Lianhua Supermarket Announces 2010 Interim Results

Promote business consolidation

Optimize income structure

Capture opportunities of World Expo 2010 Shanghai

Market influence further enhanced

Operating profit margin reached a record high

Aug 31, 2010, 04:01 ET from Lianhua Supermarket Holdings, Co., Ltd.

HONG KONG, Aug. 31 /PRNewswire/ --

Financial and Business Highlights

  • Turnover reached RMB13.009 billion, up by approximately 18.5% as compared with the corresponding period of 2009. The same store sales picked up from 2009, with a growth rate of 3.5%. The same store sales of the Company's hypermarket segment increased by 3.9%, the same store sales of supermarket segment increased by 2.6% and the same store sales of convenience store segment increased by 3.8%.
  • Profitability improved steadily, while operating profit margin reached a new record high. Gross profit increased by 22.4% year on year. Consolidated revenues margin was 23.78%, representing an increase of 0.23 percentage points. Operating profit increased by 26.2% to RMB401 million as compared with the first half of 2009 with the operating profit margin reached a record high of 3.08%. Net profit attributable to shareholders grew by approximately 30.7% to RMB326 million. Earnings per share were RMB0.52.
  • All-around business consolidation to enhance bargaining power. The Group embarked on the consolidation with Hualian Supermarkets and the business restructuring involving merchandise flows, logistics and information flows. The Group has consolidated its internal resources and enhanced its bargaining power and the economy of scale of its sales network, significantly increasing its market influence.
  • Improving operational efficiency by optimizing business structure. The Group constantly promoted its strong outlet strategy and transformation and re-transformation of outlets to optimize business structure and improve overall competitiveness. The operating profit margin of the main segment hypermarket increased by 0.66 percentage point to 2.38% when compared with the corresponding period of 2009, reaching a new record high.
  • Enhancing regional strengths by network expansion. As at 30 June 2010, the Group had a total of 5,040 outlets, 86% of which were located in the eastern region of China. During the period under review, the Group opened 258 new outlets, including 5 hypermarkets (among which 1 was transformed from supermarket outlets), 133 supermarkets and 120 convenience stores.
  • Improving enterprise image by providing innovative services for World Expo. The Group pressed ahead with all-around staff training and business operations enhancement. Efforts were made by the Group in improving inside and outside shopping environment, merchandise mix, service skills and operation management. As at 30 June, the six new stores in the Expo Park recorded sales of over RMB40 million in total, which is the highest record of sales per unit area. These new stores established a positive enterprise image for the Group.
  • Seeking stable merger and acquisition opportunities for new growth drivers. With ample capital and resources accumulated during years of development and leveraging the solid foundation and business opportunities presented by the Bailian Group, the Group will take initiatives to seek merger opportunities, conducting stable acquisitions with careful consideration. In the second half of this year, the Group will perform due diligence and justify the timing and mode of the acquisition and consolidation of Hualian GMS.
  • Announce interim dividend of RMB 0.15 per share (including tax).

Lianhua Supermarket Holdings Co., Ltd. ("Lianhua Supermarket" or the "Company", together with its subsidiaries, collectively the "Group"; HKEx stock code: 980) today announced its interim results for the 6 months ended 30 June 2010 (the "Review Period" or the "Period").

In the first half of 2010, the Group achieved satisfactory results, with its turnover growing by 18.5% to RMB 13.009 billion. Gross profit margin and consolidated revenue margin amounted to 13.48% and 23.78% respectively. Operating profit rose by 26.2% to RMB 401 million. Operating profit margin reached a new record of 3.08%. Profit attributable to shareholders increased by 30.7% to RMB326 million. Basic earnings per share were RMB0.52.

Growth in business segments

Hypermarkets

During the period under review, the turnover of the Group's hypermarkets increased by approximately 9.3% to RMB7,265,257 thousand, which accounted for approximately 55.8% of the Group's turnover. The gross profit margin increased by 1.06 percentage points to 12.90%. The same store sales increased by 3.9%. The segment's operating profit increased by 51.5% to RMB172,795 thousand, representing an increase of RMB58,707 thousand year on year. The operating profit margin increased 0.66 percentage points to 2.38% when compared with the corresponding period of 2009, reaching a new record high. The efforts of hypermarkets in recent years to enhance quality of new outlets, to improve operations of individual outlets and to construct supply chains bore fruitful results.  The sustainable growth in overall operation capability laid a foundation for long-term development.  

Supermarkets

During the period under review, business consolidation in the supermarket segment led to complementary strengths, continuous transformation and enhancement while growth in same store sales increased 2.6%. These efforts weathered the sales growth pressure brought by the closure and transformation of major stores as well as the decrease in the number of direct operation stores and active streamlining of the Group's operations. During the period under review, the turnover of the Group's supermarket business increased by 36.7% to RMB4,814,326 thousand, which accounted for approximately 37% of the Group's turnover.  Gross profit margin was 13.81%. Consolidated revenues margin was 22.64%, mainly attributable to the in-depth transformation and the supplier optimisation strategy. The segment's operating profit was RMB187,292 thousand and the operating profit margin reached 3.89%.

Convenience Stores

During the period under review, the Group's convenience stores recorded a turnover of RMB849,323 thousand, which accounted for approximately 6.5% of the Group's turnover. The Expo Park stores recorded exceptional sales with remarkable individual store performance. More importantly, the success of Expo Park stores will become important experience for future expansion of the Group's convenience store business. Benefiting from favorable consumer sentiment, same store sales of the convenience store segment increased by 3.8%. Value-added services of outlets were well-received by consumers, enhancing the service commission. Consolidated revenues margin substantially increased to 24.08%. The operating profit margin significantly increased by 1.17 percentage points to 3.26%.

Mr. Ma Xinsheng, the chairman of Lianhua Supermarket said: "In the first half of 2010, as the consumer environment began to heat, benefiting from the strong economic development in Yangtze River Delta, Lianhua Supermarket enjoyed favorable timing, geographical and human resource conditions. During the period under review, the Group continued to implement the strong outlet strategy and transformation of outlets.  It also initiated an all-around consolidation with Hualian Supermarket. The successful World Expo showed the people all over the world an energetic Shanghai, which is becoming one of the most important cities in the world. Witnessing Shanghai's new look and development ambitions, Lianhua Supermarket will continue to innovate, striving for a breakthrough, constantly bringing forth new ideas for further development."

Achieving synergy by all-around consolidation and restructuring

In 2010, the Group embarked on the consolidation with Hualian Supermarket and the business restructuring involving merchandise flows, logistics and information flows. During the period under review, the Group completed the unification of financial accounting and coding systems. Meanwhile, the franchising business was consolidated with that of Hualian Supermarket, resulting in a synergy of resources. The order amount from franchisees achieved a growth rate of 24.5% year-on-year. In June 2010, "Lianhua" supermarkets in Shanghai and "Hualian" supermarkets were merged to form Shanghai Lianhua Supermarket Development Co., Ltd. and the franchising business of the above two brands were also consolidated, marking the establishment of a new organisational structure and management team.

While consolidating with Hualian Supermarket, the Group has further consolidated its internal resources. These two supermarkets fully generated synergy, enhancing the bargaining power and the economy of scale to significantly enhance their productivity. The Group will further optimise and advance the consolidation. The Group will carry out reengineering of the operations process, alignment of assessment mechanism, optimization of organizational structure and team building in order to promote restructuring. Progress will be made in consolidation and optimisation of merchandise, logistics and information flows.

The consolidation of Lianhua Supermarket and Hualian Supermarket not only expand the Group's business scale and increase its revenue and profit, which is a quantitative development, but also significantly enhance the Group's productivity by sharing resources and  complementary strengths, making qualitative progress.

Improving operational efficiency by optimizing business structure

After years of Growth, Lianhua Supermarket paid more attention to establishing a business model for high quality and intensive development, while expanding its business scale. The Group strived to reduce its costs by consolidation and improving its management capability by intensive development. During the period under review, the Group actively promoted the strong outlet strategy and the transformation of outlets, which resulted in the constant optimization of business structure and significant improvement of operational efficiency.

During the period under review, the Group constantly implemented the strong outlet strategy, transformation and re-transformation of outlets, forging flagship and model outlets as well as upgrading outlets to improve overall competitiveness. In addition, the Group sped up market studies on express stores and cosmeceutical shops to seek innovative business models. Procedures guaranteeing fresh products were further pushed forward and a scientific assessment system was established. The category management concept and techniques were strengthened. To further improve consolidated revenues, the Group made efforts to optimize suppliers.  It also increased its efforts in developing private label products to uplift brand value.

The Group will press ahead with its outlet transformation and strong outlet strategy by optimising merchandise mix, further developing the sales boosting strategy, innovating marketing modes and adopting flexible pricing strategy to attract customers. The outlets in the eastern region of China will seize the opportunities from World Expo 2010 Shanghai, Shanghai Shopping Festival, and the consolidation of supermarkets segment, logistics and franchising and seasonal holidays to boost sales.

Improving enterprise image by capturing opportunities arising from World Expo 2010 Shanghai

During the period under review, the World Expo 2010 Shanghai provides a desirable opportunity to the Group to further improve the company's image.

The Group has constantly focused on innovation and improved service quality, and has also pressed ahead with all-around staff training and business operations at all levels to prepare for and capture the opportunities arising from World Expo 2010 Shanghai. Efforts were made by the Group in improving inside and outside shopping environment, merchandise mix, service skills and operation management. Franchised World Expo retail counters were set up at the Group's key outlets in Shanghai and east China. Moreover, the Expo Park stores recorded exceptional sales with remarkable individual store performance.

Meanwhile, proactive preparations were made for the opening of 6 new stores in the World Expo Park. As at 30 June, the six Lianhua Quik stores in the Expo Park recorded sales of over RMB40 million in total, achieving remarkable sales and establishing a positive enterprise image for the Group. The success of Expo Park stores will become experiences to draw lessons from for future expansion and innovative development of convenience store business.

Enhancing strengths in certain regions by network expansion

During the period under review, the Group continued to open new outlets in the eastern region of China under its centralised development strategy to further enhance its profound market influence in certain regions. During the period under review, the Group opened 258 new outlets. Four new hypermarkets were opened and one supermarket store was transformed to a hypermarket. 133 new supermarkets and 120 new convenience stores were opened. As at 30 June 2010, the Group had a total of 5,040 outlets, including 1764 direct operation stores and 3276 franchised operation stores, 86% of which were located in the eastern region of China.

The centralised and in-depth development plan in the Yangtze River Delta will secure the market share of the existing outlets and establish profound market influence in the long run. Advancing the intensive development in eastern region of China and other markets where the Group has established a foothold, the Group will make itself well prepared for constructing and opening new outlets. With a view to securing the established market share, the Group will seek potential outlet expansion and acquisition opportunities.

Seeking stable merger and acquisition opportunities for new growth drivers

With the ample capital and resources after years of development, leveraging the solid foundation and the business opportunities presented by the Bailian Group, the Group will take initiatives to seek merger opportunities to explore new room for growth.

Adopting a stable development model, Lianhua Supermarket will look for acquisitions with careful consideration. The Group will conduct the all-around evaluation of potential acquisition targets regarding their management system, technology, customer resources, sales capability and business channels, which aims to acquire the enterprises at reasonable price. The enterprises acquired should be able to strategically benefit the Group with consolidation potential and synergy.  

As the platform for Bailian's supermarket business consolidation, the Group acquired the entire equity interest in Hualian Supermarket in June 2009. The acquisition allowed the Group to further increase its supermarket segment's market share in Shanghai and the Yangtze River Delta, enhancing the advantage of its economy of scale. The acquisition of the business of Hualian Group GMS by Bailian Group has been completed, and the Group will perform due diligence and justify the timing and mode of the acquisition and consolidation of Hualian GMS to seize the new merger and acquisition opportunities and to seek new growth drivers.

Prospects

Of the prospects, Mr. Ma said, "China's economic development, urbanization, acceleration of the development in central and western China, reform of the system for income and pay-rise storm,  will all increase residents' income, thus driving consumption growth, providing the impetus for the development of all types of Lianhua's retail business. After years of stable development, Lianhua Supermarket has accumulated enough experience and resources. The Group is looking for new room for growth by restructuring and optimization, expanding the network of advantaged outlets, as well as mergers and acquisitions. The Group will constantly optimize its business model, further explore potential markets and continuously keep an eye open for merger and acquisition opportunities. In addition, the Group will actively seek breakthroughs while creating long-term value by stable development."

About Lianhua Supermarket

Lianhua Supermarket Holdings Co., Ltd. ("Lianhua Supermarket" or the "Company") is China's leading supermarket chain. Established in Shanghai in 1991, it is now a retail chain operator with a nationwide retail network. It has grown organically as well as through franchise arrangements and acquisitions. As of December 31, 2009, Lianhua Supermarket operated 5040 stores in 22 provinces and municipalities. It operates the "Century Mart" chain of hypermarkets, "Lianhua" supermarkets, "Hualian" supermarkets and "Lianhua Quik" convenience stores. The Franchise Committee of the PRC Retail Chain Operators Association has recognized "Lianhua Supermarket" , "Hualian" supermarkets and "Lianhua Quik" through its awards for supermarket and convenience store excellence. Lianhua Supermarket was listed on the Hong Kong Stock Exchange on June 27, 2003.

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