(incorporated in the cayman islands with limited liability ... · revenue gross profit margin...

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Sports Like No Other

2014 Interim Results Corporate Presentation

(Incorporated in the Cayman Islands with Limited Liability)

HKEx stock code: 1368

August 2014

1


This presentation is prepared by Xtep International Holdings Limited (the “Company”) and is solely for the purpose

of corporate communication and general reference only. The presentation is not intended as an offer to sell, or to

solicit an offer to buy or form any basis of investment decision for any class of securities of the Company in any

jurisdiction. All such information should not be used or relied on without professional advice. The presentation is a

brief summary in nature and do not purport to be a complete description of Company, its business, its current or

historical operating results or its future prospects.

This presentation is provided without any warranty or representation of any kind, either expressed or implied.

The Company specifically disclaims all responsibilities in respect of any use or reliance of any information, whether

financial or otherwise, contained in this presentation.

This presentation 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 “Financial Analysis”,

“Business Review” and “Future Plans”.

Disclaimer

2


2

Agenda

Open Forum

Overview

Financial Analysis

Business Review

Future Plans


3


Overview

3

4

Sports Like No Other Xtep, A Leading Fashion Sportswear Brand

With effective branding strategies, exceptional track record and total commitment

to excellence and innovation, Xtep is on the right track to realise its goal of becoming

a world-class leading fashion sportswear brand

Diversified Product Lines

Constituent Stock of Several Major Indexes Shareholding Structure (as at 30 June 2014)

Xtep taps into

different markets

with four product lines:

Hang Seng Global Composite Index

Hang Seng Composite Index

Hang Seng Composite Industry Index

(Consumer Goods)

Hang Seng Composite SmallCap Index

Public

39.31%

Xtep International Holdings Limited (1368.HK)

Proven Branding Strategy

Distinctive Product Offerings

Stringent Management Controls

across the Entire Retail Channel

Chairman

60.69%

Xtep XUP

XTOP Xtep

Kids

5


Financial Analysis

5

6


Execution of Strategies to Facilitate Long-term Development

Major Development Strategies in 1H 2014

Improved

Product Portfolio

Increased the sales of higher gross profit margin and more

competitive footwear products

Revenue of footwear products surged by 27.4% to approx.

RMB 1,326.4 million (2013: RMB 1,040.8 million) and its gross

profit margin was 41.0% (2013: 40.9%)

Enhanced

Brand Equity

Reinforced effective promotions in prominent national sports

events and mass market commercial advertising

Advertising and promotional expenses increased by approx.

RMB77.8 million, accounted for 12.5% of the Group’s revenue

7


Stabilised Financial Performance with High Dividend Payout

Financial Highlights

Steady Revenue

and

Gross Profit Margin

Total revenue up by 1.8% to RMB 2.13 billion

Gross profit margin up by 0.2 pp to 40.4%

Profit attributable to equity shareholders decreased by

RMB 56.7 million to RMB 284.2 million, mainly due to increase

of advertising and promotional expenses

High Dividend

Payout

Interim dividend HK 8.5 cents per Share

Interim dividend payout ratio 51.6%

Solid

Balance Sheet

Low gearing ratio at 22.4%

Net asset value per Share up by 2.7% to RMB 2.13 (HK$ 2.66)

Net cash and cash equivalents RMB 2,268.3 million, representing

49% of net assets of the Group

8


Result Highlights

For the six months ended 30 June

(RMB mn) 2014 2013 Change

Revenue 2,135.0 2,098.0 1.8%

Gross profit 862.1 843.1 2.3%

Profit attributable to equity Shareholders 284.2 340.9 (16.6%)

Basic earnings per Share (RMB cents) 13.05 15.66 (16.7%)

Gross profit margin (%) 40.4 40.2 0.2 pp

Operating profit margin (%) 19.9 22.7 (2.8 pp)

Net profit margin (%) 13.3 16.2 (2.9 pp)

ROE (%) 12.3 15.6 (3.3 pp)

Interim dividend (HK cents per Share) 8.5 10.0 (15%)

Interim dividend payout ratio (%) 51.6 50.8 0.8 pp

9


Stabilised Revenue

(RMB mn)

Revenue

Such better than expected revenue

performance was mainly due to:

1) revenue of footwear products surged

by 27.4% to approx. RMB 1,326.4

million (2013: RMB 1,040.8 million),

representing 62.1% of the Group’s

total revenue;

2) the replenishment of sales orders and

increase in revenue derived from

e-commerce and Xtep Kids products

Overall gross profit margin increased by

0.2 pp due to an increase in the gross

profit margin of footwear products to

41.0% (1H 2013: 40.9%).

2,607.3

2,098.0 2,135.0

40.9%

40.2%

40.4%

40.0%

40.5%

41.0%

41.5%

42.0%

0

500

1,000

1,500

2,000

2,500

3,000

1H 2012 1H 2013 1H 2014

Revenue Gross Profit Margin

-19.5%

+1.8%

Margin (%)

10


Revenue Breakdown & Product Analysis

62.1% 36.7%

1.2%

Footwear Apparel Accessories

2013 1H

RMB 2,098.0 mn

1.9%

48.5% 49.6%

2014 1H RMB 2,135.0 mn

(RMB mn)

Strategically enhanced the sales of

footwear products and revenue of this

segment, which surged by 27.4% to

approx. RMB1,326.4 million (2013: RMB

1,040.8 million)

1) Xtep’s footwear products are widely

recognized in the market for their high

quality, thus enjoying higher gross

profit margin of 41.0% (2013: 40.9%)

2) Footwear products are more quality

competitive than apparel, the latter of

which is under fierce competition due

to lack of product differentiation

Overall Revenue Mix

11


Revenue Breakdown & Product Analysis (Con’t)

1,040.8

1,326.4

40.9% 41.0%

40%

41%

42%

43%

800

1,000

1,200

1,400

1H 2013 1H 2014


Footwear

Revenue (RMB mn) Margin (%)

+27.4%

Apparel

Revenue (RMB mn)

1,017.7

783.0

39.7% 39.4%

30%

40%

50%

60%

0

300

600

900

1,200

1H 2013 1H 2014


Margin (%)

-23.1%

revenue due to quality product well-

accepted by mass market

revenue due to reduction of sales

orders to avoid risk of over-stocking in retail

channel

12


Consistent High Dividend Payout Ratio

Interim Dividend

Payout ratio (%)

50.9

49.8 50.3

50.8 51.6

40

44

48

52

56

1H 2010 1H 2011 1H 2012 1H 2013 1H 2014

1H 2014 Payout Ratio: 51.6%

13


Operating Expenses Analysis

Research & Development Costs Advertising & Promotional Costs

(RMB mn)

189.3

267.1

0

50

100

150

200

250

300

1H 2013 1H 2014

+41.1%


2014 2013 Change

A&P costs (RMB mn)

267.1 189.3 77.8

Operating Ratio (as a % of revenue)

12.5% 9.0% 3.5 pp

The increase of the A&P costs is to enhance

the brand equity

(RMB mn)

47.4

51.9

40

42

44

46

48

50

52

54

1H 2013 1H 2014

+9.5%


2014 2013 Change

R&D costs (RMB mn)

51.9 47.4 4.5

Operating Ratio (as a % of revenue)

2.4% 2.3% 0.1 pp

The increase of the R&D costs is to enhance

product design, quality and style

14


Income Tax Expenses Analysis


Income Tax (RMB mn) 2014 2013 Change

Current Corporation Tax 107.4 117.6 (10.2)

Underprovision 11.5 6.5 5.0

Deferred Tax 9.5 12.0 (2.5)

Total 128.4 136.1 (7.7)


Effective Tax Rate (%) 2014 2013 Change

Current Corporation Tax 26.0 24.7 1.3 pp

Underprovision 2.8 1.4 1.4 pp

Deferred Tax 2.3 2.5 (0.2 pp)

Total 31.1 28.6 2.5 pp

15


Operating Cashflow


(RMB mn) 2014

Cash used in operating activities (173,305)

Income and withholding tax paid (203,348)

Net cash flow used in operating activities (376,653)

Net capital expenditure (62,214)

Increase in available-for-sale investment (150,000)

Deposit for acquisition of land use right (46,335)

Dividends paid (137,732)

Net proceeds from bank loans 215,419

Others 13,119

Net decrease in cash and cash equivalents (544,396)

16


Stringent Control of Inventory

Inventory 30 June 2014 30 June 2013

(RMB mn) Mix (%) (RMB mn) Mix (%)

Raw materials 195.9 25.2 175.5 29.4

Work in progress 48.0 6.2 50.5 8.5

Finished goods 533.9 68.6 370.0 62.1

Total inventory 777.8 100.0 596.0 100.0

Turnover days 94 - 86 -

Increase in finished goods as the Group expects the industry recovery

will continue in 2H 2014

1H 2014 finished goods level (68.6%) compared to 1H 2013 (62.1%)

17


Stable Trade Receivables & Trade Payables

Trade

Receivables

(Net of

Provision)

30 June 2014 31 Dec 2013

(RMB mn) (%) (RMB mn) (%)

Within

3 months 587.5 53.4 727.9 63.9

3-6

months 365.6 33.3 297.6 26.2

Over

6 months 146.2 13.3 112.4 9.9

Total 1,099.3 100.0 1,137.9 100.0

Turnover

days 96 -

Trade

Payables

30 June 2014 31 Dec 2013

(RMB mn) (%) (RMB mn) (%)

Within

3 months 675.2 83.7 513.1 85.9

3-6

months 109.1 13.5 45.5 7.6

Over

6 months 22.2 2.8 38.9 6.5

Total 806.5 100.0 597.5 100.0

Turnover

days 101 -

18


A very healthy balance sheet provides strong and solid support

to sustainable growth of the Group

Solid Balance Sheet & Net Bank Balance

30 June 2014 31 Dec 2013 Change

Current Assets (RMB mn) 6,729.4 6,352.2 5.9%

Current Liabilities (RMB mn) 2,140.2 2,356.0 (9.2%)

Net Current Assets (RMB mn) 4,589.2 3,996.2 14.8%

Current Asset Ratio (times) 3.1 x 2.7 x 0.4 x

Shareholders’ Equity (RMB mn) 4,627.3 4,505.7 2.7%

Total Net Assets per Share RMB 2.13 RMB 2.07 2.7%

30 June 2014

Total net cash and bank balances

Percentage of total net assets

2,268.3

49.0%

Total net cash per Share RMB 1.04

HK$ 1.30

19


Business Review

19

20


Business Review

Preserving

Xtep’s

Leading Position

in the Fashion

Sportswear

Segment

20


21


Sports Marketing

Effective Dual-Marketing Strategy

Xtep is synonymous with

Trendiness, Sportiness and an Active and Healthy Lifestyle

Entertainment Marketing

Day Day Brothers

(天天兄弟)

Running Football Others

(謝霆鋒)

Nicholas Tse

Justin Gatlin

(韓庚)

Han Geng

Olympian Chen Ding

(陳定)

22


Sports Marketing in 1H 2014

Running

Xiamen International Marathon

Chongqing International Marathon

Standard Chartered Hong Kong Marathon

Yangzhou Jianzhen International

Half Marathon

China Zheng-kai International Marathon (Zhengzhou, Kaifeng)

Five International Marathons

23


Sports Marketing in 1H 2014 (Con’t)

Football

Football Clubs Sponsorship Football Events Sponsorship

Xtep China University Football League

(特步中國大學生足球聯賽)

Xtep China Colleague Futsal League

(特步中國大學生五人制足球聯賽)

ZSFL Xtep League

(“特步杯”浙江省中小學校園足球聯賽)

La Liga, Villarreal C.F. (西甲維拉利爾足球俱樂部)

China All Star Football Team (中國明星足球隊)

Chinese Football Reporter United (中國足球記者聯隊)

Beijing Institute of Technology FC (北京理工大學足球俱樂部)

Hong Kong First Division League, Hong Kong Rangers FC

(港甲標準流浪足球會)

Hong Kong All Star Sports Association (香港明星足球隊)

24


Sports Marketing in 1H 2014 (Con’t)

Other Sports Events

Other Sports Events Sponsorship

Hong Kong Olympic Day Run 2014

Samsung 57th Festival of Sport The Hockey Club ’s-Hertogenbosch a.k.a. HC Den Bosch

in the Netherlands

25


Entertainment Marketing in 1H 2014

Category Partners Campaigns

TV Commercials Official broadcast partner

TV Partnership Strategic partner

Programme

Sponsorship

Title sponsorship of

“Day Day Up” (天天向上)

Internet

Comprehensive online

shopping experience

with quality products and

value-added customer

service

Hunan Satellite TV

Unique dual sports and entertainment marketing strategy to enhance

Xtep’s brand image

CCTV Kids Channel

Anhui Satellite TV Jiangsu Satellite TV CCTV Kids Channel

26


Broadened Product Portfolio

Enriched and Enhanced Product Portfolio

Diversified Xtep portfolio catering for different

consumer needs

Expansion of the Sports Lifestyle

collection of XTOP series

to address consumers who prefer

fashion-oriented sportswear

“Dual direction shock absorber” 2.0 running series

– “1,000 km Range Protection” running shoes

Xtep “Light” 2.0 running series

27


Research and Design Enhancement

Enriched and Enhanced Product Portfolio (Con’t)

Introduced new series of outdoor products and expanded Xtep Kids series

Continued to invest in technology and explore innovative materials with R&D costs of RMB51.9 million

Dedicated resources to enhance research and design and to strengthen its professional team

In-house production ratios were 62% (2013: 69%) for footwear products and 30% (2013:17%)

for apparel products

PU upper and outsole materials

(塑膠鞋面及鞋跟物料)

P2i ion-mask™ technology

(P2i的離子封膜 TM技術)

Insoles with intelligent environment control

(智慧環保型鞋跟)

28


Consolidating Distribution Network to Enhance Operational Efficiency

Sustainable distribution channels

Total number of Xtep retail outlets as of 30 June 2014: 7,310 (31 Dec 2013: 7,360)

Xtep Kids series have 320 POS as at 30 June 2014 (31 December 2013: 300 POS),

comprising existing Xtep stores and standalone stores that are found largely in second- and

fourth-tier cities

The largest flagship and first concept store to date, the Fashion Sports

Experience Store was opened in Changsha in May 2014

Overseas operation:

- Unveiled Xtep mono-branded store in Valencia in March 2014

- Over 200 POS across the Middle East and Central and Western Europe

E-commerce

Official website www.xtep.com.cn and flagship store on leading online

retail shopping platforms, including tmall.com, JD.com and

taobao.com etc.

Strategic Distribution Network

Fashion Sports

Experience Store

29


Strategic Distribution Network (Con’t)

Consolidating Distribution Network to Enhance Operational Efficiency

Operational enhancement – retail channel management through DRP system

Increased DRP system’s coverage to over 80% of the 7,310 Xtep retail outlets

Enables the Group to quickly react to the latest trends and

market demands by readily adjusting production schedules

30


30

Future Plans

31


Future Plans

Strong association with running and football as strategic sponsorship programmes

Explore new sporting activities

Leverage the celebrity endorsements

Running products and other sports-related and lifestyle products

Further expand Xtep Kids and XTOP series

Enrich product offerings of online business by launching the XUP outdoor collection

Nationwide distribution network management

Close relationship with long-standing exclusive distributors and franchisees

Closely monitoring the performance of retail channels with DRP system

Enhancement strategies for retailers, including a flexible ordering policy

Differentiated

Marketing Strategies

Constant Enhancement

of Product Portfolio

Stringent

Management Controls

Xtep will make the best of its solid foundation

to achieve sustainable growth amid ongoing industry consolidation

32


Open Forum

32

33


Xtep – Investor Relations Department

Strategic Financial Relations Limited

Contacts

Tel: (852) 2152 0333

Email: [email protected]

Tel: (852) 2114 4937

Email: [email protected]

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