Wednesday, January 27, 2021
Martin Hennecke
HKEx Stock Code : 00590 
Corporate Profile
Principally engaged in the sourcing, designing, wholesaling and retailing of a variety of platinum and gold jewelleries and gold ornaments, gem-set jewelleries, jadeites, gemstones and other accessory items.

Business Review - For the year ended March 31, 2013

Hong Kong and Macau

Hong Kong remained the key market for Lukfook, contributing 65.0% (2012: 69.5%) of the Group's total revenue amounting to HK$8,715,955,000 (2012: HK$8,278,475,000). This represented a growth of 5.3%. As at 31 March 2013, the Group operated a total of 37 (2012: 32) retail outlets in Hong Kong including a net increase of five new outlets in the year under review.

Mainland Chinese visitors continued to be the primary customers for the Hong Kong retail business, contributing around 60% of the Group's retail sales in this market. According to the Hong Kong Tourism Board, arrivals from Mainland China reached 34.9 million in 2012, representing an annual growth of 24.2%. In the first quarter of 2013, Mainland arrivals grew by 13.8%. Tourism-related sales revenue was driven mainly by the increasing number of middle-class Mainland tourists. Moreover, the continued appreciation of the Renminbi and the absence of value-added tax provided positive travel sentiment and strong demand for luxury products, both of which boosted local retail sales.

Macau tourism has also been booming as a result of the Individual Visit Scheme. In 2012 Mainland arrivals reached 17 million, representing an increase of 4.6% over the previous year. In Macau, the Group had 9 (2012: 6) self-operated outlets as at the end of March 2013. Revenue generated from the Macau market amounted to HK$1,751,000,000 (2012: HK$1,337,705,000), representing a spectacular growth rate of 30.9%.

The Group has been diversifying its product portfolio to provide customers with wider selection of choices. Since 2010, the Group has been taking advantage of new business opportunities from the mid to high-end watch market. As at 31 March 2013, the Group carried 23 watch brands, including BALL and its BALL for BMW series, BULOVA,CERTINA, COINWATCH, CORUM, DOXA, ENICAR, ERNEST BOREL, GRONELELD, H. MOSER & CIE, HAMILTON, HARRY WINSTON, LAMBORGHINI, LONGINES, LUDOVIC BALLOUARD, MAURICE LACROIX, MIDO, OMEGA, PHILIP STEIN, RADO, TAG HEUER, TISSOT and URWERK. For the year under review, the watch business contributed a revenue of HK$236,810,000 (2012: HK$202,554,000), representing 1.8% (2012: 1.7%) of the Group's total revenue with 16.9% growth over the last year.

In the past years, the Group generated publicity and enhanced its prestigious brand image by upgrading the stores' presentation and service, embarking upon extensive marketing campaigns, and executing a wide range of joint promotions, exhibitions and sponsorships, all of which achieved impressive results. The Group has also focused on identifying potential development opportunities and reviewing all aspects of its infrastructure to ensure that Lukfook remains an attractive brand to customers, and these efforts continued throughout the year under review.

Mainland China

The Group continued to benefit from the fast expansion in Mainland China during the year. Revenue from Mainland China amounted to HK$2,841,582,000 (2012: HK$2,204,624,000), which represented 21.2% (2012: 18.5%) of the Group's total revenue and 28.9% growth over last year.

According to the World Gold Council, over 75% of all urban Chinese women now own more than one significant gold piece. The demand for gold and gold jewellery as investments or accessories continues to be strong in the Chinese community, especially in Mainland China, where there has been positive economic development and increasing prosperity over the past decade. During the year, the Group strove to further penetrate the Mainland Chinese market and expand its footprint from first-tier cities to lower-tier cities. This was evidenced by the 78 self-operating outlets and 944 licensed outlets under its domain, of which 17 and 186, respectively, were newly opened.

Overseas Development

Adhering to its motto ¡§Brand of Hong Kong, Sparkling the World¡¨, Lukfook has been expanding in the Southeast Asian market, Canada and the United States. During the year under review, the Group operated four overseas outlets, including one in Singapore, two in the United States and one in Canada. In January 2013, it renovated and expanded its store in New York, doubling the gross floor area. The new shop offers a warm and cosy environment for customers, providing the most enjoyable shopping experience possible.

Business Outlook - For the year ended March 31, 2013

The Group will take a cautious approach in light of global economic uncertainties and its effects on the jewellery industry. The Group believes that Mainland China remains a promising market in the long run because of the increasing disposable income, a rapid urbanisation rate and government policies favouring domestic consumption. However, the sluggish global economic recovery and slowing economic growth in Mainland China may pose a potential threat to the industry in the near future.

Nevertheless, in order to capture the vast market potential in Mainland China, the Group will expand its retail network mainly by the licensing model in third- and lower-tier cities. In addition, opening flagship stores in prominent cities is one of our strategic moves to strengthen our market penetration there. Therefore, subsequent to 31 March 2013, the Group unveiled the establishment of a flagship store in Wuhan in May 2013. Lukfook will look to add approximately 200 new stores in the coming year mainly in the Mainland China market.

The Macau market has generated substantial profit contributions for the Group. With stable tourism arrivals, a new flagship store which was the Group's largest store worldwide located at Avenida de Almeida Ribeiro was opened in June 2013. The Group aims to open more stores in casinos and resorts to efficiently reach our target customers. In Hong Kong, our major geographic profit contributor for the retail business, rising rental costs continues to pose a challenge to the Group's operating costs, but it is expected to ease with the slowing economy in the near future. In response, the Group will expand its network along high-traffic railway stations, striving to maintain rental costs at reasonable levels and searching for opportunities in prime locations as appropriate.

With locations in Singapore, the United States and Canada, the brand continues to gain exposure in overseas markets. The Group will also seek new locations in attractive markets, both new and existing, to further establish its global footprint.

The international gold price is likely to continue fluctuating, and may strongly influence demand for gold. Recently in April and May 2013, due to a slump in the international gold price, there was an influx of gold buyers in Hong Kong, Macau and Mainland China, boosting the demand for gold products and particularly gold wedding items. As a result, in April and May 2013, despite the decrease in gross margin, the increase in sales volume has led to a sizable gross profit growth in gold products. In addition, up-selling of gem-set products also helped generate double digit growth in their respective sales.

To boost productivity, operating efficiency and management skills and to provide quality staff training on product knowledge, sales skills and customer service, the Group expanded its regional offices in Beijing, Shanghai, Wuhan and Nansha as well as its administrative office in Shenzhen during the past two years. The Group believes that doing so will help enhance quality of human capital of both our self operated shops and licensed shops. All these will also support store openings in Mainland China and ensure sustainable development in long term.

To strengthen its brand image, the Group will continue to leverage traditional and emerging mass media advertising. Another effective means of promoting the Lukfook brand is through our own stores. Following the opening of flagship stores in Wuhan and Macau, the Group will implement a similar strategy and continue to identify suitable locations in prominent cities to establish additional flagship stores.

Another initiative is optimising the Group's product mix to improve overall margins. As gemset jewellery products enjoy higher gross margin than gold and platinum products, the Group will put greater effort into enhancing sales of such products via various initiatives and crossselling promotions.

Looking ahead, on-going global economic uncertainties could make 2014 a challenging year. Therefore, the Group will remain vigilant, and continue to implement its business strategy as planned while actively responding to market challenges and opportunities. The Group believes its competitive strengths will continue to secure market share and strengthen its leading position in the international jewellery retail market.

Source: Luk Fook Hold (00590) Annual Results Announcement
Chairman WONG Wai Sheung Issued Capital (shares) 589M
Par Value HKD 0.1 Market Capitalisation (HKD) 13,255M
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