chow tai fook jewellery group...

Chow Tai Fook Jewellery Group Limited Stock code: 1929.HK

November 2017

Agenda

About Chow Tai Fook

Financial Highlights

Business Outlook and Strategies

Appendix

About Chow Tai Fook

2016

2015

2014

2011

2010

2003 1990 1929

1956 1998

Started engaging in the jewellery business

Launched the 999.9 gold jewellery products in Hong Kong & Macau, which became an industry standard in 1980s

Implemented the “Fixed Price” policy in Hong Kong & Macau which enhanced the pricing transparency

Opened the first POS in Beijing, Mainland China

Centralised Mainland China operations and established the headquarters in Shenzhen

Listed on the Main Board of The Stock Exchange of Hong Kong (stock code: 1929)

Opened our 2,000th POS in Wuhan, Mainland China

Acquired Hearts On Fire, a US premium diamond brand

Unveiled the Cullinan Masterpiece “A Heritage in Bloom”

Started e-commerce business

The Story of Chow Tai Fook

Became a reference price member of Shanghai Gold Benchmark Price

Unveiled the “Chow Tai Fook T MARK” diamond brand

4

Cheng Yu Tung Family (Holdings) Limited

Cheng Yu Tung Family (Holdings ll) Limited

49.0% 46.7%

Chow Tai Fook Capital Limited

81.0%

Chow Tai Fook (Holding) Limited Public Float

89.3% 10.7%

Chow Tai Fook Jewellery Group Limited (Stock code: 1929.HK)

Shareholding Structure

As at 30 September 2017

5

Board Structure

Cheng Kar-Shun, Henry Chairman

Strategic direction and overall performance of the Group

Wong Siu-Kee, Kent Managing Director

Overall management of the Group

Cheng Chi-Kong, Adrian Executive Director

Brand identity re-creation and marketing activities

Cheng Chi-Heng, Conroy Executive Director

Procurement of diamonds & gemstones and production management

Chan Sai-Cheong Executive Director

Mainland China operations

Suen Chi-Keung, Peter Executive Director

Hong Kong, Macau and overseas operations

Chan Hiu-Sang, Albert Executive Director

Diamond procurement and operations of Diamond Department

Cheng Ping-Hei, Hamilton Finance Director

Financial management and company secretarial functions

Liu Chun-Wai, Bobby Executive Director

Business innovation and Mainland China operation management

6

Cheng Kam-Biu, Wilson Non-Executive Director

Cheng Ming-Fun, Paul Independent Non-Executive Director

Fung Kwok-King, Victor Independent Non-Executive Director

Kwong Che-Keung, Gordon Independent Non-Executive Director

Lam Kin-Fung, Jeffrey Independent Non-Executive Director

Or Ching-Fai, Raymond Independent Non-Executive Director

Audit Committee Remuneration Committee Nomination Committee Executive Committee

Board of Directors

Vertically integrated business model

Diversified product portfolio

Iconic & trusted brand

Dynamic management team with diversity

Our Unrivalled Competitive Strengths

Multi-dimensional sales channels

7

https://thenounproject.com/term/diamond-necklace/183979

Produced

60%+ of gem-set jewellery sold in FY2017

Procurement of raw materials

All rough diamonds sourced are in compliance with Kimberley Process

Rough diamond cutting and polishing

In-house diamond cutting and polishing procedures are in compliance with De Beers Best Practice Principles

Retail and wholesale

Multi-brand strategy – Including Chow Tai Fook, Hearts On Fire, SOINLOVE, Monologue and CTF Watch 2,300+ POS in Mainland China, Hong Kong, Macau and other markets 40+ e-commerce platforms

Sold

15 million+ pieces of products in FY2017

Processed

200,000+ carats of diamonds in FY2017

As at 31 March 2017

Upstream Midstream Downstream

Design

580+ employees in Chow Tai Fook Jewellery Creative Centre Jewellery manufacturing

4 production sites in Shunde, Shenzhen, Wuhan and Hong Kong Logistics and distribution

Automated facilities in Logistics and Distribution Centre in Shunde enable more frequent inventory replenishment and enhance inventory turnover

Vertically Integrated Business Model

8

Multi-brand Strategy

• Multiple brands with differentiated marketing strategies

• Enhanced product offerings catered to different customer clusters

9

Diversified Product Portfolio

10

Diversified Product Portfolio

“Le Labyrinthe Artistique” Collection

HEARTS ON FIRE “White Kites” & “LORELEI” Collections

“Bridal” Collection

Disney “Tsum Tsum” Collection

MONOLOGUE “Be-You-Tiful” Collections

Gemmmagioia “Gemmma Bag” Collection

SOINLOVE “Love Me” & “Princess S” Collections

“Charming Gold” Collection

High-end Luxury

Mass Luxury

Youth Line

HEARTS ON FIRE “White Kites” Collection

“TRI-Light” Collection

57.7% 15.4% 26.9%

67.4% 32.6%

POS by geography Hong Kong Macau Other markets

11.6% 54.3% 34.1%

61.4% 38.6%

POS distribution1 1H2017 FY2017 Addition Reduction Net 1H2018

Mainland China 2,190 2,246 172 (60) 112 2,358

Hong Kong 84 83 2 (10) (8) 75

Macau 19 19 1 - 1 20

Taiwan 23 22 - (1) (1) 21

Korea 5 5 - - - 5

Japan - - 2 - 2 2

Malaysia 2 2 - - - 2

Singapore 1 1 - - - 1

United States 2 3 1 - 1 4

Total 2,326 2,381 178 (71) 107 2,488

Extensive Retail Network

POS by tier of cities Tier I Tier II Tier III and others

Mainland China – Jewellery business Hong Kong, Macau and other markets

POS by area in Hong Kong and Macau Touristic area Other area

POS by operation model Self-operated POS Franchised POS

11 As at 30 September 2017 1 Shop-in-shop and counter-in-shop excluded

120.4% YoY

Contribution to respective

RSV 5.4% Retail Sales Volume 13.4%

E-commerce

60+ e-commerce platforms

including Chow Tai Fook e-shop

345,000

unique daily visitors

Youth line and fashion jewellery products Exclusive online products

E-commerce Platforms Product Offerings

As at 30 September 2017

12

Mainland China – Jewellery E-commerce RSV

Financial Highlights

For the six months ended 30 September (HK$ m) 1H2016 1H2017 1H2018

YoY Change

Revenue 28,124 21,526 24,754 +15.0%

Contribution of gem-set jewellery1 26.6% 27.2% 24.2% -3.0% pts

Gross profit 7,857 6,828 7,166 +4.9%

Gross profit margin 27.9% 31.7% 28.9% -2.8% pts

Adjusted gross profit margin2 28.5% 30.1% 28.7% -1.4% pts

Selling and distribution costs and general and administrative expenses (“SG&A”)

5,782 4,941 4,887 -1.1%

SG&A to revenue ratio 20.6% 23.0% 19.7% -3.3% pts

Core operating profit 2,422 1,708 2,396 +40.3%

Core operating profit margin 8.6% 7.9% 9.7% +1.8% pts

Profit attributable to shareholders 1,557 1,222 1,779 +45.6%

Basic earnings per share HK15.6 cents HK12.2 cents HK17.8 cents +45.6%

Dividend per share3 HK50.0 cents HK21.0 cents HK12.0 cents -42.9%

Summary – Income Statement

14

1 Revenue from jewellery trading and service income from franchisees excluded 2 Adjusted gross profit margin = Gross profit margin excluding the impact of the unrealised hedging gain / loss on gold loans 3 Dividend per share included a special dividend of HK42.0 cents and HK15.0 cents for 1H2016 and 1H2017, respectively

Revenue by product 1 (HK$ m) Revenue by reportable segment (HK$ m)

15

59.7%

59.2%

28,124

40.8% 40.3%

21,526

60.4%

39.6%

Hong Kong, Macau and other markets

Mainland China

24,754

29,320

58.0%

42.0%

37,768

51.4%

48.6%

16.3%

YoY Change

15.0%

13.1%

1 Revenue from jewellery trading and service income from franchisees excluded

28,023

21,301

29,240

28.1%

55.7%

27.2%

49.6%

16.2% 12.7% 12.9% 5.0% 6.3%

53.6%

26.6%

37,693

17.4%

65.4%

13.2%

4.0% 6.1%

24,127

24.2%

11.3% 6.7%

57.8%

0.9%

21.9%

-0.6%

YoY Change

13.3%

21.3%

Platinum / Karat gold products

Gem-set jewellery Gold products

Watches

Revenue Breakdown

1H2017 1H2018

SSSG SSSG SSS volume growth

Mainland China -19.2%

Hong Kong and Macau -25.7%

Mainland China Hong Kong and Macau

1Q

Same Store Sales Growth (“SSSG”) – Major Markets

16

2Q 3Q 4Q 1Q 2Q FY2017 FY2018

-27.3%

-23.0%

-17.3% -17.4%

-4.4% 7.4%

-11.9%

-36.0%

7.8% 19.2%

8.5%

20.6%


Same store average selling price1 (HK$)

1H2017 1H2018

Gem-set jewellery

Gold products

-12.3% -17.2%

-4.2% 5.1% 3.3% -1.4%

-21.5% -26.7%

7.0%

17.2% 16.1% 14.8%


SSSG – Major Products

17

SSSG – Mainland China SSSG – Hong Kong and Macau

1Q 2Q 3Q 4Q 1Q 2Q

FY2017 FY2018

1Q 2Q 3Q 4Q 1Q 2Q

FY2017 FY2018

1 Average selling price was rounded to the nearest hundred HK dollar, and was calculated based on 1H2018 Same Store count and included value-added tax (VAT) in

Mainland China

Same store average selling price1 (HK$)

1H2017 1H2018

Gem-set jewellery

Gold products

Core operating profit YoY 1H2017 1H2018

Mainland China


28.6% 32.9%

30.7%

20.0% 21.8%

19.2%

9.5% 12.1% 12.4%

1H2016 1H2017 1H2018

Profitability – Hong Kong, Macau and other markets

1,582 1,549

1,853

840

159

543

1H2016 1H2017 1H2018

Mainland China


Core operating profit by reportable segment (HK$ m)

28.5% 25.8% 25.5%

21.4% 24.6%

20.5%

7.3% 1.8%

5.5%

1H2016 1H2017 1H2018

18

Adjusted gross profit margin SG&A ratio Core operating profit margin

Core operating profit margin Adjusted gross profit margin SG&A ratio

Profitability – Mainland China

Core Operating Profit and Profitability Analysis

1H2016 1H2017 1H2018

Staff costs

Concessionaire fees

Rental expenses

Advertising and promotion expenses

Depreciation and amortisation

Other SG&A

2.2%

5.0%

-14.2%

-1.2% -0.4%

0.9%

5,782

4,941 4,887

1.7%

1.6%

2.8%

1.8%

2.7%

%

% 6.9%

1.2%

3.9%

3.5%

3.7%

1.4%

8.0%

0.8%

4.4%

3.6%

4.4%

1.8%

%

7.1%

0.7%

3.8%

3.3%

3.3%

1.5%

19

YoY Change

As a % of revenue

-1.1%

SG&A Analysis (HK$ m)

Hong Kong and Macau

SG&A – Staff Costs and Related Expenses (HK$ m)

Mainland China

20

1H2016 1H2017 1H20181H2016 1H2017 1H2018

27.0%

69.9%

27.7%

68.8%

34.3%

62.3%

1,133 1,092

1,234

1H2018 Average no. of

employees1

19,880 -6.0% YoY

34.6%

59.2%

7.7%

61.1%

5.5%

57.5%

707

624 625

3,190 -9.6% YoY

3.0% 3.5% 3.4%

As a % of respective revenue

Variable staff costs

Fixed staff costs Other staff related expenses

6.2%

31.2% 36.9%


Variable staff costs

Fixed staff costs Other staff related expenses

1 Employees in production function excluded

1H2018 Average no. of

employees1

893

801

667

1H2016 1H2017 1H2018

Rental expenses

8.1% 9.8%

7.4%


21

9.1% 9.2% 8.8%

976

761 801

1H2016 1H2017 1H2018

Concessionaire fees


SG&A – Concessionaire Fees and Rental Expenses (HK$ m)

Mainland China Hong Kong and Macau

83 59

89

324

235

283

1H2017 FY2017 1H2018

Finished goods

Raw materials

2,413 2,224 2,207

2,427 2,293 2,539

10,304 8,459

12,684

17,575

16,200

18,305

1H2017 FY2017 1H2018

Gem-set jewellery

Gold products

Platinum / Karat gold products

Watches

Inventory balances by product1 (HK$ m) Inventory turnover period by category2 (day)

¹ Packing materials excluded 2 Inventory turnover period = Closing inventory balances (excluding packing materials) / cost of goods sold x 183 (for 1H figures) or 365 (for FY figures

29,176 %

294

32,719 %

53.7%

7.4%

7.4%

407

31.5%

%

51.2%

6.2% 7.1%

35.5%

372

55.5%

7.6% 7.9%

29.0%

35,735

Inventory Analysis

22

1H2016 1H2017 1H2018

ProjectsPOSProductionsOffices

1H2016 1H2017 1H2018

Furniture, fixtures and equipment & leasehold improvementsLand and buildings & construction in progressPlant and machinery & motor vehicles

23

410 398

489

398

489

410

Capital Expenditure (HK$ m)

Capex by nature Capex by function

(HK$ m)

FY2017 As at 31 Mar 17

% to total equity

1H2018 As at 30 Sep 17

% to total equity

Increase/ (decrease)

Non-current assets 7,133 21.9% 7,807 24.4% 674

Inventories 29,259 90.0% 35,838 112.0% 6,579

Bank deposits and cash equivalents1 7,943 24.4% 5,079 15.9% (2,864)

Total borrowings 10,009 30.8% 14,374 44.9% 4,365

Bank borrowings 6,793 20.9% 8,108 25.3% 1,315

Gold loans 3,216 9.9% 6,265 19.6% 3,049

Net debt2 2,066 6.4% 9,295 29.0% 7,229

Net current assets 26,480 81.5% 26,836 83.8% 356

Total equity 32,502 100.0% 32,007 100.0% (495)

Changes in Capital Structure

24

1 Bank balances and cash included 2 Aggregate of bank borrowings, gold loans, net of bank deposits and cash equivalents

Net Increase in bank borrowings Dividends paid Other movements

25

7,943

2,869 5,864

2,916 187 553 410

1,297 3,027

95 5,079

FY2017(31 Mar 17)

1H2018(30 Sep 17)

Bank balances and cash

Bank balances and cash

Pro forma free cash flows 1 -1,229

Capital expenditure Increase in inventories Operating cash flows before movements in working capital

Net cash used in other operating activities Net increase in gold loans

Purchase of a jewellery collectible

1 Net cash from operating activities less purchase of jewellery collectible, capital expenditure and net movements for gold loans

Summary – Movements in Cash Flows

Changes in bank balances and cash (HK$ m)

27

Market development

• Continue retail network expansion in Mainland China

• Optimise POS efficiency in touristic area and selectively open stores in residential neighborhoods in Hong Kong and Macau

• Progressively expand wholesale business with reputable branded retailers in the United States

Customer experience

• Differentiate product offerings through innovations, exquisite craftsmanship and compelling designs

• Carry on with multi-brand strategy and store differentiation

• Enhance production and operations from a customer-centric perspective

• Elevate customer relationship through our membership programme


Appendix

Appendix – Major Awards & Recognitions

• Institutional Investor : All-Asia (ex-Japan) Executive Team Rankings (Consumer/Discretionary sector) (2016) - Most Honored Company – Third Place - Best Investor Relations – Third Place (Nominated by the buy side and sell side) - Best Investor Relations – Third Place (Nominated by the sell side) - Best CEO - Second Place – Kent Wong (Nominated by the sell side) - Best Investor Relations Professional – Third Place – Danita On (Nominated by the buy side and sell side) - Best Investor Relations Professional – First Place – Danita On (Nominated by the sell side) - Best Website - First Place (Nominated by the buy side and sell side)

• The Hong Kong Institute of Directors : Directors Of The Year Awards (2015) • Corporate Governance Asia: The 7th Asian Excellence Award (2017) - Asiaʼs Best CEO (Investor Relations) – Kent Wong - Asiaʼs Best CFO (Investor Relations) – Hamilton Cheng - Best Investor Relations Company (Hong Kong) - Best Investor Relations Professional – Danita On • Corporate Governance Asia: The 12th Corporate Governance Asia Recognition Awards 2016

– The Best of Asia – Asia’s Outstanding Company on Corporate Governance (2017) • Hong Kong Management Association: Best Annual Reports Awards – Best New Entry (2016)

Governance

29


• Forbes Global 2000 (2016) • Brand Finance Global 500 (2017) • IAIR Awards : Best Company for Leadership – Luxury Sector, Asia (2013 - 2017) • World Branding Awards : Brand of the Year, Retailer – Jewellery, Hong Kong (2016 - 2017) • World Brand Lab : China’s 500 Most Valuable Brands – Ranked 45th (2016) • World Brand Lab : China’s 10 Most Influential Brands (Jewellery) – Ranked 1st (2016)

Corporate branding

• HKSAR Government: Hong Kong Awards for Industries – Productivity and Quality Grand Award (2016) • Asia Pacific ICT Alliance : Asia Pacific ICT Alliance Awards

– Merit Prize in Retail and Supply Chain Management (2016) • L2 : Digital IQ Index Luxury China – Digital Competence – Ranked 6th (2017) • JNA Awards : Industry Innovation of the Year (2015,2017) • GS1 Hong Kong and Guangdong - Hong Kong RFID Technology Service Center : Guangdong

– Hong Kong IoT Awards – Best IoT Applications Award (2014) • Asia Pacific ICT Alliance Awards - Winner Award in Retail and Supply Chain Management (2014)

E-commerce and technology

30


• Hang Seng Global Composite Index • Hang Seng Composite Index • Hang Seng China (Hong Kong-listed) 100 Index • FTSE Asian Retail Index • Hang Seng High Dividend Yield Index • Hang Seng Corporate Sustainability Benchmark Index

Index constituent

• Diamond Empowerment Fund: Diamonds Do Good Awards – Community Development Award (2016) • World Green Organisation and United Nations Sustainable Development Goals:

Green Office Label and Better World Company Label (2016) • The Hong Kong Council of Social Service : Caring Company (2013 - 2017) • Hong Kong Productivity Council : The Hong Kong Outstanding Corporate Citizenship Award

– Enterprise Category – Merit Award (2016) • GS1 Hong Kong : Consumer Caring Company (2013 - 2016)

Corporate social responsibility

31

Thank you

These materials have been prepared by Chow Tai Fook Jewellery Group Limited (the “Company”) solely for use at this presentation and are not for public dissemination. The slides and any other materials used in this presentation are the property of the Company and must be treated as such. The information contained in this presentation is being furnished to you solely for your information and may not be forwarded, published or distributed, directly or indirectly, to any other person (whether within or outside your organisation/firm), in whole or in part, for any purpose and may not be reproduced in any manner whatsoever. Any forwarding, publication, distribution or reproduction of this document in whole or in part is unauthorised. The information contained in this presentation does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities or other interests of the Company or its holding Company or any of its subsidiaries in any jurisdiction or an inducement to enter into any investment activity, nor shall it or any part of it form the basis of or be relied on in connection with any contracts, commitment or investment decision whatsoever. This presentation contains forward-looking statements. Such forward-looking statements are based on a number of assumptions about the operations of the Company and other factors, many of which may be beyond the Company’s control. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Accordingly, the Company’s actual results may differ materially from those expressed or implied by such forward-looking statements. The Company has no obligation and does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this presentation has been compiled as of the date of this presentation, speaks as of the date of this presentation (or earlier, if so indicated) and will not be updated to reflect material developments which may occur after the date of this presentation, and is subject to change, including substantial changes, without notice. This presentation may include measures of financial performance which are not a measure of financial performance under IFRS, such as “Core operating profit”. These measures are presented because the Company believes they are useful measures to determine the Company’s operating cash flow and historical ability to meet debt service and capital expenditure requirements. “Core operating profit” should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net profit or indicators of the Company’s operating performance on any other measure of performance derived in accordance with IFRS. Because it is not an IFRS measure, “Core operating profit” may not be comparable to similarly titled measures presented by other companies. The information contained in this presentation has not been independently verified. No representation, warranty, or undertaking express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of any information or opinion contained herein. It is not the intention to provide, and you may not rely on this document as providing, a complete or comprehensive analysis of the Company’s financial or trading position or prospects. None of the Company or any of its directors, officers, employees, agents, shareholders, affiliates, subsidiary, advisors or representatives shall be in any way responsible for the contents hereof, or shall be liable (in negligence or otherwise) for any loss howsoever arising from any use of this document or the information contained in this presentation or otherwise arising in connection therewith.

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