Ladies and gentlemen, welcome to the Luk Fook fiscal year 2024-2025 interim results presentation. Throughout the call, all participants will be in listen only mode, and afterwards there will be a question and answer session. Please note this call is being recorded. I would now like to hand the conference over to Joanne. Please go ahead.
Good morning, everyone. I am Joanne Ho from Luk Fook Investor Relations team. Thank you all for joining us today for our financial year 2025 interim results. As you know, we usually hold our call in the evening, so we really appreciate your flexibility with this new schedule. It is a pleasure to have the opportunity to speak with you again. I am joined today by Dr. Kathy Chan, our Executive Director and CFO, who will take us through our interim performance. After her presentation, I will open the floor for a Q&A session. Please note that the conference will be conducted in English, and the presentation materials are now available on our website. I would like to pass the time to Dr. Kathy Chan for her presentation. Cathy, please.
Okay. Thank you, Joanne, and good morning, ladies and gentlemen. Thank you for joining Luk Fook's FY 2024/2025 interim results presentation. I would like to start with looking at our financial highlights, followed by financial review, and our future plans and strategies. The details are reported in the corporate presentation, which has been uploaded to our website. Let us look at slide 4 about the financial highlights first. Our revenue reached HKD 5.45 billion, a 27.2% decrease compared to the same period last year, primarily due to a decline in sales of gold products caused by record high gold prices during the period. The profit attributable to shareholders of the group decreased by 53.9% to HKD 454 million. The basic earnings per share decreased by 54% to HKD 0.74.
Proposed interim dividend is HKD 0.55 per share, with dividend payout ratio of 74%. There was a net decrease of 175 shops globally, including a net decrease of 186 Luk Fook shops, a net increase of 7 3DG Jewellery shops, and 4 sub-brands or product line shops. Next slide is about the movement in operating profits. Benefiting from the rise in gold prices, the group's overall gross margin increased by 4.9 percentage points to 32.7%. However, despite this improvement in margin, revenue took a hit. Gross profit level fell by 14.4% to HKD 1.78 billion. Total operating expenses increased by 8.4% to around HKD 1.2 billion. Coupled with the decline in revenue, the ratio of OPEX to revenue increased by 7 percentage points, reaching 21.3%.
The surge in gold prices caused the gold hedging during the period to turn from a gain of HKD 55 million last year to a loss of HKD 213 million. A financial guarantee provision of HKD 32 million for 3DG Group in last year was due this year after the acquisition. There were also other gains of HKD 39 million, mostly attributed to exchange gains in relation to intragroup current accounts. Consequently, the operating profit decreased by 53% to HKD 540 million. On slide 6 is the impact of gold hedging on profits for the period. As mentioned before, gold hedging loss was HKD 230 million during the first half of the year. Therefore, the group's profits for the period decreased by 55% to HKD 417 million.
If the impact of gold hedging losses is excluded, the adjusted decrease in profits for the period would narrow to 27.1%, accounting for HKD 647 million. Now, let's go into the details of our financial performance. On slide 8, as mentioned just now, the 27.2% drop of revenue mainly due to a decline in sales of gold products caused by record high gold prices during the period. If we exclude the gold hedging losses, the adjusted operating profit would decrease by 29% to HKD 766 million, and the adjusted operating profit margin would only see a slight decrease of 0.4 percentage points, reaching 14.1%. On slide 10, it shows that the group held inventory balance of around HKD 9.9 billion as at end of September 2024.
If excluding our 3DG's inventories of HKD 872 million, the inventories were at around HKD 9 billion, which was 2% higher than last March. Due to the high gold prices, consumers became more conservative. Both the average and closing inventory turnover days, therefore, increased by more than 180 days year-on-year, reaching a total of over 500 days. With net cash of HKD 526 million, which was slightly lower than the level as at end of March 2024, our ROE decreased by 8.3 percentage points to 6.6% for the period under review. Let's go to slide 11 now. At the end of September 2024, the group's NAV per share was HKD 22.43, which is 2.4% higher than the level on 31st March 2024, and about 5.8% higher than the same period last year. Now let's look at slide 13 for the performance analysis by market.
Revenue from the Hong Kong, Macau, and overseas markets decreased by 27.3% to HKD 3.5 billion during the period under review. It accounted for 64.5% of the group's revenue, same with last year. Its segment profit dropped by 35.9% to HKD 428 million, which accounted for 77.3% of the group's total. Its segment profit margin was 12.2%. When excluding the gold hedging losses incurred, its segment profit would be HKD 543 million, and adjusted segment margin would be 15.6%. Due to the lackluster macroeconomic conditions in the mainland market, along with the consistently high gold prices and sluggish demand for diamond products, its revenue decreased by 27.1% to around HKD 1.94 billion, accounting for 35.5% of the group's total revenue. Its segment profit dropped by 77.7% to HKD 125 million, accounting for 22.7% of the total.
When excluding gold hedging losses attributed to the mainland market, its segment profit would be HKD 240 million, and adjusted segment margin would be 15.3%. While we are waiting for the rebound of mainland market, we will shift our focus more towards driving business in the overseas markets in the midterm, so as to mitigate the impact of the mainland market as the overseas markets have great growth potential. Slide 14 shows our revenue and segment profit by business. The retailing business was the main source of revenue of the group. Our retailing revenue decreased by 22.7% to HKD 4.66 billion, accounting for 85.5% of the group's total revenue. Its segment profit decreased by 42.2% to HKD 383 million, accounting for 59.2% of the total, and segment profit margin was 8.2%.
When excluding the gold hedging losses attributed to the retailing segment, its segment profit would be HKD 553 million, and adjusted segment margin would be 12.1%. Due to the continued sluggish demand for diamond products in mainland and the decrease in number of buy jewel shops, group's wholesaling revenue significantly declined by 57.8% to HKD 385 million, accounting for 7.1% of the group's total revenue. Its segment loss was HKD 69 million, accounting for -12.4% of the total, and its segment profit margin was -17.8%. As the segment profit of wholesaling business included profits from intersegment sales to self-operated shops, if including intersegment sales in the denominator, intersegment profit margin will be -5.7%. When excluding gold hedging losses attributed to the wholesaling segment, this segment loss would amount to HKD 19 million, resulting in adjusted wholesaling segment profit margin of -5.1%.
Licensee income decreased by 26% to HKD 404 million, accounting for 7.4% of the group's total revenue. Its segment profit margin was 15.2%, while its segment profit decreased by 39% to HKD 259 million, accounting for 43.2% of the total. Let's look at the product analysis on slide 15 now. The average international gold price in USD per ounce increased by 23.4% year-on-year. The sharp rise in gold price has affected consumer sentiment. Consequently, sales of gold and platinum products decreased by 24.1% to HKD 3.7 billion, accounting for 73.1% of the overall sales amount. However, its gross margin increased by 8.4 percentage points to 27.5% because of the rise in gold prices. Gross profit of gold and platinum products therefore increased by 9.5% to HKD 1 billion, accounting for 66.7% of the overall gross profit.
On the other hand, the sales of fixed price jewelry products decreased by 34.8% to HKD 1.4 billion, accounting for 26.9% of the overall sales amount due to the decrease in the demand of diamond products. Nevertheless, because of the increased mix of retailing revenue, which has higher gross margin than wholesaling, gross margin fixed price jewelry products increased by 1.4 percentage points to 37.2%. Its gross profit, however, decreased by 32.2% to HKD 506 million, accounting for 33.3% of overall gross profit. Let's look at slide 17 for performance in Hong Kong, Macau, and overseas markets. Revenue from Hong Kong, Macau, and overseas markets decreased by 27.5% to HKD 3.4 billion, accounting for 97.9% of these markets' total revenue and 63.1% of the group's total. The segment profit decreased by 26.5% to HKD 490 million, which accounted for 97.8% of these markets' total and 75.6% of the group's total.
The segment profit margin was 12.2%. When excluding gold hedging losses attributed to these markets, the segment profit would be HKD 502 million, and adjusted segment margin would be 14.6%. In addition, the wholesaling revenue decreased by 34% to HKD 43 million, accounting for 1.2% of Hong Kong, Macau, and overseas markets' total revenue and 0.8% of the group's total. The segment profit loss was HKD 23 million, accounting for -5.3% of these markets' total and -4.1% of group's total. Well, its segment profit margin was -52.6%. As the segment profit of wholesale business included the profit of inter-segment sales to self-operated shops, excluding inter-segment sales in the denominator, the segment profit margin will be -2.8%. When excluding the gold hedging losses by the wholesaling business, the segment profit would amount to HKD 9 million, resulting in adjusted wholesaling business profit margin of 1.2%.
On the other hand, due to the addition of two overseas licensed shops during the period, Hong Kong licensing income increased by 49.2% to HKD 32 million, accounting for 0.9% of this market's total revenue and 0.6% of the group's total revenue. The segment profit increased by 45.8% to HKD 32 million, accounting for 7.5% of this market's total and 5.8% of the group's total, and the segment profit margin was 101.1%. Now let's look at slide 18 for performance in mainland markets. The retailing revenue of the mainland markets decreased by 5% to HKD 1.2 billion, accounting for 63.1% of mainland markets revenue and 22.4% of group's total. The segment loss was HKD 36 million, accounting for -28.4% of the mainland's market total and -6.4% of the group's total. The segment profit margin was -2.9%.
The overall same-store sales in mainland was -26.5%. Excluding gold hedging losses attributed, its segment profit would be HKD 62 million and adjusted segment margin would be 5.1%. Due to the continued sluggish demand for diamond products in the mainland market, its revenue in the wholesaling business, which primarily focuses on diamond sales, decreased by 59.6% to HKD 342 million, which accounted for 17.7% of mainland markets revenue and 6.3% of the group's total. The segment loss was HKD 46 million, accounting for -36.6% of mainland markets total and -8.3% of the group's total. The segment profit margin was -13.4%. As the segment profit of wholesaling business included profit of inter-segment sales to self-operated shops, including inter-segment sales in the denominator, the segment profit margin will be -11.9%.
When excluding gold hedging losses attributed to the wholesaling segment, the segment loss would amount to HKD 29 million, resulting in adjusted wholesaling segment profit margin of -7.4%. Licensing income in the mainland market decreased by 29% to HKD 372 million, which accounted for 19.2% of mainland markets revenue and 6.8% of the group's total. The segment profit decreased by 44.1% to HKD 207 million, accounting for 165% of mainland markets total and 57.4% of the group's total. The segment profit margin was 55.6%. Now let's look at slide 21. Here we show the performance of our e-commerce business in mainland. Its revenue decreased by 13.9% to HKD 752 million, accounting for 61.5% of retailing revenue in mainland and 16.1% of the group's retailing revenue. With ASP increased by 23.5% to RMB 2,100.
Let's move on to next slide and take a look at the performance of self-operated shops. The overall same-store sales growth for the group was -34%, with same-store sales growth for Hong Kong and Macau markets at -37% and -26% for the mainland market. Overall speaking, both sales of gold, platinum products and fixed jewelry products decreased, mainly due to high gold prices and the impact of a high base effect. The group's same-store sales growth for gold and platinum products was -36% and -30% for fixed jewelry products. Now let's look at slide 27. The total operating expenses increased by 8.4% to HKD 1.2 billion, representing 21.3% of revenue. The till yield to revenue ratio rose by 70 percentage points as compared to the same period last year, primarily due to fixed cost and the drop in revenue.
We have 16 renewals out of 68 shops in first half of FY 2025. The overall renewal increment was 7%. There are 22 leases to be renewed in FY 2025, around one third of the total. The increment rate is expected to be much lower than the 19% increment in FY 2024. Now let's look at slide 28 for the CapEx. We do not have any significant CapEx in first half of 2025. Now let's look at our group's future plans and strategies. Before the beginning of FY 2023, we have set up our new three-year corporate strategy with mainland market expansion, branding, and operational efficiency as our three main focuses to foster future business growth. Actually, this financial year will be the last year of the three-year plan. Slide 32 shows our network expansion plan for FY 2025.
At the end of September 2024, the group had total of 3,408 shops globally, with a net deduction of 175 shops. We have 3,311 shops in mainland, 55 in Hong Kong, 19 in Macau, and 23 in overseas. As the group is optimistic about the immense growth potential in the overseas markets, we have allocated more resources to expand its footprint across the world. We plan to net add 17 shops in this financial year. The CapEx budget for FY 2025 is expected to be around HKD 95 million, which will be used for shop renovation, office, and plant renovation as well. We will buy some new equipment for office too. Let's look at slide 34.
To strengthen our competitive advantage, the group plans to enhance operational efficiency through the transformation of supply chain management, implementation of complete automation, and adoption of advanced systems for big data management and data analytics. We are also committed to maximizing employees' productivity by cultivating and nurturing cultures of continuous improvement and innovation. Let's look at slide 34 now. Thirty-five. The group continues to strengthen its brand image and positioning, additionally enhances product quality assurance, improves service quality, optimizes support for licensing, and adopts a multi-brand strategy to meet market needs. Following the launch of various brand product lines, Goldstyle, Love LUKFOOK JEWELLERY, and Heirloom Fortune, is to target the affordable luxury markets. The group launches a brand, Love LUKFOOK JEWELLERY, in May 2023, and acquired a brand, 3DG Jewellery, in order to appeal to the younger generation.
The group will persist in concentrating and targeting 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. On slide 34, you can see that we have transformed various product lines into independent stores and adopt multi-brand strategy to reach different target markets. We have introduced different shop images to rejuvenate the brand. Next slide show the Luk Fook Jewellery has collaborated with the Hong Kong most iconic beauty pageant, Miss Hong Kong Pageant, for the 23rd year as the official sponsor of the crown and jewellery, and launched a series of jewellery products. This partnership really highlights Luk Fook as a brand that's truly rooted in Hong Kong. Let's look at slide 39.
We raised the recognition of the traditional Chinese font style of the brand name, which is distinct to Hong Kong brand, via different promotion channels and materials. We also incorporated Hong Kong's beautiful street scenes and nostalgic Hong Kong style décor in the store design in order to promote Hong Kong culture. Let's look at slide 40 now. We have rolled out a series of online and offline campaigns to reach out to the target customers of wedding markets. Tiffany Tang Yan, showcased wedding jewelleries of aesthetic Western romance and classic Chinese elegance, exhibiting two different styles. On slide 41, you can see that we have invited global brand ambassador, Tiffany Tang, to hold a Sweet Journey road show to unveil a series of new wedding products. The next slide showcases our anniversary celebration.
We invited two mainland famous actors to be the ambassadors of the campaign and kicked off the series promotions, which reached an overall exposure of 1 billion views. We are on slide 43 now. As the new Chinese style has gained popularity among the Generation Z in recent years, we have blended exquisite traditional Chinese elements with modern aesthetic to create collections including the Tang Dynasty style and the charm of Song Dynasty. We also hosted road shows in a new Chinese ambience with the slogan, "Get Fulu at Luk Fook," allowing us to successfully capitalize on this trend in the market. On slide 44 now, you can see that we have invited a variety of celebrities for short to long-term marketing campaigns to raise brand awareness and recognition among our target customers of different brands and product collections.
Slide 45 shows some VIP figures. As of 30th September 2024, our membership base increased nearly 30% to reach over 8 million, with members contributing 68% of the total retail sales. We've upgraded our CRM to a social SCRM, enabling us to monitor customers' spending patterns across multiple channels. On slide 46, we can see that we have organized a VIP Thankful Month events that include a variety of online and offline incentive activities designed to attract new customers, enhance engagement, and drive store sales. As a result, member contributions to group retail sales during the VIP Thankful Month increased by 15 percentage points, and additionally, over 1.1 million people engaged in our WeChat mini program. Slide 47 now. We co-organized promotional activities with various reputable partners in the industries to expand our brand exposure to target customers. Some of the brands included Huawei, XPENG Motors, and Grand Hyatt.
Besides, we were invited to participate in the 2024 Hard Gold and 添富金 Jewelry Digital Social Media to joint promotion with the World Gold Council. We co-organized the Luk Fook pop-up store with the Platinum Guild International. Last but not least, we sponsored and made the KPL champion league for 17 consecutive seasons. Effective sustainability governance is a crucial factor in driving the long-term success of the group. Therefore, we continuously optimize our environmental, social, and governance, our ESG management systems, and are committed to integrating ESG principles into our corporate planning and operational decision-making process. We are honored to have received 19 awards in 2025, which is a testament to our commitment to society. The consistently record-breaking gold prices impacted sales during the period under review, and when combined with the high base effect, put pressure on same-store sales in Hong Kong, Macau, and mainland markets.
Fortunately, the decline in same-store sales in the mainland market, including self-operated shops and licensed shops in the Hong Kong market, has narrowed since September. Therefore, from October 1st to mid-November 2024, the group's overall same-store sales performance showed improvements as compared to 2Q. Although the spike in gold prices may affect sales performance, an increase in product margins will help mitigate the impact of declining sales. Sales of the gold products are expected to return to the normal levels after consumers adapt to the high gold prices. Moreover, since the demand for diamond products remains subdued, the group will continue to actively promote non-diamond fixed-price jewelry products. The mainland government is actively working on boosting domestic demand and has introduced various policies to support the property and capital markets in hopes of improved macroeconomic conditions as well as retail sentiment recovery.
The retailing business is expected to regain its growth momentum. As such, the group remains cautiously optimistic about its mid to long-term business prospects and will continue to expand in the mainland market. Furthermore, the group is optimistic about the immense growth potential in the overseas markets. The group will allocate more resources to expand its footprint across the world and plans to have a net addition of approximately 50 shops in the overseas markets in the current financial year. Due to the lower base in the second half of the financial year as compared to the first half, a better business performance is expected in the second half of this financial year. This concludes my presentation. Thank you.
Thank you, Dr. Kathy Chan. Now we will move in with the Q&A session. Ray, please open the floor for the questions.
Thank you. If you wish to ask an audio question, please press star one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star two to cancel. If you are joining over the webcast, you can submit your questions in the Q&A box. Once again, please press star one on your telephone keypad to register for a question. There will be a brief pause while list of questions are being registered. There are some questions coming in over the webcast.
The first one is from Mavis Hui. The question is,
Hi, management. Could we have the latest guidance on our top line by markets, our store opening targets, and gross and operating margins for second half of fiscal 2025?
In fact, I think, because actually we got a better situation in the third quarter, as comparing to the last two quarters. Basically, we expect to have a better performance in the second half than the first half. Apart from that, actually, as you can remember, actually last March, we have a big drop in business because of record high gold price. Basically, we have a lower base in the second half as well. But at this moment, I guess it is really hard to have a very concrete figure to talk about. But I guess we should still expect maybe a negative drop in the third quarter because it is still high base. But the drop should be lower than the second quarter. In the last quarter, that is coming January to March, it is highly likely that we may have a positive growth again.
This is the kind of overall picture we can imagine. If talking about the shop openings within this financial year, for the Hong Kong, Macau, and mainland market, or for Hong Kong, Macau, maybe we have a little bit of addition. But mainland market, I guess we should still expect a negative net drop in number of shops. But the scale will be slower and slower in a progressive manner. For overseas market, because we have shift our focus much more to that direction, so we have around a net addition of 15 shops on top of the 22 shops we have established in last financial year. Basically, in terms of growth potential, it is a much higher growth rates than the other markets.
For the operating margin, I guess because the gold price has reached a record high for so many consecutive months, since that it is becoming more stable now, and maybe they have some more room to grow. But I think magnitude will not be as much as the first half. Basically, I guess the overall hedging P&L will be much more stable in the second half. Basically, the operating margin should be better in the second half than the first half.
Thank you. Our next question comes from the audio line. The question is from Tony Li from BOCI. Your line is open. Please go ahead.
Hi, Cathy. Thanks for taking my question. My question is on the operating margin of our wholesale business. Would you explain why we have losses in the first half, and do we expect any improvement in the second half? My second question is on the financial health of our franchisees. Given the challenging environment, are we giving more financial incentives or subsidies to the franchisees in the mainland? Thank you.
Okay. Thank you. Thank you for your question. In fact, for the wholesaling business, because it's mainly the sale of diamond products, we have very sluggish demand of diamond products in mainland. That's why it affects our wholesaling business very much. Basically, for the wholesaling business itself, the major part of the wholesaling business is actually in mainland. That's why it's really tough at the moment. Basically, that's the reason why it's making a loss. In the second half, we don't really see the rebound of the diamond sales at the moment. Basically, I guess the selling lows will still continue, maybe, but the kind of lows will be lower in the second half, because actually, we have done some restructuring in our factories in the first half. That's the reason why we incurred some extra costs.
In the second half, it should be better. For the franchisees and licensees, actually, we have some kind of a financial support scheme to them, because they place some deposit to us at the beginning. We try to lend those deposits back to them, to certain extent, with interest, of course. But actually, the kind of requests for that kind of support was actually not that much, since those that can continue the business, they are still strong in their financial position. Basically, what we are doing to support our licensees will be kind of in the operational side. We try to offer some kind of lower cost shop renovation option for them if they want to, that kind of things. Yeah.
Thank you.
Welcome.
Ladies and gentlemen, once again, as a reminder, if you are joining from the telephone line, you can press star one to register for a question. If you are joining over the webcast, you can submit your questions in the Q&A box. Our next question is also from Mavis Hui from DBS, and the question is,
in which cost categories do we still see further room to reduce expenses in the coming 6-12 months? Are we still on track to achieve a break-even operations for 3DG in about a year? Thanks.
In fact, we have done quite much in the first half already in terms of the cost control. We may have some, but it will not be too much in the coming months. Of course, it all depends on the macro situation. If it is becoming worse and worse, we have to do more. But if it is improving, it is not to do that. For the break-even position for 3DG, actually, our plan is to have the break-even position achieving in 3 years' time, not in one year. So we are still targeting at that direction in terms of operation.
Thank you. Our next question comes from the line of Tiffany Feng from Citigroup, and the question is,
Could you share the sales performance in October and November respectively? How do you expect the sales outlook in the second half 2025?
In fact, because of the Double Eleven event, actually started early this year, we have to combine October and November figures together rather than looking at the performance in individual months. Overall speaking, we can see that the combined October to November performance would be better than the July to September quarter because there were a lot of promotions going on. In fact, it is kind of a narrowed decline, not a positive figure because of the high base. That is why with all this trend, we really expect the second half performance to be better than the first half, especially we have a low base in January to March quarter.
Thank you. Our next question comes from the line of Matthew Lee from Antipodes. The question is,
Can you give the store closure guidance for second half 2025 compared to first half 2025 and the outlook in 2026?
As I mentioned just now, actually we expect the closure of shops to be slower and slower. We should expect less reduction of our net closure in second half than the first half. Outlook in 2026 is hard to tell, but it should be a better position than the 2025 financial year. Actually, we normally will have a new plan. Actually, we are going to have a new three-year plan very soon. Basically we are going to announce that in around June this year when we announce our final results for financial year 2025. By then we would have a much clearer picture about our next financial year.
Thank you, Cathy. Ladies and gentlemen, as a reminder, if you are joining over the telephone line, you can press star 1 to register for a question. To cancel your question, you can press star 2. If you are joining over the webcast, please submit your questions in the Q&A box. Our next question comes from Cathy Chen from Goldman Sachs.
The question is, how is the monthly SSS performance in October to November? How is the recent pullback of the gold price impact the sentiment?
Oh, I have just explained about the Double Eleven event starting much earlier this year, so we have to look at October, November figures together, not look at individual month figures. That is why, like October, November combining together, actually, we found that the kind of decline in sales will be much narrowed as comparing to the July to September quarter. Of course, the gold price impact is still there. Basically, we can still see kind of a drop in gold sales and other type of product categories as well.
Thank you, Cathy. There are no further questions. I will return the conference back to you.
Thank you, Cathy. Thank you, Ray. Since it looks like there is no more new questions, I will wrap up earlier. We will come to the end of our conference. Thank you for joining us today, and please feel free to contact us if I can be of any assistance. We hope you have a wonderful day. If you need to replay the audio, please email me through the ir@lukfook.com. Thank you. Goodbye.
Okay. Thank you, everybody. Goodbye.
This now concludes our presentation. Thank you all for attending. You may now disconnect.