Presentation Team. Mr. Shi Hongliu Founder, Chairman & Executive Director. Mr. Zhao Yan Executive Director

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2 Disclaimer This document has been prepared by Hosa International Limited (the Company or Hosa ) and comprises the written materials for a presentation concerning, among other matters, the Company s background information and financial performance for the period ended on 31 December For the purposes of this document, the presentation that follows (the Presentation ) shall mean and include the slides that follow, the oral briefing provided by the Company on the slides and the question and answer session that follows the oral briefing. This document has been prepared by the Company solely for use at the Presentation and is strictly confidential. This Presentation may not be taken away, reproduced, redistributed, disclosed or passed on, directly or indirectly, to any other person, or published, in whole or in part, in any manner, at anytime or for any purpose. 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3 Presentation Team Mr. Shi Hongliu Founder, Chairman & Executive Director Mr. Zhao Yan Executive Director Mr. Dickson Lai Chief Financial Officer & Company Secretary 3

4 Performance Highlights 2013 Performance Highlights Outstanding Financial Performance Revenue up 20.5% to RMB1,021.5 million Profit rose 9.6% to RMB362.8 million High Return Overall dividend payout ratio of 40% End-period dividend of HK$6.6 cents (approximately RMB5.2 cents) per share Healthy Operating Indicators Inventory turnover days, accounts receivable and accounts payable days are 107 days, 89 days and 79 days respectively, all maintained at a stable level 4

5 Key Achievements in 2013 Ongoing Improvement of Market Position Maintaining our first place positions in the Chinese fitness wear, swimwear and sports underwear markets which continuously capture higher market penetration Continued Expansion of Market Size Launched the Water Cube Brand and increased customer coverage of swimwear products Extended product lines of fitness wear and expanded its market size Strengthening Brand Influence Hosa Cup China International Yoga Fitness Assembly Stars in Danger, a large-scale TV show of Jiangsu Satellite TV The Biggest Loser, a large-scale TV show of CCTV2 Continuous Optimization of Outlet Network Strengthened the development of professional retail outlets such as gyms, yoga fitness centers and swimming pools to facilitate targeted marketing 5

6 I. Business Review II. Financial Review III. Market Opportunities IV. Development Strategy V. Appendix

7 Business Review 1 Strengthening of Market Leadership and Brand Position 2 Brands and Products Extension to Expand Market Size 3 Targeted and Efficient Brand Promotion 4 Continuous Optimization of Outlet Network 5 Strengthening Product R&D Advantages 7

8 Business Review 1. Strengthening of Market Leadership and Brand Position Professional, Dedicated and Largest Indoor Sportswear Brand in China Top 5 Market Share of China s Fitness Wear Market (2013) Top 5 Market Share of China s Swimwear Market (2013) Top 5 Market Share of China s Sports Underwear Market (2013) 8.4% 10.5% 44.1% 3.1% 2.8% 2.7% 1.7% 1.6% 1.6% 1.5% 1.8% 4.2% 2.5% 1.8% 1.4% Hosa Decathlon Zoke Pieryoga Sunyoga Hosa Arena Zoke Speedo TNZI Hosa Adidas Nike LYY Aimer Hosa ranks #1 in market share in China s fitness wear, swimwear & sports underwear markets *In terms of 2013 ex-factory domestic sales according to Frost & Sullivan Report ( Market Analysis on China s Indoor Sportswear Industry ) 8

9 Business Review 1. Strengthening of Market Leadership and Brand Position The Only Indoor Sportswear Brand Named as Top 500 Most Valuable Brands in China Natural Healthy Joyful Offer a comprehensive portfolio of professional indoor sportswear and accessories dedicated to urban whitecollars to promote a joyful, healthy and relaxed lifestyle Most Valuable Indoor Sportswear and Fitness Services Brand in China Most Representative Brand of Swimwear Segment in China Award of the Year for Apparel Brands in China Public Nomination Award 9

10 Business Review 2. Brands and Products Extension to Expand Market Size The introduction of the Water Cube Brand swimwear targeting young people and teenagers serves as a supplement to our Hosa Brand swimwear targeting urban white-collars and create integration advantage Continuously optimize professional fitness wear products while expanding the product mix of fitness wear lifestyle series 10

11 Business Review 3. Targeted and Efficient Brand Promotion Targeted and Highly Efficient Marketing Strategies Creating a Brand Personality Showcasing China s swimwear trends Fashion Trends Showcase Hosa Cup China International Yoga Fitness Assembly Stars in Danger The Biggest Loser Model contests and beauty pageants Sponsorship Natural Healthy Joyful Promotional Activities Hosa Stretch It Out Hosa Energetic Asia Fashionable Fitness-keeping Carnival Hosa Inside the Sports World magazine 11

12 Business Review 3. Targeted and Efficient Brand Promotion Leveraging on the Unique Advantage of the Group and Industry Resources Hosa Fitness One of the largest chained fitness centers in China Top fitness center brand in China for 2012 & 2013 Operates more than 60 directly operated chained fitness centers in China Brand interactions and resources sharing between Hosa s sportswear and fitness segments provide a low-cost brand culture and promotional channel Leveraging on the influential industry position of the fitness centers to conduct various forms of marketing promotion Over 300,000 gym members and nearly 1,000 professional trainers Utilize trainers to promote the professional image of Hosa sportswear Better understanding of customer needs and gain first hand information towards their preference 12

13 Business Review 4. Continuous Optimization of Outlet Network Focus on strengthening the development of professional retail channels such as fitness centers, gyms, swimming pools and resorts based on the characteristics of the products, as well as optimization of existing retail outlets; Diversified outlet mix such as department stores, exclusive stores, professional retail outlets, multi-brand stores and seasonal counters improve overall market reach; As of December 31, 2013, Hosa had a total of 1,356 retail outlets nationwide. 13

14 Business Review 5. Strengthening Product R&D Advantages Design, Research and Development Highly experienced indoor sportswear design team Over 20 years of accumulated proprietary expertise and know-how Global R&D network in leading fashion trends Hosa Beijing Research and Development Center Fujian Technology Centre Maintain close cooperation with the French Design Studio Collaboration with the function and prototype expert team from Japan Asia Fitness Academy and collaboration with domestic and foreign professional institutions in design and R&D Collaboration with the function and prototype expert team from Japan strengthens Hosa s technological advantages 14

15 I. Business Review II. Financial Review III. Market Opportunities IV. Development Strategy V. Appendix

16 Financial Review Sustainable Growth of Revenue and Net Profit Revenue Net Profit (RMB mm) (RMB mm) % % 35.6% 1, % 30.3% % 27.9% 24.5% 22.3% 34.1% 35.8% 38.0% FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 Swimwear Fitness Wear Sports Underwear Accessories 16

17 Financial Review Maintain High Margins and Improve Profitability Gross Profit and Gross Margin Operating Profit and Operating Margin (RMB mm) (RMB mm) (RMB mm) Net Income and Net Margin 62.2% 60.6% 57.8% 45.6% 44.8% 43.0% 39.3% 39.0% 35.5% FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 Gross Profit Gross Margin Operating Profit Operating Margin Net Profit Net Margin 17

18 Financial Review Competitive Cost Structure Cost of Sales SG&A (RMB mm) 37.9% 39.4% 42.2% (RMB mm) 17.3% 19.1% 17.6% FY2011 FY2012 FY2013 Raw material Labor Manufacturing overhead Procurement cost of finished products As % of Revenue FY2011 FY2012 FY2013 Administrative Expenses Selling & Distribution Expenses As % of Revenue 18

19 Financial Review Increasing Revenue Across Key Business Segments Swimwear Fitness Wear (RMB mm) 64.8% 65.5% 61.3% (RMB mm) 66.9% 67.6% 66.3% FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 Revenue Gross Margin Revenue Gross Margin Sports Underwear Accessories (RMB mm) (RMB mm) 65.4% 66.7% 68.0% 57.0% 50.3% 44.3% FY2011 FY2012 FY2013 Revenue Gross Margin FY2011 FY2012 FY2013 Revenue Gross Margin 19

20 Financial Review Debt Profile Interest Bearing Debt Improving Credit Profile (RMB mm) Gearing Ratio (1) % 6.0% 3.9% /12/ /12/ /12/ /12/ /12/ /12/2013 Cash and Cash Equivalents (2) Net Debt to Equity Ratio (3) (RMB mm) 1, Net Cash Net Cash Net Cash 31/12/ /12/ /12/ /12/ /12/ /12/2013 (1) Calculated using interest bearing debt and bills payables divided by total assets (2) Includes fixed deposits held at banks with maturity over three months, and excludes pledged deposits of RMB13.2 mm, RMB98.3 mm and RMB17.7 mm in FY2011, FY2012 and FY2013 respectively (3) Net debt is defined as the interest bearing debt, less cash and equivalents 20

21 Financial Review Working Capital Cycle Average Inventory Turnover Days (1) Inventory days in FY2013 maintains a similar level as in FY2012 Average Trade Receivables Turnover Days (2) Hosa generally grants a payment term of 90 days to its distributors for credit sales Trade receivables turnover days continue to improve Average Trade and Bills Payables Turnover Days (3) Hosa has been granted a credit period of 90 days by its suppliers (No. of days) (No. of days) (No. of days) FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 (1) Calculated as the average inventory balances at the starting and ending divided by cost of sales and multiplied by 365 days (2) Calculated as the average trade receivables balances at the starting and ending divided by revenue and multiplied by 365 days (3) Calculated as the average trade and bills payables balances at the starting and ending divided by cost of sales and multiplied by 365 days 21

22 I. Business Review II. Financial Review III. Market Opportunities IV. Development Strategy V. Appendix

23 Market Opportunities Rapid Industry Growth Market Environment 1 Ongoing urbanization in China speeds up construction of indoor sports venues 2 Improving standards of living and change in perception towards sports activities among urban population facilitate growing awareness of health and wellness 3 Further market segmentation and product specialization in the sportswear industry 4 Establishment of compulsory swimming classes at schools expands market demand for swimwear 5 Nationwide promotion and support of sports and exercises in China brought huge development opportunities 23

24 Market Opportunities Rapid Industry Growth Market Trend China s Sports Wear Market: Domestic Ex-factory Sales (RMB mm), E Fitness Wear Swimwear Sports Underwear 15, , , , , , , , , , , , , E 2015E 2016E 2017E 2018E 2014E 2015E 2016E 2017E 2018E 2014E 2015E 2016E 2017E 2018E *According to Frost & Sullivan Report - Market Analysis on China s Indoor Sportswear Industry 24

25 I. Business Review II. Financial Review III. Market Opportunities IV. Development Strategy V. Appendix

26 Strives to Become the Whole-line Provider of China Indoor Sports Equipment, and the Leader & Consolidator of China Indoor Sportswear Industry

27 Development Strategy Continue to focus on segmented markets in the indoor sportswear industry, enhance and broaden product and service offerings to target customers, strengthen and improve competitiveness of Hosa in terms of branding, R&D, retail channels and manufacturing, and promote the development of new channels in response to future trends Continue to enhance development and application of technologies of function and prototype, strengthen international professional certification, and strengthen professional advantages of products Continuously optimize professional fitness wear products while expanding the product mix of fitness wear lifestyle series and increase scale of sales Products Improve product mix of swimwear products under the Water Cube Brand to increase customer coverage Develop and launch wearable fitness products Gradually optimize the proportion of casual sports underwear under sports underwear with a focus to enhance sporty nature, increase differentiation and competitiveness 27

28 Development Strategy Continue to focus on segmented markets in the indoor sportswear industry, enhance and broaden product and service offerings to target customers, strengthen and improve competitiveness of Hosa in terms of branding, R&D, retail channels and manufacturing, and promote the development of new channels in response to future trends Continue to promote the development of professional retail outlets at yoga fitness centers, gyms, swimming pools and resorts, etc. Outlets Promote the development of yoga fitness centers, as well as store upgrades Optimize existing retail outlets and focus on expanding store scale with improvement in product mix Promote various types of sales outlets in a flexible manner, including department stores, specialty stores, professional retail outlets, multi-brand stores, seasonal counters and group purchase, based on regional and industry characteristics; improve store efficiency and actively promote the establishment of new channels and retail outlets 28

29 Development Strategy New Channel Model HOTTO Aquatic Life Themed Hall Enhance the sales capability of outlets and control on swimwear sales channels through consolidation of swimwear brands 29

30 Development Strategy New Channel Model Direct Sales to Coaches, Mobile Internet and E-commerce Screenshots of Hosa Mobile Fitness Community APP Strengthen the establishment of mobile internet and e-commerce teams, beginning with the direct sales of coaches based on the Hosa Mobile Fitness Community APP developed in-house, and promote the business of e-commerce, mobile internet and O2O 30

31 I. Business Review II. Financial Review III. Market Opportunities IV. Development Strategy V. Appendix

32 Appendix Summary Income Statement (RMB 000) FY Ended December Continuing operations Turnover 695, ,063 1,021,520 Cost of sales (262,552) (333,874) (431,209) Gross profit 432, , ,311 Other revenue 4,673 27,626 25,505 Other net (loss)/income 340 (315) 2,775 Selling and distribution expenses (65,331) (91,499) (104,537) Administrative and other operating expenses (55,086) (70,414) (75,223) Profit from operations 317, , ,831 Finance costs (1,544) (568) (398) Profit before taxation 315, , ,433 Income tax (41,937) (47,907) (68,074) Profit for the year 273, , ,359 Exchange differences on translation of financial statements of operations outside the mainland China (638) (175) (7,513) Total comprehensive income for the year 273, , ,846 32

33 Appendix Summary Balance Sheet Assets Liabilities and Equity (RMB 000) As at December Assets Inventories 100, , ,409 Trade and other receivables 226, , ,958 Pledged deposits 13,171 98,278 17,684 Cash and cash equivalents 635, ,513 1,059,149 Total current assets 975,506 1,203,186 1,497,200 Property, plant and equipment 48,413 46,200 59,126 Intangible assets Lease prepayments 11,862 11,620 18,564 Deferred tax assets 7,857 6,869 3,514 Total non-current assets 68,310 64,879 81,703 (RMB 000) As at December Liabilities Bank loans - 86,890 - Trade and other payables 149, , ,137 Derivative financial liabilities Current taxation 16,808 11,120 8,710 Total current liabilities 166, , ,847 Total liabilities 166, , ,847 Share capital 13,027 13,027 13,485 Reserve 864,204 1,039,070 1,382,571 Total equity 877,231 1,052,097 1,396,056 Total assets 1,043,816 1,268,065 1,578,903 33