China Dongxiang Announces Second Interim Results 2018

Reform on Sales Channels & Implementation of Para-direct Operation Model Yield Notable Results

�

Results
Highlights

(RMB million)	For the twelve months ended 31 December
	2018	2017	Change
Revenue	1,706	1,455	17.3%
Gross profit (before provision for / reversal of impairment losses of inventories )	955	862	10.8%
Gross profit margin (before provision for / reversal of impairment losses of inventories)	56.0%	59.2%	-3.2 pts
Operating profit	418	1,027	-59.3 %
Operating profit excluding investment income	91	113	-19.5%
Profit for the period attributable to equity holders of the Company	315	805	–60.9%
Basic earnings per share (RMB cents)	5.44	14.51	-62.5 %

 

HONG
KONG, CHINA - Media OutReach
 - 27 February 2019 – The leading international sportswear brand enterprise in
the PRC, China Dongxiang (Group) Co.,
Ltd. (“China Dongxiang” or “the Company”, together with
its subsidiaries, “the Group”, HKEx stock code: 3818) announces its
unaudited second interim results for the twelve months ended 31 December 2018
(“reporting period”). The Group’s revenue for the reporting period increased by
17.3%, year-on-year (“YoY”), to RMB1,706 million, while profit attributable to
equity holders of the Company reached RMB315 million with
the basic earnings per share as RMB5.44 cents. The Group’s profit fell mainly
due to negative factors including the trade war. In the second half of 2018,
major global stock market indexes has recorded continued drop. The price of the
shares that the Group held, including Alibaba, has fallen accordingly. As at
the date of this results announcement, the loss from the drop in price of stock
has however been fully recovered as a result of the improved performance of
stock markets. The Board resolved not to declare any interim dividend for the
twelve months ended 31 December 2018.

 

Operational Highlights of 2018

 

• China Segment: Introduction of New
  Customers and Launch of New Model

       Kappa

As at 31 December 2018, the revenue
of Kappa brand increased by 20.3% YoY to RMB1,370 million. During the reporting
period, the Group made diligent efforts to optimise its existing store mix and
actively establish top stores, shopping-mall stores and outlets, while
renovating and closing underperforming stores in an ongoing move to consolidate
reforms at deeper levels. Benefiting from a highly effective reform on sales
channels, the same store sales and retail performance of the Group maintained
stable growth. In the meantime, the brand continued to adopt a 360-degree brand
marketing through a combination of online and offline activities by closely
cooperating with new media and top stars in China and actively participating in
international fashion events, leading to a greater recognition worldwide of
Kappa’s brand image of being “rebellious, passionate and outgoing”. In
addition, the Group continued to develop a new para-direct operation model to
further secure sufficient supply of products, laying a concrete foundation for
enhancement of the Group’s operational performance. With regards to E-commerce,
as an integral part of the business of the Group, its performance for the
period was in line with expectation. In 2018, the Group continued to penetrate
into major e-commerce platforms, such as Tmall, JD.com and VIP.com, by actively
participating in their large-scale promotion activities.

 

• Kappa Kids

In 2018, the
kid’s wear business continued to make progress in a stable manner. As the
popularity of the “Chinese Football Boy” (??????) campaign sponsored by “Kappa Kids” has been on the rise, the Chinese
Football Boys have been arranged to participate in friendly matches with the
top international youth football teams in addition to the nationwide games in
full swing, resulting in a further enhancement of brand awareness and its
influence in kidswear industry. The revenue of kid’s wear business for the
Reporting Period reached RMB130 million, accounting for 9.5% of the revenue
from the China segment.

 

As at 31 December 2018, the Group had a total
of 1,496 Kappa stores (including 316 Kappa Kid’s stores), representing a net
increase of 9 as compared to that as at the end of December 2017. 

 

• Japan Segment: Progressive Improvement in Financial
  Performance and Exploration of New Sources for Customers
  

The Japan business continued to undergo reforms in 2018. During the
Reporting Period, revenue from Japan segment grew significantly and financial
loss shrank substantially with an improved financial condition as compared with
the same period of last year. As overseas tourists to Japan have become a new
potential source for customers, the Group has made greater efforts in products
promotion at the renowned sightseeing spots for autumn and winter in Japan so
as to develop a new business engine for growth. Additionally, the Group
continued to relish a huge opportunity in winter sports by vigorously
developing and expanding PHENIX brand in China and Europe. PHENIX China has
positioned itself well in advance for the coming of Beijing 2022 Winter
Olympics since 2018 by focusing on omni-channel expansion, club member services
and brand marketing, achieving progressive increase in brand awareness.

 

• Investment
  Segment:
  
  
  High Responsiveness and Sensitivity
  to Market Change with Progress Made in a Cautious Way
  

In 2018, part of the Group’s investment projects was affected by the
general fluctuation of the global capital market, but the size and risks of the
Group’s investments were effectively controlled with the priority of capital
safety and reasonable return by pooling the Group’s considerable experience in
investment and risk management. As at 31 December 2018, the Group reported net
asset value of its investments of RMB9,231 million, an increase of 6.8% as
compared with that in 2017, and a 49.2% surplus over the market capitalisation
of the Group for the corresponding period. During the Reporting Period, the
Group had investment net gains of RMB424 million. Looking forward, the Group
will extra caution in selecting cooperation partners and investment projects
and release the value of the projects in a timely manner, so as to secure
stable returns from investments as well as capital safety and
effectiveness. 

 

Mr. Chen
Yihong

, Chairman and Executive Director of China Dongxiang, said, “In 2018,
domestic and international environment was complicated and complex with tougher
competition in the industry. In order to grasp the potential opportunities
during the new development stage of the sports gear industry, we continued to
deepen our reform and achieved some progress with initial achievements by
leveraging on extensive experience in the industry. As a company that has been
established for sixteen years, China Dongxiang will continue to move forward
with our ‘work hard’ spirit, and strive for new milestones in the future.”

 

About China Dongxiang (Group) Co., Ltd. (Stock code: 3818)

China
Dongxiang (Group) Co., Ltd. is a leading international sportswear brand
enterprise in China which has been listed on the Main Board of the Hong Kong
Stock Exchange since 10 October 2007. The Group is primarily engaged in the
design, development, marketing and wholesale of branded sportswear in China.
Currently, China Dongxiang owns all rights to the internationally renowned
Kappa brand in China, Macau and Japan. On 1 May 2008, China Dongxiang completed
the acquisition of PHENIX, a Japanese sportswear enterprise. PHENIX is the most
popular ski brand in Japan with the largest market share, as well as a
well-known brand in the international market.