Ladies and gentlemen, thank you for standing by, and welcome to the Chow Tai Fook Group Fiscal Year 2024 Interim Results Announcement presentation. Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Joanne Ho. Please go ahead, Joanne.
Good afternoon, everyone. I'm Joanne Ho from the Chow Tai Fook IR team. Welcome to our financial year 2024 interim results. It is a great pleasure to speak with all of you again today. Joining me this afternoon is Dr. Kathy Chan, Executive Director and CFO of the group, who will guide you through our interim performance and our strategy for the second half of the year. Then I will open the Q&A session. The conference will be conducted in English, and the presentation materials are available now on our website. Now, may I hand it over to Kathy for the presentation?
Okay. Thank you, Joanne. Good afternoon, ladies and gentlemen. Thank you for joining our interim results presentation. I would like to start with looking at our financial highlights, followed by our financial review and then our future plans and strategies. Let's look at slide 4 about the financial highlights first. Revenue reached HKD 7.5 billion, a 34.3% increase compared to the same period last year, mainly benefited from the full reopening of borders among Hong Kong, Macau, and Mainland, with the recovery of the retailing business in Hong Kong, Macau markets as the growth engine of the group. The group's retailing revenue surged by 55.7% to HKD 6 billion, accounting for 80.5% of the group's total revenue, primarily driven by the sales of gold products.
The increase in the mix of retailing revenue has resulted in an overall gross margin increase of 1.7 percentage points to 27.8%, with the gross profit amount rose by 42.9%. Despite the substantial reduced subsidies from the Hong Kong and the Mainland governments, the ratio of the total operating expenses to revenue increased by 0.8 percentage points to 14.3%, resulting in a 39.3% increase in operating profits to HKD 1.1 billion. Profit attributable to equity holders increased by 43.3% to HKD 0.9 billion, which is the second highest interim performance in our history. Now let's look at slide 5. The basic earnings per share increased by 43.8% to HKD 1.61.
Furthermore, the proposed interim dividend was HKD 0.72 per share, with a dividend payout ratio of 45%. At the end of September 2023, the group had a global network of 3,289 shops, a net growth of 184 shops. Now, let's go into the details of our financial performance. The global market remains challenging against the backdrop of heightened geopolitical risks worldwide and the macroeconomic uncertainties. However, with the full reopening of borders amongst Hong Kong, Macau, and the Mainland, and a continuous improvement in retail sentiment in Hong Kong and Macau, the retailing business of the group has returned to normalcy, driving the group's satisfactory double-digit growth in total revenue.
The net margin increased by 0.8 percentage points to 12.6%, which in fact is the second record high in our history, and the profit attributable to equity holders increased by 43.3% to HKD 942 million, marking the second highest interim performance in the group's history, and only a bit behind the performance of gold rush for financial year 2013-2014. When comparing to the pre-COVID year, that's financial year 2019, the group's revenue is almost there, while the bottom line is well above that by 41.7%.
We have declared an interim dividend of HKD 0.72 per share, with a dividend payout ratio of 45%, which is in line with our official dividend policy of payout ratio 40%-45%. On slide 9, it shows the group held a record high but healthier inventory level at around HKD 9.4 billion as at end of September 2023. Benefited from the outstanding performance of gold sales and the recovery of retailing business in Hong Kong and Macau, the average inventory turnover days decreased by 60 days to 318 days, and the closing inventory turnover days decreased by 52 days to 328 days. We have net cash of HKD 1.1 billion, with decline mainly due to inventory increase and property acquisition.
It is noteworthy that our ROE increased by 4.6 percentage points to 15.1% for the period under review. Now let's go to slide 10. The group's NAV per share as at end of September 2023, was HKD 21.21. 1.9% higher than last March year-end level and 25% higher than the pre-COVID level. Now let's look at slide 12 for the performance analysis by market. Revenue from the Hong Kong, Macau, and overseas markets increased by 56.6% to HKD 4.8 billion during the period under review. It accounted for 64.5% of the group's revenue.
The segment profits soared to HKD 667 million, with 157% growth, which accounted for 54.3% of the group's total. Due to the lackluster macroeconomic conditions and the continued sluggish demand for diamond products in the mainland market, its revenue remained flattish at HKD 2.7 billion, accounting for 35.5% of the group's total revenue. The segment profit dropped by 5.9% to HKD 561 million, accounting for 45.7% of the total. With the recovery of business in Hong Kong and Macau markets, it contributed again more than half of both revenue and profits to the group's business.
While we are waiting for the rebound of the mainland markets, we'll temporarily shift our focus more towards driving business in the Hong Kong, Macau, and overseas markets, so as to mitigate the impact of the weak mainland markets. Slide 13 shows the revenue and segment profit by business. During the period under review, retailing business was the main source of revenue of the group, benefited, benefiting from the significant improvement in tourist traffic and spending in Hong Kong and Macau after reopening of borders, coupled with the favorable gold sales. The group's retailing revenue increased by 55.7% to HKD 6 billion, accounting for 80.5% of the group's total revenue.
The segment profits increased significantly by 137% to HKD 663 million, accounting for 53.9% of total, and the segment profit margin was 11%. On the other hand, despite the increase in number of licensed shops, the group's wholesaling revenue declined by 21.4% to HKD 911 million, due to the continued sluggish demand for diamond products in the mainland, accounting for 12.2% of the group's total revenue. The segment profit decreased by 6.2% to HKD 174 million, accounting for 14.2% of the total, and the segment profit margin was 19.1%. As the segment profit of wholesaling business included profits from inter-segment sales to self-operated shops.
If including inter-segment sales in the denominator, the segment profit margin would be at a normal level, more normal level of 7.5%. Moreover, licensing income remained flattish at HKD 546 million, accounting for 7.3% of the group's total revenue. The segment profit margin was 71.8%, while the segment profit remained flat at HKD 392 million, accounting for 51.9% of the total. Now let's look at the product analysis on slide 14. In spite of a yearly increase of 12% in the average international gold price in U.S. dollars an ounce, the demand for gold products remains robust.
Consequently, sales of gold and platinum products increased by 55.4% to HKD 4.86 billion, accounting for 70% of the overall sales amount and became the key driving force for the group's retailing business. Its gross margin increased by 3.8 percentage points to 19.1% as a result of the increase in gold prices, while growth, gross profit for, of gold and platinum products increased significantly by 494% to HKD 926 million, accounting for 50.5% of the overall gross profits. On the other hand, the sales of fixed-price jewelry products increased by 9.3% to HKD 2.808 billion, accounting for 30% of the overall sales amount.
Nevertheless, due to the increased mix of retailing revenue, which has higher gross margin than wholesaling, gross margin of fixed-price jewelry products increased by 5.9 percentage point to 35.9%. Its gross profit therefore increased by 30.5% to HKD 747 million, accounting for 44.6% of the overall gross profits. Now let's look at slide 16 for performance in Hong Kong, Macau, and overseas markets. Retailing revenue from the Hong Kong, Macau, and overseas markets increased by 67.4% to HKD 4.7 billion, accounting for 98.2% of these markets total and 63.4% of the group's total.
The segment profit increased significantly by 169.7% to HKD 569 million, accounting for 85.4% of these markets total and 46.3% of the group's total, with a segment profit margin of 12%. On the other hand, given the increase in sales to corporate clients, the wholesaling revenue increased by 10.3% to HKD 65 million, and the segment profit increased by 80.5% to Hong Kong dollar 76 million. Apart from that, due to the addition of four overseas licensed shops during the period, Hong Kong licensing income increased by 251.2% to HKD 21 million, and the segment profit increased by 233.2% to HKD 22 million.
Now let's look at slide 17. For the mainland market, despite the lackluster macroeconomic conditions, driven by the robust growth of e-commerce business, its retailing revenue experienced a satisfactory increase by 23.9% to HKD 1.3 billion, accounting for 48.5% of mainland markets revenue and 17.2% of the group's total. The segment profit increased by 36% to HKD 93 million, accounting for 16.6% of mainland markets total and 7.6% of the group's total. Its segment profit margin was 7.2%.
Due to the continued sluggish demand for diamond products in the mainland market, its revenue of wholesaling business, which primarily focuses on diamond sales, decreased by 23.1% to HKD 845 million, which accounted for 31.8% of mainland market's revenue and 11.3% of the group's total. Its segment profit decreased by 31.5% to HKD 98 million, accounting for 17.5% of mainland market's total and 8% of the group's total. The segment profit margin was 11.6%. As the segment profit of wholesaling business included the profit of inter-segment sales to self-operate shops, if including inter-segment sales in the denominator, the segment profit margin will be 10.9%.
Licensing income decreased marginally by 2.3% to HKD 524 million, which accounted for 19.4%, 19.7% of mainland markets revenue and 7% of the group's total. The segment profit decreased by 3.9% to HKD 317 million, accounting for 65.9% of mainland markets total and 13.1% of the group's total, and its segment profit margin was 70.6%.
So as you can remember, though, the mainland markets licensing income has some decrease or decline in revenue and profits, but because we have incremental licensing income coming from our overseas licensed shops, so that's why when we look at our group's total licensing income, it's actually a kind of a little bit growth of 0.5%, something like that. And the profit is kind of flattish. So the overseas markets expansion actually is helpful in offsetting or mitigating mainland markets unfavorable condition. So in slide 20, it shows the achievements of our e-commerce business in mainland.
The e-commerce revenue significantly exceeded the original target growth of 10% for this financial year, which increased by 33.1% to HKD 873 million during the period under review. It accounted for 67.89% of retail revenue in mainland and 14.5% of group's retail revenue, with ASP increased by 6.3% to RMB 1,700. Let's move on to the next slide and take a look at the performance of our self-operate shops. The overall same-store sales growth with group was positive +44%, with SSG for Hong Kong, Macau market at positive +56% and negative -4% for the mainland market.
Overall speaking, both sales of gold and platinum products and fixed price jewelry products performed well due to the strong recovery in Hong Kong and Macau markets. The group's SSG for gold and platinum products was positive 44% and positive 45% for fixed price jewelry products. Now let's look at slide 26. Here, we can see that our total operating expenses increased by 27.3% to HKD 1.07 billion, representing 14.3% of the revenue. The OE to revenue ratio improved by 0.8 percentage points, as compared to the same period last year. We had 36 renewals out of 56 shops in Hong Kong, Macau, in current financial year, with 21 done in the first half. The overall renewal increment was 22%.
Within the 36 renewals, 12 of them were actually brought forward from last year under a short-term lease of 1 year. As the latest rental expense is around 36% below the pre-COVID level, while revenue is almost there, we believe that the group's performance will continue to be benefited by operating from the operating leverage for quite a while. Now let's look at slide 28 for the CapEx in the first half of FY 2024. The significant increment in CapEx was because of acquisition of four office premises in Wuhan at HKD 42 million to meet the business need and acquiring of sixth floors of premises intended for future expansion of our procurement hub in Shenzhen IBC area at HKD 512 million.
We do not expect any significant CapEx in second half of this financial year. Let's look at slide 29 now. During the period under review to the losses in relation to the investments and operating activities in HKRH and its subsidiaries increased by HKD 9.1 million to HKD 31.1 million, due to the their unsatisfactory operating results. It is worth noting that after the acquisition of the CGS Group's 50% interest in June 2014, the group entered into sales and purchase agreements certain major shareholders of HKRH to acquire 50.49% shares of HKRH in July 2023, which is expected to be completed by mid-December 2023. Now let's look at the group's future plans and strategies.
At the beginning of FY, financial year 2023, that's last financial year actually, we have already set up this brand new three-year corporate strategy with mainland market expansion, branding, and operational efficiency as our three main focuses to foster our future business growth. Slide 32 shows our network expansion plan for FY 2024. As at end of September 2023, the group had a total of 3,289 shops globally, with a net addition of 184 shops. We have 2,304 shops in mainland, 50 in Hong Kong, 16 in Macau, and 19 in overseas. For the Hong Kong market, we have already net added 5 shops in Hong Kong tourist areas and 4 shops overseas in the first half of this financial year.
For the mainland market, the annual target for net addition of global shops remains at 300 shops, mainly focusing on opening licensed shops in fourth and fifth tier cities. As for the development of new brands, the group aims to achieve a net addition of 50 shops in the mainland, mainly licensed shops. The good news is that, we don't intend to change the total number of net addition targets for this financial year. For the overseas markets, the group is optimistic about the immense growth potential and intends to actively allocate more resources to expand its footprints across the world. We plan to open 5 licensed shops and 5 self-operated shops in financial year 2024. Furthermore, the sales growth of e-commerce business is expected to exceed the original target growth of 10% for this financial year significantly.
The CapEx budget for FY 24 is expected to be around HKD 715 million. Now, let's look at slide 34. To strengthen our competitive edge, the group plans to enhance operational efficiency through the transformation of supply chain management, the implementation of complete optimization, and the adoption of advanced system for big data management and data analytics. We are also committed to maximizing employees' productivity by cultivating and nurturing cultures, continuous improvement and innovation. Now, let's look at slide 35. The group continuously strengthens its brand and mission positioning. Additionally, it enhances product quality assurance, improves service quality, optimizes support for licenses, and adopts a multi-brand line strategy to meet the market needs.
Following the launch of various sub-brands or product lines, Golds tyle, Nouveau Jewelry, and Heirloom Fortune, the group launched a sub-brand, Love Nouveau Jewelry in May 2023, in order to appeal to the younger generation. The group will persist in penetrating and targeting the middle class, wedding and Generation Z markets, while seizing development opportunities. Now, let's shift to the group's branding promotion. We have integrated strategies to attract target customers and aim to foster high customer loyalty. To enhance brand awareness and recognition among our target customers, we have implemented a variety of celebrity promotion campaigns, including both short and long term. These campaigns aim to increase brand visibility and establish stronger connections between our various brands and product collections. We introduced various new shop images and expanded unparalleled shopping experience with exhibitions and roadshows to further exploit local consumption.
We rolled out the Endless Blooms and Endless Love online and offline campaign to promote wedding series, which achieved total exposure of more than 380 million views. To celebrate the group's anniversary, we launched the Share Love and Fun of AI campaign, covering a series of online and offline activities, which reached exposure of 1 billion views. In appealing to Generation Z consumers, we collaborated with trending intellectual IPs to jointly develop and launch products. For example, we jointly launched gold jewelry product with NetEase Games, collaborated with IP, Honor of Kings by Tencent to launch a gift set of gold and figurines based on the hottest character, Baby Wukong. Last but not least, we sponsor and made the KPL championship rings for 15 consecutive seasons.
To increase our brand exposure to target customers, we have actively collaborated with reputable partners to co-organize promotion activities. For example, we collaborated with Meitu App to launch special photo effects and offered exclusive giveaways of exquisite diamond rings for Chinese Valentine's Day. On the other hand, we collaborated with Conrad Hotel and launched afternoon tea sets to attract middle-class customers. We have upgraded our CRM to a social CRM, enabling us to monitor customer spending patterns across multiple channels. We held nearly 10,000 VIP workshops this year. At the end of September 2023, our membership base increased by 37% to reach six million, with members contributing 65% of total retail sales. Member spending rose by 33% compared to the previous year.
This achievement demonstrates the strength of our brand and our ability to establish deep connections with our valued customers. We are grateful for their ongoing support, which has been instrumental in our success. In July 2023, we launched the VIP Thankful Month campaign exclusively for our members. This campaign integrated online and offline marketing strategies. By offering deeper discounts, conducting exciting lucky draws, and providing additional member points, we aim to drive sales and increase customer engagement. Furthermore, we leveraged interactive communication on new media platforms and collaborated with other industries to boost our brand's visibility and create buzz. This helped us generate more attention and increase brand awareness. Effective sustainability governance is one of the key factors in driving long-term success of the group.
Therefore, we continuously optimize our ESG management systems, commit to integrating ESG principles into our corporate planning and operational decision-making process. We were honored to have received 13 awards as the testament of our commitment to the society in this financial year. In addition, the group has signed its first sustainability linked loan of HKD 326 million with DBS Hong Kong Limited. The loan included revolving credit facilities with interest rate linked to the group's sustainability performance against the three set of KPIs. Moreover, the group opened a new eco-concept shop in The Wai, the brand-new shopping mall, which sets to become a new landmark in Tai Wai, Hong Kong, with green elements in its design. Also, the group has partnered with Friends of the Earth in launching the Carbon Reduction in Green Force program.
Besides, the group we set up a long-term goal of carbon neutrality to enhance the group's contribution to environmental protection. During the period under review, despite the relatively high base effect in the second quarter, the overall same-store sales growth of the group maintained double-digit growth, in which same-store sales in Hong Kong and Macau are much improved due to the higher visitor traffic generated after the reopening of borders among Hong Kong, Macau, and Mainland. On the other hand, notwithstanding the lackluster macroeconomic conditions and the decline in same-store sales growth in the Mainland market, the robust growth of e-commerce business helped offset its negative same-store sales growth. Because the consumer spending momentum in the Hong Kong, Macau market continued to maintain subsequent to the period under review.
Although thanks to the low base effects, there was over 50% same-store sales growth during October and the first three weeks of November 2023. On the other hand, same-store sales growth for Mainland market, including both self-operated and licensed shops, remained flattish, with a double-digit growth in the first three weeks of November alone. Since the demand for diamond products remains subdued in the Mainland, the group will continue to actively promote non-diamond fixed-price jewelry products, especially fixed-price gold products, in order to enhance the performance of fixed-price jewelry products. With the continuous improvement in tourism industry and macro economic conditions, a strong growth momentum is expected to maintain in Hong Kong and Macau.
Coupled with the low base effect in the third quarter in this financial year and anticipated benefits from operating leverage, the group is looking forward to exceeding pre-pandemic performance and strives to a new heights. This concludes my presentation, and thank you for listening.
Thank you, Kathy. Ray, please open the floor for questions now.
Thank you. If you do wish to ask a audio question, please press *11 on the telephone keypad. If you wish to withdraw your question, you may do so also by pressing *11 again. So once again, please press *11 to register for question. Our first question from the line of Mavis Hui of DBS. Please go ahead.
Hi, Kathy. Hi, Joanne.
Hi.
Thanks very much for taking my question. This is Mavis of DBS. Congratulations on your very strong results as well. So I've got a few questions here.
Thank you.
First, is it possible... Thanks. Is it possible to actually share with us some updates on our latest same-store sales growth for both China and Hong Kong, Macau in October to November, respectively? Maybe I'll ask other questions a bit later after this. Thank you.
In fact, like Hong Kong, Macau markets, we have the announcement, we have stated in the announcement that it's over 50% same-store sales growth. Actually, a very strong one. In fact, of course, November is a very low base month, so for November itself, it's a much better figure than that, of course. And for Mainland, actually, you can see that we've got something like flattish for self-operated shop and licensed shops altogether. But during the period from 1st of October to the 21st of November. But then for November alone, is a kind of a double-digit growth because of the low base.
Right. Thank you very much, Kathy. And, you know, given the strong results so far, do we have plans to actually revise our full year guidance on sales growth and margin for the current, , current financial year?
Now, in fact, in fact, we have a slight guidance change. At the end of the outlook section in our announcement, we talked about exceeding the pre-pandemic performance and strive to a new heights. That's our new guidance.
Right. So we are expecting record high performance for the full year. Great.
And, in fact,
Yes.
When you look at the first half performance result, it is actually the second highest in our history. So... And then, the highest, the record high was in FY 2014. And when you look at 2014, that is the full year record high, and interim record high as well in FY 2014. But when you look at the full year performance in FY 2014, actually in the second half is a lower level than the first half, mainly because the gold rush actually happened in the first half of that year. But in normal circumstances, the second half would be better, or share a higher mix of performance than the first half.
So for this financial year, because it's a normal, quite a normal one, should be a kind of a normal, more normal situation. So we should expect the second half to at least comparable to the first half results, if not better.
That's excellent. Thanks for the color. Lastly, can you also share the latest trend on gross margin and operating margin for October to November so far? It would be good to get a sense of it. Thank you.
In fact, I think we should not expect the gross margin to fluctuate too much for this year, because we have the increasing retailing revenue mix. So basically, I think our gross margin should be fine in the second half as the first half.
Right. But we should be seeing some more room for operating leverage. Would that be the case for second half?
I guess the operating leverage should continue in the second half, because, when you look at the rental expenses, still are quite much below, the pre-COVID level, so it should be fine, too.
That's good. Thanks so much. I'll jump back to the queue. Thank you.
Welcome.
Thank you. So once again, as a reminder, please press *11 to register for a question if you are dialing in from a mobile phone. If you're a webcast participant, you can enter your questions in the question and answer box. So once again, if you'd like to ask an audio question, please press *11 on your telephone keypad. Our next question is from Linda Huang of Macquarie. Your line is open. Please go ahead.
Yes. Hi, Kathy. Thank you very much for your presentation. I have several, the-
Okay.
Regarding for the gross margin. The number one is that, I just want to check that for the second half, right? When we see the gross margin, because we see that the first half up 1.7%, whether we can see that the second half, we're also tracking the similar gross margin expansion for the second half. So that's the first one. The second one, you mentioned about that we still can enjoy the rental benefit. So, can you also help us to walk through, what is our rental negotiation with the Hong Kong and Macau landlord? Because as I know that, there, the rental reversion may be like 1-2 years.
So after the Hong Kong, Macau, we've already seen a very strong tourism arrival, whether or when we are going to see the rental pressure. And then, the third question is, for Hong Kong, the profit margin, because we saw that in the first half, the Hong Kong, Macau, the profit margin very, very high, 13.8%. And I think this probably is the, also the record high level. So I just want to check that, how sustainable this would be. Thank you.
Now, in fact, when you look at the gross margin, we don't expect that to fluctuate too much in the second half. So basically, I guess, the gross margin for the first half should be able to continue. And then, for the rental renewal, actually, when you look at the renewal this year, that we have done 21 out of the 36, and the increment in the first half, I mean, was talking about 22%. And then, basing on the latest negotiations, actually, you know, in Hong Kong, although we've got a quite strong recovery of business in the retail markets.
But actually, when you look at the overall retail sentiment in other industries, and when you look at the street, the streets level, there are still quite a lot vacant locations. So the landlord, the landlords are not that aggressive in asking for rental increment. There will be some rental increments, but not serious as what we think. So basically, I guess for the full year, maybe it should be something like maybe 20-something% increment for the renewals altogether. And it's still something like maybe 30-something% below the pre-COVID level. So we should be able to enjoy the operating leverage for quite a while further.
And then for the profit margin in Hong Kong and Macau, mainly because of the strong recovery and the operating leverage. So basically, we should expect that to maintain as well.
Okay. And then there's the other follow-on is that, this is page 24. When we see the average ticket size, right? We can see that Hong Kong and China, the ticket size is in upward trend at year-on-year, but this did not happen in Macau. So I just want to check that, what is the reason behind Macau this ticket size tracking behind the other regions?
Actually, it's actually a very slight decline of 2% only. And I don't think it's a too quite too much problem. And for like Hong Kong, you know, because we've got stronger sales of diamond products actually than in Macau. I mean, the performance of diamond products in Hong Kong is stronger than in Macau. So basically, that's the reason why Hong Kong's figure increased in the second half than Macau.
Okay, I got it. Thank you.
Welcome.
Thank you. So for online participants, if you do wish to ask an audio question, please press *11 on your telephone keypad. For webcast participants, please enter your questions in the Q&A box. And we do have a couple questions from the webcast as well. The first one is from Doreen Yun, and her question is: Was there any notable improvement in licenses, inventory levels during or since the interim period, particularly with diamonds? Any figures to support that?
Oh, if you talk about license fees, inventory levels in Mainland, I guess you're asking about Mainland situation. Actually, because of the weak diamond sales in Mainland, we should not see very good improvement in licensees' inventory levels and we... I mean, in terms of diamond products. So, basically, we are trying various ways to help them to maintain a more healthier level of inventory in diamonds.
So basically, they will slow down their replenishment for the diamond products, and then see whether we can kind of do some. We will ask them. Sometimes we will ask them to look at their inventory, their old very slow-moving diamond products, to see whether we should return those products and try to change it to something new or more sellable type of products. That may be helpful in improving their inventory quality.
Thank you, Kathy. At the moment, we do have another question coming from audio participant. Our next question is from Lina Yan of HSBC. Your line is open. Please go ahead.
Hi. Good evening, Kathy. I have a question o n your GP margin. I think you mentioned your second half GP margin will be quite similar to first half, and I'm wondering if your GP margin in first half has benefited from the gains on gold inventory. And, when you guide for the second half of GP margin, do you consider that as well? Thank you.
Well, it's very hard to forecast the gross margin of gold products, because the gold price always fluctuate, and it's on the rising trend, actually in the second half. So basically, of course, we should expect that to help the improvement in the gross margin for the gold products in the short term. But overall speaking, when we talk about the overall gross margin for gold sales in a year, it should be more normal than the first half, which will be more volatile, subjecting the fluctuations to the gold price. And in the first half, actually, average gold price rose by maybe 8%, not that much. So basically, we've been able to enjoy quite a good increase in the gross margin.
If in the second half the gold price keeps on rising, we should see quite a strong gross margin continue in the gold sales.
Okay. So, like the second half, GP margin, similar to first half, does that assume gold price will continue to go up or not?
Or continue with kind of at around this kind of level, the latest level.
Okay, okay. Meaning like, the gold GP margin, gold jewelry GP margin will normalize to a lower level versus the realized level in first half, right?
... Okay, okay. All right, my second question is to clarify on your guidance, like FY 2024 will be a record year. Does that like refer to the profit or like, top line, like a profit only, right?
In fact, when you look at the revenue, actually, we are talking about meeting the pre-COVID level, and I think it's quite close already. So basically, I guess the, for the top, I mean the, for the revenue level, we don't target at record high really. It's too far away from record high.
Okay, okay. Thank you, thank you.
Thank you. Our next question is from Webcast. Our next question is from, Ken Tatten. The question is: We're in net cash now, and I have no near-term acquisition plan. While 45% payout is respectable, when will we review our payout policy to consider paying out more?
In fact, we have a kind of sticking to the official payout ratio of 45% already in this interim results. And then, it should be the normal payout ratio. And in the past, because of the low level of profits, we try to pay a constant amount of HKD 0.55 every half year. And this time is really happy to pay 45%, eventually. So, basically... And then, you know, when we look at the net cash position, it's not—because you only see the net cash position at the end of September and end of March, so it's not the lowest level, actually.
So, during some other times, because of the preparation for the peak seasons, we may need to have higher level of inventory. So basically, I think the existing net cash positions are healthy, and then we need that to for our development of the business. And apart from that, we, you know, for the borrowing, bank loan borrowings, nowadays is the interest rate will be very high. So that's why it's better to keep a net cash position than a net borrowing position for ourselves.
Thank you, Kathy. Our next question is from other participant. It's from Linda Huang of Macquarie. Your line is open, and please go ahead.
, Kathy, sorry. I have a two follow-up question. The number one is that for our Hong Kong retail business, I just want to know that how is this gross margin as compared to our group gross margin, 27.8% level? Is that higher than the group level or lower than the group level? So that's number one. Number two is for same-store sales. How is the same-store sales in Hong Kong and in China as compared to 2019 level? Thank you.
In fact, when you look at the group, so overall gross margin, we always say that because the retailing revenue coming from Hong Kong, Macau markets will be the highest mix in the revenue. So that's why, the gross margin for Hong Kong, Macau markets will be quite close to the overall group's, I mean, the group's overall gross margin. And then, for the same-store sales growth in Hong Kong, Macau markets, in fact, when you compare that to the pre-COVID level, I would say that we are there already. And, for Hong Kong, when you look at the latest figures, it's actually exceeding the pre-COVID level. That's a positive figure, I would say, the same-store sales against-
Okay. So, China... , so China is close too an d then, Hong Kong, Macau has really above.
It's costing us easily for China. For China, actually, if you talk about the latest development, that's like a bit below the pre-COVID level, still a bit, but is quite close now.
Okay, I got it. Thank you.
Latest figures.
Okay. Thank you very much.
You're welcome.
Thank you. Our next question is from Webcast. The question is: In China, our retail revenue grew 24%, but wholesale revenue declined 23%, a very divergent trend. Can you share more?
In fact, when you look at the retailing revenue, so when you look at the same-store sales growth for same-store sales is actually a decrease. But then, when you look at the YOY figure, it's an increase. And then, apart from that, we have strong growth of e-commerce business. So, they all together contribute to quite a good double-digit growth of revenue in the retailing business in mainland. But for wholesaling business, because it's mainly selling diamond products, and the diamond products was not selling well in our mainland. That's why we have a decline in the wholesaling revenue.
Thank you, Kathy. So once again, as a reminder, ladies and gentlemen, if you have an audio question, please press *11 on your telephone keypad. If you're joining from the webcast, please ask questions in the Q&A box. Our next question is from Mavis Hui at DBS. Your line is open. Please go ahead.
Right. Thank you. Thanks, Kathy. I have two more questions. So what do we expect in terms of our working capital and inventory days by the end of this financial year? Because I think, if we recall back in post-COVID, in the first half, actually, inventory days were under 61, as per your presentation. So, now, at this, the reported period, is actually, still over 300 days. Although we see a very good improvement, what do we expect by the end of this financial year? Do we see further room to reduce our inventory days? Thank you.
In fact, I look at the working capital is mainly affected by the inventory level. So, the record high inventory level at the moment, we will see because, we have quite, when comparing to the pre-COVID level, our business or the scale of business actually expanded quite a lot, already. So, that's why, I think it's natural to see a higher inventory level. So, but, we will try to see, whether we can, maintain the existing inventory level at, around this kind of level. And then for the inventory days, of course, there was a further improvement in the retailing business.
We will see a better or shorter inventory turnover days in the coming period of time.
Right. Thank you. And so, you know, with perhaps some potentials for net cash level improvement ahead, so... And if we are just keeping our dividend payout ratio, for example, then, would you mind giving us more insights on how we could make some better use of our cash resources ahead? Thank you.
In fact, I think we are still keeping something like we would stick to the 45% payout ratio, and of course, we'll see whether we can increase that a bit. But we have to have the consent of the board approval, a kind of having board approval or kind of approval from our board. So basically, we would work on that. But at the moment, I think 45% is kind of a commitment.
Sure. And, perhaps, would there be anything like merger acquisitions on the table right now? Possibly, you know, we could expect something in the next 1-2 years.
In fact, when you look at the acquisition of HKRH, it's going to happen in mid-December, so we, it would use up quite much, quite, quite much of our net cash at the moment. So basically, you, you should see a lower, much lower net cash level in the, in the March year-end.
Right. Right. Okay. Thank you very much, Kathy.
You're welcome.
As time is running and only have so minutes left, here will be the last two questions today. Wait, please.
Thank you. Our next question is from an audio participant, whose name is Tony Li from BOCI. Your line is open. Please go ahead, Tony.
Hi, Kathy. Thanks for taking my question, and congrats on the strong results. The question will be on the acquisition of HKRH. So would you quantify the financial impact of this acquisition? So what will be the impact to our top line and also the bottom line, and how will it affect our business operations going forward? Thank you.
In fact, we don't expect any material financial impact after acquiring HKRH shares. I guess we should have some additional growth from in the revenue in the top line. And we expect their business to turn around maybe in maybe 2-3 years' time. Of course, we want to see a faster timetable for that. We'll work hard on that, and hope to see that happen sooner.
Got it. So another question would be on the performance in Mainland China. Since we are not doing very well in selling the diamond product in Mainland China, and we are aiming to have some product returns from the franchisees. So is there any risk associated with inventory write-off or something like that? Thank you.
In fact, if we're returning the products, actually, they would bear their own labor cost, so it's not much big deal for us, actually.
Got it. That's all my questions. Thanks.
Thank you. Due to time constraints, our last question is from a web participant, whose name is Eddie Lau. The question is: How is the performance of the new shops in Hong Kong, Macau, and how much will these new shops contribute to the overall Hong Kong and Macau revenue?
. In fact, when you look at the Hong Kong market, because we have proactively added a few shops in tourist area around the reopening of borders time. So basically, with these shops excellent performance, actually it contribute a lot, I mean, in terms of kind of a double-digit contribution to the revenue of the markets.
Thank you. As there are no further questions, I'll return the conference back to the management.
Thank you, Kathy. We come to the end of our conference. Thank you very much for joining the call, and we are grateful for your continued support and care to Luk Fook over the years. Have a nice evening. Goodbye.
Goodbye, everybody.
This now concludes our presentation. Thank you all for attending. You may now disconnect.