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2010 Annual Results Presentation2010 Annual Results Presentation
March 2011March 2011
Disclaimer
The information contained in this presentation is intended solely for your personal reference. Such information is subject to change without notice, its accuracy is not guaranteed and it may j g , y g ynot contain all material information concerning Chow Sang Sang Holdings International Limited (the “Company”). The Company makes no representation regarding, and assumes no responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information contained hereinany information contained herein.
In addition, the information contains projections and forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and which may changeare based on current assumptions which are subject to various risks and which may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the Company’s assumptions are correct. It is not the intention to provide, and you may not rely on this presentation as providing, a complete or comprehensive analysis of the Company's financial or trading position or prospects.
This presentation does not constitute an offer or invitation to purchase or subscribe for any securities or financial instruments or to provide any investment service or investment advice, p y ,and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto.
2
Table of Contents
I. Company Overview
II. Business Review
III Financial HighlightsIII Financial Highlights
IV. Future Plans and Strategies
V. Appendix
3
Company OverviewCompany Overview
Company Overview
Chow Sang Sang GroupChow Sang Sang Group
Jewellery Retail and Manufacturing
Precious Metals Wholesale
Securities and Future Broking Other Investments
One of the largest t ith 254
Trading service of h i l t l
Boutique retail b k
Passive long-term i t t i l dioperators with 254
jewellery retail stores in Greater China under the “Chow Sang Sang" and
physical metalsHigh-volume, low-margin and minimal risk business operated on a
brokerage 8 offices in Hong Kong and Internet platformMinimal risk operated
investments including:► 4,953,500 HKEX
shares valued at approximately HK$826 million(1) andg g
“Emphasis Jewellery” brandsThe mainstay is gemset and gold jewellery
operated on a commission basisNo proprietary trading
Minimal risk operated on a commission basisNo proprietary trading
HK$826 million and annual dividend amounted to approximately HK$20million(2)
I t t tijewellery Sightholder of the Diamond Trading Company
► Investment properties valued at approximately HK$175 million(2)
5(1) As at March 22, 2011(2) As at December 31, 2010
Business ReviewBusiness Review
Focus on Strong Growth in Mainland China
Increasing No. of Stores in Mainland China
200
(No. of Stores)
150
New shops
+43
181
109 120143
50
100
New shops
+17
New shops
+29
0
50 17
2007 2008 2009 2010
39% 27% 14%Same-store
Sales Growth
23%
7
Extensive Nationwide Retail Network
Beijing Surrounding
Chow Sang Sang directly runs and controls all of its retail stores with no franchises
Heilongjiang
Surrounding Provinces
(24)
Beijing Flagship Store
Complementing the extensive retail network, the eshop.chowsangsang.com offers an online shopping service
Xinjiang
Inner Mongolia Jilin
Liaoning
Tianjin
Beijing
Shanghai Flagship Store
JiangsuHenan
Gansu Hebei
Shandong
Hubei
Shanxi
Anhui Shanghai
Eastern(35)Shaanxi
NingxiaQinghai
Tibet
Northern(52)
Shanghai Flagship Store
Chow Sang Sang
Empasis JewelleryGuangdong
Fujian
Sichuan
GuizhouJiangxi
Hunan
Hubei Anhui
Zhejiang
Shanghai
Taiwan
Chongqing
Kunming Flagship Store
Sang Sang Jewellery
China(1) 181(2) –
HK / Macau 40 11
Taiwan - 22
GuangdongYunnan Guangxi
Hong KongMacau
Hainan
Hong Kong Flagship Stores
8(1) Excluding Hong Kong and Macau(2) Reached 189 as of March 22, 2011
Taiwan 22 Covered cities Southern (1)
(70)
Fully Integrated Marketing Strategies
Pan Greater China marketing programmes with core focus on PRC customers► Increase marketing investment to outreach mainland tourists in HK & Macau.► China nationwide marketing roll out with well integrated programmes to further the reach of
customers in all tier marketsBrand enhancement Emphasis on international quality and designBrand enhancement – Emphasis on international, quality and design ► International collaboration to upgrade design quality & image ► Increase inventory on diamond, particularly on fine jewellery segment► Further upgrade shop design and service support. More flagship, star shops to provide pg p g pp g p p p
superior jewellery shopping experience
Building customer loyalty with effective push and pull programmes► Customized consumer events / programmes across all markets to draw new customers► Customized consumer events / programmes across all markets to draw new customers► Private VIP shows and events to build loyalty► Effective use of the 2.1M star shoppers data base to maintain consumer dialogue
Effective use of resources► Focus on core programmes► Effective planning with smart execution to maximize marketing dollars
9
► Building local marketing expertise to support regional centers
Financial HighlightsFinancial Highlights
Improving Operating Performance and Profitability …
Gross ProfitRevenue
(HK$ mm) (HK$ mm)11,70512,000
Drop in the wholesale segment;
Retail segment
grew at 11% 2,3022,500
25.0%
6,461
9,8809,463
8,000
10,000
1,213
1,887
1,561
19.7%
19.9%
2,00020.0%
5,089 4,853
6,000
,
6951,053
,
15.8%
1,000
1,500
10 0%
15.0%
5,2444,6104,791
2,000
4,000
866 8341,089500
,
5.0%
10.0%
02008 2009 2010
1H 2H
02008 2009 2010
0.0%
1H 2H Gross Margin
11
1H 2H 1H 2H Gross Margin
Improving Operating Performance and Profitability (Cont’d) …
Net Profit (1)Operating Profit
(HK$ mm) (HK$ mm)
9951,000 10.0%767800 8.0%
574
790
617
8.5%
8.3%
700
800
900
7.0%
8.0%
9.0%
464
588
482
6.6%
6.2%600 6.0%
7.0%
204
4756.2%
400
500
600
4 0%
5.0%
6.0%
177341
482
4.9%400
3 0%
4.0%
5.0%
413315
421200
300
400
2.0%
3.0%
4.0%
305247
303200
1.0%
2.0%
3.0%
0
100
2008 2009 20100.0%
1.0%
1H 2H Operating Margin
02008 2009 2010
0.0%
1.0%
1H 2H Net Profit Margin
12(1) Total group net profit
p g g
…Driven by Retail Segment…
Results Breakdown Revenue Breakdown
1.0% 0.5% 0.5%0.6%0.7% 0.9%
90%
100%
2.3%3.8% 1.8%
0.8% 0.9% 2.6%7.2%4.5% 4.7%
90%
100%
44.1%36.0%
28.3%
70%
80%
70%
80% Retail segment’s % contribution
pulled down by strong broking
70 6%40%
50%
60%
92.4% 88.1% 90.9%40%
50%
60%g gprofit
70.6%62.6%
54.2%
10%
20%
30%
10%
20%
30%
0%
10%
2008 2009 2010
R il Wh l l B ki O h
0%
10%
2008 2009 2010
R il Wh l l B ki O h
13
Retail Wholesale Broking Other Retail Wholesale Broking Other
…with High Growth …
Retail – Operating ResultsRetail – Revenue
(HK$ mm) (HK$ mm)8,2658,500 865
10 2% 10 5%
11.2%
800
900 12.0%
4,5605,358
5,923
5 500
6,500
7,500
488
662
545
10.2% 10.5%
600
700
800
8.0%
10.0%
2,8443,349
3,500
4,500
5,500
191 405
400
5006.0%
3,705
2,5742,5141,500
2,500
354257
377
100
200
300
2.0%
4.0%
-500
500
2008 2009 2010
0
100
2008 2009 20100.0%
1H 2H Margin
14
…and Robust Demand from PRC Consumers
2008 2010 2009
China
Others2.0%
Others1.3%
China33.4%
Others1.5%
China28.0%
China31.7%
HK/Macau38.2%HK/MacauHK/Macau
42 1%HK/Macau(PRC Customers)
21.7%
HK/Macau48.3%
(PRC Customers)27.1%
Sales Attrib table
42.1%HK/Macau
(PRC Customers)24.7%
Mainland customers’ contribution continues to increase
50% 56% 60%+6% +4%Attributable to PRC
Customers(1)
15(1) China sales + HK/Macau sales by PRC customers
Stable Working Capital Trends
Average Receivables Turnover Days Average Inventory Turnover Days
(No. of Days) (No. of Days)
101
130142
90
120
150
High gold price led to higher
8
1011
8
10
12
0
30
60
90 led to higher inventory days
0
2
4
6
8
Average Payables Turnover Days Cash Conversion Cycle
2008 2009 20100
2008 2009 2010
(No. of Days) (No. of Days)
56
6
8
10
105
135147
100
150
45
0
2
4
6
0
50
16
2008 2009 2010 2008 2009 2010
Financial Highlights
For the 12 months ended
or as at Dec 31, % Growth
(HK$ )(HK$ mm) 2008 2009 2010 08 vs 09 09 vs 10Turnover 9,880 9,463 11,705 (4.2%) 23.7%
Jewellery Retail 5,358 5,923 8,265 10.5% 39.5% Other businesses 4,522 3,540 3,440 (21.7%) (2.8%)
Gross profit 1,561 1,887 2,302 20.9% 22.0% Gross margin 15.8% 19.9% 19.7%
Operating profit 617 790 995 28.0% 25.9% Operating margin 6.2% 8.3% 8.5%
EBITDA 683 873 1,097 27.8% 25.7% Net income 482 588 767 22.1% 30.4%
Net margin 4.9% 6.2% 6.6% EPS (HK cents) 78.0 95.4 116.2 22.3% 21.8% Dividend per share (HK cents) 31.0 33.0 43.0 6.5% 30% Capital expenditure 104.2 135.4 109.1 29.9% (19.4%) Gearing ratio (1) 11.9% 15.0% 12.6%
17(1) Total borrowings to total shareholders’ equity including non-controlling interests. Total borrowings includes interest-bearing bank and other borrowings and
interest-bearing bank borrowings arising from securities and futures broking.
Future Plans and StrategiesFuture Plans and Strategies
Future Plans and Strategies
China Expansion Operating Efficiency
Plan to open ~50 new stores in Mainland China in 2011 Special attention on cities with relatively low number of stores
Acquired land in Shunde to expand production and reinforce the R&D center – from design development, manufacturing technologies to logistic yefficiency Beefing up the manpower of middle management Improve logistic efficiency with sub
t tcenters support
Emphasis placed on gem-set jewellery Launch national TV image campaign on
Product Mix and Branding Marketing Initiatives
p p g j ywith higher margins as distinct from pure gold itemsDifferentiate products, especially pure gold products, with innovative design
d b di d di ti ti
g p gChina TVs in 1HLeverage partnership with Antwerp Diamond Museum from Belgium Roll out regional VIP events to build
and branding and distinctive workmanship; increase presence of international brands in PRCOpening of new Flagship/Star Stores to raise brand awareness; upgrade shop
gcustomer loyaltyHigh investment on Mainland Tourist Campaign in Hong Kong
19
raise brand awareness; upgrade shop design and service supports
AppendixAppendix
Over 70 Years of Growth and Success…
1930-1970 1970-1980 1980-1990 1990-2000 2000-20101930 1970 1970 1980 1980 1990 1990 2000 2000 2010
1934 20051973 1998 201020092006
Chow Sang Sang
Goldsmith
Became sightholder of
Diamond
1973
First company in the industry
Re-entered the Mainland China market
Accelerated growth in
China
Opened the first
Flagship
Launch brand
revamp established
in Guangdong
Trading Company
the industry listed on
Hong Kong Stock
Exchange
g pStore in Beijing
pcampaign
Exchange
No. of St
9 254Stores
Turnover(HK$ mm)
130 11,705
21
Distinctive Brand Strategy
E h i J llCh S S
Chow Sang Sang Group carries two jewellery brands :
Emphasis JewelleryChow Sang Sang
Brand revamp in 2006: From a traditional goldsmith store to a contemporary and sophisticated jewellery
Creative jewellery platform for discerning customers whose focus is on distinctiveness and taste
brand
Affordable luxury: Positioned as the most desirable jewellery brand with international standing and quality at affordable price point
Operates via a small network of shops with its own brand management and product team in premier locations including new stores in Harbour City, Pacific Place and IFC malls in Hong Kongat affordable price point
Targets: Medium to high end markets
Place and IFC malls in Hong Kong
22
Unique Product Offerings
House Flagship Product Lines
Licensing for IP of Popular Characters
Platform for International Brands
Fine Jewellery Product Line
23
Strong Relationship with Renowned International Brands
Strong partnerships with 16 distinctive international jewellery brands from Europe and Japan Exclusive distribution rights for 10 of them including V&A and Regalo inand Japan. Exclusive distribution rights for 10 of them including V&A and Regalo in Greater China
Official agent of Rolex and Tudor in Hong Kong and Mainland China
24
Causeway Bay, HK
2010 New and Strategic Stores Set upCauseway Bay, HK
Xian, China
ifc, HK isquare, HK
Kunming, China Chongqing, China
25
Shijiazhuang, ChinaHangzhou, China Nanning, China
Integrated Marketing Strategies
Pan Greater China campaigns integrating product, marketing, promotions, down to consumer touch points to transpire an international aspirational brand
Special focus on fine jewellery marketing to appeal to the upper end of the high-net-worth consumers
points to transpire an international aspirational brand image
Customer Loyalty Programme Cultural, arts and government sponsorship to uplift the brand imageJade Exhibition Event
Central Store April 10, Hong Kong
Belgian EU Pavilion TLD Antwerp Diamond Launch May 10 , Shanghai
HK Philharmonic Orchestra2010, HK
April 10, Hong Kong
Scholarship for HK Academy for Performing Arts 2010, HK
HK SAR Government to take part in World Expo 2010, Shanghai
Mongolia Store Opening Aug 10
Rolex Store Opening Nov 10 , Chengdu
VIP DinnerNov 10 , Xian
26HK Repertory Theatre performance May ’10 HK& Guangzhou
Highly Recognized Brand Name
over awardsAttained in the past 6 years in areas of p y
Service, Management, Quality, Design & Branding
27
Investment Highlights
Leading Position to Enjoy Fast Growing
PRC Jewellery Market U i lf
1
2E perienced6 Market Unique self-operating
Business Model with Strong Brand
2Experienced and Dedicated Management
Team
6
Creative
Reputation
5 E t i3Creative Branding and
Marketing Strategies
5 Extensive Nationwide
Network with Innovative
3
Wide and Differentiated
Product Offerings
4Store Formats
28