Sun Art Retail Group Stock

Ladies and gentlemen, analysts, good morning to you. Welcome to the 2026 12 months ended 31st of March for Sun Art Retail Group Limited. Last night, we have sent you all the PPTs for all those we have registered. If you need it with the online investors, please go to the company website to choose the online results announcement and also you'll be able to get the PPT.

Today -- with us today is the Chairman and the CEO, Mr. Julian Juul Wolhardt. And next to me is Ms. Wan Yiwen Desory, the CFO. And also, we have Ms. Gu Xiaobei, the Director for Investment Relations.

Now let us have the Chairman share with us some of the investment highlights and the progress of the company.

Thank you. Thank you so much, and welcome to this announcement. In the 2025-'26 financial year results, in this particular financial year, the EBITDA is RMB 3.1 billion, but we always want our EBITDA to be better. Whatever it is in this very difficult environment in the year, we were able to have this EBITDA, and it is an achievement. And going forward, we will be improving on our EBITDA. Now, as for the business development, you have to remember last time when we communicated with you, there were some core points. And today, I will use the same framework. And next year, I will also use the same framework. Why is that so that you can follow our KPIs? And this is very important. I will be responsible for you, and you can follow us on all the major metrics.

Now there were 4, 5 things that we really needed to achieve. One, our products. Secondly, online, we have to grow that. And also, thirdly, we have to adjust our shops, and also fourthly, to open new shops. Now last year, I've talked about these 4 themes. And today, I will do the same, and also to tell you the target for the year, for next year, and also for the year after. And in 3 years, for these 3 themes, we will be achieving them. I want to say in the first year, we have been able to reach the targets we have set for ourselves. Next year, we have another target, and in 2028, we want to have achieved them all.

First of all, in terms of our products. Now you know that for our stores, we are different from the other stores. We want to have a very deep relationship with our KA, that's what we want to have a very deep relationship, and for our RT-Marts, so that we can have a very good sales and achievement. And also, our self-owned brand, we want to grow that.

In May and June, you can see that we have these brands that we have developed ourselves. They were from 0 that we have grown them. And also from the point of view of products, we want fresh to be growing. So this is an attraction point for our patrons.

So for products, I said there are different metrics and one there is the products. Products is important. First of all, for fresh foods, you can see from the PPT, Page 7, that it is about 3% in terms of oversales volume growth. And this is important because CPI in China is dropping, there is pressure with the population, competition is more fierce and shops are getting more numerous. But for us, the growth had been overall 3% volume growth, despite competition. Of course, we want this to be 12%, 13%, 14% going up and increasing.

So for us in the company, we want to grow fresh food to improve on the quality and efficiency of fresh food. So how do we do this through marketing, that is a very important way. And RT-Mart over the years, we do not have a marketing department as such. So this is something we have to do. And also, another thing we have to do is to make it more Sino, more Chinese. And that is, for example, our Chinese festivals will be tied in with our products.

So it is not like the entire year through we will be selling the same thing, rather for the 24 special times of the Chinese calendar that marks the Chinese traditional calendar, we want our products to be in coordination with those. So including vegetables, fruits, seafood, meats and also last year, we said our penetration rate was about 40%. And we want this to be increased to a higher percentage for our penetration rate. This is at the core.

So last year, with a very tough environment, we have grown 3% of sales. And coming forward, we will be able to increase that. And for gross profit margin, we, of course, want it to be further increasing. It's increased by 0.8 percentage points. And just now, I said there are 3 points. One, bring in more traffic with fresh foods, that's one.

A second one is to have in-depth diversified partnership with premium brands and value creation via national joint procurement. Now we want to build up our national joint procurement as a sustainable self-reinforcing business ecosystem. This is not to lower or compress the KA prices or outsourcing, but rather for the KA or the important KA, we want to grow their share. And by so doing, we are relying on them more and they on us so that they -- in their new products, when they first issue and first introduce their new products, they choose us. So this is for RT-Mart, we are different from others -- or other competitors. We embrace the KAs.

And today, in terms of FMCG, it's increased national joint procurement to 60% of our sales. So in the financial year going forward, we'll be increasing this point. At the end of the year, you can come back and ask me, have you reached your goal and give me a score? Well, for the national joint procurement, if you look at the lower right-hand corner, you'll be able to see our pork performance. We have about 40 suppliers for pork. And last year, with national joint procurement, it's been compressed to 5, and they're all the biggest KA in the country, and they have increased their sales for us.

And as a result, it's a 20% growth in sales volume. This is because we are strong, strong alliance. Compressing 4 TKAs to 5, they make more money. And also, our growth had been 20%, not bad for RT-Mart. So it is a win-win achievement. This is what we want to achieve. It's not like it's a zero-sum game, no, but rather we grow together, and we win together. So today, it's pork and in the future, it will be a series of other things. And also, it will be so for FMCG as well as for fresh food.

The third leg is our private brands, and we have developed some private brands. But on the other hand, we decided to go from 0, start again. And for our PBs, private brands, in the financial year, it is about 3% in terms of sales penetration.

In the next financial year, I want to be able to achieve 5%. And at the end of next year, 6% to 7%. So this is to say one day, we want our sales target to be 20% for private brands. Of course, that will take a number of years, but this is the overall overarching target.

Private brand and KA, they can go hand-in-hand together, because there are many brands in China. We have a few thousand brands, for example. If we compress like pork from 40 to 5, they are better. And we at RT-Mart, we are better as well. So if we grow from 3% to, let's say, 5%, our growth would be increased by 100%. So at the end of the year, you can ask me whether I've achieved the target we set out. So these are the three things in products. And the consumers will be able to get better KA products, get better fresh food products and better private brands from us.

So apart from private brands, the other thing that we need to do is store transformation. We have about 500 in 3 years, we have to transform them all. Some are major transformation, some are medium, some are small transformation. Within 3 years, our 500 stores will have to be transformed. And in the end of the financial year, it will be 50% to 60% transformed. We are now on schedule, and we're following the 3-year plan, and this is a 3-year strategy that we have talked about.

Now with the store transformation, there are a few things. First of all, fresh food zone reset. So -- and also the display and also our commercial street, and also the supermarket format. So next year, you'll be able to see the results. So the fresh food, and the fixtures and display gallery and also closing some of our underperforming store. So we will continue to push ahead with that.

For our supermarkets, we have 34. For the supermarket as a format, is it a proven model? Well, with this format, it has changed from a negative cash flow to positive. So that was encouraging. So the second year, we have been opening new stores and third year, we opened more new stores. So this is -- supermarket is an area that we will grow. So to open stores, first of all, we have to transform them, open new supermarket and also grow our online. It was only about 20% or so of our volume for online business, but it is now about 30% in terms of sales penetration for online business, and within 3 years, we want to reach 40%. I don't know whether we'll be able to achieve that, but right now, we are about 30% already. And this is the target that we have set for ourselves, 40%. So what we tell you within 3 years, we will want to have achieved those targets.

Now for online, we should be able to breakthrough 40%. Why? It is because we have the front warehouses. Last year, we had opened front warehouse, and there had been a period of trying and trialing. And this year, for front warehouses, it has already become a self-sustaining model. Some are even profit-making. So for opening front warehouses in the future, it will increase our 40% or help us achieve the 40% sales penetration. First year was trialing, second year growing, third year growing in big ways for front warehouses.

So opening new stores is also this 3-step approach. So overall speaking, I hope you want to know, we are working on the products and also the stores and also with our front warehouses. For stores in the next few years, it will be a net positive number. And we also want that for those stores, which are not particularly profiting -- profit-making, we might have to close them. So this is something we might have to do. So in this year, we will continue to enhance the areas that I have talked about. And then, Desory will come back to look at the financials, and then, we will go through the second year and the third year for some of the details of our plans.

Thank you very much. Next, we look at the overall achievements for the year. We had 507 stores in 2024. And this year, overall, the competition had been keen. The industry is also changeable with split-second consumption, et cetera. So overall, to see, it is about the same as last year. So overall, revenue is RMB 63,442 million, and it is a 0.1% growth from the year before. And also for our revenue, and especially from fresh food had increased, and also our private brands had also grown. And this is the reason for our gross profit margin increase, which had increased, as I've mentioned, 0.1%. And adjusted EBITDA margin is 5% and adjusted EBITDA is RMB 3,157 million, and this is a healthy financial performance. And in the future, our strategic planning and our mid- to long-term planning will have this basis. As for our net cash position, we are in a very healthy and very ample position. Our net cash position is minus RMB 1.8 billion in terms of our debt. It is still over RMB 10,000 million as our net cash position. And also, we had a bonus and from minus that, our net cash position is still very healthy.

Inventory turnover days this year, for our turnover days, you have to look at it in this way. So for 3/31, actually in the spring festival of this year, it was on the 3rd of March in the past 11 years. This is the first time the Yuanxiao Festival and the Spring Festival was in March. And after that, the -- with some of the speed of or pace of the returns, et cetera, it was because of the festival timing that it had been delayed. So therefore, the inventory turnover days was a result of that. And in May, it has already come back to stability in terms of inventory turnover days.

And also CapEx is RMB 545 million less than last year. It is because of our Kunshan project. It is at the end of its project construction term. And also in our procurement -- integrated procurement, we have been -- we had more action on our KAs, and also our stores transformation and also our front warehouses, there have been some smarter investments, lower investments, and therefore, the overall CapEx has decreased.

So for these 507 stores, the number of stores, there are 507 membership stores and also 32 are membership -- the hypermarket stores are 462 and 34 are super stores. And this year, we are also making some transformations or we have closed 9 nonprofit-making stores. Our trend is the same in the future for some of the better regions, commercial circles, we will continue to put in our superstores and also our front warehouses and also our stores. So we are in keeping with our overall store expansion existence.

Now for total revenue, it is RMB 63,442 million, which is a drop from last year, and it is 11.3% drop year-on-year. So for our major reasons, it is because of competition in the market, and there had been for lower expenditure. And last year, for the pop and mom stores, there had been competition and there had been pressure. And therefore, compared to last year, there had been a 1.8% in terms of impact on the company. And in the first half, we said that we will be making adjustments in the Central China region, and we have been doing that, restructuring that. And therefore, for our revenue impact, it is about 1.5% impact. And also the CPI, as mentioned by the Chairman just now, it had been lowering, especially for livelihood factors. And for pork and vegetables, CPI and eggs, it had been over 10% drop. So for this kind of impact from the revenue, it is about 0.8%. So overall speaking, it is about total 4% impact. In this kind of competition, on the one hand, there will be diversification from our traffic and our customers.

In the beginning, we already said that to see omnichannel compared to last year, it is stable, though. And in that process, online, we have been very strong and resilient. So for B2C orders to C channel, it is some 30% from revenue, it is 26% share. And B2C had increased 2.6% as share. And overall, the situation is controllable. And also, there had been some change to the overall order volume. And online orders has increased approximately 5.5% year-on-year. And it is because of our voluntary adjustment from our company.

We restructured our overall structure, brought in more food and beverage and also for some of our tenants, we have lowered the rentals to them. That is for our gallery. So we prioritize lowering the vacancy rates to optimize the tenant mix, and we have been steadily raising the share, as mentioned, with our food and beverage format, with our tenant portfolio, and we are quite stable there.

So for gross profit margin, it is RMB 15,372 million, which is a drop of 10.8% as we have mentioned. It is also because of rentals from gallery lowering, but also gross margin is a rise for fresh foods optimization and also the product mix for fresh food and also the operation for the fresh foods, they have increased the margin for fresh foods. And PB, it had also increased and contributing more to our gross profit. And also for FMCG, and especially for our private brand, FMCG will need time to adjust the supply chain. So this presents short-term pressure.

And for expenses, it is a lowering of -- decrease of 5.5% being the expenses, it was RMB 16,005 million, representing a year-on-year decrease of RMB 936 million. And with our shops, it is over 20% in terms of our utilization, which is 3% higher than last year. And also our headquarters, it is some 15% higher. So through the optimization and management, our costs have decreased. So for us, it has -- the tenant rentals, that also had -- there had been negotiations with them. And also, this is rental cost reduction negotiations across our all store networks. And also, we have better centralized resource coordination to drive cost savings.

Now for our adjusted EBITDA and also our property valuation and net cash position, Page 18. For our property valuation and net cash position, we have ample cash reserves, and we have supporting -- we have been supporting a robust financial structure. And this is a very good foundation for us to go forward. So in the year, financial year, even though external, internal, there has been a lot of pressure and changes. But as mentioned, for fresh foods and also private brand strategy, it has come to some fruition. And also for the superstores, it is also bringing in positive cash flow. And also for our front warehouses, there are pilot points and some of the warehouses have already reached very closely to our target.

So for this year, the second dividend HKD 0.08 per share, given that we have already completed our dividend for the year. For our strategy of dividend, we hope to be able to keep our stable and consistent policy so that shareholders will have a steady and consistent income.

For the next year, we'll have new organization and new coordination efforts. And as the Chairman said, we will continue to materialize our 3-year strategy and in particular, in the experience of the consumers in our stores. And we hope that we will continue to be stable with slight increase in our performance, but at the same time, we will continue to invest into the operation, into experience, and also in fresh foods, for example, and our resources, we will be investing and also to extend them to the entire year, we would want to be profitable. And so for our financial performance, we will be -- have a positive profit or to achieve this balance. So next, I would want to have Julian come up and speak to us.

I just want to repeat the strategic side because I want you to be able to track us year-on-year. EBITDA had been RMB 3 billion plus. This is a very important target, and this is something that we have to look at the EBITDA. But the CapEx had been lowered significantly in the past year. So it is not comparing like with like from previous years. So we are thinking about EBITDA all the time. So every year, I'm thinking about this every day, and that is EBITDA, and this is very important.

Let's talk about the 3-year strategy. What is our vision? Our vision is to be the most trusted, the most favored company for our consumers and also a company that our staff can be proud of. All the things that we have done is for this, and this -- that is, one day, when our staff go out, they are very proud to say, they go to work at Sun Art and/or RT-Mart, and I want our customers to trust us to rely on us.

So all that we are doing have the single reason. So we want our staff to be more efficient. And this is something that we are looking at every day. This is our vision, and we have a 3-year strategy. Just now, I talked about a lot of details. Why? Because we want to be an omnichannel company, that is, in the 3 kilometers area, we will be the center.

Why our stores so big? Because we are a community livelihood center. We're not a convenience store. No. It provides solution with everything. If someone wants a lunch, a fresh food or wants to buy a pair of scissors, we are a one-stop shop. And in Japan, it exists this kind of format, in U.S., in the U.K., in Germany, and this is a commercial model that is global. So this is our 3-year goal. So we want fresh foods and also our stores and also, et cetera, we have talked about the 3-year strategy. So product and supply chain and also our channel deployment.

So we have talked about the categories, but overall, for product and experience upgrade, product and experience go hand in hand. That's why we talked a lot about fresh foods and also the total cycle time for our supply chain will be compressed. And also, we embrace our KA and also grow our PBs, private brands. And with this, we will enhance experience. When the customers come to our stores, they will see, "Oh, better products, oh, better display" because the products, it is part of our store. It is a combo. So you would understand in order to achieve the 3-year goal, our consumers' experience will have to be good. So this will be the comfortable environment in the store and good products.

So digitalization. Digitalization is part of or encompasses supply chain. It's all about machine learning, AI -- basically, AI because without digitalization, you're not able to at all with this huge volume, increase efficiency and speed. For our online operation, it is very much AI and our design. Our IT team in the entire company is growing in size. It is 20% more in terms of our IT team. And next year, perhaps, another 10% increase to our IT team.

So as we optimize our digitalization, we will definitely be going on to the path of AI and platform. And this is something that's a megatrend, and there's no turning back on that. Now for this year, for our supply chain, we have put in a lot of time and energy, and it has grown 8% for each of the category. So we are thinking every day about lowering our supply chain costs and also increasing its efficiency. So it is not just about cost, but also total cycle time. This is something that we think about with a lot of time. And so experience and also digitalization and supply chain optimization.

And the third one is multi-format. Multi-format is all the different sizes of stores and also online and also our front warehouses. So it will be a megastore and around that superstores and also front warehouses. It's not like we're covering the entire country, but we are using a kind of combo strategy. So 45 minutes delivery to the home, this is our goal. So -- and you can shop as you buy and also when in the store, you'll be able to enjoy very good experience. But at the home, you can also place your orders online, and you can also enjoy it, and the guarantee is about 45 minutes, 96% completion that is delivery to the home.

So in China, there is no single format that can cover the entire nation. That's why we say multi-format, we always mentioned that, but we always say that in the concentric circle, there is the megastore, and then, the superstore around them, and then, also the front warehouses. So it is a community livelihood center hub. That's what we want to build. And in the year, in terms of our structure, there had been a lot of optimization within the organization.

From purchasing team to senior management, there had been some 50, that's a number of change. So there have been major adjustments. And 90% of the personnel adjustment or change have been -- will be completed within the year. So there is a lot of staff optimization. And I would say it is 90% stable. So with the existing staff, I hope they will lead the company on to the second and the third year going forward. And the average age has been lowered by 10 years or 15 years in terms of age. So new people bring on new energy and also, we have some more older senior people to bring up the younger ones, and this is a good combination. So we have good strategy. We have good digitalization, and we have good format, and we have to find the right people. If it's the same team hoping that they will achieve different results, that's difficult. So we have to redefine our structure, bring in new people and that is the reason why.

And just now, I've talked about a lot of different products. We have to think about our core as well. What is at the core of it. And this has to be on the 6 rights, what do we have to do right? First of all, it will have to be rich, all customers and all scenarios coverage. It's not like we're going to have just 5,000 SKUs. We want to be all encompassing. That is our goal. If you want some other things, we want -- you can buy online 30-minute delivery. And also, we want safety, which is end-to-end reliability.

Over the years, we, as a company, had not had any major incident. Decades ago, when we first started the company in China, there had been certain incidents, but we have come a long way from that. We want safety. We will provide safety to our consumers. And also price competitiveness. We want higher sales, but we -- based on thinner margins. So grow the volume and even with affordability.

So everything we do from customers, fresh, et cetera, it is about the 6 rights. So that's why I also talked about total cycle time. Let's say, a cabbage from the land to our store shelf, how long does it take? How many hours? I need to know that information so that we know that what we sell is fresh. And also processing, processing when they -- if you buy our cabbage from our store, you can also try our dumplings, for example. So it is not just selling something that's tasty, it is also selling experience. So it is a double effect. So we want our store to be very visitable. It's a good experience.

And also, we're not LV, we're not MS. No, of course, not. But we are a lifestyle leader, nevertheless. What does it mean? That is what you want as consumers. In summer, you want the best vegetables, and you want clothing, I give you the trendiest, but of course, we are not selling high-priced clothing, but I want to give you something that's affordable, that is high quality. So when people think of our products, think about our fresh foods, et cetera, when they come to our store for experience, it is all about the 6 rights. Everything will be our 6 rights, which defines our standards and our customer experience.

So with our staff, how can we bring everybody on to the same path? We basis on the 6 rights. So I gave you a report just now. And also, we -- every year, when we -- I communicate with you, I will use the same framework so that you're able to track us to know whether we're going on the right path. Just now, our EBITDA is RMB 3 billion plus, as Desory said, and it is HKD 0.85 (sic) [ HKD 0.085 ] in terms of our dividend, and we will be keeping those stable going forward.

So today, I will close my presentation here. I just want to know whether you have questions, we'll be very happy to answer your questions. Thank you.

Thank you, Julian. Thank you, Desory. This is the Q&A period. There will be 2 parts to it. The on-site investors will raise questions, and then, the online investors. First of all, the second row, the gentleman over there.

Morgan Stanley, Dustin. I have three questions to ask. First of all, concerning competition. For competition, online had been impacted, but offline, there are different formats, small shops and different products, which is competing with your hyperstores. So from the latest trend, can you talk about the period this period and also the last period, has there been returns and what kind of a competition situation? And also, what about the front warehouses? What are some of the more aggressive things that you have done?

And also for fresh foods, fruit stores, et cetera, is there a vertical that you'll be thinking about? For example, one-stop purchase, are there some new formats that you will be considering? And also for the operation and financial targets, what about the sales and EBITDA projections?

And in particular, for the financial year, what are some of the assumptions and the factors that would affect it going forward? The EBITDA last year with all these factors in play, it had been stable that there have been a lot of measures on it. And for the margin going forward, what is your forecast? And also, Julian mentioned AI. Can you give us more examples? It is in the website? Or is it in the other areas? AI empowerment, how does it bring on better sales or efficiency, et cetera?

Yes, I will answer the one -- the first question. First of all, on competition, you asked a question. We have been close to 30 years operation in China. It has always been competitive. We have never had an industry in China, which had been demand over-stripping supply. This is characteristic of China, in pork, in milk, et cetera, around all the industries. This is a basic fundamental for the China market. You never have something that only you have that is unique. So that doesn't happen. That's why we have been thinking about our differentiation.

One, our stores are very big. This is an advantage, but how do we bring -- make it an advantage. It takes everyday thinking. It has to be a pleasant experience for our customers. So we have to be thinking how we can transform our stores, how can we have fresher cabbagges, better dumplings, mantou, et cetera. From competition point of view in China, it's never been that there's no competition. There's always been competition. So it is about how we strengthen ourselves within that competition.

Second, last year compared to this year, of course, we know that there are a lot of online stores, burning cash and some of them are giving out gifts or milk tea, et cetera, with just a small amount of food purchase, but on the other hand, people's stomach is only this big. It wouldn't be that I'm going to buy even more because you're giving me free gifts. So this year, how do we see this year? Will people still -- the online operators still be burning cash like last year, like RMB 100 billion. So we need to continually to improve. As Desory said, we will continue to do so. And we have already prepared and the burning of cash will continue because that is characteristic of China.

Now online and offline, you think about these are 2 different industries. That kind of understanding is, per se, it's not any more. That is to say online and offline are completely integrated. It's the same thing. In the past, we say, "Oh, he's in online. Oh, he's in offline." Those days are gone. And it will always be the same war going forward, O2O. So it's like the Chinese martial arts novels, it has to be like that. So in the future, there will be no segregation.

For the offline stores, we find that there is something that's very interesting. The pop and mom shops are exiting. When we first started in retail, these stores were 80% of the market. Now it's 60%. In the future, it will be 30%. I don't know which day that will come, but the trend is definitely decreasing because the experience is not as good and they cannot go online. So when we first came to the market, the pop and mom stores market share was higher. It's going to decline gradually. So this is products and also channel.

And Desory also talked about some new stores. And yes, for some of the experiential stores, member stores, et cetera, or some mini stores, yes, we have all those formats as well. But why do we talk about like it's a big thing because it's an experiment for this financial year? And after trials, if it's successful, we'll do it. If it's not successful, we'll not do it. And so we still have about a dozen stores, which are under trial.

And going back to our omnichannel strategy, it's not like when you open a store, just right, you have a 2,000 square meters, 3,000 square meter space. If they only have 1,000, then we have to open that kind of a store. But on the other hand, the sizes of stores, we have different sizes. And also, there are trials, there are experiments for the different sizes.

The third question was on AI. Ordering, for example, SKUs can be like 15,000, 25,000. How do we predict that next year, we need 6 of these, 9 of those products? And right now, we have a few hundred people writing all this down. This will not be the case in the future. It's impossible. AI is not going to replace these people, but for our ordering speed, and the accuracy of it will be higher. Let's say, tomorrow, it's going to rain or 3 days later, it's going to rain. Today, we are already going to be ordered appropriately with that prediction. So this times 365 days, the change. The factors that can change are huge. So we have to use AI prediction given that using AI is a must.

So for fresh food, you also talked about using AI. For the national purchasing, that's one thing. And through AI, it will be even more accurate in terms of procurement, and also inventory days, 2 years later, it would have improved as well. So this is something we're thinking about every day, and that also includes this AI utilization.

For example, our delivery man, what is the route, for example? And in the future, for our supply chain, the trucks, the routing, which route it should take in order to save some fuel, that is something you say it's arithmetic, it's math, that's algorithm for you, actually. So AI, machine learning is already something that is a must. I don't think that this is a differentiation, but something that every company needs to do today. I think every company does that. Who is not using that? I think this is almost basic now. So apart from the basic, what we're thinking is what else we can do. So this is the next step of development for us.

So in terms of cost, you want to say something, Desory?

Yes. Until May, if we look at May, it is stable. And per order, we see a narrowing of compression. So May compared to last year, it is narrowing of mid- to high single digit. As Julian mentioned, for online and offline, it is dynamic, it's changeable. So today, our B2C order had changed from 30% increase -- room for increase is huge. And also compared to the past, Ele.me and Meituan cooperation with us, there has not been any decrease in this area. So for the room for growth, we will realize this year. And this will be mid- to high single-digit growth.

For our total customers and with our products attraction mix of products, we want to increase our ASP and the expenditure per -- or the consumption per customer. And also our fresh foods had increased as a share, and this year, we want this to be a mid- to high single-digit growth for fresh foods. And also for PB -- for the fresh foods and also our PBs, there will be room for further increase. So together with our nationwide procurement, 60% of our sales come from these integrated national procurement. It's not like I'm just locking in prices with the big brands, but rather through this procurement method, we will have more ODM new products launched, developing ODM and also with some dozens of new brands introduced. So it will be increase of 10% of brands increase. So from our products, from our sales, it would be an increase in sales of a few hundred million RMB.

So overall speaking, for instance, last year to this year overall, what has been under pressure, for example, in terms of cooked food and also for some of the new products in terms of daily sundries, et cetera, they will be introduced. These new products and new brands in August and September, we'll be realizing these to take away or replace the old products. And PB had increased by 60% this year, as mentioned, and if it is 5% of sales, then that would be like a RMB 2 billion increase. So this will be in a number of products, including wines, including in clothing, et cetera. And the response from the customers for PB has been very positive. So for top line and also for gross margin for PB, we want to realize our whole year at least balance the results.

Next question.

Huatai Securities, Shi Di. I have three questions. First of all, it's been mentioned the four strategies. One is transformation of stores. What is the percentage of transformed stores over the total number of stores? And also if there is an increase of growth after transformation number? And also, Mr. Wan talked about the size, the big size of the stores is an advantage and also our sales have been increasing. Now, I would like to know whether there will be some decreasing of the size of some megastores? And if so, what is the pace of that?

And the third question is in the future for the renewal of new generations of products. For example, for some of the transformed channels, there are -- for some of the competitors, for example, there will be weekly new products and monthly new products, et cetera. So as we consolidate our team for choosing products and renewing the products, what is the outlook so that there will be newer and newer experience for the customers with newer products?

For transformation of stores, right now, it is about 25%. By the end of the year, it will be 60%. That is the direction. As for the exact ratio for the major transformation, the results, the sales have been increasing. But it's very difficult to just focus on the good side. That is the -- that would be unfair, because if you look at some of the other stores, they are going through different levels of transformation. So it's very difficult to quantify.

Transformation, first of all, is in fresh and fresh is increasing. And then, we will be replicating this in other stores. So it will bring on PB, and also processing goods. So it is about what Desory talked about buying one more. So this is the transformation strategy. And our direction will not be like knocking it down and starting from 0 again. That had never been our company's culture. So there will be a process for transformation, and that's why we say that it is a 3-year strategy.

Yes, big stores have our history and it is good, and we have 14,000 square meters store as well. Will they become 7,500 meter stores? Yes, it is possible, but that kind of store will not be decreased to only 3,000, but would 7,500 square meter be the goal? Yes. And the extra space will be the gallery. It can be used for bringing in the outside warehouse that is no longer located outside the warehouses, but right there at the stores, beside the stores, it is possible. So the sales per square meter will be lower. Why? Because we want to grow our sales. The large stores, it is a fact of life that sales per square meters will be lower. That's why we want to lower the square meterage so that the sales per meter will be higher.

Now as for your question, PB last year was 0. Now it's 600 SKU. And some of them have been taken off because they have not been selling well. So of course, the cycle of replacement will be faster, it will be fast. But of course, the operation will take time. In our hearts, our wish, of course, we want it to be faster, but the reality and operation will always be slower. But on the other hand, our pace will pick up for sure because as you mentioned, we want there to be a nice surprise, something new when people come to our store. It's not like every month, it's the same, same as a few months ago. We want that as an experience. We don't want that as an experience of customers. It is important. So in this particular area, we have an algorithm company to help us track this. And yes, we will be speeding it up.

Next question.

I'm Anne Ling. I have a small question. For our relationship with the supplier, what is it? Because for our stores, we always have the back-end expenses, and that has always been part of our cost. And I would like to know what is the relationship? Will there be any changes in this regard?

It is like this. Let's talk about the results first. That is gross margin results and the KA margin. It's not -- it's the same. That is -- the end result is the same. That is a main principle, but with the nationwide procurement, we want the ratio to be better, not to say that KA had lost, but rather can have better alliance so that we have more better new products. So new products, the margin should be slightly higher, right? So from this angle, we want to bring up the ratio. It's not like you give me more this year. And with more this year, you will get best. But rather, we want it to be a win-win situation where they grow, and we grow as well together with them. As for the ratio between the front and the back end, we want that to change because when you have a new product selling, the margin will be higher.

Now for ODM, for example, we have an up-and-coming product. When we talk to the KA, they will say, "Oh, you're going to be a joint brand party. So this is your Sun Art only sale." So will there be a day where there will be a gross margin decrease, where there is none of such relationship with the KA? No. Because national joint procurement is going to stay. A lot of KAs, our competitors don't want to work with them because they want their own brands, but over the years, we've worked with the KAs. We want this to be together, joining hands to bring on a better future. So the joining hands, the cooperation will not change. Maybe the ratio would change on the other hand.

Are there any other questions? If there are no other questions on site, the online investors can ask questions now. [Operator Instructions]. Online question from UBS, Viola.

I'm Viola from UBS. I have two questions to ask. First of all, on the CapEx for this year, can you talk about that? And for the front-store warehouses from -- for the superstores, what is the CapEx?

And the second question about dividend policy. Can you repeat the policy for this year or -- and also the years going forward?

For the CapEx, for capital and from last period is more or less the same with slight increase. After the Kunshan project repayment, it will be about RMB 400 million CapEx investment. And it will -- for the stores and the warehouses, it will be RMB 60 million and RMB 100 million for transformation. And we already mentioned the transformation number of stores, and we want that to be increased sales from the transformed stores and also gallery increase in savings in terms of investment and also the AI investment, et cetera.

As for dividend policy, I've mentioned that just now and the interim dividend is HKD 0.085 per share. And with this, we have completed our 2026 dividend payout work. And we see that from last year to this year, the company, in terms of dividend, had been consistent. And in the future, for dividend policy, it will be consistent and stable. That is our policy so that the shareholders will have a stable and consistent dividend return every year.

CICC, Wang Jierui, next.

I have two small questions to ask. First of all, about our front warehouse in terms of orders, et cetera, what is the situation? And also going forward, what are some of the situation with the front warehouse?

And also for the national joint procurement, right now, there is a pretty good performance. Going forward, for the joint procurement, what is the penetration rate that you intend? And what are some of the product categories that you want to go for national joint procurement?

The national joint procurement, our hope is to have it achieved 60%, for pork, for instance, even though the quantity volume had grown significantly, but we are surprised as well. If you sell pork, how can you actually increase customer flow like this and also the performance like this. So if you want projection, I cannot say for sure, but I think it will be even better in terms of sales. When we were selling these pork, we had not compressed the pork sales price significantly. No, that it's like our pork had been fresher, our products are better. And because also with national joint procurement, we have first launched product advantage. So we want to have 60 KA to further compress. So this is the plan -- work plan for the future.

Now for the front warehouses, it's tough to say because at present, the stores concerned are not that many. And we have for some stores with 2,000, but some stores with only 500 orders per day. So it's difficult to give you the exact number. We have just over a dozen these front warehouses. It's very difficult to give you an average of the numbers. And also, first store is about 800,000 or 1 million. And now it is about 400,000. I think we can continue to lower. So if you talk about CapEx, it is already cut by half, but in the future, we will have to adjust again according to our assessment.

For our cycle days, the good and the bad put together average, it is 2.5 years. However, we cannot look at the average because there are many stores, which are a mistake. So we have paid the tuition fee, but we don't want to repeat the mistakes. So for the worst stores, let's say, the 500 orders per day versus the 2,000 orders per day stores, but I will not be fixated in the numbers. I think, so for the -- I think this is a trial for our stores. Now the superstores are already successful, the trial, so there will be more of them. And for front warehousing, we will be doing that, increasing them as well. So some of the things will be successful, some less. The front warehouses are successful and also for our member store and also for our small stores, the mini stores, we're still trialing. So different formats, a different situation, and we will continue to trial.

And the range for front warehousing, it is 600 to 800 orders per day, but for some of them are better performing, but it would be about RMB 55 order size. And overall, our product category mix is optimizing. And also for some of the stores, they are better in terms of rentals. We have 4 major regions nationwide. In different megacities and different commercial circles, we will make different trials so that we will find a product mix and cost-optimal structure for the front warehouses.

[Operator Instructions] I do not know whether there are further questions. Yes, there is a question online. Yes. CICC, Wang Jierui.

I'm sorry, I'm repeating. I just want to confirm a small detail and given the chance. So achieving the model, what exactly did you mean by achieving the model?

Achieving the model is breakeven, EBITDA breakeven, we say we are achieving what we want them to achieve.

[indiscernible].

I would ask a question on organization and structure. In the past 3 years, the CEO of the company, the senior management team had changed significantly and there had been significant staff cuts. With this kind of situation as a background, how do you maintain our frontline customers to live out and express our culture, our values and the quality of our service, how do you achieve that through execution?

And also staff cutting, what exactly is the stage now? Can -- is it like senior management change, it's already achieved 90%. And also going forward with the staff, will the cut be more or less the same pace? And what about incentives? Last year, it's been -- already been ongoing for a year. What is the outlook? What is the forecast in a 3-year time or longer period? So what is the plan for the company to have done?

Let's talk about the frontline workers. They are the most important part of the company. We are not hoping that in the -- that we will be continually cutting staff. That is not the plan. We want to keep our existing staff size, but there will be adjustments. What kind of adjustment? That is to say through algorithm for the back and front operations, we want to optimize that. That is to say, we want more people to be serving frontline. So the overall staff size will not change, but the ratio will change between front and back.

So for food and processing, it needs more hands, workers. So we want less PBT, but more sales work. So for the servers in the stores, that would increase. Back end will decrease. So that will be a balance. To achieve the sales increase that we have as a target, well, I think it is impossible that year-on-year, we will have the same pace of transformation. But on the other hand, I think from our structure -- from our organization structure, we have already made a lot of adjustments. Procurement, for example, there have been changes. And also there, we did not have a marketing department. We will have that. That is already changes in organization structure, and that's been done, and there will not be any major change in the future.

Senior staff, 90% change, that will not change further. And are there certain areas where there will be certain detailed changes? Yes. But overall, it is already done, stable. So for machine learning point of view, if it's going to impact us significantly, so what will the impact be for staffing? I really don't know. But now the change, as far as I can see, will not be the frontline staff.

So if our procurement is more ordering, ordering is more and more accurate, how would it impact the team? I really don't know. But the -- I can tell you, IT team has been bigger. But in our tens of thousands of staff, that's just a small team. So for incentives, we changed the structure. Last year, in the different stores, we have tried out different incentive schemes, but it's not reached perfection yet. I think we may have to design a new -- that -- so we will be changing that.

For senior management or mid- to senior management, there will be a new incentive scheme so that for company value and expectations of the shareholder, they will be more aligned. So from front line staff to mid- to senior management, there had been -- there will be incentive structure change. So for the next couple of years, it will be more stable, compared to last year major changes. There will be further tinkering for the next 2 years, but no major changes. So this is -- I would want to supplement. This is no longer about staff cutting, but about capability and structure, and we will continue to do so. Like today, we say in terms of staff cost optimization, it had come from optimization of certain staff, whether full time or part time in terms of the rotation, in terms of the flexible, part-time, full-time, optimization, combination, we will continue to explore these and within what is achievable for us.

Any other questions online and offline. [Operator Instructions].

Thank you so much, everyone. The management has been very clear in their presentation. So this ends our annual results announcement today. Thank you again for your participation. We have some snacks from our PB. Please bring back home some of the products that are on display outside. If you have further questions, would you please contact our Investor Relations team? We hope to see you next time. Thank you. Thank you.

Investors and friends, welcome to the Sun Art Retail Group Limited 2025-'26 Interim Results Announcement. Last night, we have already sent you by PPT all the information for presentation. And if you need to, you can go to the website to company announcements. So you can see the PPT that we will be sharing today.

Let me just introduce the management on the stage, Mr. Yuneng Hua, Julian Juul Wolhardt, the Chairman; Desory Wan, the CFO; and also the Head of Investor Relations, Ms. Gu Xiaobei. First of all, Mr. Julian Wolhardt will be talking to us about the executive summary and also some of the investment highlights. Thank you.

I will use a few minutes of time today to go through some of the background and also our 3-year plan. For the details, Desory will be talking to you about that later. But I would want to talk about the background of the company and the 3-year plan and also some of the possible challenges we may be facing because I've been at the company for 6 months. And in these 6 months, I've learned a lot. And also the management is younger in the sense that we have raised a lot of young people to senior management and also we have brought in outside people as well.

Now I will not go into minor details because you all know what we are about. We are hypermarkets, superstores, and we have a few membership stores and some warehouses. For details, they'll be sharing later. But if we look at the strategy and macro, we will have to open more stores. I don't think a good business is a business which is closing stores all the time. So we'll have to continue opening stores. And for sure, the superstores would be a major area.

Now we are in a pilot phase. And every year, we have about RMB 200 million to RMB 300 million in terms of loss. But this is a testing ground. And if this is a good business, we will continue. If not, we'll make it successful. So we think this is still a pilot. And therefore, in our profit report, we are still sustaining this as an investment as a loss. And for the large stores, we will be -- not make it as big as before. We will make the stores smaller. We will talk about the details later. And also the number of stores, there will be another 10 stores by the end of the year. And together with the front warehouses, we will be developing these as well, and there will be integrated development.

Now we're looking at the major thrusts of our strategy in the 3 years and now we will also look at the risks as well. Now stores, products and people, these are the three things. We are very simple, and we are a simple group of folks. Those are the three things because if you cannot make those three things successful, you don't want to make things too complex. So in the media, you see reports of us and other peers in the industry about restructuring the stores. Yes, that's what we're doing as well.

So for the 500 stores that we have, we will be restructuring them. And we have photos later on, before and after, before restructuring, after restructuring, what they are like. So within 3 years, we will complete the 500 stores restructuring. So that is strategic. Next, new stores, yes, we have already opened up three hyperstores and there are some superstores as well, Yes. So as mentioned, we'll continue opening stores. But for the existing stores, we will be contracting the floor area. As you know, many of our stores are over 10,000 square meters. We may be contracting them to about 7,500 square meters. The reason is because we will be opening up more medium-sized stores and smaller stores, but for the mega stores, we will raise efficiency.

Every day, we're thinking about a fundamental question. Why are we restructuring the stores? Why are we reducing the floor space? It is about effectiveness. So for the major big stores, we have to provide data and statistics for each of the stores. So opening new stores, contracting the store floor space, these are strategies in the macro place. So what about stores that are not performing? First of all, we will try to turn them around. It's not like we blindly close 200 stores. No, we will not do that. But what we'll do is to come up with a list. For this list of stores, we want to make them more profitable so as to help some of our other operations.

Now after we have done this exercise, if there is still no help, we'll close some stores. We have already closed some stores this year. We don't want to do that. We're not willing to do that, but there are instances where we have to do that. So for the stores, yes, restructure, make them smaller and also turn around the not performing stores, we will have to continue to do that. As for front warehouses, it is very important in our strategy. Why is that? Because we all understand that online sales is a mega trend. It is irreversible as a megatrend. And China in the future will be O2O. It will not be 100% online or 100% offline. So these front warehouses is to serve our customers so that we can have this O2O logic realization.

Online is for purchases and for -- let's say, if you want to buy 5 kilograms or heavy products, we send it to you, deliver it to you. So these warehouses are very important, and they're very cheap. So we will be opening more of them to support our stores. Now coming to stores again, when we talk about the restructuring, of course, there will be CapEx involved, but we will be managing the CapEx. It will not be like some of our peers who spend too much on restructuring. So it will be much like the CapEx we've had in the past years or even lower because restructuring doesn't need to be very expensive. It's not like a hypermarket turning it into an Hermes store. That's not what we are doing.

We are very close to our customers, close to our people. We're not going to change our genetics at all. So we want our consumers to have a better shopping environment, and we want our products to be well priced and good quality. So for our 500 stores, we will be restructuring them. So that's from the store. That's our first strategy. And secondly, for our membership stores, this is a pilot. The growth we see whether we will be able to grow these membership stores. If we cannot, we change them into superstores. And just now, we said for these membership stores, we are losing RMB 200 million, RMB 300 million per year, but we are still putting in efforts to turn around and make them successful, these membership stores, as I mentioned just now. So this is about the macro strategy for stores.

Secondly, I've talked about the second point is product -- after stores is product, second point, product. For SKUs in the hypermarkets, it was about close to 20,000. That's too many SKUs really. So major target is, in 3 years we want to have the SKUs. And in the process, it's not just like we just cut half, just like that. But rather, we'll look at the products and also see what products are making it. And so for our consumers, they see products that they really want. So as we cut SKUs, what we want is to have new generations of new products, so our consumers see new products that they want and it is about 6% in terms of our renewal of new product types.

So from whole year, 6% and now run rate is about 12%. So this is very important for introducing new products. Why is it important? Because the consumers, when they come into the store, they have something to look forward to. So as I've mentioned, it is online and offline integration. They will only be excited if they see new products. They want to come and experience in the stores. It's not like the consumers come into the stores and they just look at the new products. No, we tell them why is this milk good. Why is this new product interesting? So what we are selling is not just a product, it is the experience. That's why we want to cut down on SKUs and increase attractive products and explain to our customers the experience of the products.

So thirdly, our private label. That's a third strategy, private label. Historically, you all know it is between 7% to 9% in our sales. And on the basis of that outside, you would have noticed there are two new brands. One is -- look at that one, the green one, on the banner there and on the left-hand side, the red one. So these are our two new self-owned brands. So for our consumers who want reasonably priced products, they can buy the green label product or they want quality products, they can go for the left-hand most brand. The left-hand most brand, for example, if they want premium products, premium milk, or organic milk, they can do that. So this is about differentiation of our products. So this is major in our past 2 years.

These brands were started introduced in April, and the run rate is 1.5% and sales is 1.5%. So for these two brands, we have a lot of hopes for them, but we have to go step by step. These new brands are very important for us because the consumers will be able to see very different products. Outside, you would have tasted some of our products. And for milk, pork products, people will be able to see these are differentiated products. And why is that important? Because in China, what is most cutthroat, pricing. So that is why we introduced these two brands. And product is our main pillar. Why? Because cutting SKU increase new product introduction and the latter is also complementary to pricing. And the third is our self-owned brands.

The third strategy is cost control. For each retail company, this is essential. This is the core. We cut cost to allow our consumers to have better priced, cheaper products. So this is important. When you think about costs, what do we think about? One, you would have seen in the media, we have the Huazhong Dazhi, the central area. We have not closed the shops, but we have compressed it. Desory will tell you more details later. And every day, we are looking at our fixed cost. We are lowering our fixed cost from rentals from staff, that's different. But what we are doing is centralized procurement, and we are closing the central China area. I don't want to close anything, but we are doing centralized procurement now to cut fixed costs.

And also, let's say, for pork, broadband and everywhere, we are cutting costs. So cutting costs all around to quicken up our transformation and our operation. Now we had some good habits and bad habits at Sun Art. Our culture is strong that we have to retain, but there are some habits where we'll have to improve. For example, central procurement is important and financial discipline is important. So later on, you will see the details how we cut costs. What we want is to have this continue to improve. So for the whole year, there will be positive impact. If we do not improve, costs will not be controlled. So yes, cutting cost is very important, not only cut costs, but also increase our speed. Speed, speed, speed is what we think about every day. So when we talk about the stores, cutting SKUs, that increases speed as well and our products as well, increasing speed.

Fourthly, very importantly, when we talk about people. People, we are tweaking that every day from the -- for our strategy, we have a new department set up, and that is raising talent. So from Southern China, we have raised the management to go to China Eastern to bring them up. These are young people. We're bringing them up. And there are some older ones, management who are retiring. So this is about talent, about people, not just cutting people, but very importantly, is about allowing the young people to have the chance. So we're very focused on this.

So from human resources, we have another indicator whether our age is -- average age is coming down. That's very important. We're spending a lot of time this year to lower the average age of our staff. And sum total of that is after 3 years, I'm going to give you higher EBITDA, that's one and secondly, our CapEx will not be higher than these few years. And the result is that our cash flow will be good. So giving you a consistent, sustainable dividend. I'm also an investor, but also an industrial investor. So a consistent dividend policy is very important. It's important to us and to you. So EBITDA increasing that and controllable CapEx, and also good dividend policy consistent one.

You also know that we have a lot of property, but well, trust me, as an investor, as management, every day, I'm thinking about property. A lot of investors have given me a lot of suggestions. I understand you. Now as Chairman, I say to the investors, and I hear them talk about dividend, property and retail strategy. These are the 3 things that you always talk about. Now if you have good thoughts, share with me. In Singapore, there's an investor who raised to me a Japanese example, and we are piloting that in a city. So it's not we have all the ideas internally generated, but our shareholders and investors, we can all think about the possibilities and share with me if you have any suggestions because we look internally and we also learn externally. This will make us improve even faster.

So from this angle, when we look about the investment highlights, first of all, we are leading retailer in China, and we are turning around pivoting. When we transform, we do it gradually. We have a 3-year process. We think through things before we do any implementation. So this is not like air raid bombing because we have 80,000 staff members. These are families. I have a lot of suppliers, a lot of consumers every month. We have 130 million customers coming to our stores. We serve a community, not just a few customers. Think about it, 130 million.

Now if we have advertisements and our customers see them, that's significant, too, because we are a social enterprise. So we will go step by step in our transformation. A second investment highlight is stable cash flow. I talked about cash flow just now. Every day, I think about cash flow. So EBITDA is very important. CapEx, property are important. I think about these every day. Every day, I ask our CFO, do we have more cash in our pocket more than yesterday? This is the basic value of a company. We see a lot of our competitors. Every day, I look at their balance sheet. Do you have more cash today than yesterday. But a lot of people play financial tricks. I hope you see through them. But this is what I think about every day.

Our fixed asset, I see the building, the Kunshan building, I'm very happy. But it is a safeguard for downward trends. But when the market is good, we wanted to accelerate our growth. Thirdly, we have significant room for operation improvement. This is my duty, our duty. In the next few months, I would want to give the management an incentive scheme so that it is linked to our shareholders' returns. So even when they dream at night, they dream about our company. So 6 months from now, when I come back to report to you, these 3 items, how have we improved? This is about my accountability.

You ask me 6 months from now, 1, 2, 3, these 3 items, how are you doing? And give me the score. So I’ll talk to you about the 3-year plan. So that's the 3-year plan. Now I'm not going to go into details here, but there's something quite important. And that is when we talked about each of the details just now, it can go to our OKR. In fresh produce, what we can do, what do we do with FMCG? And what about pricing systems? Every day, we are working on each of them. And we have a transformation office set up a team. So just now, I've given you the macro background, but actually, they work on 500 items, which are in detail because this is about not art, but it is about arithmetic, 1, 2, 3, 4 put together equals 10.

So after we have set these targets, this is a very important road map. So I have talked about each step. So when you come into the store, what is your experience? How do you feel. This is very important. These are details. And if there are problems in the future, we can talk about them. Now at the bottom is most important. Look at the bottom there, we have a transformation management office. We optimize incentive system, and we make our management team younger in average age.

So when you come to our monthly meeting, I talk about 10 major items. Development is most important. Transformation is important. So these are basic. And if you go one level up, nationwide procurement, even for pork, nationwide central procurement. In the past, there was a very good localized system, but times have changed. For some things, we need to centralize. And one of the things we need to centralize is nationwide procurement. And another one is logistics. That needs to be centralized as well. We have a team thinking about logistics every day. We have tens of millions of members. And every month, we have 130 million people coming to our stores. So we have to think about how we can improve our end-to-end logistics, optimize that and enhance resilience.

And lastly, we're talking about our membership strengthening. And also, we will think about where we open up new stores, new front warehouses. So this is how we're going to enhance our customers' experience. So this is not about shooting everywhere. It's not like opening 500 stores everywhere. That's not what I'm seeing. So every day, when we think about these new stores and the strategies, which I think about every day, it is very logical. Now -- just now, we talked about transforming our stores. I'll give you some examples here.

In transforming our stores, it comes in a number of directions. First of all, the store itself before product. First of all, the look and feel of the store, most important. This is before and after transformation of the stores in the photographs. This is important. When you go into the store, what do you do? First of all, you see the shelves being lower, the aisles have to be wider. Some of the old style is just siloing the aisles, making them too long, too high. So on the right-hand side, you remember how we display the products that's not meaningful. And down under, you see how we make the product display more appealing.

But after 500 times, you do that, it changes. That's why I have to show before and after transformation. We will start with certain product types first. If you want to transform 500 stores, we have to spend 2 to 3 years to do that. But if you just change the stores, you don't transform the product. That's just 1/3 of the work. So not just transforming the stores, how they look and feel, but also the products we have to transform. This is Zhangjiang store in Shanghai, an old store with over 10 years' history, and it's 10,000 square meters. Now it's 7,400 square meters. SKU was up 15,000 post renovation, representing a reduction of 10,000 SKUs. And business had increased as a result.

And when we see this result, we are very confident. When the transformation route is clear with less selling area, with less SKUs, it doesn't mean that our sales would go down, not at all. So we actually have to be very clear in our head what we want to do before we implement. So this is simple. We, of course, look at our peers, but we also look at the culture of our company. Of course, we can learn from other people, but we are not other people. So we have to have our own characteristics. And that's why for Shanghai Zhangjiang Store, this gives us a lot of confidence in big store -- hyperstore transformation.

And this is Kunshan Huaqiao Store. This is a newer store, and we have transformed it. Selling area 2,700 square meters, but we have replaced 45% of the SKUs. New SKU rollout rate is 1/3. So for lower gross margin area, we have increased -- let's say, for instance, fresh products, we have increased that by 30%. So profits increased even though selling area SKUs decreased because we are clear about our strategy, but we are not going to 500 stores yet. We will start from these 2 stores and then 10 and then 100 step by step. This is important.

Now in here, you are able to see -- this is 5% for our self-owned brands. Of course, we have a dream. And in the future, 100 -- definitely not 5% of total sales for our self-owned brands. So what we need is we want to work together with big KAs. We want them to be successful, and we will continue to support KA development, and we will support our self-owned brands. This is important. So this is Kunshan store. This is where we are winning in our strategy as well. So that was about transformation just now.

For Pangdonglai and others, there are different strategies for transformation, but we have our own roots. We have about 10 stores or just over 10 stores, which are transformed. And hopefully, by the end of next year, when we come back to you, we will have 40% of transformed stores. And then after 3 years -- 3-year plan, we will have 500 transformed stores. So for the next time of transformation, we want to improve every time because improvement is infinite. So a core thought of ours is that we pursue excellence all the time. This is our culture. And this culture, we do not change.

Now about products. Today, we have two routes to follow. One is low cost, but still keeping good quality. This is low price and guaranteed quality. And this is the green brand on the left-hand side, but it doesn't mean that the quality is bad, not at all. So we have just launched this brand for a few months. The gross margin is pretty good. Would you say? It's pretty good. Yes, it's better than the ordinary products. So we have a dream. So we're talking about growing to 30%, 40% for our self-owned brands, but it may be higher than that.

Why I want to talk about this? It is about our product strategy. At the core of it is how to make China pricing lower. That is core. This is to answer one question, and that is we don't want to go into price wars, but price wars is what we face every day. And our price is lower than our competitors. DaRenFa is low price. RT is about low price. That is at our core. How do we achieve that? For bad or not so good products, we contract those. And for good products and our private labels, we increase them. So we lower the cost and our consumers when they come to our stores, they are able to find the cheapest, the lowest cost products. That is the objective.

We are making margins, profits, of course, but reasonable margins. So that is why we go on our private brand. And also, we want to increase our new product rate. So that's why I said speed, speed, speed. It is that important. And some of you would know that we have also invested into farms for pigs, for milk, et cetera. For -- that's why for milk and for pork, it is easier for us. So what we're doing today is that we are testing out organic milk. So for our RT-Mart Select, we are selecting organic milk. So for each SKU, it is 50 million gross profit. And that is higher than most of our other products. So for each of the new products, we need to be differentiated, and they need to be good for our consumers. And also, they will have to be successful together with our KAs. This is an example. I'm giving you this as an example. In the end, we want to have a lot of SKUs, and we have two teams who are focusing on our brands.

Now next, I want to talk about nationwide procurement. This is not just about cutting costs, but it is also about products. I'm giving you this as an example, and this example will be true for all product types. The example is pork. We all know pork. One pig is different from another, I tell you. In RT, we had 30 to 40 pork suppliers in the different provinces. I do not know why that is. But in the past few months and after discussing with the management over a lot of time, we have cut 35 suppliers to 5. I hope our suppliers make more money because it is not about, “I win, they lose,” but it's a win-win situation. Compressing 35 suppliers to 5, we want those 5 to make more profits, and we want our pork to be fresher and the price lower.

So in September, we grew 18.5% in sales. This is incredible because in China, there is no such thing, growing 18% in pork sales because we give our consumers better choice. With less suppliers, we can choose better pork, fresher pork. That's why our sales increased and our gross margin grew slightly by 3.8%. And to me, this is very important. To me, it's very important. It's not like our suppliers make less money. It's like they make more money, those 5, and we also make more money. So every day, I'm thinking about this. How do I make a win-win-win situation, consumer, supplier and our company. And when the company wins, our staff wins as well.

So pork, I have shown that this is feasible. So after we have come down this path, we now know that nationwide joint procurement is a good thing. So we are going into other products as well, including beef and the other areas. So it's not just about Fresh and FMCG. We are coming up with a win-win-win situation, consumers, the suppliers and the company for nationwide joint procurement. So you -- we talked about products and stores and cost and also staff. So the product quality and cost, both will have to be considered. So it's very simple for us, just those four strategies that I've outlined to you, but there are a lot of details under that.

As investors and management, we think about that every day. 6 months from now, when I come back to report to you, I will be talking about these four items. You can ask me, what about your transformation? How many stores have you opened or closed? What about the product quality? How are the talent, people and what about the nationwide procurement? These four things, every 6 months, when I come back to you, ask these four things because these are KPIs. When we perform on the KPI, our cash flow will be good. Our profits will be good.

Just now, we talked about online and also about our front warehouses. This is it. This is a front warehouse. The biggest is 600 square meters or 500 square meters, smallest is 100 square meters to 200 meters. So it is about making more efficient delivery. In the future, we hope our superstores, within 29 minutes our customers will be able to get the delivery after they've shopped in our superstores. So within 30 minutes, the delivery will be done for the customer. For some of our warehouses, it is 1,000 average daily orders, some of them 1,400. So you can make the arithmetic, the cost for each of the stores.

For these front warehouses, some of them are higher in cost, some of them lower. The sales per meter, some of them are RMB 50,000, some of them lower. So it all depends on how many customers there are in this area. So this is just a pilot. We have a dozen or so front warehouse just now. And so you think about it, there are these satellite warehouses, front warehouses around the hypermarket to serve our customers well. So this is our strategy.

Now looking into the future, what do we do? Our online will be some -- sales target is 40% or even higher within 3 years, but that is not to replace offline sales, but the two needs to be O2O integrated. So the era of total online, total offline is passed. That time is passed. When we talk about our team, I talk about the -- you all know Kung Fu, right, Wushu, and there are these points in the body. There are two major important points on the body and on and offline are these two major points on the body. So we are doing this step by step, and this is about our future dream.

Now we have 5 current front warehouses, but we are actually building out to 10, and more. So we have talked about transformed stores and front warehouses, and this is in Kunshan. This is a Chaoyang Store, a new store. About a month ago, just over a month ago, we opened this store, and this is totally open. The first day, it's a weekend, 30,000 customers queuing up to come in. As the Chairman of the Board to see this crowdedness, I was so happy. I couldn't even sleep at night. I was so happy. As for the SKU in this store, we have changed 50%. That is the assortment renewal was over 50%, but average price reduction was over 20%, but we made more profit. So this is about quality and price balance.

And for fresh foods, it was 30% sales contribution. And fresh food SKU, we increased it to 2,000 and profit was better than average and profit margin was better than average. So we will continue to very proactively open new stores. It's not just about in the olden times, we want to close stores, close stores. No. We want to open new stores, but not the type of stores we opened in the past. That time had passed with 30,000 square meters. That time has passed. Smaller stores, new stores, and each store will have to have positive cash flow. This is a Kunshan Store. At the back of it is an office building, and this is the crowdedness you see in the queue outside. And later on, we'll give you a view of what's inside the store. So you have this experience of what it's like inside the store. So this is about my 3-year plan.

Desory later on will be talking about the financials. After the meeting, please ask more questions. Thank you very much.

Thank you, Chairman. Let's look at the financial highlights for the first half. Overall speaking, competition, external is increasing and consumption had been slack. So our core is to increase our customer to the store. So for the 6 months, including September, as of August, so for same stores, it is 0.4% increase online, offline. And in the process for ASP, it dropped, and therefore, there had been some drops. Gross profit is RMB 7,719 million. For gross profit margin, it is increased as the Chairman had mentioned, for some of our strategies for supply chain and for the renewal rate, these have helped with profit margin. And that is why in the first half, it is growing increasingly and it is 0.7% growth for gross profit margin. And the company continues to cut costs sustainably, and it will bring on better or less pressure.

So adjusted EBITDA for this year, it is something that we will focus on. The EBITDA is RMB 1,580 million. So this is EBITDA, net of interest, such as is EBITDA. So it will all the more reflect the actual performance of the company and also better reflect our capabilities. And also in the future, we'll be very focused on cash flow performance so that you'll be able to see sustainable transformation and sustainable returns to shareholders. These are the two indicators. So for noncash proportion or cash and cash equivalents, it's RMB 13,208 million. Bank loan is RMB 1,250 million. After the dividend payout, the company is still in good position in cash on hand, including our self-cash, it is RMB 400 million.

And in September, there was a process, especially for some of the large sales, let's say, Mid-Autumn festival. Last year, 30th of September period, the settlement and the sales had already been done. So that is about -- a little bit about seasonality. As of end of September, our working capital had increased and the inventory turnover has also optimized. Our -- as of end of October, it is 56 days, inventory turnover days. For CapEx, it's RMB 265 million. As mentioned just now, the company will continue to invest into transformation of our stores and also during the transformation process, there will be modular plug-ins for -- to increase the performance of the stores so that there will be better CapEx efficiency so that we will be able to face up to challenges.

We will avoid major overly fast investments so that there will be major CapEx adjustments. We will avoid that. So for transform stores, as mentioned just now, it can be 300,000 or 2 million stores depending on the stores. So overall, our CapEx will be about RMB 600 million compared to last year, it is a savings. But same period last year, we had 4 stores, membership stores and Kunshan store. These are the items with the transformation pace that we have in terms of CapEx and procurement centralized. This will be stabilized at CapEx of RMB 500 million to RMB 600 million.

So for store expansion, there are hypermarkets and superstores and membership stores as shown. So the main areas in Shandong, Northeastern, coastal Eastern and also Southern China, these are the areas where we will be opening new stores. The three new hypermarkets in Jiangsu, Jinan and Jiangsu. So Jinan is also another focus. So every year, there will be 5 to 6 stores, new stores. And you would think it's not very fast pace. It is true. Actually, after our modular transformation of the stores, we plug into the new stores so that they ramp up more quickly. So for retail space, it is dynamic. We have new stores, we are closing stores, we are transforming stores, and the transform stores will be contracting or expanding floorage.

And last year, we had 6 stores and expansion. But as mentioned, these will be very careful in our planning. And if 5 to -- 3 to 5 years, there is no cash flow return for those red-making stores, loss-making stores, we will close them. And we do not close them flippantly. And for -- you'll be able to see that the average ASP had been lowering or average price had been lowering. For offline from June to October, it is a negative 2%, and it is stabilizing at this rate. It is not because our B2C business increased online, there had been a lot of cannibalism. No. But for medium- to long-term or the second half of the year, we are confident that we'll be able to stabilize that. And also with our transformation of stores, price and also supply chain, procurement from point to line, we will be increasing our sales and ASP.

So retail in the past 2, 3 months, there had been certain major growth, and this is good because in the past few years, B2C operation for our company, our capability is very strong and stable, and we have been #1 in the industry. So B2C when we increase the consumer business, we are increasing -- for same-store order volume, it increased by 7.4%, driving 2.1% increase in same-store sales growth. In the first half, B2C is 1.7% EBITDA growth. Taking away the festival time of September, just April to August, at the core, it is our ticket increase -- ticket size increase.

So for gross margin, first of all, for rental income for our gallery, it is one of the things that we are transforming, and that include a number of things. We are transforming or restructuring our tenants and the product mix and also our rentals so as to strengthen our lease-out rate. So our lease-out rate is still strong. And at 5% for the second half, we think that it will be -- yes, it is about 5% in terms of unrented store space. So we were talking about gross margin. With the optimization of product mix and supply chain, there are -- and also with our self-owned profits, our private brands and also with our warehousing, overall speaking, our gross margin had increased. All these are positives for our gross margin.

So as we go from point to line to service, just a metaphor for speaking, we see that there is contribution, and it's very exciting when we look at the gross profit and gross profit margin. And we would share the profit with some of our consumers so that we can drive up sales. For expenses, total expenses is RMB 8,000 million, which is a decrease of about 6% year-on-year. For delivery expenses, the others is about RMB 600 million. Half of them come from staff expenses, especially for mid- to back-end staff expenses for the stores. And in the first half, there had been a RMB 50 million increase or contribution in terms of our cost cuts. So that is for rental cost reduction. Through negotiations, we are able to reduce rental costs, and we will continue to see this in the next 2 to 3 years.

Just now, I talked about the EBITDA being very important, even though it's a slight decrease from same period last year, but we see that for '24, it is a 0.4% growth. And that is through our cost cuts and also internally, building on our very strong infrastructure, we are able to save cost significantly. So for EBITDA, if we take away two things. The CapEx for the first half and also for our rental costs, the actual result compared to last year's EBITDA for same comparison, the EBITDA is the same. So even though EBITDA is lower, but compared to last year, taking away these 2 items, it is the same. And it gives us a lot of confidence for the future transformation process and return sustainable return to our shareholders, we are very confident, and it is very stable.

This is an exciting slide. About 35% of our stores are self-owned properties. So from fair value, including our cash on hand, our actual asset is RMB 50 billion. So including our cash, it is RMB 2.7 billion of cash. But if you put in our self-owned properties, which is high quality, it gives us a resource to quicken our process, but of course, steadily to quicken our pace in transformation. And at present, with the competitive scene and also uncertainties externally, it helps us in the process to avoid risks. And at the same time, we build a very strong moat around us compared to our peers. So we will be doing well our 3-year plan. With the opportunities, we will be able to deliver the resources for the transformation at the same time, sustain our returns to our shareholders.

Thank you very much, Julian and Desory for the presentation. Next, we will have Q&A. There are two parts, those on site and then those online. [Operator Instructions].

Thank you, Julian, and Desory and Xiaobei, [Merrill Lynch], [Law Chen], analyst. Just now, we heard from Julian, and I have a lot of feelings because our strongest is in Jiangsu province. That's why we are strong. I'm also a Jiangsu person. And Nanjing RT Store is the first hyperstore I ever saw. So it's been performing well. But on the other hand, I have -- there are certain situations, and I have three questions. First question, for DCP, for the entire industry, we are well resourced. We have a lot of experiences and projects. So in the next period, for RT 3-year transformation, what is DCP? Will it bring on opportunities to RT stores or not?

Next question concerning in the past few years, for the transformation and changes that we have made, there is a major question there, and that is every company is doing transformation. Every company is saying transforming their stores and increasing their efficiency. Now as someone from outside of the industry, we're just watching this, whether it is Yonghui or our company, Sun Art or other peers, 90% of them are seeing the same things. So in our 3-year plan in our transformation compared to the peers in the industry, what is the differentiation? That is the second question.

The third question is, I'm particularly interested in -- since July this year for the cutthroat competition in the market, especially for the e-commerce companies they are -- they have all these delivery subsidies, et cetera. So these 4 months, July to October, for our same store, if you can segregate our, let's say, ASP and our -- can you talk about this? Because just now, you talked about the 6 months and also the Mid-Autumn festival timing. But if we start from July to October, these 4 months, if you can give us the figures so that we can have a better understanding.

From these figures, we want to understand this subsidy war that's being fought, especially for e-commerce companies, what's happening to us. So whether it is in subsidy or because of subsidy, the consumers have changed in their psychology in terms of Meituan, et cetera, what they're doing and some of their warehouses in their delivery and their subsidies, what is it to us in terms of impact?

Such complex questions you've asked. First of all, in terms of resources, first of all, we will use our own resources to do what we can do first. And after the first one, there will be people calling us to say that they can help, for example, organic milk, we have invested in farms as well. So the milk you see was actually opened by Mengniu CFO, prior CFO. So we have these resources and also same for pork because we have invested into Costco pork farm. So -- and also, we have 10 years ago, invested in poultry. Therefore, we do not have to think too complicatedly. What is important is to start from these consumer products and do centralized nationwide procurement because after you've started, you see the advantages, you build the confidence. And our team will be able to replicate that success to different areas.

So we have already made a start like chicken, meat, poultry and pork, we have already started. And so we encourage our teams not just to cut costs to make our suppliers profitable, to come up with good products. But just now you said everybody is talking about products and how do we differentiate ourselves. Yes, everybody is talking about transformation. So it's like coming to the lesson. It's the same teacher. And the textbook is the same. How come you have a better score at exams than me? And that is about implementation power.

Now every day, we tell our staff about strategies. In the past 30 years in the industry, I have been doing that as well. The most important thing, the differentiation is in execution power. Good things, for example, good products in China, they do not sell well, not so good products sell well. That happens, too. The most important thing is execution. So in our transformation, as we restructure our product mix, we need to learn from peers as well. We have to learn -- but at the same time, we have to be clear about who we are. Our consumers are not their consumers. Their income is not other people's income. Our culture is not other people's culture. So every day, we think about the same question. You have to know who you are, who you are before you can compare.

So what you said just now is correct. We have brought with us some products, our own brand products today. So you have to step back and ask who are our customers? What is their income range? What is their age range? And then you see that our products are suitable for them. It's not like we sell LV products in our stores. Our customers will not buy LV. So outside, you see goji berry products, organic milk, biscuits because it is relevant to our own customers. Will we make mistakes? Yes. Inevitably, we will, but we will pivot right away.

So if we see our private brands increase, if the product sales increase, per square productivity increase, these are the indicators. So you ask, how do I know? I'm doing well. We ask ourselves that question every day. That's why I look at our figures every day to see whether they are improving. And if it is not improving, we right away pivot. So figures tell the story. So at our company, we look at the figures every day. Just now, you talked about the resources. Yes, this is our KPI or our scorecard as well. 6 months from now, look at our new products rate and also look at our private brands, see the performance, that would be our scorecard. But of course, there will be failure. So we are stepping -- going step by step. We go from 2 stores to 10 stores to 500 stores. So this is a way of testing as well.

And there is technology in that midst because through different calculations, we learn faster. And we can talk about some of our algorithms. But in selecting products and in the new products rate, we wanted to be faster because this is not about shooting everywhere blindly, certainly not. We have to have our own personality and be true to our own personality. So at the end of the day, who's right, who's wrong. As I said, there are these KPIs, and you will be able to know how well we're doing.

And just now, your other question was about the subsidies in the China market. We've invested in the China market 30 years. I do not remember those 30 years when there was no price war. This is something that is consistent in China. Oversupply had always been true in the China market. It's not going to change tomorrow. So costs will have to be compressed, products will have to be good. There is no time when there is no war or price competition. In China, you just have to be very competitive because this is about the industry. It's fundamental. If there is a company which is willing to burn money for 10 years, then at the day, it's a question about the investors. Why do they allow this company to burn for 10 years?

But what we can do is to do our work well. Costs compress, private brands increase and also transform, and some teams will be stronger, some companies will disappear. So what is basic is that the companies need to be positive in their cash flow. Some companies online, no. For some e-commerce companies, no. They burn money for over 10 years, and this is not right. I have also to believe that let's say, if you buy a milk tea and you're given free of charge 5 cups of milk tea, that is not sustainable. So we go our own route, but it doesn't mean that we will be less profitable, but rather with speed and also with centralized procurement, we will compress costs and increase profits. There are some numbers, right? Desory, you want to share numbers?

Yes. As mentioned, the offline process in the first half, we -- for the customers, they have not -- we have not cannibalized our own offline customers. For the first half, monthly offline, July was negative 2.6%, August is same-store comparison. Last year, August was Mid-Autumn festival for these 2 months, so for July to August, we are stable. We are stable. That's the first point. September and October compared to last year is negative 5% to negative 6% for customer numbers.

Now for Mid-Autumn plus National Day, it is only 19 years. It comes once. That is the two festivals come at the same time. But there is the seasonality and it affects traffic. October is National Day. So these affect traffic. So October with this long holiday and definitely travel will increase, restaurant business will increase, and in consumption, it may not be an increase. That's for the Golden Week, National Day. And for July to August, it is 11% drop in terms of same-store offline. And most important is the ticket size.

So the number of items had dropped 6%, ASP dropped by 5.6%. So as we develop rapidly online, people are still coming offline. Traffic is still important. As long as we have the orders and we have the customers, there will be business. That is the most important thing. And also, as our products are right, as our price is right, then the tickets will be coming. As Julian had mentioned, for the companies which are investing into platforms, et cetera, that's not sustainable for other people. And for July and August, the ticket size has decreased 11%. Now we see that it is contracting, it is narrowing.

And we also see weekday to weekend, the platform has different performance, and we are managing that. So what is important is that we do our offline business well. And for online business, as mentioned just now, B2C business, it is increased to 28% from 22.5%, and it is profitable. Multi-channel capability of ours for Erlama and Taoxianda in terms of orders, it is 40% of the total, and that is more or less the same as before. And some people ask what happens after Ali is no longer a major shareholder. It doesn't change as much. For Tao, it is the main reason why B2C is lower in terms of ticket size. It is a 12% drop compared to same period last year.

So we see the number of items are lower. The ASP are lower. But Meituan is different. For Meituan in the first half, their orders increased by 45% and their items dropped 4.5%. And so this is a sustainable business. And Meituan in our total performance, it is about 30%. And also for our APP, we continue to operate that, but the strategy is slightly different. The ASP is still over RMB 80, which is a growth from last year. As for the other two channels where there are competition and war, we do not have to pitch into that war. Our orders and our items in the orders, TaO and Meituan as they are growing as an APP, I think we are performing reasonably.

So our B2C performance is -- there is a contribution of about 30%. That's why we say for B2C, whether it is for warehouse or APP mode, retail is about building on our B2C capability, which had been built over many years in the past.

This is Dustin from Morgan Stanley. Julian, can you share the 6 months, your observation from inside? RT with its competition in the market, it is not easy in the past 10 years, you are cash flow positive. And I think you are among the peers doing very well. And RT-Mart and Sun Art had done the right things in the past. Now you're in the company for 6 months. Are there low-hanging fruits that you spot and it's easy to change or transform and see results. Can you share those? And perhaps you think that RT is doing very well. Sun Art is doing very well, and you want to change some things from small gradually.

Next question about SKU. SKU exists for their reasons, for their valid reasons. Perhaps they sustain our gross margin. Just now, I'm very happy to hear your sharing through transformation and through pork, for example, procurement, you're able to increase your profit. And also the gross margin is increased. But can you talk about that a bit more?

Third question about property. It is a risk-resistant strategy. Can you perhaps talk about that more. Now for example, what are some of the directions? For example, there are REITs, for example, in the market or sell first, lease back? Or what do you think are the opportunities for your self-owned property? Are there some directions you can share in these areas, please?

For your first question. The reason is because why we invest into Sun Art or RT, it is because we love it. We see a lot of good about it. And it is only because of this that we made the acquisition this time. So it is like bringing up a child. And when you're a father, you look at the child, you can think of 100 things that you want to improve on him, even though he's going to Harvard next year, you still want to change and improve something. So on the one hand, you love the child, but on the other hand, you want to make improvements.

Yesterday, I was talking to Desory about ESG, for example, our shop -- are not going for centralized procurement, but nationwide centralized procurement should be something that's obvious. For example, in pork, why not do it, right? Some things when you look at it, you get surprised. But for me, sometimes you would think, “oh, I'm so unhappy about that.” But on the other hand, I have to think these are opportunities. I should look at them from the reverse and look at them as opportunities, right? So milk, organic milk -- moved into our organic milk. So you have to understand we have a very good culture. We have a very good fundamentals. Everybody can talk to you about pursuing excellence incessantly all the time. Everybody can say that, and everybody can say all that, but no -- not everyone is successful. Why? Because people are not consistent with what they say.

But we love Sun Art because they are consistent, and they have a very solid culture. And with this culture, we have confidence and capability. So when we talk about centralized procurement, I thought that would take 2 years at first, but actually, it took us just a couple of months to do it. And we can replicate that in poultry as well. So that's excellent. But there are other things to improve. With the management here, we can replicate and rollout the success to other areas as well. And that's very, very positive. So I'm very confident about our 3-year plan.

As for reducing SKU, how would this impact our gross margin? Of course, I will think about that. I don't want to cut SKU to make less money. No, I won't do that because we are a financial investor. If an SKU help us with margin, of course, we'll keep it. Some products, for example, with 6 months, no one buys it. There is no profit, then it's a no-brainer. We cut it. So we start from what's simple, loss-making SKU, we cut; no one buys, we cut. So we do that first before we think of the more difficult actions.

For the more difficult actions, we think through first. For some of the SKUs, we will think which need to be kept for certain reasons. So we're not a fat man who eats everything all at once. No, we start from the simple and then after that, after success, we replicate it to other areas. So same for SKU, we will not cut so that we make less money. That is impossible. We will never do that. There is a purpose for cutting SKU, loss-making, we cut. Increased pressure for staff in store, we cut it. And also new products rate. We want to increase new products offer. We need to give them a chance to shine and also for the small brands to shine, to sell well, and we make some money from that. So we will not blindly cut SKU. Loss-making, we cut; not selling, we cut; not profitable, we cut. So 6 months after, we look at some of the SKUs. After 6 months, some of the profitable SKU, we also cut because we have something even more profitable coming, new products, for example. And we will not just cut KAs irrespectively or SKUs.

The third question you asked about sales leaseback and REIT, we'll consider all of them. But first, we have to do our transformation first and also optimize our products first. And the management team thinks the same because when our business is good, when we do REIT or sales leaseback, it will be more valuable. But we have to do this first. As I have mentioned, what is very important, as I've mentioned just now, our dividend sharing or payout, we want it to be sustainable and stable. This is something we think about every day. I think about this every day. So if we have the cash flow first, and in a few years, we have a long runway built and every year, we see stable dividend payout, then as a company, as a management, we are fine with the shareholders. So when you talked about property, we will be doing that. But first of all, we prioritize store transformation.

[Huatai Research CD] Very happy to have this opportunity to meet you. Now I have two questions because of time. For our proprietary brands, you have a 10% in 4 years goal. And we also see for some of the other companies such as Costco, they are bringing in a lot of managers for these brands as well. So are you nurturing internally? Or are you bringing in kind of experts or managers from outside? And what about the KPIs? Is it customer word of mouth or increase the market share or increase quantity? What is your first KPI?

And second question, we said that for the superstores, we may be optimizing those. But now you're also talking about hypermarket optimizing down to 7,000 square meters or so. So what is the indication for the future, let's say, for next year?

First of all, for stores, we are not artists and rather, we look at numbers. I'm not thinking about big stores or small stores. I don't think about this way. So we look at stores in ROI. We start from the highest ROI. They can be bigger stores or smaller stores. That's not what I think about. I'm thinking about ROI. That's first and foremost. And CapEx. So for some of the lower CapEx, perhaps the ROI would be higher. So for the lease for some of the stores, they would be higher, such higher ROI. So ROI is most important. That's how I rank these stores.

Now we have 2 pages of new store opening. And so if you ask me, how many stores will open in the year, I don't know. But our new store opening will be faster, bigger in number than closed stores number because we don't want to close stores. We have staff to consider. So we have to turn around loss-making stores. But indeed, we cannot then we close stores. But store opening will be faster in rate than store closing. That's strategic. Now the floorage will decrease because we may close a 10,000 square meter store and open a 6,000 square meter store.

And secondly, about new products, will we be bringing in new people or new managers? For that question, First of all, yes, we will do that. But we have to step back and think. We have to bring up the people internally, especially young people. So for [judging], we have brought up younger people, but we also brought on external staff into the company. How can I put this correctly? It's difficult to answer the question. Why? Because, let's say, if a department becomes very big, of course, we need more people. So to reach a target of 10%, we really need more people.

So for the private brands, our organization will have to look a certain way because in every one of our minds, there is a very clear product development strategy. We saw the private brands, the green one, the red one. So we already know the future development. So -- and we talked about 10% contribution. So we're very clear as to the future. As for people, we want to bring them up internally, but to reach the dream that we have, we have to bring in external people as well. There is no choice to that. So if we're bringing in external people, it means that we are implementing our dream. It means that we are doing the right thing.

Anne of Jefferies. Greetings. Two questions. Julian mentioned just now, in the future, we will be looking -- focusing on cash flow and EBITDA. For payout interim, there is a dividend payout of HKD 0.085 and closing price yesterday was 4%, and that's pretty good. So looking forward, how do we see dividend payout? Is it according to our free cash flow or what? This is a very important question.

Second question, Julian talked about just now controlling fixed cost. According to our understanding for hypermarkets, it is rental and staff costs, which are fixed because we cannot have turnover rents in our stores. In the future, is it possible to make this a variable, fixed costs becoming variable because at the end of the day, what is most important is same-store sales growth. And sometimes we cannot control the fixed cost. If we can control the variable cost, then the impact would not be as big because we are working on a relatively low margin. That's the second question.

Third question, sorry, but I have been thinking for this industry, account payables is relatively long. So over the course of 30 years from when I first started at the company, it was 90 days or even higher. Now it's 60 days or 70 days in accounts payable. For the region, it is 30 days because these are fast-moving consumer products. But of course, there are more suppliers in China. So accounts payables are higher in days, which is good for us, benefit us. This also impacts our cash flow. And my question is, at what point this 60 days will come down gradually. How do we look at this? Do we need higher margin for that? Do I need to worry about this?

From the dividend point of view, first of all, to answer your question, we are very simple people. We just look at DPS. We're not thinking about payout ratio, just the DPS, simple. As an investor, I don't know how much I'll be paid in dividend next year. I'm not thinking about payout ratio. I'm just thinking about DPS. DPS is important for the investor. That's fundamental. DPS.

Second point, I agree with you concerning rentals. And that is why for each of the major regions, we have an indicator KPI. You have to negotiate down the rentals. We have a department for negotiation -- negotiating rentals. You asked about making fixed into variable. When we close some of the stores, there's a lot of fixed cost there. It is a process. And this is a very important process. We have to restructure our cost to make it more variable. We have to have more variables versus fixed. That is the right direction. Sometimes when the fixed cost is too high, we may have to perhaps close the shop. And if there is negotiation and it's good negotiation, there will be good results. If the negotiation to negotiate down the rentals go nowhere, then that's not good. So every year, if the rentals continue to increase, it is impossible for us to sustain if fixed costs continue to increase. So this is something we think about every day.

And thirdly, for AP, accounts payable, it is a lovely thing, accounts payable because why I say that? Because it is about cash conversion days. It is not a singular question, but it is about the 3 items in cash conversion. So if I increase the AI, for example, I will have some flexibility in accounts payable. So I also know that I can make interest income. So when we talk about supplies, this may be the next stage. Can I disclose this? Yes, I can disclose this. So the next step, if you want to collect earlier, then in gross margin, we will have to give up a bit. So this is what we want to focus on as the next phase. So we are not saying that we want to people to pay up earlier and at the same time, increase our margin. That's not possible. There is a push and a pull to it.

And last point, understand that China is an oversupplied market. And that is why there is a longer accounts payable because we are oversupplied country in China. understand that. And [Mr. Law] in his question just now talked about pricing. Yes, it is the same thing. I will not say that, yes, we cut accounts payable and give up margin. Another question on dividend. Let's say we are at this point now and cash, part of it is from -- is in accounts payable. And for prepaid cards, there is half restricted cash sustaining it. And then there is accounts payable, which is not further controllable much -- by much.

So the question is minimum, how much cash do you need, let's say, the billions that you have, how much can be paid out as dividend? What is the minimum cash that we need? For this business of ours, there is no minimum cash concept at all. Generally speaking, when your cash conversion days is negative, your cash balance needs to be 0. There is no minimum cash concept at all. So if you ask me academically, yes, it's 0. But I hope our CFO to sleep comfortably at night. So I hope you understand our dividend policy, our DPS is a long stream, consistent. So you asked about property. Yes, this -- we will be utilizing our property so that there is a consistent DPS policy. That's what I'm thinking about.

I think about Hong Kong Electric all the time. That's what I think about. Sustainable long stream dividend. That's the core of our business. That is why I said just now whatever is negative cash business, burn cash business is not sustainable. Every day, we think about cash, positive cash. And on hand, I have cash, I have DPS. I have assets, I have DPS. Cash flow is future DPS. So our CapEx will be lower than last year, even though we're doing transformation, but our CapEx will be lower than the year before. This is what the investor think about everyday cash flow.

Now because there are questions from offline, so all right. One more from on site.

Julian, I have two questions to ask. First of all, in the property PowerPoint, you talked about the market valuation is RMB 38 billion. In 2017, the valuation was RMB 37 billion plus. Now after 3 or 8 years, every square meter valuation is at RMB 11,000. So I do not know about this valuation from the GFA number in 2017 to what it is now. Can you talk about the assumption behind the valuation, please?

First of all, valuation is from DJL surveyors. Of course, they will look at our self-owned property, whether it can generate cash forecast projections and also for the property within the commercial circle and the comparable property market price. So answering your question, our self-owned property, the value is very sustainable. From 2017 to now, there are some increase in our holdings of property, and that would also impact this number to a certain extent.

Second question, from investment point of view, DCP in investment, net cash flow and property, the ratio is higher. Then why don't you do a general offer? Discount to net cash is a no-brainer, isn't it? There is a discount.

I agree. But other shareholders will not sell to me. It's not like I don't want to acquire. Yes, the public only sold 1%, while Ali sold what they sold. So you cannot force other people to sell to you, right? So you are correct in terms of cash, in terms of asset. You are correct in your calculations. That's why when I talk about cash flow, every day, I think about cash flow. And in DPS, if I can have the steady stream going forward, that will be great. So every day, I'm thinking about stable development, stable product, stable transformation of stores. But you are right, but people won't sell to me. What can I do?

So what can we do is to low our heads and just work on our business, improve on it and also to increase our share performance. Yes, what you're thinking is also what I'm thinking.

We have online questions. [Operator Instructions] Because the discussion just now have been very comprehensive and the questions have been answered. Any further questions from on-site? We welcome questions here.

There is one question online. Citic, Xiaofang Xu.

Greetings management of the company. I have three questions. First question, just now you mentioned the speed. Speed is important, you said. In the 3 years coming with 500 stores, they are to be transformed. The speed is very high for that. So what is the transformation rate? So it's the entire store being transformed or partially transformed for each store?

Second question, in the past, where hypermarts had been closing stores and superstores had been net increasing numbers. And in Mainland China, there is still a lot of room for further development. But hypermarts or hyperstores and superstores are different in their capabilities. So in terms of management team and also consumption models, what is the superstore strategy?

Third is about CapEx. Just now, you have talked about CapEx, and it will be lower than before, you said. So for the stores, in the past many years, there are some stores because there are many of them. Some of the stores are very relevant to the consumers around. But for the galleries, the fitting out is like before 2000s, like 1990s. So this is not very young consumers friendly. So would that impact your CapEx to change them?

Concerning feed, if I can just, first of all, answer that question. Well, if you say it's very fast or rapid, it's rapid. But if you say it's slow, it's slow. I can do it in 2 years, but now I say 3 years because we have 80,000 staff members. I think it is acceptable, the pace. We can do it in 3 years. Now for the transformation, the magnitude of it, you asked. In principle, we don't want to close stores. We want to transform them. Some areas will transform more, some less. We will be transforming our well-performing stores more.

For the superstores, for example, they have more basics or fundamentals. We have a list of stores to transform if a store can show that they are hopeful, even though they're loss-making now, we will transform them. And I think in terms of speed, we are rather conservative. As for the gallery, you're 100% correct. Yes, you are very polite in saying that they are retro and looks before the 2000s. We have a white name list and a black name list actually, and we are preliminarily doing transformation. In the next meeting, I can talk about this more. But this is something that we want to change. So this is a look and feel, not of the store only, but also of the galleries.

So this is something that we have to work on. Let's say, for example, some of the products which are not relevant anymore to the consumer community around that's not right. So this will be slower -- slightly slower than the transformation of the products inside our store, but it is also still very important. And then you talked about CapEx just now. You asked about that. In the transformation of our store, some facilities will have to be transformed. We will do that. But it will not be like 20 years ago for the hyper stores. The facilities, of course, was high end, but nowadays, we will be focusing on the 3 to 5 years to do continuous upgrade. So it is not like an investment and it's fixed for a long time, and it is fixed cost, not like that.

And also, as Julian mentioned, for the different regions in the past, the stores have been doing their own procurement. And in the future, there will be centralized procurement and new tendering process and the CapEx through cost compression will be lower, maybe by 30%. And this is also incorporated in our CapEx. So yes, the speed will be fast and the magnitude will be wide and also through the basis that I have mentioned through centralized procurement, et cetera, we continue to optimize our CapEx.

[Operator Instructions] If there are none, then we close our meeting here. Thank you so much for your participation. And we thank the investors for coming to the venue. And outside, we have drinks and snacks of our private brands. Please let us know what you think about these private labels. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]