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GOME Expands Net Profit by 189%

China's largest retail chain of home electrical appliances, GOME Appliances Holdings, yester-day posted a 189 percent increase in interim net profits due to robust consumer demand.

The group recorded a HK$246 million (US$31.5 million) net profit for the first half ended September 30 of this year, compared with HK$85 million (US$10.9 million) in the corresponding period last year.

GOME's turnover grew 45 percent in the six months ended September 30, reaching HK$6.1 billion (US$782.4 million) over the same period last year, while the interim gross profit margin improved from 7.2 to 10 percent.

Describing the company's performance as "remarkable," Wong Kwongyu, chairman of GOME, said: "We expected a continuous growth in China's home electrical appliances market since consumers are enjoying higher disposable incomes.

"The demand for telecommunication and digital products, in particular, will lead the rise," Wong said.

GOME's interim achievement was mainly attributable to the growing demand for consumer products including electrical appliances and consumer electronic products.

According to the group, 99 percent of its turnover comes from the electrical appliances retail business, which posted an interim turnover of HK$6.097 billion (US$781.7 million), representing a 45 percent jump over the same period last year.

China's retail sales of electrical appliances and consumer electronic products are expected to see a 11.4 percent annual growth next year.

"There is fierce competition in the fast-growing retail market," Wong said.

GOME will continue to invest intensively in expanding its retail network in order to maintain its leading position and enlarge its market share, he said.

GOME's chief financial officer Zhou Yafei said the company's capital expenditure this year will be 32 million yuan (US$3.9 million), which is being used mainly for expanding the sales network.

In addition, the group is planning to open new stores in second-tier cities around major areas where the group already has presence.

New "digital shops" in locations with high consumer traffic will also be set up to sell mainly telecommunications, digital and computer products.

GOME currently operates 98 traditional retail outlets and 18 "digital shops" in 22 major cities in the mainland, and "those numbers will keep increasing in the future," Wong said.

Meanwhile, Wong noted the existing four retail outlets in Hong Kong, owned by the parent company, are becoming slightly profitable. Wong hopes the number of the outlets increases to 20 in future.

Looking forward, Wong said his group will continue to gain stronger support from product manufacturers and suppliers, and also expand its sales network through various market promotions.

Wong said a higher sale would increase the company's bargaining power to set prices.

Moreover, the group reported HK$1.4 billion (US$179.5 million) cash in hand, but no interim dividend was declared by the company board.

Lisa J. Du, executive director of GOME, said the company did not declare an interim dividend because the cash on hand has to be used for operation. But management intends to declare dividend in this year-end at a payout ratio of no less than 30 percent, she said.

Du said the company is looking to increase sales and market share next year without harming the net profit ratio. The group's net profit ratio doubled to 4 percent in the first half of this year.

GOME's share closed at HK$6.2 yesterday, up 3.33 percent before the company's interim media briefing.

(China Daily November 30, 2004)

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