THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW FROST & SULLIVAN REPORT We commissioned Frost & Sullivan, an independent global market research and consulting company based in the United States which was founded in 1961, to conduct an analysis of, and to report on, the sportswear market in the PRC as well as some brief sportswear market information on Europe and United States at an aggregate fixed fee of RMB228,000. The Frost & Sullivan report we commissioned includes information on the PRC sportswear market such as sales value, market share and ranking of brand sportswear companies, total sportswear consumption, consumption per capita and other economic data, which have been quoted in this document. Frost & Sullivan’s independent research was undertaken through both primary and secondary research obtained from various sources. Primary research involves interviewing leading industry participants including sportswear brand companies and sportswear retailers. Secondary research involves reviewing company reports, independent research reports and data based on Frost & Sullivan’s own research database. Projected total sportswear consumption and total sales value in the PRC were obtained from historical data analysis plotted against macroeconomic data as well as specific related industry drivers such as level of brand awareness, product variety, awareness of sporting activities, potential in tier two and tier three cities, mapped against available projected drivers obtained through interviews with industry experts and participants. In the preparation of its report, Frost & Sullivan has made the following major assumptions: • The post-Olympics effect is likely to drive the development of the PRC sportswear industry; • The PRC’s economy is expected to remain steady growth in the next decade, even under the global financial crisis; • Chinese people, especially urban residents, are likely to spend more on sportswear due to increased disposable income; • Sportswear is becoming popular since people tend to wear them on casual occasions more and more; and • The PRC’s social, economic, and political environment is believed to remain stable in the forecast period, which ensure the stable development of sportswear industry. Certain information and statistics set forth in this section are derived from publications of International Monetary Fund (the “IMF”). The IMF was created in July 1944 and has 186 member countries as at the Latest Practicable Date. The work of IMF is of three main types, which includes (i) monitoring of economic and financial developments, and the provision of policy advice; (ii) lending to countries with balance of payments difficulties and low-income countries; and (iii) providing countries with technical assistance and training in its areas of expertise. Publications of IMF were not commissioned by our Company. —44— THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW INTRODUCTION During the Track Record Period, our principal product was sports footwear which accounted for approximately 94.6%, 89.4%, 73.7% and 71.3% of our total revenue. Notwithstanding the aforesaid, we gradually increased our focus on sports apparel which accounted for approximately 1.9%, 9.1%, 24.3% and 26.5% of our total revenue during the same period. In terms of geographical coverage, we sell our products in the PRC as well as overseas markets which mainly include European countries and the United States. During the Track Record Period, we gradually shifted our market focus to the PRC and concentrate largely in the second and third tiers cities. THE PRC MARKET Overview The PRC has the largest population in the world which rendering it a large consumer market. As a result of the rapid economy growth over the past thirty years in the PRC during which the PRC government implemented its economic and social opening reform, there has been remarkable increase in disposable income and substantial improvement in living standards of the Chinese population, which have resulted in the increased awareness of healthy life styles. According to Frost & Sullivan, sportswear has now become an indispensable item of people’s daily lives in the PRC and the total expenditure on sportswear in the PRC has grown rapidly from approximately USD3.3 billion in 2004 to approximately USD9.8 billion in 2008. The global financial crisis in the fourth quarter of 2008 has mild impact on Chinese sportswear industry because the drop in the export volume of sportswear products was compensated by the increased domestic demand. It is expected that the total expenditure on sportswear in the PRC will reach approximately USD42.1 billion by the end of 2013. —45— THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW Economy Growth According to the National Bureau of Statistics of China, the PRC recorded nominal GDP of approximately USD4,327.6 billion (RMB30,067.0 billion) in 2008, representing a CAGR of approximately 22.3%, from approximately USD1,931.6 billion (RMB15,987.8 billion) in 2004. The PRC’s nominal GDP per capita in 2008 amounted to USD3,267.0 (RMB22,698.0), representing a growth of approximately 119.2% from USD1,490.4 (RMB12,336.0) in 2004. According to IMF, it is projected that the PRC’s nominal GDP per capita may experience continuous growth in the coming years. The following diagrams illustrate the historical nominal GDP and nominal GDP per capita in the PRC for the periods indicated, respectively. Nominal GDP in the PRC, 2004-2008 (USD Billion) 9,000 8,000 7,000 6,000 5,000 4,327.6 4,000 3,280.8 2,658.2 3,000 2,236.1 1,931.6 2,000 1,000 0 2004 2005 2006 2007 2008 Source: Data converted into US$ from RMB with the average exchange rate of the corresponding year: National Bureau of Statistics of China, 2008 Statistics Yearbook, October 2008 Nominal GDP per capita in the PRC, 2004-2008 (USD) 7,000 6,000 5,000 4,000 3,267.0 3,000 2,489.4 2,027.6 1,715.2 2,000 1,490.4 1,000 0 2004 2005 2006 2007 2008 Source: Data converted into US$ from RMB with the average exchange rate of the corresponding year: National Bureau of Statistics of China, 2008 Statistics Yearbook, October 2008; —46— THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW Accelerating Urbanization Trend With the sustained economic growth in the PRC, urbanization has grown steadily. The PRC’s urbanization is represented by the continuous increase in size and number of cities and towns. From 2004 to 2008, the urbanization rate in the PRC increased from 41.8% to 45.7%. The average annual growth rate was 2.3%, representing approximately 2.9 times of the average annual growth rate of the world in the same period. According to Frost & Sullivan, the urbanization rate for the PRC will experience continuous growth in coming years. The following chart illustrates the population growth and urbanization rate in the PRC from 2004 to 2008. Urban Population and Urbanization Rate in the PRC, 2004-2008 (Million) (%) 800 60% 750 55% 700 606.7 650 593.8 50% 577.1 562.1 600 542.8 45.7% 45% 550 44.9% 43.9% 43.0% 41.8% 500 40% 2004 2005 2006 2007 2008 Urban Population Urbanisation Rate Source: National Bureau of Statistics of China, 2008 Statistics Yearbook, October 2008 —47— THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW Rising disposable income Together with the continuous growth in economy and urbanization, the average income level of the PRC’s households has also increased continuously in recent years. The following chart illustrates the actual per capita annual disposal income in the PRC from 2004 to 2008. Per Capita Annual Disposable Income of Urban Households in the PRC, 2004-2008 (USD) 4,000 3,500 3,000 2,500 2,271.4 2,000 1,812.6 1,475.0 1,500 1,280.6 1,138.3 1,000 500 0 2004 2005 2006 2007 2008 Source: National Bureau of Statistics of China, 2008 Statistics Yearbook, October 2008 Furthermore, in terms of consumption expenditure between first tier, second tier and third tier cities, the annual per capita consumption expenditure of urban households in tier one cities have experienced rapid growth since 1995. However, in recent years, the growth rate in tier one cities have slowed down while that of tier two and/or three cities inched up, which is mainly driven by the PRC’s continuous economic growth. —48— THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack. INDUSTRY OVERVIEW Changing consumption habit and continuous growth As a result of the rapid growth in economy, the accelerating urbanization and the rising disposable income, the retail market in the PRC has grown at a rapid pace.