CONTENTS
1 Financial Review
2 Business Review
3 Outlook Financial Review
Mr. Vincent Lui 吕光宏先生
Director of Investment and Fund Management Result Highlights
As at 31 December 2018 Unit: RMB million
YoY 2018 2017 change
Revenue 1,706 1,455 +17.3%
Gross Profit* 955 862 +10.8%
Operating Profit 418 1,027 -59.3% Operating Profit excluding investment income 91 113 -19.5%
Profit Attributable to Equity Owners 315 805 -60.9%
Gross Profit Margin** 56.0% 59.2% -3.2 ppts
Operating Profit Margin 24.5% 70.6% -46.1 ppts Operating Profit Margin excluding investment 5.3% 7.8% -2.5 ppts income
Profit Margin Attributable to Equity Owners 18.5% 55.3% -36.8 ppts Basic Earnings Per Share 5.44 14.51 -62.5% （RMB cents）
*Before reversal of impairment losses of inventories
**Before reversal of impairment losses of inventories. In order to improve the efficiency of its logistics work and inventory structure, the Group conducted a centralized check and cleared some defective goods in China, and this resulted in a one-off decline in China’s gross profit margin by approximately 1.3 percentage point due to inventory clearance, a one-off decline in China’s gross profit by approximately 2.3 percentage points due to the change of business model to direct- franchise model and a decline in China’s gross profit margin by approximately 1.0 percentage points due to increase of retail discount.
4 Sales Analysis
As at 31 December 2018 Unit: RMB million
China Sales breakdown As % of sales YoY 2018 2017 in China change By regional YoY Offline 936 794 68.3% +17.9% market 2018 2017 % change Indirect Sales 355 319 25.9% +11.3% China 1,370 1,139 80.2% +20.3% KAPPA Direct Sales 581 475 42.4% +22.3% Adults Online 239 198 17.4% +20.7% Japan 336 316 19.8% +6.3% Indirect Sales 73 64 5.3% +14.1% Direct Sales 166 134 12.1% +23.9% 130 117 9.5% +11.1% Group 1,706 1,455 100% +17.3% KAPPA Kids Others 65 30 4.8% +116.7%
5 Gross Profit Margin* (GPM) Analysis
As at 31 December 2018
By regional YoY China market 2018 2017 change GPM by products*** YoY ** 2018 2017 change China 60.4% 65.8% -5.4 ppts Apparel 64.4% 71.0% -6.6 ppts
Footwear 55.2% 61.1% -5.9 ppts Japan 38.0% 35.8% +2.2 ppts Accessories 87.5% 73.3% +14.2ppts
56.0% 59.2% -3.2 ppts Gross profit margin Group 62.9% 68.7% -5.8 ppts of Kappa brand
* Before reversal of impairment losses of inventories
**Before reversal of impairment losses of inventories. In order to improve the efficiency of its logistics work and inventory structure, the Group conducted a centralized check and cleared some defective goods in China, and this resulted in a one-off decline in China’s gross profit margin by approximately 1.3 percentage point due to inventory clearance, a one-off decline in China’s gross profit by approximately 2.3 percentage points due to the change of business model to direct-franchise model and a decline in China’s gross profit margin by approximately 1.0 percentage points due to increase of retail discount.
*** Before reversal of impairment losses of inventories, excluding kidswear business
6 Expenses Analysis
As at 31 December 2018 Unit: RMB million
Advertising & Employees’ Design & product selling salaries & development expenses benefits expenses YoY change YoY change YoY change China 501 +21.3% 132 +21.1% 26 +18.2%
As % of total sales 29.4% +1.0 ppts 7.7% +0.2 ppt 1.5% flat Japan 42 +5.0% 44 -8.3% 19 +35.7%
As % of total sales 2.3% -0.3ppt 2.6% -0.7ppt 1.1% +0.2ppt Group 543 +19.9% 176 +12.1% 45 +25.0%
As % of total sales 31.8% +0.7ppt 10.3% -0.5ppt 2.6% +0.2ppt
7 China Operating Efficiency Analysis
As at 31 December 2018
RMB YoY Inventory Structure million change
Net inventory 301 +14.4% 2017 2018 Balance of trade 217 +63.2% 9% receivables 12% Balance of 23% 114 +23.9% 16% trade payables
Turnover YoY 72% 68% days change
Inventory 196 -16 days New products Relatively new products Old products Trade 47 +3 days receivables
Trade payables 69 -27 days
8 China Investments Income Analysis
As at 31 December 2018 Unit: RMB million
By Income Source
Investment income from financial assets 152
Interest income from loans receivables 140
Change in fair value of AFS 482 Listed-companies market value -369 Others 19 Total before Tax 424
9 9 Summary of Investment & Funds
As at 31 December 2018
Breakdown of HKD Investment Assets BN Market Cap 110
Fixed Income29% 32 32 71 Alibaba 15% 16 16
50 50 **Equity Investment 46%
12 7 Cash and Equivalent11%
Partners: Yunfeng Funds, CITIC PE Funds, Harvest Investments, Sequoia Fund etc Investing in advanced technologies, financial services, new energy, medicine and manufacturing ** Excluding Alibaba Figures above are based on the exchange rate of HKD 1:RMB 0.8762 as at 28 December 2018
10 Investment Portfolio Estimated Annualised Return on Investment Before Tax
As at 31 December 2018
1,119MN
1,503MN 83MN Chishan
50MN 298MN 2019 Estimated Annualised Yuanxin Return on Investment Before Tax Dongchao Equity Investment 4,451MN 中石化销售公司 Fixed income 7% - 8% 713MN Average annualised return Harvest 99MN Financial assets Investment Historical average internal 20% - 30% 110MN return (reference value) Hongtai 125MN Cash & cash equivalents 1.5% - 3.5% Average annualised return
11 Brand, Products, Supply Chain
Ms. Cherry Chen 陈晨 女士
Executive Director and Co-President Brand Strategy
Amid growing spending power of the younger generation within the upgrading of Chinese consumption, Kappa as a 100-year-old Italian brand continue to work relentlessly in the niche athleisure segment of the sportswear industry. Through constant self-improvement, the brand strategy revolves around the new lifestyle of younger generation, focusing on both brand and retail-level marketing. In August 2018, the brand new BANDA and KAPPA x A.FOUR Japan LABS x P.A.M. 2018FW collaboration series launched at GR8 store in Laforet GR8 Harajuku, the iconic fashion centre in Tokyo Seoul Fashion Week
In October 2018, KAPPA X CHARM’S 2019SS collaboration series launched in Seoul Fashion Week
L.A. KAPPA launched the limited edition of the Black & Gold collection at COMPLEXCON, the top fashion COMPLEXCON festival and exhibition held in the U.S. Preview - KAPPA X INXX Tmall Collection Fashion Show COHERE F/W BANDA Series 2018
Kappa Fashion Museum pop- INNERSECT – WHERE CULTURE up store in Sanlitun, Beijing HAPPENS” Exhibition in Shanghai Building Brand Assets
Sino-Norwegian Roller Skating Activity
Actively explore touchpoints to connect with target consumers through building multi- dimension sports assets revolving to brand’s core products China fencing team
DRAGON STYLE street dance Continue to increase number of influential flagship stores in Beijing Sanlitun Flagship Store core regions
a total of 23 flagship stores
Kappa Pop-up Fashion Museum in Beijing Sanlitun Upgrade Store Image Strengthen retail marketing
Hangzhou Kerry Centre STORE UPGRADE • Upgraded 233 stores • 184 stores planned to be renovated next year • Monthly sales efficiency of the renovated stores increased by 7% Changchun Charter
In 2019, Kappa will continue to launch the image of its sixth generation store and enhance its retail operation capability with an aim to strengthen the management capability for each point of sale. Key Performing Stores Xi’an SAGA Mall
Changsha Jiulong IFS
Sales driven by high price point products*
In second half of 2018, percentage of high price point products as of total sales per
store is approximately 35%, Chengdu 25% and 16% respectively for key performing stores *RMB 900 and above products
including Changsha IFS, Xi’an Jinkai SAGA and Chengdu Jinkai Mall. The Celebrity Effect and Interaction with Brand Admirers
Drawing attention of new generation of consumers on social media and e-commerce platforms through celebrities, KOL/influencers. In 2018, the online traffic grew by 29% yoy, fans number grew by 386% yoy. BANDA
• High popularity of the simple and leisure design of Kappa’s sportswears among trendsetters provides the brand a driving force for growth; • The adoption of centralised management practice for business effectively improved efficiency; • In 2018, BANDA represented 21.9% of the total retail performance. Womenswear
18FW* womenswear sales amount up 28.6% year-on-year
Percentage share of the total sales up 2.5 percentage points year-on-year
*Kappa adults subsidiaries and distributors’self-owned business Marketing Strategy 2019
1 Acquisition of core resources of the brand
Distribution/employment of core resources of 2 the brand
3 Diversification of marketing channels
4 Deepen and strengthen the brand’s international attribute Product Strategy
1 Product Development Business Units Allocation of tasks to business units by product lines and supply chains for fully utilising resources from different sources for product development; Setting up footwear business unit for wholly managing design, development and mass production of footwear; 2 Transformation of product development model Conventional model + ODM resources/factory resources for progressively increasing percentage of new resources for development; Better utilising of external resources for product development;
Precise product positioning strategy, widen 3 product tiers Developing product lines according to different target channels and consumers responding precisely to Mall, althetic city, department stores etc.; Satisfy consumers various demands by providing mid-to- high end products Enhancing rolling development 4 In response to bulk logistics model, rolling development capability for best sellers will be enhanced for shortening rolling development cycle; 25 Resources Integration for Supply Chain
Replenishment Days and Sales Efficiency*
Summer Days Needed Winter Days Needed Products Down by 33% Products Down by 15%- 18%
SKU Average Down by 13% Up by Numbers Sales Efficiency 12%
*Apparel Sales & Outlook
Mr. Zhang Zhiyong (张志勇 先生)
Executive Director, CEO and President KAPPA Gradual recovery of offline retail performance
同店销售 流水 SSS Retail Performance
Low-double- 3Q18 Mid-single- digit growth digit growth
High-single- 4Q18 Low-single- digit growth digit growth
2018 Low-single- High-single- digit growth digit growth
28 Transformation of Sales Model Full transformation into direct-franchise model
Full Transformation into Direct-Franchise model
Jan 2018 Feb to Nov Dec 2018
• Customers: Model transformation continues in Yunnan, Shanxi, Inner Mongolia and Shandong in 2019 Trial Period Launch of direct-franchise • Control and Management of Goods: Forming model regional teams for controlling and managing Northeast region: • North: goods and increasing human resources for Jilin, Shenyang Shandong, Hebei, Beijing, goods teams to enhance inventory turnover rate Xi’an under the bulk logistics model and maintain a • East: Hefei, Suzhou, Chongqing healthy inventory-to-sales ratio; • Central: • Logistics: Completing nationwide logistics Hunan, Lanzhou, Sichuan network plan; • Information System: Finalising omni-channel inventory management. Cloud Inventory Effective stock management for maximising sales opportunities
Omni-channel Inventory Sharing
For minimising stockouts at stores or wechat online store
+ Self-operated + Direct-franchise + Warehouse Logistics Strategy Enhancing time efficiency of omni-channel distribution, maximizing sales opportunities
Provide full support to the transformation of direct-franchise model Enhance efficiency of stock allocation
1 Logistics Network
2 Third Party Optimization
3 Cost Efficiency KAPPA Store Number & Structure
Specialty 7% (8%) Store Number stores 1,487 1,496 Mall
24% 350 YoY net 316 21% closure 34 23% Strucrure （14%） Kappa adults* 1,180 79% *Figures in brackets are 76% 1,137 YoY net +9PPTS comparative figures in 2017 opening 43
2017 2018 Departmental stores KappaAdults大装 KappaKids 童装 70%（78%） Consumer Strategy SCRM
Expanding club member 1 Over 260,000 club base members Automated smart marketing 2 among club members Approximately 54% active members 3 Increasing repeat purchase rate of club members Online Business
1 Online revenue +20.7% yoy to RMB239 million
Accounts for 17.4% of 2 the Group’s China revenue
3 Tmall and JD.com retail performance +27% yoy
Average transaction 4 value +11% yoy
34 2019 Online Strategy for Online Platforms, Products and Marketing
Multi-platform planning
Constant upgrade of core performing products to capture fast-growth athleisure market
To progressively expand our market share in professional sportswear, we begun to launch our new professional MOBIUS sportswear for women’s fitness online.
35 Kappa Kids
Kidswear revenue +11.1% yoy to RMB130 million, Building and enhancing brand assets 1 accounting for 9% of the Group’s China revenue 2 through continuous sponsorship for the “Chinese Football Boy” (中國足球小將)
36 Target and Outlook
Core Target Core Focus
• Channels optimisation Same store sales SSS • Establishing key performing stores, shopping-mall stores and outlets, and closing underperforming stores High-single-digit • Direct-franchise model Growth • Forming and nurturing inventory control and management team Retail performance • Product planning solutions Double-digit Growth • Summer/ winter products , and footwear • Launching brand ambassador program • Implementing incentive scheme for business units
37 Scan the QR Kappa IR Contact Code to follow Website http://www.dxsport.com Email [email protected] Tel +86 (10) 6783 6585 the Wechat Fax +86 (10) 6785 6606 Address Building 21, No. 2 Jingyuanbei Street, Beijing Economic-Technological public account Development Area Beijing, China Disclaimer of the Group’s This presentation contains certain forward-looking statements in relation to the financial conditions, operating results and business of the Company. These statements represent the expectations or beliefs of the Company regarding future events, and are subject to risks and uncertainties, whether known or unknown. Such risks and factors might result in significant brands difference between actual results, performances or events and the results, performances or events stated or implied in such statements. Certain statements, such as those including words and expressions such as “potential”, “estimate”, “expect”, “anticipate”, “target”, “intend”, “plan”, Kappa Kids Phenix “believe”, “project” and similar phrases expressed in different forms, are regarded as “forward-looking statements”. Forward-looking statements are subject to inherent risks and uncertainties. It should be noted that a number of factors might result in the actual outcome deviating from conditions expected or implied in the forward-looking statements, and in some cases Participate in activities and understand such deviation might be significant. The contents of the forward-looking statements are updated as at the date on which such forward-looking more about the information of activities of statements are made, and should not be assumed to have been revised or updated to reflect latest information or subsequent events. Market trends Kappa，Kappa Kids and Phenix brands and factors that are expected to affect the operating results of the Company are set out in the section headed “Financial Review” and etc.
38