Moving Forward Steadily for Sustainable Growth with a Solid Foundation and Continuous Innovation
HONG KONG — Hengdeli Holdings Limited (“Hengdeli” or the “Company” and, together with its subsidiaries, the “Group”; HKSE: 3389), a world-leading retailer of internationally renowned brand watches and manufacturer of watch accessories, announced its annual results for the year ended 31 December 2016 (“year under review”).
In 2016, consumer sentiment has been affected due to the unstable political environments around the globe. Despite the Group’s best efforts, amidst this adverse operating environment, Hengdeli could not counter a decline in sales that were the result of adverse macro conditions and subdued consumer demand. During the year under review, the Group recorded revenue of RMB12,334,151,000, a year-on-year decrease of 7.3%. Retail sales amounted to RMB8,557,615,000, a year-on-year decrease of 8.7%. However, due to a series of reforms and innovations carried out in the Group?s industrial sector , the manufacturing of watch accessories achieved relatively good results with revenue of RMB464,921,000, a year-on-year increase of 8.7%.
Mr. Zhang Yuping, Chairman and Executive Director of Hengdeli, said, “In 2016, amidst a volatile political situation, the global economy plunged into a deep adjustment. Similarly, China’s economy has also encountered some developmental resistance as downward pressure on the economy persists. Meanwhile, the constant change in consumer consumption patterns and concepts, coupled with foreign exchange fluctuations, presented a rather unfavourable operating environment for the Group. Facing these risks and challenges, the Group adhered to a policy of steady and healthy growth, working in the present for long-term development in the future in order to safeguard shareholders’ interests.”
During the year under review, the business operating climate remained unsteady. Constant changes in consumer concepts and diversification of consumption patterns have had a great impact on the traditional consumer market, and its effects have been reflected with the drop in demand of watch purchases. Seeking healthy and steady development as an objective and adhering to market-oriented principles, the Group actively implemented a host of marketing strategies, employed new sales methods, accelerated the integration of retail outlets, and optimised its overall management system. After implementing a strategy of adjustment and optimisation, the Group now operates a total of 446 retail outlets in mainland China, Hong Kong, Macau, and Taiwan as at 31 December, 2016, although overall sales continued to slow down during the year under review. Retail sales from mainland China decreased by 3.1% compared to the same period last year, while Elegant sales in Hong Kong dropped by 6.7%. Sales in Taiwan have been stable for the year and have not deviated much from that of the previous year. During the year under review, Elegant rented a storefront on Yun Ping Road, Causeway Bay (to be opened in 2017) as a multi-brand Elegant shop. Another property was purchased by the Taiwan Company in the downtown area of Taipei to be turned into Elegant?s Taiwan Flagship store, which is expected to open in 2017.
During the year under review, after putting forth tireless efforts, and despite an overall recession in famous watch sales, the Group’s watch accessories business saw an improvement compared to the same period last year, raising it to new levels with regard to its competitiveness on the market. After two years of integration and overall strategic adjustments, the Group has basically finished building a new business model comprising upstream and downstream operations of the industrial watch accessories chain, covering a range of products and services from the manufacturing of furniture and items used for watch sales as well as watch packaging products to commercial space design, production and decoration. the Group’s branches and subsidiaries have each earned a solid reputation in their respective fields. The Group’s clients are spread all over China and reach as far away as Switzerland, the United States, and other countries in the Asia Pacific area, forming tight relationships, mutual trust and sharing with brand suppliers. In the year under review, the Group has increased its investment in the watch accessories business and has expanded its production base for watch packaging products as well as furniture and items used for watch sales. Moreover, there has also been a new development in the Group’s export business, i.e. – sampling for items involved in watch sales for various internationally renowned brands has been completed, and the export of these items has already started. The Group has also enhanced its information management system. Modernised office automation systems are now fully in use at branches and subsidiaries. Production automation is being upgraded at suitable times, and all branches and subsidiaries have begun adopting the corporate management system jointly developed with an ERP management company. Furthermore, our new production base for furniture and items used in watch sales in Suzhou, China, is currently commerce operation. We expect that sales will show greater growth once production is in full swing. The Group believes that its watch accessories industrial chain will become one of its key businesses that will provide a great fillip for the Company?s development in the future.
Cutting-edge technology, a joint warranty network, efficient management, and caring services’ have always been the aims of the Group’s customer services system, which is comprehensive and well developed. During the year under review, the Group furthered integration of its customer services. The focus of management has gradually migrated from headquarters management to regional management, deepening the bond between retail sales and customer service in order to maximise profit margins. At the same time, regional improvements and expansion of our service network have been accelerating and become more efficient. As a result, regional sales have increased markedly compared to last year. Capitalising on our sound service standards and high-tech servicing quality, as well as our deeper cooperation with our various brands, during the year under review, the Group also entered into watch maintenance agent agreements with six different brands under MGI, including – Coach. As at 31st December, 2016, 73 brands appointed the Group as their maintenance agents, of which 52 were exclusive appointments.
With regard to brand distribution operations, the Group has about 400 wholesale customers in over 100 cities across China, distributing and exclusively distributing world-famous branded watches, including Hamilton, Certina, Tissot, Mido, and CK. Despite a sluggish market with growth in overall distribution slowing, the Group has gained wide-spread support from brand suppliers and retailers by providing more comprehensive and custom-tailored services to stimulate enthusiasm on terminal sales, resulting in a harmonious ‘win-win’ situation.
While facing uncertainties in today’s macro-economic environment, the only way to ensure our prolonged stability and sustainability is to make decisions in-line with changes in the market. To this end, the Group announced on 30 December, 2016, a substantial business disposal proposition. We believe that this strategic development will effectively lower the Group’s financial burden and currency risks, resulting in a healthier financing model to ensure our continuing safety and stability, as well as lay a new foundation for future development. The Group believes that if the business disposal is approved at the upcoming extraordinary board meeting, it will be the start of a new journey toward prosperity for us.
Mr. Zhang concluded, “In the coming year, the Group will adhere to the operating principle of ‘moving forward steadily for sustainable growth with a solid foundation and continuous innovation.’ Our focus is on prolonged stability and sustainable development in our overall business operations. With an open mind, innovative thinking, and an artisan spirit, the Group will explore and execute a new development model, make structural adjustments, secure healthy growth, and pursue lasting sustainability.” In more concrete terms, the Group will continue to strengthen its network of retail watch outlets as well as watch accessories manufacturing while at the same time we will strive to expand into other markets in a variety of innovative ways in order to make breakthroughs in the Group’s development, and create greater value for both our shareholders and society at large.