Annual Results Announcement. 27 March 2012

Transcription

1 2011 Annual Results Announcement 27 March 2012

2 Disclaimer Cautionary note regarding forward looking statements This presentation material contains certain forward looking statements with respect to the financial condition, results of operations and business of the Company. These forward looking statements represent the Company s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Certain statements, such as those that include the words potential, estimated, expect, anticipates, objective, intends, plans, believes, estimates, and similar expressions or variations on such expressions may be considered forward looking statements. Forward looking statements involve inherent risks and uncertainties. Readers should be cautioned that a number of factors could cause actual results to differ in some instances materially, from those anticipated or implied in any forward looking statement. Forward looking statements speak only as of the date they are made, and it should not be assumed that they have been reviewed or updated in the light of new information or future events. Trends and factors that are expected to affect the Company s results of operations are described in the Business Review and Financial Review. 2

3 Agenda Financial Review Industry Review Business Review & Future Plans Open Forum 3

4 4

5 Results Highlights Financial results impacted by one off repurchase of distributors inventories, control of trade orders, special inventory provision and provision for impairment of investments *Profit attributable to shareholder of the company 5

6 Impact of Provisions on Reported Results * Profit attributable to shareholder of the company 6

7 Sales by Market, Brands and Products Sales by Market and Brands Sales by Products Kappa China RMB mn 5,000 4,000 4, % 2,742 4,000 RMB mn 3, Accessories 3.5% (3.4%) Footwear 24.6% (21.8%) 3,000 2,000 1,000 3,650 86% 620 2,122 23% 77% China (including Kappa China and other brands) Japan (including Kappa Japan and Phenix) 3,000 2,000 1, , , , Apparel 2.9 %pts Footwear 2.8 %pts Accessories 0.1 %pt 2011 Remarks: Comparable figures in 2010 are shown in brackets Apparel 71.9% (74.8%) Revenue from Japan segment recorded a stable growth despite the impact of the 9.0 magnitude earthquake disaster in Japan, attribute to Phenix s effort in channel expansion, brand promotion and sales promotion that were proven effective and thus maintained the market share. Decrease in China segment revenue for the first time due to initiatives including stock repurchase trade order control. Revenue from footwear as % of total revenue increased by 2.8 % pts compared to 2010 due to gradual expanded efforts in research, development and design since 2010, which made the footwear products closer to consumers taste. 7

8 Gross Profit Margin by Markets and Products Gross Profit Margin by Markets* Gross Profit Margin by Products Kappa China* 100% 100% 80% 60% 40% 20% 62.4% 58.8% 59.7% 55.0% 43.9% 42.9% 80% 60% 40% 64.8% 61.6% 64.4% 60.2% 62.4% 58.8% 55.4% 54.3% 0% Kappa (China) Japan Total 20% Apparel Footwear Accessories Total Overall GP margin of China market decrease due to (1) inventory buyback; (2) evident rise in cost of production; (3) further support to distributors, and (4) deeper sales discount due to stock clearance through e commerce, in particular for apparel products. * Excluding inventory provision 8

9 Operating Expenses The actual amount for A&P expenses and product R&D cost in 2011 is lower compared to However, due to decrease in revenue resulted from stock repurchase and trade order control, an increase on overall % of total revenue is recorded. 9

10 Inventory and Trade Receivables China Segment RMB mn Inventory Days RMB mn Trade Receivables Days For the year ended 31 Dec For the year ended 31 Dec Inventory turnover days Increased due to increase in inventory balance resulting from inventory repurchase AR turnover days In view of the general market environment, credit terms have been moderately extended in order to enhance our support to our major distributors A/R Ageing Profile 10

11 Maintain Solid Net Cash Position Bank balance and treasury products held RMB mn , , ,707 12/31/2010 Net cash inflow Repurchase of Dividends paid Investments in CAPEX Exchange 12/31/2011 from operating own shares companies and difference activities funds (1) EBITDA: Earnings before interest, taxation, depreciation and amortization 11 (2) Exclude restricted bank deposit of RMB136.6mn(2010: RMB36.1mn) (3) Included investments in treasury products issued by MOF, PRC and principal guaranteed treasury products issued by major commercial banks in the PRC

12 Dividends for 2011 Total interim dividends paid in September 2011 represents 153% of the net earnings of The Board of Directors does not recommend a final dividend for *Payout ratio is by reference to 30% (general dividend) and 40% (special dividend) paid in the past years. 12

13 13

14 A development bottleneck in the overall sportswear Macro-economy Moderating growth of Chinese economy Inflation pressure and soaring asset prices China Sportswear Industry The industry has entered into a stage of moderate development after rapid growth Intense competition resulted from the expansion by both domestic and international sportswear and casual wear brands leading to the vicious cycle of today 14

15 Increasing retail discounts Decreasing margin Increasing selling expenses 15 Reducing operating margin leading to the vicious cycle of today Accumulating inventory Declining Sell through rate of newly launched products Product homogeneity Decreasing SSS Intense market competition Closed stores

16 16

17 China Dongxiang Corporate Core Value Pragmatism Innovation Passion 17

18 Pragmatism Alleviating Retail Inventory Pressure What we have done in 2011 What we will do in 2012 One off repurchase from distributors to alleviate their inventory pressure Completed the repurchase of inventories totaling RMB1.45 billion in terms of tag price by the end of December 2011 Resold products amounting to RMB500 million at tag price through own factory outlets and e commerce platforms 18

19 Pragmatism Optimizing Retail Sales Network What we have done in 2011 What we will do in 2012 Retail Network Efficiency Support to Distributors Controlled number of store openings (317) Closed retail stores with low operating efficiency (net closure 631) Conducted a detailed review on the retail store expansion strategy Adjusted supporting polices for distributors, focus switched from sell in to sell through Prioritized and offered more support to major distributors Lower 2011 sales orders MSYH Group Closer Cooperation Optimize sales channel and adjust resource allocation Further enhance retail efficiency management Upgrade store image based on existing format and enhance retail services Closely monitor the retail trend of market and product sales Continue favorable terms to support major distributors Set conservative sales order targets Enhance responsiveness of supply chain and product delivery Prepare raw material allocation and production schedule in advance 19

20 Diversified Brand Portfolio 20

21 Innovation Kappa P A.C, C19 and Curves Series P A.C. Series Kappa continued to design the P A.C series with the theme of back to basics The new Kappa P A.C series was launched comprising knitwear, Polo shirts, T Shirts, jackets, shorts and sneakers Right colour mix showcases the stylish and dynamic senses in the metropolis C19 Series Curves Series Targeting a popular street sport Denotes contours of the human body A key new product launch of Kappa in 2011 Dual curvy sole can activate leg muscles and helps burn more energy from each step Incorporates the needs of cyclists and trendy style, which complies with Kappa s brand DNA of sports, fashion, sexiness and style Presenting an idea of bodybuilding while working, shopping or strolling to city girls Officially launched in July 2011 and was well received by the market 21

22 Innovation Robe Di Kappa & Phenix Robe di Kappa As of end of December 2011, there were 24 RDK stores Robe Di Kappa introduced three product series which included the stylish Image series, easy daily casual wear Trendy series and multi functional Classics series Phenix Launched in China in 2011, there were 18 Phenix stores as of 31 December 2011 Phenix cooperated with famous Japanese image designer Okabe Bungen and launched innovative products with new mix and match styles welcomed by Japanese customers, which stimulated significant growth in sales revenue Phenix Japan launched a new functional product series with EPIC Extreme as its core element comprising hiking and outdoor camping products which combine functionality with fashion 22

23 Innovation Let the Product Speak Product Planning What we will do in 2012 R&D Design Strengthen the brand position of Kappa, emphasize on the brand DNA of sports, fashion, sexiness and style Plan product lines by consumers spending habit and dressing style Consolidate resources from different countries to form a broader Kappa product line Leverage on the resources in Japan for the product R&D of China Utilize the R&D centre in Taicang Re invite the Korean designer who successfully helped transform the Kappa brand and also his team Leverage resources from Japan, design house in US and Europe, to invent innovative and functional products 23

24 Innovation Smart Marketing What we will do in 2012 Efficient Investment Strength brand position of Kappa Emphasize on the brand DNA of sports, fashion, sexiness and style Sponsor local and international sports and entertainment activities Smart Marketing Trendy Marketing Emphasis on below theline Marketing Differentiated trendy marketing Promote through new media, such as Weibo and other social media Pay attention to below the line marketing Focus on promoting new product lines 24

25 Passion Passionate Athletes Sports Event Sponsorship 25 HSBC Golf Championship China Open Kappa GOLF has become the official sponsor for HSBC Golf Championship for the 3 rd consecutive year The 5 th consecutive year of Kappa s cooperation with China Open as its Platinum Sponsor

26 German Bundesliga Borussia Champion Dortmund Soccer Team Promoting Kappa s brand as a perfect combination of sports, fashion, sexiness and style Passion Passionate Athletes Virgin Racing F1 Team Specially designed uniform with distinctive cutting and fabric for the Virgin Racing F1 Team, combining fashion and functionalities Co sponsorship of Italian Serie A Club AS Roma 26

27 Passion Japan Business Striving in the disaster 11 March 2011, 9.0 magnitude earthquake in Japan : 1.Different levels of damage in Phenix Tokyo office and Niigata technical centre 2.Business came to a halt due to structural destruction of our stores 3.Retail sector is undergoing major crisis Aftermath: 1.Immediately restored the Tokyo office 2.Staff in Niigata technical centre carried on their duty and ensured sample production 3.Staff in Japan region coped the situation with practicality. To address the decreasing store sales issue post earthquake, promotions were carried out diligently. Their hard work was paid off and resulted in growth of Japan sales revenue 27

28 28

29 Strategic Measures in Inventory Pressure Channels Allocation Brand Positioning Innovative Products Inventory Clearance Conservative Order Policy Sales Network maintenance and Expansion Customer Support Product Innovation Smart Marketing Apply rapid and efficient ways to digest inventory Cooperate with distributors to enhance efficiency of sales channels Set conservative sales order targets Closely monitor the trend of retail product sales Enhance responsiveness of supply chain and product delivery Adopt conservative store opening plan, close stores with low profitability and increase overall retail efficiency Focus on optimizing stores with high efficiency Continue the preferential retail network support adopted in 2011 Improve store image and enhance retail service Integrate international resources, leverage R&D capabilities of Japan team and cooperation with international design houses to develop innovative and functional products Effectively invest in and adopt Smart Marketing Emphasize below the line marketing 29

30 Strategic Measures in 2012 (Con t) 30

31 31