business and financial analysis - case study of sa sa international holdings limited wan shiu kee...

Business and Financial Analysis - Case Study of Sa Sa International Holdings Limited

Wan Shiu Kee

Convener of HKIAAT Accounting and Business Management Case Competition/ Vice Principal – CCC Kei Heep Secondary School

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Agenda

The HKIAAT Accounting and Business Management Case Competition

The Case – Sa Sa International Holdings Ltd. Business performance evaluation Sustainable development plan Q&As

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HKIAAT Accounting and Business Management Case Competition

Aims to enhance students’ ability in using accounting information for business development and their generic skills, such as research, analysis, team-building, communication, critical thinking, creativity and problem-solving as required by today’s business world.

Provides students with fundamental accounting and business management knowledge and skills, and to develop their positive values and attitudes.

Comprises two rounds: written report and oral presentation.

Written report based on Annual Report of a listed company

Six teams will be shortlisted to enter the final competition – oral presentation, to present the key points of their reports.

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The Case – Sa Sa International Holdings Limited

Sa Sa International Holdings (Sa Sa) is the selected company for case study in Competition 2009-2010.

A leading cosmetics retailing group operating in Asia. Two scope of business areas:

Cosmetic retail – selling over 400 brands, including its own-brands and exclusive products

Brand management – being sole agent for many international cosmetic brands in Asia. It accounts for 38% of its total retail turnover.

In 2008/09, the turnover from the continuing retail and wholesale business rise 12% to HK$3,609 while profit from the continuing operations increased by 14% to HK$316 million.

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The Case – Sa Sa International Holdings Limited (cont'd)

Requirements for written report:Evaluate the business performance of Sa Sa in the

following aspects financial position

Relevant to BAFS Compulsory Part – Basic Ratio Analysis and Accounting Module - Financial Analysis

marketing management Relevant to BAFS Business Management Model –

Marketing Management Operation management

Relevant to BAFS Business Management Model – Human Resources Management

Develop a sustainable development plan for next three years

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Evaluation of Business Performance – Financial Position

Study of different financial ratios to analyze the following aspects:-

Profitability Liquidity Asset management Investment appraisal

Types of financial ratios to be analyzed may vary from industry to industry

e.g. "Book value per share" is only required for retail, banking, and property industries

Compared with its competitors when necessary

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(1) Profitability (a i) Net profit margin = Profit for the year/ Turnover *100%

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Profit for the year 315,951 348,213 221,793 185,171 202,056

Turnover 3,608,990 3,221,429 2,676,816 2,425,314 2,122,215

Net profit margin 8.75% 10.81% 8.29% 7.63% 9.52%

Increase/ Decrease in %

-19% 30% 9% -20% 0

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(1) Profitability (cont'd)(a ii) Net profit margin = Profit from the continuing operation / Turnover *100%

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Profit from continuing operation

315,951 276,253 220,527 193,607 207,614


14% 25% 14% -7% 0

Turnover 3,608,990 3,221,429 2,676,816 2,425,314 2,122,215


12% 20% 10% 14% 0

Net profit margin 8.75% 8.58% 8.24% 7.98% 9.78%


2% 4% 3% -18% 0

Performance in 2009 is not as good as in 2008. The performance of its competitor, Bonjour (with net profit margin 11% in 2009), is also better than Sa Sa.

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(1) Profitability (cont'd)

(b) Return on equity = Profit for the year / Net Assets *100%

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Profit for the year 315,951 348,213 221,793 185,171 202,056

Net Assets 1,122,749 1,108,493 950,590 913,827 910,046

Return on equity 28.14% 31.41% 23.33% 20.26% 22.20%


-10% 35% 15% -9% 0

ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7%).

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(2) Liquidity

Working capital ratio = Current assets/ Current liabilities

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Current assets 1,195,902 1,220,768 NA NA NA

Current liabilities 277,723 325,031 NA NA NA

Working capital ratio 4.31 3.76 2.64 2.61 2.63

Increase/ Decrease in % 15% 42% 1% -1% 0

There are abundant current assets to cover the current liabilities. There may be some idle current assets as well.

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(3) Asset Management

Stock turnover days = Closing inventory/ Cost of Sales *365days

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Closing inventory 468,670 470,543 NA NA NA

Cost of sales 2,032,124 1,831,949 NA NA NA

Stock turnover days 84 94 90 89 101

Increase/ Decrease in % -10% 4% 1% -12% 0

Stock turnover days become shorter than previous years. It means that the goods are sold faster than before. However, when compared with Bonjour (i.e. 61 days), Sa Sa still requires longer turnover days.

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(4) Investment Appraisal

Earning per share = Profit for the year / No. of shares

2009 2008 2007 2006 2005

$'000 $'000 $'000 $'000 $'000

Profit from continuing operations 315,951 276,253 220,257 185,171 202,056

Weighted average of shares 1,380,511 1,374,283 1,354,259 1,332,919 1,306,761

Earning per share- Basic (HK Cents) 22.9 20.1 16.3 13.9 15.5


Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share.

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(5) Other Important Ratios

(a) Shareholders fund as at book value per share

2009 2008 2007 2006 2005

Book value per share 0.81 0.8 0.69 0.68 0.69


Shareholders fund as at book value per share is better than before.

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2009 2008 2007 2006 2005

(b) Total gross retail area 244,829 225,544 205,611 181,634 138,886

Increase/ Decrease in % 9% 10% 13% 31% 0

The business is expanding steadily.

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2009 2008 2007 2006 2005

(c) Net cash and bank balance (in HK'000)

620,496 651,643 695,847 695,696 743,134

Increase/ Decrease in % -5% -6% 0.02% -6% 0

Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation.

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(d) Turnover by region- retails & wholesale business

2009 2008 2007 2006 2005

Mainland China84.30% 88.50% 87% 88.90% 89.60%

(incl. HK & Macau)

Taiwan 3.60% 4.10% 4.20% 3.40% 2.70%

Singapore 3.90%7.40% 8.80% 7.70% 7.70%

Malaysia 3.90%

Sasa.com 4.30% 　　　　

100.00% 100.00% 100.00% 100.00% 100.00%

Turnover by region gets more varieties. Sa Sa is expanding its market geographically.

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(e)

i. No. of retail outlets2009 2008 2007 2006 2005

(Sa Sa Stores)

Hong Kong & Macau 62 58 53 51 43

China 10 4 5 2 1

Taiwan 13 14 11 8 4

Singapore 14 13 13 10 9

Malaysia 26 21 14 10 11

Total 125 110 96 81 68


The increase of store number mainly concentrates in China and Malaysia.

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(e)

ii. No. of retail outlets2009 2008 2007 2006 2005

(Image Stores/ Counters)

Hong Kong & Macau 2 2 2 2 2

China 23 12 6 0 0

Taiwan 0 0 0 0 0

Singapore 0 0 0 0 0

Malaysia 0 0 0 0 0

Total 25 14 8 2 2


The growth of image stores and counters is limited to Mainland China.

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(f) Rental to turnover ratio = Operating lease rental / Turnover *100%

Sa Sa 2009

Sa Sa 2008

Bonjour 2008

Bonjour 2007

$'000 $'000

Rental expenses 350,364 338,106

Turnover 3,608,990 3,221,429

Rental to turnover ratio

9.71% 10.50% 11.00% 12.50%

Rental to turnover ratio has slightly decreased and lower than Bonjour, implying that Sa Sa is not suffering from serious rental payment pressure even though the property price surged in the past year.

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Evaluation of Business Performance – Marketing Management

Market Environment Key competitors:

Bonjour (卓悅 ), Angel (天使化 ), Sephora

Market opportunities Huge potential in Mainland China market The inflow of Mainland visitors in domestic market

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Target markets Geographic

Core markets:

• Hong Kong, Macau and Mainland China -> representing 84% of total turnover

Regional markets:

• Taiwan, Singapore and Malaysia -> accounted for 11% of turnover

Target customers Customers who are seeking value-for-money

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Marketing strategies Positioning

A one-stop cosmetics specialty store offering a broad product range with a full price spectrum

Place/ Distribution Diversification of distribution network -> a total of 152 "Sasa"

stores and 25 specialty stores/ counters in various markets Store locations are prime Offer trendy and comfortable shopping environment ->

customers can choose different products at ease Planning to appoint local distributers for the wholesale business

-> can help sharpen the market penetration Online portal – Sasa.com -> reach worldwide customers

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Marketing strategies Product

Offers a comprehensive product range of 200 brands targeted at diversified customer base

Also develops its own-brands Product selections tailored to Chinese and Asians Also offers value-added services, such as free skin analysis,

free make-up and beauty treatments

Price A broad price range to entertain a wide customer base Diversification of pricing strategy also help to reduce the impact

of economic environment Can offer competitive prices due to

• Strong bargaining power with bulk purchase• Long-term relationships with vendors

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Marketing strategies Promotion

Aggressive promotion efforts, including print advertisements, public relations activities and online advertising (Sa Sa is a top 10 of online advertisers in 2009)

Customer loyalty programme Regular production promotions and free product samples

People (i.e. Service) Professionally trained staff with good product knowledge,

selling skills, customer service skills, and general management skills

External monitoring scheme e.g. Mystery shoppers

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Marketing strategies Brand Management

400 famous brands among which 100 are exclusive brands In 2008/09, more than 1,600 new exclusive products were

added to its portfolio Having its own brands or exclusive brands can build strong

customer loyalty However, the promotion of these exclusive brands tend to be

not enough and mainly focus on a very few selected brands -> affecting the sales of niche brands and new brands

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Evaluation of Business Performance – Operation Management

Manpower development Staff motivation strategies

• Bonus system• Let staff understand the corporate goals and the ways

they can contribute • Enhance communications with staff and nourish a caring

culture of the company • Review remuneration on regular basis

Staff trainings • 150-hour training for new frontline staff• Management Trainee Programme for up-and-coming

leaders• Product, language, attitude, selling skills trainings • Leadership Management Skills training for shop

supervisors

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Evaluation of Business Performance – Operation Management

Inventory Management Investment in IT infrastructure and logistic systems ->

enhance stock taking Implementation of Just-in-time system to reduce cost

Resources Management Settlement of purchases is made by HK or US dollars ->

minimize price fluctuation due to currencies exchange difference

Keep minimal idle assets through careful asset planning

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Evaluation of Business Performance

Key success factors of Sa Sa Enjoy economy of scale and has strong bargaining power with vendors Extensive industry experience (over 32 years) Clear business focus Having a wide spectrum of products and many of them are exclusive

brands Focus on product development Developed an on-line shopping platform and extend its market reach

(66% increase in turnover when compared with previous year) Established excellent relationship with vendors Quality services Strong distribution network Dedicated to staff training and development

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Sustainable Development Plan

Suggestions for product offerings and marketing strategies

Continue to focus on the two existing core businesses –

cosmetic retail and brand management

Increase market penetration in these businesses, with focus on

Mainland market

Adopt different marketing strategies in different markets

Differentiated marketing strategies with different pricing,

promotion strategies to target distinctive market segments

(e.g. offer exclusive brands for high to middle-class

segments) -> can prolong product life cycle and high profit

margin

Undifferentiated marketing strategies in identical markets

e.g. in 2nd tier cities e.g. Wuhan, Suzhou

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Suggestions for product offerings and marketing strategies (cont'd)

Develop flagship stores

Further strengthen its on-line business and support with good

customer service e.g. delivery and after-sale service

Enhance the corporate image e.g. reinforce its commitment to social

responsibilities and environmental protection

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Some suggestions for operation management

a) Supply chain management Exert higher influence in purchase terms with her strong

bargaining power Improve logistics flow through organization reengineering

b) Quality management Enhance quality assurance through the development of

quality engineering mechanism

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Financial management Suggested financial strategies should match with its product

offering, marketing strategies and operation management Take into consideration of external factors and challenges e.g.

economy, growing competitors Unless with justifiable reasons, financial strategies should be in line

with the past practice of Sa Sa, e.g. Not to engage in any highly leveraged or speculative derivative

products Conservative approach to financial risk management with no

significant borrowing Implement a general freeze on wages Review and increase the cost effectiveness of the overhead expenses

and their marketing initiatives Tighten inventory management Take further measures to manage the rental pressure Maintain excellent long-term relationship with its suppliers

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This powerpoint will be available for download at HKIAAT Website

www.hkiaat.org

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Q & A Session

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