Hong Kong’s publicly listed wine company, Major Cellar, has issued a profit warning this month, alerting shareholders that the city’s months of social unrest and Covid-19 could shave off up to HK$35 million (US$4.5 million) of its profits for the year ended on March 31 2020.
The profit warning from the Hong Kong wine company underscores the difficulties for the local wine market crippled by dwindling tourist numbers and locals’ tightened wallet amid recession.
The company including its subsidiaries said in its financial update that it’s expected to record a loss after tax in the range of approximately HK$30 million (US$3.8 million) to HK$35 million.
“Such loss was primarily attributable to the drastic drop of sales turnover and gross profit arising from the weak consumer sentiment amidst the local outbreak of Covid-19 and social unrest,” it explains.
Since the beginning of June 2019, the number of tourists in Hong Kong has dropped significantly due to the outbreak of social unrest over the now-withdrawn extradition bill, leading to the Group’s loss in the interim period of the financial year under review.
“The number of tourists plunged further after the outbreak of Covid-19 in February 2020. The local consumer sentiment has also been dampened. All this aggravated the difficult business environment and worsened the sales performance of the Group.” says Major Holding.
The company however stressed that it has sufficient cash on hand to meet its current business needs. However, the pandemic that is raging worldwide has made the operating environment “extremely difficult”, the company admits.
The company said it has adopted various contingency measures, including developing an online shop platform with customers; reducing costs to preserve working capital; improving both the staff organizational structure and cost structure; streamlining processes and automating works to raise the operational efficiency, in order to maintain the Group’s strengths for its long term development and enable the Group to get through this difficult time and recover its profitability as soon as possible.
The grim warning came also after it delivered disappointing interim results for the six months ended in September 2019.
During the six months ended on 30 September 2019, its revenue decreased by 25% to approximately HK$68.3 million (2018: HK$91.1 million). The decrease was mainly due to the decrease of the sales of red wine from
approximately HK$78.1 million to approximately HK$62.2 million, citing the protests caused by the now-withdrawn anti-extradition bill as a main cause.
Founded in 2008, Major Cellar Company Limited (Major Cellar) runs three wine shops in Hong Kong in shopping districts Tsim Sha Tsui, Central and Mongkok.
The company was listed in 2014 on the Hong Kong Stock Exchange GEM (Growth Enterprise Market) Board before it was floated as Major Holdings on the HKSE main board the following year.