Earnings Call: H1 2021

Aug 10, 2021

Good afternoon, ladies and gentlemen. Welcome to Jazhong Liu International Limited 20 21 Interim Results Conference. I'm Loretta, the Director of Ctrip Finance. Let me introduce our management in this meeting. Doctor. Gary Chen, our Executive Director and COO and Mr. Mark Ellen Roy, our Executive Director and Legal Counsel will join the Zoom meeting. After my presentation and A session. And just a quick message before we start the presentation. Our Chairman and CEO, Doctor. Peter Lau is engaged in another meeting at the moment. So he may or may join us a little bit later. But in the meantime, Gary and myself will be driving the meeting. Thank you, Lorita. Thanks. Thank you. Let me start my presentations. For the unaudited income results for 2021. Okay, the good sales for the first half of twenty twenty one were RMB1681 million represent an increase of 19% and due primarily to improved sales on the back of the last year's loan base. And the gross margin grew by 2 0.4 percentage points to 57%, attributable to fewer discounts. Operating expenses recorded a further decrease of 2.9% and was 54.1 percentage on sales. Product adjusted income tax attributable to the company's shareholders was CNY60 1,000,000 compared to a net loss of CNY175 1,000,000 last year. If exclude the late impairment provisions for the right of use assets and the property value and equipment, the net profit for the period would be CNY62 1,000,000 compared to a net loss of CNY104 1,000,000. On June 30, 2021, the cash and bank balance, net of bank loans was CNY932 1,000,000 With the increased sales and stable merchandise inventory balances, inventory turnover on costs decreased by 14 days to 124 days. The merchandise inventory mainly comprised Evergreen's and in season items. Basic earnings per share were HK0.038. The Board of Directors has declared an interim dividend of HK0.065 per share for this period. Because the group sales rebounded with continuing uptrend driven by the Gulf Cooperation Council and also the Southeast Asian markets. In the Q1, we got the sales improved by 2.4% and the 2nd quarter, we got a 44% improvement. As you can see from the diagrams, we got Taiwan and Hong Kong, the sales were decreased as compared to last year. Actually for the Taiwan, because of the COVID, which happened in mid May, because the sales significantly declined. And for Hong Kong, we have already closed 12 stores, so the sales declined, but actually the comp store sales have actually increased. The offices channels record increase in sales and gross margins and the improvement in the wholesale to franchisee was mainly from the mainland China attributable to the store increase, we saw a big teen store increase during the period. The OpEx decreased by 2.9% and was 54.1% to sales. The improved liberating was due to the sales increase, cost cutting and cost of non performance stock. Operating expenses to sales ratio actually returned to a more rational level as compared to last year, which is at 66.3%. All regions record an improvement in tariffs, which turned around from net loss to last year to this year's progress. Taiwan's improvement was below our expectations due to the outbreak of the COVID-nineteen from mid May. The group inventory remained healthy with the balance slightly increased by 1.6% year on year. The inventory turnoff and cost decreased 14 days to 124 days. There was an increase in South Korea's inventory which also in light of the business performance. That inventory as suppliers and franchisees are not our legal liabilities, they are not our stocks. The group is responsible for checking their levels to ensure we are to not do an excessive off balance sheet inventories. Our system inventories remain healthy with a stable balance. The cash on bank balance net of bank loans was RMB932 1,000,000, a slight decrease of 5.8 percent. The cash position remains solid. Okay, we will have a look for the external business environment, we remain extremely volatile and unpredictable due to the COVID-nineteen pandemic. There are lockdowns and strict social distancing and movement control measures in most of our Southeast Asia markets, Taiwan and Mainland China cities. The lockdown and other measures may disrupt the supply chain in terms of productions and delivery. So it is difficult to predict the group size and profitability for the second half of the year. To cope with this uncertainty, action has been taken to deploy more resources on online business and focus on improvement in gross margins. We will also continue to have the operating cost control including for negotiating rental transactions and improved operational efficiency. There are now 9 stores in the new franchisee market in the applicant's continent, which is almost double last year. We will continue to develop new franchisee in the emerging markets. To avoid any disruptions to the supply chain, we have imposed our directions between markets so as to watch all of our under stock in different regions. Cash management is still the extent of long term sustainability. We will focus on working capital control through account receivables and inventory management. In addition, we will have we are also cautious about our capital expenditure. For those known strategic locations, we will postpone the capital expenditure on store upgrades. This is the end of my presentation. You may raise any questions. Thank you. Thank you, Loretta. And if you have any questions, you can type and we will respond the questions 1 by 1. Before we receive any questions, I want to give you a brief that our first half performance was improving. You see that our sales have improved by 20% year on year. Of course, last year's lots of regions was under lockdown. At the same time, we managed our margin quite well that we're up 3 percentage points over last year. And at the same time, all the business channels, including offline and the online, we also have the increase in the GB percentage. And our financial position is still solid. And as a result, we still have the dividend of $0.065 paid out for the income period. Niall, he's referring to the conditions will likely to improve further. What's Mr. Belize, well, in the meantime, I'll we'll get back to you on that question. We'll just have a look at Page 15. But maybe I'll move on to Manuel's question regarding the overseas markets right now. So Manuel has said that the target whether we have any target growth numbers for the stores in Africa this year and over the next 3 to 5 years? And at what stage would you show this at a separate segment in your accounts? Okay. So right now, in terms of the African continent, we're getting a lot of traction. We've got 3 stores currently in Kenya. We've got our online business only in South Africa. We've got our 6 stores in Mauritius. And we're also moving into other markets as well. In terms of growth, we're going to add another 2 stores in Mauritius. But over the next couple of years in 2022, we're actually looking to make further strides in Africa, hoping to add another 2 shops in Kenya, another 2 shops in Mauritius and 2 in Egypt, 1 in Tunisia. I think the key question here is that we started our journey in South Africa and in Mauritius and it's proven to be workable and successful, especially in Mauritius and because other markets in the African continent have seen that initial success, they are now joining in. So we've got a couple of interesting markets that we're moving into the African continent. As I mentioned earlier on, in Kenya, initially, we started with a shop in shop model, but the franchisee is sufficiently happy that he's going to open the 1st standalone store just dedicated to Giordano. We've also got Ghana that we signed and we announced recently as well. Our franchisees now making preparations to fully launch the brand and his stores. But I think one of the more interesting markets in Africa is Egypt. As we all know, it's a very important market. Northern Africa, a very, very big, very, very influential. The local infrastructure and the local requirements are very, very strict. Traditionally, it's taken brands, international brands a long time to obtain the necessary approvals. And we experienced the same thing. So it's taken almost a year to obtain the necessary requisite approvals, but we have that now. So we're looking forward to our franchisees development in that market as well. In terms of a separate line, I think we'll definitely study that. I think once we gain a bit slightly more traction, we can consider bringing out a separate line for those markets. Thank you. We go to the 3rd questions from Billy. Billy, you want to ask about the income dividend. You're saying that we have doubled the income dividend and doubled the profit at the income. Can you tell us the rationale and what to expect from the full year dividend? First, I want to clarify that we have not doubled the profit at the interim because last year we report $175,000,000 loss including $71,000,000 of provisions on the ROU asset. So last year we're making loss and this year we swing from a loss to profit of $60,000,000 And back to our dividend philosophy, we reported to the shareholders and analysts for few times that our policy is very simple. We want to we will return the surplus cash back to the shareholders. So, of course, how to calculate the surplus cash, we definitely need to do some cash projection in the coming 6 to 12 months time. And once we believe that that amount become surplus and extra money and we will return to the shareholders. And this year's income, the dividend is about 6.5%. If you ask me to anticipate and project the futures dividends or full year dividend, I won't say I won't give you a numbers. But what I can say is that we still believe that we can squeeze cash or money from the working capital. And Loretta mentioned about our inventory level. We have 40 days, 14 days ITOC less than last year's. But if you're asking if I satisfied with the inventory level, I'm not. So we believe that we might further reduce our inventory and to squeeze out more cash. And if we believe that we have extra in the surplus cash, we will definitely continue to return to our shareholders at the final dividends. Anne, hi. Share with you want us to share with you about the 1st tilt outlook and the what is how is the business of different markets for Capital China and Southeast Asia regions. And of course, the our sales impact by the new wave of the pandemic, especially in the Southeast Asia regions and Taiwan. For example, in the meantime, most of the Southeast Asia regions such as Malaysia's Indonesia and Thailand with dams under lockdown or partial lockdown is definitely a hit ourselves. And the Taiwan, the new wave of pandemic start in the middle from the middle of May is also hurt our business over there. But we see a recovery of the Taiwan business in the recent weeks. And it is very hard for me to give you my outlook, especially in terms of sales in the 3rd Q or second half of the third Q or the 4th Q, because I do not have a crystal ball to predict how the pandemic would develop. But what we can do is that we manage well our operating expenses, our working capital, make sure that we're not overstock and this is what we will continue to do. But as Generous became, we believe that once the pandemic start to ease, rebound would be very substantial. This is what we believe in it. Yes. So maybe I'll jump in here and just handle Billy's question and also Niall's question. Niall, thank you for clarifying what you're referring to earlier. Maybe I can try and kill 2 birds with 1 stone at this juncture. Is COVID a hiccup? I mean, it's a very long hiccup, isn't it? I mean, it's easy to say that we hope it will go soon, but it's very, very hard to tell impossible right now to ascertain just how long the impact will be and how heavy the impact will be. But I just wanted to say that regardless of the pandemic, in terms of the markets, which are gaining strength on which are most promising, I think right now there's 3 markets that we see strength. 1st of all is the GCC or the Middle East. I think the markets generally speaking, the people there are consumers. They're getting used to it. They've been hit a few times already. And I think they're getting a bit of fatigue right now. So they're raring to go. And you can see the measures there. They're trying to introduce measures to bring in more tourists back in. They've got some big events coming up in the Middle Eastern region, the World Cup and what have you. You. So we have a very strong team in the Middle East and they've tackled the impact of COVID really well and they're making progress and following Ramadan. They've also demonstrated a good growth. So Middle East and other GCC is one area that we're paying attention to and that shows a lot of promise. The other one is Indonesia. I mean, despite the impact of the new latest wave of COVID, they're still making good progress there. And again, we have a very strong management team there. It's probably right now occupies the highest brand perception amongst the group together with South Korea. So it's a big market and one that we've got a lot of traction in. So that's another market that's showing promise for future growth. And the other one is Taiwan. I mean before they were hit by the latest wave of COVID, they were showing also a lot of promise. In fact, Taiwan was one of our strongest markets immediately before they were hit. We've got a very young team there, but we've got a very strong young General Manager and he's leading his team very well. So I think these three regions in the medium to short term will show a lot of promise and we're paying close attention to. In terms of the surroundings, as now you've mentioned there, that's what we're aiming for better sales gross margin, operational efficiency and rental reductions. I mean these are traditional Giordano Fortes. They are strength. Being nimble is what we're famous for and it's actually what's helping us very much to survive during this tough period even when our peers along them are disappearing. We are actually pulling through because of that ability to be in and work stable. So that coupled with the other factors that you've mentioned, we think in the future in the near future, there's still a lot to look forward to. I think at this point, I should also mention one interesting thing is that COVID has really changed consumer behavior and we're not just talking about going from offline to online. I think the way consumers think generally speaking has changed significantly. The way they see brands is very different. They're actually now looking for some brands that have got stories behind them, brands that are more grounded, that are more basic, that are more solid, not so flowery, not so sort of out there. So what we stand for as a brand really resonates with them at this moment in time. And I've heard that from many different regions. So all those factors added together, we're confident that we can ride this wave and continue developing in the next couple of years. Let me add more colors on top of what Mark said about improving the operating efficiency. I think the COVID actually giving us a very good chance and opportunity to review our entire work in process. For example, how we can simplify our process and in terms of the details, in terms of the use of human capital and at the same time, how we can strengthen the potential and the team capability and that's very important. Most of the market or some of the market in the meantime are under the possible lockdown or total lockdown. But I think everybody's mentioned about the online business. So our local managers, our management, of course, are kept pushing the local team to develop our online business and through different platforms. And as a result, we still managed to record a decent growth year on year. And don't forget that last year's 2020 versus 2019, we have doubled the sales on the online business and this growth momentum will continue. So we will continue to do it. So yes, with the improved sales and the gross margin, at the same time, if we can simplify our process and well control our operating expenses, we definitely believe that we can enhance our profitability in the coming years. But of course, there's a lot of hiccup from time to time and this is very difficult to predict. But if we believe that when we strengthen our entire company's competitiveness or capability, once the economies and the corporate situation ease, our rebound would be very, very strong. And the and you want to ask about the gross margin, right, the gross profit margin trend in the second half in twenty twenty two and the driver and what is the driver for the gross profit margin trend. Of course, how we can improve our profit margins or gross profit margin, we definitely will increase our selling prices. And just 2 things to improve our selling prices and the gross margin is that 1, we have to avoid overstock. If we overstock, we are forced to do a lot of this task and eventually the gross margin down and also further brand in the long term. 2nd, we have to be so called freight response to address the consumer need. Let me give example. In the last 2 weeks or 3 weeks' time, there's Olympic Games and once Hong Kong getting a gold medal or silver medal or brown medal, we launch a lot of the Olympic T shirt immediately. Of course, we have a very good supply chain management and that's why we can launch the merchandise in the shops are very quickly and we price them up quite expensively and the response is very good. And at the same time, we also launched some of the Olympic T shirts for the foreigners in Hong Kong, especially that we have a lot of Indonesian and also Filipinos people working in Hong Kong and we launched some of the Olympic t shirt and the response is very, very good. And you can go to our corporate website and see our news and you can see more details. So I think avoiding overstock and providing our customer with the right merchandise is the 2 ways to improve our gross margin. So we are optimistic to the gross margin in the second half of the year and also 2022. And that exactly the direction that how we can deal with the crisis in the meantime, because when the cities or countries are being locked down, even you do a lot of discount, the traffic is almost the same. So what we can do to improve is to improve our gross margin and of course, we call it ATV, the average transaction value to sustain our profitability. Thank you, Ann. In yes, you also asked a similar question at Ann, which is about the gross profit margin for the online house. Zane, 5 years or 10 years ago, we most of the people are asking for something cheap in the online, but the people change in terms of the buying behavior even for the online shopper that the people not only buying for something looking for something cheap at online, they're also looking for something right at online. So the things will also be applied to online. We should avoid overstock with the online business. At the same time, we have to provide the right merchandise to the people. And that's the reason why we can continue to improve our gross margin. Yes. I think I should add at this moment as well, Ines, actually, if you look at our and you know our company very well. Traditionally, our online has been strongest in Mainland China. And we've only really just started our journey in terms of non China online stores. So the beauty of that is we still actually have a lot of room to grow and improve. We're gaining traction in places like Taiwan and other Southeast Asian markets. And we've also become a slightly more savvy. So we understand with our local partners as well how to use international platforms, local third party platforms and our own proprietary platforms. So in that sense, there's still actually a lot of room to grow and that's something to look forward to as well. Yes. Thank you. And you have a follow-up questions about the China market. Are we making loss from the direct operated stores? And do we have a plan to completely shut down the direct operated store? Okay. My answer, I remember that Ann, you asked questions in the last announcements meeting that will we make a profit in China and our response is positive. To be frank, we are about doing breakeven up to May, but the COVID the new wave of COVID hit the China's since the second half of May and our sales are dropped quite dramatically. And that's the reason why we maintained a loss from the DOS. The we completely shut down the DOS. I don't think so, but we will definitely review the situation case by case and shop by shops. I don't know if other people have been follow-up on Giordano's for a long time. So let me recap our channel strategies in China. We're definitely doing the online and the offline business. And for the offline business, we have 2 channels. 1 is the DOS and another one is the wholesale. And of course, our wholesale is a strategic direction for the mainland China business. And as a result, more than 70% of our shop in the meantime are operate under franchising. And it's about less than it's about 25% of our shops is actually operate under our own. Yes, we definitely are making some losses from there, but I think it's manageable. So at the same time, we are not only decided if we cannot make a profit, we would decisively close down the shop. But we have still have another channel is that we can do a conversion from the DOS to the franchising. In the last few years' time, we have a few DOS CD, which successfully converted to our wholesale regions. So we will continue to do it. And we believe that that move, that conversion is actually win win for the company and also for our franchisee as well, because we always believe in the localization. And we also believe that the local people, local franchisee, they understand the market more than us. So I think this is a so called win win tactics to convert our POS regions to the franchise regions. So with that we are negotiating with our franchisee and we will have you more quick news. Yes. And I think you might remember a couple of years ago, our CEO Chairman, Peter, actually joked and said one day it would be nice if we were a pure brand management company and we had all our jobs run by franchisees. So I mean that kind of hints at what would happen in an ideal world. It doesn't just apply to China. But I think on the point of the China franchisees, I think one thing we should add as well is that if you followed us for long enough, you guys remember that a lot of our franchises in China actually long standing franchisees that have been with us for many, many years. And a lot of them are actually going through a transition now whether handing down the business to their children or actually going through a process of becoming an enterprise and moving away from the entrepreneur model to an enterprise model. And that's actually taking some time as well. So we're doing our part helping to coach them, helping to give them support, so that when they have the right infrastructure and framework in place, then hopefully that will also help with transitioning the shops from DOS into franchise the franchise model as Gary was mentioning earlier on. Yes. Maybe I can put more colors on it. We have few brands in the group. We have our Gerdano functional brands, including Gerdauno Juniors. We have Gerdaun Ladies. And you might know that our Gerdaun Ladies brand is actually targeting at middle to high end consumer, which our gross margin and even the net margin is better. So to tackle the 1st tier city where the DUS locate, where we use Jadao ladies. And for example, the Shanghai and we also have plan to develop our Jadao ladies in Guangzhou and also Shenzhen. So in terms of the DOS, this is the way how we can deal with the situation. Okay. Thank you, Anne. And Billy, what is your planned CapEx for the year? First of all, I want to update you about the CapEx capital expenditure used in this 2 years. I think we are in a very controlled manner. As reported by the Loretta in the announcement, we will do the renovations and for some strategic locations because it is very difficult to predict which city is going to be locked down. And if we spend a lot of money on the capital expenditure, it would not be very useful. So we will be very controlled in terms of the use of capital expenditures. Then the last I think we spent about $30,000,000 last year, right? Yes. Yes, dollars 30,000,000 last year and this year is about the same. So if you ask me that the full year, capital expenditures amount may be about $50,000,000 to $60,000,000 And I'll give you some update. We used to be spend about $100,000,000 in terms of the capital expenditure. So we are about half comparing to the normal period of time. Of course, we have to be innovative in terms of the doing a renovation or even when I say that we're not doing innovations or we're not using a lot of capital expenditures on some non strategic location, it doesn't mean we're not we're doing nothing. We will mention to our team that we have to do the makeup, Okay. For example, the poster, maybe the wall colors, maybe the window, we definitely will spend the money on this. So to make sure that when the customers are passing by our shop, they will be looking nice that definitely we will do it. But if you ask me about the planned CapEx, I think I give you the numbers already. Thank you. So, while we wait for any last questions to come in from you guys, maybe I could also just provide a few other updates as well. First of all, I would encourage you guys to visit our corporate website. The new section has been revamped. We've used the last couple of months to update things. And now you will see that we are releasing regular news about the company, both in terms of our community outreach more on the ESG side, but also actual campaigns and other developments that are taking place within the group. We used to issue those on Fridays, but we've just changed that. Today is going to be the 1st day. We actually change it to Tuesday. So every Tuesday, we'll be releasing news items about the company to update all our shareholders and all our stakeholders. So I highly recommend that you guys pay a visit there. You might actually see a lot of news pieces that you may not have noticed or seen before. So please do visit. The other thing, I think just to sort of a general remark is that we're fully aware that to survive COVID and to come out stronger, of course, we have to be very cautious. And of course, we have to be very careful controlling our expenses and we have to very nimble, very lean. But we are not we're also mindful of the fact that our stakeholders and management themselves that we also pay attention to opportunities as well. Opportunities and creating opportunities are just as important as maintaining a very lean operations. So on that front, there are developments that are constantly taking place. So for example, because of COVID and because of how hard the markets have been hit, a lot of our peers are actually disappearing and this freeing up a lot of talent as well as shops. So what we're seeing is that we now actually have a much more talented pool of professionals be it at shop level or at corporate level that are available to us in the market. And the same goes for the shops as well. We're seeing a lot of luxury brands and other brands vacating their premises. And now the landlords are actually more willing to talk to us and offer us nicer shopping spaces and shops as maybe Gary can talk about that a little bit later on. But that will also help enhance the brand perception and the positioning as well, which I think for the long term is also very beneficial. And of course, we mentioned earlier on, we're constantly looking for new opportunities in new markets. We've always fared better in new and emerging markets. And so my team are working very hard looking for those new opportunities. We've got a bit of traction in Africa. Like I mentioned, we're quite excited about Central Asia, where we've just signed our first franchisee in Uzbekistan. We're going to keep looking for those opportunities. And of course, online as well, as I mentioned to Anne and InnoCa a little bit earlier on, we've actually been a little bit slow to the game. But in a way that's worked out slightly better for us, because we now have a lot of room to grow in terms of our online business. As I said earlier on, you all know that we've traditionally been quite strong in Mainland China, but everywhere else, we were still in our infancy really. So right now, we've got Taiwan and other Southeast Asian markets, Hong Kong, or we're deploying more resources on that front. So there's a lot to look forward to on that front as well. So we're constantly looking towards finding new opportunities. And apart from working even harder on what we're traditionally good at and that's maintaining a lean operation and controlling our costs. We're also looking at opportunities as well. So just a general update for our shareholders and our analysts on those fronts. So maybe you talk about the shops newer shops being offered to us. Yes, yes. And on the top of what Mark said about the location is that, for example, Hong Kong, the rental was extremely high, which it was a little bit difficult for us to go into some high end shopping center. But I think you've got the information maybe more than needed. Most of the high end brands or lots of high end brands, their business also impacted by the COVID and also the global economy as well as the travel restrictions because for example, some of the high end brand in Hong Kong, they quite rely on the mainland to come to shops. But in the meantime, it's actually dropped by 99% in terms of the mainland going to Hong Kong. So we see some good strategic location that we will go in. So of course, we will have you more information afterwards. But as Mark mentioned, it's not only for the profit and also good for the brands developments in the future. And Mark, you mentioned Yes. I think when I say competitors is falling away, I mean, we see a lot of our peers, at least in Hong Kong, undergoing a quite significant restructuring. So even people like Bosony, IT, Bauhaus, they're going through a very hard time now. They're pulling out a lot of shops. They're also having to rebrand and they're also having to change their strategy. They've G2000, although they're not direct peers. I think one thing we mentioned before is that, we often get asked who our competitors are. And we've said before, we don't actually benchmark any other brands, because we're in quite an unusual unique situation. And of course, because we occupy different brand positions in different markets, our competitors also vary with different markets. But I think at least in Hong Kong, we've seen that those brands that I've just mentioned just now, they're going through some significant restructuring and rebranding and they've pulled out a lot of their shops as well. A lot of brands, European brands have also vacated. So we have some interesting shop spaces now available to us. Now whether we take those on depends on the negotiations regarding rentals, Gary just said. But it's good to know that those are now available to us in places that traditionally may not have considered us. And I think in the long term, it really will help with the brand positioning. I think we have less competitions in the market as mentioned. Do you find that there are more talents in the market available to you are still able to retain your existing talent? Yeah. I think I just touched on that earlier on with certain brands going through restructuring or departing or vacating their shops or leaving the market entirely. We definitely see that there are there's more talent in the market available to us both at retail level and at corporate level. One thing that we're doing, Gary mentioned earlier on that Giordano Ladies has performed quite well during this period of time. And of course, that targets a much higher grade of consumer. And in that sense, we're actually proactively going out there now and looking for talent that may have been released by some luxury brands, European brands, international brands, high end brands that may have been released. And we're actually actively pursuing those people to try and bring them over to help with Giordano ladies, for example. So there is definitely more talent. In terms of our own talent, rest assured that we are doing a lot of things internally and externally to retain our talent in some markets, which have been hit extra hard by COVID such as Malaysia, I think the fact that we've chosen not to lay our people off, we've chosen to retain our people, they see that as already as something that's very, very promising, very helpful. They feel very safe. They feel like the company is really supporting them. So in return, of course, they also feel a greater sense of affiliation and affinity with the company. And so those talents are staying in those markets for reasons such as that I've just mentioned. And in Hong Kong as well at corporate level, despite the tough circumstances, we're also giving small increments, gradual increments and rewards to our staff that are performing. We don't really sort of throw a lot of money at them in one go, but what we like to do is to show our acknowledgment and our appreciation through small increments over every other couple of months just to show them that we appreciate them. And of course, at a corporate level, that's also helping to retain a lot of the talent that we've developed over the last couple of years. Yes. I think engagement is also very important. In order to control our operating expenses, we will control our headcount. So in these 2 years, we actually freeze hiring. And at the same time, we also engage our existing people to do something differently. And they are happy with that. Just going back to the one of the motivational theory called Maslow theory, I mean, not all the people is concerned about the money only, they're also concerned about the development. They're also concerned with we can help them to extend their potential. So engaging them to contribute more to the company can also help retain the talent in the company. So we would definitely do it in the coming future. Yes, the share options in were firmly retold at the AGM. Well, I mean, we're fully aware of that and there could be a number of reasons behind that. But I don't think that really sort of affects us in terms of how we will go forward. We've mentioned at previous meetings with the stakeholders that we have a firm dividend policy. We also have a firm policy on how to remunerate and incentivize our staff. But we are flexible. We don't actually have a solid policy or formula, so to speak. We look at the condition of the company, our cash position, the development, the prospects. And from that, we generate a strategy going forward. So there are many strategies that we could consider, including the one that you've mentioned there. So we are mindful of that and we will definitely consider it and think about it as we move forward. Yes. I cannot conclude the reason that why the Xiaoxing scheme was weak toward an AGM. But I think most of the time the key reason is about the dilution. So especially in the so called uncertain period of time. So but as Mark mentioned that other than share option scheme, we still have many ways to incentivize to devote our staff, not only financially, but also non financially aspect, which I have already mentioned that in the previous time. So we will continue to do that. But yes, but let me give you a little recap about our current strategies or our direction how to deal with the prices. So you noticed that our operating expenses actually dropped by 3% over last year even when our sales increased by 20%. We will continue to simplify our work in process in order to control or even reduce the operating expense, because when we can stabilize this operating expense level, once the business rebound, our net profit margins will significantly go up and also aid by the increase in the gross margin because a lot of the audience ask about the gross margins. So we will the sales, we believe that the sales must rebound once the COVID situation release and if we can keep our gross margins level at a high level. At the same time, we well control our operating expense, our profit in the coming future will be promising. So this is the directions how we can deal with our the uncertain environment in the future. But as a management, we are optimistic and we believe that the COVID would go one day. Of course, no one can tell when the situation will end, but it's going to be end one day. So once the situation are getting better, our profitability will further enhance. And this is the way how we tackle the situation. Yes. Just to add on to what Gary said just very quickly is that we're fully aware of what the situation is like out there in terms of the consumer markets. Everyone's going through a very tough time. But I think what we are what we fully understand is that the importance during this period of time is to prepare for the rebound. And that means that not only do we have to survive, but we have to stay relevant. So we have to do the right things to make sure that our consumers around the world constantly are reminded of Giordano that we're here, that we're here to serve them, that we have the products that they need, remain relevant so that when the rebound actually finally comes, that will be the first one or amongst the first brands on their mind. So that's sort of like an ongoing guidance that we give to our people. So on that note, perhaps we can wait for another minute to see whether there are any further questions. And then if not, we will close the meeting. So just give another minute. Let me do some advertising here. We mentioned about the Down Ladies and the in Causeway Bay, we opened a store at the 20th floor of our commercial building, which is next to the Times Square. And the size of the shop is more than 4,000 square feet. And we have a lot of decent environment. We have a decent environment and ambiance over there. So most of you that we are a piece of our Zodao ladies and we welcome you to go to the shops to enjoy the shopping experience. Of course, that will be nice if you can make some purchase. So on that note, I think those are the last of the questions. And yes, I think we can get ready to close the meeting. I think just lastly, on behalf of the Executive Directors and everyone at Giordano, we just like to thank you for your continued support, especially during these challenging times and rest assured that we are working tirelessly to continue to improve the performance of the company. So thank you very much. Stay healthy. Thank you very much. Bye bye. Thanks very much. Bye bye.