Li & Fung

CRA profits soar, but costs a concern

PUBLISHED : Thursday, 28 July, 2011, 12:00am
UPDATED : Thursday, 28 July, 2011, 12:00am

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Convenience store and cake shop operator Convenience Retail Asia (CRA) saw net profit surge by more than a third in the first half of this year, it reported yesterday. However, the company warned that the minimum wage, an increase in tobacco taxes, rising rents and food costs would all challenge its growth.

CRA, a member of the Li & Fung Group, which operates Circle K convenience stores and Saint Honore cake shops in Hong Kong, Macau and the mainland, recorded a net profit of more than HK$78 million in the first six months, up 35.3 per cent from HK$57.68 million a year ago.

Excluding a one-off gain from the disposal of real estate property last year, net profit grew 96.5 per cent year-on-year.

'Increasing tourist arrivals from the mainland and strong consumer sentiment led to a healthy retail sales market in Hong Kong during the period under review,' the company said.

'Sales increased in several tourist-related categories, helping boost total retail sales.'

CRA said that on the mainland, continued economic expansion pushed consumer confidence to a high, helping cumulative sales growth in the retail market.

The company declared an interim dividend of 3.8 HK cents per share, double the payout of 1.9 HK cents a year ago.

But CRA said external conditions made it difficult to expect the strong growth momentum to continue in the second half of the year.

'Rising costs of food, labour and retail rental will continue to put pressure on the group's operating costs in the months ahead,' Richard Yeung Lap-bun, CRA's chief executive, said.

The company said February's tobacco duty increase led to a fall in cigarette sales, while soaring rents would push up rental expenditures.

The real financial repercussion of the new minimum wage law could only be measured after an annual salary review in the second half of this year, it said. But on the positive side, consumer sentiment remained sanguine, which should be beneficial.

'The group will remain vigilant in monitoring market trends and implementing cost-cutting measures where necessary to protect margins and bottom-line performance,' Yeung added.

The group had 539 convenience stories and cake shops at the end of last month, with 6,204 employees.