Two companies with substantial interests in Hong Kong have announced figures that underline the damage being inflicted on the economy by the continuing anti-government protests.
Burberry said its sales were down more than 10% and it had slashed £14m off the value of its 12 stores in the territory.
Separately, the airline Cathay Pacific said it expected second-half profits to be significantly below its first half, after a 35% decline in the number of passengers arriving in Hong Kong in October. It is the second time in a month the company has cut its profits guidance.
Cathay Pacific is delaying the delivery of four new Airbus A320 aircraft due to “significant pressure” on its earnings. In August, the chief executive, Rupert Hogg, resigned after the company came under pressure from Chinese authorities to rein in employees who were supporting the pro-democracy demonstrators.
Burberry’s underlying operating profits slipped 4% in the first half after the one-off £14m charge. Julie Brown, the chief operating and financial officer, said Hong Kong now accounted for 5% of Burberry’s sales, down from 8%. The company temporarily closed some stores during the protests.
Gross profit margins for the group will also fall – by 0.5 percentage points more than expected – due to the poor Hong Kong sales, because the company rings up some of its most profitable transactions in the former UK colony. Lower sales affect the value of the group’s properties.
Brown said there were no plans to permanently close outlets in the territory and no stores had been damaged, but Burberry was seeking rent reductions from its landlords as a result of the drop in business.
“We have seen a significant decline in Hong Kong, largely driven by a fall in the number and spending of Chinese shoppers and because stores had been forced to close in order to protect our staff … where there are protests,” she said.
Sales improved elsewhere, including China and South Korea, partly because high spenders who might have otherwise bought Burberry goods in Hong Kong were visiting local stores instead.
As part of efforts to bolster growth in the region, the company is teaming up with the Chinese technology company Tencent to test a social retail outlet next year, which will combine interactive social media elements in a physical store.
Burberry’s pretax profits rose 11% to £193m for the half year.
