2008 annual results corporate presentation 25 march 2009 · 2011. 9. 7. · corporate presentation...

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2008 Annual Results2008 Annual Results

Corporate PresentationCorporate Presentation

25 March 200925 March 2009

1

DisclaimerDisclaimer

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 China Dongxiang (Group) Co., Ltd. (the

“Company”). 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 may

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

Agenda

Accomplishments

Financial Review

Business Review

Future Plans & Strategies

Open Forum

3

Accomplishments Accomplishments

4

Solid & sustainable financial

performance

Sales +94.2%

Profit attributable to equity holders +86.4%

Gross margin of Kappa Brand in China segment +2.8%pts

Overall gross margin of the Group maintained at 58.5%

Efficient working capital

managementSustainable inventory and account receivables turnover days

Enriched brand portfolio

Strengthened product design and

R&D capabilities

A pool of design talents with strong fashion acumen comprising

designers from China, Japan, Korea and Italy

The technical centre of Phenix near Tokyo with nearly 60 experts

who are specialised in sophisticated apparel development

Deepened relationship with

distributors

Formed joint ventures with 6 key distributors to foster stronger

bonds with distributors and strengthen retail network in China

Experienced Management TeamOver 10 years experience in sportswear industry in China and

experienced in crisis management

AccomplishmentsAccomplishments

5

Financial Financial

ReviewReview

6

Results HighlightsResults Highlights

2008 2007 Change

(RMB mn) (RMB mn) (%)

Sales 3,322.2 1,711.0 +94.2%

Gross profit 1,943.8 1,000.6 +94.3%

Gross margin (%) 58.5 58.5 0.0%pts

Operating profit 1,331.7 724.7 +83.7%

Gain on negative goodwill on acquisition

of Phenix (one-off gain)146.0 - N/A

Profit attributable to equity holders Note 1 1,367.7 733.6 +86.4%

(RMB cents) (RMB cents)

Basic earnings per share 24.12 15.89 +51.8%

Proposed final dividend and final special

dividend per ordinary share9.35 1.09 N/A

Full-year dividend payout ratio (%)Note 2 60% 37% +23%pts

For the year ended 31 DecemberFor the year ended 31 December

Strong sales growth, sustainable high profitability Strong sales growth, sustainable high profitability

Note :

1. Profit attributable to equity holders was RMB1,221.7 million should the one-off gain from acquisition of Phenix be excluded.

2. The non-cash one-off gain was not treated as distributable profit in our dividend payout ratio calculation. The 60% full year dividend ratio comprises a 30% normal dividend payout and a 30% special dividend payout

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Results Highlights Results Highlights -- Geographical SegmentsGeographical Segments

Japan SegmentChina Segment

Net profit margin (%)

Profit attributable to equity

holders

Operating margin (%)

Operating profit

Gross margin (%)

Gross profit

Sales

153.7+65.5%733.61,214.1

37.1%

3.5%

14.6

40.7%

168.8

414.2

(RMB mn)

2008

-1.2%pts

+2.9%pts

+81.7%

+2.5%pts

+77.4%

+70.0%

(%)

Change

42.9%

42.4%

724.7

58.5%

1,000.6

1,711.0

(RMB mn)

20072008

(RMB mn)

2,908.0

1,775.0

61.0%

1,317.1

45.3%

41.7%


Enhancement of gross margin and operating margin for China segment in 2008.

Japan segment represents business of Phenix acquired since 1 May 2008. The net profit of

Japan segment included the one-off gain of RMB146 million. Should the one-off gain be

excluded, the net profit of Phenix in 2008 was RMB7.7 million.

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Strong Revenue StreamsStrong Revenue Streams

2008 2007 Change

(RMB mn)As a

% of total sales(RMB mn)

As a

% of total sales(%)

China segment

Kappa Brand 2,802.6 84.3% 1,645.2 96.1% +70.3

International sourcing and

Rukka Brand105.4 3.2% 65.8 3.9% +60.2

Japan segment

Phenix, Kappa and other

brands414.2 12.5% N/A N/A N/A

Total sales 3,322.2 100.0% 1,711.0 100.0% +94.2


Sales growth fuelled by:

Strong sales volume growth, indicative of high perceived brand value

Rapid network expansion boosted demand

New revenue stream from Japan market

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Kappa Brand in China Segment

– Sales Breakdown by Product

Strong growth in Kappa Brand sales attributable to:

– Successful positioning and marketing strategies

– Widespread market acceptance of Kappa Brand in China

Product mix remained fairly stable

1,181.3

2,011.0

671.3

389.6

120.3

74.3

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

2007 2008

Apparel Footwear Accessories

RMB mn

2,802.6

1,645.2

For the year ended 31 December

+70.2%

+72.3%

+61.8%For the year

ended

31 Dec 2008

4.3%(4.5%)

23.9%(23.7%)

71.8%(71.8%)

Footwear

Accessories

Apparel

+70.3%

Remarks: Comparable

figures for 2007 are shown

in brackets

10

2,173

3,655

7,564

12,476

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2008

Apparel Footwear

Kappa Brand in China Segment Kappa Brand in China Segment ––

Volume and Unit ASP GrowthVolume and Unit ASP Growth

Unit ’000

ASP (to Distributors)ASP (to Distributors)Sales VolumeSales Volume

179 184

156 161

0

50

100

150

200

250

2007 2008

Apparel Footwear

RMBApparel 3.2%

Footwear 2.8%

ASP increased due to general increase in selling price of autumn and winter products

Strong demand for the Kappa Brand products has driven the high growth in sales volume

Apparel 64.9%

Footwear 68.2%

11

Gross Margin by Geographical and Business Segment

China Segment

Higher gross margin for Kappa Brand due to general increase in ASP and tighter cost control

The appreciation of RMB against USD in the first half of 2008 diminished the gross margin of international sourcing

business

Japan Segment

The gross margin was relatively low due to keen competition and higher production cost in Japan. The Group will

integrate the production function of Japan segment with the Group’s extensive production network in the PRC to

improve Japan segment’s cost structure

2008 2007 Change

(%) (%) (% pts)

China segment overall 61.0% 58.5% +2.5

Kappa Brand 62.7% 59.9% +2.8

International sourcing and others 17.8% 22.5% -4.7

Japan segment overall 40.7% N/A N/A

The Group overall 58.5% 58.5% +0.0%pts


12

Kappa Brand in China

– Gross Margin by Product

Margin enhancement of Kappa Brand in China segment due to:

General increase in ASP of apparel products

Tighter cost control measures

Efficient working capital management

2008 2007 Change

(%) (%) (% pts)

Apparel 66.2% 62.4% +3.8

Footwear 52.3% 52.1% +0.2

Accessories 61.3% 61.8% -0.5

Overall 62.7% 59.9% +2.8


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Operating Expenses

China segmentGroup

+0.1

+1.4

+1.2

+3.3

(% pts)

Change

1.8

3.5

6.5

17.3

(%)

2007

1.9

4.9

7.7

20.6

(%)

2008 2008 2007 Change

(%) (%) (% pts)

Distribution cost and administrative

expenses (% of sales):18.2 17.3 +0.9

Including:

A&P expenses (% of sales) 7.8 6.5 +1.3

Staff expenses (% of sales) 3.8 3.5 +0.3

Product R&D expenses (% of sales) 1.7 1.8 -0.1


Increase in A&P expenses for:

Promotional activities for 2008 Beijing Olympic Games

Opening of flagship stores

Increase in staff expenses due to:

Inclusion of salaries and benefit expenses of Phenix in 2008. The staff expenses as a % of sales for

China segment was 3.8% in 2008, remained fairly stable against 3.5% in 2007

Overall increase in SG&A expenses as a % of sales attributable to the inclusion of Phenix

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2008 2007 Change

(RMB mn) (RMB mn) (%)

Tax expenses 248.3 37.7 +558.6%

Profit before income tax 1,616.1 771.3

Effective tax rate (%) 15.4% 4.9% +10.5% pts

After deduction of RMB146 million of gain on negative goodwill on acquisition of Phenix in 2008 and RMB44.7

million one-off interest income from IPO in 2007

Profit before income tax 1,470.1 726.6

Effective tax rate (%) 16.9% 5.2% +11.7% pts

Tax Expenses at a Glance

The increase in effective tax rate from 5.2% to 16.9% was attributable to the expiration of tax

exemption of major subsidiaries of the Group in Shanghai Pudong New Area

The applicable EIT tax rate of the Group’s major subsidiaries in 2008 was 18%, which will increase up

to 25% over a 5-year period from 2008-2012


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China Segment

– Working Capital Management

Inventories were managed at low levels demonstrating a strong supply chain managementcapabilities

A/R collection was kept at a fairly fast pace resulting from tight credit controls as well as efficient channel management

Shortened A/P turnover was a result of the Group’s faster payment to suppliers to obtain favorable purchasing price

Day

A/R TurnoverA/R Turnover A/P TurnoverA/P TurnoverInventory TurnoverInventory Turnover

42

49

0

20

40

60

2007 2008

Day

2324

0

8

16

24

32

2007 2008

Day

62

75

0

20

40

60

80

2007 2008

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Strong Financial Position

2008 2007

(RMB mn) (RMB mn)

Net cash generated from operating activities 929.4 709.7

Cash & bank balances 6,063.7 5,340.6

Current ratio (time) 11.8 times 18.4 times

Current assets 6,750.5 5,815.3

Current liabilities 569.9 315.2

Net assets 6,719.4 5,901.8


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17

Business Business

ReviewReview

18

Business Focuses in 2008

An International

Brand Operator

Extended

geographical reach –

Mainland China

+

Japan Market

Reinforced

brand building

Enhanced R&D and

product design

capabilities

Optimised

efficiency of

internal

operations

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An International Brand Operator

A Strong Portfolio of Brands

Fashion sportswear

Brand owner in China and Japan

Ski and outdoor sportswear

Brand owner with global rights

1st store in the PRC opened inDecember 2008 in Beijing

Fashion and causal sportswear


Snowboarding apparel


20

Rapid Network Expansion Fuelled Sales Growth

China segment－ Kappa Brand

– Cooperated with distributors and opened 10 flagship stores at prime

locations in first tier cities to strengthen brand image

As at 31 Dec 2008 As at 31 Dec 2007 Net Increase

No. of distributors 43 41 +2

No. of retail outlets 2,808 1,945 +863

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Focus on self-owned Kappa and Phenix brands (core business) and termination of

licensee brands (non core business)

– The first Japan Kappa flagship store opened in September 2008

– Approximately 2,588 and 956 stores of Kappa and Phenix brands as at

31 Dec 2008

Commenced integration of Phenix with the Group’s extensive production network in

the PRC, to lower production cost and enhance the gross margin in Japan segment

Restructuring on Restructuring on PhenixPhenix

Achieved Healthy Business Growth & Breakeven in Japan Market

22

Brand Building Initiatives

– Sports Oriented Marketing

Top tennis competition – China Open

2008 Beijing Olympics participating team–

the PRC’s 49er Sailing Team

Torch Relay of 2008 Beijing Olympics– Tibet mountaineer team

3 soccer teams in China FootballAssociation Super League

Buick China Golf Club League

PRCPRC

2008 Beijing Olympics participating team–

Hong Kong Table-tennis team

Top Italian soccer team-AS Roma

Norwegian Alpine Ski Team

Norwegian Olympic team

InternationalInternational

Three J-1 soccer teams in Japan

Japan National Ski Team

JapanJapan

23

Fashion Oriented Marketing Tactics

– A Trend Setter

Promoted the

“Don’t want to let go”

album by Eason Chan

Co-branding with PepsiCo-branding

with Citroen

Kappa

“NOW Sports”

concert

Olympic

community song

“Believe in Love”

Strategic alliance

with Huayi Brother

Media Group

Sponsorship of movie

“Sliver Medalist”

Cooperation with

Shin in a series of

marketing events

24

Charity and Social Responsibilities

Cash and materials donation totaled RMB15 million via the Red Cross Society of China

to aid the victims of Sichuan Earthquake

Collaborated with Music Radio for the 3rd consecutive year in “I want to go to school.

Kappa Orange Hope in Action”

Other charity events included:

– Sponsorship of the Dream Boat Star for their Swiss Charity Trip, a fund-raising activity for

victims of Sichuan earthquake

– Apparel donation to students in Tibet via China Soong Ching Ling Foundation

– Apparel sponsorship for “China Model Affinity Act – Thousand Models Charity T-shirt Bazaar”

organised by China Fashion Association

The Group honored the “Pioneer of China Livelihood 2008”by China Foundation for Poverty Alleviation in recognition of

its social responsibilities

The Group honored the “Pioneer of China Livelihood 2008”by China Foundation for Poverty Alleviation in recognition of

its social responsibilities

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World Class Product R&D and Design Team

Strong In-house design teamStrong In-house design team

Nearly 60 top design talents comprising designers and

merchandisers from the PRC, Japan, Korea,

and Italy

Technical centre of JapanTechnical centre of Japan

59 experts provide technical support to develop

highly sophisticated apparel products

Cooperation with international institutionsCooperation with international institutions

Interactive training and long-term consultancy

services provided by University of the Arts, London and

WGSN

25

26

Fruitful

results

AssetAsset--light Business Modellight Business Model

Enhancement in profit margins through

tighter cost controls

Distributors were able to settle payment

promptly

Inventory turnover of China segment

further improved

Gross margin of Kappa

Brand in China �� 2.8%pts

A/R turnover �� 1 day

Inventory turnover�� 7 daysEfficient inventory

management:

Short A/R turnover:

Effective

cost control:

27

Strong Business Model

Brand building

Outsourcing and 3rd party

supply chain management

Solid business platform

Enhanced capabilities in

product design and innovation

ManufacturingManufacturing

Internal OperationInternal Operation

R&DR&D

China

Japan

28

28

Future Plans and Future Plans and

Strategies Strategies

29

An optimistic yet prudent

operational approach to pursue

secured and healthy business

growth

Given our relatively low

penetration compared to

other international brands,

we will continue network

expansion to reach out to

under penetrated market

More resources will be

reallocated for optimising

internal management to

hone long-term competitive

advantages

Marco environmentMarco environment StrategiesStrategies

29

Outlook & Strategies for 2009Outlook & Strategies for 2009

Short term challenges

� Uncertainties arise from the

global financial crisis exerting

pressure on retail market in China

Long term opportunities

� Enormous growing

potential presents in

China retail market

upon recovery of

economy

30

Long Term StrategiesLong Term Strategies

Brand buildingBrand building

Retail network expansionRetail network expansion

Internal Internal optimisationoptimisation

MultiMulti--brand strategybrand strategy

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Open ForumOpen Forum

2008 annual results corporate presentation 25 march 2009 · 2011. 9. 7. · corporate presentation...

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