361 Degrees Announces the Results for the Twelve Months Ended 31 December 2011

2012-03-12 14:36 1324

Basic EPS improved to RMB 54.8 cents, up 15%

HONG KONG, March 12, 2012 /PRNewswire-Asia/ --

Financial Overview

(RMB million, unless indicated otherwise)  Unaudited Audited Audited
Twelve Months
ended 31 Dec
Six months ended 31 Dec 2011 Year ended 30 June 2011
2011  2010
Turnover 5,568.7   4,849.0 2,382.8 5,461.2
Operating profit 1,385.0   1,146.8 440.0 1,441.2
Profit attributable to equity shareholders 1,133.1   982.8 359.7 1,196.1
Basic EPS (RMB cents) 54.8   47.6 17.4 57.9
Dividend per share (HK cents)        
- Final (June year end) 19.4  10.3 8.6 19.4
- Final (Dec year end) 8.6  N.A N.A N.A
Interim N.A  8.3 N.A 8.3
Profitability ratios         
Gross margin (%) 42.4   41.5 44.2 42.3
Operating margin (%) 24.9   23.7 18.5 26.4
Net margin (%) 20.4   20.1 15.2 21.8
Costs as a percentage of turnover         
Research and Development 1.5  1.2 1.5 1.5
Administration 3.9  3.6 4.9 3.5
Advertising and Promotion 10.9  10.3 16.4 9.5
Turnover ratios (days)         
Inventory 40  22 45 19
Trade and Bills Receivable 119  95 152 83
Trade and Bills Payable 89  108 111 82

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, announces its results for the twelve months ended 31 December 2011.

On 23 August 2011, the Company announced a change in its financial year end date to 31 December to coincide with the statutory year-ends of its three wholly-owned operating subsidiaries in China. The audited financial statements are for the period of six months to 31 December 2011 and the corresponding figures for the year ended 30 June 2011 are not strictly comparable. To enable a better appreciation of the results for the year of 2011 as a whole, the Company has prepared supplementary unaudited financials for the 12 months to 31 December 2011, with corresponding figures for the previous year.

Review of Operations for the 6 months to 31 December 2011

The second half of 2011 was a very challenging period for the sportswear industry in China with major brands offering steep discounts in an effort to offload excessive inventories. Amidst this sharp competition, same store sales growth at 361 Degrees dropped from mid-teens in the first half of the year to close considerably weaker by the end of the fourth quarter. Responding quickly to the deteriorating market conditions, the Group put in place a number of initiatives to assist the distributors and retailers to weather through this difficult period which helped ensure that the closing channel inventory at 31 December 2011 remained relatively manageable at 4.2 times sales. However, the poor prevailing sentiment in the industry meant that the reordering at the November Trade Fair for the 2012 Autumn season was understandably subdued by recent standards.

The Company benefited from the decision in December 2010 to raise wholesale pricing to distributors by 200 basis points. As deliveries were kept to schedule, the result was a higher gross margin for the six month period to 31 December 2011. However, higher than previously envisaged spending on advertising and promotion erased these gains and with a sharper effective tax rate, the net margin weakened to about 15%. This should revert to a more normal annualized level when some of the one-off initiatives are displaced as market conditions improve.

Most significantly, the tight monetary policies in China and sluggish sales, coupled with the financial impact of the Group's initiatives, meant that the cash conversion cycle of the Group deteriorated with the result that the cash balances declined sharply by 31 December 2011.

Despite the difficult environment, there was a net addition of 184 stores in the six months to 31 December 2011, as retailers saw opportunities to secure good locations at reasonable terms. This policy of selective opening, with the easing out of other less favorable leases in due course, is likely to continue.

Key Summary for the 12 months to 31 December 2011

Because of a stronger first half in the January to June period, the Group managed to post a 14.8% increase in revenues, compared with that of the previous year, as turnover topped RMB5.57 billion. Gross margins remained solid at 42.5% for the year as a whole and this improvement of 900 basis points is commendable, considering the general pressure on costs and reflects the Group's production and procurement efficiencies, as well as strong brand equity. Despite higher below the line costs, the net margin improved slightly to 20.4% compared with the previous twelve months.

The Group's continuing efforts to promote the brand through major international event sponsorships is proving to be an effective strategy and for the second successive, the 361 brand was enlisted in Millward Brown's BrandZTM survey of China's Top 50 Brands in 2011.

In a very competitive environment, it is noteworthy that Footwear posted sound increases in both volumes and average selling prices ("ASP"), a characteristic that augurs well for the Company as the industry becomes increasingly differentiated. On the other hand, Apparel saw volume declines in 2011. There has been a gradual shift in consumer preferences in apparel and sportswear suffered badly as this space became increasingly saturated with many new brands. Heavy discounting, particularly towards the second half of 2011, has possibly exhausted most of the surplus apparel inventories in the sportswear industry and more normal operating conditions should return soon.

The Group has had a reasonable measure of success in its 361 Degrees Kids brand which built on strong initial momentum to register a 15.6% growth in revenues for the twelve months to 31 December 2011. This higher volume also enabled better economies of scale, as reflected in a higher gross margin. There should be room for continued improvement. Positioned at the mid to low end of the market, the 361 Degrees Kids brand has recently secured the rights to two comic icons, Batman and Spider Man, and this collaboration with the US giants will help to make further inroads into this very fragmented market.

During the year, the Group successfully secured the exclusive rights to be the Official Sports Apparel Sponsor for the 2nd Youth Olympic Games in Nanjing in 2014, continuing a tradition of being associated with multi-sport, international events in China, having previously sponsored the 2010 Guangzhou Asian Games and the 2011 Shenzhen Summer Universiade. As the 361 Degrees brand equity improves, it will be further bolstered by the product marketing strategy of celebrity endorsement by sportsmen such as Kevin Love (Dallas Mavericks' NBA All-Star), Sun Yang (World Record Holder at 1,500 metres freestyle) and Steve Hooker (2008 Beijing Olympics pole vault Gold Medalist) as well as a host of other Jamaican sprinters.

As at 31 December, 2011 the Group's robust business model remains intact with the 32 exclusive distributors, taking charge of 3,410 authorized retailers, who collectively operate a total of 7,865 point-of-sale outlets. Most of these, accounting for over 70%, are in Tier 3 and smaller cities, with a significant presence in the Northern and Western Regions of China. As at 31 December 2011, just under 5,000 of this total have subscribed to an electronic point-of-sale system ("ePOS") which is directly linked to the central servers of the Group's headquarters in Xiamen. Online and real-time, this connectivity has been a significant tool in the Group's efforts to monitor sales, identify customer preferences, manage inventories and generally enable rapid responses to market changes. During the year, the Group also successfully implemented a Warehouse Management System ("WMS") which deploys the use of scanning to help minimize repacking of finished goods from the OEM suppliers.

The directors are recommending a dividend of HK 8.6 cents per share to be paid out of the profits for the six months to 31 December 2011. Together with the dividend of HK 19.4 cents per share paid in respect of the six months to 30 June 2011, this brings the total dividend to HK 28 cents for the year, which is effectively a pay-out ratio of 42% of the retained profit for the year to 31 December 2011, and in line with the dividend policy of gradually increasing the pay-out to 50%.

Outlook for 2012

In a world that seems set for a recession in Europe, a hesitant recovery in the United States, and a lower GDP growth target in China, the immediate outlook for this industry remains clouded. Competition is likely to get more intense and with rising costs, labour shortages and a shifting consumer sentiment, only the stronger companies will survive an eventual consolidation in the medium term. For 2012, it is probable that the revenue growth of the Group will remain modest.

Nonetheless, the Group remains in a favorable position, given its substantial investment in human resources, management systems, as well as product innovation and brand building, to capitalize on any upturn in the market as China eases its monetary policies and accelerates its structural reforms. The key factors leading to a consumption-led economy remain very much intact and the Group reaffirms its commitment to maintain a leading edge in this highly competitive but profitable industry.

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/ +852-2136-6183/ +852-2136-6953/ +852-2169-0646
Fax: +852-3170-6606 / /

Source: 361 Degrees International Limited