Investors and friends, welcome to the Sun Art Retail Group Limited 2025/2026 interim results announcement. Last night, we have already sent you by PPT all the information for presentation. If you need to, you can go to the website to company announcements, so you can see the PPT that we will be sharing today. Let me just introduce the management on the stage, Mr. Huang Ming-Tuan, Julian Juul Wolhardt, the Chairman, Desory Wan, the CFO, and also the Head of Investor Relations, Ms. Gu Xiaobei. First of all, Mr. Julian Wolhardt will be talking to us about the executive summary and also some of the existing highlights.
Thank you. I will use a few minutes of time today to go through some of the background and also our three-year plan. For the details, Desory will be talking to you about that later. I would want to talk about the background of the company and the three-year plan, and also some of the possible challenges we may be facing. Because I've been at the company for six months, and in these six months I've learned a lot.
Also, the management is younger in the sense that we have raised a lot of young people to senior management, and also we have brought in outside people as well. I will not go into minor details because you all know what we're about. We are a hypermarket, superstores, and we have a few membership stores and some warehouses. For details, they'll be sharing later. If we look at the strategy and macro, we will have to open more stores. I don't think a good business is a business which is closing stores all the time.
We will have to continue opening stores. For sure, the superstores would be a major area. We are in a pilot phase, and every year we have about CNY 200 million -CNY 300 million in terms of loss. This is a testing ground, and if this is a good business, we will continue. If not, we will make it successful. We think this is still a pilot and therefore, in our profit report, we are still sustaining this as an investment, as a loss. For the large stores, we will not make it as big as before. We will make the stores smaller. We will talk about the details later. Also the number of stores. There will be another 10 stores by the end of the year.
Together with the front warehouses, we will be developing these as well, and there will be integrated development. We're looking at the major thrusts of our strategy in the three years, and we will also look at the risks as well. Stores, products, and people, these are the three things. We are very simple, and we are a simple group of folks. Those are the three things, because if you cannot make those three things successful, you don't want to make things too complex. In the media, you see reports of us and other peers in the industry about restructuring the stores. Yes, that's what we're doing as well. For the 500 stores that we have, we will be restructuring them. We have photos later on, before and after. Before restructuring, after restructuring, what they are like.
Within three years, we will complete the 500 stores restructuring. That is strategic. Next, new stores. Yes, we have already opened up three hyper stores and there are some superstores as well. As mentioned, we will continue opening stores. But for the existing stores, we will be contracting their floor area. As you know, many of our stores are over 10,000 sq m. We may be contracting them to about 7,500 sq m. The reason is because we will be opening up more medium-sized stores and smaller stores, but for the mega stores, we will raise the efficiency. Every day, we are thinking about a fundamental question: Why are we restructuring the stores? Why are we reducing the floor space? It is about effectiveness. For the major big stores, we have to provide data and statistics for each of the stores.
Opening new stores, contracting the store floor space, these are strategies in the macro place. What about stores that are not performing? First of all, we will try to turn them around. It is not like we blindly close 200 stores. No, we will not do that. But what we will do is to come up with a list. For this list of stores, we want to make them more profitable so as to help some of our other operations. Now, after we have done this exercise, if there is still no help, we will close some doors. We have already closed some stores this year. We do not want to do that. We are not willing to do that, but there are instances where we have to do that. For the stores, yes, restructure, make them smaller, and also turn around the not-performing stores.
We will have to continue to do that. As for front warehouses, it is very important in our strategy. Why is that? Because we all understand that online sales is a mega trend. It is irreversible as a mega trend, and China in the future will be O2O. It will not be 100% online or 100% offline. These front warehouses are to serve our customers so that we can have this O2O logic realization. Online is for purchases and for, let us say, if you want to buy 5 kg or heavy products, we send it to you, deliver it to you. These warehouses are very important, and they are very cheap. We will be opening more of them to support our stores. Now, coming to stores again, when we talk about the restructuring, of course, there will be CapEx involved, but we will be managing the CapEx.
It will not be like some of our peers who spend too much on restructuring. It will be much like the CapEx we have had in the past years or even lower, because restructuring does not need to be very expensive. It is not like a hypermarket turning it into an Hermès store. That is not what we are doing. We are very close to our customers, close to our people. We are not going to change our genetics at all. We want our consumers to have a better shopping environment, and we want our products to be well-priced and good quality. For our 500 stores, we will be restructuring them. That is from the store. That is our first strategy. Secondly, for our membership stores. This is a pilot. The growth we see, whether we will be able to grow these membership stores.
If we cannot, we change them into super stores. Just now, we said, for these membership stores, we are losing CNY 200 million-CNY 300 million per year, but we are still putting in efforts to turn around and make them successful, these membership stores, as I mentioned just now. This is about the macro strategy for stores. Secondly, I've talked about the second point is product. After stores is product. Second point, product. For SKUs in the hypermarkets, it was about close to 20,000. That's too many SKUs, really. A major target is in three years, we want to halve the SKUs. In the process, it's not just like we just cut half, just like that, but rather, we will look at the products and also see what products are making it. For our consumers, they see products that they really want.
As we cut SKUs, what we want is to have new generations of new products so our consumers see new products that they want. It is about 6% in terms of our renewal of new product types. From whole year, 6%, and now run rate is about 12%. This is very important for introducing new products. Why is it important? Because the consumers, when they come into the store, they have something to look forward to. As I've mentioned, it is online and offline integration. They will only be excited if they see new products. They want to come and experience in the stores. It's not like the consumers come into the stores and they just look at the new products. No. We tell them, "Why is this milk good?
Why is this new product interesting?" What we are selling is not just a product, it is the experience. That's why we want to cut down on SKUs and increase attractive products and explain to our customers the experience of their products. Thirdly, our private label. That's a third strategy, private label. Historically, you all know it is between 7%-9% in our sales, and on the basis of that, outside, you would have noticed there are two new brands. One is, look at that one, the green one on the banner there, and on the left-hand side, the red one. These are our two new self-owned brands.
For our consumers who want reasonably priced products, they can buy the green label product, or if they want quality products, they can go for the left-hand most. The left-hand most brand, for example, that if they want premium products, premium milk, or organic milk, they can do that. This is about differentiation of our products. This is major in our past two years. These brands were started, introduced in April, and the run rate is 1.5 and sales is 1.5. For these two brands, we have a lot of hopes for them, but we have to go step by step. These new brands are very important for us because the consumers will be able to see very different products. Outside, you would have tasted some of our products, and for milk, pork products, people will be able to see these are differentiated products.
Why is that important? Because in China, what is most cutthroat? Pricing. That is why we introduced these two brands, and product is our main pillar. Why? Because cutting SKU increase new products introduction, and the latter is also complementary to pricing. The third is our self-owned brands. The third strategy is cost control. For each retail company, this is essential. This is the core. We cut costs to allow our consumers to have better priced, cheaper products. This is important. When you think about costs, what do we think about? One, you would have seen in the media, we have the central area. We have not closed the shops, but we have compressed it. Desory will tell you more details later. Every day, we are looking at our fixed costs. We are lowering our fixed costs from rentals, from staff, that is different.
What we are doing is centralized procurement, and we are closing the Central China area. I do not want to close anything, but we are doing centralized procurement now to cut fixed costs. Also, let us say for pork, broadband, and everywhere, we are cutting costs. Cutting costs all round to quicken up our transformation and our operation. We had some good habits and bad habits at Sun Art. Our culture is strong. That we have to retain, but there are some habits where we will have to improve. For example, central procurement is important, and financial discipline is important. Later on, you will see the details how we cut costs. What we want is to have this continue to improve. For the whole year, there will be positive impact. If we do not improve, costs will not be controlled. Yes, cutting costs is very important.
Not only cut costs, but also increase our speed. Speed, speed is what we think about every day. When we talk about the stores cutting SKUs, that increases speed as well, and our products as well, increasing speed. Fourthly, very importantly, when we talk about people. People, we are tweaking that every day. For our strategy, we have a new department set up, and that is raising talents. From Southern China, we have raised the management to go to Eastern China to bring them up. These are young people. We are bringing them up. There are some older ones, management who are retiring. This is about talents, about people, not just cutting people, but very importantly is about allowing the young people to have the chance. We are very focused on this.
From human resources, we have another indicator, whether our average age is coming down. That is very important. We are spending a lot of time this year to lower the average age of our staff. The sum total of that is after three years, I am going to give you higher EBITDA. That is one. Secondly, our CapEx will not be higher than these few years. The result is that our cash flow will be good. Giving you a consistent, sustainable dividend. I am also an investor, but also an industrial investor, so a consistent dividend policy is very important. It is important to us and to you. EBITDA, increasing that, and controllable CapEx, and also good dividend policy, consistent one. You also know that we have a lot of property, but, trust me, as an investor, as management, every day I am thinking about property.
A lot of investors have given me a lot of suggestions. I understand you. Now, as Chairman, I say to the investors, and I hear them talk about dividend, property, and retail strategy. These are the three things that you always talk about. Now, if you have good thoughts, share with me. In Singapore, there is an investor who raised to me a Japanese example, and we are piloting that in a city. It is not we have all the ideas internally generated, but our shareholders and investors, we can all think about the possibilities and share with me if you have any suggestions. Because we look internally and we also learn externally. This will make us improve even faster. From this angle, when we look about the investment highlights, first of all, we are leading retailer in China and we are turning around pivoting.
When we transform, we do it gradually. We have a three-year process. We think through things before we do any implementation. This is not like air raid bombing, because we have 80,000 staff members. These are families. I have a lot of suppliers, a lot of consumers. Every month, we have 130 million customers coming to our stores. We serve a community, not just a few customers. Think about it, 130 million. Now, if we have advertisements and our customers see them, that is significant too, because we are a social enterprise. We will go step by step in our transformation. A second investment highlight is stable cash flow. I talked about cash flow just now. Every day I think about cash flow. EBITDA is very important. CapEx, property are important. I think about these every day.
Every day I ask our CFO, "Do we have more cash in our pocket more than yesterday?" This is the basic value of a company. We see a lot of our competitors every day. I look at their balance sheet. Do you have more cash today than yesterday? But a lot of people play financial tricks. I hope you see through them. But this is what I think about every day. Our fixed asset, I see the building, the Kunshan building. I am very happy. But it is a safeguard for downward trends. But when the market is good, we want it to accelerate our growth. Thirdly, we have significant room for operation improvement. This is my duty, our duty. In the next few months, I would want to give the management an incentive scheme so that it is linked to our shareholders' returns.
Even when they dream at night, they dream about our company. So six months from now, when I come back to report to you, these three items, how have we improved? This is about my accountability. You ask me, six months from now, one, two, three, these three items, how are you doing? And give me the score. So I talked to you about the three-year plan. So that is the three-year plan. Now, I am not going to go into details here, but there is something quite important, and that is, when we talked about each of the details just now, it can go to our OKR. In fresh produce, what we can do, what do we do with FMCG, and what about pricing systems? Every day we are working on each of them. And we have a transformation office set up, a team.
Just now, I have given you the macro background, but actually they work on 500 items, which are in detail. This is about not art, it is about arithmetic. One, two, three, four put together equals 10. After we have set these targets, this is a very important roadmap. I have talked about each step. When you come into the store, what is your experience? How do you feel? This is very important. These are details. If there are problems in the future, we can talk about them. Now, at the bottom is most important. Look at the bottom there. We have a transformation management office. We optimize incentive system, and we make our management team younger in average age. When you come to our monthly meeting, I talk about 10 major items. Development is most important, transformation is important. These are basic.
If you go one level up, nationwide procurement, even for pork, nationwide central procurement. In the past, there was a very good localized system, but times have changed. For some things, we need to centralize, and one of the things we need to centralize is nationwide procurement. Another one is logistics. That needs to be centralized as well. We have a team thinking about logistics every day. We have tens of millions of members, and every month we have 130 million people coming to our stores. We have to think about how we can improve our end-to-end logistics, optimize that, and enhance resilience. Lastly, we are talking about our membership strengthening. Also we will think about where we open up new stores, new front warehouses. This is how we are going to enhance our customers' experience. This is not about shooting everywhere.
It is not like opening 500 stores everywhere. That is not what I am saying. Every day when we think about these new stores and the strategies, which I think about every day, it is very logical. Just now we talked about transforming our stores. I will give you some examples here. In transforming our stores, it comes in a number of directions. First of all, the store itself before product. First of all, the look and feel of the store, most important. This is before and after transformation of the stores in the photographs. This is important. When you go into the store, what do you do? First of all, you see the shelves being lower. The aisles have to be wider. Some of the old style is just siloing the aisles, making them too long, too high. On the right-hand side, you remember how we display the products.
That is not meaningful. Down under, you see how we make the product display more appealing. But after 500 times you do that, it changes. That is why I have to show before and after transformation. We start with certain product types first. If you want to transform 500 stores, we have to spend two to three years to do that. But if you just change the stores, you do not transform the product. That is just one-third of the work. Not just transforming the stores, how they look and feel, but also the products we have to transform. This is Zhangjiang store in Shanghai, an old store with over 10 years history. It is 10,000 sq m. Now, it is 7,400 sq m. SKU was 15,000 post-renovation, representing a reduction of 10,000 SKUs. Business had increased as a result.
When we see this result, we are very confident when the transformation route is clear. With less selling area, with less SKUs, it does not mean that our sales would go down, not at all. We actually have to be very clear in our head what we want to do before we implement. This is simple. We, of course, look at our peers, but we also look at the culture of our company. Of course, we can learn from other people, but we are not other people. We have to have our own characteristics. That is why for Shanghai Zhangjiang store, this gives us a lot of confidence in big store, hyperstore transformation. This is Kunshan Huaqiao store. This is a newer store, and we have transformed it. Selling area, 2,700 sq m, but we have replaced 45% of the SKUs. New SKU rollout rate is one-third.
For lower gross margin area, we have increased. Let us say, for instance, fresh products, we have increased that by 30%. Profits increased even though selling area SKUs decreased, because we are clear about our strategy. But we are not going to 500 stores yet. We will start from these two stores, and then 10, and then 100, step by step. This is important. Now, in here, you are able to see this is 5% for our self-owned brands. Of course, we have a dream, and in the future, 100, definitely not 5% of total sales for our self-owned brands. What we need is we want to work together with big KAs. We want them to be successful. We will continue to support KA development, and we will support our self-owned brands. This is important. This is Huaqiao store.
This is where we are winning in our strategy as well. That was about transformation just now. For Pang Dong Lai and others, there are different strategies for transformation, but we have our own roots. We have about 10 stores or just over 10 stores, which are transformed. Hopefully, by the end of next year, when we come back to you, we will have 40% of transformed stores. After three years, three-year plan, we will have 500 transformed stores. For the next time of transformation, we want to improve every time, because improvement is infinite. A core thought of ours is that we pursue excellence all the time. This is our culture. This culture, we do not change. Now, about products. Today, we have two routes to follow. One is low cost, but still keeping good quality. This is low price and guaranteed quality.
This is the green brand on the left-hand side. But it does not mean that the quality is bad, not at all. We have just launched this brand for a few months. The gross margin is pretty good, would you say? It is pretty good. Yes. It is better than the ordinary products. We have a dream. We are talking about growing to 30%, 40% for our self-owned brands, but it may be higher than that. Why I want to talk about this, it is about our product strategy, and the core of it is how to make China pricing lower. That is core. This is to answer one question, and that is, we do not want to go into price wars, but price wars is what we face every day. Our price is lower than our competitors. Da Run Fa is low price. RT-Mart is about low price.
That is at our core. How do we achieve that? For bad or not-so-good products, we contract those. For good products and our private labels, we increase them. We lower the cost, and our consumers, when they come to our stores, they are able to find the cheapest, the lowest cost products. That is the objective. We are making margins, profits, of course, but reasonable margins. That is why we go on our private brand. Also, we want to increase our new products rate. That is why I said speed. It is that important. Some of you would know that we have also invested into farms for pigs, for milk, et cetera. That is why for milk and for pork, it is easier for us. What we are doing today is that we are testing out organic milk.
For our RT-Mart Select, we are selecting organic milk. For each SKU, it is CNY 50 million gross profit. That is higher than most of our other products. For each of the new products, we need to be differentiated, and they need to be good for our consumers. Also, they will have to be successful together with our KAs. This is an example. I am giving you this as an example. In the end, we want to have a lot of SKUs, and we have two teams who are focusing on our brands. Next, I want to talk about nationwide procurement. This is not just about cutting costs, but it is also about product. I am giving you this as an example, and this example will be true for all product types. The example is pork. We all know pork.
One pig is different from another, I tell you. In RT-Mart, we had 30 - 40 pork suppliers in the different provinces. I do not know why that is, but in the past few months, and after discussing with the management over a lot of time, we have cut 35 suppliers to five. I hope our suppliers make more money because it is not about, I win, they lose, but it is a win-win situation. Compressing 35 suppliers to five, we want those five to make more profits, and we want our pork to be fresher and the price lower. In September, we grew 18.5% in sales. This is incredible, because in China, there is no such thing, growing 18% in pork sales, because we give our consumers better choice. With less suppliers, we can choose better pork, fresher pork.
That is why our sales increased, and our gross margin grew slightly by 3.8%. To me, this is very important. To me, it is very important. It is not like our suppliers make less money. It is like they make more money, those five, and we also make more money. Every day, I am thinking about this. How do I make a win-win-win situation, consumer, supplier, and our company? When the company wins, our staff wins as well. Pork, I have shown that this is feasible. After we have come down this path, we now know that nationwide joint procurement is a good thing. We are going into other products as well, including beef and the other area. It is not just about fresh and FMCG. We are coming up with a win-win-win situation, consumers, the suppliers, and the company for nationwide joint procurement.
We talked about products and stores and cost and also staff. The product quality and cost both will have to be considered. It is very simple for us, just those four strategies that I have outlined to you, but there are a lot of details under that. As investors and management, we think about that every day. Six months from now, when I come back to report to you, I will be talking about these four items. You can ask me, what about your transformation? How many stores have you opened or closed? What about the product quality? How are the talents, people? What about the nationwide procurement? These four things. Every six months when I come back to you, ask these four things, because these are KPIs. When we perform on a KPI, our cash flow will be good, our profits will be good.
Just now, we talked about online and also about our front warehouses. This is it. This is a front warehouse. The biggest is 600 sq m or 500 sq m . Smallest is 100 sq m- 200 sq m. It is about making more efficient delivery. In the future, we hope our superstores, within 29 minutes, our customers will be able to get the delivery after they have shopped in our superstores. So within 30 minutes, the delivery will be done for the customer. For some of our warehouses, it is 1,000 average daily orders, some of them 1,400. You can make the arithmetic, the cost for each of the stores. For these front warehouses, some of them are higher in cost, some of them lower. The sales per meter, some of them are CNY 50,000, some of them lower. It all depends on how many customers there are in this area.
This is just a pilot. We have a dozen or so front warehouses now. You think about it, there are these satellite warehouses, front warehouses around the hypermarket to serve our customers well. This is our strategy. Looking into the future, what do we do? Our online will be some sales target is 40% or even higher within three years, but that is not to replace offline sales. But the two needs to be O2O, integrated. The era of total online, total offline is passed. That time is passed. When we talk about our team, I talk about the You all know kung fu, right? Wushu. There are these points in the body. There are two major important points on the body, and on and offline are these two major points on the body.
We are doing this step by step, and this is about our future dream. Now we have five current front warehouses, but we are actually building out to 10 and more. We have talked about transformed stores and front warehouses, and this is in Kunshan. This is a Chaoyang store, a new store. About a month ago, just over a month ago, we opened this store, and this is totally open. The first day, it is a weekend, 30,000 customers queuing up to come in. As the chairman of the board to see this crowdedness, I was so happy. I couldn't even sleep at night. I was so happy. As for the SKU in this store, we have changed 50%. That is, the assortment renewal was over 50%, but average price reduction was over 20%, but we made more profit. This is about quality and price balance.
For fresh foods, it was 30% sales contribution. Fresh food SKU, we increased it to 2,000. Profits was better than average, and profit margin was better than average. We will continue to very proactively open new stores. It is not just about in the olden times, you want to close stores, close stores. No, we want to open new stores, but not the type of stores we opened in the past. That time had passed with 30,000 sq m . That time has passed. Smaller stores, new stores, and each store will have to have positive cash flow. This is a Kunshan store, and the back of it is an office building, and this is the crowdedness you see and the queue outside. Later on, we will give you a view of what is inside the store, so you have this experience of what it is like inside the store.
This is about my three-year plan. Desory, later on, will be talking about the financials. After the meeting, please ask more questions. Thank you very much.
Thank you, Chairman. Let us look at the financial highlights for the first half. Overall speaking, competition, external, is increasing and consumption had been slack. Our core is to increase our customer to the store. For the six months, including September as of August. For same stores, it is 0.4% increase online, offline. In the process for ASP, it dropped and therefore there had been some drops. Gross profit is CNY 7.719 billion . For gross profit margin, it is increased. As the Chairman had mentioned, for some of our strategies for supply chain and for the renewal rate, these have helped with profit margin.
That is why in the first half it is growing increasingly, and it is 0.7% growth for gross profit margin. The company continues to cut costs sustainably, and it will bring on better or less pressure. Adjusted EBITDA for this year, it is something that we will focus on. The EBITDA is CNY 1.58 billion . This is EBITDA, net of interest, such as EBITDA. It will all the more reflect the actual performance of the company and also better reflect our capabilities. Also in the future, we will be very focused on cash flow performance so that you will be able to see sustainable transformation and sustainable returns to shareholders. These are the two indicators. For non-cash proportion or cash and cash equivalence, it is CNY 13.208 billion . Bank loan is CNY 1.25 billion .
After the dividend payout, the company is still in good position in cash on hand, including our self cash, it is CNY 400 million. In September, there was a process, especially for some of the large sales, let us say Mid-Autumn Festival. Last year, 30th of September period, the settlement and the sales had already been done. That is a little bit about seasonality. As of end of September, our working capital had increased, and the inventory turnover has also optimized. As of end of October, it is 56 days inventory turnover days. For CapEx, it is CNY 265 million. As mentioned just now, the company will continue to invest into transformation of our stores, and also during the transformation process, there will be modular plug-ins to increase the performance of the stores so that there will be better CapEx efficiency so that we will be able to face up to challenges.
We will avoid major overly fast investment so that there will be major CapEx adjustments. We will avoid that. For transformed stores, as mentioned just now, it can be 300,000 or 2 million stores, depending on the stores. Overall, our CapEx will be about CNY 600 million. Compared to last year, it is a savings. But same period last year, we had four membership stores and Kunshan store. These are the items. With the transformation pace that we have in terms of CapEx and procurement centralized, this will be stabilized at CapEx of CNY 500 million- CNY 600 million. For store expansion, there are hypermarkets and superstores and membership stores as shown. The main areas in Shandong, northeastern, coastal eastern, and also southern China, these are the areas where we will be opening new stores. There are three new hypermarkets in Jiangsu, Hainan.
Hainan is also another focus. Every year, there will be five to six new stores. You would think it's not very fast-paced. It is true. Actually, after our modular transformation of the stores, we plugged into the new store so that they ramp up more quickly. For retail space, it is dynamic. We have new stores. We are closing stores. We are transforming stores, and the transformed stores will be contracting or expanding floorage. Last year, we had six stores and expansion. But as mentioned, these will be very careful in our planning. If three to five years, there is no cash flow return for those red-making stores, loss-making stores, we will close them. We do not close them flippantly. You will be able to see that the average ASP had been lowering, or average price had been lowering.
For offline, from June to October, it is a - 2%, and it is stabilizing at this rate. It is not because our B2C business increased online, there had been a lot of cannibalism. No. But for medium to long term or the second half of the year, we are confident that we will be able to stabilize this. Also with our transformation of stores, price, and also supply chain procurement from point to line, we will be increasing our sales and ASP. Retail in the past two, three months, there had been certain major growth, and this is good because in the past few years, B2C operation for our company, our capability is very strong and stable. We have been number one in the industry.
B2C, when we increase the consumer business, we are increasing, well, for same-store order volume, it increased by 7.4%, driving 2.1% increase in same-store sales growth. In the first half, B2C is 1.7% EBITDA growth. Taking away the festival time of September, just April to August, at the core, it is our ticket size increase. For gross margin, first of all, for rental income for our gallery, it is one of the things that we are transforming, and that include a number of things. We are transforming or restructuring our tenants and the product mix, and also our rentals, so as to strengthen our lease-out rate. Our lease-out rate is still strong. At 5%, for the second half, we think that it will be, yes. It is about 5% in terms of unrented store space.
We were talking about gross margin with the optimization of product mix and supply chain. Also with our self-owned profits, our private brands, and also with our warehousing. Overall speaking, our gross margin had increased. All these are positives for our gross margin. As we go from point to line to service, just a metaphor for speaking, we see that there is contribution, and it is very exciting when we look at the gross profit and gross profit margin. We would share the profit with some of our consumers so that we can drive up sales. For expenses, total expenses is CNY 8 billion, which is a decrease of about 6% year-on-year. For delivery expenses, the others is about CNY 600 million. Half of them come from staff expenses, especially for mid to back-end staff expenses for the stores.
In the first half, there had been a CNY 50 million increase or contribution in terms of our cost cuts. That is for rental cost reduction. Through negotiations, we are able to reduce rental costs, and we will continue to see this in the next two to three years. Just now, I talked about the EBITDA being very important, even though it is a slight decrease from same period last year. We see that for 2024, it is a 0.4% growth. That is through our cost cuts and also internally, building on our very strong infrastructure, we are able to save cost significantly. For EBITDA, if we take away two things, the CapEx for this first half and also for our rental costs, the actual result compared to last year's EBITDA for same comparison, the EBITDA is the same.
Even though EBITDA is lower, but compared to last year, taking away these two items, it is the same. It gives us a lot of confidence for the future transformation process and sustainable return to our shareholders. We are very confident, and it is very stable. This is an exciting slide. About 35% of our stores are self-owned properties. From fair value, including our cash on hand, our actual asset is CNY 50 billion. Including our cash, it is CNY 2.7 billion of cash. But if you put in our self-owned properties, which is high quality, it gives us a resource to quicken our process. Of course, steadily to quicken our pace in transformation.
At present, with the competitive scene and also uncertainties externally, it helps us in the process to avoid risks, and at the same time, we build a very strong moat around us compared to our peers. We will be doing well, our three-year plan. With the opportunities, we will be able to deliver the resources for the transformation, at the same time sustain our returns to our shareholders.
Thank you very much, Julian and Desory, for the presentation. Next, we will have Q&A. There are two parts, those on-site and then those online. Those on-site investors, would you please introduce yourself before you ask the question? First, row there. This gentleman.
Thank you, Julian and Desory, and Xiaobei. Merrill Lynch, Luo Chen, analyst. Just now we heard from Julian, and I have a lot of feelings. Our strongest is in Jiangsu Province. That is why we are strong. I am also a Jiangsu person, and Nanjing RT-Mart store is the first hyper store I ever saw. It has been performing well. On the other hand, there are certain situations, and I have three questions. First question, for DCP. For the entire industry, we are well-resourced. We have a lot of experiences and projects. In the next period for RT-Mart three-year transformation, what is DCP? Will it bring on opportunities to RT-Mart stores or not?
Next question concerning the past few years, for the transformation and changes that we have made, there is a major question there, and that is every company is doing transformation. Every company is saying transforming their stores and increasing their efficiency. As someone from outside of the industry, we are just watching this.
Whether it is Yonghui or our company, Sun Art, or other peers, 90% of them are saying the same things. In our three-year plan, in our transformation, compared to the peers in the industry, what is the differentiation? That is the second question. The third question is, I am particularly interested in, since July this year, for the cutthroat competition in the market, especially for the e-commerce companies. They have all these delivery subsidies, et cetera. These four months, July to October, for our same store, if you can segregate our, let us say, ASP and can you talk about this? Just now you talked about the six months and also the Mid-Autumn Festival timing. If we start from July to October, these four months, if you can give us the figures so that we can have a better understanding.
From these figures, we want to understand this subsidy war that is being fought, especially for e-commerce companies, what is happening to us. Whether it is in subsidy or because of subsidy, the consumers have changed in their psychology in terms of Meituan, et cetera, what they are doing and some of their warehouses in their delivery and their subsidies. What is it to us in terms of impact?
Such complex questions you have asked. First of all, in terms of resources. First of all, we will use our own resources to do what we can do first. After the first one, there will be people calling us to say that they can help. For example, organic milk. We have invested in farms as well. The milk you see was actually opened by [Mengniu , COFCO] . We have these resources.
Also same for pork, because we have invested into COFCO pork farm. Also, we have, 10 years ago, invested in poultry. Therefore, we do not have to think too complicatedly. What is important is to start from these consumer products and do centralized nationwide procurement. Because after you have started, you see the advantages, you build the confidence, and our team will be able to replicate that success to different areas. We have already made a start, like chicken, meat, poultry, and pork, we have already started. We encourage our teams not just to cut costs, to make our suppliers profitable, to come up with good products. Just now you said everybody is talking about products and how do we differentiate ourselves. Yes, everybody is talking about transformation. It is like coming to the lesson. It is the same teacher. The textbook is the same.
How come you have a better score at exams than me? That is about implementation power. Every day we tell our staff about strategies. In the past 30 years in the industry, I have been doing that as well. The most important thing, the differentiation, is in execution power. Good things, for example, good products in China, they do not sell well. Not so good products sell well. That happens, too. The most important thing is execution. In our transformation, as we restructure our product mix, we need to learn from peers as well. We have to learn, but at the same time, we have to be clear about who we are. Our consumers are not their consumers. Their income is not other people's income. Our culture is not other people's culture. Every day we think about the same question.
You have to know who you are, who you are, before you can compare. What you said just now is correct. We have brought with us some products, our own brand products today. You have to step back and ask, who are our customers? What is their income range? What is their age range? Then you see that our products are suitable for them. It's not like we sell LV products in our stores. Our customers will not buy LV. Outside you see goji berry products, organic milk, biscuits, because it is relevant to our own customers. Will we make mistakes? Yes. Inevitably, we will. But we will pivot right away. If we see our private brands increase, if the product sales increase, per square productivity increase, these are the indicators.
You ask, "How do I know I'm doing well?" We ask ourselves that question every day. That's why I look at our figures every day to see whether they are improving. If it is not improving, we right away pivot. Figures tell the story. At our company, we look at the figures every day. Just now, you talked about the resources. Yes. This is our KPI or our scorecard as well. Six months from now, look at our new products rate and also look at our private brands, see the performance. That would be our scorecard. But of course, there will be failures. We are going step by step. We go from two stores to 10 stores to 500 stores. This is a way of testing as well. There is technology in that midst, because through different calculations, we learn faster.
We can talk about some of our algorithms. But in selecting products and in the new products rate, we want it to be faster because this is not about shooting everywhere blindly. Certainly not. We have to have our own personality and be true to our own personality. At the end of the day, who's right, who's wrong? As I said, there are these KPIs, and you will be able to know how well we're doing. Just now, your other question was about the subsidies in the China market. We've invested in the China market 30 years. I do not remember those 30 years when there was no price war. This is something that is consistent in China. Oversupply had always been true in the China market. It's not going to change tomorrow. Costs will have to be compressed, products will have to be good.
There is no time when there is no war or price competition. In China, you just have to be very competitive because this is about the industry. It is fundamental. If there is a company which is willing to burn money for 10 years, then at the day, it is a question about the investors. Why do they allow this company to burn for 10 years? What we can do is to do our work well. Cost compress. Private brands increase and also transform. Some teams will be stronger, some companies will disappear. What is basic is that the companies need to be positive in their cash flow. Some companies online, no. For some e-commerce companies, no. They burn money for over 10 years, and this is not right.
I have also to believe that, let's say, if you buy a milk tea and you are given, free of charge, five cups of milk tea, that is not sustainable. We go our own route, but it does not mean that we will be less profitable. Rather with speed and also with centralized procurement, we will compress costs and increase profits. There are some numbers, right, Desory? You want to share numbers?
Yes. As mentioned, the offline process in the first half, for the customers, we have not cannibalized our own offline customers. For the first half, monthly, offline, July was - 2.6%. August is same-store comparison. Last year, August was Mid-Autumn Festival. For these two months, for July to August, we are stable. That is the first point. September and October compared to last year is - 5% to - 6% for customer numbers.
Now, for Mid-Autumn plus National Day, it is only 19 years, it comes once. That is, the two festivals come at the same time. There is the seasonality, and it affects traffic. October is National Day. These affect traffic. October, with this long holiday, and definitely travel will increase, restaurant business will increase. In consumption, it may not be an increase. That is for the Golden Week, National Day. For July to August, it is 11% drop in terms of same-store offline. Most important is the ticket size. The number of items had dropped 6%. ASP dropped by 5.6%. As we develop rapidly online, people are still coming offline. Traffic is still important. As long as we have the orders and we have the customers, there will be business. That is the most important thing.
Also, as our products are right, as our price is right, then the tickets will be coming. As Julian had mentioned, for the companies which are investing into platforms, et cetera, that is not sustainable for other people. For July and August, the ticket size has decreased 11%. Now we see that it is contracting, it is narrowing. We also see, weekday to weekend, the platform has different performance. We are managing that. What is important is that we do our offline business well. For online business, as mentioned just now, B2C business, it is increased to 28% from 22.5%, and it is profitable. Multi-channel capability of ours for Ele.me and Taoxianda, in terms of orders, it is 40% of the total. That is more or less the same as before.
Some people ask, "What happens after Alibaba is no longer a major shareholder?" It does not change as much. For Taoxianda, it is the main reason why B2C is lower in terms of ticket size. It is a 12% drop compared to same period last year. We see the number of items are lower. The ASP are lower. Meituan is different. For Meituan, in the first half, their orders increased by 45%, and their items dropped 4.5%. This is a sustainable business. Meituan, in our total performance, it is about 30%. Also, for our APP, we continue to operate that, but the strategy is slightly different. The ASP is still over CNY 80 , which is a growth from last year. As for the other two channels where there are competition and war, we do not have to pitch into that war.
Our orders and our items in the orders, Taoxianda and Meituan, as they are growing as an APP, I think we are performing reasonably. Our B2C performance is, there is a contribution of about 30%. That is why we say for B2C, whether it is for warehouse or APP mode. Retail is about building on our B2C capability, which had been built over many years in the past.
Thank you. This is Dustin from Morgan Stanley. Julian, can you share the six months your observation from inside RT-Mart with its competition in the market? It is not easy. In the past 10 years, you are cash flow positive, and I think you are among the peers doing very well. RT-Mart and Sun Art had done the right things in the past. Now you are in the company for six months.
Are there low-hanging fruits that you spot, and it is easy to change or transform and see results? Can you share those? Perhaps you think that RT-Mart is doing very well, Sun Art is doing very well, and you want to change some things from small gradually. Next question about SKU. SKU exists for their valid reasons. Perhaps they sustain our gross margin. Just now, I am very happy to hear you are sharing through transformation and through pork, for example, procurement, you are able to increase your profit. Also the gross margin is increased. Can you talk about that a bit more? Third question about property. It is a risk-resistant strategy. Can you perhaps talk about that more? For example, what are some of the directions? For example, there are REITs, for example, in the market or sell first, lease back.
What do you think are the opportunities for your self-owned property? Are there some directions you can share in these areas, please?
For your first question, the reason is because why we invest into Sun Art or RT-Mart, it is because we love it. We see a lot of good about it, and it is only because of this that we made the acquisition this time. It is like bringing up a child. When you are a father, you look at the child, you can think of 100 things that you want to improve on him. Even though he is going to Harvard next year, you still want to change and improve something. So on the one hand, you love the child, but on the other hand, you want to make improvements. Yesterday, I was talking to Desory about ESG, for example.
Our shop are not going for centralized procurement. Nationwide centralized procurement should be something that is obvious. For example, in pork, why not do it, right? Some things, when you look at it, you get surprised. For me, sometimes you would think, "Oh, I am so unhappy about that." On the other hand, I have to think these are opportunities. I should look at them from the reverse and look at them as opportunities, right? Milk, organic milk. We moved into organic milk. You have to understand, we have a very good culture. We have very good fundamentals. Everybody can talk to you about pursuing excellence incessantly all the time. Everybody can say that, and everybody can say all that. Not everyone is successful. Why? Because people are not consistent with what they say.
We love Sun Art because they are consistent, and they have a very solid culture. With this culture, we have confidence and capability. When we talk about centralized procurement, I thought that would take two years at first, but actually it took us just a couple of months to do it, and we can replicate that in poultry as well. That is excellent. There are other things to improve. With the management here, we can replicate and roll out the success to other areas as well. That is very, very positive. I am very confident about our three-year plan. As for reducing SKU, how would this impact our gross margin? Of course, I will think about that. I do not want to cut SKU to make less money. No, I will not do that because we are a financial investor.
If an SKU helps us with margin, of course we will keep it. Some products, for example, with six months, no one buys it. There is no profit. Then it is a no-brainer. We cut it. We start from what is simple. Loss-making SKU, we cut. No one buys, we cut. We do that first before we think of the more difficult actions. For the more difficult actions, we think through first. For some of the SKUs, we will think which need to be kept for certain reasons. We are not a fat man who eats everything all at once. No, we start from the simple, and then after that, after success, we replicate it to other areas. Same for SKU. We will not cut so that we make less money. That is impossible. We will never do that. There is a purpose for cutting SKU. Loss-making, we cut.
Increased pressure for staff in store, we cut it. Also new products rate. We want to increase new products offer. We need to give them a chance to shine and also for the small brands to shine, to sell well, and we make some money from that. We will not blindly cut SKU. Loss-making, we cut. Not selling, we cut. Not profitable, we cut. Six months after, we look at some of the SKUs after six months. Some of the profitable SKU, we also cut because we have something even more profitable coming. New products, for example. We will not just cut KAs irrespectively or SKUs. The third question you asked about sales leaseback and REIT, we will consider all of them. First, we have to do our transformation first and also optimize our products first. The management team thinks the same.
Because when our business is good, when we do REIT or sales leaseback, it will be more valuable. We have to do this first. As I have mentioned, what is very important, as I have mentioned just now, our dividend sharing or payout, we want it to be sustainable and stable. This is something we think about every day. I think about this every day. If we have the cash flow first, and in a few years, we have a long runway built, and every year we see stable dividend payout, then as a company, as a management, we are fine with the shareholders. When you talked about property, we will be doing that. But first of all, we prioritize store transformation. Next question.
Huatai Research, Shi Di. Very happy to have this opportunity to meet you. Now, I have two questions because of time. For our proprietary brands, you have a 10% in four years goal. We also see for some of the other companies, such as Costco, they are bringing in a lot of managers for these brands as well. Are you nurturing internally, or are you bringing in kind of experts or managers from outside? What about the KPIs? Is it customer word of mouth or increase the market share or increase quantity? What is your first KPI? Second question, we said that for the superstores, we may be optimizing those. But now you are also talking about hypermarket optimizing down to 7,000 sq m or so. What is the indication for the future, let's say for next year?
First of all, for stores. We are not artists. Rather, we look at numbers and not thinking about big stores or small stores. I don't think about this way. We look at stores in ROI. We start from the highest ROI. They can be bigger stores or smaller stores, but that's not what I think about. I'm thinking about ROI. That's first and foremost. CapEx. For some of the lower CapEx, perhaps the ROI would be higher. For the lease for some of the stores, they would be higher, fetch higher ROI. ROI is most important. That's how I rank these stores.
Now, we have two pages of new store opening. If you ask me how many stores will open in a year, I don't know. But our new store opening will be faster, bigger in number than closed stores number. Because we don't want to close stores. We have staff to consider. So we have to turn around loss-making stores.
But indeed we cannot, then we close stores. But store opening will be faster in rate than store closing. That's strategic. Now, the floorage will decrease because we may close a 10,000 sq m store and open a 6,000 sq m store. Secondly, about new products. Will we be bringing in new people or new managers? For that question, first of all, yes, we will do that. But we have to step back and think. We have to bring up the people internally, especially young people. For Jiaxing, we have brought up younger people, but we also brought on external staff into the company. How can I put this correctly? It's difficult to answer the question. Why? Because, let's say, if a department becomes very big, of course, we need more people. To reach a target of 10%, we really need more people.
For the private brands, our organization will have to look a certain way, because in every one of our minds, there is a very clear product development strategy. We saw the private brands, the green one, the red one, so we already know the future development. We talked about 10% contribution, so we are very clear as to the future. As for people, we want to bring them up internally, but to reach the dream that we have, we have to bring in external people as well. There is no choice to that. If we are bringing in external people, it means that we are implementing our dream. It means that we are doing the right thing.
Greetings. Anne of Jefferies. Greetings. Two questions. Julian mentioned just now, in the future, we will be looking, focusing on cash flow and EBITDA. For payout interim, there is a dividend payout of HKD 0.085, and closing price yesterday was 4%, and that is pretty good. Looking forward, how do we see dividend payout? Is it according to our free cash flow or what? This is a very important question.
Second question. Julian talked about just now, controlling fixed costs. According to our understanding for hypermarkets, it is rental and staff costs which are fixed, because we cannot have turnover rent in our stores. In the future, is it possible to make this a variable? Fixed costs becoming variable, because at the end of the day, what is most important is same-store sales growth. Sometimes we cannot control the fixed costs. If we can control the variable costs, then the impact would not be as big, because we are working on a relatively low margin. That is the second question.
Third question. Sorry. But I have been thinking for this industry, accounts payables is relatively long. Over the course of 30 years, from when I first started at the company, it was 90 days or even higher. Now it is 60 days or 70 days in accounts payable. For the region, it is 30 days, because these are fast-moving consumer products. But of course, there are more suppliers in China, so accounts payables are higher in days. Which is good for us, benefit us. This also impacts our cash flow. My question is, at what point this 60 days will come down gradually? How do we look at this? Do we need higher margin for that? Do I need to worry about this?
From the dividend point of view, first of all, to answer your question, we are very simple people. We just look at DPS. We are not thinking about payout ratio, just the DPS. Simple. As an investor, I do not know how much I will be paid in dividend next year. I am not thinking about payout ratio. I am just thinking about DPS. DPS is important for the investor. That is fundamental. DPS.
Second point. I agree with you concerning rentals. That is why for each of the major regions, we have an indicator, a KPI. You have to negotiate down the rentals. We have a department for negotiating rentals. You asked about making fixed into variable. When we close some of the stores, there is a lot of fixed costs there. It is a process. This is a very important process. We have to restructure our costs to make it more variable. We have to have more variables versus fixed. That is the right direction.
Sometimes when the fixed cost is too high, we may have to perhaps close the shop. If there is negotiation and it is good negotiation, there will be good results. If the negotiation to negotiate down the rentals go nowhere, then that is not good. Every year, if the rentals continue to increase, it is impossible for us to sustain. If fixed costs continue to increase, this is something we think about every day. Thirdly, for AP, accounts payable, it is a lovely thing, accounts payable. Why I say that? Because it is about cash conversion days. It is not a singular question, but it is about the three items in cash conversion. If I increase the AI, for example, I will have some flexibility in accounts payable. I also know that I can make interest income.
When we talk about supplies, this may be the next stage. Can I disclose this? Yes, I can disclose this. The next step, if you want to collect earlier, then in gross margin, we will have to give up a bit. This is what we want to focus on as a next phase. We are not saying that we want people to pay up earlier and at the same time increase our margin. That is not possible. There is a push and a pull to it. Last point, understand that China is an oversupplied market, and that is why there is a longer accounts payable, because we are oversupplied country in China. Understand that. Mr. Luo, in his question just now, talked about pricing. Yes, it is the same thing. I will not say that, yes, we cut accounts payable and give up margin.
Another question on dividend. Let us say we are at this point now, and cash, part of it is in accounts payable. For prepaid cards, there is half restricted cash sustaining it. Then there is accounts payable, which is not further controllable by much. The question is minimum, how much cash do you need? Let us say the billions that you have, how much can be paid out as dividend? What is the minimum cash that we need?
For this business of ours, there is no minimum cash concept at all. Generally speaking, when your cash conversion days is negative, your cash balance needs to be zero. There is no minimum cash concept at all. If you ask me academically, yes, it is zero. But I hope our CFO to sleep comfortably at night. I hope you understand our dividend policy, our DPS is a long stream consistent.
You asked about property. Yes, we will be utilizing our property so that there is a consistent DPS policy. That is what I am thinking about. I think about The Hongkong Electric Company, all the time. That is what I think about. Sustainable, long stream dividend. That is a core of our business. That is why I said just now that whatever is negative cash business, burn cash business, is not sustainable. Every day we think about cash, positive cash. On hand, I have cash, I have DPS. I have assets, I have DPS. Cash flow is future DPS. Our CapEx will be lower than last year, even though we are doing transformation, but our CapEx will be lower than the year before. This is what the investor think about every day, cash flow.
Now, because there are questions from offline. All right, one more from on-site.
Julian, I have two questions to ask. First of all, in the property PowerPoint, you talked about the market valuation is CNY 38 billion. In 2017, the valuation was CNY 37+ billion . Now, after three or eight years, every square meter valuation is at CNY 11,000. I do not know about this valuation from the GFA number in 2017 to what it is now. Can you talk about the assumption behind the valuation, please?
First of all, valuation is from JLL surveyors. Of course, they will look at our self-owned property, whether it can generate cash forecast projections, and also for the property within the commercial circle and the comparable property market price. Answering your question, our self-owned property, the value is very sustainable. From 2017 to now, there are some increase in our holdings of property, and that would also impact this number to a certain extent.
Second question, from investment point of view, DCP in investment, net cash flow and property, the ratio is higher. Why do not you do a general offer? Discount to net cash is a no-brainer, is not it?
There is a discount. I agree. But other shareholders will not sell to me. It is not like I do not want to acquire. Yes. The public only sold 1%, while Alibaba sold what they sold. You cannot force other people to sell to you, right? You are correct in terms of cash, in terms of asset, you are correct in your calculations. That is why when I talk about cash flow, every day I think about cash flow. And in DPS, if I can have the steady stream going forward, that would be great. So every day, I am thinking about stable development, stable product, stable transformation of stores. But you are right.
But people will not sell to me. What can I do? So what can we do is to lower our heads and just work on our business, improve on it, and also to increase our share performance. Yes. What you are thinking is also what I am thinking.
We have online questions. If you have a question, please press star one. And before you ask your question, please introduce yourself first. Online question, please. Because the discussion just now had been very comprehensive, and the questions have been answered. Any further questions from on-site? We welcome questions here. There is one question online. [Sizzik Shishiofang], please ask your question. Thank you.
Thank you. Greetings, management of the company. I have three questions. First question. Just now, you mentioned the speed. Speed is important, you said. In the three years coming, with 500 stores, they are to be transformed. The speed is very high for that. So what is the transformation rate? So it is the entire store being transformed or partially transformed for each store?
Second question. In the past, their hypermarkets had been closing stores, and superstores had been net increasing numbers. And in mainland China, there is still a lot of room for further development. But hypermarkets or hyper stores and superstores are different in their capabilities. So in terms of management team and also consumption models, what is the superstore strategy? Third is about CapEx. Just now, you have talked about CapEx, and it will be lower than before, you said. So for the stores in the past many years, there are some stores, because there are many of them. Some of the stores are very relevant to the consumers around. But for the galleries, their fitting out is like before 2000s, like 1990s. This is not very young consumer-friendly. Would that impact your CapEx to change them?
Concerning speed, if I can just first of all answer that question. Well, if you say it's very fast or rapid, it's rapid. But if you say it's slow, it's slow. I can do it in two years. But now I say three years because we have 80,000 staff members. I think it is acceptable, the pace. We can do it in three years. Now, for the transformation, the magnitude of it, you asked. In principle, we do not want to close stores. We want to transform them. Some areas will transform more, some less. We will be transforming our well-performing stores more. For the superstores, for example, they have more basics or fundamentals. We have a list of stores to transform.
If a store can show that they are hopeful even though they are loss-making now, we will transform them. I think in terms of speed, we are rather conservative. As for the gallery, you are 100% correct. Yes. You are very polite in saying that they are retro in looks before the 2000s. We have a white name list and a black name list, actually, and we are preliminarily doing transformation. In the next meeting, I can talk about this more.
But this is something that we want to change. This is a look and feel, not of the store only, but also of the galleries. This is something that we have to work on. Let's say, for example, some of the products which are not relevant anymore to the consumer community around, that's not right. This will be slightly slower than the transformation of the products inside our store, but it is also still very important.
Then you talked about CapEx just now. You asked about that. In the transformation of a store, some facilities will have to be transformed. We will do that, but it will not be like 20 years ago for the hyper stores. The facilities, of course, was high-end, but nowadays we will be focusing on the three to five years to do continuous upgrade. So it is not like an investment, and it's fixed for a long time, and it is a fixed cost. Not like that. Also, as Julian mentioned, for the different regions, in the past, the stores have been doing their own procurement. In the future, there will be centralized procurement and new tethering process.
The CapEx, through cost compression, will be lower, maybe by 30%. This is also incorporated in our CapEx. So yes, the speed will be fast and the magnitude will be wide. Also through the spaces that I have mentioned, through centralized procurement, et cetera, we continue to optimize our CapEx.
Any other questions online? Please press star one if you have a question. If there are none, then we close our meeting here. Thank you so much for your participation. We thank the investors for coming to the venue. Outside, we have drinks and snacks of our private brands. Please let us know what you think about these private labels. Thank you.