Good evening, ladies and gentlemen. Welcome to Chow Tai Fook interim results analyst presentation for the financial year 2018. Let me introduce the management on stage. We have Mr. Kent Wong, the Managing Director, Mr. Hamilton Cheng, the Finance Director, and Miss Danita On, the Director of Investor Relations and Corporate Communications.
Mr. Hamilton Cheng will present the interim results, operational highlights, and financial review. Mr. Kent Wong will present our business update. Miss Danita On will give the update on store differentiation, customer relationship management, and e-commerce. Finally, Mr. Kent Wong will conclude the presentation with the group's business outlook and strategies. After that, we will have the full Q&A session. Now, may I invite Hamilton to present? Hamilton, please.
Thank you. Good evening, everyone. Here, I'm pleased to announce our first half interim results. The early signs of recovery in the jewelry industry, which began in the second half last year, have extended into this first half. This resumed market recovery has been felt in our operations, leading to encouraging group results. Revenue was up 15% year-on-year to HKD 24.8 billion. Same store sales in Mainland China and Hong Kong, Macau increased by 10.3% and 9.5% respectively.
Thanks to the improving sales momentum and operating leverage, core operating profit surged by 40% year-on-year. Profit attributable to shareholders registered a substantial jump of 45% to HKD 1.8 billion, with basic earnings per share of HKD 0.178 per share. The board has declared an interim dividend of HKD 0.12 per share, payout ratio approximate 67% in this first half. Operational highlights.
We opened a net of 107 POS during this financial period, bringing the total number of POS to 2,488. Net openings in Mainland China reached 112, while Hong Kong, Macau continue the store network optimization with net closure of seven POS. CHOW TAI FOOK T MARK diamond brand continue to make healthy progress since its launch in August last year.
We expanded its coverage by 123 and six POS in Mainland China and Hong Kong and Macau, respectively. As at end of September this year, we had over 230 POS carrying T MARK diamonds. Our e-commerce business in Mainland China also deliver a robust 120% growth in retail sales value in this first half, contributing to 5.4% in dollar terms and 13.4% by volume to our jewelry retail operations in Mainland China.
We expanded the presence of Hearts on Fire primarily in shop-in-shop or counter-in-shop format through our extensive retail network. During the period, we add a net of 19 Hearts on Fire shop-in-shop or counter-in-shop, mostly in Mainland China. On this page, I'll focus on the margins and financial ratios. First about the reported GP margin.
It has reduced by 280 bps as we recorded a large unrealized hedging gain of more than HKD 350 million in the same period last year versus a much smaller gain of less than HKD 70 million during the period. For adjusted GP margin, which decreased by 140 bps, the expansion of like-for-like growth profit margin at retail level was offset by a less favorable product mix and a larger share of wholesale business. While for SG&A expenses, that decreased by 1% to HKD 4.9 billion during the period.
This is mainly driven by a reduction in rental expenses. SG&A ratio significantly improved by 330 bps to 19.7%. Core operating profit margin, which mainly excluded the impact of unrealized gain on gold loans and net foreign exchange gain or loss, rose substantially by 180 bps to 9.7%. Revenue breakdown. By reportable segment revenue contribution from Mainland China increased steadily over the past few years and contributed over 60% of the group revenue in this H1 2018.
Revenue in both reportable segments continued to rebound. Mainland China delivered a 16% growth, while Hong Kong, Macau, and other markets recorded a 13% increase. By product, revenue contribution from gold products surged by 420 bps year-on-year to 57.8% due to a relatively strong demand for gold products. Yet relative to the 60% in the second half last year, product mix has already normalized sequentially in this H1 2018.
Watches also continue to demonstrate healthy growth, leading to an increase of 40 bps in revenue contributions to 6.7%. Here we have the same store sales growth trend in the past six quarters. Same store sales growth in both markets picked up since the second half last year and have sustained the recovery in this H1 2018.
Mainland China same store sales growth was mainly driven by ASP, while that of Hong Kong and Macau was mainly driven by sales volume. An analysis of same store sales growth by product. For gold products, the growth momentum for both markets was largely generated by gold products. In Mainland China, gold products' ASP was up by more than 13%, despite that the average international gold price depreciated by 2% year-on-year during the period.
The lift in ASP was resulted from a gain in the average weight per product sold during the period. While in Hong Kong and Macau, both volume and ASP contributed to the rise in gold products' same store sales growth, and volume was up by nearly 10% year-on-year. While for gem-set, ASP of gem-set jewelry in Mainland China continued to rise and reached 6,300 level, up about 4% year-on-year.
In Hong Kong and Macau, gem-set jewelry same store sales growth continued to improve in this period. It recorded the first positive quarterly growth in the second quarter, after 13 quarters of decline since our financial year 2015. The improvement was mainly driven by volume, thanks to our promotional efforts on affordable luxury products. An analysis of our core operating profit by segment. Both reportable segment experienced a strong turnaround during the period.
Resumption of revenue growth, coupled with subdued operating expenses led to nearly 20% increase in Mainland China's core operating profit and a remarkable 240% growth in Hong Kong, Macau, and other markets. For the margins, adjusted GP margin in Mainland China declined by 220 bps, mainly due to an increase in gold product mix and also wholesale mix. However, COP margin of Mainland China was still uplifted by 30 bps to 12.4% in this H1 2018, thanks to the contained operating expenses.
While for margins in Hong Kong, Macau, and other markets, is affected by similar factors such as the increase in contribution of gold products and also jewelry trading income, which are the lower margin business. However, this was largely offset by like-for-like improvement by products so that adjusted GP margin of the Hong Kong, Macau segment just dropped by 30 bps.
Thanks to the substantial operating leverage in Hong Kong, Macau, COP margin increased by 370 bps to 5.5%. We will turn to the expenses analysis. The group's SG&A expenses dropped slightly by 1% year-on-year, thanks to the decline in rental expenses. The other major items remained largely constant. Coupled with the sales rebound, SG&A ratio posted an impressive 330 bps improvement to 19.7%. A&P. The expenses ratio stayed low at 0.7% as major marketing activities are planned in the second half this year. We expect that for the full year, A&P ratio will return to around 1%- 1.2% for the full year. We will turn to the major expense item, which is the staff cost. Total staff cost in mainland China rose by about 4% year-on-year, while those in Hong Kong and Macau remained largely flat.
In both markets, the decrease in fixed staff cost was largely in line with the reduction in average headcount, but this was offset by the increase in performance-based payments as business recovered. For rental and concessionaire fees. In mainland China, concessionaire fees ratio declined slightly by 40 bps to 8.8% due to the increase in gold products in the sales mix. For Hong Kong and Macau, rental expenses were down by nearly 17% thanks to the consolidation of POS and rental renewal reduction.
During this period, we achieved an average reduction on rental renewal of about 20%. This is a combined effect of about 30% decrease for the street-level POS and for shopping malls, the rentals stayed nearly flat. Rental renewal reduction shall continue in the second half, and we expect an average rental renewal cut of around 20%- 25% for the full year.
The rental expenses in Hong Kong, Macau shall reduce by around mid-teens for the full year. Inventory analysis. Inventory balances stood at HKD 35.7 billion, an increase of 22.5% compared to the March level, as we usually stock up for our peak season during the mid-year. We expect by end of the financial year, inventory balances to stay at around HKD 31 billion- HKD 32 billion.
Inventory turnover period was 372 days for this first half. This is 35 days shorter compared to the same period last year. For the full year, we expect that inventory turnover shall be lower than 300 days, which is similar to the level of last year. CapEx. CapEx amounted to HKD 410 million in this first half, slightly up by around 3% year-on-year. For the full year, CapEx is estimated at around HKD 1.2 billion- HKD 1.5 billion.
This is mainly for POS refurbishment and also investment in the production facilities. For our capital structure. Net gearing ratio stood at 29% at end of September as we increased our inventories so that we lowered the cash level and also increased the borrowings. We expect net gearing ratio to return to around a mid to high teens level at the end of this fiscal year.
On a separate note, the new hedging mechanism has been fully implemented in this period with the hedging ratio ranging from 35% to 50% during this first half. As at end of September, the hedging ratio was 48%. With the lower hedging ratio, finance costs and gold loans dropped by about one third and cost saving of HKD 25 million was achieved during the period. Lastly, for the cash flows.
The increase in inventories of nearly HKD 6 billion was mainly supported by operating cash flows and gold loans. While the rise in bank borrowings of about HKD 1.3 billion was mainly for the purchase of a jewelry collectible. That is the Pink Star, and also for our CapEx. As such, the lower bank balances versus March level was mainly due to the payment of about HKD 3 billion dividend as the final dividend and special dividend for last financial year. Here concludes my part and Kent will go through the business update.
Okay, thank you, Hamilton. Here I would like to update our business in China and Hong Kong. We opened a net of 107 point-of-sales until the end of September. In mainland China, on the back of the general resumption of growth in the jewelry market and easing trend of consolidation in conventional department store, net openings amounts to 112 point-of-sale this first half year.
In Hong Kong and Macau, consolidation of our network continued. Closures were focused in tourist area while we are continuing to open some store in residential area. Overall, we have a net closure of seven point-of-sale in Hong Kong and Macau. We opened one point-of-sale in the U.S. and two point-of-sale in Japan to capture the opportunities arising from the demand of local customers and traveler in this area.
This slide we provide our retail sales value and distribution of point-of-sale network of the jewelry business in mainland China. By tier of cities, all cities tier rebound to positive RSV growth. RSV performance of tier one, tier two outperformed that of other tiers of cities. By operational models, while all operation models deliver an improvement in RSV performance, shopping mall remained the best performer.
Major openings were still focused in shopping malls with 77 net opens, while consolidation in department store continued with a net closure of 16 store in the first half of the year. We opened a net of 114 jewelry point-of-sale in mainland China in the first half of the year as general sentiment improved on the customer funds and among the franchisee. 105 point-of-sale net addition were under the Chow Tai Fook Jewellery brand.
In view of the improving general consumer sentiment, together with the rising opportunity from the development of shopping malls in the regions, we anticipate the full year opening plan will be a net of 140- 150. To cater to different spectrum of customers, we add a net of nine store under the name of SOINLOVE, which is a wedding brand, and also MONOLOGUE, which is a contemporary brand targeted to young millennial during the period.
Rollout of these two brands shall continue in the rest of the year. R SV and point-of-sale by area in Hong Kong, Macau, and other markets. R SV performance of tourist area posed a turnaround in the first half, resuming to a 1.8% growth. Customer traffic decline narrowed to 8.4% in the first half, from a dip of around 29% in last period.
Share of RSV settled in China, UnionPay, Alipay, WeChat Pay, or RMB, approximately for sales contribution from mainland tourists reduced slightly to 42.6% in the first half compared to last year, 43.4% a year ago. Retail network management, a net of seven point of sale were closed during first half of the year, with most closure located in new tourist areas such as Mong Kok and Causeway Bay and openings in residential areas such as Tsuen Wan and Yuen Long.
In second half of the year, we will slightly open a few point of sale in residential area. A net closure of four to five point of sale is expected for the full year. As Hamilton Cheng mentioned, rental reduction is on track and shall continue in the second half of the year. Customer nowadays are becoming wealthier, more knowledgeable about technology and sophisticated in buying habits.
We must step up focus on attracting and retaining these customers. Here, I would like to share with you our strategy to enhance customer experience. Our Smart+ initiative, which is a business sustainable initiative, enable us to encourage our customers with seamless shopping experience, channel through high quality and innovative products, customer-led production and operation, store differentiation, as well as customers' relationship management.
Here, I would like to share some of our patent and exclusive T MARK diamond. CHOW TAI FOOK T MARK has been gained market share since it first launched last of August. Reflecting that this unique product innovation with high level of transparency about the diamond journey was able to create a brand-new customer experience, well appreciated by customers. As at the end of September, 198 point of sale in mainland China and 33 point of sale in Hong Kong, Macau carry T MARK products.
The rollout will continue, and we target over 300 point of sales to cover T MARK products by the end of the year. An official launch press conference was held in Hong Kong in August this year. The expansion of the presence of Hearts on Fire has been in shop-in-shop, counter-in-shop format primarily. As at the end of September, there were altogether 206 shop-in-shop, counter-in-shop, 21 point of sales and 513 location globally. In first half of the year, ASP of Hearts on Fire products reached approximately HKD 22,000 in Hong Kong and even China, okay? Which is a kind of three time to two time higher than the generic diamond sales in China and Hong Kong. To boost brand awareness, we invite famous Chinese celebrity to attend our art exhibition in Shanghai K11 early this month.
To respond quickly to market dynamic and provide an exceptional customer experience, we must make our production and operation more customer-driven. Therefore, we established a smart manufacturing implementation framework. This framework is characterized by four key revoluting elements: standardization, automation, digitalization, intelligence. I think that is the way how we can improve our efficiency and make our product more agile, tailored to the customer change demand. I would like turn to Danita On to share with us about customer experience initiative and some update to our e-commerce.
Thank you, Kent. Store differentiation has always been our ongoing exercise in recent years in response to customers' demands for unique and personalized shopping experience. MONOLOGUE, launched last year, carries an individualist brand DNA to appeal to millennial customers. SOINLOVE, with products and store layout enriched with a romantic ambiance, caters specifically to the wedding market. As for the Chow Tai Fook Jewellery brands, our POS are segmented into different styles in Mainland China to serve different customer segments.
Further refurbishments on store interiors designs is also in the pipeline. In Hong Kong and Macau, POS with refreshed store layouts and different lifestyle concepts have already been introduced to accommodate the local customer profile and respective positioning of the shopping malls. Apart from providing excellent services and product, we strive to create and retain loyal customers by effectively managing our relationship with them.
As of September 30, 2017, our membership program comprised over 1.7 million members across Mainland China, Hong Kong and Macau. Repeat purchase ratio reached 30.5% in Mainland China and 32.5% in Hong Kong and Macau. Our e-commerce business further accelerated in first half fiscal year 2018, registering an impressive RSV growth of 120.4%, mainly thanks to our strengthened cooperations with major online platform partners.
Our e-commerce business contributed to 5.4% of our RSV and 13.4% of our retail sales volume in Mainland China jewellery business. Average daily online traffic reached 345,000 unique visitors. The number of our followers on our Sina, Tencent, Weibo, and WeChat accounts also reached roughly 3.4 million. I shall turn back to Kent, for business outlook and strategies.
Okay. Thank you. To conclude, 2018 will be a turning point for our business, given the jewelry market recovery. Although the recovery is gradually mine, the industry is expected to return to a sustainable growth. To capitalize on this recovery, our market development will process as follow. In Mainland China, in view of the improving general customer sentiments, together with the rising opportunities from the development of shopping mall in the region, our network expansion is expected to continue to expand in the second half of the year. In Hong Kong and Macau, we will continue to optimize point of sale efficiency in tourist area and selectively open store in residential area. In the U.S., we shall progressively expand wholesale business with reputable brand retailers.
Furthermore, we will intensify our focus on customer experience in four key area to foster the sustainability of the group. Product offerings will be differentiated through innovation, exclusive craftsmanship and compelling design. Store differentiation will continue in order to increase the uniqueness of our brand. Production and operation will be enhanced from a customer-centric perspective.
Finally, customer relationship will be further elevated through our membership program. Despite the up and down in the economy, there is always a true demand for jewelry, as it is deeply attract to emotional needs and desire in different important occasion. We therefore remain optimistic about the long-term prospect of the jewelry market. This is the end of the presentation. Thank you