China Dongxiang 2009 Annual Results Beats Market Expectation Sales Grew by 19.5% to RMB3,970.4 million Profit Attributable to Equity Holders Surges 19.5% to RMB1,459.5 million

Enhanced product mix contributed to widened gross margin by 1.9% points
Successful Integration with Phenix resulted in optimised efficiency

 

Financial Highlights

[24 March 2010, Hong Kong]– The leading international sportswear brand enterprise in the PRC, China Dongxiang (Group) Co., Ltd. ("China Dongxiang" or "the Group"; stock code: 3818) announced its annual results for the 12 months ended 31 December 2009 (the "year under review").

In spite of the post-Olympic issue faced by the sportswear industry in China and the global financial crisis occurred in late 2008, the Group has achieved significant growth in the period under review. Sales of the Group surged by 19.5% to RMB3,970.4 million for the year ended 31 December 2009. Profit attributable to equity holders reached RMB1,459.8 million, representing a 6.7% growth year-on-year. In 2008, the Group recorded a one-off gain of RMB146.0 million from the acquisition of Phenix. Should the one-off gain be excluded, the core operations would in fact enjoy a growth of 19.5% in profit attributable to equity holders.

The basic earnings per share were RMB25.76 cents for the year ended 31 December 2009. If the one-off gain from the acquisition of Phenix was excluded in 2008, the basic earnings per share would come to RMB21.54 cents for the year ended 31 December 2008, represented a growth of 19.6% year-on-year. After taken into consideration of the Group’s outstanding financial performance and strong cash position in 2009, the Board recommends the distribution of a final dividend and final special dividend of RMB3.91 cents and RMB9.04 cents respectively per ordinary share (totaling RMB12.95 cents per ordinary share) for the year ended 31 December 2009. Total dividend for the year amounted to RMB1,022.2million, representing dividend payout ratio of 70.0% for the year ended 31 December 2009, including 30.0% of normal dividend payout ratio and 40.0% of special dividend payout ratio.

During the period under review, gross profit and operating profit of the Group amounted to RMB2,399.4 million and RMB1,697.3 million respectively, which represented an increase of 23.4% and 27.5% year-on-year. Thanks to the termination of low profit margin international sourcing business and improvement of gross profit margin of its Japan segment, the Group’s overall gross profit margin increased by 1.9% points to 60.4%. Operating profit margin was 42.7% for the year ended 31 December 2009, representing an increase of 2.6% points year-on-year, mainly driven by the increase in gross profit margin by 1.9% and increase in other gains.

Mr. Chen Yihong, Chairman of China Dongxiang said, "2009 was a year of opportunities and challenges for China’s sportswear market. With further accelerated urbanization in China and rapidly growing spending power in second- and third- tier cities, coupled with enhancing awareness and increasing spending of consumers in the aspects of health, leisure and sports, the entire sportswear industry is blessed with expansion momentum. In the face of a complex market environment in 2009, China Dongxiang has delivered satisfactory achievement by making full use of the management’s understanding and insight of the PRC sportswear market, and by exercising effective control over the distribution channel and supply chain."

The Kappa Brand business in China market, the major business of the Group, accounted for 85.5% of the Group’s total sales for the year ended 31 December 2009. Although the PRC sportswear industry suffered from slowdown in 2009, the Group’s sales of Kappa Brand products in China market still experienced healthy growth and increased by 21.1% to RMB3,394.3 million. Apparel was the major product of Kappa Brand in China and its sales represented 75.9% (2008: 71.8%) of the brand’s total sales. The proportion of footwear and accessories were 20.1% (2008: 23.9%) and 4.0% (2008: 4.3%) respectively.

As of 31 December 2009, the Group had 41 distributors who directly or indirectly operated 3,511 retail outlets selling Kappa Brand products in China segment, representing a net increase of 703 retail outlets compared with the 2,808 retail outlets in previous year. As of 31 December 2009, 10 flagship stores were opened in Beijing, Guangzhou, Tianjin, Hangzhou, Suzhou, Harbin, Jinan and Changsha. The fourth generation store plan was launched and the first fourth generation store was opened in Shenyang in July 2009. During the year under review, the Group formed six joint ventures with six key distributors, which is used as a way to monitor and exercise influence to enhance distribution network operations and strengthen the Group’s retail network in the PRC.

In August 2009, the Group formed a strategic partnership with Taobao.com, the leading e-commerce platform in the PRC. On 11 November 2009, the online flagship store has achieved a single-day sales record of RMB4.03 million, which broken the single-day sales record for online sales of sportswear in China.

In November 2009, the Group launched a new brand slogan "We Are One" for Kappa brand targeted the China market. It is the biggest nationwide brand campaign for Kappa Brand launched by the Group. The core brand value "We Are One" has been continuously advocated on a national scale through an integrated marketing campaign, which includes a combination of large-scale print and outdoor advertisements across the country. Other major marketing and sponsorship activities of the Group in 2009 include China Open Tennis Tournament, World Golf Championships (WGC) – HSBC Champions as well as a series of golf sponsorship activities including the Buick China Golf Club League. It has become the exclusive uniform provider for the World Cyber Games (WCG), a global electronic game competition event. For entertainment marketing, other than the strategic alliance with Huayi Brothers Media Group, the Group also organised a number of promotional events including the Kappa Omini’s 40th anniversary celebration activities and Kappa X YOHO! Trendy Festivities etc.

The Group adapted to ever-changing market trends by offering products with active, fashionable and youthful designs. As of 31 December 2009, the Group’s design team consists of 61 people, including PRC nationals, Japanese, Korean and Italians. Apart from the 63 talented and knowledgeable specialists of Phenix, the Group’s in-house design and merchandising team’s capabilities were further strengthened by external cooperation with overseas institutions such as the University of Arts London ("UAL") and WGSN or third party design houses such as Michael Michalsky. These kinds of collaborations will definitely help broaden the Group’s product line and strengthen the fashion elements of its merchandise.

In the PRC market, the Group has adopted a comprehensive supply chain management approach and an asset-light business model. In order to further integrate the respective strengths of the PRC and Japanese companies within the Group, the Group and Mercer, the world’s leading consulting firm, cooperated to integrate the supply chain in 2009. Upon integration, the production cost of Phenix has been greatly optimised.

In collaboration with Booz & Company, an internationally renowned consulting firm, the Group has recently conducted a review on its corporate strategy. In future, the Group’s operations will focus on the following aspects: Strengthening brand portfolio to realise multi-brand operations; Reinforcing the scientific brand management process; Deepening channel management and retail capabilities and a more flexible tailored supply chain.

Looking ahead, Kappa Brand will remain as the core business of China Dongxiang. The Group will expand and explore opportunities in other market segments through other brands, such as Robe Di Kappa, Phenix and inhabitant. In addition, It will make a more scientific definition of brand connotation factor of major brands within the Group and enhance its internal brand management culture and process. The Group will continue to step up brand building through marketing campaigns in order to uplift brand awareness among consumers and continue to position the brand at the forefront of sportswear fashion in China market through systematic R&D and product innovation.

On the other hand, the Group will speed up the expansion and penetration of Kappa stores in center cities and first tier cities and increase the number of flagship store in center markets. It will also seek to react more promptly to the ultimate market through establishment of a professional product management team. It will continue to integrate the supply chain operations among the PRC and Japanese companies in order to synchronize technical development and synergize productions among the PRC and Japanese companies.

Chairman Chen added, "In light of vivid economic development in China, we are confident of the medium- to long-term prospects of the sportswear market in China. Given accelerated pace of urbanization in China and continued increase in disposable income along with economic growth, we believe that China’s sportswear market is set to gear towards new heights."

 

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About China Dongxiang (Group) Co., Ltd.
China Dongxiang (Group) Co., Ltd. is a leading international sportswear brand enterprise based in China and was successfully listed on the Stock Exchange of Hong Kong Limited on 10 Oct, 2007. The Group is primarily engaged in the design, development, marketing and wholesale of branded sportswear in China. Currently, China Dongxiang owns all rights to the internationally recognized Kappa Brand in China, Macau and Japan. Its products convey an active, fashionable and youthful image and are warmly welcomed by China’s fast growing and high potential consumers. The Group finished its acquisition of a Japan sportswear enterprise Phenix on 30 April 2008. The international brand "Phenix" has the greatest market share in the skiing and outdoor sportswear market in Japan.