Chow Tai Fook Jewellery Group Ltd announcing its results for the financial year ended March 31, 2020 reported a 36.6% fall in net profit on a 14.9% drop in revenue, stating that this was mainly attributable to the COVID-19 epidemic in 4QFY2020, a surge in international gold price that dampened the retail demand for gold products, and a weak performance in Hong Kong.

The Group said that performance in 1HFY2020 was stable as supported by a steady growth in Mainland China, but 2HFY2020 was overshadowed by macro uncertainties and COVID-19 epidemic.

Overall revenue was HK$56,751 million in FY2020 (FY2019: HK$66,661 million), with gross profit of HK$16,096 million (FY2019: HK$18,602 million). The Group said that the adjusted gross profit margin increased to 29.6% in FY2020, thanks to an improvement in gross profit margin by product in both retail and wholesale businesses.

However, net profit decreased by 36.6% to HK$2,901 million (FY2019: HK$4,577 million), it stated.

The epidemic and volatile macro environment took a severe toll on business, in particular during 4QFY2020, the Company said.

Same Store Sales (SSS) in Mainland China dropped by 15.1% during FY2020 while Same Store Average Selling Price (ASP) stayed on a favourable trend with a rise of 11.7%; whereas SSS in Hong Kong and Macau decreased by 38.7% in FY2020 due to the sluggish business environment in Hong Kong.

Revenue from Mainland China was down slightly by 3.9% in FY2020, Chow Tai Fook reported that due to its store expansion strategy and steady SSSG there was decent revenue growth of 12.2% during 1HFY2020, which buffered a 15.9% decline in 2HFY2020 in the backdrop of the epidemic. SSS volume declined by 21.0%. The contribution of Mainland China to the Group’s revenue rose to 71.8% in FY2020.

In Hong Kong, Macau and other markets, revenue dropped by 34.0% during FY2020 particularly hit by 46.8% year-on-year decline in 2HFY2020 due to the virus outbreak.

In terms of product categories in FY2020, revenue from gem-set jewellery fell 17.5% during the financial year due to challenging macros, the jeweller reported, and revenue of gold products declined by 16.3% as a result of high comparison base and gold price volatility. Gold products’ contribution to the Group’s revenue was reduced by 120 basis points year-on-year to 59.9%.

Mainland China continued to be the main profit contributor, the jeweller reported, contributing almost 90% of the Group’s core operating profit in the year, while in Hong Kong, Macau and other markets this parameter turned negative in 2HFY2020.

In China, the expansion through franchised formats into Tier III, IV and other cities and focus on developing omni-channel capabilities, particularly through “CloudSales 365", a mini-programme built upon WeChat Work platform, had a positive impact.

The Group's retail network expanded to 3,850 POS as at 31 March 2020, with a net addition of 716 POS during FY2020. Of these a net of 711 new stores were opened in Mainland China, with 623 being Chow Tai Fook Jewellery POS, of which approximately 53% were in Tier III, IV and other cities, which achieved stronger growth than in the Tier I and II cities. As on March 31, 2020, 56.5% of the Chow Tai Fook Jewellery POS in Mainland China were in franchised format.

The Group said its e-commerce business recorded a RSV growth of 3.4% in FY2020, contributing to 5.2% of RSV and 14.4% of retail sales volume in Mainland China.

As at 31 March 2020, there were 2.49 million members in Mainland China, with around a 24.9% repeat purchase as a percentage of respective RSV. In Hong Kong and Macau, the number of members reached 1.18 million and the repeat purchase as a percentage of respective RSV was 35.5%.

“The Hong Kong and Macau market will remain challenging in the foreseeable future, while in Mainland China, we have seen signs of recovery as business resumes,” the company stated.

Reporting that in April to May 2020, SSS in Mainland China gradually recovered and SSS decline narrowed to a negative growth of 15.4%, Chow Tai Fook said, “We remain cautiously optimistic about the short-term business outlook but stay optimistic about the mid-to long-term prospects of the jewellery market in Mainland China.”

The jeweller said that in Hong Kong and Macau, it planned to continue to consolidate the retail network, rationalise cost structure and refine business strategies.

“On the other hand, we shall maintain our Mainland China expansion plan through franchise model as the situation stabilises and the online-offline integrations to take advantage of the digital trends,” it stated.

Chow Tai Fook Jewellery Group Chairman Dr. Henry Cheng remarked, "In the years ahead, more comprehensive strategies will be formulated and executed, to further our fruitful journey towards sustainability. We will introduce novel ideas and promote inquisitive minds that deliver customer-centric solutions, enhance the Group's value creation capability and help realise our vision to become the most trusted jewellery group in the world."