Convenience Retail Asia : Results Announcement for the year ended 31 December 2016

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利亞零售有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00831)

• Despite weak retail market sentiment, the convenience store and bakery businesses remained stable, achieving satisfactory comparable store sales growth in Hong Kong

• Core operating profit increased by 4.7%, which was mainly attributable to effective marketing campaigns by Circle K and improved performance by Saint Honore

• Net profit decreased by 12.3% because of the one-off disposal gain of the Guangzhou convenience store business in 2015

• With signs of rental adjustments in the commercial property market, the Group intends to recommence store network expansion in the coming year while maintaining a cautious approach due to macroeconomic uncertainties

• The Board of Directors has resolved to declare a final dividend of 13 HK cents per share and a special dividend of 27 HK cents per share

• The Group maintains a strong financial position with net cash of HK$543 million and no bank borrowings. Subject to shareholders' approval of the final and special dividends, the Group expects to maintain a strong financial position with net cash of HK$241 million and no bank borrowings after distribution of dividends

I am pleased to report that Convenience Retail Asia Limited, together with its subsidiaries (the "Group"), achieved turnover of HK$4,871 million, core operating profit of HK$170 million and net profit of HK$140 million in 2016.

Sales grew by approximately 3%, which was mainly driven by solid comparable store sales growth.

Core operating profit increased by 4.7% to HK$170 million compared to last year. The primary reasons for the increase were satisfactory growth in comparable store sales in Hong Kong and improved performance by the Saint Honore operations. These also had a positive impact on net profit for Continuing Operations, which rose by 4.1% to HK$140 million.

Net profit including Discontinued Operations decreased by 12.3% to HK$140 million, mainly because of the one-off gain of HK$25 million for the disposal of the Guangzhou convenience store business in 2015.

Basic earnings per share for Continuing Operations increased by 3.9%, from 17.8 HK cents to 18.5 HK cents, while basic earnings per share including Discontinued Operations decreased by 12.4%, from 21.12 HK cents to 18.5 HK cents.

As at 31 December 2016, the Group had a net cash balance of HK$543 million with no bank borrowings.

The Board of Directors has resolved to declare a final dividend of 13 HK cents per share. In view of the Group's sizeable cash reserve, the Board has further resolved to declare a special dividend of 27 HK cents per share, which will be distributed out of the Company's share premium. Subject to shareholders' approval of the final and special dividends, the Group expects to maintain a strong financial position with net cash of HK$241 million and no bank borrowings after the distribution of dividends.

Hong Kong retail continued to be impacted by global economic uncertainty and decreasing numbers of Chinese Mainland tourists, who compose roughly three quarters of the city's visitors. Tourism from the Chinese Mainland dropped by 6.7% in 20161, coinciding with a retail sales decrease of 7.1% in volume and 8.1% in value year on year2. However, there was stable demand from local customers for daily consumable products, resulting in a year-on-year increase in sales value in the supermarket category (including convenience stores) of 0.8%2.

Operating costs remained high throughout the year, but one bright spot was the commercial rental market, which has begun to trend downward. Hong Kong continues to enjoy low unemployment, creating pressure on retailers to seek and retain quality staff as well as increased labour cost.

During the year under review, Circle K placed strong focus on introducing timely promotions that capitalise on popular products, characters and consumer trends. Chief among these was "OK Stamp It", a new customer loyalty programme executed with an O2O (online-to-offline) strategy and mechanism that gives customers an easy, exciting way to make purchases and earn rewards with each transaction. This innovative new app provides extra value and privileges with "wow" offerings while also providing the Group with customer insights and deeper engagement. As at the end of 2016, nearly 500,000 customers had signed up as "OK Stamp It" members.

The Group emphasises market differentiation for its retail brands by offering innovative products and services that add quality and convenience to customers' lives. Examples include a successful premium redemption programme for Monchhichi, a very well known Japanese toy monkey, and a new multi-temperature drink zone with hot, cold and ambient beverages for any time of the year.

FingerShopping.com continues to go from strength to strength, posting significant growth in both gross merchandise value (GMV) and membership compared to 2015. The site, which was recently named one of the "2016 Top 10 eCommerce Websites" by GS1 Hong Kong and Retail Asia Expo, is particularly strong in the Beauty and Personal Care category, but it has also been making inroads in the lucrative Baby and Family category, where GMV and stock-keeping units have significantly increased compared to 2015.

Despite a weak retail environment in Hong Kong, Saint Honore was still able to drive sales growth among comparable stores. The Group has now fully implemented a digital CRM programme, which enables it to connect and engage with customers on a more personal level. Staff recruitment and retention is another key area for Saint Honore as the business strives to enhance its service and customer loyalty.

In 2016, the Group completed its production conversion from chilled to frozen dough across all markets, which will enable better procurement and more scalable, efficient production. This project has already resulted in increased capacity and considerable savings in labour cost. The Group also made further investments in Saint Honore's supply chain infrastructure.