omniture

361 Degrees' FY2014 Earnings Up 88%

361 Degrees International Limited
2015-03-10 13:29 2531

HONG KONG, March 10, 2015 /PRNewswire/ -- 361 Degrees International Limited (the "Company", together with its subsidiaries, the "Group"; HKSE stock code: 1361), one of the leading sports brand enterprises in China, is pleased to announce its results for the year ended 31 December 2014.

Financial Highlights


For the year
 ended 31 December

Change

2014

2013

Turnover (RMB million)

3,906.3

3,583.5

+9.0%

Operating profit (RMB million)

724.2

352.2

+105.6%

Profit before taxation

(RMB million)

607.5

314.9

+92.9%

Profit attributable to equity shareholders (RMB million)

397.6

211.3

+88.2%

Basic EPS (RMB cents)

19.2

10.2

+88.2%





Profitability ratios (%)




Gross margin

40.9

39.5

+1.4 p.p.

Operating margin

18.5

9.8

+8.7 p.p.

Net margin

10.2

5.9

+4.3 p.p.

Effective income tax rate

36.4

36.7

-0.3 p.p.





Costs as percentage of turnover (%)




Research and Development

2.4

2.4

--

Staff costs

8.4

8.3

+0.1 p.p.

Advertising and Promotion

11.2

11.4

-0.2 p.p.

Rack subsidies

5.5

4.8

+0.7 p.p.





Cash position (RMB million)



Change

(RMB mil)

Net cash (including deposits and cash equivalents)

2,606.0

2,070.5

+535.5

Net cash generated from

operating activities

911.2

323.2

+588.0

Turnover of the Group grew by only 9.0% in 2014 as the bulk of the orders were taken in the previous year when the prevailing sentiment remained weak in the face of the inventory glut in the industry. Operating profit grew, however, by about 105.6%, primarily because of a fully justifiable write-back in impairment provision as a result of a vastly-improved control on trade debtors, and a generally well-balanced oversight on most of the key operational issues.

There was a general improvement in volumes for all the product groups and despite a reduction in wholesale prices which became effective in the year, average selling prices were on an upward trend; this augurs well for the future as product differentiation and price segmentation become increasingly important in what is still a highly competitive industry. Deserving a special mention is the 361° Kids unit, which reported a 20.7% increase in revenue, buoyed by an improvement in both volume and average selling prices, as it sets a new benchmark in the industry with the launch of "Smart" shoes and consolidates its leading position.

Gross profit margin improved by 140 basis points to 40.9%, as the Group juggled between in-house production and OEM sourcing for the most optimal results, with a higher productivity in the in-house apparel unit also a contributing factor. As there is still an over-capacity in the OEM manufacturing sector, there are good reasons to believe that this level of profitability can still be maintained in the foreseeable future.

Major operating costs in both selling and distribution, as well as in administrative, were generally kept in line with the higher revenue, with a few notable exceptions.

Over the last three years when the industry has been in the doldrums with the overhang of inventories resulting in severe discounting, the Group has quietly implemented a rack subsidy scheme to help retailers improve the store image and shopping experience. In 2014, the Group accelerated on this promotion, bringing a further 2,125 stores into full compliance with the latest corporate and operational standards, which resulted in a charge of RMB214.1 million, up 25.6% from the previous year. The other exception is staff costs which rose 21.9% as the Group recruited several senior hires to improve internal general management as well as to drive its overseas expansion.

An early measure of the success of the above initiatives is the substantial improvement in credit control. As at 31 December 2014, over 62% of the trade debtors are within 90 days (2013: 49%) with none over 180 days (2013: RMB192 million). Upon a further assessment of the credit history of the slow-paying distributors, it is felt that a write-back in the impairment provision amounting to RMB111.4 million is not only justifiable but necessary in order to reflect the vastly-improved situation.

Almost all of the 7,319 franchised stores are now re-fitted with the latest rack specifications and many of these operate as "3-in-1" outlets, offering the full complement of the Group's merchandising lines in 361° Sport, 361° Kids and Innofashion, the Group's casual sub-brand. Foot traffic have reportedly been much better in such stores and with the adjustment in the product pricing mechanism, many retailers could now operate profitably.

In September 2014, the Group took the opportunity of favorable conditions in the capital markets to adjust its gearing ratio by issuing RMB1.5 billion senior unsecured notes, due 2017, and used part of the proceeds to cancel the outstanding convertible bonds, which were sluggishly traded. Together with other accounting charges, there is a one-off loss of RMB24.4 million as a result of this redemption exercise to cancel the convertible bond issue. After finance costs of RMB92.2 million (2013: RMB79.1 million), the profit before taxation amounted to RMB607.5 million (2013: RMB314.9 million), an impressive improvement of 92.9%.

After a taxation charge of RMB202.3 million, the profit attributable to equity shareholders grew 88.2% to RMB397.6 million (2013: RMB211.3 million), which is equivalent to an earnings per share of RMB19.2 cents (2013: RMB10.2 cents).

In the year under review, there was net cash generated from operating activities amounting to RMB911.2 million (2013: RMB323.2 million). Given the relative maturity of the Group's production facilities, not much was required on capital expenditure and there were no other major projects, with the result that the net cash position of the Group (including deposits and other cash equivalents) strengthened to RMB2.6 billion (2013: RMB2.1 billion). This strong financial position places the Group in good stead for any business opportunities that may arise out of the ongoing consolidation of the sportswear industry.

The Board of Directors, noting the excellent results of the Group, have declared a final dividend of RMB3.0 cents per share, which together with the interim dividend of RMB5.0 cents (2013: RMB4.0 cents) brings the total dividend for the year to RMB8.0 cents per share. No final dividend was declared in 2013.

Looking ahead, the Group is confident that despite a slowing economy in China, it is generally agreed that the fundamentals of the sportswear industry have never been better, particularly as the Central Government is resolute in its reforms to encourage a fitter and healthier society and to drive domestic consumption as an engine for sustainable growth. With a strong order book on hand for 2015, and a good pipeline of value-for-money products, the Board is confident of another strong year of earnings.

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 more details, please refer to its website: www.361sport.com.

For further information, please contact:

361 Degrees International Limited
Mr. Y F Chen
Vice-President, Investor Relations
361 Degrees International Limited
Email:  yuanfeng@361sportshk.com

iPR Ogilvy & Mather
Natalie Tam/ Charis Yau/ Janis Lai/ Candy Tam
Tel:        (852) 2136 6182/ 2136 6183/ 2169 0646/ 3920 7626
Fax:      (852) 3170 6606
Email:    361@iprogilvy.com

Source: 361 Degrees International Limited
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