Thursday, March 28, 2024
 
Columnist
Martin Hennecke
 
HENGDELI
HKEx Stock Code : 03389 
 
Corporate Profile
Engaged in the retail and distribution of middle-to-high-end consumer goods including internationally renowned watch brands, the related after-sale service and manufacturing of packaging and display products.

Business Review - For the year ended December 31, 2012

During the year under review, the Group's business primarily focused on the build-up of the retail network in the Greater China region with a core presence in Mainland China and Hong Kong, supplemented with comprehensive customer services, manufacturing of packaging and display products, brand distribution and jewellery business.

Retail network

During the year under review, the Group developed its businesses with its principle of ¡§seeking progress amidst stability¡¨, and has achieved better results through effective management. The Group adjusted its pace in retail network expansion in response to market pulse. Regionally, the Group reinforced its leading position in first tier cities while it strengthened itself in and expanded into second and third tier cities. Strategically, the Group placed greater emphasis on and improved the complementary positioning between the mid-end network of ¡§Prime Time¡¨ and ¡§With Time¡¨ in mainland and the high-end network of ¡§Elegant¡¨ in Hong Kong. It also launched several measures to optimize its outlet management in order to comprehensively improve the performance of its retail outlets, and made great efforts to have more model outlets with high productivity.

The Group also focused more on customer service by extending the coverage of its multi-level comprehensive network in Greater China to pre-sale, in-sale and after-sale aspects, so as to grant a greater confidence and guarantee to its consumers. With all these strategies, the Group managed to maintain a satisfactory total sales and profit margin despite the uncertain market environment.

Due to the high base of sales income in the corresponding period last year and the downturn in high-end retail market of watches this year, the Group's same store sales has recorded a milder growth. Nonetheless, the sales of middle-end watches still managed to achieve a pleasant growth with an increment of 22.2%, which also highlights the Group's overall growth.

Our retail network spans across the Greater China region where retail stores are mainly ¡§Elegant¡¨, ¡§Prime Time¡¨/¡§Hengdeli¡¨, ¡§With Time¡¨ and single-brand boutiques. ¡§Elegant¡¨ focuses on topgrade internationally renowned brands while ¡§Prime Time¡¨/¡§Hengdeli¡¨ sells middle-to-highend international brands, and ¡§With Time¡¨ sells middle-end internationally renowned watches.

Following effective integration and expansion, as at 31 December 2012, the Group operated a total of 452 retail outlets in Mainland China, Hong Kong, Macau and Taiwan, representing an increase of 24 outlets over the end of first half of the year. Of these outlets, 23 were ¡§Elegant¡¨ outlets (5 in Hong Kong, 17 in Mainland China and 1 in Taiwan), 282 were ¡§Prime Time¡¨ and ¡§Hengdeli¡¨ outlets (248 in Mainland China and 34 in Taiwan), 70 were ¡§With Time¡¨ outlets (68 in Mainland China and 2 in Taiwan) and 77 were single-brand boutiques (41 in Mainland China, 16 in Hong Kong, 1 in Macau and 19 in Taiwan).

The Group has been in good partnerships with numerous world-renowned watch suppliers, including SWATCH Group, LVMH Group, RICHEMONT Group and ROLEX Group. As at 31 December 2012, the Group distributed over 50 international brands from the above four major brand suppliers and other independent watchmakers, including Breguet, Cartier, Vacheron Constantin, Jaeger-LeCoultre, TAG Heuer, Zenith, IWC, Rolex, Omega, Van Cleef & Arpels, Scatola del Tempo, Longines, Tudor, Tissot, Frederique Constant and Mido. The Group continued to step up its efforts in bringing in and aligning brands to enhance its brand portfolio, paving the way for long-term business development and ongoing enhancement of overall sales performance.

Mainland China

The Group had developed a comprehensive network of retail outlets in Mainland China, with heavy presence in key regions including Shanghai, Beijing, Northeast China, Zhejiang, Jiangsu, Henan, Shanxi and Hubei, which facilitated the consolidation of its market share. Meanwhile, the Group is also strengthening its retail network by expanding into Southwest and Central China as well as other regions.

Hong Kong and Macau

Due to the sluggish global economy, Hong Kong saw a slower growth in the retail business, especially for the high-end consumer goods, during the year. However, sales of Elegant (Hong Kong) remained stable during the year under review, which was attributable to the Group's extensive, solid and loyal client base in Hong Kong, the interaction between retail outlets in Mainland China and Hong Kong, as well as the comprehensive after-sales service network across the Greater China region, ensuring after-sales guarantees for Mainland tourists shopping in Hong Kong. Because of the difficult overall business environment and the change of RMB-HKD exchange rate, the Group recorded a drop of approximately 1.4% in sales in Hong Kong as at 31 December 2012 as compared to the same period last year, which was an actual increase of 1.1% if the effect of exchange rate changes is excluded. Gross profit margin registered another growth of 50bps as compared with the corresponding period last year.

During the year under review, to accommodate the demands from market and brands, the Group opened 8 shops in Hong Kong, most of which are brand boutiques and brand image shops for brands such as Omega, Lange, Vacheron Constantin, IWC, Jaeger-LeCoultre and Cartier. Brand boutiques and image shops not only satisfied the market demands for high-end watches, but also strengthened the ties between the Group and brand suppliers, consolidating the Group's market share and even forming economies of scale when teamed up with Elegant multi-brand shops, thus, effectively boosting business results.

To reorganize and consolidate resources and further improve the image and performance of retail shops, the Group merged the two Elegant multi-brand shops located in Times Square, Causeway Bay during the year. The new shop after merging is spacious and magnificent with a mixed air of elegance and fashion, offering watches of various prestige brands with different designs, such as Breguet, Blancpain, Tiffany and Glashutte. The shop combines business operation with culture, providing an ideal place for consumers in pursuit of a cultivated lifestyle.

As at 31 December 2012, the Group operated a total of 21 retail outlets in Hong Kong, of which 5 were Elegant shops that sell various brands and 16 were single-brand boutiques or image shops.

Currently, the shops operated by the Group in Hong Kong are mainly located in prime districts such as Tsim Sha Tsui, Central and Causeway Bay. The Group will consider more business districts in light of the market's demands, so as to provide timely and considerate services for consumers.

The Group's retail business in Hong Kong mainly focuses on high-end brands, including Vacheron Constantin, Breguet, Cartier, Jaeger-LeCoultre, Omega, Chopard, Panerai, Zenith, IWC, Franck Muller, Piaget, Blancpain, Dewitt as well as independent watchmakers namely Scatola del Tempo, Christophe Claret and Heuge. During the year, certain new brands such as U-Boat and Devon were introduced. The sale of such high-end brands fully complemented our middle-end retail business in Mainland China and Taiwan, thus creating tremendous synergy.

Benefitted from the heating-up tourism in Macau, the Omega boutique in Macau again achieved positive sales. Given the changing economic conditions and improved economic status of Macau, the Group's businesses in Hong Kong and Macau will definitely complement well with each other, which will further consolidate the Group's leading position in the region.

Taiwan

The retail business of the Group in Taiwan is currently building and stabilizing its network.

Similar to its sales strategy in Mainland China, the Group focuses on the sales of mid-end and high-end watches in Taiwan. As at 31 December 2012, the Group operated a total of 56 retail outlets in Taiwan, mainly located in major areas including Taipei, Taichung, Kaohsiung, Hsinchu and Chiayi. Except for one Elegant shop which sells top-class watches and certain boutiques, all retail outlets are Hengdeli and With Time shops which sell mid-end and high-end watch brands like Rado, TAG Heuer, Longines, Tissot, Certina and Hamilton.

During the year, the sales in Taiwan remained steady. Currently, the target consumers in Taiwan are mainly local customers. However, following the signing of The Economic Cooperation Framework Agreement (the ¡§ECFA¡¨), the cross-strait business relations will be enhanced and the economic ties among Mainland China, Taiwan and Hong Kong will become closer. It is expected that more Mainland tourists will travel to Taiwan, creating new opportunities for Taiwan's retail industry.

Customer services and maintenance

During the year under review, the Group's customer services and maintenance had focused on the broader and deeper collaboration with brand suppliers and the solicitation and training of maintenance technicians. Apart from Tissot and Hamilton, our customer service platform had also opened up express Green Channels for several brands to provide timely maintenance services, of which the efficiency had been further enhanced along with the effective communication with brand suppliers. By means of ¡§exchange in the air¡¨, the maintenance procedure was greatly simplified and catalyzed so as to provide customers with the most convenient, fastest and comprehensive assistance, thus winning general applause from our customers.

The high-calibre maintenance technicians are the foundation of the Group's customer services.

During the year under review, the Group had been active in dispatching selected maintenance technicians to the brands for training purposes while making our maintenance technicians more internationalised. The Group's customer services are guaranteed to have achieved international standards through the consistent supply of high-calibre maintenance technicians accomplished by our good partnerships with watch maintenance schools in countries like Sweden and Japan. Our outstanding pre-sale, in-sale and after-sale services have drawn more and more brands' interests, thus making breakthroughs in the depth and scope of our partnerships with brands. During the year, the Group signed watch maintenance agent agreements with multiple brands such as Balmain, Franck Muller and Cerruti 1881. Currently, the Group has become the maintenance agent for 65 international brands, of which 46 brands appoint us as their exclusive maintenance agent.

The provision of ¡§advanced technology, online warranty, efficient management and considerate services¡¨ is one of the Group's assurance to our customers and brand suppliers. The Group delivers all-rounded services to customers through an interactive customer service network consisting of ¡§repair and maintenance service centers¡¨, ¡§repair service stations¡¨ and ¡§repair service points¡¨ and provides the most convenient and tailor-made services to customers by way of warranty in the Greater China region including Mainland China, Hong Kong and Taiwan. The service hotline 4008 acts as the Group's centralized service channel for the general public, offering timely advice and providing assurance and confidence to customers.

Packaging and display products

In spite of China's economic slowdown, the packaging and display segment (Guangzhou Yadi) of our watch business achieved steady development. The Group had strived to broaden sources of income and reduce expenditure by strengthening internal management and minimizing costs, and at the same time, optimized the production process and enhanced the quality of products by introducing new technology. During the year, Guangzhou Yadi was awarded the titles of ¡§A-Grade Harmonious Business Unit¡¨ and ¡§A-Grade Creditworthy Business Unit¡¨.

Our creditworthiness and quality services had gained broad recognition from customers and enhanced our competitiveness in the market. During the year under review, the Group widened partnerships with different brands and expanded product offerings with 12 brands involving over 40 products. Apart from the core product types such as standard packaging and display windows, the Group also diversified display products and brand sales products. This had firmly supported the fast development of the Group's principal businesses including the retail business and also laid a solid foundation for the Group's profit growth in the future.

Brand distribution

In the brand distribution business, the Group has always sought cooperation with brand suppliers in market-friendly approaches, which leverages on each other's advantages to strive for a coordinated division of labour in the integration of sale and supply.

The Group has about 400 wholesale customers in almost one hundred cities across China. The Group distributes and exclusively distributes world-known watch brands including TAG Heuer, Zenith, Bulgari, Hamilton, Certina, Balmain, Tissot, Mido, CK, Maurice Lacroix and Frederique Constant.

The Group has maintained good partnerships with brand suppliers and numerous retailers. Backed by their extensive and tremendous support, the Group has achieved harmonious and mutually beneficial development.

Jewellery business

During the year under review, the Group became a substantial shareholder of Ming Fung Jewellery Group Limited (¡§Ming Fung¡¨) following the completion of the stock-for-stock acquisition deal with Ming Fung. During the year, Ming Fung has commenced the integration of mid-and-highend jewellery sale business in Mainland China. The wealthy population in Mainland China is emerging while people's consumption on jewellery remains low. The Group believes that the development of the jewellery business will act as a new source of profit and generate favourable returns for our shareholders.

Business Outlook - For the year ended December 31, 2012

With the global economic conditions remaining complex and uncertain, corporates are facing various challenges ahead. However, the Group still has full confidence in both China's economic outlook and the Group's further development. With China's consistent policy of sustaining steady economic growth, we believe that the Group will surely benefit from the opportunities created by Chinese government's endeavors to advocate and ensure an innovative and solid economy with a focus on increasing the quality and effectiveness of economic growth.

In the year ahead, the Group will adopt the principle of ¡§seeking progress amids stability¡¨ for business development in accordance with its established strategic blueprint. The Group will develop internationally renowned watch brands prudently in line with market demand and enhance management standards, as well as safeguard its core business by extending its retail network through strengthening the management of existing outlets and enhancing the quality of its retail network. Concurrently, the Group will continue to optimize the structure of our three retail network systems, namely ¡§Elegant¡¨, ¡§Prime Time¡¨/¡§Hengdeli¡¨ and ¡§With Time¡¨, by adopting international and professional standards, so as to better align the configuration of our network with market demand. The Group will also continue to strengthen its customer service system and packaging business in the Greater China region, and cooperate more closely with brand suppliers.

In Conclusion, in the current economic conditions, the Group will continue to closely monitor and respond to latest market trends. The Group will cautiously expand its middle-to-high-end watch retail and related businesses, focusing on Mainland China market with Greater China markets including Hong Kong being complements. The Group will strive to achieve steady and sustainable profit growth in a pragmatic manner to generate more satisfying returns for our shareholders, investors, staff and society.

Source: Hengdeli Hold (03389) Annual Results Announcement
Chairman Zhang Yuping Issued Capital (shares) 4,803M
Par Value HKD 0.005 Market Capitalisation (HKD) 9,029M
 
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