Annual Report 2016 - page 224

New World Development Company Limited
210
Risk Factors
D. Major Risk Factor on Subsidiaries
(continued)
New World Department Store China Limited (“NWDS”)
(continued)
7.
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.
8.
Chinese overseas shopping hits record high. According to a report from world Travel and Tourism Council, China
accounts for the world’s highest volume of international travelers and the highest per capita spending abroad. In the
year of 2015, Chinese tourists contributed USD292.2 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.
9.
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.
10. 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. Massive
supply of shopping malls in the coming few years will probably further worsen the situation.
11. 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 policies will greatly stimulate the development of China’s
e-commerce market, while placing huge pressure on the physical stores.
NWS Holdings Limited (“NWSH”)
Global economy
1.
NWSH is exposed to the development of the global economy as well as the industries and geographical markets in
which it operates. As a result, NWSH’s financial condition and results of operations may be influenced by the general
state of the global economy or the general state of a specific market or economy. Any significant decrease in the level
of economic growth in the global or regional or a specific economy could adversely affect NWSH’s financial condition
or results of operations.
Currency fluctuations
2.
The results of NWSH are presented in Hong Kong dollars, but its various subsidiaries, joint ventures and associated
companies may receive turnover and incur expenses in other currencies. Any currency fluctuations on translation of
the accounts of these subsidiaries, joint ventures and associated companies and also on the repatriation of earnings,
equity investments and loans may have an impact on NWSH’s businesses. NWSH operates mainly in Hong Kong and
Mainland China and is therefore exposed to Renminbi fluctuations with a portion of underlying transactions, assets,
investments and cash denominated in Renminbi.
3.
Exchange rates of Hong Kong dollar against Renminbi or other foreign currencies are affected by, among other things,
changes in the political and economic environment of the issuing jurisdictions of the currencies. The exchange rates
of Renminbi against Hong Kong dollar, United States dollar or other currencies may be re-valued, and may be
permitted to enter a full or limited free float. Such situation may result in appreciation or depreciation in Renminbi
against Hong Kong dollar, United States dollar or other foreign currencies. Continual fluctuations in the exchange
rates of Hong Kong dollar against Renminbi or other currencies may materially and adversely affect NWSH’s
businesses, financial condition, results of operations and growth prospects.
Interest rate fluctuations
4.
NWSH’s finance costs and interest expenses fluctuate with changes in interest rates. NWSH is exposed to interest rate
risk through the impact of rate changes on interest bearing assets and liabilities. NWSH may be affected by changes
in the prevailing interest rate of the global credit market. Any increase in interest rate in connection with the
currencies NWSH borrows will increase NWSH’s finance costs and may adversely and materially affect NWSH’s
businesses, financial condition, results of operations and growth prospects.
Changes in government policies and legislations, social and political stability
5.
Clear government policies and legislations with stable social and political environment lay a good foundation for the
success of NWSH’s businesses and smooth operation. Any changes in the government policies and legislations such
as tax regulations, franchising and licensing requirements may adversely and materially affect NWSH’s financial
condition and results of operations. There can be no assurance that the future social and political conditions are no
less favourable than the prevailing environment.
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