HKRH first half profit up 227% to HK$255mln

The company steps up growth through sales channel diversification as it opens 60 new shops during the period.

Hong Kong Resources Holdings Company Limited (“HKRH”) on Tuesday announced its interim results for the six months ended 30 September 2010.

During the period under review, the Group’s turnover surged by about 233% to approximately HK$1,050 million (FY2009/10 1H: HK$315 million), mainly contributed by the retail and franchise operations for selling gold and jewellery products as well as the growing recognition of the 3DGOLD brand after it was acquired by the Group in July 2009. Gross profit rose by about 227% to approximately HK$255 million (FY2009/10 1H: HK78 million) while gross profit margin reached around 24% (FY2009/10 1H: 25%). In particular, EBITDA before changes in fair value of derivative financial instruments and gold loan and non-recurring items were approximately HK$47 million, a 683% growth from earnings of approximately HK$6 million for the same period last year.

Profit for the period was approximately HK$7 million (FY2009/10 1H: HK$177 million), which was affected by the changes in fair value of derivative financial instruments and gold loan and nonrecurring items, investment in marketing for re-branding the image of 3D-GOLD after acquisition, and the expenses of opening the operations headquarters in Mainland China. Excluding changes in fair value and non-recurring items, profit would have reached approximately HK$19 million, representing a significant improvement from a loss of approximately HK$5 million if a non-recurring gain of HK$182 million was excluded during the last corresponding period, according to an HKRH report.

As at 30 September 2010, the Group maintained a healthy financial position with bank balances and cash of approximately HK$172 million (31 March 2010: HK$156 million).

Dr Kennedy Wong, Chairman of HKRH, said, “Notwithstanding that April to September is the low season of the consumer market, we are pleased that our business keeps growing at a fast pace after the 3D-GOLD acquisition. Through dedicated efforts, we have successfully established a fresh image for the 3D-GOLD brand and launched a series of well-received gold and jewellery products, driving significant business growth. Our operations in Hong Kong and Macau demonstrated strong performance with same-store-sales-growth of 40%, whereas our self operated points in Mainland China also achieved a significant 27% same-store-sales-growth. Moreover, we also opened 60 new shops and counters during the period to capture the promising gold and jewellery markets in the regions.”

In the first half of FY2010/11, turnover from the Hong Kong and Macau retail operations amounted to HK$170 million and HK$874 million from the Mainland China operation. As at 30 September 2010, the Group has 11 points of sales under the brand name “3D-GOLD” in Hong Kong, 2 in Macau and 266 in Mainland China. In addition, there are 4 “La Milky Way” branded points of sales in Hong Kong and 11 in Mainland China. Of the points of sales in Mainland China, 121 are self operated shops and 156 are franchised shops.

To capture the vast growing market in Mainland China, apart from acquiring the remaining 40% interest in China Gold Silver Group Company Limited engaged in the retail operation in May 2010, the Group made a significant investment and commitment in opening an operations headquarters in Shenzhen during September this year. It occupies a floor area of 10,000 square meters and has spacious exhibition areas designed to showcase a wide range of jewellery series, providing a one stop opportunity for franchisees. The associated capital expenditure on the headquarters amounted to HK$22 million.

Also in September this year, 3D-GOLD and the World Gold Council launched a new product series, “2010 Only Gold Love Series”. Under this collaboration, 3D-GOLD becomes the official retailer of “Only Gold” in China, and also the only jewellery brand to distribute the “2010 Only Gold Love Series” available at its points of sales in Mainland China, Hong Kong and Macau, further boosting the brand awareness of 3D-GOLD.

During the period, the Group sponsored a number of events to enhance its brand status, including Miss Chinese Cosmos Pageant, a local basketball tournament and international dragon boat races. The most notable activity was the Gold sponsorship of Hong Kong’s Participation in Expo 2010 Shanghai China in the form of a replica of gold-plated bronze statue, “Forever Blooming Bauhinia”. The dedication and effort in brand promotion has been recognised by the World Brand Lab with a ranking of 182nd within China’s Top 500 Most Valuable Brands 2010 and second within the category of jewellery brands, with the brand value of 3D-GOLD estimated to be RMB4.8 billion.
“It is encouraging to see the growing popularity of the 3D-GOLD brand in our markets, evidenced by the substantial sales growth during the ‘National Day Golden Week’ in October by 41% over the last corresponding period. In particular, sales in Hong Kong and Macau registered a 84% growth, while sales in Mainland China was also up by 37%,” Dr. Wong added.

The increasing disposable income among mainland Chinese and low personal consumption of jewellery implies room for further growth of the mainland gold and jewellery retail market. With over 80% of its turnover from Mainland China, the Group remains confident about prospects in the market during the years ahead. In addition, total visitor arrivals in Hong Kong in September 2010 reached 2.73 million, a significant increment of 21.2% year to year. A large portion of these visitors are from Mainland China and are major consumers of gold products in Hong Kong. In view of this large potential, a new flagship store is scheduled to open in Tsim Sha Tsui, a major tourist and shopping spot, in early 2011 to strengthen the brand image and drive sales growth.

To further broaden the sales channels, the Group plans to launch an e-commerce platform to capture the high ground in the fast emerging online consumer shopping market in Greater China and other regions. In addition, diversification of sales channels in the physical gold market is to proceed, leveraging the existing branch networks of the Agricultural Bank of China Limited (“ABC”) as part of an agreement for strategic collaboration with ABC signed in October 2009. Meanwhile, the Group also plans to allocate more resources to sell fine jewellery to advance its image and product portfolio for greater returns.

Dr Wong concluded, “Having built a renowned 3D-GOLD brand to forge a solid foundation, we are working conscientiously towards our five-year strategic plan with a target to open 100 new points of sales each year and reach a total of 500 by 2012. To accelerate business growth, we also seek to diversify our sales channels, not only through partnership with business associates such as Agricultural Bank of China, but also via emerging platforms such as e-commerce with tremendous business potential. We hope, through these strategic alliances and innovative business models, to create greater value to our shareholders and investors.”