PowerPoint Presentation · 2015. 4. 20. · 5 2014 2015 China Dongxiang’s Radical Innovation A significant revival in the industry DX’s Radical Innovation 1. After going through

2015Corporate Presentation

16 April 2015

2

Disclaimer

Cautionary Statement Concerning Forward-Looking Statements

These forward-looking statements include, among others, statements relating to the future financial

performance, operating results and business prospects and strategy and other similar matters. These

forward looking statements are based on management‟s current expectations and assumptions about

future events, which are inherently subject to uncertainties, risks and changes in circumstances that are

difficult to predict. Statements that are not historical facts, including statements about HSBC‟s beliefs

and expectations, are forward-looking statements. Words such as „expects‟, „anticipates‟, „intends‟,

„plans‟, „believes‟, „seeks‟, „estimates‟, „potential‟ and „reasonably possible‟, variations of these words

and similar expressions are intended to identify forward-looking statements. Forward-looking

statements involve inherent risks and uncertainties. Readers are 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.

The Company makes no commitment to revise or update any forward-looking statements to reflect

events or circumstances occurring or existing after the date of any forward-looking statements. Market

trends and factors that are expected to affect the Company's results of operations are contained in the

“Industry Review and Prospects" and "Business Review and Prospects" and "Financial Review" and

other sections.

Agenda

Industry Review and Prospect

Business Review and Prospect

Financial Review

Q&A

3

Industry Review

and Prospect

5

2014 2015

China Dongxiang’s Radical Innovation

A significant revival in the industry DX’s Radical Innovation

1. After going through twists and turns and surviving the

cold winter, the sportswear industry as a whole was

experiencing a more apparent recovery in 2014, with

sportswear brands generally reporting stable retail-end

sales and improved results, as the destocking stage was

nearing its end following a general restructuring of the

industry, while store closures also decelerated on the

back of gradual improvements in sales channel

distribution and management control.

2. The industry remained subject to the after-impact of

large-scale destocking and challenges arising from

corporate transformation and realignment. Meanwhile, the

ongoing expansion of foreign “fast fashion” brands and

the relentless expansion of the e-commerce market

continued to create increasing pressure of market erosion

upon offline physical outlets of brand companies.

Enhance brand value and proprietary products

Increase number of retail stores and improve

operating efficiency

Further implementation of retail efficiency

management

E-commerce transformation

Supply chain optimization

Improve and optimize internal structure and

operational flow

6

E-Commerce Transformation

Retail Efficiency Management

Supply Chain OptimizationImprove and Optimize Internal Structure and

Operational Flow

Brand Value

Number of Stores and Operating Efficiency

New BusinessOperating

ModelManagement

Proprietary Products

Strengthen core competitiveness Create competitive advantages

China Dongxiang’s Radical Innovation

Business Review

and Prospect

Brand + Product

10

Brand Positioning

Rebellious and

high-profile

Full of passion

Back to Back

22-35 age group

1st and 2nd tier

cities

Fashionable

sports products

Fit, slim and 3D

cutting

High color

saturation

People who are socially active,revolutionary,avant garde andlive with passion

In-depth streamlining of its brand attributes to clarify its

brand positioning, brand image, target consumers and product design.

11

Promotion channels: New media + Internet + Fashion media

Value-added series

In sync with conventional promotion

Online Promotion

12

Upgrade retail store image

Retail Support – promotions and displays at store level

Roll out store promotion activities

Offline Promotion

13

The Group continued to conduct its brand and event promotion through a combination of online and offline channels and

leveraged its vigorous cooperation with social media as well as fashion and sports media to publish product and brand

information, achieving notable results in terms of the enhancement of brand exposure and reputation.

Promotion Overview

Product

15

+ New Product Planning Model

Currently adopting the new roadmap for branding + retailOur new plan is to leverage our brand and stay close to our retail stores and market The development roadmap is transformed to “Regular development + Ongoing development”, which is faster and more efficient than the traditional way

Example: 14FW knitted trousers

Through speeding up ongoing development in later stage and putting it into

mass production in 14FW, we have seized more business opportunities; it is

the most efficient way to capture the market demand at the retail stores.

The product quantity under ongoing development accounted for 18% of

replenishment orders and 7% of total production. This practice brought us

more business opportunities and becomes an important component of our

business in the future.

Thinking roadmap : The New „Brand + Retail‟ Planning Model

Brand Retail

Total

Production

Quick

Replenishment

Rolling

Orders

Replenishment Volume（14FW VS 13FW knitted trousers）：171%

Percentage of Replenishment Order： 40%

Percentage of Rolling Order：7%

60%

Cycle：1

Cycle：1/6

Cycle：1/3

7%

33%

16

13FW 14FW 15FW

15FW14FW13FW

ASP

Under the new

thinking roadmap, we

strive for better

product quality

instead of quantity. By

comparing 13FW,

14FW and 15FW, the

number of SKU has

decreased

significantly.

With the improved

quality and design of

products, the unit

price of products has

been raised

accordingly. We aim

at providing more

valuable and stylish

products to

consumers, as well

as bringing better

return for the

company.

13FW 14FW

GP margin (New Products)

Wholesale

Retail

Though the number of SKU decrease, the

gross margin for new products continued to

increase. The gross margin of the company

maintained a stable growth as we focused on

enhancing the quality and look of our

products, together with an increment in ASP.

Thinking roadmap : The New „Brand + Retail‟ Planning Model

Upgrade brand value and improve product quality

Number of SKU

17

Product Core Competitiveness

Proprietary Products

Immerse and Upgrade of Signature Products

Differentiation Upgrade and

Development of Ongoing Products

Product

Look and Quality

Matching of fabric, craftsmanship and supplementary

fabric

Support and Matching Supply Chain Resources

Design Thinking Process

18

702703701701601602

Immerse customers with our

signature products

19

Immerse customers with our

signature products

Brand + Retail

Mid single digit net increase of store openings

Number of Stores

29%

68%

3%

分公司

迈盛悦合*

加盟

A

21

1. In 2014, the Group re-opened all its sales channels and had over 1,200 stores as of end of the year.

2. Certain numbers of low efficient stores were replaced in 2014, as a result the average store sales of new stores

opened compared to the stores closed was increased by 23%.

As of 31 December 2014

2014 Sales Channel Nature

Franchise

Max Sports

Subsidiaries

33%

27%

30%

10%

1级城市

2级城市

3级城市

4级城市

As of 31 December 2014

2014 Sales Channel

distribution

Cities

1st tier

2nd tier

3rd tier

4th tier

Brand + Retail- Channels

For the year ended 31 December

Brand + Retail- Retail-end Operational Data

22

1. Same store sales for 2013Q4 was a low single digit increase, and the same store sales in 2H2014 was a high

single digit.

2. There is also an improvement in terms of inventory over sales ratio and retail discount at the retail end.

B

High

Single

Digit

Mid-

Single

Digit

Low-

Single

Digit

Same Store Sales

Inventory/Sales Ratio

Retail Discount

• Develop retail database for product management systems• Improve product turnover in retail stores

• Strengthen our controllability on the product management and operations

Light Assetwholesale

model

Old

DongXiang

Post-Reform

New

Dongxiang

Channels Management: Closely connected to

customers, by

targeting customers

from various regions

and channels, to

establish distributors

channels,

franchising and other

sales model;

Merchandise

Management:

Provide various data

analysis and control

for sales of products

(including production

pipeline, sales, sold-

out rate, inventory

etc.)

Sales Support

Management: By

targeting different

needs from various

terminals to

establish and

execute sales

training, store

displays and retail

promotion and etc.

Dealership+

Franchise chains

Self-owned subsidiaries

“Retail Management"

23

Brand + Retail - Retail Management C

24

Market Demand

量化产品Product

classification &

distribution

Ide

nti

fic

ati

on

of

reg

ion

li

fe c

yc

le

Adjustment of trade order, production &

delivery

Operation Model of Product

Management and ControlC1Brand + Retail -

The Effective Combination of

Product and Sales Channel

Formulate a reasonable store classification standards in

order to align with product classification

25

Channel

Class

Product

Class

A+ stores

A stores

B stores

C stores

Brand

Promotional

Class

C1Brand + Retail -

26

Product Life Cycle of Knitted TrousersCentral

South

North

Northeast

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8月 9月国庆 10月 11月 12月 1月 2月 3月 4月五一 5月 6月 7月 8月

240g以下销量 240-280g以下销量 280-320g以下销量 320g以上销量

针织下装52周销售曲线图--东北区

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针织下装52周销售曲线图--南区

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针织下装52周销售曲线图--北区

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240g以下销量 240g以下销量 240-280g以下销量 280-320g以下销量

针织下装52周销售曲线图--中区

Central

Northern

Southern

Northeastern

The product seasonality cycleis first defined by fourdifferent seasons and thesuitable sales cycle of eachproduct in different region isidentify by the products’own life cycle in variousregions.

Product Life Cycle

Management ModelC1Brand + Retail -

27

Store Replenishment Mechanism

Ongoing Replenishment

Orders

Ongoing productDevelopment

Store Replenishment Mechanism

is adopted by targeting Product

Management and Control

Ongoing replenishment orders

based on actual sales at retail-

end

Ongoing product development

based on actual sales trend and

feedback from retail-end

Important Adjustment Segments

in Product ManagementC1Brand + Retail -

28

Brand + Retail – Replenishment Order Percentage

14SS 14FW 15SS

Pre-order Replenishment Order

14SS 14FW 15SS

Pre-order Replenishment Order

Replenishment Order Percentage for Apparel

Replenishment order for 14FW apparel accounts for 24%, 15SS accounts for 14%

Replenishment order for 14FW footwear accounts for 17%， 15SS accounts for 34%

7% 24%14%

1%17%

34%

Replenishment Order Percentage for Footwear

29

Brand + Retail – Sales Trend at Retail-end

Knitted Trousers 13FW and 14FW Sales Trend at Retail-end

13FW

14FW

55%14SS

15SS

The retail-end sales for 14FW knitted trousers recorded 55% increase yoy

The retail-end aggregate sales for 14FW knitted trousers for week 1 to week 14 recorded 72% growth yoy

Knitted Trousers 14SS and 15SS Sales Trend at Retail-end

Aggregate Sales for week 1 to week 14 increased by 72% as compared to the same period last year

30

1. Continuous growth for Kappa sales fair results

2. The total amount of Inventory level is decreasing – new products and last-season products are the key components

of the total inventory as of 2014.

Brand + Retail – Sales Fair Orders & Inventory Structure

Mediumdouble-digit

growthLow

double-digit growth

Order from Sales Fair YoY Growth Inventory Structure

New

products

Old

products

Last-

season

products

31

原来模式现有模式

Future products

delivery under

wholesale model

Fixed cycle of

mass distribution

Delivery of store

replenishment

products

Direct delivery

of replenishment

orders

Flexible delivery in small quantity but high frequency

Delivery from factories

Cross and connected multi-way delivery

Original model Current model

Brand + Retail – Effective upgrade of Supply Chain

32

Sales via e-commerce accounts for approximately 15% of the Group‟s total

sales in China.

E-commerce channel has significantly adjusted and modified the sales

model from a brand retail perspectives. Through taking initiatives to adjust

the product structure and sales channels, the proportion of new product and

vintage product has been increased, as well as the sales via self-owned

retail. It has also enhanced our ability to identify and capture the consumers.

Sales from self-owned retail accounts for 40% of the total sales from E-

commerce, representing an increase of 19ppts from 21% in 2013. The sales

of future orders + vintage products + last-season products accounts for 81%

of the total sales of self-owned platform, representing an increase of 32% as

compared to 2013.

The retail discount for self-owned e-channel decreased from 58.4% to

56.9%, whereas the retail discount for wholesale e-channel decreased from

69.5% to 67.8%.

E-commerce channel has notably modified the efficiency of product and

self-owned retail stores, as well as enhanced the cooperation with different

platforms, leading to a breakthrough in the November 11th promotion day. It

also implies the greater influence and market share of e-commerce channel

in the future.

Sales of Kappa on Taobao and Tmall on Singles-

day in China

2015年

电商将继续延续2014年政策和方向，着重提升盈利能力

Year of 2015

To continue the e-commerce business

strategy established in 2014 with a focus on

profitability enhancement

Review of E-commerce Business in 2014

E-commerce Business

Sales from self-owned retail

accounts for 40% of the total

sales from E-commerce,

representing an increase of 19

ppts from 2013

Financial Review


2014 2013 Change

(RMB mn) (RMB mn) (%)

Revenue 1,262 1,414 -10.7%

Gross Profit* 640 681 -6.0%

Operating Profit 989 225 339.6%

OP Excluding One-off Gain 303 225 34.7%

Profit attributable to equity holders 915 210 335.7%

Gross Profit Margin* 50.7% 48.2% 2.5p.p

Operating Profit Margin 78.4% 15.9% 62.5p.p

OP Margin Excluding One-off Gain 24.0% 15.9% 8.1p.p

Net Profit Margin 72.5% 14.9% 57.6p.p

Basic earnings per share (RMB cents) 16.61 3.82 334.8%

Dividend Yield Ratio (Closing price as at 31 December) 9.9% 3.2% 6.7p.p

*before reversal of impairment losses of inventories

34

Financial Highlights

35

904 828

510434

0

500

1000

1500

2013年 2014年

中国区日本区

63.9%

JapanChina

2013 2014

RMBmn

1,2621,414

36.1%34.4%

65.6%

Footwear

25.6%

(23.1%)

Apparel

71.2%

(73.6%)

Accessories

3.2%

(3.3%)

2014735

529

169299

0

500

1000

2013年 2014年

批发零售

RMB mn

18.7%

81.3%

828904

36.1%

63.9%

Sales by channel – Kappa ChinaSales by market and brand Sales by product – Kappa China

Remark: Comparable figures for 2013 are shown in brackets

• The sales of China segments in 2014 was stabilized, putting a stop to the sliding revenue for years in a row, which was attributable

to 1) the Group keenly transformed its philosophy of sales from being passive to being active. We identified terminal sales

performance of each products and demands of consumer by analyzing sales data of retail stores on a regular basis, with an aim to

respond forthwith, maintain rolling order for fast-moving products for ensuring adequate supply for consumers; 2) our capacity of

design, research and development has been enhanced so as to introduce a broad range of products for addressing the demands of

young consumers, as well as to eliminate slow-moving products in due course for minimizing loss; 3) the net increase in number of

Kappa brand retail stores was 27 in China in 2014;

• The decrease in sales of Japan segment was mainly due to the significant depreciation in Japanese Yen, slow sales in Japanese

market and increase in sales return as compared with last year;

• In 2014, sales of Kappa in China segments via retail channels developed smoothly, as at 31 December 2014, the number of self-

owned retail stores operated by our subsidiaries reached 350, the proportion of corresponding sales increased from 18.7% to 34.6.

Wholesale Retail

20142013

Sales by Market, Channel and Product

211 170

288325

54% 53%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

0

100

200

300

400

500

600

2013年 2014年

56%

64%

36


China Segment SalesGross profit and Gross margin –

China Segment Kappa brand

392323

512505

0

200

400

600

800

1000

2013年 2014年

2H

1H

828904499 495

RMBmn

RMBmn

20132013 2014

2014


The revenue of China segment for 2014 decreased by 8.4% YoY to RMB828 million, reflecting a 17.6% decrease

YoY for the 1H of the year. The sales level remained unchanged in the 2H as the Group succeeded in stabilizing

sales through a range of business control measures that proved to be effective.

Gross profit margin for the China region remained stable, with a greater increase in the 2H of the year due to bigger

proportion of self-owned retail outlets and new products

1H Gross

profit Margin*

2H Gross

profit Margin*

2H

1H


Financial Highlights – Kappa brand China segment

37

Gross profit margin by market*Gross profit margin by product

– Kappa China*

58.9%

62.2%

50.7%

55.2%

63.1% 63.1%

57.2%

60.5%

50%

55%

60%

65%

2013 2014

Apparel Footwear

Accessories Kappa brand (Total)

55.2%

59.8%

35.7%33.4%

48.2%50.7%

30%

40%

50%

60%

2013 2014

China Japan Group


In 2014, gross profit margin of Kappa brand in China segment rose by 3.3 percentage points to 60.5%, which was mainly

attributable to higher profit margin of new products which are also taking up a higher proportion of total sales. This gross profit

margin increase was also due to the increased proportion of sales of subsidiaries of the Group;

In 2014, gross profit margin of Japan segment dropped by 2.3 percentage points, which was mainly due to increase in production

costs and increased discount offer for off-season inventory clearing.



Gross Profit Margin by Market and Product


2014 2013 Change

(RMB mn) (RMB mn) (%)

– Selling expenses* 153 112 36.6%

As a % of sales 12.1% 7.9% 4.2p.p

– Advertising and marketing expenses** 62 44 40.9%

As a % of sales 4.9% 3.1% 1.8p.p

– Employee salary and benefit expenses 143 153 -6.5%

As a % of sales 11.3% 10.8% 0.5p.p

– Product design and R&D expenses 45 48 -6.3%

As a % of sales 3.6% 3.4% 0.2p.p

* Selling expenses mainly include rental cost, management fee and trustee fee of self-owned retail stores, and all the costs directly related to terminal sales, including sales orders

cost, store POP design and production fee, as well as store promotions;

** Advertising and marketing expenses refer to expenses directly related to brand promotion, including all kinds of advertisement design, production and placement expenses, and

also sponsorship and brand promotion activities expenses.

Expenses Analysis

39

Trade ReceivablesInventory Trade Payables

92 133

139

141

0

100

200

0

100

200

2013 2014

235 200

10396

0

100

200

0

100

200

300

2013 2014

5584

52

76

0

50

100

150

0

50

100

2013 2014

As of 2014, the value of inventory of the Group in China segment increased but the inventory structure has improved

in which there is an increase in proportion of new products.

As of 2014, the balance of trade receivables of the Group remained stable, a decreasing trend in trade receivables

turnover days was recorded

RMBmn

Turnover Days

RMBmn

Turnover Days

RMBmn

Turnover Days

For the year ended 31 December For the year ended 31 December For the year ended 31 December

Inventory, Trade Receivables and Trade Payables –

China Segment

40


2014 2014

(RMB mn) (RMB mn)

Cash and bank balance 2,546 1,097

Treasury products 2,080 3,551

Less: bank loans - -

Net cash and bank balance

and treasury products4,626 4,648

Maintain Solid Net Cash Position

41

As at 31 December 2014

Investment Date of Commitment Balance (RMB mn)

Yunfeng E-Commerce September 2011 3,229

CITIC Mezzanine September 2011 238

Yuanxin Dongchao September 2014 165

Shanghai Panxin September 2014 202

Others 746

Total 4,580

The Group has stably put forward different investment projects with well-established

investment team and investment risk management and control system for

maximizing profits and returns for our shareholders

Investments

42

RMB centsFor the year ended 31 December

2014 2013

Basic earnings per share 16.61 3.82

Interim dividend and

special dividend per share1.22 1.17

Final dividend and

special dividend per share10.35 1.49

Annual payout ratio 70% 70%

The Group has maintained high dividend payout ratio

for maximizing the benefit of shareholders

Dividends for 2014

44

Email

Telephone

Fax

Website

AddressBuilding 21, No. 2 Jingyuanbei Street, Beijing Economic

and Technology Development Zone, Beijing, China

Investor Relations Contacts

Documents

PowerPoint Presentation · 2015. 4. 20. · 5 2014 2015 China Dongxiang’s Radical Innovation A significant revival in the industry DX’s Radical Innovation 1. After going through