FY2011 Annual Results Presentation - TodayIR · Presentation regarding past trends or activities as a representation that such trends or activities will continue in the future. The

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FY2011 Annual Results

Presentation March 2012

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 year ended 31 December 2011. 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. In particular, neither this Presentation nor the information contained herein may be distributed, taken or transmitted in or into the PRC, the United States, Australia, Canada or Japan, in whole or in part. The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Failure to comply with this restriction may constitute a violation of applicable securities laws. This Presentation shall not constitute, and should not be construed as, an offer or form part of any offer to sell or a solicitation of an offer or form part of any offer to buy or subscribe for the Company's securities nor shall there be any sale of such securities in any state or country in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or country. No securities of the Company have been, or will be, registered under the US Securities Act of 1933, as amended (the “US Securities Act”) or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and the applicable securities laws of any state or other jurisdiction of the United States. Neither shall this Presentation constitute, and be construed as, an offer or form part of any offer to sell or a solicitation of an offer or form part of any offer to buy or subscribe for the Company‟s securities in Hong Kong. No part of this Presentation shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto. This Presentation contains certain forward-looking statements that reflect the Company‟s current beliefs and expectations about the future. These forward-looking statements involve known and unknown risks, uncertainties and are based on a number of assumptions about the Company‟s operations and other factors, many of which are beyond the Company‟s control, and accordingly, actual results may differ materially from those expressed or implied by such forward-looking statements. You should not take any forward-looking statements contained in this Presentation regarding past trends or activities as a representation that such trends or activities will continue in the future. The information and opinions in this Presentation are provided as at the date of this Presentation and are subject to change without notice and accuracy is not guaranteed. The Company do not guarantee that the assumptions underlying forward-looking statements, opinions or views are free from errors nor do they accept any responsibility for the future accuracy of the assumptions, opinions and views expressed in this Presentation or the actual occurrence of the forecasted developments. The Company accept no obligation to update any forward-looking statements set forth herein or to adjust them to future events and/or developments. You should not place undue reliance on forward-looking statements, which speak only as of the date of this document. The information contained in this Presentation has not been independently verified. This Presentation does not purport to provide a complete description of the matters to which it relates and 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 contains information and data relating to the industry in which the Company operates, which the Company has derived from third party sources without independent verification. The Company cannot ensure that these sources have compiled such information and data on the same basis or with the same degree of accuracy or completeness as are found in other industries, and you are cautioned not to place undue reliance on such information and data. The information and opinions in this Presentation are given in summary form and do not purport to be complete. No representation, warranty or undertaking, express or implied, is or will be made in, or in relation to, and no responsibility or liability (including, without limitation, any liability in negligence) is or will be accepted by the Company or any of their respective subsidiaries, subsidiary undertakings or holding companies (where appropriate), or any of their respective affiliates, and their respective directors, officers, employees, agents and advisers as to, or in relation to, this Presentation or the fairness, accuracy, correctness or completeness of the information or opinions contained herein or any other information, whether written or oral, made available to any interested party or its advisers, and any liability therefore (in negligence or otherwise) for any loss or damage whatsoever arising from the use of the information contained in this Presentation or otherwise arising in connection therewith is hereby expressly disclaimed. By attending the Presentation to which this document relates or by accepting this document, you agree to be bound by the foregoing provisions, restrictions, limitations and conditions and, in particular, you have represented, warranted and undertaken that you have read and agreed to comply with the contents of this notice.

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Presentation Team

Mr. Zhao Yan

Executive Director

Mr. Dickson Lai

Chief Financial Officer

Mr. Shi Hongliu

Founder, Chairman and Executive Director

4

Result Highlights

Gross margin expanded to 62.2%, up 13.5 bps

Operating margin reached 45.6%, up 12.5 bps

Net margin reached 39.4%, up 12.3 bps

Revenue reached RMB695.2 million, up 99.9% y-o-y

Profit from continuing operations rose significantly by 190.0% to RMB273.7 million

The number of Hosa retail outlets in China has reached 1,212 by the end of

year 2011, operated by 29 distributors along with their sub-distributors

Successfully listed on HKEx on December 16, 2011, and raised fund at a net of

RMB488.6 mm

Basic earnings per share increased by 120.0% to RMB0.22 and the Board proposed

to declare a final dividend of HKD8.4 cents per share for the year

5

Company Strengths

Effective brand

promotion through

professional and

targeted marketing

channels

Capabilities to swiftly

respond to market trends

using streamlined design

and production workflow

Experienced and

committed

management team

A leading indoor

sportswear enterprise

in China

Efficiently managed

nationwide sales and

distribution network

Comprehensive

portfolio of high-quality

indoor sportswear

products

1

2

3

4

5

6

6

I. Company Overview

II. Financial Review

III. Future Strategy

IV. Appendix

7

(1) In terms of 2010 ex-factory domestic sales according to Frost & Sullivan

(2) As of December 31, 2011

(3) FY2011 revenue breakdown by product

Focused and Specialized Indoor Sportswear

Product Portfolio(3) Extensive Recognitions

1,212 Retail Outlets

covering 28

Provinces,

Autonomous Regions

and Municipalities (2)

Strategically Deployed and Efficiently Managed

Distribution Network

Unique Mid-high End Brand Positioning - the

Largest Indoor Sportswear Brand in China(1)

A symbol for ACTIVE, FASHIONABLE and HEALTHY lifestyles

More than 60 retail outlets

40-60 retail outlets


Less than 20 retail outlets

Accessories Sports Underwear

Fitness Wear Swimwear

Company Overview

- Pioneer in China Indoor Sportswear

34.1%

38.9%

4.7%

22.3%

Yunnan

(3)

Guangxi

(14)

Guizhou

(16)

Zhejiang

(71) (31)

Shaanxi

(36)

Shanxi

(32)

Jilin

(13)

Heilongjiang

(15)

Sichuan

(69)

Hubei

(50)

Fujian

(46)

(66)

Henan

(69)

Hebei (39)

Liaoning

(51)

Tianjin (26)

Jiangsu

(66)

Hainan

(2)

Guangdong

(99)

Inner Mongolia

(14)

Hunan

(26)

Jiangxi

(21)

Anhui

(34)

Beijing

(178)

Chongqing

Shandong

Shanghai

(114)

Ningxia (6)

Qinghai (2)

2011 – Nominated for the “Jack 7th China Apparel Brands Annual Award''

2010 – „„China‟s Top Ten Innovative Sports Products‟‟ for the Company‟s

tight-fitting fitness wear

2006 – 2010 „„Special Contribution Award for China‟s Knitting Industry‟‟

2009 – „„Top Ten Swimwear Brands‟‟

2008 – 2010 „„China‟s 500 Most Valuable Brands‟‟

2008 – „„Exemplary Brand in China‟s Swimwear Industry‟‟

8

Strategically Deployed Distribution Coverage (1)

Hosa’s efficiently managed distribution network and strong presence in 1st tier cities in China well

positions Hosa to further expand its sales coverage in growing markets

(1) As of December 31, 2011

(2) Hosa products are currently sold by a distributor on taobao.com and paipai.com which are subsidiaries of Alibaba and

Tencent, respectively

Diversified and Innovative Retail Channels

Pro

fessio

nal R

eta

il

Ch

an

nels

Dep

artm

en

t

Sto

res

Specialty Stores

Online Stores (2)

More than 60 retail outlets



Less than 20 retail outlets

Efficiently Managed Nationwide Sales and

Distribution Network

Yunnan (3)

Guangxi (14)

Guizhou

(16)

Zhejiang

(71) (35)

Shaanxi (36)

Shanxi

(32)

Jilin

(13)

Heilongjiang (15)

Sichuan

(69)

Hubei

(50)

Fujian

(46)

(66)

Henan

(69)

Hebei

(39)

Liaoning (51)

Tianjin (26)

Jiangsu

(65)

Hainan (2)

Guangdong

(99)

Inner Mongolia

(14)

Hunan

(22) Jiangxi

(21)

Anhui

(34)

Beijing

(178)

Chongqing

Shandong

Shanghai (114)

Ningxia

(6) Qinghai

(2)

9

Distributor /

Inventory

Management &

Control

Distributor

Selection

Criteria

Expansion

Planning

Distributor Network Management

Distributors are required to

strictly follow and to manage

and make sure sub-distributors

follow Hosa’s standard sales

management manual and

contract terms on:

Pricing policies

Retail outlet design and

promotional materials

Providing business reports

for Hosa’s review

Work closely with distributors in jointly developing a structured

expansion plan

All new retail outlet openings need to be pre-approved

Hosa implements a strong distribution network management system that enables effective regulation

of the expansion, distribution and image of its network and products

Sub-

Distributors

Retail Outlets

Distributors

Dir

ec

tly M

on

ito

r

Directly manage

and monitor

Sales Channel Local Recognition and

Business Network

Managerial

Capabilities

Capital Resources Industry and Retail

Experience

Ability to Secure

Appropriate Retail

Locations

Only allow return

of products in the

case of quality

defects

Bu

sin

ess r

ep

ort

ing

B

us

iness r

ep

ort

ing

Perform frequent

and random store

visits

Provide guidance

and sales support

Provide regular

training to ensure

uniform store

image and service

Manage and monitor

Manage and

monitor

Manage and monitor

Efficiently Managed Nationwide Sales and

Distribution Network (Cont’d)

10

Hosa fitness gyms, professional

stadiums, recreational facilities

Show case own products via fitness

trainer demonstration

Build professional brand image of Hosa

Hosa actively promotes its brand as the premier brand for indoor sportswear products

via creative and diverse marketing channels

Creative and targeted advertising

efforts enables Hosa to effectively

further extend market reach to a

broader target consumer base

Event

Sponsorship

International, national and regional

Pageants, sports aerobics contest, five-

minute fitness program

Promotes brand name and exhibits

products

Media

Advertising

Onsite

Marketing

Effective Brand Promotion Through

Professional and Targeted Marketing

Channels

11

Latest Fabric Technologies Special Design, Cutting and Sewing Process

Nylon and Lycra

combination fabrics

Capabilities to Swiftly Respond to Market Trends

Using Streamlined Design and Production

Workflow

Warp-knitted

Stretch Fabrics Coolmax

Bamboo

Charcoal

Modal

Real-time Market

Data from Multiple

Channels

Leveraging of

External Expertise

Accumulated

Proprietary

Expertise and

Know-how

Long-term

Cooperation with

Fabric Suppliers

Concerted In-house

R&D Teams

General design

Technology R&D

Swimwear

Fitness wear

Sports underwear

One Stop Shop Experience for FUNCTIONAL, COMFORTABLE and FASHIONABLE Main Products

Complemented by a Wide Range of Accessories

12

I. Company Overview



IV. Appendix

13

505 522

666

1,212

FY2008 FY2009 FY2010 FY2011

(RMB mm)

204.6

159.2

347.8

695.2

34.1%

41.3%

29.2% 44.4%

22.3%

21.2%

42.7%19.7%

38.9%

32.1%

26.7%

33.2%

4.7%

5.4%

2.7%

1.4%

FY2008 FY2009 FY2010 FY2011

(1) From continuing operations

Number of Retail Outlets Net Profit (1) Revenue (1)

28.2 28.6

94.4

273.7

FY2008 FY2009 FY2010 FY2011

(1)(1)(RMB mm)

Swimwear Fitness Wear

Sports Underwear Accessories

Due to decrease in

overseas sales as

well as adjustment

of product mix

Accelerated Growth Backed by Maturing

Business Model

14

Solid Margin Expansion and Significant

Profitability Growth

54.6 53.5

14.6

154.9

429.7

9.47.7

41.4% 42.7%

62.2%

30.4%

52.2% 60.2%

28.5%27.8%

10.6%

62.2%

39.5%

48.7%

FY2008 FY2009 FY2010 FY2011

GP (Domestic) GP (Overseas)

GP Margin (Domestic) GP Margin (Overseas)

GP Margin (Group)

2.9

115.1

29.927.6

317.2

33.1%

18.8%

13.5%

53.4%

FY2008 FY2009 FY2010 FY2011

Operating Profit Operating Margin

Operating Profit and

Operating Margin (1)

(RMB mm)

Gross Profit and Gross Margin (1) Net Profit and Net Margin (1)

(RMB mm)

94.4

28.628.2

273.7

27.1%18.0%

13.8%

39.4%

FY2008 FY2009 FY2010 FY2011

Net Profit Net Margin

(RMB mm)

(1) From continuing operations; Gross margin, operating margin and net margin are calculated by gross profit, operating profit

and net profit divided by revenue respectively

Decreasing

proportion of

oversea sales

drives margin

expansion

15

106.8

61.6

128.3

183.4

17.4

14.0

20.6

32.5

16.7

8.8

262.6

19.4

12.1

37.9

1.5

10.1

8.5

178.4

96.3

142.4

51.3%

37.8%

60.5%

69.6%

FY2008 FY2009 FY2010 FY2011

24.4 23.7 29.1

65.310.7 10.0

120.4

55.1

26.7

55.8

33.835.1

17.1%

21.2%

16.1%

17.3%

FY2008 FY2009 FY2010 FY2011

Administrative ExpensesSelling & Distribution ExpensesAs % of Revenue

Competitive Cost Structure

(RMB mm) Due to greater economics of

scale and transformation to

distributorship model;

increase in 2011 due to one-off

IPO expenses

SG&A (1) COGS (1)

(RMB mm) Due to increased sales

of higher margin

products and

greater economies of

scale

(1) For continuing business

Procurement cost of finished products Manufacturing overhead Labor Raw material As % of Revenue

16

Sports Underwear (1)


32.7 41.7

97.9

232.9

28.9

45.5

27.1

4.4

41.8%46.3%

58.8%64.8%

28.4%

25.8%

16.5%

59.4%

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic) Revenue (Overseas)


(RMB mm)

Accessories (2)

(RMB mm)

(RMB mm)

(RMB mm)

Note: Gross margin is calculated by gross profit divided by revenue

(1) Hosa did not have any overseas sports underwear sales

(2) Hosa did not have any overseas accessories sales in 2011

26.568.4

154.8

4.8

5.4

41.8

45.6

45.5%50.0%

66.9%

45.2%

67.7%

7.0%

35.9% 29.0%

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic) Revenue (Overseas)


0.50

2.9 4.0

18.9

32.417.1%

65.4%

55.4%59.3%

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic) GP Margin (Domestic)

54.5 52.9111.6

270.3

37.2%40.4%

57.0%

47.1%

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic) GP Margin (Domestic)

Improving Profitability Across All Segments

Driven by Wholesale Discount Decrease, Product

Mix Adjustment and Decrease in Oversea Sales

17

140250

703

946

21.117.4

34.226.9

FY2008 FY2009 FY2010 FY2011

Volume ('000) ASP (RMB)

1,440 1,357

2,016

3,342

37.9 39.055.3

80.9

FY2008 FY2009 FY2010 FY2011


3,444

613

1,428

2,104

51.1 51.7

73.8

25.4

FY2008 FY2009 FY2010 FY2011


Sports Underwear


2,1712,574

4,0023,686

64.435.8

27.427.6

FY2008 FY2009 FY2010 FY2011


Accessories

Increasing pricing power due to the change of product mix

and positioning towards premium products

Sales Volume and ASP by Operating

Segments

Due to decrease

in oversea sales

18

Debt Profile

39.0

126.9

98.8

0.0

FY2008 FY2009 FY2010 FY2011

(RMB mm)

(1) Calculated using total bank borrowings and bills payables divided by total assets

(2) Net debt is defined as the interest bearing debt, less cash and equivalents

(3) Excludes pledged bank deposits of RMB10.3mm, RMB13.2mm, RMB37.9 mm for FY2008, FY2009 and FY2010 respectively

(4) EBITDA is adjusted for other revenue and other net income/loss

Improving Credit Profile Interest Bearing Debt

(RMB mm)

Cash and Cash Equivalents(3)

48.8%

33.0%

6.0%

38.2%

FY2008 FY2009 FY2010 FY2011

92.2%

5.0%23.2%

FY2008 FY2009 FY2010 FY2011

3.60x

0.13x

0.76x

FY2008 FY2009 FY2010 FY2011

Gearing Ratio(1)

Net Debt to Equity Ratio(2)

Net Debt to EBITDA Ratio(2)(4)

17.6 15.683.8

635.6

FY2008 FY2009 FY2010 FY2011

Due to purchases

of more raw materials

at relatively lower

prices

All interest bearing debt of the company were short-term and

due within one year for FY08- FY10

Due to purchases


at relatively lower

prices

Net Cash

Net Cash

19

87

253

123105

FY2008 FY2009 FY2010 FY2011

50

9499

104

FY2008 FY2009 FY2010 FY2011

88

180

113 120

FY2008 FY2009 FY2010 FY2011

(1) Calculated as the average inventory balances at the starting and ending divided by cost of sales from both continuing and discontinued operations and multiplied by 365 days (2) Calculated as the average trade

receivables balances at the starting and ending divided by revenue from both continuing and discontinued operations 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 from both continuing and discontinued operations and multiplied by 365 days (4) Before late 2007, Haosha Garments operated the Hosa indoor sportswear business and it

transferred relevant production facilities to Haosha Industry in October 2007. Haosha Industry, the Company’s core operating subsidiary, began to operate the indoor sportswear business afterwards and, therefore,

the starting balance of trade and bills receivables in 2008 was relatively low

Average Trade and Bill Receivables

Turnover Days(2)

Average Trade and Bills Payables

Turnover Days(3)

Average Inventory

Turnover Days(1)

(No. of days)

Due to the

expansion of

business operations

and the increased

purchases of raw

materials in 2009

(No. of days) (No. of days)

Due to purchases


at relatively lower prices

in the year of 2009

Due to the low

starting balance

in 2008 (4)

Hosa generally grants a payment term of

60 to 90 days to its distributors for credit

sales. For customers with good credit

history and larger operation scale, we

may grant a longer payment period of up

to 180 days

Hosa has been granted a credit period

from 30 days to 180 days by its suppliers

Working Capital Cycle

20

I. Company Overview


III. Business Strategies

IV. Appendix

21

Hosa’s goal is to solidify its leading position in the PRC indoor sportswear market

Business Strategies

Strengthen Hosa’s research, design and

development capabilities and optimize product mix

1

R&D

Solidify leading position by expanding Hosa’s

sales and distribution network

3

Channel

Further strengthen marketing activities to promote

Hosa’s products and enhance Hosa brand culture

2 Branding

Enhance Hosa’s operating and cost efficiencies by

implementing integrated supply chain and

information management systems

4

Operations

22

I. Company Overview



IV. Appendix

23

(RMB ’000) Years ended December 31,

2008 2009 2010 2011

Continuing operations

Turnover 204,643 159,169 347,787 695,168

Cost of sales (142,383) (96,253) (178,382) (262,552)

Gross profit 62,260 62,916 169,405 432,616

Other revenue 240 664 1,928 4,673

Other net income/(loss) 142 64 (379) 340

Selling and distribution expenses (24,431) (23,737) (29,122) (65,331)

Administrative and other operating expenses (10,655) (10,041) (26,695) (55,086)

Profit from operations 27,556 29,866 115,137 317,212

Finance costs (921) (2,640) (6,382) (1,544)

Profit before taxation 26,635 27,226 108,755 315,668

Income tax benefit/(expense) 1,596 1,382 (14,380) (41,937)

Profit from continuing operations 28,231 28,608 94,375 273,731

Discontinued operations

Profit from discontinued operations 734 79 4,135 -

Other net income - - 17,596 -

Other comprehensive income for the year - - - (638)

Profit and total comprehensive income 28,965 28,687 116,106 273,093

Summary Income Statement

24

Liabilities and Equity Assets

(RMB ’000) As at December 31,

2008 2009 2010 2011

Assets

Inventories 68,972 131,017 51,376 100,061

Trade prepayments and other receivables 96,818 170,060 290,925 226,657

Pledged deposits 10,290 13,240 37,920 13,171

Cash at bank and in hand 17,637 15,645 83,827 635,617

Total current assets 193,717 329,962 464,048 975,506

Property, plant and equipment 15,257 15,839 51,868 48,413

Construction in progress - 10,953 - -

Intangible assets 50 231 151 178

Lease prepayments - - 12,104 11,862

Deferred tax assets 1,723 3,279 5,277 7,857

Total non-current assets 17,030 30,302 69,400 68,310

Total assets 210,747 360,264 533,448 1,043,816

(RMB ’000) As at December 31,

2008 2009 2010 2011

Liabilities

Bank loans 39,000 126,880 98,800 –

Trade and other payables 79,819 112,769 128,966 149,777

Current taxation – – 8,291 16,808

Total current liabilities 118,819 239,649 236,057 166,585

Total liabilities 118,819 239,649 236,057 166,585

Equity

Paid in capital 60,839 60,839 121,500 13,027

Reserves 31,089 59,776 175,891 864,204

Total equity 91,928 120,615 297,391 877,231

Summary Balance Sheet

25

(RMB ‘000) Years ended December 31,

2008 2009 2010 2011

Net cash (used in) /

generated from operating activities (35,105) (68,445) 107,366 309,318

Net cash(used in)/generated from investing activities (14,965) (17,960) (66,787) 36,321

Net cash generated from / (used in) financing activities 59,594 84,413 27,603 206,151

Net increase / (decrease) in cash and cash equivalents 9,524 (1,992) 68,182 551,790

Summary Cashflow Statement

Documents

FY2011 Annual Results Presentation - TodayIR · Presentation regarding past trends or activities as a representation that such trends or activities will continue in the future. The