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2011 Interim Results Announcement

24 August 2011

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Disclaimer

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”.

Agenda

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Financial Review

Business Review

Strategies & Future Plans

Open Forum

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Business Review

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2

3

4

5

Inventory Buyback

Brand Portfolio

Brand Building and Marketing

Product Portfolio and R&D

Sales Network

Inventory Buyback and Immediate Actions

Inventory Buyback

Inventory Return Reduce Sell-in

Jointly determined return terms/ conditions with customers and sub-franchises

Return amount: RMB614M in wholesale value

Channels to resell

E-commerce Own factory outlets &

supermarkets

Other Kappa licenses

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6

Sales Network

Sales Network

Reformed Trade Term Policies and

Restructuring of Sales Network

Sales Network

Brought in Seasoned Talents

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Reformed Trade Term Policies and Sales Organization Restructuring

Set up a closer

partnership with

customers

Achieve retail

excellence with

customers

Conditional

rebate based on

KPIs

More targeted

incentive scheme

at key city level

New trade term policies to establish better control and incentives for retail

• Separate discount and rebate • Interactive target setting and

review by DX and customers • DX and customers to co-work on

improving ST • Will consider ST an important

factor for customer performance evaluation

• Rebate is conditional and based

on target achievement of relevant KPIs

• Add city-level rebate for strategic / key cities

Divide functions

for

better dedication

Build retail

management

capability

Establish

key account

management

Go closer to the

field

and customers

• 8 functional divisions based on sales and retail related requirements

• More resources in place for retail development and operation management

• Dedicated key account management to serve and support key customers

• Establish 5 regional teams to support execution of channel, product and retail management

New sales org to enable transformation from SI to ST focus

Xinjiang

Inner Mongolia

Heilongjiang

Jilin

Liaoning

Guangdong

Jiangsu

Taiwan

Hainan

Qinghai

Sichuan

Hebei

Henan

Hubei

Hunan

Yunnan

Gansu

Guangxi

Shanxi

Shannxi

Zhejiang

Fujian Guizhou

Anhui

Jiangxi

Tibet

Ningxia

Chongqing

Shandong

Beijing

Shanghai

Tianjin

North

East

South

West

Northeast Redefined 5 sales regions and

established 5 regional sales

teams to support the

execution of account, channel,

product and retail

management

New sales regions set up to

ensure more consistent

culture-based grouping

As of 30 June 2011, there

were 40 distributors directly or

indirectly operating 3,502

retail outlets

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Sales Network

Brought in Experienced and Professional Talents for Quick Expertise Buildup

Former National Commercial Excellence Director, GSK Consumer OTC & Healthcare China

• More than 20 years experience in sales and distribution management

• Rich and proven track record of

business turnaround via sales force restructuring and revitalization

Former VP of Brand Operations, adidas Sourcing, Ltd.

• More than 25 years of progressive responsibilities in the apparel industry

• Demonstrated successes in the areas of sourcing, product development and demand-chain management

Former Senior Manager, Retail Sales & Operation, G2000 (Apparel) Limited

• More than 20 years experience in retail management

• Extensive experience in apparel,

consumer goods and retail industries

James Li (李耀) VP of Sales

Alan Chamberlin VP of Supply chain

Dennis Chau (周廣慶) Director of Retail Excellence

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Product

Portfolio and

R&D

Kappa P-A.C Series & C19 Series

Curves Series & Soccer Series

Extensive Product Portfolio and R&D

Segment Product Range

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Design and Development

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Continued to develop products with both creativity and functionality by leveraging Japan development capabilities while cooperating with renowned international design houses in the U.S. (performance footwear), Japan and Europe (trends)

Joined hands with famous footwear design houses in Portland and Boston (U.S.) to enhance and bring more innovation to our footwear series (ex: launch of “Curves” in July, 2011)

K-series – first launch of the design team at The University of the Arts London targeted for young consumers

Continued to collaborate with Michael Michalsky in the development of the P-A.C. series

Design and Development

Key contributions in 1H 2011

follower

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Segment Product Range

12Q1 Apparel Product Strategy

high

middle

low

PRICE classic smart

sports inspire

lover participant early adaptor

brand driven

Soccer Logo

P.E.

Basic

C19

Sports Casual

PAC…

Spire

Gym Running

Tennis

Coolor

London

Sports Style Sports Performance

INSPIRATION

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Curves Series & Soccer Series

Soccer Series Curves Series

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Michael Michalsky continued to design

the new P-A.C. collection with the theme

“back to basics”

Product weight was trimmed by applying

lightweight fabric, while hollow fiber used

made products more breathable, more

washable and anti-wrinkle

Cooperated with print media such as

Hotpot, Trends Health and Modern

Weekly to launch a series of marketing

campaigns

P-A.C Series & C19 Series

P-A.C. Series C19 Series

Integrated street styles and sports

functions through the use of 3D cutting

and innovative application of fabrics

The launching press conference themed

“Ride with mind” was organized in July

2011

A city cycling tour named “Discovering

Fixed Gear Culture while Integrating

Trendy Cultures” was kicked off in

Beijing

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Brand Building and Marketing

360 Integrated Marketing Strategy

Enhanced GTM Flow

Brand Building and Marketing 4

Marketing Campaigns

Sports Sponsorships

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Brand Strategy

Event Planning, Execution and

Evaluation

Sales

Further defined the matrix of responsibilities of different departments, promoted information transparency and efficient communication

Enhanced GTM Flow

Form a complete closed loop to jointly propel products to head to the market more vigorously and effectively

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360 Degree Integrated Marketing Strategy

Advertisement

PR campaigns

In-store promotion

Entertainment

Online channels

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Back to the Mainstream of Fashion

Marketing Campaigns

Digital Media Campaign

Soccer series

Curves Series

Sponsorship for Virgin Racing F1

Team

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Co-sponsorship of German

Bundesliga Club Borussia Dortmund

Official Sponsorship of team

clothing for Virgin Racing F1 Team

Sports Sponsorships

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Diversified Brand Portfolio 5

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As of 30 June 2011, there were 22

RDK stores

A trade fair and fashion show for

RDK Fall/Winter collection was held

in April 2011

Robe di Kappa

Developed the outdoor series which is to

mitigate the effects of the high seasonality

of the brand and make it more suitable for

the China market

In February 2011, Phenix made its first

debut at ISPO China

Extensive marketing activities will be

carried out in a comprehensive way in 2H

2011

Phenix China

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To strengthen product and brand differentiation, the Group gradually enhanced

shop in shop and concession corners in multi-brand stores, such as Phenix Outdoor

corner in Harajuku standalone ICI in last autumn

Meanwhile Kappa retail network was expanded with the opening of 5 new outlets

in STEP (famous footwear mall in Japan)

Kappa Golf also entered Lake Town in the 1H 2011, which is the first retail outlet

opened in large scale suburban commercial facilities

Japan Business

Business Development in Japan

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Financial Review

• Results Highlights

• Revenue by Markets and Brands

• Revenue Breakdown by Products

• Gross Profit Margin by Markets and Products

• Expenses Ratio

• Working Capital Management

• Financial Position

• Share Buyback

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Results Highlights

For the six months ended 30 June

2011 2010 Change (RMB mn) (RMB mn) (%)

Revenue 1,179 2,146 -45.1% Gross profit 722 1,343 -46.2% Operating profit 277 947 -70.7% Profit attributable to equity holders 225 786 -71.4%

Gross profit margin (%) 61.3% 62.6% -1.3%pts Operating profit margin (%) 23.5% 44.1% -20.6%pts Net profit margin (%) 19.1% 36.5% -17.5%pts

(RMB cents) (RMB cents)

Basic earnings per share 3.99 13.87 -71.2%

(RMB cents) (RMB cents)

Dividends per share - Interim* 2.78 8.32 Payout Ratio 70% 60% +10%pts

* 1H2011 Dividends per share comprises of general and special dividends per share of RMB 1.19 cents and RMB 1.59 cents, respectively.

On 8 July, 2011, the Group announced that the revenue and net profit margin for 1H2011 is estimated to decrease by 45% and 17%-19%, respectively, as compared to 1H2010

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For the six months ended 30 June

2011 2010 Change

(RMB mn) As a % of

total revenue (RMB mn)

As a % of total revenue

(%)

China 990 84.0% 1,957 91.2% -49.4%

– Kappa brand 979 83.1% 1,952 91.0% -49.8%

– Others 11 0.9% 5 0.2% 120.0%

Japan

– Phenix, Kappa and other brands

189 16.0% 189 8.8% -

Total revenue 1,179 100.0% 2,146 100.0% -45.1%

Revenue by Market and Brands

Decrease in revenue in China segment was due to the Group’s initiative to solve the problem of accumulation of inventory faced by our distributors by reducing their volume of sales orders in 1H2011 as well as making a one-time repurchase offer to distributors, in a bid to scale their inventory back to a reasonable level for laying a good foundation for subsequent healthy growth.

In spite of the impact of 9.0-magnitude Japan earthquake on the Japan economy this year, revenue from Japan segment remains stable primarily due to the combined positive effects of channels development, branding and sales promotion by Phenix.

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Kappa Brand in China Market – Revenue Breakdown by Products

Accessories

4.0%(3.5%)

Apparel

70.8%(75.2%)

Footwear

25.2%(21.3%)

1H2011

For the six months ended 30 June Remarks: Comparable figures for 1H 2010 are shown in brackets

500

1,000

1,500

2,000

20102011

1,467

693

416

247

69

39

979

1952

RMB mn Apparel

Footwear

Accessories

4.4 %pts

3.9 %pts

0.5 %pt

Revenue of footwear constituted 25.2% of total revenue of the brand, a 3.9 % pts increase compared to 1H2010.

The substantial increase in footwear revenue was mainly due to our gradual expanded efforts in research, development and design of footwear since 2010 to responsively fulfill customers’ demand.

Change in Product Mix

Gross Profit Margin by Markets and Products

For the six months ended 30 June

2011 2010 Change

(%) (%) (% pt)

China 64.4 64.3 0.1

– Kappa brand 64.5 64.3 0.2

– RDK Brand 56.0 N/A N/A

– Others 44.5 38.6 5.9

Japan 45.0 45.2 -0.1

The Group overall 61.3 62.6 -1.3

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For the six months ended 30 June

2011 2010 Change

(%) (%) (% pt)

Apparel 66.7 67.0 -0.3

Footwear 58.1 55.0 3.1

Accessories 66.8 63.7 3.1

Overall 64.5 64.3 0.2

China - Kappa brand

Overall GP margin of China market remained relatively stable. Excluding the impacts on accounting adjustments on inventory repurchase, the GP margin of apparel dropped by 1.9% pts, whilst that of footwear and accessories increased by 0.7 % pt and 1.3 % pts , respectively.

For the six months ended 30 June

2011 2010 Change (%) (%) (% pt)

– A&P expenses * 11.0 7.4 3.6

– Staff cost* 8.7 4.2 4.5

– Product R&D cost* 4.4 2.8 1.6

Expenses ratios

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A&P expenses reduced by RMB 29 mn to RMB 129 mn for 1H11 from RMB 158 mn in 1H2010, but overall % to total revenue increase due to decrease in revenue, resulting from stock repurchase.

The Group has recruited experienced senior management talent with capabilities in international management for enhancement on strategies of retail management as well as support to our ‘Recharge for Growth’ program, leading to an increase in staff costs.

* As a % of revenue

Working Capital Management - China Market

Inventory Turnover Day

For the six months ended 30 June

Day

For the six months ended 30 June

Day

For the six months ended 30 June

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A/R Turnover A/P Turnover

As at 30 June 2011

As at 31 December 2010

% %

Current 50 75

1 - 30 days 33 21

31 - 120 days 17 4

Total 100 100

AR Balance (RMB mn) 582 514

A/R Ageing Profile

0

50

100

150

2010 2011

33

125

0

50

100

150

2010 2011

26

102

0

50

100

150

2010 2011

58

100

Inventory turnover days

Increased due to the impact of inventory repurchase

Expect to decrease gradually to a reasonable level when inventory return are re-sold in the future.

AR turnover days

Increased also due to impacts of inventory repurchase

An extension of credit to distributors

Expect to decrease towards end of December, 2011 when stock return completed

For the six months ended 30 June

2011 2010

(RMB mn) (RMB mn)

EBITDA* 295 966

As at 30 June 2011

As at 31 December 2010

(RMB mn) (RMB mn)

Cash & bank deposits 4,820 5,028

Investment in treasury products** 902 1,522

Bank balance and treasury products held 5,722 6,550

Maintain Strong Financial Position

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* EBITDA: Earnings before interest, taxation, depreciation and amortization ** Included investments in treasury products issued by MOF, PRC and principal-guaranteed treasury products issued by major commercial banks in the PRC

Continues to maintain a solid cash position

No outstanding bank loans or other borrowings.

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Subsequent to the profit warning announcement on 8 July and before the blackout period, the Group bought back 30 Mn DX’s shares (representing 0.53% of its issued share capital), at a total consideration of HK$52 Mn.

To reaffirm our commitments to enhancing shareholder value and

our confidence in the long-term growth of the Company

Share Buyback

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Strategies & Future Plans

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Overview of Strategies

Geographical expansion (Optimize and expand network)

Retail management

(Develop some retail capabilities which almost all sports players lack)

Supply chain (Improve supply chain

efficiency)

Process, org and others (Strengthen process/mgmt

discipline)

Brand (Define brand positioning and build equity)

Product excellence (Leverage Phenix platform)

Customer (GX relationship)

management (Basic customer

mgmt)

Improve basic competency Build advantages

1

2

3

Organization (Activate people developmemt)

While Kappa boasts special assets to potentially build advantage, it also needs to improve some basic competency

Sets of growth initiatives are in position for rebound

New businesses Store / geo

expansion & optimization

Existing stores productivity

improvement

Brand and product

improvement

4 1 3 2

2.1

Direct vs. SF

Store / geo expansion

2.2

Retail operation management improvement

3.1

3.2

Initiatives driving

revenue growth

Internal competency

enablers

• Customer management (policy design)

• Supply chain management

e-Commerce

RDK 4.1

4.2

Store network upgrade

Retail inventory management improvement

• Improvement of operation standard

• IT service platform improvement

• HR and organization building

Specific targets have been defined for each initiative towards 2015

3.3

1.1

R&D capabilities

1.2

Product positioning

Enhanced marketing

1.3

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Main Initiatives included in Product and Marketing

1

Brand and product improvement

1.1

R&D capabilities

1.2

Strengthen Product positioning

Enhanced marketing

1.3

Back to sports roots

Strengthen women business

Internal : Japan R &D

Footwear sales & market shares

External : Footwear

Trend

360 Degree Integrated Marketing

Pioneer in new media and digital marketing

Strengthen retail marketing

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Main Initiatives included in Retail Operation Management

2

Existing stores productivity improvement

2.1

Improve Retail Operation

2.2

Enhance Assortment

Build Own Retail Capability

2.3

Right brand image and product mix

Establish systematic retail operation monitoring

Prioritize efforts of assortment planning and execution

Ground team to support and monitor customers

Develop own retail in selected key locations

Build brand and retail experience

Detect market pulse through own retail network

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Main Initiatives included in Store Network Optimization and Geo Expansion

3

Store / geo expansion & optimization

3.1

direct customer stores

3.2

Expansion in existing & new cities

New store format & image

3.3

Strengthen top tier markets

Better channel control

Penetrate into lower tier cities

Direct customer stores

New store format at all new openings

Stores Upgrade: all existing stores in tier 1-3 cities 50% stores in tier4-7 cities by 2015

Optimize store portfolio

Sub-franchises Higher retail improvement execution

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Continue Drive Growth in New Business 4

New Business

4.1

E-commerce 4.2

Build high-end sports casual image

Improve brand awareness

Build Kappa’s own e-commerce platform

Develop customized online products

Gradually develop retail network

Fully leverage Taobao and other sales platform

Develop customer database and feedback system

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Open Forum