FY2011 Annual Results Presentation - TodayIR.com

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FY2011 Annual Results Presentation - TodayIR.com

FY2011 Annual Results

Presentation

March 2012

1


Disclaimer

This document has been prepared by Hosa International Limited (the “Company” or “Hosa”) and comprises the written materials for a presentation concerning, among other matters, the

Company‟s background information and financial performance for the year ended 31 December 2011. For the purposes of this document, the presentation that follows (the “Presentation”)

shall mean and include the slides that follow, the oral briefing provided by the Company on the slides and the question and answer session that follows the oral briefing. This document has

been prepared by the Company solely for use at the Presentation and is strictly confidential. This Presentation may not be taken away, reproduced, redistributed, disclosed or passed on,

directly or indirectly, to any other person, or published, in whole or in part, in any manner, at anytime or for any purpose. In particular, neither this Presentation nor the information contained

herein may be distributed, taken or transmitted in or into the PRC, the United States, Australia, Canada or Japan, in whole or in part. The distribution of this document in other jurisdictions may

be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Failure to comply with this restriction may

constitute a violation of applicable securities laws.

This Presentation shall not constitute, and should not be construed as, an offer or form part of any offer to sell or a solicitation of an offer or form part of any offer to buy or subscribe for the

Company's securities nor shall there be any sale of such securities in any state or country in which such offer, solicitation or sale would be unlawful prior to registration or qualification under

the securities laws of any such state or country. No securities of the Company have been, or will be, registered under the US Securities Act of 1933, as amended (the “US Securities Act”) or

the securities laws of any state or other jurisdiction of the United States and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not

subject to, the registration requirements of the US Securities Act and the applicable securities laws of any state or other jurisdiction of the United States. Neither shall this Presentation

constitute, and be construed as, an offer or form part of any offer to sell or a solicitation of an offer or form part of any offer to buy or subscribe for the Company‟s securities in Hong Kong. No

part of this Presentation shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto.

This Presentation contains certain forward-looking statements that reflect the Company‟s current beliefs and expectations about the future. These forward-looking statements involve known

and unknown risks, uncertainties and are based on a number of assumptions about the Company‟s operations and other factors, many of which are beyond the Company‟s control, and

accordingly, actual results may differ materially from those expressed or implied by such forward-looking statements. You should not take any forward-looking statements contained in this

Presentation regarding past trends or activities as a representation that such trends or activities will continue in the future. The information and opinions in this Presentation are provided as at

the date of this Presentation and are subject to change without notice and accuracy is not guaranteed. The Company do not guarantee that the assumptions underlying forward-looking

statements, opinions or views are free from errors nor do they accept any responsibility for the future accuracy of the assumptions, opinions and views expressed in this Presentation or the

actual occurrence of the forecasted developments. The Company accept no obligation to update any forward-looking statements set forth herein or to adjust them to future events and/or

developments. You should not place undue reliance on forward-looking statements, which speak only as of the date of this document.

The information contained in this Presentation has not been independently verified. This Presentation does not purport to provide a complete description of the matters to which it relates and it

is not the intention to provide, and you may not rely on this Presentation as providing, a complete or comprehensive analysis of the Company‟s financial or trading position or prospects. This

Presentation contains information and data relating to the industry in which the Company operates, which the Company has derived from third party sources without independent verification.

The Company cannot ensure that these sources have compiled such information and data on the same basis or with the same degree of accuracy or completeness as are found in other

industries, and you are cautioned not to place undue reliance on such information and data.

The information and opinions in this Presentation are given in summary form and do not purport to be complete. No representation, warranty or undertaking, express or implied, is or will be

made in, or in relation to, and no responsibility or liability (including, without limitation, any liability in negligence) is or will be accepted by the Company or any of their respective subsidiaries,

subsidiary undertakings or holding companies (where appropriate), or any of their respective affiliates, and their respective directors, officers, employees, agents and advisers as to, or in

relation to, this Presentation or the fairness, accuracy, correctness or completeness of the information or opinions contained herein or any other information, whether written or oral, made

available to any interested party or its advisers, and any liability therefore (in negligence or otherwise) for any loss or damage whatsoever arising from the use of the information contained in

this Presentation or otherwise arising in connection therewith is hereby expressly disclaimed.

By attending the Presentation to which this document relates or by accepting this document, you agree to be bound by the foregoing provisions, restrictions, limitations and conditions and, in

particular, you have represented, warranted and undertaken that you have read and agreed to comply with the contents of this notice.

2


Presentation Team

Mr. Shi Hongliu

Founder, Chairman and Executive Director

Mr. Zhao Yan

Executive Director

Mr. Dickson Lai

Chief Financial Officer

3


Result Highlights

Revenue reached RMB695.2 million, up 99.9% y-o-y

Profit from continuing operations rose significantly by 190.0% to RMB273.7 million

Gross margin expanded to 62.2%, up 13.5 bps

Operating margin reached 45.6%, up 12.5 bps

Net margin reached 39.4%, up 12.3 bps

The number of Hosa retail outlets in China has reached 1,212 by the end of

year 2011, operated by 29 distributors along with their sub-distributors

Successfully listed on HKEx on December 16, 2011, and raised fund at a net of

RMB488.6 mm

Basic earnings per share increased by 120.0% to RMB0.22 and the Board proposed

to declare a final dividend of HKD8.4 cents per share for the year

4


Company Strengths

1 A leading indoor

sportswear enterprise

in China

6 Experienced and

committed

management team

2

Efficiently managed

nationwide sales and

distribution network

5 Comprehensive

portfolio of high-quality

indoor sportswear

products

4 Capabilities to swiftly

respond to market trends

using streamlined design

and production workflow

3 Effective brand

promotion through

professional and

targeted marketing

channels

5


I. Company Overview

II. Financial Review

III. Future Strategy

IV. Appendix

6


Company Overview

- Pioneer in China Indoor Sportswear

Unique Mid-high End Brand Positioning - the

Largest Indoor Sportswear Brand in China (1)

Strategically Deployed and Efficiently Managed

Distribution Network

(15)

Heilongjiang

A symbol for ACTIVE, FASHIONABLE and HEALTHY lifestyles

Qinghai

(2)

(3)

Yunnan

(69)

Sichuan

(14)

(178)

Inner Mongolia Beijing

(26)

Tianjin

Ningxia (32) (39)

(6)

Shanxi Hebei (66)

(16)

(31)

Guizhou

(36)

Shaanxi

Chongqing

(14)

Guangxi

(2)

Hainan

(50)

Hubei

(26)

Hunan

(69)

Henan

(99)

Guangdong

Shandong

(21)

Jiangxi

(46)

Fujian

(66)

Zhejiang

(13)

Jilin

(51)

Liaoning

(34) Jiangsu

(114)

Anhui

(71) Shanghai

1,212 Retail Outlets

covering 28

Provinces,

Autonomous Regions

and Municipalities (2)

More than 60 retail outlets

40-60 retail outlets

20-39 retail outlets

Less than 20 retail outlets

Extensive Recognitions

Focused and Specialized Indoor Sportswear

Product Portfolio (3)

2011 – Nominated for the “Jack 7th China Apparel Brands Annual Award''

2010 – „„China‟s Top Ten Innovative Sports Products‟‟ for the Company‟s

tight-fitting fitness wear

34.1%

38.9%

22.3%

4.7%

2009 – „„Top Ten Swimwear Brands‟‟

2008 – „„Exemplary Brand in China‟s Swimwear Industry‟‟

2008 – 2010 „„China‟s 500 Most Valuable Brands‟‟

Swimwear

Fitness Wear

2006 – 2010 „„Special Contribution Award for China‟s Knitting Industry‟‟

(1) In terms of 2010 ex-factory domestic sales according to Frost & Sullivan

(2) As of December 31, 2011

(3) FY2011 revenue breakdown by product

Sports Underwear

Accessories

7


Professional Retail

Channels

Efficiently Managed Nationwide Sales and

Distribution Network

Strategically Deployed Distribution Coverage (1)

Diversified and Innovative Retail Channels

(15)

Heilongjiang

(13)

Jilin

Specialty Stores

Qinghai

(2)

(3)

Yunnan

(69)

Sichuan

(14)

Inner Mongolia

Ningxia

(6)

(35)

Chongqing

(16)

Guizhou

(36)

Shaanxi

(14)

Guangxi

(32)

Shanxi

(50)

Hubei

(22)

Hunan

(69)

Henan

(178)

Beijing

(26)

Tianjin

(39)

Hebei

(66)

Shandong

(21)

Jiangxi

(99)

Guangdong

(34)

Anhui

(46)

Fujian

(65)

Jiangsu

(71)

Zhejiang

(51)

Liaoning

(114)

Shanghai

Department

Stores

Online Stores (2)

(2)

Hainan

More than 60 retail outlets

40-60 retail outlets

20-39 retail outlets

Less than 20 retail outlets

Hosa’s efficiently managed distribution network and strong presence in 1 st tier cities in China well

positions Hosa to further expand its sales coverage in growing markets

(1) As of December 31, 2011

(2) Hosa products are currently sold by a distributor on taobao.com and paipai.com which are subsidiaries of Alibaba and

Tencent, respectively

8


Business reporting

Business reporting

Directly Monitor

Efficiently Managed Nationwide Sales and

Distribution Network (Cont’d)

Distributor Network Management

Directly manage

and monitor

Distributor

Selection

Criteria

Sales Channel

Capital Resources

Local Recognition and

Business Network

Industry and Retail

Experience

Managerial

Capabilities

Ability to Secure

Appropriate Retail

Locations

Distributors

Manage

and monitor

Sub-

Distributors

Manage

and monitor

Manage

and

monitor

Distributor /

Inventory

Management &

Control

Distributors are required to

strictly follow and to manage

and make sure sub-distributors

follow Hosa’s standard sales

management manual and

contract terms on:

• Pricing policies

• Retail outlet design and

promotional materials

• Providing business reports

for Hosa’s review

Only allow return

of products in the

case of quality

defects

Provide guidance

and sales support

Perform frequent

and random store

visits

Provide regular

training to ensure

uniform store

image and service

Retail Outlets

Expansion

Planning

• Work closely with distributors in jointly developing a structured

expansion plan

• All new retail outlet openings need to be pre-approved

Hosa implements a strong distribution network management system that enables effective regulation

of the expansion, distribution and image of its network and products

9


Effective Brand Promotion Through

Professional and Targeted Marketing

Channels

Event

Sponsorship

Onsite

Marketing

Media

Advertising

International, national and regional

Pageants, sports aerobics contest, fiveminute

fitness program

Promotes brand name and exhibits

products

Creative and targeted advertising

efforts enables Hosa to effectively

further extend market reach to a

broader target consumer base

Hosa fitness gyms, professional

stadiums, recreational facilities

Show case own products via fitness

trainer demonstration

Build professional brand image of Hosa

Hosa actively promotes its brand as the premier brand for indoor sportswear products

via creative and diverse marketing channels

10


Capabilities to Swiftly Respond to Market Trends

Using Streamlined Design and Production

Workflow

Real-time Market

Data from Multiple

Channels

Leveraging of

External Expertise

Accumulated

Proprietary

Expertise and

Know-how

Long-term

Cooperation with

Fabric Suppliers

Concerted In-house

R&D Teams

• General design

• Technology R&D

• Swimwear

• Fitness wear

• Sports underwear

Latest Fabric Technologies

Special Design, Cutting and Sewing Process

Nylon and Lycra

combination fabrics

Warp-knitted

Stretch Fabrics

Coolmax

Bamboo

Charcoal

Modal

One Stop Shop Experience for FUNCTIONAL, COMFORTABLE and FASHIONABLE Main Products

Complemented by a Wide Range of Accessories

11


I. Company Overview

II. Financial Review

III. Future Strategy

IV. Appendix

12


Accelerated Growth Backed by Maturing

Business Model

Number of Retail Outlets Net Profit (1)

(RMB mm)

(1)

(RMB mm)

273.7

1,212

695.2

4.7%

38.9%

666

505 522

347.8

5.4%

22.3%

94.4

32.1%

204.6

1.4%

26.7% 159.2

2.7%

33.2%

42.7%

19.7%

29.2% 44.4%

Revenue (1) 28.2 28.6

Due to decrease in

overseas sales as

well as adjustment

of product mix

21.2%

41.3%

34.1%

FY2008 FY2009 FY2010 FY2011

(1) From continuing operations

FY2008 FY2009 FY2010 FY2011

Swimwear

Fitness Wear

Sports Underwear Accessories

FY2008 FY2009 FY2010 FY2011

13


Solid Margin Expansion and Significant

Profitability Growth

Operating Profit and

Gross Profit and Gross Margin (1) Operating Margin (1)

Net Profit and Net Margin (1)

(RMB mm)

2.9

(RMB mm)

(RMB mm)

273.7

317.2

Decreasing

proportion of

oversea sales

drives margin

expansion

62.2%

52.2% 60.2%

53.4%

41.4%

42.7%

48.7%

429.7

39.4%

30.4%

39.5%

14.6

115.1

94.4

27.8%

7.7

9.4

54.6 53.5

10.6%

28.5%

154.9

13.5%

27.6

18.8%

29.9

33.1%

13.8%

28.2

18.0%

28.6

27.1%

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

GP (Domestic)

GP Margin (Domestic)

GP Margin (Group)

GP (Overseas)

GP Margin (Overseas)

Operating Profit

Operating Margin

(1) From continuing operations; Gross margin, operating margin and net margin are calculated by gross profit, operating profit

and net profit divided by revenue respectively

Net Profit

Net Margin

14


Competitive Cost Structure

COGS (1)

SG&A (1)

(RMB mm)

69.6%

142.4

1.5

16.7

17.4

106.8

96.3

8.5

12.1

14.0

61.6

Due to increased sales

of higher margin

products and

greater economies of

scale

60.5%

178.4

10.1

19.4

20.6

128.3

51.3%

262.6

37.9

8.8

32.5

37.8%

183.4

(RMB mm)

17.1%

35.1

33.8

10.7 10.0

24.4 23.7

Due to greater economics of

scale and transformation to

distributorship model;

increase in 2011 due to one-off

IPO expenses

21.2%

16.1%

55.8

26.7

29.1

120.4

17.3%

55.1

65.3

FY2008 FY2009 FY2010 FY2011

Procurement cost of finished products

Manufacturing overhead

Labor

Raw material

As % of Revenue

FY2008 FY2009 FY2010 FY2011

Administrative Expenses

Selling & Distribution Expenses

As % of Revenue

(1) For continuing business

15


Improving Profitability Across All Segments

Driven by Wholesale Discount Decrease, Product

Mix Adjustment and Decrease in Oversea Sales

Swimwear

Fitness Wear

(RMB mm)

46.3%

41.8%

25.8%

27.1

28.9

16.5%

32.7 41.7

58.8%

28.4%

45.5

97.9

64.8%

4.4

59.4%

232.9

(RMB mm)

45.2%

45.6

41.8

7.0%

50.0%

45.5%

35.9% 29.0%

5.4

4.8

68.4

26.5

67.7%

66.9%

0.50

154.8

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic)

GP Margin (Domestic)

Revenue (Overseas)

GP Margin (Overseas)

Revenue (Domestic)

GP Margin (Domestic)

Revenue (Overseas)

GP Margin (Overseas)

Sports Underwear (1)

Accessories (2)

(RMB mm)

37.2%

40.4%

47.1%

57.0%

(RMB mm)

59.3%

55.4%

65.4%

54.5 52.9

111.6

270.3

17.1%

2.9 4.0

18.9

32.4

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

Revenue (Domestic)

GP Margin (Domestic)

Revenue (Domestic)

GP Margin (Domestic)

Note: Gross margin is calculated by gross profit divided by revenue

(1) Hosa did not have any overseas sports underwear sales

(2) Hosa did not have any overseas accessories sales in 2011

16


Sales Volume and ASP by Operating

Segments

Swimwear

Fitness Wear

2,171

27.6

2,574

27.4

Due to decrease

in oversea sales

4,002

35.8

3,686

64.4

3,444

25.4

51.1 51.7

613

1,428

73.8

2,104

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

Volume ('000)

ASP (RMB)

Volume ('000)

ASP (RMB)

Sports Underwear

Accessories

3,342

946

1,440 1,357

37.9 39.0

2,016

55.3

80.9

21.1

140

17.4

250

703

26.9

34.2

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

Volume ('000)

ASP (RMB)

Volume ('000)

Increasing pricing power due to the change of product mix

and positioning towards premium products

ASP (RMB)

17


Debt Profile

Interest Bearing Debt

Improving Credit Profile

(RMB mm)

Due to purchases

of more raw materials

Gearing Ratio (1)

at relatively lower

48.8%

126.9

prices

38.2%

33.0%

98.8

6.0%

39.0

0.0

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

Net Debt to Equity Ratio (2)

• All interest bearing debt of the company were short-term and

due within one year for FY08- FY10

92.2%

Cash and Cash Equivalents (3)

(RMB mm)

Due to purchases

of more raw materials

at relatively lower

prices

635.6

23.2%

5.0%

FY2008 FY2009 FY2010 FY2011

Net Debt to EBITDA Ratio (2)(4)

3.60x

Net Cash

17.6 15.6

83.8

0.76x

0.13x

Net Cash

FY2008 FY2009 FY2010 FY2011

(1) Calculated using total bank borrowings and bills payables divided by total assets

(2) Net debt is defined as the interest bearing debt, less cash and equivalents

FY2008 FY2009 FY2010 FY2011

(3) Excludes pledged bank deposits of RMB10.3mm, RMB13.2mm, RMB37.9 mm for FY2008, FY2009 and FY2010 respectively

(4) EBITDA is adjusted for other revenue and other net income/loss

18


Working Capital Cycle

(No. of days)

Average Inventory

Turnover Days (1)

Due to purchases

of more raw materials

at relatively lower prices

in the year of 2009

253

Average Trade and Bill Receivables

Turnover Days (2)

(No. of days)

• Hosa generally grants a payment term of

60 to 90 days to its distributors for credit

sales. For customers with good credit

history and larger operation scale, we

may grant a longer payment period of up

to 180 days

Due to the low

starting balance

in 2008 (4)

94

99

104

Average Trade and Bills Payables

Turnover Days (3)

(No. of days)

• Hosa has been granted a credit period

from 30 days to 180 days by its suppliers

180

Due to the

expansion of

business operations

and the increased

purchases of raw

materials in 2009

87

123

105

50

88

113

120

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

FY2008 FY2009 FY2010 FY2011

(1) Calculated as the average inventory balances at the starting and ending divided by cost of sales from both continuing and discontinued operations and multiplied by 365 days (2) Calculated as the average trade

receivables balances at the starting and ending divided by revenue from both continuing and discontinued operations and multiplied by 365 days (3) Calculated as the average trade and bills payables balances at the

starting and ending divided by cost of sales from both continuing and discontinued operations and multiplied by 365 days (4) Before late 2007, Haosha Garments operated the Hosa indoor sportswear business and it

transferred relevant production facilities to Haosha Industry in October 2007. Haosha Industry, the Company’s core operating subsidiary, began to operate the indoor sportswear business afterwards and, therefore,

the starting balance of trade and bills receivables in 2008 was relatively low

19


I. Company Overview

II. Financial Review

III. Business Strategies

IV. Appendix

20


Business Strategies

R&D

1

Strengthen Hosa’s research, design and

development capabilities and optimize product mix

Branding

2

Further strengthen marketing activities to promote

Hosa’s products and enhance Hosa brand culture

Channel

3

Solidify leading position by expanding Hosa’s

sales and distribution network

Operations

4

Enhance Hosa’s operating and cost efficiencies by

implementing integrated supply chain and

information management systems

Hosa’s goal is to solidify its leading position in the PRC indoor sportswear market

21


I. Company Overview

II. Financial Review

III. Future Strategy

IV. Appendix

22


Summary Income Statement

(RMB ’000) Years ended December 31,

2008 2009 2010 2011

Continuing operations

Turnover 204,643 159,169 347,787 695,168

Cost of sales (142,383) (96,253) (178,382) (262,552)

Gross profit 62,260 62,916 169,405 432,616

Other revenue 240 664 1,928 4,673

Other net income/(loss) 142 64 (379) 340

Selling and distribution expenses (24,431) (23,737) (29,122) (65,331)

Administrative and other operating expenses (10,655) (10,041) (26,695) (55,086)

Profit from operations 27,556 29,866 115,137 317,212

Finance costs (921) (2,640) (6,382) (1,544)

Profit before taxation 26,635 27,226 108,755 315,668

Income tax benefit/(expense) 1,596 1,382 (14,380) (41,937)

Profit from continuing operations 28,231 28,608 94,375 273,731

Discontinued operations

Profit from discontinued operations 734 79 4,135 -

Other net income - - 17,596 -

Other comprehensive income for the year - - - (638)

Profit and total comprehensive income 28,965 28,687 116,106 273,093

23


Summary Balance Sheet

Assets

Liabilities and Equity

(RMB ’000) As at December 31,

Assets

2008 2009 2010 2011

(RMB ’000)

Liabilities

As at December 31,

2008 2009 2010 2011

Inventories 68,972 131,017 51,376 100,061

Trade prepayments and other receivables 96,818 170,060 290,925 226,657

Pledged deposits 10,290 13,240 37,920 13,171

Cash at bank and in hand 17,637 15,645 83,827 635,617

Total current assets 193,717 329,962 464,048 975,506

Property, plant and equipment 15,257 15,839 51,868 48,413

Construction in progress - 10,953 - -

Intangible assets 50 231 151 178

Bank loans 39,000 126,880 98,800 –

Trade and other payables 79,819 112,769 128,966 149,777

Current taxation – – 8,291 16,808

Total current liabilities 118,819 239,649 236,057 166,585

Total liabilities 118,819 239,649 236,057 166,585

Equity

Paid in capital 60,839 60,839 121,500 13,027

Reserves 31,089 59,776 175,891 864,204

Total equity 91,928 120,615 297,391 877,231

Lease prepayments - - 12,104 11,862

Deferred tax assets 1,723 3,279 5,277 7,857

Total non-current assets 17,030 30,302 69,400 68,310

Total assets 210,747 360,264 533,448 1,043,816

24


Summary Cashflow Statement

(RMB ‘000) Years ended December 31,

2008 2009 2010 2011

Net cash (used in) /

generated from operating activities (35,105) (68,445) 107,366 309,318

Net cash(used in)/generated from investing

activities (14,965) (17,960) (66,787) 36,321

Net cash generated from /

(used in) financing activities 59,594 84,413 27,603 206,151

Net increase / (decrease) in cash and cash

equivalents 9,524 (1,992) 68,182 551,790

25

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