china xiniya fashion limited
TRANSCRIPT
China Xiniya Fashion Limited
1
January 2011
Presenter
Mr. Chee Jiong NgChief Financial Officer
2
Chief Financial Officer
Who We Are
Market Positioning
Top 5 business casual menswear brand in China based on retail sales
TargetConsumers
Product Positioning
Stylish yet comfortable apparel suitable for
work, travel and leisure
White-collar male, with average to high
disposable income, aged 25-45
3
Presence
Business Model
- Asset-light distributor model- Lean corporate structure with 30%+ operating profit margin
Consumers
Nationwide across 21 provinces, 4 municipalities and 5 autonomous regions
# of Outlets1,300+ Xiniya-branded retail stores
Xiniya’s Brand Spokesperson Is
Popular Entertainment Icon in China
� Renewed sponsorship contract with Jacky Cheung – a leading pop star in China –through 2013
� Peak record sales in China were similar to Michael Jackson; leading roles on television and recipient of several acting awards
� Xiniya will sponsor ½ Century Tour in 2011 in select cities across China; Xiniya is the main sponsor in Quanzhou
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is the main sponsor in Quanzhou
� Xiniya brand will be on all the concert ad campaigns – daily press, posters, concert website – adding momentum to 2011 selling season
Our History
� Establishment of
retail network, first
retail outlet opened
in Jan 2006
� Recognized as a
“Well-Known
Trademark of China”
2010
� 2nd store image
upgrade began
� Began retail
network
restructuring
First ChinaApparel Company to list on NYSE
20092008
5
� Registration
of “Xiniya”
trademark
1993
� Recognized as a
“Fujian Famous
Trademark” � Signed Jacky
Cheung as our
brand
spokesperson
� Surpassed 1,000
retail locations
� 1st store image
upgrade
� Tripled revenue
and net income
in two years
2007
2006
2005
� Posted Q1-Q3 2010
results of $84.6
million in revenue, a
36.2% increase YoY
� Posted Q1-Q3
US$23.2 million in
net income, a YoY
increase of 39.4%
� Opened 223 new
stores and reached
a total of 1,404
stores (1)
(1) As of December 31, 2010.Note: FX translation was made at the rates in effect on the respective dates.
Management Team
� Founder
– Introduced current business model in 2005
– Has 23+ years of experience in China’s men’s
apparel industry
– Director at Quanzhou Textile and Garment Chamber
of Commerce and Director of Shishi City Hubin
District Chamber of Commerce
– School of Continuing Education, Tsinghua University
(Business Administration)
� Co-Founder � Has 15+ years experience in financial reporting and
auditing, with more than 13 years at PwC in various
Mr. Qi Ming XU
Chairman & CEO
Mr. Kang Kai ZENG Mr. Chee Jiong NG
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� Has 14+ years of experience in China’s men’s
apparel industry
– Began working with the Xiniya brand in 1995
– School of Continuing Education, Tsinghua
University (Business Administration)
auditing, with more than 13 years at PwC in various
roles including Senior Manager
– Financial Controller at Air-Sys Refrigeration
Engineering Technology (Beijing)
– University of New South Wales (Master of
Commerce / Corporate Finance)
� Has 15+ years of experience in
marketing roles within the
apparel industry
– Deputy General Manager
at Xiniya in 2006
– Previously marketing
manager at Fujian Tries
– Zhejiang Gongshang
University (Marketing)
� Has 20+ years of experience
in garment production
– Joined Xiniya in 2006
– Chief Production Officer
at Shishi Xiniya from
2003-2005
– Putian Junior College
(Civil Engineering)
� Recognized as One of the Top
10 Designers in China
� Has 14+ years experience in
merchandise design
– Previously Chief Designer
at Fujian Tries Group and
D-Wolves Group
– Tianjin College of Textile
Engineering (Fashion
Design)
COO CFO
Mr. Qi Wen YANG Mr. Ming Jiang LIU Mr. Qi Fa ZHANG
Chief DesignerDeputy GM / Sales & Marketing Director
ProductionDirector
China’s GDP growth is expected to remain in double-digits
� According to IMF, China’s 2010E expected growth of 10%
Macroeconomic Growth Drives Consumer Spending
2005A – 2015E GDP in China
CAGR:15.9%
2005A – 2015E Disposable Income in China
CAGR:13.2%
Disposable income levels and quality of living have improved dramatically due to China’s macroeconomic strength, especially for urban households
$2,239
$5,478
$9,797
2005 2010E 2015E
(US$ in billions)
$1,282
$2,696
$4,436
2005 2010E 2015E
(US$)
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$821
$2,168
$4,259
2005 2010E 2015E
(US$ in billions)
� According to IMF, China’s 2010E expected growth of 10% more than doubles that of the global output
2005A – 2015E Retail Sales of Consumer Goods
CAGR:17.9%
2007A-2009A Per Capita GDP CAGR (By Tier)
Growth in Tier 2 and below markets outpaces that of Tier 1
Ideal target market for rapid expansion
strength, especially for urban households
Growth of retail sales of consumer goods is expected to outpace that of GDP and disposable income growth
11.3%
18.3%17.2% 18.1%
Tier 1 Tier 2 Tier 3 Tier 4
Note: FX translation was made at the rates in effect on the respective dates.Source: Frost & Sullivan.
$21.8
$50.7
$106.7
2005 2010E 2015E
(US$ in billions)
One of the World’s Largest Menswear Markets
Dynamic Growth Pattern of China MenswearChina vs US and EU Menswear Markets - 2009
CAGR:17.2%
$44.0
$31.1
$58.2
China U.S. EU
(US$ in billions)
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Source: Frost & Sullivan
Tier 4 (18.0%)Tier 1 (14.0%)
Tier 2 (27.1%)
Tier 3 (40.9%)
2009
Menswear Market Size in Different Tiers(% of Total) in China
Others include Business Formal and Accessories.
33.0%41.3%
53.1%
67.0%58.7%
46.9%
2005 2009 2015
Casual Others (including Business Formal and acccessories)
Note: FX translation was made at the rates in effect on the respective dates.Source: Frost & Sullivan.
Casual Menswear Market Growth in China
Leading Men’s Business Casual Apparel Brand
Top 10 Men’s Business Casual Apparel Brands(1)
� China’s business casual menswear market is still fragmented
– Top 10 players constitute only 33.3% of the market without dominant brand in the market
� Despite being one of the top 5 business casual menswear brands, we have significantly fewer retail
outlets compared to our competitors
– We are well-positioned to continue gaining market share through aggressively growing our retail
network
% of Total Market Share # of Outlets
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(1) Market share based on 2009 retail revenues. Outlets as of year end 2009. Source: Frost & Sullivan.
% of Total Market Share # of Outlets
2.1%
2.3%
2.4%
2.5%
2.8%
2.9%
3.6%
3.6%
4.9%
6.2%
Joe One
Taizilong
Baoxiniao
Fordoo
Sevenbrand
Xiniya
FIRS
K-Boxing
Septwolves
China Lilang
Xiniya
748
1,181
1,580
1,750
2,180
2,350
2,430
2,561
3,235
3,249
Baoxiniao
Xiniya
FIRS
Taizilong
Fordoo
Sevenbrand
Joe One
China Lilang
K-Boxing
Septwolves
Xiniya
Impressive Growth Potential – Breadth and Depth
� We target Tier 2 and below cities,
prefectures and counties in China:
� Large unexplored market
potential
� More attractive growth dynamics
� Have not been penetrated by
international brands
Tier 2-4 Cities and Regions
Current
Unexplored
Xiniya Store Distribution (by # of Regions)
78.3%
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2 – 5 stores in 207 cities
� Out of a total of 3,224 Tier 2 and
below cities and regions in China(1),
Xiniya currently has stores in only
698 of them
� We also see significant room for
growth in our existing geographies
where we could increase market
penetration substantially
(1) Does not include 40,000+ small townships within the Tier 4 segment.Source: Company information.
1 store in 470 cities
21.7%
Xiniya Store Penetration (by # of Cities)
6 - 10 stores in 14 cities
Tier 2-4 Cities and Regions
10+ stores in 7 cities
Our Customer
White-collar male, with average to high
disposable income, aged 25-45
Sophisticated and stylish but unwilling to compromise comfort
Aspiration for cosmopolitan lifestyle and
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Aspiration for cosmopolitan lifestyle and culture
Entertains in conjunction with work and leisure
Enjoys travel – requires comfortable, stylish clothing for his on-the-move lifestyle
Distributor Network
Heilongjiang64
Jilin20
Qinghai
Xinjiang64
Shandong61
Tianjin5
Hebei29
Inner Mongolia25
Gansu17
Ningxia2
Shanxi21
Beijing18
Liaoning71
Stores Breakdown by Channels
(as of September 2010)
Channel# of
Partners
# of
Stores
Company Operated 1 1
Department Store Chains 24 145
Distributors 26 63
Department Store Chains (1) 35 181
Authorized Retailers 976
Total 1,366
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60 or more retail outlets and department store concessions
40 to 59 retail outlets and department store concessions
20 to 39 retail outlets and department store concessions
Less then 20 retail outlets and department store concessions
Distributor Sales 2007-2009
Top 5 Distributors
30.4%24.3% 19.7%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2007 2008 2009
Sichuan21
Anhui28
Yunnan50
Henan56
Shanghai2
Jiangsu62
Tibet1
Guizhou36
Guangdong56
Hainan5
Shaanxi51
Chongqing81
Jiangxi42
Hubei77
Hunan105
Guangxi92 Taiwan
Zhejiang132
Fujian72
Total 1,366
Our Business Model
976 Stores Managed
63 Stores Directly Managed by Distributors
145 Department Store Concessions
1 Flagship Store Operated by Xiniya
EndConsumers
Xiniya
26 Exclusive
Distributors
Authorized
24 Department Store Chains
35 Department Store Chains
181 Department Store Concessions
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976 Stores Managed by Authorized
Retailers
Authorized Retailers
Note: Data as of September 30, 2010.
Highlights of the Distributor Model
Local ExpertiseLimited
Resources and Capital
Streamlined, Simple
DistributionNetwork
Rapidly Expanding
Sales Network and Service
Platform
Managing our Distributor and Sales Network
Industry Experience
Deep Local and Regional Sales Network
Financial Wherewithal
We Select Distributors Rigorously…
Weekly Reporting of Sales at theRetail Level
Bi-Weekly Meeting to DiscussKPIs and Market Feedback
…and Work Very Closely with Them
Dedicated Team of 20+ to Monitor,Provide Support and Guidance
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Financial Wherewithal
Vision for Growth
Rapidly Sales Network Expansion
Zero Distributor Turnover
The Results Are Apparent
Has been working with 23 out of 26 distributors
since 2006
KPIs and Market Feedback
Semi-Annual Strategy Sessions
Semi-annual Sales Fair
We generate substantially all of our revenues
through our two sales fairs
Typically held in May and October
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Attended by our distributors, department store
customers and managers of major retail outlets
Communicate key themes, selling points and
points of emphasis for the upcoming season
Usually held in conjunction with fashion shows
and regional marketing and promotional activities
All of our stores are Xiniya-branded andsell Xiniya-branded products exclusively
Gross floor area of each store typically ranging from 500 sq ft to 3,500 sq ft
Our Retail Outlets
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to 3,500 sq ft
Store looks and layout designed by us
- Store image upgrade every 3 years
45.8
67.3
83.3
53.664.5
89.2
58.7
84.489.5
2007 2008 2009Xiniya China Lilang Septwolves
(US '000)
Key Store Metrics
� We are now on par with
our major competitors in
terms of revenue per
store
� We have also been able
to successfully extract
more revenues from
small to mid-sized
Revenue per Store Comparison
(US$ ‘000)
17
Xiniya China Lilang Septwolvessmall to mid-sized
stores, which is evident
in our increasing
revenue per square foot
of store area
Note: Septwolves revenue includes retail revenues generated by own stores.FX translation was made at the rates in effect on the respective dates.
Source: Company information.
67.6
96.4
120.1
2007 2008 2009
(US$)
Revenue per sq ft of Xiniya Stores
CAGR:33.3%
Sales and Marketing and Average Selling Price
ASP Comparison� Our products are of high
quality but are sold at a
discount to competitive
offerings
� We have historically
invested a modest amount
of capital into marketing
and promotion compared
$17.6
$20.9
$22.8
$15.5
$18.6$19.4
China Lilang Xiniya Septwolves
(US$)
NA NA NA
(1)
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Advertising Expenses as % of Revenues
2.9%2.4%
0.7% 0.6%
8.7%
6.6%
2.4%
5.1%
9.9%11.2%
9.0%8.5%
2007 2008 2009 2010 1H
Xiniya Septwolves China Lilang
and promotion compared
to our peers. We intend to
devote more resources to
continue to raise our brand
profile and awareness
2007 2008 2009
NA NA NA
(1) Septwolves does not publish transaction volume informationto compute ASP.
Note: FX translation was made at the rates in effect on the respective dates.Source: Company information.
$10.8
$34.2
$23.5
2007 2008 2009
(US$ millions)
28.9%
Financial and Operational Snapshot
Revenues
$33.3
$98.4
$67.9
2007 2008 2009
(US$ millions) CAGR:71.9%
Gross Profit Net Income
$9.2
$28.4
$17.8
2007 2008 2009
(US$ millions)34.6%
34.8%
Margin Margin
26.2%32.4%
27.6%
19
2.4
5.1
3.8
2007 2008 2009
(million)
Note: Average exchange rate for 2007, 2008 and 2009 are 1 USD = 7.5567 RMB, 1 USD = 7.0696 RMB and 1 USD = 6.8314 RMB, respectively.
Average Selling Price
105.1
131.7126.5
2007 2008 2009
(RMB) CAGR:11.9%
Total Transaction Volume # of Stores
CAGR:45.8%
728
1,181
1,008
2007 2008 2009
CAGR:27.4%
Seasonality and Predictability of Revenues
(US$ in millions)
$24.7 $25.1
$33.8$37.6
$46.7
Q3 and Q4 are the peak seasons that account for >70% of annual revenues
20
$9.2 $10.6
$24.7 $25.1
$11.8$15.2
$18.0$19.9
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010Note: FX translation was made at the rates in effect on the respective dates.
Investment Highlights
Established and differentiated menswear brand
Extensive and well-managed retail network
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Favorable macro dynamics offer compelling growth
opportunities����
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Extensive and well-managed retail network
Excellent financial performance – limited capital
expenditure and operating margin of 30%+
Seasoned management team with extensive
background in the menswear industry
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Contacts
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ChristensenKimberly Minarovich
+1-917-533-3268
or
Kathy Li
+1-480-295-1324
Contacts
China Xiniya Fashion Limited
Chee Jiong Ng
Chief Financial Officer
+86-0595-65323882