Good evening, ladies and gentlemen. I am Haide, emcee of today's event. Welcome to the investor and analyst presentation of Chow Tai Fook Jewellery Group Limited to discuss our interim results for the financial year 2026. Let me introduce the management team who will be presenting and participating in the Q&A session today. They are Mr. Kent Wong, Managing Director, Mr. Hamilton Cheng, Executive Director, Ms. Karen Yih, Chief Financial Officer, and Ms. Danita On of Investor Relations and Corporate Communications. Firstly, Mr. Kent Wong will present the highlights of our interim results, share group strategies, and provide business updates. Next, Ms. Karen Yih will deliver the financial review. Following that, Mr. Hamilton Cheng will discuss capital management and conclude the presentation with market outlook. After the presentation, we will open the floor for a Q&A session. This hybrid event will be conducted primarily in English.
Simultaneous interpretation will be available for any content or questions addressed in Mandarin. For onsite participants here at Hong Kong Convention and Exhibition Centre who require translation services, please raise your hand and a headset will be provided. Offsite participants may select either English or Mandarin interpretation using the language bar located at the top right corner of the webcast platform. Now, I would like to hand over to our first presenter, Mr. Kent Wong.
Okay, thank you. Good afternoon, ladies and gentlemen. Thank you for joining us for our interim result for FY 2026. In the first half of FY 2026, the group demonstrated remarkable resilience and delivered solid results, supported by our improvement in consumer sentiments and a revival in jewelry spending across the globe, key markets. We stayed agile in response to the changing environment while diligently executing our five strategic priorities: brand transformation, product optimization, accessory visualization, operational efficiency, and talent cultivation. Our strategic initiatives continued to support our operational and financial resilience. Despite the gold price shoot in the period, the gross revenue in FY 2026 first half year remained stable at HKD 39 billion. With an improved product mix and the group price appreciation, our gross profit margin remained steady at a relatively high level in history, above 30%.
Coupled with disciplined cost and capital management, operating profit margin expanded to 17.5%, marking a five-year high record. Operating profit was resilient, rising 0.7% year-on-year. Profit acceptable to shareholders amounted to HKD 2.5 billion. That is a similar level compared to the same period last year. The board had declared an interim dividend of HKD 0.22 per share, equivalent to a payout ratio of 85.7%. We are confident in our ability to deliver long-term sustainable and stable return to our shareholders. We are pleased to see steady progress in our brand transformation. I would like to highlight some of our key achievements in the first half. We remained focused on optimizing product offerings and expanding our signature collections. Building on the success of the Wu Collection, the Chow Tai Fook Palace Museum Collection enabled relaunch joint collection featuring a Chinese [Non-English content] motif, which effectively resonated with younger consumers.
A cornerstone of our brand transformation is to redefine the retail experience through our new image stores. In the first half, we unveiled new image stores in Beijing, Shenzhen, and Macau. This premium positioned store successfully elevate our brand desirability and deliver higher store productivity. In June, we unveiled our new high jewelry collection, Timeless Harmony, in Hangzhou, honoring our near century of craftsmanship and cultural legacy. Designed by our Creative Director, Nicholas, with inspiration drawn from classical Chinese philosophy and architecture. The collection exemplify our originality, exquisite design, and unmatched craftsmanship by pairing with rare gemstone with refined artistry. It reinforce our brand positioning and aspiration and reflect our enduring commitment to showing the world the beauty of Chinese through our exquisite jewelry. During period, we underscore our dedication to sport excellence as the sponsor and design lead to the official medal of the 15th National Games.
This reflects our commitment to national sports and extends the aesthetic excellence of jewelry into the world of sports. As a critical part of our brand transformation, we strengthened the storytelling and enriched the differentiation of our product offerings to propel sales growth. In the mainland, we are thrilled to see fixed price jewelry contribution to RSV increase to nearly 32% during the period, more than 4 percentage points higher than one years ago, lending support to our gross profit margin. The three iconic collection we launched since the [embankment] on our transformation journey. Chow Tai Fook Palace Museum Collection, together with Rouge and JOIE, have continued to yield positive outcomes. The fixed price collection achieved total sales of about HKD 3.4 billion in the first half, representing nearly 50% year-on-year growth.
Here is a recent video of the Chow Tai Fook Palace Museum new collection to mark the museum's 100th anniversary, demonstrating our refreshed strategy to build relevance and foster deeper connection with new consumer. Please enjoy. As we advance towards our centenary in 2029, brand transformation will continue to build positive momentum and drive quality growth. We remain focused on enriching our differentiated signature collection and products. We will continue to expand strategic IP collaboration as a key focus of our product strategy to engage with younger audience. More new image stores will be rolled out in our existing and new market. As a teaser of what is to come, we will celebrate the opening of our new landmark flagship store on Canton Road in Tsim Sha Tsui this year to show our heritage, vision, and creativity. We will give further update on this in due course.
Our high jewelry initiative is central to elevating our brand positioning. Beyond the luxury market, we will leverage it to enhance our brand desirability in our key markets and set a new benchmark of excellence in the broad mass market to deliver a positive impact to our core business. Now update our business. In store management, our priority remains to sustain market leadership and strengthen network resilience by closing underperforming stores and launching to a higher productivity store in prime location. The store optimization strategy has proven effective in improving our overall productivity of our retail network, enabling us to deliver higher quality earning. In the first half, we selectively opened 57 new store in the mainland, with key opening centered around higher tier cities. We also closed 668 stores as part of our store optimization efforts, leading to a net closure of 611 stores during the period.
As of September, we have approximately 5,700 Chow Tai Fook jewelry stores in the mainland, of which about 73% are of the franchise model. As a result of store network optimization, stores in higher tier cities demonstrate a superior performance to those in lower tier cities in the period, mainly due to a better recovery in the consumer demand and fewer store closures than lower tier cities. RSV growth in tier one city reached nearly 9% during the period. As we transition to high quality expansion, we have prioritized store productivities and earnings quality. Our approach is to selectively expand into premium shopping malls and premium locations, therefore accelerating our brand transformation and elevating brand desirability. The strategy is already achieving positive results. Our new stores on average generating more than HKD 1.3 million monthly sales. We witnessed a notable improvement in store productivity by over 70%.
We expect the productivity of the new stores on an annualized basis would achieve a higher level. As second half, revenue will be higher than first half due to the seasonality of festival demand. As mentioned earlier, we added two new image stores in Beijing and Shijiazhuang, targeting a sophisticated Asian consumer with differentiated merchandise and redefined retail experience. Together with the new image store we opened last year, we are pleased to see these new format stores have consistently delivered higher monthly sales than every store in the same district since we launched. We continue to enhance digital engagement to grow our brand desirability among younger generation. Mainland e-commerce delivered a strong RSV growth of 28% in first half, FY 2026, contributing approximately 7% to retail sales value and over 16% to the volume of our mainland business.
Notably, both CTF Mall and Douyin delivered more than 40% RSV growth during the period. E-commerce ASP increased to HKD 3,000 versus HKD 2,400 a year ago. We proactively harness the potential of live streaming channel through enhancement in content curation, host collaboration, and real-time consumer engagement, which contributed almost 18% of our online sales in this period. During first half FY 2026, we curated popular IP collaboration such as CLOT and Chiikawa with a focused strategy to engage younger consumers through diverse and interactive social media content. Refresh marketing approach coincided with major online shopping festival, creating the evolving interest of online consumers. As a separate update, during the recent Double 11 festival, our e-commerce RSV grew by more than 30%. Now, let's turn to Hong Kong, Macau, and other markets. Our business rebounded across all these geographical markets during first half FY 2026.
Hong Kong, Macau experienced steady recovery, supported by revived retail sentiment and increased foot traffic. Macau outperformed Hong Kong with a 17% RSV growth. In line with the growth store optimization strategy, we continue to refine our POS location to site market opportunities and safeguard margin resilience across each market. Our retail network in Hong Kong and Macau remains steady at 88 Chow Tai Fook jewelry stores as of September. In our drive to continually enhance the retail experience, we opened a Rolex boutique in K11 Musea in Hong Kong and a new image store and Hearts on Fire stores in luxury casino resort in Macau in the period. We will continue to enhance visual merchandising experience, retail excellence across our stores in Hong Kong and Macau according to growth brand transformation. In other markets, RSV grew by 17% in the first half.
Excluding China duty-free shops, RSV of Chow Tai Fook jewelry store grew by 12%, mainly attributable to strong growth in Singapore and Malaysia, validating our strategic expansion priority in this region. Our continuing brand transformation underscore our ambition to redefine global luxury. Ambition to be the leading global jewelry brand that is the trusted lifetime partner for every generation. Thus, expansion into broader international market is seen as a next chapter of our growth. We deploy a two-pronged expansion strategy with a sharp focus on quality and store productivity. We continue to revitalize key existing market by optimizing visual merchandising to enhance store productivity and product mix. We have strengthened training for our storefront staff to elevate retail experience. With our initiative on upgrading store and rezoning, we are encouraging to see notable same-store growth improvement by almost 30% in Singapore and Malaysia in the period.
On the other hand, we are proactively exploring new high-potential territory for sustainable growth. We target markets with good potential long-term prospect while looking for prime location in line with our aspiration. Beyond Southeast Asia, we will initially expand into Oceania and stay agile to identifying other new market with high potential, capturing rising demand from even local customer and outbound Chinese consumer.
By June 2026 , we will launch six new store in international market, including new image store. All the new store are strategically located in prime retail area, known for high foot traffic, ensuring strong brand visibility and brand, which among both tourists and local shoppers. In Southeast Asia, we unveil our first new image store in June, Changi Airport, Singapore. More new store will be rolled out in international market. In next two year, we will further expand our presence in new markets such as Middle East.
This concludes my part of today's presentation. I will pass it to Karen for financial performance.
Thank you, Kent. I am very honored to do my first earning release for Chow Tai Fook Jewellery Group. Let me begin the financial review with the key financial metrics and ratios. In the first half of the financial year, we demonstrate sustained strategic progression and operational resilience. Our revenue remains stable at HKD 39 billion, reflecting steady business recovery. The gross profit margin maintained a robust position above 30%, underpins by enhanced product mix optimization, increased retail channel contribution, and favorable gold price appreciation. We continue to enhance operational efficiency, achieving a 120 basis point improvement in our SG&A ratio while expanding operating profit margin to 17.5%. Our strongest performance in five years. This robust outcome demonstrates our successful execution of our store optimization initiatives and rigorous expense discipline, reinforcing our strategic focus on delivering sustainable earnings quality and maximizing shareholders value through operational leverage.
Chinese Mainland operation registered a 3% revenue contraction in the first half, primarily attributable to network rationalization initiatives, though partially mitigated by positive same-store-sales growth. The region maintained its position as the group core market, representing 83% of consolidated revenue. Retail segment demonstrates superior performance relative to wholesale operation, driven by strengthened consumer demand and enhanced operational execution. In response to evolving market dynamics and growing consumer preference for higher margin fixed price products, we have implemented a strategic product segmentation framework effective this reporting period. On the right-hand side of the slide, you can see our portfolio is now classified into three distinct categories. Fixed price jewelry displayed in red includes fixed price gold products, gem-set jewelry, and platinum and K gold offerings, representing our highest margin category aligned with shifting consumer preferences. Weight-based gold jewelry displayed in blue.
Traditional gold products sold by weight, maintaining our heritage positioning in the core gold segment. Watch business displayed in yellow. Our timepiece portfolio complementing our jewelry offerings. This refined categorization enhance visibility into margin dynamics and enable more targeted strategic resource allocation, positioning us to capitalize on the structural shift towards fixed price product while optimizing our overall product mix for profitability. We are pleased to report improving momentum in our weight-based gold jewelry with revenue decline narrow substantially during the period, reflecting strengthening retail sentiment and consumer confidence. Our fixed price jewelry achieved a robust 9% growth in all product category in the first half. This exceptional growth trajectory was driven by sustained demand for our signature collections, validating our strategic brand elevation initiatives and demonstrating successful execution of our premiumization strategy.
The outperform on these higher margin offerings reinforces our conviction in the brand transformation journey and position us favorably for margin expansion. In the first half FY 2026, we've achieved positive same-store-sales growth across our key markets and product categories. This performance is a direct result of our targeted store optimization, sustained demand on our signature collections, and improving trajectory of weight-based gold products. Our third quarter to date performance covering the period from October 1st to November 18th demonstrates accelerated same-store-sales momentum reaching double-digit growth. This robust performance reinforces our confidence in a sustained recovery through to the second half of the fiscal year. Average selling price, ASP, revealed notable resilience across product categories in both Chinese Mainland and Hong Kong and Macau markets.
Within fixed price jewelry, ASP of fixed price gold jewelry including gold jewelry and gem-inlaid gold jewelry rose by 19% and 25% in the Mainland and Hong Kong and Macau respectively. This was driven by strong demand of our key fixed price signature collections and gold price appreciation. Gems at ASP increased by 8% in the Mainland, while maintaining at a stable level in Hong Kong and Macau. Our gross profit margin dynamics reflect strategic portfolio optimization with a higher retail mix and higher margin product composition contributing 150 basis point of expansion. Despite a 360 basis point margin compression driven by gold price variation and timing, our deliberate shift towards fixed price products and enhanced retail channel mix demonstrates resilient margin management. This performance underscores our agile approach to navigating market volatility through strategic product and channel positioning.
Through store network optimization and vigorous cost discipline, we achieved a 9% reduction in SG&A expenses during the first half. Riding on improved business recovery and operating leverage, we compressed the SG&A ratio by 120 basis points to 14%. Our forward-looking cost management approach remains focused on maintaining disciplined discretionary spending while preserving organizational agility. We are committed to maximizing return on every operating dollar invested with a targeted full year SG&A ratio at 13.6%-13.7%. We remain committed to strategic talent development while driving operational efficiency across our workforce. In Chinese mainland, staff costs decreased by 4%, with a 6.7% reduction in fixed compensation aligned with headcount optimization, and a 2.5% increase in variable compensation reflecting retail revenue growth. In Hong Kong and Macau, we achieved a significant 10% reduction in staff cost with a 37% decline in variable compensation resulting from a refined incentive structures.
The staff cost ratio improved substantially by 270 basis points, driven by revenue expansion and disciplined compensation management. In Chinese mainland, we achieved improvement in concession and lease-related expenses. Concessionary fees ratio enhanced by 10 basis points through fee structure optimization. Lease-related expenses ratio improved by 100 basis points, leveraging business recovery and operating scale. In Hong Kong and Macau, rental expenses increased with revenue growth, maintaining variable cost alignment. Lease-related expense ratio compressed by 40 basis points through operating leverage on fixed rental components. Our lease renewal strategy in Hong Kong and Macau demonstrated proactive cost management. Approximately one-third of our lease contract will be under renewal in FY 2026, and average lease renewal reduced by mid-teens in the first half. Our operating performance demonstrated resilience with Hong Kong, Macau, and other markets delivering over 50% of operating profit growth.
The exceptional margin expansion is driven by elevated fixed price jewelry sales and enhanced retail mix, uplifting gross margin reaching 36%. Operating margin expanded 470 basis points to 16.3%, underpinned by disciplined cost management and operational efficiency. Chinese mainland experienced a 170 basis points gross margin compression due to gold price dynamics and increased business of pre-owned gold for trade-up and upgrade. We maintained robust profitability through higher fixed price jewelry mix, enhanced retail mix, and disciplined cost management. Our operating margin sustained at 17.7%. In first half FY 2026, we executed a disciplined approach from inventory management and capital allocation. Driven by operational efficiency and cash flow optimization, inventory balance was reduced by 7% to HKD 63 billion. Inventory turnover period compressed by 33 days. This is achieved through proactive managing in-store revenue, inventory composition, and recycling aged and discontinued products.
CapEx was controlled at HKD 227 million in the first half, and we will expect full year guidance of CapEx to remain below 1% of revenue for FY 2026. This concludes my presentation. I will pass the time to Hamilton, who will discuss capital management.
Thank you, Karen. We effectively manage our capital structure to ensure financial stability and source financial capitals to fuel business growth. Our cash balance increased to around HKD 10 billion as of September. Based on business seasonality, we stock up our inventory by September to prepare for the peak season. Against the backdrop of gold price hike in the first half, more working capital is required reserved for inventory replenishment. We funded this through bank borrowings and the convertible bond. In June, we seized a good window and successfully issued a convertible bond at a very low coupon rate. As of September, the straight bond portion that was booked under that stood at about HKD 7 billion. As a result, net gearing ratio ascended to 83% in the period. Excluding gold loans, this ratio would be around 12%. Now let's turn to our cash flows.
Our business operation remains resilient, generating about HKD 8 billion net cash inflows in the period. Here follows the key users of cash relating to operations. About HKD 7 billion was used to finance inventory procurement ahead of the expected festival demand in the second half. About HKD 4 billion was used for other operating activities, including repayment of inventory deposits to franchisees, tax payment, and movements in receivables and payables. As a result, pro forma free cash flows was negative HKD 4 billion for the first half. We leveraged external capital at a relatively low cost to meet the business needs. Net proceeds from the convertible bond and additional bank borrowings combined to bring in a net HKD 11 billion. As of September, our cash balance stood at over HKD 10 billion.
With revenue being more back-end loaded in the second half, plus our confidence in gradual business recovery, we expect the cash flow generation will strengthen to sustain our business growth and dividend returns to our shareholders. Now let's take a review on gold loan impact on the financial results during the period. Gold price appreciation would normally put some pressure on the demand, but at the same time, it provides support to our gross margin, which was reflected in the GP margin analysis by Karen just now. Gold price fluctuation gain accounted for around 7.9% of the group's revenue in the period. On the other hand, gold price increase incurs fair value loss on gold loans, which represented 8.1% of the group's revenue in the period. The loss would be usually offset by gold price fluctuation gain, or there may even be a marginal gain.
During the period, we have been striving for managing the inventory turnover and hedging ratio. Hedging ratio stood at 55% as of September, while the fair value loss on settled gold loans dropped notably by over 20%. Incremental loss on unsettled gold loans incurred on the back of gold price surge in September. This resulted in an overall loss on gold loans marginally higher than gold price fluctuation gain in the period. Nevertheless, profit before tax remains resilient, a similar level in the first half last year. Lastly, market outlook. Continual improvement in consumer sentiment revived jewelry spending in the first half FY 2026, and we witnessed solid business recovery as same store sales returned to positive in all key markets which we operate. Despite the recent short-term industry headwinds, our quarter-to-date same store sales performance remains solid.
Together with our transformation initiatives that have strengthened our operational and financial resilience, we remained confident in sustaining our recovery through the second half this year. We shall remain agile, proactively refining our strategies to stay ahead in a dynamic environment. Rigorous financial discipline, coupled with prudent cost and capital management, we continue to underpin our pursuit of sustainable, high-quality earnings and long-term shareholder value. As we approach our historic centenary, we remain resolutely committed to advancing our brand transformation agenda through strategic initiatives designed to deliver positive outcomes. Thank you. This concludes our presentation today.
Thank you, management.