2010 Annual Results Announcement. March 2011

Transcription

1 2010 Annual Results Announcement March

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. Forwardlooking 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 Annual Results Overview Business Review Financial Review Strategies & Future Plans Open Forum 3

4 Annual Results Overview 4

5 Annual Results Overview Financial Achievement High dividend payout ratio New management on Board Tightening partnership with retailers Increasing marketing and advertising activities Product innovation through design and development Sales +7.3% Gross profit +6.1% Operating profit +2.6% Dividend payout ratio: 70% Additions of professionals with international exposure Chief Executive Officer - Ms. Sandrine Zerbib Chief Financial Officer - Mr. Terence Hon Leveraging the partnership with GX Retail Group, enhanced the brand experience at point of sale Increased emphasis on internet sales Launched a series of Kappa brand image TV commercials on CCTV5 and other regional TV channels Launched a World Cup marketing campaign dubbed Soccer Frenzy during 2010 FIFA World Cup South Africa Leveraged talents and resources from R&D center in Japan Transformed Taicang factory, Jiangsu into a technical center

6 Business Review 6

7 Business Review Brand Building Expanding Brand Portfolio Sales Network Design and Development 7

8 Brand Building Kappa TVCs Launched Launched Kappa brand image TV commercials that featured the sports in season on CCTV 5, Anhui TV, Zhejiang TV, Liaoning TV, etc. between May and October 2010 Adopted the theme of fusion between sports and fashion

9 Brand Building FIFA World Cup South Africa 2010 Promotion Activities Joint promotion Kappa x Bazaar Crossover TVC Launched Kappa TVC in CCTV 5 during World Cup period Online video Soft online marketing to demonstrate Kappa s spirit of combining sports and fashion Online ad Attract young consumers Celebrity Campaign Sponsored DreamBoat Soccer Team and invited them to attend the 2010 World Cup in South Africa Art show Creative artwork displayed in Wangfujing and Solana, Beijing 9

10 Brand Building China Open Platinum Sponsor of the China Open, a top integrated tennis event held by ATP, WTA and ITF Further promoted Kappa brand by extending its promotional activities for the China Open to retail stores Title sponsor of the event Kappa-CRT with the goal of promoting tennis to the public 10

11 Brand Building 2010 Kappa Golf Hole in One Kappa golf day was organized in August 2010 featuring different celebrities in golf games. A product launch show for the Kappa Golf series was organized Kappa also offered full support to the HSBC Golf Championship, which was held in Shanghai, China in November

12 Brand Building Sports Marketing Sports Sponsorships with BasicNet and Brand Licensees Co-sponsorship of Italian Serie A club AS Roma Co-sponsorship of German Bundesliga Club Borussia Dortmund Official Sponsorship of team clothing for Virgin Racing F1 Team 12

13 Brand Building Crossover with Bazaar and BMW Cooperated with Bazaar Magazine to create a new graphic fashion image, a fusion between fashion and sports Shown on Bazaar and Bazaar Men s Style issues between June and October Joint hands with Bazaar to launch the Soccer Frenzy carnival with the presence of DreamBoat Soccer Team Kappa is the official clothing sponsor for BMW Mission 3 The alliance with a world-class, highend brand significantly enhanced Kappa s brand image. 13

14 Internet Marketing Took full advantage of the internet platform to publicise Kappa brand through online video series, advertisement on the SNS public homepage and dissemination through 163 mailbox signatures, etc Online video Interactive platform for Kappa Fans Advertisement on SNS 14

15 Expanding Brand Portfolio 15

16 Expanding Brand Portfolio Robe Di Kappa ( RDK ) Robe Di Kappa brings a new attitude and perspective towards sports and leisure to the world the inner beauty of sports with its artistically innovative line of products First outlet was officially opened in Beijing in February 2010 A series of marketing activities were launched, e.g Fall/Winter Fashion Collection, introduction of a special selection of CD, The Choice of RDK The number of outlets had grown to 20 as of end

17 Expanding Brand Portfolio Phenix Japanese outdoor and ski brand with strong international recognition Engaged in the active preparation of the introduction to China market in 2011 Expanded into the outdoor segment which is to mitigate the effects of the high seasonality of ski and is highly suitable for the efforts to develop in the China market 17

18 Sales Network Kappa Stores in China As of 31 December 2010 As of 31 December 2009 Change No. of Kappa stores 3,751 3, <25 Retail stores Heilongjiang (159) 25 to 50 Retail stores 50 to 100 Retail stores Jilin (118) >100 Retail stores Tibet (7) Xinjiang (48) Qinghai (10) Sichuan (205) Yunnan (96) Inner Mongolia (72) Ningxia (11) Gansu (25) Shaanxi (71) Chongqing (80) Guizhou (65) Guangxi (51) Shanxi (75) Hunan (137) Hainan (29) Beijing (149) Hebei (198) Henan (118) Hubei (161) Tianjin (76) Shandong (236) Jiangsu Anhui (237) (171) Jiangxi (77) Guangdong (294) Macao (4) Fujian (157) Liaoning (209) Shanghai (82) Zhejiang (323) Taiwan JV with GX Retail Group Net Openings by Region Region Net Open Northern 145 Central 35 Southern 59 18

19 Sales Network Online Sales Online sales of Kappa products grew by over 300% in 2010 With joint efforts with daily internet sales reached RMB11.0 million with the number of visitors to Kappa Taobao online store hitting 1.5 million on 11 November, 2010 Aim to establish an integrated online sales platform while at the same time tapping into multiple popular internet channels to promote sales To reinforce the image of Kappa brand, Kappa Web Visual Identity was established to standardize the logo and webpage layout. 19

20 Design and Development R&D Evolution of Taicang factory (Jiangsu) into a technical centre which works in close cooperation with Dongxiang technical centre in Niigata, Japan Phenix developed several new product lines and a number of new technologies during the year, including curve zippers and embossment patterns Herring-bone Stitch Curve zippers 20

21 Design and Development Kappa P-A.C Cooperated with Michael Michalsky, a renowned German designer, and launched Kappa P-A.C in July 2010 Originated from the Pack Away Concept which caters to the needs of the urban youth who are fond of carrying various portable gadgets for convenient use at anytime A simple and fashionable design that harmonizes with light and soft materials The P-A.C collection was promoted through an exhibition tour across major cities in China including Shanghai, Chengdu and Beijing in August and September,

22 Financial Review 22

23 Financial Review Results Highlights Sales by Markets and Brands Sales Breakdown by Products Gross Profit Margin by Markets and Products Expenses Ratio to Sales Working Capital Management Financial Position Return to Shareholders 23

24 Results Highlights Change For the year ended 31 December (RMB mn) (RMB mn) (%) Sales 4,262 3, Gross profit 2,546 2, Operating profit 1,741 1, Profit attributable to equity holders 1,464 1, Gross profit margin (%) 59.7% 60.4% -0.7pt Operating profit margin (%) 40.9% 42.7% -1.8pts Net profit margin (%) 34.3% 36.8% -2.5pts (RMB cents) (RMB cents) Basic earnings per share

25 Sales by Markets and Brands (RMB mn) Change For the year ended 31 December As a % of total sales (RMB mn) As a % of total sales China 3, % 3, % +7.3 Kappa brand 3, % 3, % +7.0 RDK brand % Others % % Japan Phenix, Kappa and % % +7.8 other brands Total sales 4, % 3, % +7.3 (%) Recorded sales growth in all markets and all brands Online sales increased more than 3 times from 2009, though started with lower base RDK brand first launched in China in February

26 Kappa Brand in China Market Sales Breakdown by Products RMB mn Apparel Footwear Accessories 5.5% 15.8% 7.7% Accessories 3.4%(4.0%) Footwear 21.8%(20.1%) 3, , , , For the year ended 31 December Apparel 74.8%(75.9%) Remarks: Comparable figures for 2009 are shown in brackets An increase by 14.2% in sales volume of apparel was partly offset by higher rebates given to distributors, [ -] resulting in an overall 5.5% growth. Double digit growth rate of footwear was mainly due to improvement in design and technological knowhow, resulting in 2.8% higher ASP and 20.1% higher sales volume. Proportion of footwear sales increased to 21.8% (2009: 20.1%). 26

27 Gross Profit Margin by Markets and Products Change For the year ended 31 December (%) (%) (% pt) China Kappa brand RDK Brand 68.0 N/A N/A Others Japan The Group overall China - Kappa brand Change For the year ended 31 December (%) (%) (% pt) Apparel Footwear Accessories Overall Gross profit of Kappa products decreased mainly due to higher production cost and higher discount rate offered to customers as well as impacted by a stock return provision of RMB 155M RDK has become the product with the highest gross profit margin within our brand portfolio Overall gross profit margin, declined by 0.7%pt 27

28 Expenses ratios to sales A&P expenses (% of sales) Staff cost (% of sales) Product R&D cost (% of sales) Change For the year ended 31 December (%) (%) (% pt) Increased advertising and sponsorship expenses on World Cup campaign, TV commercials, China Open, and Norway Olympics Committee Higher R&D cost: increasing leverage on design capability in Japan and closer collaboration with University of the Arts of London 28

29 China Market Working Capital Management Inventory Turnover Day Day A/R Turnover 37 Day A/P Turnover For the year ended 31 December For the year ended 31 December For the year ended 31 December Considering the operation pressure of distributors, relaxed credit terms were given to major distributors. Despite higher A/R turnover days, the ageing profile has been improved No material changes of other working capital indicators A/R Ageing Profile As at 31 December 2010 As at 31 December 2009 % % Current days days 4 6 Total

30 Maintain Strong Financial Position For the year ended 31 December (RMB mn) (RMB mn) Net cash generated from operating activities 1,444 1,485 As at 31 December 2010 (RMB mn) As at 31 December 2009 (RMB mn) Cash & bank deposits 5,028 6,127 Investment in treasury products* 1, Bank balance and treasury products held 6,550 6,529 Current assets 7,441 7,073 Current liabilities Net assets 7,515 7,354 * Included investments in treasury products issued by MOF, PRC and principal-guaranteed treasury products issued by major commercial banks in the PRC Maintain strong cash position Investments in government bonds and treasury products to enhance return on unutilized cash Stable cash flows to support future business development and acquisitions No bank borrowings 30

31 Return to Shareholders Dividends per share Change For the year ended 31 December (RMB cents) (RMB cents) (RMB cents) Interim paid Special Interim paid Final (proposed) Special final (proposed) Total Payout ratio 70% 70% - While maintaining stronger cash position for future strategic and initiatives are our priorities, we continue to enhance shareholder value High dividend payout of 70% of net profit in 2010 Our operating cash flow remains very strong

32 Strategies & Future Plans 32

33 2011: A year of adjustment The sports industry is now reaching a certain level of maturity slower growth, clearer segmentation In the meantime, the Chinese apparel and footwear market is expected to reach US level in the coming 5 years, driven by key trends which all represent key opportunities: Rise of the middle class Urbanization and growing small cities Trading-up Health and wellness E-commerce Dongxiang has experienced extreme growth the past few years and now needs to strengthen its foundations to be ready to grab new opportunities 2011 will be a year of adjustment: Close monitoring of retail inventory and reduction to more healthy levels Stronger brand pull through brand and product improvement Improvement of existing store productivity via retail and sales management, with special focus on sub-distributors Optimization of current store portfolio 33

34 Long-term Strategies Brand (Clarify brand positioning and strengthen equity) Product (Leverage Phenix platform) Retail management Store / network management (Optimize and expand network) Customer (GX relationship) management (Basic customer mgmt) Supply chain (Improve supply chain efficiency) Process, org and others (Strengthen process/mgmt discipline) Improve basic competency Build advantages 34

35 Long-term Strategies Develop online sales platform Strengthen brand identity and product differentiation Expand footwear products Optimize product creation Store network optimization and geographic expansion Brand diversification Shift focus from sell-in to sellthrough 35

36 Strengthen Brand Identity - Clarify Kappa brand positioning Objectives Clarify brand image and point of differentiation in the eyes of consumers Regain momentum, especially among higher tier city and younger consumers Strengthen fundamentals of brand in order to be able to expand range beyond core casual business Kappa is a color offer Full of life, passion, richness of youthful energy, in-motion, expressive, impulse, bold, warmth, openminded, positive, optimistic Unisex-to-feminine relevance An expression of youthful optimism or compensation for the lack of it Live the creative beauty of sport Art as action expression (Focus group Feb. 2011) Fashionable casual look The aesthetics and creativity of sports Romantic and artsy 36

37 Expand Range to Street and Fashion - Introduction of C19 Inspired by the colorful street fashion and bicycle component

38 Expand Footwear Products Introduction of Curves Sexy Engineered function Exercises Form free 38

39 Optimize store portfolio Strategize store portfolio management POS development and expansion 1 Refine store opening criteria and support policies 1 Develop strategic alliance with department stores and developers 2 2 Develop, manage and control of store opening plans Develop and execute granular store footprint 3 3 Apply consumer/product segmentation Enlarge average store size to store segmentation and grasp opportunities in casual space 4 Progressively replace low performing/inadequate stores 4 Strengthen retail premium location of Tier 1 cities 39

40 Optimize store portfolio - Store segmentation based on systematic consumer/product segmentation Sports Fashion Sports Casual Fashion Participant Lover Sports inspire Brand driven Classic smart Follower Early adaptor Consumer / Product segmentation Professional athletes Sports lovers Requires basic function sportswear KAPPA Fans Simple and clean style Trend followers Edgy fashion lovers Store segmentation (examples) Sports floor Low tier city store focus Casual floor 40

41 INNOVATION Optimize store portfolio - New retail format RETAIL OBJECTIVE 2012 NEW LOOK in Retail More IMPACT on brand voice 2006 EVOLUTION More CREATIVITY in space 2009 More ATTRACTIVE & PRODUCTIVITY on product 41

42 Shift Focus From Sell-in to Sell-through Level of control on the POS Where we are now Pure wholesale Zero control on the POS Franchise Where we want to be in the future "Managed retail" Retail Move from "pure wholesale" to "managed retail Leverage GX partnership Special focus on sub-distributors Full control on the POS Improve business intelligence Expand POS system Develop retail operation standards: VM, format, services Develop retail academy for customers Develop retail operation supervision system and link incentives to it Develop geography and segment based assortment plans and tools 42

43 Brand Diversification Achieved satisfactory results since the opening of the first RDK store in Beijing in 2010 Further promote the RDK series through various marketing campaigns Expect to open over 50 RDK stores in China in 2011 Officially introduce Phenix to the China market in 2011 Plan to open 20 to 30 stores in

44 Optimize Product Creation Further optimize product creation by strengthening R&D efforts and further evolve Taicang factory (Jiangsu) into a technical centre which works in close cooperation with Dongxiang technical centre in Niigata, Japan Leveraging the talents and resources in Phenix design department and at R&D centre in Japan 44

45 Develop Online Sales Platform Expand Kappa s official online store to a greater number of internet channels Establish ikappa website: a multi-purpose platform covering online sales, marketing, customer service, brand education, feedback on news products and a forum for Kappa fans Expand the online sales business leveraging on the investment in Mecox Lane Limited 45

46 Open Forum 46