Annual Trinity Limited Report Incorporated in Bermuda with limited liability 2014 Stock Code: 891 Target Globally Think Locally hua (pinyin) meaning in Chinese Chinese. Luxury. Gorgeous. Trinity’s suite of refined and distinctive menswear brands, Kent & Curwen, Gieves & Hawkes, Cerruti 1881, and D’URBAN, continue to generate excitement across the fashion world. 1 Urumqi The Greater China market cities stores 65 390 Global Offices Chinese Mainland Beijing, Chengdu, Guangzhou, Shanghai, Wuhan France Paris | Hong Kong, SAR Singapore | Taiwan Taipei United Kingdom London 10 Harbin Changchun 4 3 Jilin numbers of stores in city Shenyang 18 2 Dandong 1 Chengde Huhehaote 3 33 Beijing 3 Tangshan 3 Datong 5 Dalian Baotou 1 10 Tianjin 1 Ordos 3 Baoding 4 Shijiazhuang Yantai 3 3 Weihai Jinchang 3 6 Taiyuan 1 Xingtai 3 Jinan 4 Handan 2 Qingdao Lanzhou 4 2 Zhengzhou 4 Yancheng 1 Yangzhou 14 Xian 1 Nanjing Changzhou 1 Wuxi 4 1 Hefei 27 Shanghai 7 Suzhou 3 Huzhou Hangzhou 7 3 Zhoushan 3 Yichang 11 Wuhan 3 Ningbo Shangyu 2 Chengdu 14 Chongqing 4 2 Nanchang 1 Wenzhou 2 Changsha Guiyang 6 3 Fuzhou 26 Taipei Hsinchu 1 1 Banqiao Xiamen 8 Taichung 5 Kunming 3 Tainan 3 11 Guangzhou Kaohsiung 5 4 Huizhou Nanning 5 16 Shenzhen 29 Hong Kong Macau 9 4 Haikou Contents 2 Corporate Information 3 Highlights 16 Chairman’s Statement 20 Chief Executive Officer’s Overview 26 Discussion and Analysis 50 Corporate Governance Report 69 Directors and Senior Management 78 Information for Investors 79 Directors’ Report 89 Independent Auditor’s Report 91 Consolidated Financial Statements 180 Financial Summary TRINITY LIMITED ANNUAL REPORT 2014 Corporate Information 2 Executive Directors Registered Office Richard Samuel COHEN Clarendon House (Chief Executive Officer) 2 Church Street Hamilton HM 11 Bruno LI Kwok Ho Bermuda (Chief Financial Officer) Danny LAU Sai Wing Head Office and Principal Place of Business (Chief Operating Officer) 30/F, OCTA Tower 8 Lam Chak Street Non-executive Directors Kowloon Bay, Kowloon Dr Victor FUNG Kwok King GBM, GBS, CBE Hong Kong (Chairman) Website Dr William FUNG Kwok Lun SBS, OBE, JP (Deputy Chairman) www.trinitygroup.com Sabrina FUNG Wing Yee Principal Bankers Jean-Marc LOUBIER The Hongkong and Shanghai Banking Corporation Limited WONG Yat Ming The Bank of Tokyo-Mitsubishi UFJ, Limited Independent Non-executive Directors Bank of China (Hong Kong) Limited Eva CHENG LI Kam Fun Citibank, N.A. Cassian CHEUNG Ka Sing Standard Chartered Bank (Hong Kong) Limited Michael LEE Tze Hau Legal Adviser Patrick SUN Mayer Brown JSM Group Chief Compliance Officer Auditor Srinivasan PARTHASARATHY PricewaterhouseCoopers Certified Public Accountants Company Secretary Christiana YIU Yuen Wah Highlights Highlights of results for the year ended 31 December 2014 3 2014 2013 % change Revenue (HK$ million) 2,624 2,696 -2.7% Gross profit (HK$ million) 1,943 2,036 -4.6% Gross margin (%) 74.1% 75.5% Operating profit (HK$ million) 173 363 -52.4% Operating margin (%) 6.6% 13.5% Profit attributable to shareholders (HK$ million) 161 308 -47.8% Profit attributable to shareholders (%) 6.1% 11.4% Current ratio 1 1.3 1.2 Trade payable turnover days 2 36 47 Trade receivable turnover days 3 25 25 Inventory turnover days (before provision) 4 343 428 Return on equity (%) 5 4.7% 8.9% Net debt to equity ratio (%) 6 6.6% 2.6% Basic earnings per share (HK cents) 7 9.3 17.8 Dividend per share (HK cents) – Final 4.3 8.5 – Full Year 6.7 13.0 Key ratios: 1 Current ratio = Current assets / current liabilities 2 Trade payable turnover days = Average of opening and closing balances on trade payables / cost of sales for the year x number of days for the year 3 Trade receivable turnover days = Average of opening and closing balances on trade receivables / revenue for the year x number of days for the year 4 Inventory turnover days (before provision) = Average of opening and closing balances on inventory before provision / cost of sales for the year before provision x number of days for the year 5 Return on equity = Profit attributable to shareholders / average shareholders’ equity x 100% 6 Net debt to equity ratio = Net debt / total equity x 100% whereas net debt = interest bearing bank borrowings and bank overdrafts less cash and cash equivalents 7 Basic earnings per share = Profit attributable to shareholders / weighted average number of ordinary shares in issue Store numbers as at 31 December 2014 Total stores for Kent & Curwen Gieves & Hawkes Cerruti 1881 D’URBAN Intermezzo the Group 117 105 128 48 1 399 94 Chinese 80 Chinese 107 Chinese 30 Chinese 1 Hong Kong 390 Greater Mainland Mainland Mainland Mainland & Macau China 12 Hong Kong 8 Hong Kong 8 Hong Kong 9 Hong Kong 9 Europe & Macau & Macau & Macau & Macau 11 Taiwan 9 Taiwan 12 Taiwan 9 Taiwan 8 Europe 1 Europe H Heritage. Drawing on almost a century of British sporting heritage, Kent & Curwen is the icon of modern British styling. C Creativity. Kent & Curwen infuses its rich heritage with innovation and creativity. M More. We are establishing clear identities for each brand, supported by stronger and more powerful brand narratives to sustain momentum. L Less. We delivered on our plan to improve inventory management and established new disciplines of doing business on less inventory. D3 3 Design centres. We will – over time – move our design and creative centres from Hong Kong to the fashion centres of New York, London and Paris. 390S 390 Stores. No one else addresses the Greater China market with a network of 390 stores most of which are located in second- and third-tier cities where consumer spending power is rising fastest. NE WY ORK Target Beijing’s rich attractions and long history as one of the world’s great capitals translate into a compelling style. Think In New York the energy is palpable. A seamless undertone of “contemporary cool” runs throughout the city. LO ND ON Target Shanghai is dynamic and cutting-edge with style to match. Sophisticated excellence is a way of life here. Think London’s eclectic approach to fashion is a hallmark of this global village that sets trends around the world. P AR IS Target In Hong Kong, the meeting of East and West creates a global tempo that defines life in this vibrant Asian metropolis. Think In Paris, elegance and panache converge in a landscape of classic chic and unrivalled romance. TRINITY LIMITED ANNUAL REPORT 2014 Chairman’s Statement 16 Just as China’s economy is undergoing a re-set, with greater emphasis on quality growth and domestic consumption, so is Trinity. Victor FUNG Kwok King Chairman CHAIRMAN’S STATEMENT Strategic overview 17 The year 2014 marked the beginning of a new phase for Trinity Limited and its subsidiaries (“the Group”) as the growth of middle-class affluence in our principal market, China, continued to create opportunities and transform high-end retailing on the Mainland and across the world. 57 Having succeeded in establishing a pioneering presence, with 311 stores CITIES across 57 Mainland Chinese cities – a retail network few in our sector can match in China – we are now intently focused on satisfying a more Having succeeded in knowledgeable Chinese customer who, increasingly, bases purchasing establishing a pioneering decisions not just on brand cachet but also on value for money. presence, with 311 stores across 57 Mainland Chinese With the Chinese market trending towards affordable luxury, the Group is cities – a retail network few in ahead of this curve. As detailed in the pages that follow, we are innovating at our sector can match in China. all levels of our business. We have also brought in international talent with retail disciplines and methodologies honed by cyclical downturns elsewhere, and experience relevant to satisfying discerning Chinese customers both at home and abroad. In other words, just as China’s economy is undergoing a re-set, with greater emphasis on quality growth and domestic consumption, so is Trinity, with heightened focus on the personal preferences of price-sensitive customers buying for their own use, and with greater attention paid to brand story-telling for our leading brands Kent & Curwen, Gieves & Hawkes and Cerruti 1881. In the second half of 2014, the Group, under the leadership of new Chief Executive Officer, Mr Richard Cohen, undertook a series of proactive measures that included reducing the number of inventory days by selling off older inventory, pruning under-performing lines and better matching brand styles with customer preferences. Such measures have started bearing fruit and are helping to position us strongly for the medium and longer term. Challenges remain in the Chinese market as downward pressures build in the Chinese economy. High-end retail is by no means out of the woods. But I believe that Trinity did better in 2014 than most in our sector. We also acted on the opportunity to pick up market share from competitors, thus reinforcing our lead position. As disposable incomes rise on the Mainland, as more Chinese shoppers travel overseas to fashion capitals where they can buy the Group’s authentic heritage brands, and as opportunities present themselves to expand elsewhere in Asia, there is reason to hope that the worst may soon be behind us. TRINITY LIMITED ANNUAL REPORT 2014 18 Financial overview The Group’s total revenue for the year was HK$2.6 billion, a slight decrease of 2.7% over the previous year. Gross profit was HK$1.9 billion, compared with HK$2.0 billion in 2013. Profit attributable to shareholders was HK$160.9 million, about half of that for 2013. T Earnings per share were 9.3 HK cents.