Good evening, everyone. Thank you for coming to the call. I am Stephanie from the IR team of Luk Fook. Today, we have the pleasure to have Dr. Kathy Chan, Executive Director and CFO, and Ms. Nancy Wong, Executive Director and Deputy CEO of the group, as speakers to talk about our annual results for FY2018-2019. We will start with the presentation on the figures. The presentation has already uploaded to our website, followed by a question and answer session. Now, may I pass the time for Kathy to do the presentation, please?
Okay. Thank you, Stephanie. Ladies and gentlemen, thank you for joining our conference call. I would like to start with looking at our FY 2019 financial highlights, followed by financial review, and then our future plans and strategies. Actually, you may look at the corporate presentation which has been uploaded just now, and I will go through that with you on the phone. Let's go to slide four first.
With the promising performance in the first half, but the flat one in the second half due to the adverse impact of US-China trade war on macroeconomic conditions. Revenue recorded growth of 8.8% to HKD 15.9 billion. On the other hand, benefiting from the operating leverage, the operating profit improved by double digits at 14.3% to HKD 1.9 billion. Profit attributable to equity holders increased by 9% to HKD 1.5 billion. The basic earnings per share increased by 9% as well, to HKD 2.54.
The group's e-commerce business revenue increased by 61% in the year under review, which was higher than our target of 40% growth. This revenue contributed to 22.9% of mainland China's retail revenue. The group proposed the final dividend of HKD 0.60 per share. Together with the HKD 0.55 interim dividend, the annual dividend was HKD 1.15, with full year dividend payout ratio of 45%. The group has a net increase of 197 Luk Fook shops during the year under review. Out of which, 194 were in mainland China, including net addition of 210 licensed shops and net reduction of 16 self-operate shops. We have net added one shop in Hong Kong, Macau, and one in overseas markets.
At the end of March 2019, we have altogether 1,828 Luk Fook shops worldwide, covering 10 countries and regions, namely Hong Kong, Macau, mainland China, Singapore, Malaysia, Cambodia, the Philippines, U.S., Canada, and Australia. And we have five Pretty UGL self-operate shops in mainland China, too. Now, let's go into the details of our financial performance. During the year under review, overall gross margin maintained a stable level of 25.4%, and gross profit increased by 7.8% to HKD 4 billion. With the benefits of operating leverage, the total operating expenses only increased by 5.4%. Its ratio to revenue level decreased to 15.4%. That is why our operating profit increased by 14.3% to HKD 1.9 billion, with operating margin improved by 0.6 percentage points to 11.7%.
On the other hand, net margin grew slightly only to 9.5% due to the increase in financial costs resulting from the increase in borrowings and high effective tax rate of 15.8% arising from the increase in mixed profits from mainland Chinese business, which was in a high profit tax rate area. Our dividend policy of 40% payout ratio has been revised to a new range of 40%-50%. This year, we have payout ratio of 45% and increased the final dividend from HKD 0.50 to HKD 0.60. The annual dividend per share is in fact the second highest in our record. The group's financial position remained healthy. Inventory level increased by 16.6% during the year under review to around HKD 9.3 billion because of the faster-than-expected growth in number of licensed shops.
However, with the unexpected downturn of macroeconomic conditions due to the U.S.-China trade war in the second half of the financial year, average inventory turnover days grew by 16 days to 273 days when compared to last year. The group changed from a net cash position to net borrowing position of HKD 290 million, mainly because of the purchase of new quarters in Hong Kong and Shenzhen amounting to HKD 10 billion in total, and a much increase in inventory level. Our ROE was 14.2%, which was 0.6 percentage points higher than last year. The group's NAV per share as at end of March 2019 was almost HKD 18, representing a year-on-year growth of 4.8%. Despite the overall economic environment suddenly worsened by the U.S.-China trade war, the group is grateful to see a 9.7% growth in the overall net profit during the year under review.
Both the revenue and profit actually reached the third highest in our record. Overall gross margin, operating margin, and net margin in the past two years remained at a quite stable level. We may go to slide 10 now. We can have a look at the revenue by markets. Actually, the Hong Kong and Macau markets remain the key source of revenue for the group. Hong Kong, Macau, overseas revenue recorded a mild increase of 3.6% to HKD 9.9 billion, which accounted for around 62.1% of the total revenue. With an improved segment profit margin of 9%, the respective segment profits increased by 7.8% to HKD 964 million, accounting for a little bit more than half of the group's total.
In the Mainland China markets, the revenue increased by 18.6%, which was at a faster pace than other markets, mainly because of the high increase in number of licensed shops that led to quite good growth of its licensing and wholesaling revenue during the year under review. The revenue in Mainland China reached HKD 6 billion and its segment profit improved by 19.1% to HKD 937 million. Retail business was our primary revenue source, increased by 9.8% to HKD 12 billion, representing around 76% of the total. The segment profit increased by 9.8% as well to HKD 941 million, which contributed to almost half of the group's total. Despite the increase in number of licensed shops, the group's wholesale revenue, which represented 18.8% of the group's total, rose by 1.6% to almost HKD 3 billion only.
It was because scrap gold received from customers in Hong Kong no longer being accounted for as sales, but was processed into raw materials instead. Nevertheless, with the well increased revenue of Mainland China's wholesale business, the group's segment profit increased by 6% to HKD 406 million, accounted for 21.3% of the group's total. On the other hand, with increased number of licensed shops, the licensing income rose substantially by 23.5% to HKD 807 million, which was 5.1% of the group's total. As there was high fixed cost proportion in cost structure of licensing business, the segment profit margin of licensing business increased in the year under review, as its segment profit increased by 25.7% to HKD 574 million, contributing to 29.2% of the group's total.
Gold and platinum sales recorded a slight increase of 4.9% to HKD 7.8 billion, representing 51.3% of the overall sales. The gross profit increased slightly by 1.9% to HKD 1.2 billion, representing 35% of the group's total. Now we may go to slide 12. With increasing number of tourists, plus relative positive market sentiment in the first half of the financial year, the retail revenue in Hong Kong, Macau, and overseas markets recorded growth of 10.1%. With a flat margin of 8%, its segment profit recorded growth of 11.3%. Its wholesale revenue substantially decreased by 80.8% to HKD 136 million because of the reason just mentioned about in relation to changes of scrap gold sales mode. Moreover, due to massive centralized purchases, the segment profit decreased by 18.2% only to HKD 131 million.
The segment profit margin, because of profit arising from massive internal purchases, increased to 96.5%, as the segment profit of wholesale business included profit of inter-segment sales to self-operated shops. If including inter-segment sales in the denominator, the segment profit margin would be at a much more stable level of 5.2%. Continuing to benefit from the new designated supply consultancy services revenue started in the second half of FY 2018, Hong Kong licensing business income grew at 53.9% to HKD 56 million, accounting for 56% of total revenue in Hong Kong, Macau, and overseas markets. Because of other incomes recorded, its segment profit was higher than revenue, leading to a segment profit margin of 100.1%.
In Mainland China, despite this decrease in the number of self-operated shops and decline in SSSG, with the significant growth of revenue of e-commerce business, its retail revenue recorded an increase of 8.6% to HKD 2.2 billion, and segment profit improved by 3.6% to HKD 164 million. Its segment profit margin maintains at a stable level of 6.8%. Due to the increased number of new licensed shops, revenue of wholesale business in Mainland China market rose substantially by 27.8% to HKD 2.8 billion, while its segment profit increased by 23.5% only to HKD 275 million because of the declining gross margin of its gem-set jewelry products in view of much increased sales mix of products with lower gross margin and adjustment of selling prices in response to market price changes. The segment profit margin was at a stable level of 9.7%.
Licensing income increased significantly by 21.7% to HKD 751 million due to increased number of licensed shops as well. With the high fixed cost proportion in its cost structure, the segment profit increased by 23.5%, and segment profit margin improved to 66.3%. Now let's go to slide 14. During the year under review, the Hong Kong market recorded stronger growth than other markets in retail revenue at 11% growth to HKD 7.44 billion. With relatively low gold price that flashed in the first half of the year under review, gold and platinum products recorded a growth of 12.4% to HKD 5.8 billion, while gem-set products recorded an increase of 6.9% growth. On the other hand, Mainland China recorded 16% growth in gem-set and 5.7% growth for gold and platinum products. Therefore, gem-set mix improved to 30% there.
As scrap gold received by customers in Hong Kong no longer being accounted for as sales but processed into raw materials, the scrap gold and platinum sales in Hong Kong and Macau markets recorded a huge drop of 91.3% to HKD 55 million. Our overall SSSG was + 3%, with Hong Kong and Macau markets achieving 25%, while mainland China recorded - 3%. In Hong Kong and Macau, SSSG of gold products recorded 7% growth, and that of gem-set products was + 1%. With the growing popularity of the daily-wear appropriate pieces, such as slim weights in Goldstyle collection, which were grouped under gem-set category. The ASP of gem-set dropped by 12%, while the volume grew by 20%. In mainland China, gem-set recorded a + 6% SSSG, while that for gold and platinum was - 6%.
The ASP of gem-set dropped by 24%, while the volume surged by 45%, the same reason as Hong Kong and Macau market. ASP of gold and platinum in both Hong Kong, Macau, and mainland China increased mainly because most low-weight items have been shifted to be sold at fixed price under gem-set category, and there were good sales growth of wedding pieces, which were at higher ASP normally, especially in the first half of the financial year. Slide 17 shows the SSSG figures in different tiers and regions in mainland China. Overall speaking, gem-set products performed better than gold and platinum products in mainland China in all tiers and regions. That may be because of lower base effect in the gem-set category in the same period last year.
As for our licensed shops in mainland China, the overall same-store sales recorded a single-digit growth of + 3%, and that for gold and gem-set products recorded a flat and double-digit growth of 14%, respectively, which performed better than our self-operate shops by single digits overall speaking. During the year under review, the group recorded an overall single-digit growth in SSSG. We can see strong growth in the first two quarters, but a drop in the last two quarters due to the recent US-China trade war that affected the overall market sentiment. Up to date, Hong Kong and Macau markets recorded a low double-digit drop SSSG for the period from April to the first three weeks of June, while SSSG for mainland China was a mid-single digit drop and a low single-digit growth for self-operate shops and licensed shops, respectively, during the same period of time.
Mainland visitors transactions in Hong Kong and Macau markets when counting UnionPay cards, that may be cash, WeChat Pay, and Alipay transactions accounted for 56.6% nowadays as compared to 57.6% before. We believe mainland visitors use other mediums of payments as well, thus this figure did not represent all the sales from mainland visitors in Hong Kong and Macau markets. Although we saw a steeper drop in overall gem-set ASP, the ASP of diamond, jadeite, gemstones, and pearl products maintained their flattest level in all markets. We saw a mild growth in average ticket size in mainland China. With the 8% increase in revenue, we have total operating expenses of HKD 2.4 billion, which was an increase of 5.4% only. Therefore, the total operating expenses to revenue ratio decreased to 15.4% during the year under review. Rental and payroll accounted for around 70% of our total operating expenses.
There were 25 shops in Hong Kong and Macau subjecting to rental renewal in FY 2019, accounting for 43% of total number of shops we have. The rental reductions for the renewal was an average of 22%. Therefore, fixed rental recorded a decrease of 5.6%, and the overall rental reduced by 4.7%. Besides, overall staff cost increased by 6.4% only, which also grew slower than revenue. Due to the faster-than-expected growth in number of licensed shops, our inventory level went up by 16.6% to around HKD 9.3 billion when compared to end of March 2018. Inventory for gold and platinum increased by 8.2% to HKD 3.3 billion, while that for gem-set jewelry increased by 21.9% to HKD 6 billion, which was because of the increase in wholesale inventory led by increased number of licensed shops.
With an unexpected downturn in the second half of FY 2019, the average inventory turnover days, therefore, grew to 273 days by end of March. In view of the uncertainties of the short-term business environment, the group is taking various measures to reduce the inventory level to a lower level. Hopefully, we may see September 2019 balance to go back to September 2018 level of HKD 8.8 billion. For FY 2019, the group incurred capital expenditures of HKD 934 million, in which HKD 796 million was used for purchase of premises for both Hong Kong and Shenzhen headquarters. During the year under review, the loss of 3D Gold business widened a bit, but imposed minimal impact on the group's performance. Now let's look at the group's future plans and strategies. That's on slide 25.
Despite the uncertainty on macroeconomy regarding the U.S.-China trade war, in view of anticipated considerable growth of middle-class population in mainland China, the group remains optimistic about the mid to long-term business prospects and looks forward to bring our business to a new height in the near future. In our new three-year corporate strategy, we have three main focuses on, one, supply chain management, two, mainland China market expansion, and three, strategic growth. In order to further enhance the group's competitive edge, the group will focus on strengthening supply chain management through various means. We will try our best endeavor to identify right products at right price and allocate products to the market at the right time by implementing higher level of automation and data management, improving factory productivity, cutting inventory turnover period, establish strategic partnership with suppliers, streamlining logistics and distribution, and intensifying support to licensees.
Hoping all this will help to promote our business development and strengthen our operational efficiency. In order to cater for different tastes of customers, the group will adopt multi-brand strategy. In light of customers' demand for fashionable and personalized products, we have developed BQ and Goldstyle into separate brands. BQ rides on the DIY concept, allows customers to mix and match charms for their unique styling. The first independent store was opened in Shanghai in May 2019. Meanwhile, Goldstyle offers gold products with doubling of heartiness, classic retail kind of stylish looks, has been well received by the market. We target with the chic and tasteful middle class, and the first store was opened in Xi'an this month. Both brands target at opening around 10 shops each in mainland China in FY 2020, and we will build their brand awareness through various means, especially social media platforms.
As mainland China remains to be a market with promising growth potential, we will continue to seize market opportunity by enlarging the market coverage there. Our target is to net at least 150 shops in mainland China for FY 2020, which includes approximately 20 shops of our new sub-brands, BQ and Goldstyle. Expansion will remain in lower tier cities via licensing model. We will also continue to further develop our e-commerce business in target to increase its revenue by 20%. The group will continue to explore opportunities to further expand and reduce risk asset, and we target to open no more than three shops net in Hong Kong and Macau in FY 2020. The CapEx budget for FY 2020 will be around HKD 100 million, which will be used for shop renovation, township plans, office renovation, and purchase of equipment.
With the rapid development of e-commerce, we achieved remarkable growth for our e-commerce business in the past few years. In FY 2019, the revenue increased by 60.9%, which was much higher than our full-year target of 13% growth. The revenue accounted for 22.9% of the group's retail revenue in mainland China, with a gradual growth in ASP. We currently have 12 platforms, including Tmall.com, JD.com, and VIP.com. We took the initiative to offer video, chat, brokers, customer support, and quality assurance certificates to platforms to enhance the customer experience and consumer confidence. We continue to promote sales of affordable luxury jewelry products to expand our footprint in the younger customer market. In the year under review, we launched a new logo for Lukfook Jewellery, together with the red bean color tone, the interior of shop design, display, packaging, TVC, and corporate materials.
We wish to bring our target audience a younger and more stylish look and feel. The group also continues to capture the rapid growth of online marketing by various creative manners. Apart from being an official partner for Tencent's online mobile game, King Pro League to Overwatch League Champion Reign, we made use of trending social media platforms, including Xiaohongshu, Douyin, and online fashion magazines to increase our brand exposure, extend our footprint in the young consumer market. Lastly, we launched our anniversary promotion this year by opening Hong Kong-themed pop-up shops and launching the Share Love and Fun challenge on the popular short-form videos platform, Douyin. Both our shops in mainland China took part, and it was well supported by KOLs. Up to now, the challenge recorded a total of over 3.8 billion views that successfully raised brand exposure to the millennials.
To conclude, with the continuing uncertainties on the macroeconomic environment arising from the U.S.-China trade war, together with the high base effect in the first half and the low base in the second half, the group therefore expects stable growth in terms of revenue and profitability in FY 2020. However, we are still optimistic in the mid to long-term prospects of luxury markets in mainland China, relying on the solid growth potential of the middle-class population. This is the end of my presentation, and thank you for listening.
Thank you, Kathy, for the presentation. Moderator, can you please open the floor for Q and A, please?
We now begin our question and answer session. If you have questions for today's speaker, please press 01 on your telephone keypad. You will enter the queue. After you are announced, please ask the question. If you find your question has been answered before it is your turn to speak, please press zero two to cancel the question.
Meanwhile we are waiting for the questions. May I invite management to share more on the rental situation, please?
Okay. For the financial year 2020, we are going to have 22 renewals for the leases in the Hong Kong and Macau markets, and we expect that to be something like a low single-digit drop overall speaking for those renewals. It is accounting for about one-third of the total.
Thank you. How about the new shops in Hong Kong and Macau? Will they be in residential areas or prime locations?
Most of them will be in residential areas, actually, for those new ones.
Hi, moderator. Any questions on the line, please?
Question is from Kathy.
Hi, Kathy Nancy.
Hi.
Thank you very much for taking my questions. Firstly, I hope to chat with you in terms of your performance for FY 2019. In terms of sales trend, especially in the second half, how has it been by major tourist districts? Secondly, Chris mentioned about same store sales trends for the current quarter up to the third week of June. Could you tell us a little bit more as to the impacts after the second week of June, given the protests, in terms of your same store sales for Hong Kong, Macau? Would we also have a little bit more guidance in terms of the same store sales growth for Hong Kong, Macau, as well as China for the full year of FY 2020? Thank you.
In fact, for the sales trend, actually, when we look at the mainland visitors proportion, especially when counting those four types of payment media, actually in April and May is something like on a kind of increased level, increased percentage, but not really a kind of dramatic one. Basically, we still expect our Hong Kong and Macau markets revenue coming from mainland visitors to be something like around 60%. Should not be too much change. You are talking about the latest trend. I guess it is more in relation to the gold price increase. Actually, gold price increased quite much in recent days, so that we can see SSSG for gold sales drop quite much. I think the gold price impact is more than the impact of the protest.
I guess the impact of the protest should be something like maybe short-term and kind of regional. For the full year SSSG, because we have a high base in the first half and a low base in the second half, so we may expect something like a drop in the first half and maybe a growth in the second half. That is why we target something like a flat-ish SSSG for both Hong Kong, Macau, and mainland markets for the full year.
Right. Thank you very much.
You are welcome.
Our next question is from Chris Leung at Templeton.
Hey, Kathy.
Hi.
Hi. Can I ask about contribution from the internet business? Maybe I missed it. What was the contribution in the past year?
Oh, it's contributing 22.9% to the retail revenue in mainland China.
Oh, okay. Got it. Okay. How about the gross margin, like for the gem-set jewelry gross margin? Because we have seen some recovery in the second half last year. Do you think the gross margin-wise for I mean, the gold price increased, and in terms of jewelry margin with the second half improved. What is your thoughts on the gross margin-wise for this year?
In fact, for the gem-set gross margin, we talk about something like an adjustment of wholesale price in relation to the market price changes since the second half of FY 2018, and that led to a decrease in gross margin in gem-set area in wholesale business, actually. For the retail part, actually it was quite stable gross margin. Basically, that's why we saw a drop in the second half of last financial year. This situation actually continued into the first half of this financial, FY 2019 as well. The second half, actually, the situation improved a bit because we have further adjust some of the wholesale price upward a little bit so that this is a bit better in the second half.
In fact, apart from the lower gross margin of gem-set as comparing to previous years, apart from this reason, actually, there is one more reason. Because we have very good sales of Goldstyle product, which is a fixed price gold product, and we group that under gem-set category. In terms of retail margin, it is quite similar to others. In terms of wholesale gross margin, actually, because it is selling at a lower gross margin than the diamond products. Therefore, because its sales mix grew very much in FY 2019, that would lead to a drop in the overall gross margin in the wholesale area for gem-set. Basically, maybe you can see that for full year, we have a 35 point something percent gross margin. That is slide 11, actually.
For gem-set jewelry in FY 2017, it dropped to 33.8% through last financial year, and then 31% to FY 2019. I guess maybe it will be something like a 30%, maybe 31% kind of this current level in future. It all depends on whether we can increase the sales mix for diamond again in the wholesale area so that it will help to increase the overall wholesale gross margin for gem-set jewelry.
What about gold jewelry?
Yeah, gold jewelry. We always talk about gold products having quite a stable margin in the long run because of the daily replenishment system. Although you can see gold price fluctuating all the time, and we can see more volatile gross margin changes in these short periods of time, full year wise, you can see that we've got very stable gross margins for gold products. Actually, when you look at slide 11, you can see that we've got 15 something percent for the last three years. Maybe we can expect it to be something like that. For the first half of FY 2020, you can see that the gross margins of gold-- For the gold prices have been increasing recently, so we may expect a high gross margin for gold price in the first half of 2020.
If you can remember, actually, in the first half of September 2017, I think, it's got a very high gross margin for gold products because gold price increased a lot. Within that period of time, that half year, actually, we've got gold sales drop by 30%, but the GP dollar actually increased by 14%. Basically, sometimes, even though we have decreased sales, if the gross margin or the gold price is really high, that would be helpful to increase the overall gross profit. It depends on how all the chemistry works together to see whether we have improved profits or decreased profits altogether. It's really hard to predict the performance-
Yeah, yeah.
in respect of gold.
Yeah. Can you repeat again, the time period that you saw last time, the gross profit dollar increased by 14%, when was that?
That is the first half of F Y2017. The gold price increased by 15%, I think, in the first half, so that we got a very high gross margin for gold. That led to a drop of sales by 30%, but increase in gross profit dollar by 14%.
Got it. Okay. Thank you.
Next question is from Emily Lee, Annenberg Murray. Please go ahead.
Hi, management. It's Kathy Annenberg.
Hi.
I'm sorry, but I think I've missed the year to date or quarter to date same-store sales. I only heard the full year same-store sales target. Could you give us some color as to how it's trending for both Hong Kong and China?
In fact, we're going to announce the first quarter SSSG in mid-July. We have put into the announcement saying that actually, from April to first three weeks of June, we have a low double-digit drop same-store sales figure in Hong Kong, Macau markets, and mid-single digit drop for self-operated shops in mainland China, but low single-digit growth for licensed shops in mainland China. Basically, that's the first quarter's. I think it's almost like the performance in the first quarter. You may remember that actually we've got high base in the first half, low base in the second half. That's why we should expect kind of maybe a drop in the first half, but the growth again in the second half. That's why altogether, we expect a kind of a flattish growth for all markets in the full year for FY 2020.
Got it. For my second question, regarding slide 20. I think we've done really well controlling our operating expenses, which led to operational leverage and margin expansion on the operating level. If we were to look at the other operating expenses, it was actually up by like 23.5%.
Oh, yes.
I was wondering if you can share with us what is embedded in that part and what sort of the biggest growth increase in the slide 19.
Yeah. I think that's mainly because we've got a 20 something millions of, kind of, bad debt provision in the first half. That's in relation to some kind of a trade receivable. That's just a provision, so it doesn't mean that we are going to have a real bad debt. So it's kind of a very specific provision.
Is it the fact that-
It's kind of one-off.
Is it coming from licensing fees?
No, from department stores.
Oh, okay.
Just in relation to several workshops.
All right. Got it.
We charge licensees on a cash basis. We will not have receivable from licensees.
Got it. Just one more question from me. I saw that you guys are opening Goldstyle standalone stores.
Yeah.
I'm just wondering, is this going to be operated by us or is it going to be operated by licensees?
The Goldstyle concept store is in Xi'an and it's operated by licensees. The BQ concept store in Shanghai are self-operated. We're going to open one more Goldstyle concept store by another licensee coming soon.
Okay. I heard Kathy saying that for the wholesale margins, it is actually somewhat lower comparing to that of the diamonds. If we were to break this up and then have standalone stores being operated by licensees, are we worried that it may further drag on our margins for the gem-set side?
In fact, we looked at the blended margin. It's not really affected because although we have a lower gross margin in wholesale price, we actually charge them higher licensing fee, so that it's kind of offsetting the impact of the low gross margin. That's why when you group the wholesale and licensing together, we don't really see a real margin drop in terms of operating level.
Okay. Can I just ask one more thing about the first quarter performance? Are we seeing more of a weakness coming from the gold or gem-set?
Of course, with the high gold price nowadays, we will see low gold, a quite tremendous drop in the gold sales, actually.
All right. Thank you so much, Kathy and Nancy.
You're welcome.
Once again, please press 01 on your telephone keypad to ask a question. The next question is from Hugo Xin at Shenwan Hongyuan. Go ahead.
Hello, Kathy.
Hi.
Just one question. May I know the holding gain for full year ending in March?
It is HKD 177 million loss because of low gold price. You are taking HKD 177 million. You are taking this away. Actually, we should have 11% growth in the gross profit.
Okay, got it. Thank you, Kathy.
You are welcome.
No questions on the line. Please press 01 on your telephone keypad to ask a question. The next question is from Mavis Hui at DBS. Go ahead.
Hi, Kathy and Nancy. I just want to check on those performance. As per your slides on page 23, it seems that the overall
Page 23. 3D Gold?
Yes, exactly.
Sorry, can you repeat the question again? I cannot hear clearly.
Sure. My question is that, how do we see performance of 3D Gold going forward? What is the expectation? Because as per slide 23, it seems that overall P&L has deteriorated a little. Could you also
Yeah.
Give me a little as well? Thank you.
In fact, actually, they've got a profitable operation in mainland China. But in recent year, actually, the kind of widened loss will be more in relation to the exchange loss due to the appreciation of renminbi. So basically, that's why we expect that to be a near turnaround position, not too long.
Right. I see. Thank you. Apart from 3D Gold, I also want to check with you on your e-commerce performance into the current quarter. Do you have any targets for e-commerce growth for this year?
For the whole year, we targeted to grow by 20% in terms of the top line. So far in this quarter, we have been on track.
Thank you.
Next question from Chris Leung at Templeton, please.
Hey, hi Nancy. Just a follow-up question on your new three-year plan, I think. One angle you mentioned is supply chain management. Is that okay to elaborate more in terms of how are you guys going to do to improve the supply chain?
In fact, actually, we see that the supply chain management being a very important element in terms of improving our operational efficiency. That's why we put our major focus in the supply chain management in coming three years so as to help in improving our business development. Basically, we try to kind of implement. Actually, that's on slide 26. So we have the six areas of work that we are going to do, like enhancing or a higher level of automation and big data management and improve factory productivities, improve inventory turnover periods.
We are using a lot of efforts in decreasing the inventory turnover periods, especially both in the retail part, in the wholesale part. And we want to establish strategic partnership with suppliers and streamline logistics and distribution, and enhance support to licensees as well. These will be the major areas in relation to our supply chain management adjustments.
Okay, thanks.
Hopefully, with all these adjustments, we can help to have right price for the products, and we have right products designed for the, or selected for the markets, and then we can offer the product to the market at the right time.
Okay. For your China year-to-date same store growth for your licensed shop, is it also a similar trend that the gold jewelry is underperforming the gem-set or gem-set is still performing better?
In fact, they have positive growth for both categories.
They have both. Which one will be stronger?
Gem-set will be stronger.
Okay, got it. Thank you.
And once again, if you have any questions, please press 01 on your telephone keypad. Next question
I guess. Oh, sorry.
Sorry. Next question is from Tony Lee at China Galaxy International.
Hello, Kathy and Nancy.
Hi.
Hi.
I have a question on the debt management. Could you please give us some guidance on the net gearing ratio for FY 2020 because we are currently in net debts right now. Could you explain why net borrowing increased so much in FY 2019? Thank you.
Yeah. In fact, when you look at our net cash position of almost HKD 1.4 billion in last financial year, actually, we have purchased HKD 10 billion of headquarters in Hong Kong and Shenzhen. Then, we have increased inventory level of HKD 1.3 billion. Altogether, that's why we turned the net cash position into the net borrowing position in FY 2019. But if we can successfully decrease the inventory level to kind of a level of September 2018, that's about HKD 8.8 billion, then we should see a net cash position again in end of 2020.
Thank you.
Next question is from Ricky at Point72. Please go ahead.
Hi, Kathy, Nancy, can you hear me?
Yes.
Yes.
Hello. I have one question. Some of our competitors have mentioned that the traditional Goldstyle products are doing very well in China now, and it is increasingly becoming a bigger part of their offering in China. Just wanted to get your thoughts on this trend, whether you think it is something that can last and whether it is an opportunity that we can pursue from our front as well. Thank you.
The customer taste has changed. I think what you are talking about is the antique style type of gold product. Yes, it is getting very popular in the past. It has been very popular in the past one year as well, and we actually carry this product as well, and it is selling very well. On the other extreme, we actually have the Goldstyle product that looks more like 18 karat gold, so it is more fashionable.
It seems that the customer's taste has changed over the years, and that they no longer like the type of gold that we had in the past, like the bangle and the traditional type of gold product that just very stock. They need to have some designs and some kind of a new technology embedded in the craftsmanship as well. As Kathy mentioned, the gold price has been quite high in this quarter, so that actually might affect the gold demand a bit.
I see. Is there any measure, like how much of our gold sales is from these kind of products, and how big do you think this can be for us?
You mean the mix coming from the gold sales?
The mix coming from the gold sales.
Yeah, it's hard to tell, but in terms of last financial year, FY2019's mix inside the wholesale revenue actually increased very much. It seems to be from 10% growing to something like 23%, it's a real huge growth. Basically, because we are putting some effort in encouraging the sales of diamond product as well. If it has been done successfully, then we may be able to increase the diamond sales mix again, so it would be helpful to improve the overall gross margin. But for the Goldstyle product, I guess, it may be kind of a long-term product that can be sold in the market.
Of course, having a higher base than the future growth may not be that much. But the demand should still be there because it's like kind of a stylish and a trendy kind of product that can be used as a daily wear jewelry. So basically, it's really well received by the markets. And, I guess, we can sell that kind of product in the long run, but then it may not be growing that much as before.
Understood. Thank you so much.
Welcome.
At current, there are no more questions. If you would like to ask any questions, please press 01 on your touch tone keypad. So there are no more questions. Well, I'd hand the call back over to management for closing remarks.
Thank you, moderator. As there are no more questions coming up, I would like to thank you, Kathy and Nancy, for doing the presentation and the call with us. And thank you very much for joining the call, everyone. Have a nice evening.
Thank you. Bye-bye.