2 nd Quarter 2003 Results Presentation A member of the Li & Fung (Retailing) Group 28 July 2003

22ndnd Quarter 2003 Results Pr Quarter 2003 Results Presentationesentation

A member of the Li & Fung (Retailing) GroupA member of the Li & Fung (Retailing) Group 28 July 200328 July 2003

Hong Kong Total Retail Sales ValueHong Kong Total Retail Sales ValueYear-on-year % ChangeYear-on-year % Change

-20%

-15%

-10%

-5%

0%

5%

10%0

1/0

2

02

/02

03

/02

04

/02

05

/02

06

/02

07

/02

08

/02

09

/02

10

/02

11

/02

12

/02

01

/03

02

/03

03

/03

04

/03

05

/03

* Source: HKSAR, Census and Statistics Department* Source: HKSAR, Census and Statistics Department

Jan-May 2003 : - 7%

2002 Total : - 4%

22ndnd Quarter 2003 Result Presentation Quarter 2003 Result Presentation AgendaAgenda

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights

2003 Update & Outlook2003 Update & Outlook

Questions & AnswersQuestions & Answers

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Turnover – 2Group Turnover – 2ndnd Quarter Quarter

1,305.11,393.5

343.4 377.6

0

200

400

600

800

1,000

1,200

1,400

1,600

HK

$ M

illio

n

2001 Total 2002 Total 2nd Qtr 2002 2nd Qtr 2003

No. of Stores :No. of Stores : 146146 166 166 151 151 172 (HK) 172 (HK) -- 2 2 - - 4 (Chin 4 (Chin

a)a)

+ 10%+ 10%

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights144 Comparable Stores Sales144 Comparable Stores Sales

329.5326.3

300

305

310

315

320

325

330

335

340

HK

$ M

illio

n

2nd Qtr 2002 2nd Qtr 2003

- 1%- 1%

144 Comparable Stores Sales144 Comparable Stores Sales2nd Quarter 2003 vs. 2nd Quarter 20022nd Quarter 2003 vs. 2nd Quarter 2002

Product CategoryProduct Category

CigaretteCigarette + 13.1%+ 13.1%

Non-foodNon-food + 12.1%+ 12.1%

Packaged Drinks & BeerPackaged Drinks & Beer - 10.5%- 10.5%

Packaged Ice CreamPackaged Ice Cream - 8.7%- 8.7%

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Turnover – June YTDGroup Turnover – June YTD

1,305.11,393.5

322.6

343.4

349.6

377.6

0

200

400

600

800

1,000

1,200

1,400

1,600

HK

$ M

illio

n

2001 Total 2002 Total June YTD2002

June YTD2003

No. of Stores :No. of Stores : 146 146 166 166 151 151 172 (HK) 172 (HK) -- 2 2 - - 4 (China) 4 (China)

+ 9%+ 9%

666.0 727.2

55.060.5

16.3 16.6

0

10

20

30

40

50

60

70

HK

$ M

illio

n


22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Net Profit – 2Group Net Profit – 2ndnd Quarter Quarter

+ 2%+ 2%

* Restated for Income Tax Effect Per SSAP No.12* Restated for Income Tax Effect Per SSAP No.12

****

**

55.060.5

9.9

16.3

7.2

16.6

0

10

20

30

40

50

60

70

HK

$ M

illio

n

2001 Total 2002 Total June YTD2002

June YTD2003

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsGroup Net Profit – June YTDGroup Net Profit – June YTD

- 9%- 9%


****

26.2 23.8**

4.2% 4.3%4.7%

4.4%

0%

1%

2%

3%

4%

5%

6%

7%


22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsNet Profit as % of Sales – 2Net Profit as % of Sales – 2ndnd Quarter Quarter

- 0.3%- 0.3%


****

**

4.2% 4.3%3.9%

3.3%

0%

1%

2%

3%

4%

5%

6%

7%

2001 Total 2002 Total June YTD 2002

June YTD 2003

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsNet Profit as % of Sales – June YTDNet Profit as % of Sales – June YTD

- 0.6%- 0.6%


****

**

8.59.1

2.5 2.5

0

1

2

3

4

5

6

7

8

9

10

HK

Cen

ts


22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsBasic Earnings Per Share – 2Basic Earnings Per Share – 2ndnd Quarter Quarter


****

**

8.59.1

1.5

2.5

1.1

2.5

01

2

3

4

5

67

8

9

10

HK

Cen

ts

2001 Total 2002 Total June YTD 2002

June YTD 2003

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results HighlightsBasic Earnings Per Share – June YTDBasic Earnings Per Share – June YTD

- 0.4 Cent- 0.4 Cent


** **

4.0 3.6**

22ndnd Quarter 2003 Financial Results Highlights Quarter 2003 Financial Results Highlights

22ndnd Qtr 2002 Qtr 2002 22ndnd Qtr 2003 Qtr 2003 ChangesChanges

Group Turnover (HK$ Group Turnover (HK$

Million)Million)343.4343.4 377.6377.6 + 10%+ 10%

Group Net Profit (HK$ Group Net Profit (HK$

Million)Million)16.3 *16.3 * 16.616.6 + 2%+ 2%

Net Profit as % of SalesNet Profit as % of Sales 4.7% *4.7% * 4.4%4.4% - 0.3%- 0.3%

Basic Earnings Per ShareBasic Earnings Per Share 2.5 Cents *2.5 Cents * 2.5 Cents2.5 Cents --

DividendDividend -- 1.0 Cent1.0 Cent + 1.0 Cent+ 1.0 Cent


31.6%

32.8%33.2%

32.2%

30%

31%

32%

33%

34%


Gross Margin/Other Income as % of Sales(Excluding Interest)

Why 2Why 2ndnd Quarter 2003 Results? Quarter 2003 Results?Lower Gross Margin/Other IncomeLower Gross Margin/Other Income

- 1%- 1%

Why 2nd Quarter 2003 Results?Why 2nd Quarter 2003 Results?Lower Expenses as % of SalesLower Expenses as % of Sales

Expenses as % of SalesExpenses as % of Sales 2003 vs. 20022003 vs. 2002

Store Operating Expenses - HKStore Operating Expenses - HK 0.80.8 LowerLower

- China- China (0.3)(0.3) HigherHigher

DistributionDistribution (0.3)(0.3) HigherHigher

Administrative ExpensesAdministrative Expenses (0.2)(0.2) HigherHigher

China Start-up ExpensesChina Start-up Expenses 0.40.4 LowerLower

0.40.4 LowerLower

Why 2Why 2ndnd Quarter 2003 Results? Quarter 2003 Results?Net Profit By MarketNet Profit By Market

22ndnd Qtr 2002 Qtr 2002 22ndnd Qtr 2003 Qtr 2003 ChangesChanges

(HK$ M)(HK$ M) (HK$ M)(HK$ M) (HK$ M)(HK$ M)

Hong Kong MarketHong Kong Market 17.517.5 18.718.7 1.21.2

China MarketChina Market (1.2)(1.2) (2.1)(2.1) (0.9)(0.9)

TotalTotal 16.316.3 16.616.6 0.30.3


2003 Update & Outlook2003 Update & OutlookCircle K Hong KongCircle K Hong Kong

SARS Impact MinorSARS Impact Minor

Higher Unemployment & DeflationHigher Unemployment & Deflation

Hong Kong Retail Sales Improving Hong Kong Retail Sales Improving

But Lower Than 2002’sBut Lower Than 2002’s

Growing Pressure on Comparable Growing Pressure on Comparable

Store Sales & Gross MarginStore Sales & Gross Margin

Rental & Labour Cost to DecreaseRental & Labour Cost to Decrease -16%

-12%

-8%

-4%

0%

4%

8%

12%

Jan-

02

Mar

May Ju

l

Sep

Nov

Jan-

03

Mar

May

Hong Kong Retail SalesYear-on-year % Change (Value)

2003 Update & Outlook2003 Update & OutlookCircle K Hong Kong TacticsCircle K Hong Kong Tactics

Defensive TacticsDefensive Tactics

Lower Product Costs & PricingLower Product Costs & Pricing

Maintain Gross MarginMaintain Gross Margin

Reduce Operating ExpensesReduce Operating Expenses

New Store Opening Only with New Store Opening Only with

Right EconomicsRight Economics

2003 Update & Outlook2003 Update & OutlookCircle K Hong Kong TacticsCircle K Hong Kong Tactics

Offensive TacticsOffensive Tactics

More Aggressive Promotions:More Aggressive Promotions:

Micro-wave Lunch BoxesMicro-wave Lunch Boxes

Tie-in Promotions with Coca-ColaTie-in Promotions with Coca-Cola

Increase STF (Speed, Tidiness & Increase STF (Speed, Tidiness &

Friendliness) Gap Versus CompetitionFriendliness) Gap Versus Competition

Localization of StoresLocalization of Stores

““Hot & In” Counters in Commercial Hot & In” Counters in Commercial

AreasAreas

2003 Update & Outlook2003 Update & OutlookCircle K Store GrowthCircle K Store Growth

Hong KongHong Kong

Beginning of YearBeginning of Year 166166

Opened So Far (as at 28 July 2003)Opened So Far (as at 28 July 2003) + 9+ 9

Under Construction / CommittedUnder Construction / Committed + 6+ 6

Target Store Number at End of the YearTarget Store Number at End of the Year 190190

2003 Update & Outlook2003 Update & OutlookCircle K ChinaCircle K China

Strategies of Differentiation and Hard Strategies of Differentiation and Hard

to Copy Very Importantto Copy Very Important

““Hot & In” Right StrategyHot & In” Right Strategy

Increasing Customer Preference & Increasing Customer Preference &

Weekly SalesWeekly Sales

Need Improvement in Category Need Improvement in Category

Management & Marketing/PromotionManagement & Marketing/Promotion

Harder to Find Good Sites with Right Harder to Find Good Sites with Right

Size & Right RentalSize & Right Rental

Circle K China2003 Weekly Total Sales

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Week


Benefits of CEPABenefits of CEPA

1.1. Wholly-owned EnterpriseWholly-owned Enterprise

2.2. Prefectural & County CitiesPrefectural & County Cities

3.3. Lower Qualifying RequirementsLower Qualifying Requirements

4.4. Flexibility & EfficiencyFlexibility & Efficiency


Add Resources and Expedite Store Add Resources and Expedite Store

DevelopmentDevelopment

Review & Refine Business Model to Review & Refine Business Model to

Cut Down on Investment & SizingCut Down on Investment & Sizing

10 – 15 Stores by Year End10 – 15 Stores by Year End

Developing A Smaller Store ModelDeveloping A Smaller Store Model

Uphold StrategiesUphold Strategies

Available for FranchisingAvailable for Franchising

Quickly Build No. of OutletsQuickly Build No. of Outlets

Add Expertise in Category Add Expertise in Category

ManagementManagement


Tough Hong Kong Market ConditionsTough Hong Kong Market Conditions

Profitability and Cash Flow from Profitability and Cash Flow from

Operations Still HealthyOperations Still Healthy

China Strategies on Track But Need China Strategies on Track But Need

to Refine Model & Speed Up to Refine Model & Speed Up

ExpansionExpansion

Uncertain Profitability Outlook for 2Uncertain Profitability Outlook for 2ndnd

Half 2003Half 2003

Documents

2 nd Quarter 2003 Results Presentation A member of the Li & Fung (Retailing) Group 28 July 2003