Stock Code : 1836 Annual Report 2008 Annual Report 2008 * for identification purpose only MISSION STATEMENT Our Core Values Stella International Holdings Limited (“Stella” or the “Company”) is dedicated to providing its customers with a wide range of top quality and high-end footwear. We are customer-driven and passionate about our business, and conscious of providing the best quality in everything we present to our customers. In addition to promoting these core values, the management philosophy of the Company is to be fair, caring and respectful. Our Mission: To Make the BEST Shoes Always seeking to fulfill our promise of delivering outstanding and unique footwear, we are guided at all times by our unwavering motto of “making the best shoes” and missions of: • We wish, within our selected business segments, to be the preferred partner for footwear products and associated services, contributing to an efficient and superior supply chain. • By being close to our customers we fulfill their needs with innovative, cost effective and high quality solutions. Through empathy, responsiveness and dependability we seek to earn their loyalty. • Our culture attracts and nourishes individuals who are energetic, committed and have a passion for our business. • By striving to be the best in our business we achieve growth and increased value for our customers, employees and shareholders. Corporate Structure 2 Corporate Profile 3 Milestones 4 Financial Highlights 6 Chairman’s Statement 9 Management Discussion and Analysis 13 Corporate Social Responsibility 20 Corporate Governance Report 23 Biographies of Directors and Senior Management 51 Directors’ Report 59 Independent Auditors’ Report 75 Consolidated Income Statement 77 Consolidated Balance Sheet 78 Consolidated Statements of Changes in Equity 79 Consolidated Cash Flow Statement 80 Notes to the Consolidated Financial Statements 82 Financial Summary 135 Contents Corporate Information and Key Dates 136 Annual Report 2008 / Stella International Holdings Limited / 1 Corporate Structure Wholly Stella Manufacturing foreign-owned enterprise Processing factories Contractual arrangement Retailing The Greater China Thailand 2 / Stella International Holdings Limited / Annual Report 2008 Corporate Profile Stella is a leading developer and manufacturer of quality footwear products and was listed on The Stock Exchange of Hong Kong Limited on 6 July 2007. While making casual, fashion and private label footwear for our customers and brand owners, we also offer them a one-stop shop that combines the elements of design, development and manufacturing. Since 1982, Stella has developed strong working relationships with many of the world’s top brand names to produce quality shoes. Its impressive client base includes six of the world’s top ten casual footwear companies, namely, Clarks, Deckers, ECCO, Rockport, Timberland and Wolverine, as well as leading companies in fashion footwear, such as Cole Haan, Kenneth Cole, Guess and Nine West. The Company also designs, develops and manufactures footwear for several high-fashion brands such as Celine, Christian Lacroix, Donna Karan New York, Emilio Pucci, Enzo Angiolini, Givenchy, Kenzo, Loewe, Marc by Marc Jacobs, Marciano, Paul Smith, Sigerson Morrison and Via Spiga. By leveraging its manufacturing expertise, the wide acceptance of Stella’s products and industry recognition, We have also begun our retail operation and have successfully expanded into footwear retail market in China since 2006 through its own brands Stella Luna and What For. Annual Report 2008 / Stella International Holdings Limited / 3 Milestones Value Chain Engineering & Components Branding / Retail Assembly Development Manufacturing 2008 2007 2006 2004 2003 Revenue exceeded US$1 6 July 2007 Launched retail Developed and Established and billion Listed on The Stock operation and opened manufactured footwear extended Dongguan Exchange of Hong Kong the flagship Stella Luna for high-end brands Stella Footwear Annual manufacturing Limited. store in Shanghai. such as Celine, Christian Factory in Dalingshan, capacity reached 50 Lacroix, Donna Karan Dongguan, a wholly million pairs July 2007 Further extended New York, Emilio Pucci, foreign-owned Expanded our retail Dongguan Stella Givenchy, Kenzo, Loewe enterprise, for the Opened the 100th Stella market capabilities Footwear Factory to and Marc by Marc manufacture of Luna Stores. Number of with the launch of our manufacture men’s Jacobs. women’s casual and What For stores reached contemporary lifestyle casual and fashion fashion footwear. 60. footwear brand footwear. What For in China. 4 / Stella International Holdings Limited / Annual Report 2008 Product Fashion / Luxury Casual Private Label 2000 1999 1998 1995 1991 1982 Established Longchuan Established Selena Expanded production Established Seville Commenced China Founded in Taiwan Simona Footwear Footwear Factory in capacity in China with Footwear Factory in operations with the by Messrs. Jimmy Factory in Longchuan, Dalingshan, Dongguan the expansion of Seville Changan, Dongguan establishment of the Chen, Jack Chiang and Heyuan as a wholly to cope with our Footwear Factory. for the development Stella Footwear Factory Eric Chao to produce foreign-owned increased production and manufacture of in Changan, Dongguan. women’s footwear for enterprise in the PRC. and range of women’s Entered into an men’s casual footwear US retail customers. fashion shoes. exclusive finished for leading companies footwear supply like Clarks, Rockport, arrangement with Timberland and Golden Star Company Wolverine. Limited for the manufacture of men’s casual and fashion footwear in Vietnam. Annual Report 2008 / Stella International Holdings Limited / 5 Financial Highlights Revenue US$’000 1,102,116 937,164 779,346 668,926 575,353 2004 2005 2006 2007 2008 Net profit attributable to shareholders US$’000 124,993 114,695 91,374 85,422 52,769 2004 2005 2006 2007 2008 6 / Stella International Holdings Limited / Annual Report 2008 Financial Highlights 2008 Revenue by Geographical Segments 60.8% North America 26.4% Europe 5.2% The PRC (including Hong Kong) 5.1% Asia (other than the PRC) 2.5% Others 2008 Revenue by Business Segments Men’s Women’s 25.3% Casual 26.0% 5.9% Fashion 38.5% Private label 1.9% Retail 2.4% Annual Report 2008 / Stella International Holdings Limited / 7 Cent 8 / Stella International Holdings Limited / Annual Report 2008 Chairman’s Statement Our mission: “making the best shoes” 9 Chairman’s Statement Dear Shareholders, 2008 was an unforgettable year by all measures. The successful staging of the Beijing Olympics helped show China to the world the strong and modernised nation that it is today. The global economy, however, has undergone stark changes brought about by the financial crisis in the second half of 2008. Consumer confidence in the U.S. and Europe, which are our key markets, was gripped by fears of a deepening recession and rising unemployment. At the same time, natural disasters such as snowstorms and earthquakes in China, together with escalating production costs and the appreciation of Renminbi, contributed to a tough operating environment for manufacturers and exporters in China. This volatile operating environment has created challenges for all players in the industry and may even have changed the rules of the game. While manufacturers are faced with the prospect of downsizing their workforce, retailers are placing smaller purchase orders with relatively short lead-time for delivery. Consumers on the other hand are tightening their spending. It was the worst of times, it was the best of times. Despite the economic downturn, Stella continued to maintain a satisfactory performance with revenue exceeding US$1 billion during the 2008 financial year. It was attributable to Stella’s continuous effort in upholding its core value of empathy, responsiveness and dependability while offering excellent manufacturing services to our brand partners and customers. We have maintained our core competencies in producing quality and stylish footwear products in small batches. We take pride in our flexible and highly efficient supply chain service which enables short manufacturing lead-time from concept development to product delivery. These core competencies further enhance our corporate competitiveness and strengthen our relationships with international high-fashion brands. 10 / Stella International Holdings Limited / Annual Report 2008 Chairman’s Statement Moving up the value chain has always been the winning strategy of Stella. Thanks to the management system and marketing strategies we have put in place in the last three years, the Company has been able to enjoy overwhelming success in the market in terms of brand recognition and operating performance. In view of the success of Stella Luna and What For in China and in accomplishing our Greater China strategy, during the year we have extended our foothold to other territories in China, including Taiwan, to capture the huge opportunity in the affordable luxury women footwear market in the region. However, 2009 is another challenging year for every economy and industry. Market visibility remains low in terms of sales and profitability. Despite the uncertainty in the coming year, we will focus on recalibrating the business to further enhance competitiveness with a view to consolidating our leading position in the market. We are confident that Stella will be able to weather the storm with our business and operating strategies, which include maintaining high standards