361 Degrees Announces Interim Results 2012

2012-08-21 15:03 1273

Net Profit was RMB596 million for the Six Months Ended 30 June

HONG KONG, Aug. 21, 2012 /PRNewswire-Asia/ --

Financial Overview (unaudited)

(RMB million, unless indicated otherwise) 
Six months ended 30 June
2012  2011
Turnover 2,869.1  3,185.9
Operating profit 643.8  945.0
Profit attributable to equity shareholders 595.6  773.4
Basic EPS (RMB cents) 28.8  37.4
Interim dividend per share (RMB cents) 7.0  7.1*
Profitability ratios     
Gross margin (%) 42.7  41.1
Operating margin (%) 22.4  29.7
Net margin (%) 20.8  24.3
Costs as a percentage of turnover     
Research and Development (%) 1.2  1.5
Administrative staff (%) 1.2  1.2
Advertising and marketing (%) 13.5  6.8
  As at 30 June 2012  As at 31 Dec 2011
Turnover ratios (days)     
Inventory 45  40
Trade and Bills Receivable 144  119
Trade and Bills Payable 104  89
Key balance sheet items     
Total assets 7,174  5,581
Net assets 4,758  4,301
Cash and bank balances 2,680.5  671.7
Net asset value per share (RMB) 2.3  2.1

*Dividend paid for the interim period (July - December 2010) for the financial year ended 30 June 2011

361 Degrees International Limited ("361 Degrees" or the "Company", together with its subsidiaries, the "Group"; HKSE stock code: 1361), one of the leading sports brand enterprises in China, today announces its results for the six months ended 30 June 2012 ("the period").

Review of Operations

In the first six months of 2012, the sportswear industry in China continued to operate in very challenging circumstances, with high inventory levels and severe discounting weighing on the sector's performance amidst intensive competition. Despite such difficult market conditions, retail sales at the Company's franchised network continued to show growth, albeit at slower rates. The Group closely monitored its channel inventories and adopted a number of initiatives to ensure that they will remain at satisfactory levels for the rest of 2012.

The Group's turnover reached RMB2.9 billion, down 9.9% from last year. This decrease is primarily due to a deliberate effort to fine-tune deliveries to meet market demands in order that inventories did not accumulate to unacceptable levels in the face of a slowing market. In addition, the Group also worked closely with its suppliers and retailers to ensure that a certain part of the unproduced orders from the 2012 Autumn and Winter Fairs was cancelled, at no loss to all parties. This is an exceptional but necessary departure from the Group's normal operating policy and will ensure that its franchised retailers continue to successfully operate in a highly competitive sector.

During a period of tight monetary conditions, it was imperative for the Group to have access to working capital to ensure that day-to-day operations are not impaired. In April 2012, the Company successfully issued a US$150million unsecured convertible bond carrying a coupon rate of 4.5% with a 5-year maturity period. There are redemption call options for the issuer, and both put and conversion options for the bond-holders.

In the period under review, Footwear remained the top revenue-generator, with a higher ASP from its broadened product group compensating for falling volumes. On the other hand, Apparel faced mounting difficulties in a market dominated by casual wear but still turned in a meaningful contribution. The independently-run 361 Degrees Kids gained increasing momentum and its revenues surpassed 11% of the Group's total for the first time.

The Group's competitive strengths in production enabled gross margins to reach a new high of 42.7%, an improvement of 1.6 percentage points from the same period last year. This has been achieved through a higher wholesale pricing structure as well as a favourable mix of self-production and selective outsourcing at competitive prices at a time when most independent factories were struggling for orders.

At the operating level, selling and distribution expenses rose by approximately RMB200 million because of a one-off initiative to provide direct cash subsidy to qualifying retailers. This program is aimed at improving the store environment in the form of a rack subsidy and cost the Group RMB123 million. The program should continue for the rest of 2012 but will be closely monitored and adjusted to market conditions. Other operating costs were very carefully controlled and generally fell within expectations. After adjusting for an unrealized gain in the fair value of the convertible bonds of about RMB81 million and accounting for finance costs, taxes and minority interests, the profit attributable to equity shareholders closed at RMB595.6 million, a drop of 23% compared with the same period last year.

In the later half of this interim period, the Group began to exercise a tighter cash collection and payment discipline which resulted in improving the Company's liquidity by June 2012. With a cash inflow generated from operations of about RMB1.4 billion , the cash and bank balances of the Group, after including the cash proceeds from the bond issue, soared to over RMB2.7 billion at 30 June 2012, a significant improvement from the same time last year.

The Board considered the overall performance of the Company to be relatively satisfactory and has declared an interim dividend of RMB 7.0 cents (equivalent to 8.5 HK cents) per share in line with the established and unchanged policy of a dividend pay-out, over a period of time, for the full year to 50%. The interim dividend for the financial year 2011 (then on a June year-end) was RMB7.1 cents per share.

Outlook for the rest of 2012

The Group remains optimistic about the growth of the sportswear industry in the long run, as China's economic growth and urbanization rises, with a corresponding increase in disposable incomes. However, the immediate outlook remains dim until the inventory pressures in some of the leading brands ease. Nonetheless, the Group must uphold its longer-term vision as a competitive brand and will continue to invest sensibly in product innovation and brand building. In this regard, the Group highly treasures its partnership with CCTV5 as it has broad coverage over a large range of sports and an exclusive stronghold over the Chinese national networks.

The Management of the Company is also redoubling its efforts to strengthen its internal processes and systems, whilst investment in brand-building, product innovation and development and training of its franchised network continue. There is therefore ample confidence that when business conditions improve, with easing inflation and loosening monetary policies, the Company will achieve quicker acceleration towards better results.

About 361 Degrees International Limited

361 Degrees International Limited is one of the leading sports brand enterprises in China, possessing brand marketing, research and development, design, manufacturing, distribution and retail capabilities. The Group's products include footwear, apparel, accessories and equipment for sport and leisure uses. The Group has established an extensive supply chain management system through proprietary and sub-contracted manufacturing operations; and an exclusive distribution and retail network in China through distribution via authorized distributors.

For further information, please contact:

361 Degrees International Limited
Mr. Y F Chen
Vice-President, Investor Relations
361 Degrees International Limited

iPR Ogilvy LTD.
Natalie Tam/ Charis Yau/ Summer Si/ Janis Lai
Tel: (852) 2136 6182/ 2136 6183/ 2136 6953/ 2169 0646
Fax: (852) 3170 6606
Email: / / /

Source: 361 Degrees International Limited
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