Good afternoon, ladies and gentlemen. Welcome to Giordano International Limited 2021 interim results briefing conference. I'm Loretta, the Director of Group Finance. Let me introduce our management in this meeting. Dr. Gary Chan, our Executive Director and COO, and Mr. Mark Alan Loynd, our Executive Director and Legal Counsel, will join the Zoom meeting. After my presentation, you can send us your questions through the Zoom and WhatsApp.
Just a quick message before we start the presentation. Our Chairman and CEO, Dr Peter Lau, is engaged in another meeting at the moment, so he may or may not join us a little bit later. In the meantime, Gary and myself will be driving the meeting. Thank you, Loretta.
Thanks.
Thank you.
Let me start my presentations. For the unaudited interim results for 2021. The group sales for the first half of 2021 were HKD 1,651 million, represent an increase of 19% due primarily to improved sales on the back of last year's low base. The gross margin grew by 2.4 percentage points to 57%, attributable to higher discounts. Operating expenses record a further decrease of 2.9% and was 54.1% on sales. Profit after the income tax attributable to the company's shareholders was HKD 60 million, compared to a net loss of HKD 175 million last year. If exclude the lease impairment provisions for the right of use assets and the property, plant and equipment, the net profit for the period would be HKD 62 million, compared to a net loss of HKD 104 million. On June 30th, 2021, the cash and bank balance, net of bank loans, was HKD 932 million.
With the increased sales and stable merchandise inventory balances, inventory turnover on cost decreased by 14 days to 124 days. The merchandise inventory mainly comprise evergreen and in-season items. Basic earnings per share were HKD 0.038. The board of directors has declared an interim dividend of HKD 0.065 per share for this period. The group sales rebounded with continuing uptrend driven by the Gulf Cooperation Council and also the Southeast Asian markets, the first quarter we got a sales improvement of 2.4%, and the second quarter we got a 44% improvement. As you see from the diagrams, we got Taiwan and Hong Kong. The sales were decreased as compared to last year. Actually, for Taiwan, because of the COVID, which happened in mid-May, sales significantly declined. For Hong Kong, we have already closed 12 stores, so the sales declined.
Actually, the company store sales have actually increased. The all business channels record an increase in sales and gross margins, and the improvement in the wholesale to franchisee was mainly from mainland China, attributable to the store increase. We got a 15-store increase during the period. OPEX decreased by 2.9% and was 54.1% of sales. The improved profitability was due to the sales increase, cost cutting, and closure of non-performing stores. The operating expenses to sales ratio actually returned to a more rational level as compared to last year, which was at 66.3%. All regions recorded an improvement in PAT, which turned around from a net loss last year to this year's profit. Taiwan's improvement was below our expectations due to the outbreak of COVID-19 from mid-May. The group inventory remained healthy, with the balance slightly increased by 1.6% year-on-year. The inventory turnover cost decreased 14 days to 124 days.
There was an increase in South Korean inventory, which also ignited the business performance. The inventory at suppliers and franchisees are not our legal liabilities. They are not our stocks. The group is responsible for checking their levels to ensure we do not build an excessive off-balance-sheet inventories. Our system inventories remain healthy with a stable balance. The cash and bank balance, net of bank loans, was HKD 932 million, a slight decrease of 5.8%. The cash position remains solid. Okay. We will have a look for the external business environment will remain extremely volatile and unpredictable due to the COVID-19 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.
It is difficult to predict the group sales 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 concessions and improve operational efficiency. There are now nine stores in the new franchisee market in the African continent, which is almost double last year. We will continue to develop new franchisees in the emerging markets. To avoid any disruptions to the supply chain, we have reinforced stock directions between markets so as to avoid overall understock in different regions. Cash management is still the essence of long-term sustainability. We will focus on working capital control through accounts receivable and inventory management. In addition, we are also cautious about our capital expenditure.
For those non-strategic location stores, we'll postpone the capital expenditure on store upgrades. This is the end of my presentation. You may raise any questions. Thank you.
Thank you, Loretta. If you have any questions, you can type and we will respond the questions one- by- one. Before we receive any questions, I want to give you a brief that our first half performance was improving. You see that our sales are improved by 20% year-on-year. Of course, last year, 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. At the same time, all the business channels, including offline and the online, we also have the increase in the GP percentage. Our financial position is still solid. As a result, we still have the dividend, HKD 0.065 paid out in the income period.
Hi, Niall. Just referring to the conditions were likely to improve further. We're just looking for page 15. The lease.
In the meantime, Niall, we'll get back to you on that question. We'll just have a look at page 15, maybe I'll move on to Manuel's question regarding the overseas markets right now. Manuel has said that whether we have any target growth numbers for the stores in Africa this year and over the next three to five years, and at what stage would you show this at a separate segment in your accounts? Okay. Right now, in terms of the African continent, we're getting a lot of traction. We've got three stores currently in Kenya. We've got our online business only in South Africa. We've got six stores in Mauritius, we're also moving into other markets as well. In terms of growth, we're going to add another two stores in Mauritius.
Over the next two years, in 2022, we're actually looking to make further strides in Africa, hoping to add another two shops in Kenya, another two shops in Mauritius, and two in Egypt, one 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. Because other markets in the African continent have seen that initial success, they are now joining in. We've got two interesting markets that we're moving into in the African continent. As I mentioned earlier on, in Kenya, initially we started with a shop-in-a-shop model, but the franchisee is sufficiently happy that he's going to open the first standalone store just dedicated to Giordano. We've also got Ghana that we signed and we announced recently as well.
Our franchisee is now making preparations to fully launch the brand and his stores. I think one of the more interesting markets in Africa is Egypt. As we all know, it's a very important market in Northern Africa. Very, very big, very, very influential. The local infrastructure and the local requirements are very, very strict. Traditionally, it's taken 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. We have that now, so we're looking forward to our franchisee's 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 further questions from Billy. Billy, you want to ask about the income dividends. You're saying that we have doubled the income dividends and doubled the profit at the interim. Can you tell us the rationale and what to expect from the full year dividends? First, I want to clarify that we have not doubled the profit at the interim because last year we report HKD 175 million loss, including HKD 71 million of provisions on the ROU asset. Last year we're making loss, and this year we swing from a loss to profit of HKD 60 million. Back to our dividends philosophy, we reported to the shareholders and the analysts a few times that our policy is very simple. We will return the surplus cash back to the shareholders.
Of course, how to calculate the surplus cash, we definitely need to do some cash projection in the coming 6- 12 months' time. Once we believe that that amount become surplus and extra money, and we will return to the shareholders. This year's interim, the dividend is HKD 0.065. If you ask me to anticipate and project the future dividends or full year dividend, I won't give you any numbers. What I can say is that we still believe that we can squeeze cash or monies from the working capital. Loretta mentioned about our inventory level. We have 14 days IT or less than last year. But if you ask me if I satisfied with the inventory level, I'm not. We believe that we might further reduce our inventory and to squeeze more cash.
If we believe that we have extra and a surplus cash, we would definitely continue to return to our shareholders at the final dividends. Hi. You want us to share with you about the third quarter outlook and how is the business of different markets. For example, China and Southeast Asia regions. Of course, ourselves impact by the new wave of the pandemic, especially in the Southeast Asia regions and the Taiwan. For example, in the meantime, most of the Southeast Asia regions, such as Malaysia, Indonesia, and Thailand, were under lockdown or partial lockdown. It definitely hit our sales. Taiwan, the new wave of pandemic start from the middle of May, it also hurt our business over there. We see a recovery of the Taiwan business in the recent weeks.
It is very hard for me to give you my outlook, especially in terms of sales in the third Q or second half of the third Q or the fourth Q , because I do not have a crystal ball to predict how the pandemic would develop. What we can do is that we manage well our operating expenses, our working capital, make sure that we're not overstocked, and this is what we will continue to do. In general speaking, we believe that once the pandemic start to ease, our rebound would be very substantial. This is what we believe in it.
Yeah. Maybe I'll jump in here and just handle Billy's question and also Niall's question. Niall, thank you for clarifying what you were referring to earlier. Maybe I can try and kill two birds with one 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 hard to tell. Impossible right now to ascertain just how long the impact will be and how heavy the impact will be. I just wanted to say that, regardless of the pandemic, in terms of the markets which are gaining strength or which are most promising, I think right now there's three markets that we see strength. First 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. They're raring to go. 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, what have you. 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. Following Ramadan, they've also demonstrated a good growth. The 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 latest wave of COVID, they're still making a good progress there.
Again, we have a very strong management team there. It probably right now occupies the highest brand perception amongst the group, together with South Korea. It's a big market and one that we've got a lot of traction in. That's another market that's showing promise for future growth. 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. I think these three regions, in the medium to short term, will show a lot of promise and that we're paying close attention to.
In terms of the surroundings, as Niall 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, a lot of them are disappearing. We are actually pulling through because of that ability to be nimble and stay nimble. That, coupled with the other factors that you've mentioned, we think 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 was 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 out there. 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. All those factors are 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 that COVID actually giving us a very good chance and opportunity to review our entire working process. For example, how we can simplify our process, in terms of the details, in terms of the use of human capital. At the same time, how we can strengthen the potential and the team capability. That's very important. Most of the market, or some of the market in the meantime are under the partial lockdown or full lockdown. I think everybody's mentioned about the online business. Our local managers, our management, of course, keep pushing the local team to develop our online business through different platforms. As a result, we still managed to record a decent growth year- on- year.
Don't forget that last year, 2020 versus 2019, we have doubled the sales on the online business. This growth momentum continued. We will continue to do it. Yes, with the improved sales and the gross margins, 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. Of course, there's a lot of hiccup from time to time, and this is very difficult to predict. If we believe that when we strengthen our entire company's competitiveness or capabilities, once the economies and the COVID situation ease, our rebound will be very, very strong. You want to ask about the gross margin, right? The gross profit margin trend in the second half in 2022, and what is the driver for the gross profit margin trend.
Of course, how we can improve our profit margins or gross profit margin, that will increase our selling prices. Just two things to improve our selling prices and the gross margin is at one, we have to avoid overstock. If we overstock, we are forced to do a lot of discounts, and eventually the gross margin down, and also hurt the brand in the long term. Second, we have to be so-called quick response to address the consumer need. Let me give example. In the last two weeks or three weeks time, there's Olympic Games. Once Hong Kong getting a gold medal or silver medal or bronze 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 very quickly.
We price them quite expensively, and the response is very good. At the same time, we also launch some of the Olympic T-shirts for the foreigners in Hong Kong, especially as we have a lot of Indonesian and also Filipinos peoples working in Hong Kong. We launch some of the Olympic T-shirt and the response is very, very good. You can go to our corporate website and see our news, and you can see more details. I think avoiding overstock and providing our customer with the right merchandise is the two ways to improve our gross margin. We are optimistic to the gross margin in the second half of the year and also 2022.
That exactly the direction that how we can deal with the crisis in the meantime, because when the cities or countries are in lockdown, even you do a lot of discount, the profit is almost the same. What we can do to improve is to improve our gross margin and, of course, we call it the ATV, the average transaction value, to sustain our profitability. Thank you, Anne. Ines. Ines, hi. You also ask a similar question as Anne, which is about the gross profit margin for the online, how? The same. 5- 10 years ago, most of the people's asking for something cheap and online. The people change in terms of the buying behavior, even for the online shopper, that the people not only looking for something cheap online, they also looking for something right online. The same should 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. That's the reason why we can continue to improve our gross margin.
Yeah. I think I should add this moment as well, Ines. Actually, 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. 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. We've also become slightly more savvy. We understand, with our local partners as well, how to use international platforms, local third-party platforms, and our own proprietary platforms. In that sense, there's still actually a lot of room to grow, and that's something to look forward to as well.
Thank you. Anne, you have follow-up questions about the China market. Are we making loss from the direct operator stores? Do we have a plan to completely shut down the direct operator store? Okay. I remember that, Anne, you asked questions in the last announcements meeting that will we make a profit in China, and our respond is positive. To be frank, we are about doing break even up to May. The new wave of COVID hit the China since the second half of May, and our sales drop quite dramatically, and that's the reason why we are making a loss from the DOS. Will we completely shut down the DOS? I don't think so, but we will definitely review the situation case by case and shop by shop. I don't know if other people have been follow up on Giordano's for a long time.
Let me recap our channel strategies in China. We're definitely doing the online and the offline business. For the offline business, we have two channels. One is the DOS, and another one is the wholesale. Of course, our wholesale is strategic direction for the offline mainland China business. As a result, more than 70% of our shop in the meantime operate under franchising. It's about 25% of the shops is actually operate under our own. Yeah, we definitely are making some losses from there, but I think it's manageable. At the same time, if we cannot make a profit, we would decisively close down the shop. We 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 city, which successfully converted to our wholesale regions. We will continue to do it. We believe that move, that conversion, is actually a 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, the local franchisee, they understand the market more than us. I think this is a so-called a win-win tactics to convert our DOS regions to the franchise region. We definitely are negotiating with our franchisee, and we will have you more good news.
Yeah. 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 shops run by franchisees. That kind of hints at what would happen in an ideal world. It doesn't just apply to China. 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 are actually longstanding franchisees that have been with us for many, many years. 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.
Moving away from the entrepreneur model to an enterprise model. That's actually taking some time as well. 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, hopefully that will also help with transitioning the shops from DOS into the franchise model, as Gary was mentioning earlier on.
Yeah. Maybe I can put more colors on it. We have few brands in the group. We have our Giordano functional brands, including Giordano Junior. We have Giordano Ladies. You might know that our Giordano Ladies brand is actually targeting at middle to high-end consumer, which our gross margin and even the net margin is better. To tackle the first tier city where the DOS locate, we will use Giordano Ladies. For example, the Shanghai, and we also have plan to develop our Giordano Ladies in Guangzhou and also Shenzhen. In terms of the DOS, this is the way how we can deal with the situation. Okay. Thank you, Anne. 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 two years. I think we are in a very controlled manner.
As reported by Loretta in the announcement, we will do the renovations for some strategic locations. 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. We will be very controlled in terms of the use of capital expenditures. Last, I think we spent about.
HKD 30 million last year.
Yeah, HKD 30 million last year, right?
Yes.
Yeah, HKD 30 million last year. This year is about the same. If you ask me that the full year capital expenditures amount may be about HKD 50 million-HKD 60 million. I'll give you some update. We used to be spend about HKD 100 million a year in terms of the capital expenditure. We are about half of comparing to the normal period of time. Of course, we have to be innovative in terms of doing a renovation or even- so when I say that we're not doing renovations or we're not using a lot of capital expenditures on some non-strategic location, it doesn't mean we're doing nothing. We mentioned to our team that we have to do the make up. Okay? For example, the poster, maybe the wall colors, maybe the window. We definitely will spend the money on this.
To make sure that when the customers are passing by our shop, they will think, "Nice." That definitely we would do it. If you ask me about the planned CapEx, I think I give you the numbers already. Thank you.
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 news 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's gonna be the first day we actually change it to Tuesday. Every Tuesday, we'll be releasing news items about the company, to update all our shareholders and all our stakeholders. 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. 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 be very nimble, very lean. 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 operation. On that front, there are developments that are constantly taking place.
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 frees up a lot of talent as well as shops. What we're seeing is that we now actually have a much more talented pool of professionals, be it at shop level or at a corporate level, that are available to us in the market. 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 shop space. Maybe Gary can talk about that a little bit later on. That will also help enhance the brand perception and the positioning as well, which I think for the long term is also very beneficial.
Of course, we mentioned earlier on, we're constantly looking for new opportunities and new markets. We've always fared better in new and emerging markets. 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 gonna keep looking for those opportunities. Of course, online as well, as I mentioned to Anne and Ines a little bit earlier on. We've actually been a little bit slow to the game. 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're still in our infancy really. Right now we've got Taiwan and other Southeast Asian markets, Hong Kong, or we're deploying more resources on that front. There's a lot to look forward to on that front as well. 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. Just a general update for our shareholders and our analysts on those fronts. Gary?
Mark.
Maybe you talk about the newer shops being offered to us.
Yeah.
Touch on that question.
Okay. Thank you. On 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. I think you got the information maybe more than me, that most of the high-end brand or lots of high-end brands, their business also impacted by COVID-19, and also the global economy, as well as the travel restrictions because of, for example, some of the high-end brand in Hong Kong, they quite rely on the mainland to come to shops. In the meantime, it actually dropped by 99% in terms of the mainland going to Hong Kong. We see some good and strategic location that we will go in. Of course, we will have you more information afterwards.
As Mark mentioned, it's not only for the profit and also good for the brands' developments in the future. Mark, you mentioned-
Yeah, go on. Yeah, I think I want to say competitors falling away. We see a lot of our peers, at least in Hong Kong, undergoing a quite significant restructuring. Even people like bossini, I.T, 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. We've said before, we don't actually benchmark any other brands because we're in quite an unusual, unique situation. Of course, because we occupy different brand positions in different markets, our competitors also vary with different markets.
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 luxury brands, European brands, have also vacated. We have some interesting shop spaces now available to us. Whether we take those on depends on the negotiations regarding rentals, as Gary Chan just said. It's good to know that those are now available to us in places that traditionally may not have considered us. I think in the long term, it really will help with the brand positioning.
Ivy Lau.
Yeah.
With less competitions in the markets as mentioned, do you find that there are more talents in the market available to you, or are still able to retain your existing talent?
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'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. Of course, that targets a much higher grade of a consumer. 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. We're actually actively pursuing those people, to try and bring them over to help with Giordano Ladies, for example. 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 already as something that's very promising, very helpful. They feel very safe, and they feel like the company is really supporting them. In return, of course, they also feel a greater sense of affiliation and affinity with the company. Those talents are staying in those markets for reasons such as that I've just mentioned. 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. 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. 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.
Yeah. I think engagement is also very important. In order to control our basic expenses, we will control our headcount. In this two years, we actually freeze hiring. At the same time, we also engage our existing people to do something differently. They are happy with that. Just going back to one of the motivational theory called Maslow theory. Not all the people's concern about the money only. They're also concerned about the development. They're also concerned with we can help them to extend their potential. Engaging them to contribute more to the company can also help retain the talent in the company. We will definitely do it in the coming future.
The share option scheme was firmly vetoed at the AGM. We're fully aware of that, and there could be a number of reasons behind that. 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. 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. There are many strategies that we could consider, including the one that you've mentioned there. We are mindful of that and we will definitely consider it and think about it as we move forward.
Yes. I cannot contrive the reason that why the share option scheme was vetoed at AGM. I think most of the time, the key reason is about the dilution, especially in the so-called uncertainty risk time. As Mark mentioned that other than share option scheme, we still have many ways to incentivize, to reward our staff, not only financially, but also non-financially aspect, and which I have already mentioned that in the previous time. We will continue to do that. Yeah. Let me give you a recap about our current strategies or our direction, how to deal with the crisis. You notice that our Op expenses actually dropped by 3% over last year, even when our sales are increased by 20%. We will continue to simplify our working process in order to control or even reduce the operating expense.
When we can stabilize this Op expense level, once the business rebounds, our net profit margins will significantly go up, and also aid by the increase in the gross margin. A lot of the audience ask about the gross margins. We believe that the sales must rebound once the COVID situation relieves. If we can keep our gross margins level at a high level, at the same time, we will control our OPEX, our profit in the coming future will be promising. This is the directions how we can deal with the uncertain environment in the future. 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. It's going to be end one day. Once the situation getting better, our profitability will further enhance. This is the way how we tackle the situation.
Yeah. 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. I think what we fully understand is that the importance during this period of time is to prepare for the rebound. 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 we'll be the first one or amongst the first brands on their mind.
That's sort of like an ongoing guidance that we give to our people. On that note, perhaps we can wait for another minute to see whether there are any further questions. If not, we will close the meeting. Just give another minute.
Let me do some advertising here. We mentioned about Giordano Ladies in the Causeway Bay. We opened a store at the 20th floor of a commercial building, which is next to the. Times Square. Times Square. The size of the shop is more than 4,000 sq ft. We have a lot of decent environment. We have a decent environment and ambience over there. Most of you are the VIPs of our Giordano Ladies, and we welcome you to go to the shops to enjoy the shopping experience. Of course, that would be nice if you can make some purchase.
On that note, I think those are the last of the questions. Yeah, 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'd just like to thank you for your continued support, especially during these challenging times. Rest assured that we are working tirelessly to continue to improve the performance of the company. Thank you very much.
Stay healthy. Thank you very much.
Thank you.
Bye-bye.
Thanks very much.
Bye-bye.
Bye-bye.
Thanks, guys.