Welcome to Luk Fook FY 2021 annual result announcement. Now I pass the call to Ko ey. Thank you.
Good evening, everyone. Thank you for joining the call. I am Ko ey from the IR team of Luk Fook. Today, we have the pleasure to have Dr. Kathy Chan, Executive Director and CFO of the group, as speaker to talk about our financial year 2021 annual results. We will go through the corporate presentation, which is already uploaded onto our corporate website, followed by the Q&A session. Now, may I pass the time to Kathy for the presentation?
Thank you, Ko ey. Good afternoon, ladies and gentlemen. Thank you for joining Luk Fook's FY 2021 annual results conference call. It covers the year ended March 2021. We will talk about our financial highlights first, and followed by financial review, and then our future plans and strategies. Let us go to slide four now. Our group's revenue dropped by 21% to HKD 8.9 billion, and operating profit increased by 7.6% to HKD 1.2 billion.
While profit attributable to equity holders increased by 17.4% to HKD 1 billion, and basic earnings per share increased by 16.9% to HKD 1.73. Our board of directors intends to distribute special dividends for celebrating the 30th anniversary of the establishment of Luk Fook to reward our shareholders. Therefore, we propose a final and special dividend of HKD 0.50 each per share, totaling HKD 1 per share.
Taking into account of the interim and special dividends paid, the total dividend for the year would amount to HKD 1.5 per share. The dividend payout ratio will be 86.6%, which is higher than our official dividend payout ratio policy of 40%-45%. During the year under review, the group has net increased 246 stores worldwide, which were mainly Luk Fook licensed shops in Mainland.
At the end of March 2021, including the sub-brands, the group has 2,366 shops worldwide altogether. Now let us go into the details of our financial performance. Let us look at slide six . With the impact of the COVID-19 pandemic, the retail sales in Hong Kong and Macau decreased substantially by 51% and 40%, respectively. Luk Fook group's revenue therefore dropped by 21% to HKD 8.9 billion, with overall gross margin maintaining at a stable level of around 30%. Gross profit, therefore, decreased by 21% to HKD 2.6 billion.
On the other hand, total operating expenses decreased by 20% as well, with ratio to revenue also maintained a stable level of around 19%. With the steadily declining gold price in the second half of FY 2021 and the strengthening renminbi led to a turnaround gain on gold hedging and net exchange from losses last year. As such, they led to improvement of operating profit by HKD 167 million and HKD 58 million, respectively.
Together with the various increased government subsidies of HKD 87 million in response to the pandemic, operating profit, therefore, increased by 7.6% to HKD 1.2 billion. Furthermore, the strong cash position led to a substantial improvement in net financial income by HKD 52 million. Together with the narrowed share of losses of associates by HKD 24 million, the group's profit attributable to equity holders increased by 17% to HKD 1 billion.
As a result, our operating margin increased by 3.7 percentage points to 14%, while net margin increased by 3.8 percentage points to a record high of 11.5%. Now let's turn to slide eight. By enforcing our key target in reducing inventory level, our inventory balance further decreased to HKD 7.3 billion by end of March 2021. However, as the decline was much smaller than the significant drop in retail sales, especially in Hong Kong and Macau, the average inventory turnover days grew by 50 days to 451 days.
On the other hand, the group's net cash increased substantially to HKD 2.5 billion. Our ROE was 9%, which was a bit higher than last year. Let's go to slide nine. The group's NAV per share as at end of March 2021 was HKD 19.9, which was 8.8% higher than last year. Now let's look at slide 11. As the border restrictions have not been lifted, revenue from Hong Kong, Macau, and overseas markets decreased by 43.4% to HKD 3.6 billion, which accounted for 40% of the group's revenue.
The segment profit decreased by 80.6% to HKD 75 million, which accounted for 6% of the group's total. The segment profit margin was 2%, a drop of 4.1 percentage points. In the Mainland markets, the revenue decreased by 7% to HKD 5.3 billion, accounting for about 60% of the Group's total revenue. Its segment profit increased by 36.8% to HKD 1.2 billion, accounting for around 94% of the total, and its segment profit margin was 23.5%. Slide 12 shows our revenue and segment profit by business. The retail business was the Group's primary source of revenue.
As the retail sales of Hong Kong Macau market dropped significantly, the Group's total retail revenue decreased by 36.8% to HKD 5 billion, accounting for 55.9% of the Group's total revenue. Its segment profit was also decreased by 54% to HKD 195 million, accounting for around 15% of the total, and its segment profit margin was 4%. Attributable to the increase in number of licensed shops, the Group's wholesale business revenue rose by 14% over the corresponding period last year to HKD 3 billion.
Accounting for 33.4% of the Group's total revenue, its segment profit increased by 32% to HKD 409 million, accounting for 30.9% of the total. Its segment profit margin was 13.8%. Licensing income increased by 18% to HKD 946 million, due to the increase in number of licensed shops as well, accounting for 10.7% of the Group's total revenue. Its segment profit margin was 76%, while its segment profit increased by 27.4% to HKD 719 million, accounting for 54% of the total.
Let's look at slide 13 now. Due to the impact of the strong gold price most of the time during the year under review and the drop of retail sales in Hong Kong and Macau markets, sales amount of gold and platinum products decreased by 25.8% to HKD 3.7 billion, accounting for 47% of the overall sales amount. Gross profit of gold and platinum products declined by 23% to HKD 818 million, accounting for 43% of the overall gross profit. Its gross margin was 22%. On the other hand, sales amount of fixed price jewelry products fell by 22.6% to HKD 4.2 billion, accounting for 53% of the overall sales amount.
Gross margin of fixed price jewelry products dropped by 5.2 percentage points to 25.8% because of increase in revenue mix from prior year's 43% to current year's 61% of wholesale business, which was a relatively low gross margin. Its gross profit as a result decreased by 35.8% to HKD 1.1 billion, accounting for 56.9% of the overall gross profit. Let's look at slide 15 now.
During the year under review, retail revenue from Hong Kong and Macau and overseas markets decreased by 46.8% to HKD 3.2 billion, which accounted for 91% of its total. Its segment loss was HKD 19 million. On the other hand, because of the sales of raw material gold, its wholesale business revenue increased by 1.6 times to HKD 260 million, which accounted for 7.3% of its total.
Its segment profit increased by 23.5% to HKD 48 million, which accounted for 64.6% of its total, while its segment profit margin was 18.6%. Apart from that, Hong Kong licensing income decreased by 34.6% to HKD 46 million, which accounted for 1.3% of its total. Its segment profit was HKD 46 million, which accounted for 61% of its total, and its segment profit margin was 100.8%. Let's look at slide 16 now.
During the year under review, despite the decrease in number of staff of the shops, with effective pandemic control in Mainland and overseas travel restrictions, which helped to stimulate domestic consumption, retail revenue from the Mainland markets decreased by 1.8% only to HKD 1.7 billion, which accounted for 32% of its total. Benefiting from the closure of some loss-making shops, its segment profit increased by 25% to HKD 215 million, which accounted for 17.2% of its total. Its segment profit margin was 12.6%.
Due to increase in number of licensed shops, revenue of wholesale business in Mainland markets rose by 8.4% to HKD 2.7 billion, which accounted for 50.9% of its total. Because of effective cost control and increase in VAT refund of HKD 41 million due to the increased diamond imports, its segment profit increased by 46.4% to HKD 316 million, which accounted for 28.9% of its total.
Its segment profit margin was 13.3%. Licensing income in Mainland markets rose by 23.2% to HKD 900 million as a result of the increased number of licensed shops as well, which accounted for 16.9% of its total. Its segment profit increased by 36.1% to HKD 673 million, which accounted for 53.9% of its total, and its segment profit margin was 74.7%. Let's go to slide 20 now, looking at our self-operate shop performance.
During the year under review, the overall SSSG of the group was -40%, and SSSG for the Hong Kong-Macau market and that for Mainland markets were -47% and -5%, respectively. SSSG for gold and platinum products was -32%, and that for fixed price jewelry products was -51%. Due to the impact of a strong gold price in most of the time during the year under review, gold and platinum and fixed price jewelry sales recorded a decline in revenue and quantity, but an increase in ASP in all markets.
Slide 21 shows the same-store sales growth figures of the self-operate shops and licensed shops in different city tiers and regions in Mainland. Overall speaking, licensed shops perform better than our self-operate shops, as licensed shops normally are located at better locations and better fixed price jewelry sales mix in Mainland. Furthermore, most of our self-operate shops were located in northern and central parts of Mainland, where the pandemic was the most serious during the year under review.
The same-store sales growth of licensed shops was +12%, while that for self-operate shops was -2% during the year under review. Let's look at slide 24 now. We have POE of HKD 1.7 billion, representing a decrease of 20%. Its ratio to revenue maintained at a steady level of around 19%. With the adoption of HKFRS 16, rental related expenses, including rental related depreciation of right of use assets, fixed and variable rental expenses, altogether amounted to a total of HKD 454 million, representing a 31% drop year-by-year. There were 17 shops in Hong Kong and Macau subject to rental renewal in FY 2021, accounting for around 30% of the total number of shops there.
The overall rental reduction was around 33%. A tenth of the renewals were short-term of one year only. Therefore, we would have 34 shops subject to renewal in FY 2022, which is around 60% of the total number of shops. Given the current situation in Hong Kong, we have actively negotiated for rental reduction for renewals. We expect a double-digit drop on these renewals in the upcoming year as well.
Apart from the reduction of renewals, we have around HKD 17 million rental concession from landlords because of the pandemic during the year under review. Let's look at slide 25. By enforcing our keen target in reducing inventory level, our inventory balance decreased by 2.8% to HKD 7.3 billion by end of March 2021. However, with the substantial decline of sales in Hong Kong-Macau market, the average inventory turnover days grew by 152 days there.
The overall inventory turnover days calculated based on average inventories, therefore, increased by 52 days to 451 days, despite the decrease in inventory level. Let's look at slide 26. In FY 2021, the group incurred CapEx of HKD 243 million, which mainly represented the acquisition cost of HKD 74 million for stock accommodation in Macau, and acquisition cost of HKD 71 million of office and showroom in Xi'an and Shenzhen, and HKD 15 million prepayment of a planned expansion project in Panyu.
Now let's look at slide 27. During the year under review, the loss of an associate of the group narrowed. While taking into account other losses arising from its parent company, HKRH, the total loss of investments and operating activities in HKRH and the subsidiaries remained flattish at HKD 38 million. Now let's look at the group's future plans and strategies. We are now at slide 29.
Two years ago, the group has set up this new three-year corporate strategy with supply chain management, Mainland market expansion, and strategic growth as its three main focuses, so as to foster its future business growth. In order to further enhance the group's competitive edge, the group will focus on strengthening supply chain management through various means.
Let's look at slide 30. We will try our best endeavor to identify right products, set right price, and allocate products to the market at right time by implementing high level of automation and big data management, improving factory productivity, shortening inventory turnover period, establishing strategic partnership with suppliers, streamlining logistics and distribution, and enhancing supply support to licensees. Doing all this would help to promote our business development and strengthen our operational efficiency and effectiveness. We believe that customers increasingly focus on jewelry with unique design.
Following the introduction of the DIY Ordering Service System in Mainland during the year under review, the group will also launch the DIY system in Hong Kong, Macau, and overseas. This will help the group to penetrate into the high-end market progressively. The sales amount of DIY system was RMB 72 million during the year under review, since its launch in July 2020. Let's look at slide 31 now. The group has already adopted multi-brand strategy and will strive to develop more new brands in the future. During the period under review, we have net added 28 Goldstyle shops. Slide 32 shows our new brand, Lukfook jewelry. Apart from Goldstyle in D2, the group will continue to develop new brands in the future.
During the year under review, the group has also established a new product line named Lukfook jewelry, which targeting the high-end jewelry market and has opened a total of three shop-in-shops in Macau and the Mainland in FY 2021. Slide 33 shows our expansion plan in FY 2022. As at 18th June 2021, including new brands, we have a total of 2,436 shops worldwide. That's a 70 net addition since end of March 2021. As at end of March 2021, the group had a total of 2,366 shops globally, including 2,294 shops in Mainland, 47 shops in Hong Kong, 13 shops in Macau, and 12 shops in overseas. With better border restrictions than seen in Macau, the group will net add two shops in Macau and one overseas licensed shop in the coming year.
In view of the anticipated considerable growth of the middle-class population in Mainland, the group remains optimistic about the mid to long-term business process. Therefore, the group will focus extensively expanding in the Mainland market and expect to net add 350 shops, which will be mainly licensed shops in fourth and fifth tier cities in the new financial year. The group is committed to further developing its e-commerce business and strengthening of cooperation with various e-commerce platforms in Mainland.
At the same time, we also establish its own e-commerce platform, aiming to sustain the growth in e-commerce revenue with a target of 20% growth in the coming year. The CapEx budget for FY 2022 will be around HKD 400 million, which will be used for shop renovation, Nansha plant and office renovation, and establishment of new production line in Yichang, and purchase of equipment and premises.
The site areas of plants in Nansha and Yichang were 40,000 sq m and 33,000 sq m respectively. Let's look at slide 34 now. In FY 2021, e-commerce revenue increased by 34%. The revenue accounted for about 50% of the group's retail revenue in Mainland, with a stable ASP of RMB 1,300. It accounted for 17% of group's retail revenue as compared to 8% last year.
The group will continue to commit to further enhance the synergy between online and offline sales channels. We have allocated more resources on shop reviews and restructuring of supply chain to improve inventory turnover. Slide 35 shows our membership program. At the end of March 2021, the total number of members increased by 1.4 times to approximately 2.4 million members. The members contributed 33% of the group's total retail sales.
The members in Mainland, Hong Kong, Macau, and overseas markets increased by 1.6 times and 94%, respectively, while the members contributed 19% and 59% of their respective markets. Let's turn to slide 36 now. The group also continued to capture the rapid growth of online marketing by various marketing activities in new media platforms. We made use of trendy social media platforms including RED at Xiaohongshu, TikTok, that's Douyin, and e-sports to increase our brand exposure and expand our footprint in the young consumer markets. We expanded online sales by live streaming by staff and KOLs, and enhanced CRM via instant messaging apps to reach and engage with customers. We are now on slide 37.
As the group's anniversary was just a few days after Double Seventh Festival, we invited our global brand ambassador, Mr. Li Feng, to show up at the live stream event, which recorded over 12 million views that effectively enhanced brand awareness and create hot topics. Let's go to slide 38 now. To celebrate the brand anniversary, we have collaborated with 100 KOLs on five major social media platforms to conduct an all-round product promotion.
Three topics on anniversary promotion altogether gained a total of 700 million views and 1.2 million discussions. We are now on slide 39. The group held the Bling for More new product launch event in Shanghai to celebrate the sparkling beauty of love with Mr. Li Feng. The event was simultaneously live-streamed on both Lukfook jewelry's official Weibo and Tmall flagship store, which recorded over 10 million views.
Slide 40 shows our cross-platform promotion, including Weibo, Xiaohongshu, Douyin, and Taobao, driving our online exposure to a new height so as to raise Luk Fook's brand awareness among young consumers. On slide 41, we can see that the group teamed up with Alipay again to participate in the Chinese New Year Five Fortunes Collection Campaign event, which realized brand exposure of 150 million viewers, rapid traffic growth, and increased interactions with customers, greatly enhancing the brand penetration.
To conclude, due to the low base effect, the same-store sales of the group for the quarter from January to March 2021 has turned around to positive growth, and the group's business is expected to grow again in the coming year. The group also recorded satisfactory same-store sales growth for the period from April to the first two weeks of June 2021, with same-store sales growth of around 1.2 times for the Hong Kong and Macau market and around positive 50% for the Mainland market. We said the worst is over, and we expect double-digit same-store sales growth for our business in the current financial year. This is the end of my presentation and thank you for listening.
Thank you, Kathy. Moderator, please open the floor for the questions now.
Thank you. We will now begin our question and answer section. If you have a question for the speaker, please press zero one on your telephone keypad now. If you wish to cancel, please press zero two. Once again, zero one on your telephone keypad now to ask your questions. Our first question is Tiffany Feng from Citig roup.
Hi, Kathy. Thanks for your presentation. I have two questions.
Yes.
The first one is the gross margin, GP margin for the fixed-price jewelry product. Could you explain the reason of the big decline year-over-year and also half and half decline? What is the outlook for the GP margin for the fixed-price jewelry product going forward? The next question is the rental trend for renewal and total rental for Hong Kong and Macau for this financial year, FY2022. My last question is, what is the longer-term outlook for the OP margin for the Hong Kong and Macau market? Maybe could you give us some targets, for example, before the border reopens, after the border reopens? What is the OP margin outlook for Mainland China for the longer term. Thank you.
Actually, for the fixed-price jewelry gross margin, the reason why it decreased by 5% for the latest financial year was mainly because of the substantial drop in retail revenue, which is of a much higher gross margin than the wholesale revenue. With the increase in the number of licensed shops, the wholesale revenue increased quite a bit. Together with the substantial decrease in the retail revenue altogether, led to a much drop in the gross margin of fixed-price jewelry. If we talk about the longer-term outlook for the gross margin fixed-price jewelry, I think with improving retail revenue in the coming future after the border restrictions are lifted, I think the gross margin of fixed-price jewelry would go back to normal of maybe more than 30% like the past.
For the rental renewal trend for FY2022, we have something like 33% reduction for last financial year for the rental renewal. In the upcoming year, we have got around 60% shops subject to renewal because 10 of the renewals are actually brought forward from last financial year because of the substantial drop in the rental. The landlords were very reluctant to sign long-term leases with us, so it is only a one-year term. That is why altogether, we have got 34 shops actually subject to renewal in this financial year. We still expect a double-digit drop in the renewal, but it should not be as high as last year's 33%. For a longer-term outlook of operating margin in Hong Kong and Macau markets and Mainland, actually, for the Hong Kong and Macau markets, I guess because there still are kind of limited cross-border activities.
I think after the relaxation the operating margin of Hong Kong and Macau should be growing step by step. Actually, although in their first half is a loss, the second half is actually becoming profitable already. But altogether for the full year, because the loss in the first half was larger than the profit in the second half, that is why you still have a HKD 19 million loss for the full year.
So basically, we should expect maybe something like, in the past, we have got something like a low double digits operating margin, hopefully. For the Mainland markets, actually, because of the high gold price, it is enjoying quite a good gross margin for the gold sales. That is why for the Mainland markets, for the retail business, actually it is reflecting quite a good improvement in the semi margin. But actually, I think when the gold price is becoming more stable, the margin of Mainland markets should be lower than the current one.
Okay. Thank you, Kathy. Can I follow up? First of all, for the fixed price jewelry product GP margin, did you offer extra price discount or is it just because of the mix change? Secondly, for the OP margin of Hong Kong and Macau, you mentioned historically low double digits. Do you think it is still achievable after the border reopening? Thank you.
It actually all depends on the pandemic development. I think for Macau should be much better. That is why we are adding more shops in Macau, so as to compensate the poor business in Hong Kong. It all depends on the pandemic situation. With the improving Macau business, hopefully, I think for Hong Kong and Macau altogether, we should be able to go back to a better operating margin. I think it is hard to see it going back to the previous one. That is why I think we have to wait a bit to see the real situation or how the pandemic situation is developing.
Okay. For the GP margin, did you offer a price discount or just because of the mix change?
Sorry, I cannot catch your second question. Can you repeat once more?
Oh, I mean, for the GP margin drop for the fixed price jewelry product, I am wondering did you give price discounts or the drop is just because of the mix change?
In fact, we have some discounting activities, but when you look at the retail margins, actually it is quite stable. The drop in the margin was mainly because of the revenue mix change.
Okay. Thank you. Thank you, Kathy.
Thank you.
As a reminder, please press zero one for questions. This question is Mavis from DBS.
Hi, Kathy. Hi, good afternoon.
Hi.
Yes, thanks for taking my question. I have a few, so maybe we will go one by one.
Sure.
The first question is that, can we have an update on the sales performance and profitability of our wholesale division for the first quarter of this financial year so far? What would we expect to be the trend for the full year of FY 2022, this financial year? Thank you.
Well, actually, we normally talk about the same-store figures. It is a kind of tips for our forecasting of the wholesale business, though with some time lag. When you look at the same-store sales growth figures for the Mainland from April to first two weeks of June, it's talking about a positive 50%. Basically, because after they sold their products, the licensed shops need to replenish their products.
Basically, with such a good growth in the same-store sales figure, we should expect the wholesale to follow. When you look at our wholesale business, it's mainly talking about diamond products and gold sales. It's all within the fixed price jewelry. Basically, if our fixed price jewelry figures are good enough, then you will see our wholesale revenue increase in a similar manner.
I see. Great. My second question is that China actually has been seeing better momentum in recent months. We think that we could probably experience some slowdown ahead if once Hong Kong border reopens. Would that be the case in terms of your expectation? Overall, how do we strategize for the Mainland China market going forward? Thank you.
In fact, we believe that the cross-border activities restriction would lead to more domestic consumption in Mainland markets. With the uplifting of those restrictions, of course, we should expect people to buy products, jewelry more in maybe Hong Kong markets, in Macau markets. We have quite a fast expansion in Mainland China, especially penetration into the fifth and fourth-tier cities.
Basically, we should expect our wholesale revenue and licensing income to grow well in the coming period of time with such fast expansion, especially into the lower-tier cities. For the people in the lower-tier cities, I think maybe they would have less frequency to travel overseas or travel to Hong Kong, Macau markets. Basically, I think with the fast expansion in Mainland markets, it should be more than offsetting the negative impact following the border restriction uplifting.
Sure. Thanks, Kathy. You just mentioned about the first quarter FY 2022 same-store sales growth trend for Hong Kong, Macau. Is it possible to actually break it down into Macau alone and Hong Kong alone in terms of sales trend, please?
Actually, if talking about this period of time, both Macau and Hong Kong are having something like a positive figure. Of course, Macau's figure would be much, much higher. A growth figure would be much, much higher than Hong Kong's figure. Basically, like Hong Kong's same-store sales would be something like 40% something or around 50%. For Macau is talking about maybe, let me see, is talking about growth of 18 times, something like that. Because Macau is having much lower base than Hong Kong actually at the early stage of the pandemic, because it's talking about more than 90% drop of revenue while Hong Kong is talking about a lower drop during that period of time.
Right. Macau on its own is already profitable, is that right?
Yeah.
Lastly, as we are also seeing rising demand for O2O channels in both China and Hong Kong, aside from working more with third-party e-commerce platforms, do we have plans to further beef up this O2O segment by, for example, riding on our own website?
Yes, we have plans to develop our own website. I mean, to develop our own e-commerce platform that is actually on our website.
Right. But in terms of O2O, online to offline, perhaps it probably will still take some time. Is that what you mean?
It is soon. It is upcoming. Actually, apart from the e-commerce platform, we are using apps as well to do that kind of promotion.
Right. Thanks, Kathy, for the update. Thank you.
Welcome.
Next question is Emily Lee, Nomura.
Hi, Kathy. I just want to clarify this first quarter same-store sales figure. You mentioned Hong Kong is seeing 40%-50%, Macau is 1.8 times, and for China it was over 50%, is that correct?
No. For Hong Kong, it is around 50% growth, and for Macau it is 18 times.
18 times.
Because Macau's figure was very minimal. It dropped off more than 90% during same period last financial year. That is why you have got such a big jump. Because many Macau shops actually have very minimal sales last year during that period of time.
Understood. China, what is the first quarter same-store sales?
China is talking about around 50% growth for shops altogether.
For all shops, so including licensed-
All shops. Licensed shops and self-operating shops.
Okay, got it. Is it possible to give us some full year guidance for same store sales? Because obviously first time in the second half last year, the base is actually quite different.
Yeah.
It's very likely that first quarter numbers, it's probably going to be higher compared to the second quarter. Sorry, second half. Is it possible to give us any guidance as to how we expect the full year is going to be for both markets?
Of course, we have our own expectation or forecast for them. I think it all depends on the development of the pandemic. Basically, we are actually expecting something like double-digit same-store sales growth for this financial year. But it's hard to tell how much it will be. But I guess maybe it should be at least more than 20% altogether for the full year, at least. Hopefully.
Okay, 20% altogether for the entire group.
More than that. It should be more than that. Of course, we should expect higher growth in the first half and lower growth in the second half.
Understood.
Actually, we have some problem in the southern part of China recently, and that would affect the performance of Mainland business in the recent one or two months.
Okay. What is the percentage of our Southern China business versus the total of China?
Oh, it is mainly licensed business. It is not self-operating. We do not have any self-operating shops in southern parts of China.
Yeah, but what is the proportion of our sales in China coming from southern China?
For the wholesale business, we have not split it up by region.
Okay.
I have to check that.
Okay, no problem. Last question from me. I can see from your MD&A that we have actually closed 33 self-operated stores in China last fiscal year. Just wondering, is it because they were underperforming? Or is it because we are switching strategy so that we will be more focused on the licensed shops? Or what exactly is the reason behind it? Thank you, Kathy.
In fact, most parts of that would be because we have sold our JV to our licensees. Because some years ago we have the JV established so that we have increased number of self-operating shops. But then after some years of cooperation, we found that we may be much more efficient if we. Because that licensee is also running her own licensed shop. So basically, we will be more efficient to let her run all the shops all by herself. So we have sold the JV to her in the last financial year. That led to a 23-shop drop in the self-operated area. So the other 10 would be really 100% self-operating shops ourselves. So for the closure of our shops, our own 100% shops will be mainly because they are loss-making.
Okay. When you said you sold the JV, does it mean 3D Gold?
Sorry?
You said you sold some shop, the JV business to the licensee, right?
Yes.
When you say JV, does it mean 3D Gold?
No. The JV is actually running both Luk Fook shops. That is 20 Luk Fook shops and three 3D Gold shops. That is why. Previously, all our 3D Gold shops were run by her. That is why, after the selling of the joint venture, we do not have any 3D Gold self-operate shops in Luk Fook.
Okay. How much did we sell it for? How much gain was booked in the last fiscal year?
Sorry?
How much.
Can you repeat?
What was the gain that we booked in the last fiscal year by selling the JV to this licensee?
That's not very much. I have to check that. It's not a very significant figure within our book. I have to check that.
All right. Thank you, Kathy.
You are welcome.
Next question is Linda Huang, Macquarie.
Hello. Hi, Kathy. I have several questions, maybe from the collaboration. The first one is I want to check, you say for the first quarter same-store sales growth, Hong Kong is up by 1.2 times, right? So that equivalent to 120% growth?
That is Hong Kong, Macau together. Yes.
Okay. Can you share with us the performance for the gold jewelry and the fixed price product for Hong Kong, Macau performance and China for the first quarter?
Actually, for Hong Kong and Macau, if talking about byproducts, they have similar performance.
How about China?
For Mainland markets, it is actually mainly gold that is performing very well, and for fixed price jewelry is low double-digit growth.
Okay. The other question is, can you share with us how was the performance in the recent month? We noticed that the gold price corrected very quickly from maybe close to HKD 1,900 to right now below HKD 1,800. Do you see any behavior change in the last two or three weeks?
In fact, normally when gold price drops, we will see better gold performance. When gold price rises, we will see less sales of gold. Basically, the recent better simple sales performance, I mean, the good one, was mainly arising from the better performance of gold sales.
I see.
Normally.
We know that in China, the last April and May, the base is relatively low compared to June. Do you see that China, for the June data, the performance, they show the moderation compared to the April and May? How should we look at for the next one quarter?
Actually, we are going to announce our first quarter sales performance in mid-July. Maybe it would be better for us to talk in details when we announce the full first quarter figures in mid-July.
Okay. The last one is about the dividend because at least the financial year will pay out 86%, right? How should we look at your dividend policy going forward?
Now, in fact, our official dividend policy will be 40% to 45%. Normally we pay around HKD 1 per share in a year. Basically, the additional HKD 0.5 or HKD 0.50 in the announcement just now is mainly for the celebration of 30th anniversary of Luk Fook.
I see. Okay, I got it. Thank you.
Thank you.
As a reminder, please press zero one for questions. Next question is Carly from Maple-Brown .
Hello. Hi, Kathy. Just a quick question, please. Given the decline in gold price in the second half, can you explain why the ASP increased in all the markets?
Oh. Because actually the average gold price increased by 25% when comparing to last year's average price. Normally with gold price increase, we will see all per unit price would increase as well. That is why, normally with gold price rise, we will see ASP rising everywhere. Normally you will also see the quantity dropping.
Yep. Okay. Thank you. Can you also comment on the ticket size of the product in Tier 4 and 5 cities where you have opened new shops?
Actually, for lower tier cities, you would expect that to be lower than the higher tier cities. I do not have the details on hand. I have to check that later on.
Yeah. Okay. Thank you. My last question is, how long do you think you can sustain that net addition of 350 shops per year? Thank you.
Actually, we expect our total number of shops to be at least. Our next stage is targeting at 3,000 shops. With maybe 300 or 400 addition every year, we should expect maybe reaching 3,000 maybe next year or the year after next year. I guess we target at maybe at least 5,000 shops in a few years' time. Yeah. So you should expect us to have a net addition of 300 to 400 every year in the coming few years.
Thank you, Kathy.
Our next question is Reuben from Bank of America.
Hello, Kathy. This is Ronald Leung from Bank of America. Thank you for taking my question. My first question is about the net opening of 350 stores this year. Are they all licensed shops? Would there be any self-operated stores in your 350 number?
Well, for the open shops, it is mostly licensed shops, yes.
Mm-hmm. Okay, I see. Is it possible to tell me about the revenue and profitability of a single store for a typical licensed store in China now? Let's say, roughly what is the monthly or annual revenue and the profit that they can make currently?
We do not really disclose their revenue, but we have got sales or single sales information released every quarter. Basically, normally you should expect their sales per shop are higher than our own retail shops because they are normally located at better locations.
Hmm. Okay, I see. Also, many of your peers are also expanding very quickly in the lower tier cities. They are opening a few hundred stores every year as well. Do you see any risk of rising competitions between you and your peers?
In fact, we see a high potential for the mass luxury sector in Mainland because of the expected population growth of middle class. Basically, you do not see many Hong Kong brands in those lower tier cities before. Basically, I think there is still room for Hong Kong brands to penetrate further into those lower tier cities for some years. Then, I guess our market share would grow as well together with the growth of the pie, the market pie for the mass luxury sector in Mainland.
Basically, for the licensees in lower tier cities, some of them are actually running both Chow Tai Fook and our brand. Basically, I think it would be good for them to run both brands, or it would be good for a nearby location to see both brands there so that the customers can compare. I get it is a good competition, actually, for Hong Kong brands.
Okay. But do you think the Hong Kong brands are taking market share from the domestic brands?
With such kind of penetration, we should expect that.
Hmm. Okay, I see. Okay, that's all my questions. Thank you very much.
Yes. Welcome.
Next question is Chris Leung from Templeton.
Thank you. As the time is running short, I am afraid the following question will be the last question for the call. Thank you.
Okay. Hey, Kathy.
Hi.
I just have a question on government grant. Government grant seems to have increased a lot. What is your thought for the government grant for this year? Second question is, what is your observation on the general inventory for your licensee right now? Are they relatively still low, or are you already back to a more normal level?
For the government grant, are you talking about government subsidies?
Yes.
When we talk about government subsidies? Sorry.
The other income on.
Yes. There are two types of government subsidies, government grant. I guess for the one aiming at helping people in the pandemic, it is actually kind of increased by HKD 87 million.
Right.
Yeah. Government.
There is also like a VAT refund.
Yeah. Part of that will be VAT refund. Basically, for the government subsidies in respect of the pandemic, it is actually something like an increase of HKD 87 million. The one you see there in the note five of the announcement is actually in relation to Hong Kong subsidies only. For other markets, there were subsidies as well in response to the pandemic. Altogether, we see HKD 87 million increase in the subsidies in respect of the pandemic.
Right. What about the VAT refund?
The increase in VAT refund was mainly because of the high demand for diamond products. That is why we have increased imports of diamonds to Mainland, so that there will be a much higher VAT refund for that kind of imports.
Okay, got it.