Annual Report 2015
RISK FACTORS
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D. MAJOR RISK FACTOR ON SUBSIDIARIES
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New World Department Store China Limited (“NWDS”)
(continued)
8. Online shopping continues to grow at the expense of store visits. There is no doubt that e-commerce shares
will be expanded in the retail markets, and will continue to affect traditional stores’ sales performance.
9. Chinese overseas shopping hits record high. According to World Tourism Organization figures, China accounts
for the world’s highest volume of international travelers and the highest per capita spending abroad. In the
year of 2014, Chinese tourists contributed USD164.8 billion and hit the record, ranking the first worldwide.
Meanwhile, the rising demand for the best quality drives the consumer away from buying local goods. It is
expected that by the end of 2015, Chinese consumers’ spending on overseas shopping will be USD194 billion.
10. Three major operating costs, rent, labor and utilities will continue to rise. These three major costs, accounting
for over 70% of the overall cost, have a rapid growth as a result of fast expansion and demand previously
while the revenue doesn’t increase at the same pace and hence could not offset the increase in costs which
adversely affect the profitability and margin of retail business.
11. Besides, the emerging retail formats like shopping mall’s expansion keeps hitting department store’s market
shares. Especially in the 1st and 2nd tier cities, it has gradually become consumers’ most preferred shopping
place. Meanwhile, store departments could not offer comprehensive experience as shopping mall, and due to
the lack of price advantage and brand homogenization problem, it’s getting tougher to compete with shopping
malls.
12. It is expected the government will issue several policies to support e-commerce, with a target to establish
a matured and well developed e-commerce market by 2020. New policies include the lowering of barrier for
market access and reduction of tax burdens etc. The release of the above polices will greatly stimulate the
development of China’s e-commerce market, while placing huge pressure on the physical stores.
NWS Holdings Limited (“NWSH”)
Infrastructure division
1. In addition to the typical political risks associated with investments in the PRC or elsewhere, there are a
number of constructions, financing, operating and other risks associated with infrastructure investments.
Infrastructure projects of the types undertaken by NWSH typically require substantial capital expenditures
during the construction phase and usually take many months, sometimes years, before they become
operational and generate revenue. The time taken and the costs involved in completing construction can be
adversely affected by many factors, including shortages of materials, equipment and labour, adverse weather
conditions, natural disasters, labour disputes, disputes with sub-contractors, accidents, changes in government
priorities and other unforeseen circumstances. Any of these could give rise to delays in the completion of
construction and/or to cost overruns. In relation to certain of NWSH’s infrastructure projects in the PRC,
certain government approvals, permits, licences or consents may not yet be obtained. Delays in the process
of obtaining or failure to obtain the requisite licences, permits or approvals from government agencies or
authorities can also increase the cost or delay or prevent the commercial operation of a business, which could
adversely affect the financial performance of NWSH’s infrastructure business in the PRC. Construction delays
may result in the loss of revenue. The failure to complete construction according to its specifications may
result in liabilities, reduced efficiency, delay in commencement of operations and thus lower financial returns.
2. Although the majority of NWSH’s infrastructure projects have been completed and are generating income,
there can be no assurance that this will remain the case or that future infrastructure projects will be completed
on time, or at all, and generate satisfactory returns.
