Sun Art Retail Group Limited - TodayIR.com

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RISK FACTORS The Group’s businesses, financial condition, results of operations or growth prospects may be affected by risks and uncertainties pertaining to the Group’s businesses. The factors set out below are those that the Group believes could result in the Group’s businesses, financial condition, results of operations or growth prospects differing materially from expected or historical results. These factors are by no means exhaustive or comprehensive, and there may be other risks in addition to those shown below which are not known to the Group or which may not be material now but could turn out to be material in the future. RISK ASSOCIATED WITH THE GROUP BUSINESS Our growth prospects may be limited if we encounter difficulties executing our expansion strategy. As part of our business strategy, we plan to expand the network of our hypermarkets through organic growth. Our ability to expand depends on, among other things: • our ability to identify suitable sites for new hypermarkets and successfully negotiate purchase or lease agreements for these sites on terms acceptable to us; • the availability of financing for our expansion, investments or other strategic transactions; • our ability to attract, train and retain management talents in sufficient numbers for our expanded operations; • our ability to obtain all the requisite governmental approvals, licences and permits in a timely manner; • our ability to adapt and grow our operational and management systems, including our information technology systems, to support an expanded hypermarket network; • our ability to effectively control and manage our costs in our expanded network, in particular, purchase costs, and expenses related to rent, logistics, human resources and marketing; and • the timely completion of our new hypermarkets under development. If we fail to achieve any of the above, we may not be able to achieve our planned expansion objectives. Our ability to manage our future growth will also depend on our ability to continue to successfully implement and improve our operational, financial and management systems in the evolving competitive markets. Our business growth could strain our managerial, operational and financial resources. Failure to effectively execute our expansion strategy may result in limited growth and reduced profitability We may not be able to find suitable locations for new hypermarkets on commercially acceptable terms, if at all. Our performance depends, to a significant extent, on the location of our hypermarkets. When selecting a site for a hypermarket, we take into account various factors, including: • population density, customer traffic and vehicle traffic; • customer accessibility; Sun Art Retail Group Limited Annual Report 2012 35
RISK FACTORS • potential growth of local population; • development potential and future development trends; • estimated spending power of the population and local economy; • profitability and payback period, estimated on the basis of the expected sales potential; • marketing or strategic benefits; • proximity and performance of competitors in the surrounding area; and • site characteristics and suitability with the specifications of our building plans. We secure locations either through ownership or through long-term leases, as determined on a caseby-case basis. Going forward, we will need to secure more locations to open more hypermarkets. The supply of locations for new hypermarkets is scarce and, as a result, competition to secure these locations is intense. Our ability to purchase or lease suitable properties on terms acceptable to us is critical to the success of our expansion strategy. In the event that we encounter difficulties in securing suitable locations in regions that we plan to expand into, our growth prospects will be adversely affected. Our new hypermarkets may not achieve our expected level of profitability within our desired time frame, or at all. As part of our growth strategy, we plan to further enhance our leading position in China by increasing our market penetration and expanding our retail network. Opening new hypermarkets requires significant capital outlay up front, including the price of acquisition or rental of the premises, the cost of building, renovating and decorating the premises, and the cost of hiring and training employees. However, the new hypermarkets that we open may not achieve our expected level of profitability for a prolonged period of time, or at all. Whether or not the operation of our new hypermarkets will be successful depends on a number of factors, including: • our ability to properly position our new hypermarkets to successfully establish a foothold in new markets and to execute our business strategy in the local market; • our ability to successfully integrate the new hypermarkets with our existing operations and achieve related synergies; • our ability to introduce an optimal mix of merchandise which successfully meets local consumer preferences at attractive prices; • our ability to negotiate and obtain favourable terms from our suppliers; • the effectiveness of our marketing campaigns; • our ability to hire, train and retain skilled personnel; 36 Sun Art Retail Group Limited Annual Report 2012
Page 1 and 2: Sun Art Retail Group Limited (Incor
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Page 5 and 6: CHAIRMAN’S STATEMENT Dear Shareho
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FINANCIAL SUMMARY A summary of the
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