Retailer to expand circle on mainland China

Convenience Retail Asia, operator of Circle K convenience stores and Saint Honore cake shops, is looking to double the number of Saint Honore outlets in Guangzhou and other surrounding cities to approximately 80 this year.

"Despite a challenging start in the first half of 2013 due to soft demand and escalating expenses, we expect consumer sentiment to improve in the second half of 2013," said Richard Yeung, chief executive of Convenience Retail Asia.

Yeung said that although operating expenses were high due to lease renewals and minimum wage increases, he expects the central government's favourable policy measures to be implemented around April and May, which will drive up consumer confidence.

Convenience Retail Asia maintains a healthy financial position, with HK$743 million of net cash on hand and no bank borrowings.

"We are in a strong financial position and will look to spend about HK$1 billion on compatible small-box retails with appeal to mass markets if they suit our strategic M&A philosophy," said Yeung.

The company's net profit increased last year by 20.2 per cent to HK$199.9 million. Excluding gains on the disposal of real estate and in gross margin stemming from the cigarette inventory following the tobacco tax increase in 2011, the company recorded a net profit of HK$161.4 million, 10.9 per cent higher than the previous year.

Net profits of HK$$220 million came solely from the Hong Kong and Macau markets while a loss of HK$22.1 million was recorded in the mainland market.

The group said negative growth on the mainland was expected as new stores take about 18 months to break even.

Comparable convenience-store sales in Hong Kong and southern China last year increased by 4 per cent and 11 per cent respectively from 2011.

Operating expenses as a percentage of turnover decreased marginally - by 1 per cent - despite escalating rental expenses and rising operating costs as the retail group streamlined its operations by integrating Circle K and Saint Honore management and operating teams in Guangzhou city.

As of December 31, Convenience Retail Asia had 451 Circle K stores and 138 Saint Honore Cake shops.