Monday, November 30, 2020
Martin Hennecke
HKEx Stock Code : 03666 
Corporate Profile
Principally engaged in the operation of Chinese restaurant chain stores in Mainland China and Hong Kong.

Business Review - For the year ended December 31, 2012

In 2012, we opened 15 new restaurants, compared to 22 in 2011. Fewer stores were opened than budgeted was due to the economic slowdown and delays in receiving premises from property developers. Nevertheless, new stores performed very well ¡V with 13 Shanghai Min and two ¡§the dining room¡¨, a new brand, both recorded operating profit by year end. The satisfactory performance of our new stores was partly attributable to improvements in overall restaurant planning and site selection, and our ability to adjust our business strategies in a timely manner and enter into new markets despite a challenging operating environment.

We successfully created a third brand last year ¡V the dining room ¡V targeting the personal spending of the mass market segment. With its casual settings and a mid-priced menu, two restaurants were opened in Hong Kong, which were profitable within the first month of operation and we anticipate to attaining investment payback within 15 months. Within a short period of time, this exciting new brand was well received among Hong Kong consumers and also attracted local media attention. This new brand represents significant, long-term profit and growth potential for Xiao Nan Guo.

Although facing an evolving and demanding market environment since launch in 2010, our highend catering and restaurant brand Maison De L'Hui has attained profit in 2012. Maison De L'Hui provides delicious and healthy Cantonese and Shanghainese cuisines in an elegant and stylish dining environment with quality services. With a start-up operating loss of RMB5.5 million recorded in 2011, Maison De L'Hui successfully achieved operating profit of RMB6.4 million in 2012, and earned customers recognition.

Our core brand ¡§Shanghai Min¡¨ has been facing challenging market condition including government directives on frugality drive and anti-extravagance campaign. The negative effect has been offset to a certain extent by the success of management's foresight implemented a few years ago by establishing restaurants in local communities and shopping malls as we anticipated the growth potential of urbanization; increase in discretionary spending of the burgeoning middle income class, which was supported by the implementation of a multi-brand strategy. In addition, a series of marketing and sales promotion were launched to attract recurring and new customers, to increase table turnover and drive sales with enhanced products and service. In 2012, our Customer Relationship Management (CRM) member base has grown 95,863 significantly to 236,014 as we upgraded our system and ramped up our marketing communication campaign. Besides all these, we have won number of awards in different cities of China and in Hong Kong.

Another new line of business, Xiao Nan Guo branded packaged products, has been well received and is achieving satisfactory sales growth, although its contribution to revenue remains relatively low at this stage. Our branded products enable us to broaden our brand exposure as they are sold in upscale supermarkets and other channels, in addition to our own restaurants.

Moreover, efficient cost management were achieved in 2012 as we effectively and efficiently controlled and strengthened our procurement and supply chain management, while reducing wastage and with the help of economies of scale, our gross profit margin increased from 66.8% in the previous year to 68.1% in 2012 without sacrificing the quality of food quality. At the same time, headquarters management expenses as a percentage of operating revenue dropped significantly compared with the previous year. This reflected economies of scale achieved by successfully growing the company's operation scale. Although our net profit margin ultimately recorded a decrease from 9.8% in 2011 to 8.9% in 2012, it was attributable to the rise in labor cost and increase in depreciation.

Business Outlook - For the year ended December 31, 2012

The mid-range to high-end, full-service restaurant market is projected to grow rapidly in China with increased urbanization and discretionary spending by the country's burgeoning middle class. We will leverage our distinct competitive advantages and execute a sensible strategic plan to expand our networks of restaurants, with multiple brands, by leveraging our hub-and-spoke strategy.

At the same time, we will further strengthen operational infrastructure with the right combination of food safety assurance, experienced and motivated staff, efficient systems & procedures and creative product development. These improvements, along with enhanced marketing and brand recognition, will enhance our ¡¥same-store' sales growth and profitability.

We have the resources and capabilities to achieve company's mission and pursue its vision. So what lies ahead, we confidently foresee, our company are continued dining satisfaction for our customers, and attractive returns for our shareholders.

Source: Xiao Nan Guo (03666) Annual Results Announcement
Chairman WANG Huimin Issued Capital (shares) 1,475M
Par Value HKD 0.01 Market Capitalisation (HKD) 1,770M
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