nd
2
Quarter 2003 Results
Presentation
A member of the Li & Fung (Retailing) Group
28 July 2003
Hong Kong Total Retail Sales Value
Year-on-year % Change
Jan-May 2003 : - 7%
10%
2002 Total :
5%
0%
-5%
-10%
* Source: HKSAR, Census and Statistics Department
05/03
04/03
03/03
02/03
01/03
12/02
11/02
10/02
09/02
08/02
07/02
06/02
05/02
04/02
03/02
02/02
-20%
01/02
-15%
- 4%
2nd Quarter 2003 Result Presentation
Agenda
 2nd Quarter 2003 Financial Results Highlights
 2003 Update & Outlook
 Questions & Answers
2nd Quarter 2003 Financial Results Highlights
Group Turnover – 2nd Quarter
1,600
1,400
1,305.1
1,393.5
HK$ Million
1,200
+ 10%
1,000
800
600
343.4
377.6
400
200
0
No. of Stores :
2001 Total
146
-
2002 Total
166
2
2nd Qtr 2002
2nd Qtr 2003
151
-
172
4
(HK)
(China)
2nd Quarter 2003 Financial Results Highlights
144 Comparable Stores Sales
- 1%
340
335
329.5
326.3
HK$ Million
330
325
320
315
310
305
300
2nd Qtr 2002
2nd Qtr 2003
144 Comparable Stores Sales
2nd Quarter 2003 vs. 2nd Quarter 2002
Product Category
 Cigarette
+ 13.1%
 Non-food
+ 12.1%
 Packaged Drinks & Beer
- 10.5%
 Packaged Ice Cream
- 8.7%
2nd Quarter 2003 Financial Results Highlights
Group Turnover – June YTD
1,600
1,400
1,305.1
1,393.5
+ 9%
HK$ Million
1,200
1,000
666.0
800
600
400
200
0
No. of Stores :
727.2
343.4
377.6
322.6
349.6
2001 Total
2002 Total
June YTD
2002
June YTD
2003
146
-
166
2
151
-
172
4
(HK)
(China)
2nd Quarter 2003 Financial Results Highlights
Group Net Profit – 2nd Quarter
70
60
55.0 *
60.5
*
+ 2%
HK$ Million
50
40
30
16.3
20
*
16.6
10
0
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
2nd Qtr 2002
2nd Qtr 2003
2nd Quarter 2003 Financial Results Highlights
Group Net Profit – June YTD
70
HK$ Million
60
55.0*
60.5 *
- 9%
50
40
26.2 *
30
20
16.3
23.8
16.6
10
0
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
9.9
7.2
June YTD
2002
June YTD
2003
2nd Quarter 2003 Financial Results Highlights
Net Profit as % of Sales – 2nd Quarter
- 0.3%
7%
6%
5%
4.2% *
4.3% *
4.7% *
4.4%
4%
3%
2%
1%
0%
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
2nd Qtr 2002
2nd Qtr 2003
2nd Quarter 2003 Financial Results Highlights
Net Profit as % of Sales – June YTD
7%
- 0.6%
6%
5%
4.2% *
4.3%*
3.9% *
4%
3.3%
3%
2%
1%
0%
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
June YTD
2002
June YTD
2003
2nd Quarter 2003 Financial Results Highlights
Basic Earnings Per Share – 2nd Quarter
10
9
8.5*
9.1*
8
HK Cents
7
6
5
4
2.5 *
3
2.5
2
1
0
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
2nd Qtr 2002
2nd Qtr 2003
HK Cents
2nd Quarter 2003 Financial Results Highlights
Basic Earnings Per Share – June YTD
10
9
8
7
6
5
4
3
2
1
0
8.5*
9.1*
- 0.4 Cent
4.0 *
2.5
1.5
2001 Total
2002 Total
* Restated for Income Tax Effect Per SSAP No.12
June YTD
2002
3.6
2.5
1.1
June YTD
2003
2nd Quarter 2003 Financial Results Highlights
2nd Qtr 2002 2nd Qtr 2003
Changes
Group Turnover (HK$ Million)
343.4
377.6
+ 10%
Group Net Profit (HK$ Million)
16.3 *
16.6
+ 2%
4.7% *
4.4%
- 0.3%
2.5 Cents *
2.5 Cents
-
1.0 Cent
+ 1.0 Cent
Net Profit as % of Sales
Basic Earnings Per Share
Dividend
* Restated for Income Tax Effect Per SSAP No.12
-
Why 2nd Quarter 2003 Results?
Lower Gross Margin/Other Income
Gross Margin/Other Income as % of Sales
(Excluding Interest)
- 1%
34%
33.2%
32.8%
33%
32.2%
32%
31.6%
31%
30%
2001 Total
2002 Total
2nd Qtr 2002 2nd Qtr 2003
Why 2nd Quarter 2003 Results?
Lower Expenses as % of Sales
Expenses as % of Sales
2003 vs. 2002
 Store Operating Expenses - HK
0.8
Lower
(0.3)
Higher
 Distribution
(0.3)
Higher
 Administrative Expenses
(0.2)
Higher
 China Start-up Expenses
0.4
Lower
0.4
Lower
- China
Why 2nd Quarter 2003 Results?
Net Profit By Market
2nd Qtr 2002
2nd Qtr 2003
Changes
(HK$ M)
(HK$ M)
(HK$ M)
Hong Kong Market
17.5
18.7
1.2
China Market
(1.2)
(2.1)
(0.9)
Total
16.3
16.6
0.3
2003 Update & Outlook
2003 Update & Outlook
Circle K Hong Kong
Hong Kong Retail Sales
Year-on-year % Change (Value)
 SARS Impact Minor
12%
 Higher Unemployment & Deflation
 Hong Kong Retail Sales Improving
But Lower Than 2002’s
8%
4%
0%
-4%
May
Mar
Jan-03
Nov
Sep
Jul
-16%
May
-12%
Mar
 Rental & Labour Cost to Decrease
-8%
Jan-02
 Growing Pressure on Comparable
Store Sales & Gross Margin
2003 Update & Outlook
Circle K Hong Kong Tactics
Defensive Tactics
 Lower Product Costs & Pricing
 Maintain Gross Margin
 Reduce Operating Expenses
 New Store Opening Only with
Right Economics
2003 Update & Outlook
Circle K Hong Kong Tactics
Offensive Tactics
 More Aggressive Promotions:

Micro-wave Lunch Boxes

Tie-in Promotions with Coca-Cola
 Increase STF (Speed, Tidiness &
Friendliness) Gap Versus Competition
 Localization of Stores
 “Hot & In” Counters in Commercial
Areas
2003 Update & Outlook
Circle K Store Growth
Hong Kong
 Beginning of Year
166
 Opened So Far (as at 28 July 2003)
+9
 Under Construction / Committed
+6
 Target Store Number at End of the Year
190
2003 Update & Outlook
Circle K China
 Strategies of Differentiation and
Hard to Copy Very Important
Circle K China
2003 Weekly Total Sales
 “Hot & In” Right Strategy
 Increasing Customer Preference &
Weekly Sales
 Need Improvement in Category
Management & Marketing/Promotion
 Harder to Find Good Sites with Right
Size & Right Rental
1
4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week
2003 Update & Outlook
Circle K China
Benefits of CEPA
1.
Wholly-owned Enterprise
2.
Prefectural & County Cities
3.
Lower Qualifying Requirements
4.
Flexibility & Efficiency
2003 Update & Outlook
Circle K China
 Add Resources and Expedite Store
Development
 Review & Refine Business Model to
Cut Down on Investment & Sizing
 10 – 15 Stores by Year End
 Developing A Smaller Store Model

Uphold Strategies

Available for Franchising

Quickly Build No. of Outlets
 Add Expertise in Category
Management
2003 Update & Outlook
 Tough Hong Kong Market Conditions
 Profitability and Cash Flow from
Operations Still Healthy
 China Strategies on Track But Need
to Refine Model & Speed Up
Expansion
 Uncertain Profitability Outlook for 2nd
Half 2003