retail - - investor relations asia pacific

Hutchison Whampoa Limited38

Operations Review – Retail

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operations review

• Total revenue increased 4% to HK$148,626 million.

• EBITDA increased 9% to HK$12,725 million.

• EBIT increased 8% to HK$10,048 million.

• The retail division contributed 37%, 15% and 17% respectively to the total revenue, EBITDA and EBIT of the Group’s businesses.

2012 Annual Report 392012 annual report 39

The retail division consists of the A S Watson group of companies, the world’s largest health and

beauty retailer in terms of store number.

retail

PARKnSHOP introduces a new lifestyle supermarket, TREAT, to Chengdu, China.

2012 annual report 39



Group Performance

a s Watson currently operates 11 retail brands in europe and nine retail brands in asia, with over 10,800 stores in

33 markets worldwide, providing high quality personal care, health and beauty products; luxury perfumery and

cosmetic products; food and fine wines; as well as consumer electronics and electrical appliances. a s Watson also

manufactures and distributes various bottled waters and other beverages in Hong Kong and the Mainland.

2012 2011 HK$millions HK$ millions Change

Total Revenue 148,626 143,564 +4%

EBITDA 12,725 11,724 +9%

EBIT 10,048 9,330 +8%

In local currencies, growth in total revenue, EBITDA and EBIT for the year were 7%, 10% and 9% respectively. The retail division contributed 37%,

15% and 17% respectively to the total revenue, EBITDA and EBIT of the Group’s businesses.

The Group’s retail businesses are managed under five principal operating subdivisions: Health and Beauty China; Health and Beauty Asia (excluding

the Mainland); Health and Beauty Europe; Luxury Europe; and Retail Others and Manufacturing.

Revenue growth was strong across all subdivisions other than Luxury Europe, which was supported both by increased store numbers and year-on-

year comparable store sales growth. The division reported a 9% growth in total revenue in Asia compared to last year. Reported revenue in Europe

decreased by 1%, which was adversely affected by the weaker European currencies. In local currencies, revenue grew by 5% compared to last year.

Total Revenueby Subdivision

2012

143,564148,626

2010

116,098

2011

123,177

2008 2009

118,504

40,000

20,000

0

60,000

120,000

100,000

80,000

140,000

HK$ millions

36,951

16,638

61,618

18,051

15,368

Health & Beauty China Health & Beauty EuropeHealth & Beauty Asia Luxury Europe Retail Others (incl PARKnSHOP, Fortress, Watsons Wine & Nuance-Watson) and Manufacturing

10%

12%

42%

11%

25%

2011HK$143,564 million


9%

12%

42%

13%

24%

2012 Annual Report 41

Stores

0

-200

200

400

600

800

2011Total Stores: 727

2012Total Stores: 844

-2315

375

152

325

Total Retail Store Number Growthby Subdivision

2%-3%

44%

39%

18%

5%6%

36%

32%

21%

Health & Beauty China Health & Beauty EuropeHealth & Beauty Asia Luxury Europe Retail Others (incl PARKnSHOP, Fortress, Watsons Wine & Nuance-Watson)

2012

844

727

2010

383

2011

576

2008 2009

386

Total Retail Store Numbersby Subdivision

13%5%

15%

15%

52%

11%5%

15%

17%

52%

20122010 20112008 2009

Health & Beauty China Health & Beauty EuropeHealth & Beauty Asia Luxury Europe Retail Others (incl PARKnSHOP, Fortress, Watsons Wine & Nuance-Watson)

2011Total Stores: 10,021

2012Total Stores: 10,865

Stores10,865

8,7189,294

8,335

2,000

0

6,000

4,000

8,000

10,000

488

1,438

1,656

1,684

5,599

10,021

ComparableStoreSalesGrowth(%) 2012 2011

Health & Beauty China 0.6% 7.8%

Health & Beauty Asia 5.8% 6.2%

Health & Beauty Europe 5.1% 2.9%

Luxury Europe -0.7% -0.2%

Retail Others (includes PARKnShop, Fortress, Watsons Wine & Nuance-Watson) 5.6% 11.6% TotalRetail 4.2% 5.1%

-Asia 4.8% 9.5%

-Europe 3.8% 2.2%

Note: Comparable store sales growth represents the % change in the net sales from comparable stores from the same period last year.



2,293

712

5,067

1,624

3,02924%

13%

40%

5%

18%



21%

13%

40%

8%

18%

Health & Beauty China Health & Beauty EuropeHealth & Beauty Asia Luxury Europe Retail Others (incl PARKnSHOP, Fortress, Watsons Wine & Nuance-Watson) and Manufacturing

EBITDAby Subdivision

2012

12,72511,724

2010

7,986

2011

10,081

2008 2009

6,849

HK$ millions

2,000

0

4,000

10,000

8,000

6,000

12,000

EBITDA and EBIT growth were likewise solid across all subdivisions, other than Luxury Europe where consumer sentiment remains weak. The Group

recorded a 14% increase both in EBITDA and EBIT respectively in Asia against a revenue growth of 9%. EBITDA in Europe increased by 3% and EBIT

remained largely in-line compared to last year, against a negative revenue growth of 1%, as the reported numbers were adversely affected by the

weaker European currencies. In local currencies, EBITDA and EBIT improved by 7% and 4% respectively in Europe, against a revenue growth of 5%.

The division’s overall growth in Asia and in Europe reflects a competitive product offering, improving margin management, operating efficiencies

and the continuing focus on own-brand and exclusives sales.

Superdrug brings new energy to customers’ shopping experience by refreshing its store design in the UK.


Stores

400

0

800

1,200

1,600

Health & Beauty China: Total number of retail stores

2012

1,438

1,063

2010

559

2011

801

2008 2009

410

Watsons expands its network in Mainland China with over 1,400 stores in more than 200 cities.

segment Performance

Health and Beauty china


Total Revenue 15,368 13,111 +17%

EBITDA 3,029 2,453 +23%

EBIT 2,767 2,262 +22%

HK$ millions

500

0

1,000

2,000

2,500

Health & Beauty China: EBITDA

2012

3,029

2,453

2010

1,200

2011

1,825

2008 2009

672

1,500

3,000

3,500

Watsons, currently a market leader in health and beauty in the Mainland, will continue to further expand its store portfolio. Total revenue grew by

17% compared to last year, while EBITDA and EBIT grew by 23% and 22% respectively. Comparable store sales growth for 2012 slowed to 0.6% due to

both weaker consumer sentiment and an increased number of new store openings, including locations in proximity to existing stores. However, total

revenue growth remained robust at 17% as all store openings continued to perform well with an investment payback period of less than one year.

The subdivision increased its total number of stores by 375 during the year and currently has more than 1,400 stores operating in the Mainland.



Health and Beauty Asia: Number of Retail Stores by Market

2011Total stores: 1,532

12%

26%

7%16%

15%


19%

5%13%

29%

7%16%

14%

18%

3%

Hong Kong & Macau SingaporeTaiwan Malaysia Thailand The Philippines Other Asian Countries

Health and Beauty asia


Total Revenue 18,051 16,857 +7%

EBITDA 1,624 1,479 +10%

EBIT 1,313 1,176 +12%

In Asia, the Watsons business is a leading health and beauty retail chain with strong brand name recognition and extensive geographical

coverage. Combined total revenue grew by 7% compared to last year and comparable store sales growth was 5.8% (2011: 6.2%). EBITDA and

EBIT growth were 10% and 12% respectively, mainly due to increased contributions from the Watsons businesses in Hong Kong, Thailand,

Malaysia and the Philippines. The subdivision increased its total number of stores by 152 during the year and currently has more than 1,600

stores operating in nine Asian markets.

Watsons opens a flagship store in Singapore after the recent brand refresh.


Health and Beauty Europe:Number of Retail Stores by Market



31%

21%

13%

2%

20%

13%

30%

22%

12%

1%

21%

14%

Germany United Kingdom and Ireland

Benelux Countries Poland Other Southern European Countries

Other Northern European Countries

Health and Beauty europe


Total Revenue 61,618 60,911 +1%

EBITDA 5,067 4,706 +8%

EBIT 3,770 3,578 +5%

Health and Beauty Europe consists of Watsons in Turkey and Ukraine; Kruidvat and Trekpleister in the Benelux countries; Rossmann joint-venture

stores in Germany and Central European countries; Superdrug in the UK and Ireland; Savers in the UK; Drogas in the Baltic States and Spektr in Russia.

The health and beauty businesses in Europe reported, in local currencies, a combined total revenue improvement of 8% over last year, mainly

due to the better sales performances of the Rossmann joint-venture and of Kruidvat in the Benelux countries, as well as increased contributions

from Savers in the UK and Watsons businesses in Turkey and Ukraine. Comparable store sales growth was 5.1% (2011: 2.9%). Despite the tough

economic environment in Europe, EBITDA and EBIT in local currencies increased by 14% and 12% respectively compared to last year. Health and

Beauty Europe added 325 stores during 2012, and currently operates more than 5,500 stores in 13 markets.

ICI PARIS XL is recognised as the Best Perfumery store in the Netherlands and Belgium in 2012, and has opened its first-ever store in Germany.





33%

15%

18%

18%

Luxury Europe:Number of Retail Stores by Market

France United Kingdom and Ireland

Benelux Countries Other Southern European Countries

Other Northern European Countries

16%

34%

15%

19%

18%

14%

Luxury europe


Total Revenue 16,638 17,942 -7%

EBITDA 712 927 -23%

EBIT 352 550 -36%

The Luxury Europe subdivision comprises the three Europe-based luxury perfumeries and cosmetics retail chains: Marionnaud, The Perfume Shop

and ICI PARIS XL. The subdivision’s luxury businesses continued to be affected by the difficult economic situation and weak consumer spending

on non-essential luxury products in various European countries. In local currencies, total revenue decreased by 2% compared to last year, while

EBITDA and EBIT decreased by 27% and 48% respectively, primarily from the weaker performance of the Marionnaud Group.

The Marionnaud Group continued to face a challenging economic environment in various European countries in terms of both intense competition

and declining consumer sentiment. In local currencies, combined total revenue declined 5% compared to last year. In the UK and Ireland, The

Perfume Shop reported an increase in total revenue of 6% in local currencies, and in the Benelux countries, ICI PARIS XL reported steady growth in

total revenue of 2% in local currencies. Luxury Europe currently operates over 1,600 stores in 18 markets.

retail others and Manufacturing


Total Revenue 36,951 34,743 +6%

EBITDA 2,293 2,159 +6%

EBIT 1,846 1,764 +5%

Retail Others and Manufacturing consists of leading retail concepts in Hong Kong, being PARKnSHOP supermarkets and other related concept

stores; Fortress consumer electronics and electrical appliances stores; and Watsons Wine stores. The subdivision also includes PARKnSHOP and

Watsons Wine stores in the Mainland, Nuance-Watson in the Hong Kong and Singapore international airports, as well as the manufacturing and

distribution of well-known brands of bottled water, fruit juices and soft drinks in Hong Kong and the Mainland. This subdivision, which currently

operates over 480 retail stores, reported total revenue growth of 6% and comparable store sales growth of 5.6% (2011: 11.6%), while EBITDA and

EBIT improved by 6% and 5% respectively.


The new lifestyle retail brand SU-PA-DE-PA is the family destination for food, fashion, homeware, gadgets and fun.

Retail Others (incl PARKnSHOP, Fortress, Watsons Wine & Nuance-Watson):Number of Retail Stores by Segment

2011Total stores: 473

2012Total stores: 488

67%

9%5%

19%

64%

15%

5%

16%

Fast-moving Consumer Goods Airport Concessions Wine RetailingConsumer Electronics

PARKnSHOP in Hong Kong delivered good EBITDA and EBIT growth, driven by the continuous efforts in driving store productivity and cost

efficiency. PARKnSHOP in Hong Kong currently has over 270 stores. Fortress reported an 11% growth in total revenue, with a corresponding

growth in EBITDA and EBIT for the year and currently has 90 stores. Watsons Wine reported growth in total revenue as consumer spending on wine

continued to grow, but EBITDA and EBIT declined mainly due to margin pressure as well as rising rental and other costs. Watsons Wine currently

has over 20 stores.

In the Mainland, the PARKnSHOP operations reported declines in total revenue, EBITDA and EBIT in 2012, reflecting lower consumer spending

attributable to the slower economic growth in the Mainland.

The Nuance-Watson business reported total revenue, EBITDA and EBIT growth, driven by increased passenger spending and traffic. The expiration

of Nuance-Watson’s two core licences at the Hong Kong International Airport in late 2012 will reduce its contribution to the overall performance

of this subdivision in 2013.

Manufacturing operations reported a 6% increase in total revenue primarily driven by strong results in the Mainland.

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