2007 Annual Results Presentation by codekhan


									2007 Annual Results Presentation

Stock code: 2020

The presentation is prepared by ANTA Sports Products Limited (the “Company”) and is solely for the purpose of corporate communication and general reference only. The presentation is not intended as an offer to sell, or to solicit an offer to buy or to form any basis of investment decision for any class of securities of the Company in any jurisdiction. All such information should not be used or relied on without professional advice. The presentation is a brief summary in nature and do not purport to be a complete description of the Company, its business, its current or historical operating results or its future business prospects. This presentation is provided without any warranty or representation of any kind, either expressed or implied. The Company specifically disclaim all responsibilities in respect of any use or reliance of any information, whether financial or otherwise, contained in this presentation. This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements represent the Company’s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Certain statements, such as those that include the words “potential”, “estimated”, “expects”, “anticipates”, “objective”, :intends”, “plans”, “believes”, “estimates”, and similar expressions or variations on such expressions may be considered “forward-looking statements”. Forward-looking statements involve inherent risks and uncertainties. Readers should be cautioned that a number of factors could cause actual results to differ in some instances materially, from those anticipated or implied in any forward-looking statement. Forward-looking statements speak only as of the date they are made, and it should not be assumed that they have been reviewed or updated in the light of new information or future events. Trends and factors that are expected to affect the Company’s results of operations are described in the “Business Review and the “Financial Review”.


Achievements in 2007
IPO Listing on 10 July 2007 In terms of financial performance
Turnover breakthrough RMB3 billion, with an increase of more than 1.5 times Gross profit margin increased by 8.1% to 33.2% Net profit margin increased by 5.1% to 16.9% Profit attributable to shareholders increased to RMB537.8 million, an increase of 2.6 times, more than the profit forecast by 39.9% Basic earnings per share has a more than double increase to RMB25.3 cents Dividend per share of HK8 cents is proposed

In terms of operational performance
Number of ANTA authorised retail outlets reached 4,716, a net increase of 608 outlets Total sales floor area increased by 32%, to 433,843 sq.m. Average sales floor area increased from 80 sq.m. to 92 sq.m. Volume growth: increased by 55.7% to 18.3 million pairs for footwear / increased by 167.2% to 23.6 million pieces for apparel ASP Growth: increased by 29% to RMB88.0 for footwear / increased by 15% to RMB53.6 for apparel

Awards of ANTA Sports
In 2002, ANTA trademark was named as one of “China’s Well-Known Trademarks” In 2005, “ISO 9001 quality control certification” has been awarded for ANTA footwear production processes From 2001 to 2006, ANTA footwear has been led in “composed index on market shares for six consecutive years in China”, rated by the China General Chamber of Commerce and the China National Commercial Information

Awards of Mr. Ding Shizhong
In 2006, being named as one of the “Top Ten Outstanding Young Persons in China” In 2007, being awarded the “Outstanding Marketing Figure in Chinese Market 2007” by the Annual Convention of Chinese Marketing Leaders Being elected as the 11th National People’s Congress deputy


Financial Highlights
(For the year ended 31 December)
(RMB$ ’000) Profitability data Turnover Gross profit Profit from operation Profit attributable to shareholders (%)

3,182,453 1,055,287 600,877 537,793

1,250,142 313,228 148,279 147,417

154.6   236.9 305.2 264.8 (%)

RMB’ (Cents)

Basic earnings per share Diluted earnings per share Net tangible assets per share Dividend per share

25.3 25.2 8.2 n/a 13.0 n.a

208.5 n/a 1,180.8 n/a

166.5 HK8 cents

Financial Highlights
(For the year ended 31 December)
(in%) Profitability ratios Gross profit margin Operating profit margin Net profit margin Effective tax rate (%)

33.2 18.9 16.9 10.2 (in%)

25.1 11.9 11.8 0.4

8.1   7.0 5.1 9.8 (%)

Operating ratios (as a percentage of turnover) Advertising & promotion expenses Staff costs R&D (as a percentage of cost of sales)

11.7 7.3 2.3

8.3 6.8 0.5

3.4 0.5 1.8


Turnover – Product mix
2007 Turnover is 155% higher than 2006






New business model, focused: Brand building Product offering Distribution network Planning Supply chain management

Apparel/accessory segment have a higher growth rate as: Develop: Product diversity; Footwear: durable and insensitive to seasonal factors; Apparel: Consumers tend to shop by season; 4 trade fairs in 2007 vs 3 in 2006, wider range of apparel available. raising the display zone per store & retail network development.


ASP Growth

0% 9. 88.0 2


60 53.8 50 51.5 46.6
.0 15 +



80 60 40 56.6 47.5 2004 2005 2006 2007 68.2

40 2004 2005 2006 2007

Factors for significant increase in average selling prices Continuous growth of China economy and consumption level increase in disposable income consumers’ increasing attention to sports and health products in China Product mix shift towards higher-end new products with better quality, functions & technology Strengthening in brand recognition of ANTA products Supports and services to the distributors

Volume Growth
25 20 15 10 5 0 2004 2005 2006 2007

% 56 18.3 +
25 20 15 10 5 0 2004 2005 2006 2007

Unit (million)

Unit (million)
+1 67 %


11.7 5.6 7.9

8.8 4.0 0.8

Factors for volume growth Improving the quality of the distribution network Upgrade of brand and store image Moving to prime locations No. of stores & total sales floor area increased distributors equipped with better inventory management skill Wide-ranged product offerings to meet the market differentiation High responsiveness to the market demand fill up the increasing market demand within 25-30 days with our own production facilities.

Cost of Sales Breakdown
% of total cost of sales 2007 2006 ANTA bra nd (Whole s a le ) Self-production Raw materials Direct labour Overhead Sub-contracting arrangement Raw materials Sub-contracting charges Outsourced production OEM International brands Total 37.3% 93.5% 6.5% 100.0% 48.1% 100.0% n/a 100.0% 13.2% 10.3% 23.5% 5.0% 3.6% 8.6% 21.5% 5.7% 5.5% 32.7% 31.5% 6.3% 5.6% 43.3%

Self-production %
2007: 2006: Footwear 62.5% 75.4% Apparel 4.3% 0.0%

Self-production Changes in direct labor cost > Changes in raw material cost

The Group produced more high-end products, labor cost increase along with the number of processes Overall wage level was adjusted in order to maintain stability in manpower.


Gross Profit
Gross Profit
RMB’ million

Gross Profit Margin in %

9% 6. 3 +2

33.2 25.1 18.8 14.1

43.8 2004









ASP increased - footwear: 29.0% & apparel: 5.0% Far higher than the increase in unit costs - footwear: 14.5% & apparel: 2.3% Resulting an increase of gross profit margin by approximately 8.1%. International brand business Within our expectation and improve gradually

Operating ratios
Profit From Operations
RMB’million in %

Operating Profit Margin

2% 5. 0 +3


18.9 11.9 7.6



51.1 2005 2006 2007

-1.6 2004




ANTA Brand RMB’000 %

International Brands RMB’000 %

Total RMB’000

Revenue from external customers Segment results

2,989,723 93.9% 498,109

193,730 (5,501)


3,183,453 492,608

Net Profit
Net Profit
590.0 490.0 390.0 290.0 190.0 90.0 (10.0)

Net Profit Margin
in %

8% 4. 6 +2




11.8 7.2

147.4 (8.4) 48.0


2006 2007







Other revenue Mainly comprise of interest income from IPO proceeds From over-subscription monies during IPO: RMB56.9M From utilized proceeds after listing: RMB66.9M

Assets/liabilities Turnover Ratio
Average Inventory Turnover Days
60 45

Average Trade Receivables Turnover Days



15 0


26 19












Increase in average inventory turnover days mainly due to the production in advance to meet the delivery scheduled in January 2008 No inventory was written down in 2007

Favorable changes in average trade receivables turnover days for 3 consecutive years No impairment for trade receivables was considered necessary during the year Distributors have settled the accounts receivable quickly to release the credit limit for dispatch of goods from the Group

Capital expenditure
Capital expenditure increases along with turnover CAPEX
RMB’ M 400.0 (forecast)

367.6 264.4

300.0 200.0 100.0 In % 20.0%

74.3 36.7







CAPEX / Turnover Depreciation & amortisation / Turnover
11.8% 11.1% 8.3% 6.7%







0.0% 2004 2005 2006 2007

Income tax
ANTA China ANTA Changting ANTA Xiamen ANTA Quanzhou Xiamen Trading Fengxian 12.5% 0.0% 0.0% 0.0% 18.0% 25.0%

12.5% 12.5% 0.0% 0.0% 20.0% 25.0%

25.0% 12.5% 12.5% 12.5% 22.0% 25.0%

25.0% 12.5% 12.5% 12.5% 24.0% 25.0%

25.0% 25.0% 12.5% 12.5% 25.0% 25.0%

New tax law in PRC has no instant impact on the Group as we still enjoy a 5 years grace period till the end of 2012. Referring to Caishui[2008] No.1, distribution of pre-2008 earnings for FIE to foreign investor are exempt from corporate tax. • All FIE in the Group are held by a subsidiary in HK, the withholding tax on future distribution is charged at 5%.


Market Opportunities
GDP and disposable income growth Beijing Olympics / Shanghai Expo/ Guangzhou Asian Games Sportswear market in China will continue to expand rapidly Increasing urbanization Shift of consumption patterns towards lifestyleenhancing products

Increasing sports participation rate

Growth of public awareness of and interest in sports and fitness

Market Opportunities
ANTA targets at mass market and provided professional ‘value- for-money’ sportswear, which capture this opportunities

Customers in second & third tier cities and middle-income group demand functional sportswear with mid-priced range

China GDP reached RMB24.7 trillion (an increase of 11.4%) per capita disposable income reached RMB13,786 (an increase of 17.2%)

Lower consumption rate than developed countries


Brand Building and Marketing
The Group have increased the proportion on advertising and promotion, representing 11.7% in turnover in 2007, compared to 8.3% in 2006

Olympics “I Believe” Promotional Campaign
Started a one and half year long Olympics integrated communication campaign, with 5 thematic commercials on CCTV Sports Channel Under slogans of ‘‘Together 08’’ (「08一起來」) and ‘‘Let’s support for our believes!’’ (「共同為信念加油」), the Group initiated a website with “I Believe” as the theme

Entered into Strategic Partnership with Houston Rockets of NBA
Signed endorsement contracts with Steve Francis and Luis Scola in Houston Rockets Co-organize “CBA ANTA Star Training Camp” in 2008 in which CBA players will be trained by Head Coach Rick Adelman and 2 endorsed players Collaborates with Bill Peterson (renowned designer of ‘Air Sole’ products) for basketball shoes designs


Brand Building and Marketing
Actively Sponsoring Major Sports Leagues in China
Sponsors top-tier professional sports leagues, including the equipment sponsor for all 16 basketball teams of CBA (「中 國男子籃球職業聯賽」)and the indoor advertisements Sole equipment sponsor for “China Table Tennis Super League” (「中國乒乓球超級聯賽」) and the title sponsor for “ANTA National Volleyball League/ Grand Prize Cup/ Championship Cup” (「安踏全國排球聯賽/大獎賽/錦標賽」)

Effective Use of Various Media Channels
Launched a total of 5 series of brand promotion advertisements, 7 advertisements in each quarter for featured products Riding on the influence of internet advertisement, the Group organized “I Write My Dream” (「我的 夢想我來寫」) and “Election on CBA Star Players” (「安踏星銳挑戰賽球員票選」)

Brand Building and Marketing
Co-operative Agreements with National Athletic Organizations
Established co-operative relationships including Bicycle and Fencing Administrative Center under China General Administration of Sports, Fencing Association of China, Bicycle Association of China, Triathlon Association of China, China Modern Five Games Association and Equestrianism Association of China Sponsored many potential and outstanding national athletes including Wang Hao (王皓), core member in the national table tennis team of China and Tang Zhengdong (唐正東), the CBA elite player

Actively Sponsored Sports Events
The Group is the title sponsor of “ANTA CCTV Sports Personality” (「安踏CCTV體 壇風雲人物」) The Group also sponsored the “2007 2+1 Extraordinary Three Persons of Robust Basketball Match” and the “21st Dalian International Marathon of All Nippon Airways Cup”


Distribution Management and Retail Network
ANTA brand in China market
Number of stores Sales floor area Average sales floor area

As of 31 December 2006 Open Bigger Stores Shut Down Smaller Stores As of 31 December 2007 Refurbished Change

4,108 1,394 (786) 4,716 691 Net increase 608

328,530 n/a n/a 433,843 n/a 32%

80 n/a n/a 92 n/a 15%

Strategically improved the store image, furnishings and decorations and improved the gross floor area Increased quality of customer service by establishing “ANTA College”, published “ANTA Retail Management Handbook” and “ Guidelines of Display” to train the distributors and retailers

Nationwide Distribution and Retail Network


Distribution Management
ANTA brand in China
Managed 39 distributors and operated 4,716 ANTA authorized retail outlets through 6 regional operational centers 22% are in the form of departmental concessionary stores Opened 4 flagship stores in Shanghai, Wuhan and Shenyang Upgraded 1,082 stores to the fifth generation authorised stores

6 Regional Operational Centers

39 Distributors

Self-Owned Stores 30%

Franchised Stores 70%

2,100 outlets POS linked up with our ERP systems 24

Distribution Management
Stratified management system
Motivate distributors to open larger and attractive stores in prime locations which can generate higher sales The Group also provides renovation materials and promotional resources to distributors

Open 5% to 15% first-tier stores (sales area over 120sq.m.)

Has 10%-30% self-owned stores

Ex-factory price as 41.5% to 43% of the suggested retail price

Reach sales target


ANTA Brand in Overseas Market
Designers from Southeast Asia, Eastern Europe and Middle East to design sportswear for overseas customers TV commercials, outdoor billboards, PR promotional strategies were launched in overseas markets Sponsored 2 teams in “Philippines Basketball Association’’ and their MVP Organised ‘‘Three-on-three Street Basketball’’ in Singapore 20 authorized outlets and more than 100 counters
ANTA Store in Serbia


ANTA Store in Vietnam

ANTA Store in Singapore

ANTA Store in the Philippines

Retail business for International brands
Retail business for International brands adidas Reebok Kappa Total
As at 31 Dec 2007 As at 30 June 2007

93 56 23 172

42 24 12 78 121%

Established 3 sports retail complexes to engage in retailing sportswear business of ANTA, adidas, Reebok and Kappa as well as other brands


Retail business for International brands
Retail business for International brands Wholesales Retail Footwear 39.5% Apparel 55.8% Accessory 4.7% Operating Loss 5.5 (Less than our forecast RMB 16.0million) n/a
RMB /million GP%

57.2 136.5

11 36



Quality Control
Fabrics and finished goods of sportswear and shoes were sampled and verified On-site examination of products at factories and suppliers’ production was carried out ANTA brand has reached the apex of quality under industrial standards: ‘‘ISO 9001 quality control certification’’ ‘‘State designated Products Exempted from Quality Surveillance Inspection’’ by General Administration of Quality Supervision, Inspection and Quarantine of the PRC since 2003 Elected as Secretary-General of ‘‘Technical Committee of Standardized National Sportswear’’



R&D and Design
R&D expenditure increased from 0.5% in 2006 to 2.3% (as a percentage of cost of sales) in 2007 Collaborated with international R&D institutions from Japan, U.S., Italy, Belgium, Hong Kong and other countries Design teams in headquarter, Beijing and Guangzhou Collaborated with world renowned sportswear designer Bill Peterson to design basketball shoes designated for 2 NBA players As at 31 December 2007, the Group has introduced the following to the market:

1,000 new footwear styles 1,700 new apparel styles 2,000 new 1,000 new accessory styles styles footwear


Vertical Integrated Business Model
Production capability of the Group reached 11.4 million pairs of footwear and 1.0 million pieces of apparel 62.5% footwear and 4.3% apparel produced in house in 2007 (nil:2006) Launched 5 sizable trade fairs so as to be more responsive to changes of consumers’ tastes Stratified management system of suppliers comprised of 3 categories, quarterly review so as to motivate suppliers to have better performances



Multi-brand strategy

ANTA Kids series

ANTA ANTA (Focus in mass market) (Focus in mass market) Collaboration International brands International brands (High-end market) (High-end market)

Endorsed NBA players series

The Group targets for mass market and will continue to seek collaboration with international brands The Group believes no direct competition but resulted in complement effect with each other


Enhancement of brand equity

d equity TA’s bran gthen AN and Stren Leverage

To enhance overseas recognition and brand’s professional image in a global context To enhance brand desirability by constructing the sixth generation store CBA Stars Track Scheme and “CBA ANTA Star Training Camp” To consolidate the collaboration with Houston Rockets and the sponsorship of NBA players Endorsed players, Steve Francis & Luis Scola will visit China (中國 行)for one week around the period during Olympic Games



Extend nationwide distribution and retail network

Open approx. 5,300 stores * (open approx. 800 bigger stores & consolidate approx. 200 smaller stores) Open 10 flagship stores * Promote well-performed franchisees as distributors

Increase to approx. 230 250 stores*

Channel mix for ANTA brand will be diversified, with more cooperation with nationwide distributors to boost coverage on departmental stores, shopping malls and sports retail complexes Shops along the same street will distinguish themselves by distinct themes, catering for needs of different consumers Stratified management system in overseas markets
* Target in 2008


Product quality and production capacity improvement

12 footwear production lines (will commence production at different time around 2008 to early 2009) Apparel production base will be expanded Improving capability of research and development, by advanced technology aligning its product mix with market demand based on the research on changing consumer demand Cooperate with international renowned design houses and professionals and introduce excellent designers to improve overall designing level



Human Resources

By using “performance management system”, outstanding performance will be recognized and rewarded An internal corporate culture that respects talents, embraces fairness and promotes motivation Recruit excellent talents on an ongoing basis


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