also involves reducing costs of physical stores by closing stores with substantial losses in tourist areas while opening additional ones in residential areas and continue to seek short-term rental relief.
We will reorganize work at stores to improve efficiency and use the new POS to further save costs while optimizing customer experience. We will cater to a market that is currently dominated by local consumers and improve sales and gross profit margin performance by broadening product offering to better serve their needs and adapt marketing strategy accordingly. We will embrace technology and online developments, increase investment in online operations, including human resources and technology, and adopt technology improvements to own website, social commerce, and customer database, as well as improving efficiency and customer experience.
Mainland China is our new growth driver, where we will expand our store network, and we are in a position to build it. It is a good time for us to do so too. Category management for products has improved our sales. We now have management capability for network expansion, and the five new stores we opened in the second quarter are delivering satisfactory results. Our development strategy is to focus on southern and northern China and core cities within our city clusters, where we have effective management to enable cost and operating effectiveness. We will quicken the pace of our physical store expansion in sync with the developments of our domestic online drive.
For our e-commerce operations, we will leverage on the strength of our physical stores. We all know that much like traditional shoppers, online customers increasingly favor personalization. O2O provides enhanced personalization by enabling interaction both offline and online to boost sales and loyalty. As for new customer acquisition, O2O supports interaction with customers recruited online or offline. Supporting O2O using social commerce requires collaborative efforts of all departments and dedicated resources. We will continue to build team to support further growth. We will ramp up our digital marketing, use live broadcasts and other media to attract customers, use VIP and customer relationship management systems to bolster customer loyalty and build house brands to mitigate severe price competition and build loyalty. We will broaden cooperation with third parties and expand target base to consumers in Southeast Asia.
In Malaysia, we need versatility to meet with the current challenges. We are more targeted in serving customer segments by keeping up with major market trends and customer preferences, and by adapting product mix to attract target customer groups. We are introducing food, healthcare, and protective products, as well as specific fragrance products that are popular to different specific market segments. We also have targeted promotional strategies to recruit both Chinese and Malay influencers, and we partner with third parties to attract specific consumers. Malaysians are also starting to shop online, and we are endeavoring to serve them according to their behavioral changes. We cooperate with different platforms, including Shopee, GrabMart, Hermo, and we are exploring more sales channels.
This is the appendix showing you the third quarter performance. Some are very much self-explanatory, like Hong Kong and Macau sales. The decline is continuing to narrow. In mainland China, we are continuing to see improvements with same-store sales growth approaching double digits. In Malaysia, because there is a lockdown, we are suffering right now. For e-commerce, there is a 143.2% growth, and I need to elaborate to explain a bit further because, as you can see, the Double 11 festival sales recorded on a goods-dispatched basis has grown by 67.5%. I need to explain the relationship between the two and make more sense of it for you.
The quarter-to-quarter growth of 143.2% benefits from the earlier start of Double 11 festival this year. For this year's festival, the main sales drive has been extended to two days, being the 1st and the 11th of November. Whereas for last year, there was just one main sales day, being the 11th of November itself. For this year then, the sales on the 1st of November have all been dispatched and included in the results noted here. Therefore, it would be much more impressive because last year's would not really be included to such an extent. We are therefore, in a way, not comparing like with like when we compare the quarter to date, being to 15th of November sales. It would be much more, I think it would be fairer to look at the Double 11 growth rate of 67.5%. Thank you for your time.