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RETAIL | Staff Reporter, Hong Kong

Bauhaus profit up 2.3 percentage points to 10.5%

Plans to open retail stores in cities within two hours distance of Beijing, Shanghai and Guangzhou

Bauhaus International (Holdings) Limited (Bauhaus) announced its annual results for the year ended 31 March 2010.

Financial Review
During the year under review, the Group achieved record-high sales of about HK$793.8 million (FY2008/09: 745.6 million) and significantly boosted the net profit for the year by about 36.5% to about HK$83.0 million. With stringent cost control measures, staff cost to sales reduced by 0.7 percentage point to 17.6%. Gross margin improved by 1.2 percentage point to about 70.1% and net margin increased by 2.3 percentage points to 10.5%. Basic earnings per share were HK23.10 cents (FY2008/09: HK16.91 cents).

Maintaining a positive view towards Bauhaus’ future development, and taking into consideration the Group’s financial position, including cash on hand and funding requirements, the Group has decided to enhance its policy on dividend payout from not less than 30% of net profit to at least 40% in recognition of shareholders’ continuous support.

Hence, as of this year, the Board has recommended the payment of a final dividend of HK8.5 cents along with a special dividend of HK5.0 cents. Combined with an interim dividend of HK2.0 cents already paid, total dividend for the year will be HK15.5 cents, representing a dividend payout ratio of about 67.1%. The Group’s financial position remained healthy with cash and cash equivalents of approximately US$21.0 million (equivalent to HK$163.8 million) as at 30 April 2010. Its current ratio was 1.8 and gearing ratio was zero.

The initiative to acquire new customers that management launched in the second half of the year under review started to bear fruit and several sourcing partnership agreements with US and European retailers, brands and distributors were concluded prior to the year end. Several other opportunities are still in the pipeline and management remains optimistic that the additional business generated, combined with expected organic growth of existing customers will enable the Group to not only make up for the lost volume from the key North American customer that left but will also help regain market share.

Mr. George Wong, Chairman of Bauhaus, said, “Over the past year, the global financial downturn continued to negatively affect a broad spectrum of industries and markets.
However, with adversity brought opportunities and we exploited the current situation to strengthen our business foundation, thereby setting ourselves in a strong position to capture market share once the economic recovery begins to make full strides. We were duly delighted to not only realise an increase in sales volume over the past year, but also significant improvement in margin, thus substantiating the effectiveness of our efforts.”

Business Review
Hong Kong and Macau
The turnover of Hong Kong and Macau segment is solely contributed by self-managed retail business in the regions. The Hong Kong segment continued as the largest revenue sector of the Group, accounting for about 59.7% of the Group’s turnover, recording a mild growth in sales of about 4.4% to HK$474.0 million during the year under review. Retail business in Macau also rose by about 5.4% in sales to HK$52.6 million

During the year, the Group focused efforts more on the sales efficiency and profitability rather than the expansion of the retail network in the regions. The Group proactively reallocated resources and closed down certain non-performing retail shops, hence the total number of retail shops in Hong Kong and Macau dropped slightly from 64 to 60. However, the consolidation efforts eventually paid off during the year. The cost pressure, particularly from some shops with unreasonably high-rent, has been alleviated.

Mainland China
Self-managed Retail Operation
During the year under review, retail sales in Mainland China recorded significant growth of 34.2% to HK$75.4 million. The Mainland China market continued to be one of the Group’s major growth contributors. The Group has gradually expanded its self-managed retail networks and strategically focused on selected first-tier cities to capture the immense potential of the rapidly growing markets created by China’s expanding middle class and urbanisation. As at 31 March 2010, the Group had 24 self-managed shops in Mainland China region, with 14 in Shanghai, 8 in Beijing and 2 in Guangzhou.

Franchise Business
The Group continued its strategy to consolidate franchise networks during the year and recorded sales of about HK$48.0 million (FY2008/09: HK$58.1 million).

The Group engaged in self-managed retail operations in Taiwan, which continued to achieve encouraging results. During the year, the segment turnover surged by about 26.9% to about
HK113.3 million, thanks to dedicated management efforts, its expert sales team and an extensive and well-coordinated retail network. The Group now has a solid presence in Taiwan with a total of 39 outlets as at 31 March 2010.

The Group extends its business coverage over the overseas countries through wholesale operation. As European regions was severely hit by the unfavourable economic condition, turnover of the Group’s wholesale business dropped about 20.2% during the year under review to about HK$30.5 million. The Japanese market, the largest overseas wholesales market of the Group, however, remained strong with about 17.4% growth in sales to about HK$18.9 million, partly compensating for the adverse impact in Europe.

Future Plans
The Group believes that there are ample opportunities to penetrate the PRC market. In this regard, Bauhaus will direct more resources to opening self-managed retail stores in different cities that are within two hours distance of Beijing, Shanghai and Guangzhou, where the Group has already established its presence. By opening self-managed retail stores, the Group can manage the performance directly and effectively, and acquire accurate intelligence on consumer preferences, which is essential for achieving long-term success.

The Group has continuously nurtured its in-house brands and plan to step up efforts by opening specialty stores for well-received labels, namely, “Salad” and “80/20”. The Group will also open specialty shops for brands that have been in the market for more than two years and achieved satisfactory results, such as “Twistedmind”. Apart from in-house labels, the Group is weighing the possibility of employing a “shop-in-shop” strategy in which newly imported brands will be introduced into retail stores located in premium locations. Through such measures, the Group will be able to diversify its market presence, expand its customer base and improve profit margin.

“We will continue our diversification drive and leverage marketing campaigns as both efforts have enabled the Group to realise business growth in the past. Looking ahead, we are optimistic about our prospects, in particular, our growth in Mainland China. With a healthier cost structure, a stronger financial position and strategic expansion measures in place, Bauhaus is well placed to embrace opportunities ahead,” Mr. Wong concluded.

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