361 Degrees International Limited (Stock code: 1361:HK) 2015 Annual Results March 2016

Transcription

1 361 Degrees International Limited (Stock code: 1361:HK) 2015 Annual Results March 2016

2 Disclaimer These presentation slides have been prepared by 361 Degrees International Limited (the Company ) solely for us during its presentation held in connection with its interim results for the year ended 31 Dec 2015 and may not be reproduced or redistributed. In particular, these presentation slides should not be transmitted into the United States or distributed in the United States and they should not be distributed to any U.S. person (as defined in Regulation S under the United States Securities Act of 1933, as amended (the Securities Act )). The information contained in this presentation is intended solely for your personal reference. Such information is subject to change without notice, its accuracy is not guaranteed and it may not contain all material information concerning 361 Degrees International Limited. The Company makes no representation regarding, and assumes no responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information contained herein. In addition, the information contains projections and forward-looking statements that reflect the Company s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and which may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the Company s assumptions are correct. It is not the intention to provide, and you may not rely on this presentation as providing, a complete or comprehensive analysis of the Company's financial or trading position or prospects. This presentation does not constitute an offer or invitation to purchase or subscribe for any securities or financial instruments or to provide any investment service or investment advice, and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto. 2

3 Agenda 1 Operating Strategies 2 Financial Highlights 3 Operational Highlights 4 Industry Outlook 5 Q&A 3

4 Operating Strategies 4

5 Operating Strategies 1. Bright Market Prospects In China, sports for all has become new social ethos. The sporting goods industry possesses huge potential with bright prospects worldwide. 2. Forward-looking Operating Strategies Multi-brand development strategy to support the growth of five business segments Establish e-commerce system, increase proportion of online products and its exclusivity Establish a consumer-oriented retail management system and a sustainable business model 3. Dividends Policy Target to steadily increase dividend payout ratio dividend payout ratio was above 40% 5

6 Financial Highlights 6

7 2015 Key Financial Highlights For the year ended 31 December RMB mn Change Turnover 4, , % Gross profit 1, , % Operating profit % Profit attributable to equity shareholders % Basic EPS (RMB cents) % Profitability Ratios Gross margin (%) Operating margin (%) p.p. Net margin (%) p.p. Effective income tax rate (%) p.p. Operating Ratios (as % of turnover) Advertising and promotional costs (%) p.p. R&D expenses (%) p.p. Dividends Interim dividend per share (RMB cents) Final dividend per share (RMB cents) % 7

8 Turnover RMB mn Gross margin (%) 5,000 4,500 4, % 40.9% 40.9% 45% 40% 35% Turnover increased by 14.1% to RMB 4,458.7 million, mainly because: 3,500 3,000 2,500 30% 25% Order of 2015 s spring/summer, autumn and winter trade fair rose by 11%, 16% and 18%, respectively 2,000 1,500 3, , , % 15% China s sportswear industry grew stably 1, % 5% Gross margin remained stable at 40.9% % 8

9 Overall Turnover Mix 2.3% 13.0% 2.0% 13.2% 2014 RMB 3,906.3 mn 39.8% Footwear Apparel Accessories 2015 RMB 4,458.7 mn 42.3% 44.9% 361 Kids 42.5% 1. Footwear products recorded outstanding performance, with a surge in both average selling price and volume. Its turnover contribution rose to 42.3%. 2. The Group plans to increase contribution from footwear because of the fierce competition in the apparel market Kids continued its growth momentum and accounted for 13.2% of the Group s turnover 9

10 Turnover Analysis - by Product Footwear Apparel RMB mn Gross margin (%) RMB mn Gross margin (%) 2,100 60% 2,000 60% 1,800 1, % 40.9% 50% 40% 43.0% 40.9% 50% 40% 1,200 30% 30% , , % 10% 1, % 10% 300 0% 1, % % 1, % Footwear Apparel The introduction of new products made of hightech material was broadly accepted by the market, which drove the average wholesale selling price (AWP) higher The decrease of key material price also helped to increase gross margin of the footwear segment The competition in apparel market remained tough, although the Group could still increase the AWP, the material cost on the use of new models was much higher than the selling price 10

11 Turnover Analysis 361 Kids RMB mn Gross margin (%) % % 361 Kids % 41.0% % 30% 20% Turnover grew by 16.0% to RMB million, the increase reflected the established customer base for the kids business, a segment that has continued to demonstrate its potential for further growth % 0% The slight improvement in the gross margin on kids footwear drove overall 361 Kids gross margin up by 0.3p.p. to 41.0% % 11

12 Operating Expenses Analysis Selling and Distribution Costs Administrative Expenses For the year ended 31 Dec RMB mn Change A&P % Packing % Salary % For the year ended 31 Dec RMB mn Change R&D % Depreciation % Staff costs % Others % Others % Total % Total % Reversal of impairment losses -- (111.4) N.A. A&P expenses include : amortized sponsorship fee signing of star athletes rack subsidies (provide distributors with non-cash, tailor-made fixtures and fittings to promote a consistent brand image) The group prudently maintained the provision of impairment losses during the year, as compared to RMB111.4 million reversal of impairment losses recognized year-on-year The rise in D&A were mainly due to the newly established Xiamen headquarters and the new administrative building in Wuli Industrial Park in Jinjiang in 2H

13 Operating Cashflow For the year ended 31 December RMB mn Operating profit Change in inventories 18.1 (160.7) Change in trade and bills receivables (596.9) Change in trade and other payables (152.2) Change in deposits, prepayments and other receivables (243.3) Others (194.9) (238.2) Cash inflow from operating activities

14 Working Capital Cycle Working Capital Turnover Days For the year ended 31 December days 80 Turnover days Change Inventories Trade and bills receivable Trade and bills payable Overall working capital

15 Balance Sheet Highlights As at 31 December RMB mn Change Current assets 7, , % Current liabilities 1, , % Net current assets 5, , % Current asset ratio (times) times Equity attributable to owners of the company 5, , % Net asset value per share (RMB) % Average ROE 10.1% 8.2% +1.9 p.p. 15

16 Trade Debtors and Ageing Analysis RMB 000 As at 31 Dec 2015 As at 31 Dec 2014 Trade debtors 2,097,831 1,604,395 Less: Allowance for doubtful debts (80,155) (80,155) Bills Receivable Ageing analysis 2,017, ,510 1,524, ,013 2,253,186 1,656,253 Within 90 days 1,704,642 1,035,171 Over 90 days but within 180 days 548, ,082 Ageing based on credit terms 2,253,186 1,656,253 Within credit periods 2,119,134 1,441,754 Within 30 days past due 80,154 73,553 Over 30 days but within 90 days past due 53, ,998 Over 75% of trade debtors are within 90 days aging from invoicing Accounting policy for provision of bad debts unchanged at 50% of amounts over 180 days ageing No provision necessary during the year or envisaged for foreseeable future Over 90 days but within 180 days past due 15,948 Amount past due 134, ,499 2,253,186 1,656,253 16

17 Maintain a Strong Financial Position RMB 000 Effective interest rate (%) At 31 Dec 2015 At 31 Dec Pledged bank deposits 122, , Deposits with bank with maturities > 3mths 1,500,000 1,800, Cash and cash equivalents 2,286,225 2,130, Total cash 3,908,251 4,106,132 Bank loans 15,116 15, Senior unsecured notes 1,489,395 1,484, Total borrowings 1,504,511 1,500,180 Net cash (incl. deposits, cash equivalents etc.) 2,403,740 2,605,952 17

18 Operational Highlights 18

19 361 Branding Branding is an integrated international sportswear brand that engages in brand, R&D, design, manufacturing and distribution 361 Kids is a kids brand serving children between the ages of 3 and 12; it is an independently-run business unit but uses the 361 brand and the distribution network Innofashion is a casual wear sub-brand of 361 ; its innovative brand spirit promotes the message of being active, freedom and independent ONE WAY is a professional European sports brand which specializes in cycling, skiing, outdoor and other extreme sports 19

20 361 Business Model Business Model Apart from ONE WAY, the 361 Group operates a wholesale franchised business model, through 31 exclusive distributors operating 7,208 stores nationwide A profitable business model for distributors and retailers. Distributors can enjoy 65% off for wholesale price Distributors can operate stores directly to enjoy higher margin Four trade fairs held every year for 361 main brand (361 Kids: twice a year) to give distributors and retailers sufficient time to choose products and place orders ahead of respective seasons 20

21 Multi-brands and New-channel ONE WAY 361 International A 70/30 JV with One Way Sport Oy established in JV has exclusive rights for Greater China area 47 self-operated outlets in 23 cities in China by the end of 2015 Growing interests in winter sports ahead of Beijing 2022 Winter Olympics augur well for the brand Direct head-on competition with high-end brands such as Columbia, North Face and Mammut ONE WAY builds up its brand in the Greater China through: Entering into an exclusive cooperation agreement with China Ski Association Sponsoring the national team in two winter competitions Sponsoring the national cross-country skiing team Sponsoring the national ski-jumping team Overseas business unit was established in 2014 with senior executives based in Taiwan and the United States The Group obtained 116 points of sales in the US, 415 points of sales in Brazil, and 30 points of sales in Europe by the end of 2015 Promotion through grass-root activities involving gyms, running clubs and personal tutors Its footwear products Sensation was selected as Best Buy by a U.S. prestigious and professional magazine named Runner s World in 2015; another product KgM2 was also highly recommended by Runner s World Emphasis on the running line with production in Vietnam for import tariff and custom duty reasons 21

22 361 Brand Positioning 22

23 Building the 361 Brand The 361 Group generally spends between 10-12% of its turnover on brand promotion Event sponsorship costs are amortized over the relevant contract periods Major Events Sponsorships Celebrity Endorsements Basketball Running Football Innofashion Stephon Marbury Dexter Lee Yang Xu Jam Hsiao Chinese National Swimming Team Sun Yang Professional Sports Sponsorships Ning Zetao Ye Shi Wen Chinese National Swimming Team Chinese National Cycling Team Swedish National Curling Team 23

24 361 Sales Network Sales Network Northern region 2,744 Western region 1,470 Eastern region 1,760 Total: 7,208 Southern region 1,234 Approximately 1,500 2-in-1 or 3-in-1 composite stores 8.6% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 19.7% Openings Total: 100% First-tier cities Closings % Second-tier cities Third-tier cities or below Total number of stores 7,047 7,140 7,156 7,319 7,385 7,404 7,490 7,208 24

25 361 Operational Data Number of Stores & SSSG Number of stores SSSG 5, % 7.9% 10% 7.2% 4, % 5.5% 8% 3, % 6% 2.8% 2, % 4% 1,000 4,155 4,068 3,916 3,819 3,772 3,707 4,097 3,864 2% 0 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Channel Inventories (times) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q % 32% 28% 24% 20% 30.0% 24.0% Retail Discount 27.0% 29.0% 27.0% 28.0% 23.0% 30.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 25% 15% 5% -5% -15% Trade Fair Orders (wholesale value) -8% -8% -7% 8% 11% 11% 16% 18% 15% 15% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Approximately 70% stores are linked through E-POS system. Target to further increase this percentage going forward SSSG, channel inventories and retail discount are calculated based on stores in operation for consecutive 24 months 2016 Q3 trade fair order recorded high single-digit growth, represented the 8 th consecutive quarterly improvement Partner with Tencent to enable stores accept Wechat payment Cooperation with banks to launch 361 products redemption by credit card points 25

26 361 Kids Highlights Store network Turnover (RMB million) Western region 333 Total: 2,350 Northern region 708 Eastern region 771 Southern region (1) 2011(1) (1) % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total: 100% 21.7% Net change in number of stores (90) 67.4% First-tier cities Second-tier cities Third-tier cities or below Total number of stores 1,893 1,965 2,066 2,142 2,216 2,328 2,440 2,350 SSSG (2) 2.8% 3.1% 5.0% 6.4% 7.0% 8.0% 8.4% 8.2% (1) 2010 and 2011 fiscal years were ended on 30 June. (2) SSSG is calculated based on stores in operation for consecutive 24 months. 26

27 Building the 361 Kids Brand Now generally regarded as a leading Kids brand in China Sponsorship of the Let's Sing, Kids on Hunan TV, China's leading satellite channel Signed Barna Kuyliri, Jasmyn Aisin Gioro, and Zhou Zhangchi as spokespersons 27

28 361 Innovative Smart Products + In collaboration with Baidu Inc., in March 2015, 361 kids smart shoes were successfully launched, the first such product from a Chinese sports brand. It has GPS-tracking features and collects data for the Big Data platform on Baidu s Cloud Key features of the kids smart shoes: Baidu Hawkeye technology and LBS open platform services of Baidu Map allows accurate positioning technology Two charging options (wired and wireless) Health tracker data is uploaded daily onto the Baidu health cloud + Signed Strategic Alliance Contract in June 2015 to develop smart sports products First product concept has been developed and expected to be launched in 1H 2016 Smart shoes will conduct in-depth research in music and big data Smart Shoes Smart shoes will conduct in-depth research in music and big data, independent research on smart running shoes was commenced in 2H 2015 Products will combine shoes and mobile APP, and are expected to be launched in June 2016 Smart shoes will focus on enhancing the running experience 1st series 2 nd series Cross-sector collaboration with Baidu and LeTV Sports helped enhance our product innovation capability, paving the way for a new consumer-oriented business model 28

29 361 E-commerce Business Current contribution: 50% Current contribution: 50% Assisting sales of off-line stores On-line exclusive products Target contribution: 20% Target contribution: 80% 29

30 361 Corporate Social Responsibility The One cares One public welfare project aims at helping children in poor mountainous regions of China. When consumers purchase the appointed products, One cares One will donate a pair of kids shoes on their behalf 361 Sports, 361 Kids and Innofashion are available for sale on the webpage of One cares One, providing shoppers with various quality choices As at 8 March 2016, One cares One has donated footwear to 142,223 children 30

31 Outlook 31

32 Optimistic Industry Outlook Market size continues to grow Market size of China s sports apparel market RMB bil % % 11.1% 13.2% -1.8% -3.2% 5.4% Market size of China s sports apparel market 8.1% 8.5% 8.3% 8.4% 8.3% Growth Euromonitor estimates that the Chinese sports apparel market will continue to grow at 8% p.a. The market size is expected to exceed 200 billion by 2019 Source: Euromonitor Market size of China vs U.S. sports shoes and apparel RMB bil China Huge room for development U.S. China vs U.S. spending on sports equipment per capita USD 16.9 China U.S. In 2014, the US sports shoes and apparel market was four times of that of China's; In 2013, sports equipment spending per capita in the US is 17 times of China s, the significant gap suggests China s sports equipment market still possesses considerable room for growth In 2012, China's sports industry accounted for only 0.6% of GDP (the US: 2.6% of GDP) Sports industry and sports equipment market of China still has considerable room for growth 32

33 Optimistic Industry Outlook (cont d) Favorable Government Policies No. 46 Guidance issued by the State Council The State Council issued Opinions on Accelerating the Development of Sports Industry to Promote Sports Consumption (No. 46 Guidance), which clearly outlined that by 2025: Target industry size of RMB 5 trillion 500 million population regularly engage in sports According to the statistics of the General Administration of Sports, the country s 31 provinces have altogether claimed a target industry size of nearly RMB7 trillion by 2025, exceeding the original RMB5 trillion target set out in the No. 46 Guidance The total size of the sports industry is expected to be more than RMB3 trillion by 2020, China s sports industry will account for 1.0% of GDP Reformation of football policies 1. Separated Chinese Football Association (CFA) from sports regulator by reducing the participation and funding by the government and encouraging private sector investment and involvement to support CFA to become more financially independent 2. CFA will be made up of professional football players and representatives from the sports authorities under the State Council 3. Increase the number of football schools to promote football for the youth population, from 5,000 now to 20,000 schools in 5 years and 50,000 in 10 years 4. Students in these schools are required to take at least one football lesson per week and attend football camps during summer/winter vacations Structural Tailwinds Rising population coupled with consumption upgrade in China Increasing interest in sports and sporting activities as middle class families seek new lifestyle Development of more supporting technology; mobile sales will continue to surge among young and urbanites 33

34 361 Outlook: One Extra Degree of Perfection Continue to enhance R&D capabilities An R&D team of nearly 300 staff, which works closely with the Beijing Institute of Fashion Technology R&D expenses account for approximately 3.1% of turnover Focus on core products that are well-received by consumers Continuously pursue product innovation, employ cutting-edge technology and innovative materials Sufficient to meet 70% of footwear production, 20% of apparel production 34

35 361 Outlook: One Extra Degree of Perfection (cont d) Enhance functionality of products Continue to focus on functional footwear such as running shoes Foster the growth of 361 running club Enhance promotion of football shoes Continue to cater for the mass market, increase product competitiveness and acquire greater market share Quickly establish e-commerce model to achieve sustainable growth Increase same store sales growth and profitability 35

36 Q&A 36

37 Thank you! 37