Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
PARKSON GROUP
HKEx Stock Code : 03368 
 
Corporate Profile
The principal activities are the operation and management of a network of department stores in the People's Republic of China (the ˇ§PRCˇ¨).

Business Review - For the year ended December 31, 2012

Global economy in the year 2012 started with the return of uncertainties, the economic recovery in the United States was losing steam, worry of economic collapse in the European Union (ˇ§EUˇ¨) region resurfaced, the Japanese economic growth was essentially stalled, the economic growth in PRC slowed considerably and geopolitical risk in selected corners of the world have all added pressures to the already weak and fragile recovery of the world economy from the 2008 financial crisis and threaten a relapse that will again put the world economy right back into recession.

Quick actions and decisive policies by the central bankers and the policy makers around the world were instrumental in avoiding a double dip. Actions such as the further quantitative easing or better known as QE3 was announced by the Federal Reserve, the EU nations rallying behind its troubled member nations and the reversal of PRC's monetary policy have provided the much needed stabilization to the world economy which has shown stronger growth in the last quarter of the year.

PRC economic growth declined substantially in the year 2012 with a reported growth rate of 7.8%. Sequentially, the slowdown of growth appears to have bottomed out in the third quarter of the year with growth rate rebounded marginally in the last quarter of the year. The economic growth has been slowing largely due to its own macro tightening policy ever since the second half of the year 2010 to unwind the aggressive monetary stimulus introduced right after the 2008 financial crisis. This managed slowdown, however, ran into stronger than anticipated external headwinds and to avoid the risk that growth might slow down too much and too quick, policy action has been rebalanced and replaced by measures to support growth. The easing of inflationary pressures allowed the PRC government to relax its monetary policy and to introduce additional fiscal measures to speed up the transformation of its economic growth model.

Supported by strong investment growth, new fiscal measures introduced to facilitate PRC's economic transformation to a consumer-based economy and strong real income growth of 9.6% and 10.7% for urban household and rural household respectively, domestic demand recorded a respectable growth rate of 12.1% in the year 2012.

Given the relatively tougher operating environment and the increasing competitive market place, the Group had done reasonably well with improved turnover and good progress made in various parts of the business to build sustainable growth in the future. The Group recorded total GSP of RMB17,211.2 million, an increase of 4.8% from the same period of last year. In line with the generally weaker sentiment on discretionary spending, the SSS growth grew marginally by 0.4%.

The Group's overall merchandise gross margin declined by 0.4% in the year 2012 due to a combination of lower sales contribution from flagship stores that enjoy higher merchandise gross margin, weaker gross margin performance from selected flagship stores and higher sales contribution from the younger stores and new stores with lower merchandise gross margin. In line with the weak SSS growth, weaker merchandise gross margin and the incremental operating loss of new stores, the Group recorded an operating profit decline of 25.6% to RMB1,122.0 million. Operating loss for new stores in the year 2012 (6 stores opened in the second half of last year and 4 stores opened in the year 2012) came in at approximately RMB162.0 million.

The decline of operating profit has also been impacted by the inclusion of (i) additional rental and property management expenses of RMB86.5 million in relation to the early extension of lease agreement of selected flagship stores; (ii) expenses of RMB19.1 million in relation to the share options granted to 642 eligible employees; and (iii) RMB16.5 million of withholding tax provided in relation to the planned distribution of dividends from the onshore subsidiaries.

Concessionaire sales recorded a growth of 4.7%, marginally outgrew the direct sales and accounted for approximately 90.4% of the total merchandise sales and the direct sales increased by 4.4% and accounted for approximately 9.6% of the total merchandise sales.

In line with the Group's efforts to rationalize its store portfolio, enhance the stores' image and to improve the operating efficiency, the Group closed 2 stores during the year and carried out and completed phase 1 of the major remodeling for our flagship stores in Shanghai and Beijing. Phase 2 of the remodeling program for these stores will start in the second quarter of the year 2013 and complete before the end of third quarter of the same year. Management is confident that this remodeling will enhance the competitiveness and productivity of the stores.

In view of the softening market sentiment and increasingly competitive market place, the Group scaled down its expansion program. The Group opened only 4 new stores in the year 2012 and delayed the opening of another 3 stores to the year 2013. During the year, the Group introduced its e-commerce platform which forms part of the broader multi channel marketing program to enable the Group to better serve its customers.

Business Outlook - For the year ended December 31, 2012

Global economic condition will remain challenging in the near future even though acute risks such as the possibility of double dip in United States, hard landing in PRC and economic collapse in EU region have subsided. The global economic growth will remain weak and will continue to witness increasing divergence between the fast growing Asia and Latin America economies, the gradual but increasingly stronger growth in United States, the continuous recession in Japan and continuing uncertainties in the EU region. The developed economies, most notably, the United States, EU region and Japan will continue to face, in varying combinations, two main obstacles to growth, namely fiscal consolidation and bank deleveraging.

PRC's economic growth appears to have bottomed out in the third quarter of the year 2012 and the stronger economic growth in the final quarter of the year supports the cautiously optimistic view of a stronger PRC economic growth for the year 2013 as the positive impact of the pro-growth monetary policy start to kick in. Against the backdrop of weakening external demands amid the weak external economic growth and the increased cost of production as well as the appreciation of RMB against other major currencies eroding the competitiveness of made in China products, the economic growth in PRC will have to increasingly rely on the other two main pillars of the economy for growth, namely, the fixed asset investment and domestic consumption.

The medium to long term economic reform objective of transforming the economic growth driver away from the traditional export and fixed asset investment to domestic consumption will continue to be pursued. In this respect, fiscal measures introduced in the past one year such as increased minimum wages, increased social security payment and the replacement of business tax with the more efficient value added tax are consistent with such objective and more fiscal measures are expected in the near future to further support the expansion of domestic consumption market.

In line with the macroeconomic direction and the expectation that the household incomes will continue to outgrow the economic expansion to improve the structural imbalance of the economy, the Group strongly believe that emergence of middle class should accelerate in the next decade. Given the Group middle to middle upper market position, the Group is strategically positioned to capitalize on this anticipated improvement in the economic structure of the PRC.

The Group will continue its refined expansionary strategy with lesser but bigger new stores to be opened in existing markets or nearby cities to better utilize the Group many advantageous positions. Nevertheless, increasing competition is inevitable in this ever changing and maturing retail market. To maintain its competitive edge, average size of new stores will increase gradually as the Group seeks to increase its offering of value merchandise and quality services to better service its customers, the Group will continue to invest in the merchandise assortment with an aim to introduce new and distinctive brands with latest range of products in the market place ahead of its competitors.

Source: Parkson Retail (03368) Annual Results Announcement
Chairman CHENG HENG JEM Issued Capital (shares) 2,811M
Par Value HKD 0.02 Market Capitalisation (HKD) 9,050M
 
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