2010 Annual Results Announcement · Club Borussia Dortmund ... series, advertisement on the SNS public homepage and dissemination through 163 mailbox ... Shandong (236) Hebei (198)

1

2010 Annual Results Announcement

March 2011

2

DisclaimerDisclaimer

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”.

AgendaAgenda

Business ReviewBusiness Review

Strategies & Future PlansStrategies & Future Plans

Open Forum Open Forum

3

Annual Results OverviewAnnual Results Overview

Financial ReviewFinancial Review

4

Annual Results Overview

Financial

Achievement

Sales

+7.3%

Gross profit

+6.1%

Operating profit

+2.6%

High dividend

payout ratio

Dividend payout ratio: 70%

New management on Board

Increasing marketing

and advertising activities

Tightening

partnership with

retailers

Product innovation

through design and

development

Leveraged talents and resources from R&D center in Japan

Transformed Taicang

factory, Jiangsu into a technical center

Additions of professionals with international exposure

Chief Executive Officer ‐

Ms. Sandrine Zerbib

Chief Financial Officer ‐

Mr. Terence Hon

Annual Results OverviewAnnual Results Overview

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

Leveraging the partnership with GX Retail Group, enhanced

the brand experience at point of sale

Increased emphasis on internet sales

6

Business Review

Business ReviewBusiness ReviewBusiness Review

Brand Building

Expanding Brand Portfolio

Sales Network

Design and Development

7

Brand BuildingBrand Building

—— Kappa Kappa TVCsTVCs

LaunchedLaunched

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

TVCLaunched Kappa TVC in CCTV 5

during World Cup period

Online video Soft online marketing to

demonstrate Kappa’s

spirit of combining

sports and fashion

Art showCreative artwork displayed

in Wangfujing

and Solana,

BeijingCelebrity Campaign

Sponsored “DreamBoat

Soccer

Team”

and invited them to attend

the 2010 World Cup in South Africa


—— FIFA World Cup South Africa 2010 FIFA World Cup South Africa 2010

Promotion ActivitiesPromotion Activities

Joint promotionKappa

x Bazaar Crossover

9

Online ad Attract young

consumers


—— China OpenChina Open

10

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

11

“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 2010


—— 2010 Kappa Golf2010 Kappa Golf

12

Brand Building Brand Building

—— Sports MarketingSports Marketing

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

SSports Sponsorships with ports Sponsorships with BasicNetBasicNet

and Brand Licenseesand Brand Licensees

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”

13


—— Crossover with Bazaar and BMWCrossover with Bazaar and BMW

Kappa is the

official clothing

sponsor

for “BMW Mission 3”

The alliance with a

world‐class,

high‐

end

brand

significantly

enhanced

Kappa’s brand image.

14

Internet MarketingInternet 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

Advertisement on SNS

Interactive platform for Kappa Fans

15

Expanding Brand PortfolioExpanding Brand Portfolio

16

Expanding Brand Portfolio Expanding Brand Portfolio

—— Robe Di Kappa (Robe Di Kappa (““RDKRDK””))

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. 2010 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‐2010

17

Expanding Brand Portfolio Expanding Brand Portfolio

—— PhenixPhenix

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

As of 31 December

2010As of 31 December

2009 Change

No. of Kappa stores 3,751 3,511 +240

18

<25 Retail stores

25 to 50 Retail stores

50 to 100 Retail stores

>100

Retail stores

JV with GX Retail Group

RegionNet

Open

Northern 145

Central 35

Southern 59

Net Openings by Region

Fujian

(157)

Tianjin

(76)

TaiwanGuangxi

(51)

Guizhou

(65)

Hunan (137)

Jiangxi (77)

Anhui

(171)

Sichuan

(205)

Shandong

(236)

Hebei

(198)Shanxi

(75)

Gansu

(25)

Ningxia

(11)

Inner Mongolia

(72)

Jilin(118)

Qinghai (10)

Xinjiang

(48)

Tibet

(7)

Hainan

(29)

Shaanxi

(71)

Chongqing

(80)

Macao

(4)

Guangdong (294)

Beijing(149)

Yunnan (96)

Liaoning (209)

Jiangsu (237)

Zhejiang (323)

Shanghai(82)

Hubei (161)

Henan (118)

Heilongjiang

(159)

Sales Network Sales Network

—— Kappa Stores in ChinaKappa Stores in China

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Sales Network Sales Network

—— Online SalesOnline Sales

Online

sales

of

Kappa

products

grew

by

over 300% in 2010

With

joint

efforts

with

www.taobao.com,

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.

Design and DevelopmentDesign and Development—— R&DR&D

20

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

21

Design and DevelopmentDesign and Development—— Kappa PKappa P‐‐A.CA.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, 2010

22

Financial Review

Financial ReviewFinancial ReviewFinancial 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 HighlightsResults Highlights

2010 2009 ChangeFor the year ended 31 December

(RMB mn) (RMB mn) (%)

Sales 4,262 3,970 +7.3

Gross profit 2,546 2,399 +6.1

Operating profit 1,741 1,697 +2.6

Profit attributable to equity holders 1,464 1,460 +0.3

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 25.83 25.76 +0.3

25

Sales by Markets and BrandsSales by Markets and Brands

2010 2009 Change

For the year ended 31 December

(RMB mn) As a % of

total sales (RMB mn) As a % of

total sales (%)

China 3,650 85.6% 3,403 85.7% +7.3

–

Kappa

brand 3,633 85.2% 3,394 85.5% +7.0

–

RDK

brand 7.6 0.2% ‐ ‐ ‐

– Others 9.8 0.2% 8.8 0.2% +11.4Japan

–

Phenix, Kappa and

other brands

612 14.4% 567 14.3% +7.8

Total sales 4,262 100.0% 3,970 100.0% +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 2010

26

Kappa Brand in China MarketKappa Brand in China Market

––

Sales Breakdown by ProductsSales Breakdown by Products

Accessories

3.4%(4.0%)

Apparel

74.8%(75.9%)

Footwear

21.8%(20.1%)

790.9133.9

123.5

2,718.12,577.6

682.8

2009 2010

5.5%

15.8%

7.7%

3,394.33,632.5

2010

Apparel

Footwear

Accessories

RMB mn

For the year ended 31 December 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%).

Gross Profit Margin by Markets and ProductsGross Profit Margin by Markets and Products


(%) (%) (% pt)

China 62.4 63.0 ‐0.6–

Kappa brand 62.4 63.1 ‐0.7– RDK Brand 68.0 N/A N/A– Others 44.9 24.5 +20.4

Japan 43.9 45.2 ‐1.3The Group overall 59.7 60.4 ‐0.7

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%pt27


(%) (%) (% pt)

Apparel 64.4 65.3 ‐0.9Footwear 55.4 54.5 +0.9Accessories 64.8 63.9 +0.9

Overall 62.4 63.1 ‐0.7

China ‐

Kappa brand


(%) (%) (% pt)

– A&P expenses

(% of sales)

9.3 7.4 +1.9

– Staff cost

(% of sales)

4.6 4.6 ‐

– Product R&D cost

(% of sales)

2.8 2.3 +0.5

Expenses ratios to salesExpenses ratios to sales

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

China MarketChina Market

––

Working Capital ManagementWorking Capital Management

4544

2009 2010

Inventory TurnoverInventory TurnoverDay


37

24

2009 2010

Day


6561

2009 2010

Day


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

29

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

As at 31 December

2010As at 31 December

2009

% %

Current 75 63

1 ‐

30 days 21 31

31 ‐

120 days 4 6

Total 100 100

A/R Ageing Profile

2010 2009For the year ended 31 December

(RMB mn) (RMB mn)

Net cash generated from operating activities 1,444 1,485

As at 31 December

2010

As at 31 December

2009

(RMB mn) (RMB mn)

Cash & bank deposits 5,028 6,127

Investment in treasury products* 1,522 402

Bank balance and treasury products held 6,550 6,529

Current assets 7,441 7,073

Current liabilities 872 552

Net assets 7,515 7,354

Maintain Strong Financial PositionMaintain Strong Financial Position

30

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

*

Included

investments

in

treasury

products

issued

by

MOF,

PRC

and

principal‐guaranteed

treasury

products

issued

by

major

commercial banks in the PRC

31

Return to ShareholdersReturn to Shareholders


(RMB cents) (RMB cents) (RMB cents)

Dividends per share

–

Interim paid 4.16 3.82 +0.34

– Special Interim paid 4.16 1.27 +2.89

– Final (proposed) 3.59 3.91 ‐0.32

– Special final (proposed) 6.17 9.04 ‐2.87

Total 18.08 18.04 +0.04

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

9.76

32

Strategies & Future Plans

33

2011: A year of adjustment2011: 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

34

LongLong‐‐term Strategiesterm Strategies

Store / network management(Optimize and expand network)

Retail management

Supply chain(Improve supply chain

efficiency)

Process, org and others(Strengthen process/mgmt

discipline)

Brand(Clarify brand positioning

and strengthen equity)

Brand(Clarify brand positioning

and strengthen equity)

Product(Leverage Phenix platform)

Customer(GX relationship)

management(Basic customer

mgmt)

Improve basic competency Build advantages

35

LongLong‐‐term Strategiesterm Strategies

Strengthen brand identity and product

differentiation

Store network optimization

and geographic expansion

Brand diversification

Optimize product creation

Expand footwear products

Develop online sales platform

Shift focus from sell-in to sell-

through

Strengthen Brand IdentityStrengthen Brand Identity‐‐

Clarify Kappa brand positioningClarify Kappa brand positioning

36

Kappa is a color offer

• Full of life, passion,

richness of youthful

energy, in‐motion,

expressive, impulse,

bold, warmth,

open‐minded,

positive, optimistic

• Unisex‐to‐feminine

relevance

• An expression of

youthful optimism

or compensation for

the lack of it

(Focus group Feb.

2011)

“Live the creative beauty of sport”

The aesthetics and

creativity of sportsFashionable

casual look

Art as action expression

Romantic and artsy

• 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

Objectives

Expand Range to Street and FashionExpand Range to Street and Fashion‐‐

Introduction of C19Introduction of C19

Inspired by the colorful street fashion

and bicycle component

38

Form free

Engineered function Sexy

Exercises

Expand Footwear ProductsExpand Footwear Products—— Introduction of Introduction of ““CurvesCurves””

Optimize store portfolioOptimize store portfolio

39

Strategize store portfolio managementStrategize store portfolio management POS development and expansionPOS development and expansion

Refine store opening criteria

and support policies

Develop, manage and

control of store opening plans

Develop and execute granular store

footprint

1

2 2

Develop strategic alliance with

department stores and developers

Strengthen retail premium location of

Tier 1 cities

1

4

Enlarge average store size3 Apply consumer/product segmentation

to store segmentation and grasp

opportunities in casual space

3

Progressively replace low

performing/inadequate stores

4

40


‐‐

Store segmentation based on systematic Store segmentation based on systematic

consumer/product segmentationconsumer/product segmentation

Sports Fashion

Consumer /

Product

segmentation

Store

segmentation(examples)

Sports floor

Low tier city store focus

Casual floor

Sports FashionCasual

ParticipantParticipant LoverLover Sports inspireSports inspire Brand drivenBrand driven Classic smartClassic smart FollowerFollower Early adaptorEarly adaptor

•

Professional

athletes•

Sports

lovers•

Requires

basic

function

sportswear

•

KAPPA

Fans•

Simple and

clean style•

Edgy

fashion

lovers

•

Trend

followers

41


‐‐

New retail formatNew retail format

RETAIL OBJECTIVERETAIL OBJECTIVE 2012 NEW LOOK in Retail2012 NEW LOOK in Retail

2006

2009

EVOLUTION

INN

OV

ATI

ON

• More IMPACT on brand voice

• More CREATIVITY in space

•More ATTRACTIVE &

PRODUCTIVITY on product

Shift Focus From SellShift Focus From Sell‐‐in to Sellin to Sell‐‐throughthrough

42

Zero

control

on the

POS

Full

control on

the POS

•Move from "pure wholesale" to "managed retail”•Leverage GX partnership•Special focus on sub‐distributors

Purewholesale

Level of

control on

the POS

Where we are

now

Where we want

to be in the

future

•

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

Franchise Retail

"Managed retail"

43

Brand DiversificationBrand 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 2011

http://www.phenix.jp/

Optimize Product CreationOptimize Product Creation

44

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

Expand Kappa’s official online store to a greater number of internet channelsEstablish

iKappa

website:

a

multi‐purpose

platform

covering

online

sales,

marketing,

customer service, brand education, feedback on news products and

a forum for Kappa

fans

Develop Online Sales PlatformDevelop Online Sales Platform

45

Expand the online sales business leveraging

on the investment in Mecox Lane Limited

46

Open Forum

Documents

2010 Annual Results Announcement · Club Borussia Dortmund ... series, advertisement on the SNS public homepage and dissemination through 163 mailbox ... Shandong (236) Hebei (198)