1
2010 Annual Results Announcement
March 2011
2
Disclaimer
Cautionary note regarding forward-looking statements
This presentation material 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”, “expect”, “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 Financial Review”.
Agenda
Business Review
Strategies & Future Plans
Open Forum
3
Annual Results Overview
Financial Review
4
Annual Results Overview
Financial Achievement
Sales +7.3%
Gross profit +6.1%
Operating profit +2.6%
High dividend payout ratio
Dividend payout ratio: 70%
New management on Board
Increasing marketing and advertising activities
Tightening partnership with retailers
Product innovation through design and development
Leveraged talents and resources from R&D center in Japan
Transformed Taicang factory, Jiangsu into a technical center
Additions of professionals with international exposure
Chief Executive Officer - Ms. Sandrine Zerbib
Chief Financial Officer - Mr. Terence Hon
Annual Results Overview
Launched a series of Kappa brand image TV commercials on
CCTV5 and other regional TV channels
Launched a World Cup marketing campaign dubbed “Soccer
Frenzy” during 2010 FIFA World Cup South Africa
Leveraging the partnership with GX Retail Group, enhanced
the brand experience at point of sale
Increased emphasis on internet sales
6
Business Review
Business Review
Brand Building
Expanding Brand Portfolio
Sales Network
Design and Development
7
Brand Building — Kappa TVCs Launched
Launched Kappa brand image TV commercials that featured the sports in season on CCTV 5, Anhui TV, Zhejiang TV, Liaoning TV, etc. between May and October 2010
Adopted the theme of fusion between sports and fashion
TVC Launched Kappa TVC in CCTV 5
during World Cup period
Online video Soft online marketing to
demonstrate Kappa’s spirit of combining sports and fashion
Art show Creative artwork displayed in Wangfujing and Solana,
Beijing Celebrity Campaign Sponsored “DreamBoat Soccer Team” and invited them to attend the 2010
World Cup in South Africa
Brand Building — FIFA World Cup South Africa 2010 Promotion Activities
Joint promotion Kappa x Bazaar Crossover
9
Online ad Attract young
consumers
Brand Building — China Open
10
Platinum Sponsor of the China Open, a top
integrated tennis event held by ATP, WTA and ITF
Further promoted Kappa brand by extending its
promotional activities for the China Open to retail
stores
Title sponsor of the event “Kappa-CRT” with the
goal of promoting tennis to the public
11
“Hole in One Kappa” golf day was organized in
August 2010 featuring different celebrities in golf
games. A product launch show for the Kappa
Golf series was organized
Kappa also offered full support to the HSBC Golf
Championship, which was held in Shanghai,
China in November 2010
Brand Building — 2010 Kappa Golf
12
Brand Building — Sports Marketing
Co-sponsorship of Italian Serie A club AS Roma
Co-sponsorship of German Bundesliga Club
Borussia Dortmund
Official Sponsorship of team clothing for
Virgin Racing F1 Team
Sports Sponsorships with BasicNet and Brand Licensees
Cooperated with Bazaar Magazine to create a new graphic fashion image, a fusion between fashion and sports
Shown on “Bazaar” and “Bazaar Men’s Style” issues between June and October
Joint hands with Bazaar to launch the “Soccer Frenzy” carnival with the presence of “DreamBoat Soccer Team”
13
Brand Building — Crossover with Bazaar and BMW
Kappa is the official clothing sponsor
for “BMW Mission 3”
The alliance with a world-class, high-
end brand significantly enhanced
Kappa’s brand image.
14
Internet Marketing
Took full advantage of the internet platform to publicise Kappa brand through online video
series, advertisement on the SNS public homepage and dissemination through 163 mailbox
signatures , etc
Online video
Advertisement on SNS
Interactive platform for Kappa Fans
15
Expanding Brand Portfolio
16
Expanding Brand Portfolio — Robe Di Kappa (“RDK”)
Robe Di Kappa brings a new attitude and perspective towards sports and leisure to the world
– the inner beauty of sports with its artistically innovative line of products
First outlet was officially opened in Beijing in February 2010
A series of marketing activities were
launched, e.g. 2010 Fall/Winter Fashion
Collection, introduction of a special
selection of CD, “The Choice of RDK”
The number of outlets had grown to 20
as of end-2010
17
Expanding Brand Portfolio — Phenix
Japanese outdoor and ski brand with
strong international recognition
Engaged in the active preparation of
the introduction to China market in
2011
Expanded into the outdoor segment
which is to mitigate the effects of the
high seasonality of ski and is highly
suitable for the efforts to develop in
the China market
As of 31 December 2010
As of 31 December 2009
Change
No. of Kappa stores 3,751 3,511 +240
18
<25 Retail stores
25 to 50 Retail stores
50 to 100 Retail stores
>100 Retail stores
JV with GX Retail Group
Region Net
Open
Northern 145
Central 35
Southern 59
Net Openings by Region
Fujian (157)
Tianjin (76)
Taiwan Guangxi (51)
Guizhou (65)
Hunan (137)
Jiangxi (77)
Anhui (171)
Sichuan (205)
Shandong (236)
Hebei (198)
Shanxi (75)
Gansu (25)
Ningxia
(11)
Inner Mongolia (72)
Jilin (118)
Qinghai (10)
Xinjiang (48)
Tibet (7)
Hainan (29)
Shaanxi (71)
Chongqing (80)
Macao
(4)
Guangdong (294)
Beijing
(149)
Yunnan (96)
Liaoning (209)
Jiangsu (237)
Zhejiang (323)
Shanghai
(82) Hubei (161)
Henan (118)
Heilongjiang (159)
Sales Network — Kappa Stores in China
19
Sales Network — Online Sales
Online sales of Kappa products grew by
over 300% in 2010
With joint efforts with www.taobao.com,
daily internet sales reached RMB11.0
million with the number of visitors to
Kappa Taobao online store hitting 1.5
million on 11 November, 2010
Aim to establish an integrated online sales
platform while at the same time tapping
into multiple popular internet channels to
promote sales
To reinforce the image of Kappa brand,
Kappa Web Visual Identity was established
to standardize the logo and webpage
layout.
Design and Development — R&D
20
Evolution of Taicang factory (Jiangsu) into a technical centre which works in close cooperation with Dongxiang technical centre in Niigata, Japan
Phenix developed several new product lines and a number of new technologies during the year, including curve zippers and embossment patterns
Herring-bone Stitch Curve zippers
21
Design and Development — Kappa P-A.C
Cooperated with Michael Michalsky, a renowned German
designer, and launched Kappa P-A.C in July 2010
Originated from the “Pack Away Concept” which caters to
the needs of the urban youth who are fond of carrying
various portable gadgets for convenient use at anytime
A simple and fashionable design that harmonizes with
light and soft materials
The P-A.C collection was promoted through an exhibition
tour across major cities in China including Shanghai,
Chengdu and Beijing in August and September, 2010
22
Financial Review
Financial Review
Results Highlights
Sales by Markets and Brands
Sales Breakdown by Products
Gross Profit Margin by Markets and Products
Expenses Ratio to Sales
Working Capital Management
Financial Position
Return to Shareholders
23
24
Results Highlights
2010 2009 Change
For the year ended 31 December
(RMB mn) (RMB mn) (%)
Sales 4,262 3,970 +7.3
Gross profit 2,546 2,399 +6.1
Operating profit 1,741 1,697 +2.6
Profit attributable to equity holders 1,464 1,460 +0.3
Gross profit margin (%) 59.7% 60.4% -0.7pt
Operating profit margin (%) 40.9% 42.7% -1.8pts
Net profit margin (%) 34.3% 36.8% -2.5pts
(RMB cents) (RMB cents)
Basic earnings per share 25.83 25.76 +0.3
25
Sales by Markets and Brands
2010 2009 Change
For the year ended 31 December
(RMB mn) As a % of total sales
(RMB mn) As a % of total sales
(%)
China 3,650 85.6% 3,403 85.7% +7.3
– Kappa brand 3,633 85.2% 3,394 85.5% +7.0
– RDK brand 7.6 0.2% - - -
– Others 9.8 0.2% 8.8 0.2% +11.4
Japan
– Phenix, Kappa and other brands
612 14.4% 567 14.3% +7.8
Total sales 4,262 100.0% 3,970 100.0% +7.3
Recorded sales growth in all markets and all brands
Online sales increased more than 3 times from 2009, though started with lower base
RDK brand first launched in China in February 2010
26
Kappa Brand in China Market – Sales Breakdown by Products
Accessories
3.4%(4.0%)
Apparel
74.8%(75.9%)
Footwear
21.8%(20.1%)
790.9133.9
123.5
2,718.12,577.6
682.8
2009 2010
5.5%
15.8%
7.7%
3,394.3 3,632.5
2010
Apparel
Footwear
Accessories
RMB mn
For the year ended 31 December Remarks: Comparable figures for 2009 are shown in brackets
[ -] An increase by 14.2% in sales volume of apparel was partly offset by higher rebates given to distributors, resulting in an overall 5.5% growth.
Double digit growth rate of footwear was mainly due to improvement in design and technological knowhow, resulting in 2.8% higher ASP and 20.1% higher sales volume. Proportion of footwear sales increased to 21.8% (2009: 20.1%).
Gross Profit Margin by Markets and Products
2010 2009 Change
For the year ended 31 December
(%) (%) (% pt)
China 62.4 63.0 -0.6
– Kappa brand 62.4 63.1 -0.7
– RDK Brand 68.0 N/A N/A
– Others 44.9 24.5 +20.4
Japan 43.9 45.2 -1.3
The Group overall 59.7 60.4 -0.7
Gross profit of Kappa products decreased mainly due to higher production cost and higher discount rate offered to customers as well as impacted by a stock return provision of RMB 155M
RDK has become the product with the highest gross profit margin within our brand portfolio
Overall gross profit margin, declined by 0.7%pt 27
2010 2009 Change
For the year ended 31 December
(%) (%) (% pt)
Apparel 64.4 65.3 -0.9
Footwear 55.4 54.5 +0.9
Accessories 64.8 63.9 +0.9
Overall 62.4 63.1 -0.7
China - Kappa brand
2010 2009 Change
For the year ended 31 December
(%) (%) (% pt)
– A&P expenses (% of sales)
9.3 7.4 +1.9
– Staff cost (% of sales)
4.6 4.6 -
– Product R&D cost (% of sales)
2.8 2.3 +0.5
Expenses ratios to sales
Increased advertising and sponsorship expenses on World Cup campaign, TV commercials, China Open, and Norway Olympics Committee
Higher R&D cost: increasing leverage on design capability in Japan and closer collaboration with University of the Arts of London
28
China Market – Working Capital Management
4544
2009 2010
Inventory Turnover Day
For the year ended 31 December
37
24
2009 2010
Day
For the year ended 31 December
6561
2009 2010
Day
For the year ended 31 December
Considering the operation pressure of
distributors, relaxed credit terms
were given to major distributors.
Despite higher A/R turnover days, the
ageing profile has been improved
No material changes of other working
capital indicators
29
A/R Turnover A/P Turnover
As at 31 December 2010
As at 31 December 2009
% %
Current 75 63
1 - 30 days 21 31
31 - 120 days 4 6
Total 100 100
A/R Ageing Profile
2010 2009
For the year ended 31 December
(RMB mn) (RMB mn)
Net cash generated from operating activities 1,444 1,485
As at 31 December 2010
As at 31 December 2009
(RMB mn) (RMB mn)
Cash & bank deposits 5,028 6,127
Investment in treasury products* 1,522 402
Bank balance and treasury products held 6,550 6,529
Current assets 7,441 7,073
Current liabilities 872 552
Net assets 7,515 7,354
Maintain Strong Financial Position
30
Maintain strong cash position
Investments in government bonds and treasury products to enhance return on unutilized cash
Stable cash flows to support future business development and acquisitions
No bank borrowings
* Included investments in treasury products issued by MOF, PRC and principal-guaranteed treasury products issued by major commercial banks in the PRC
31
Return to Shareholders
2010 2009 Change
For the year ended 31 December
(RMB cents) (RMB cents) (RMB cents)
Dividends per share
– Interim paid 4.16 3.82 +0.34
– Special Interim paid 4.16 1.27 +2.89
– Final (proposed) 3.59 3.91 -0.32
– Special final (proposed) 6.17 9.04 -2.87
Total 18.08 18.04 +0.04
Payout ratio 70% 70% -
While maintaining stronger cash position for future strategic and initiatives are our priorities, we continue to enhance shareholder value
High dividend payout of 70% of net profit in 2010
Our operating cash flow remains very strong
9.76
32
Strategies & Future Plans
33
2011: A year of adjustment
The sports industry is now reaching a certain level of maturity – slower growth, clearer
segmentation
In the meantime, the Chinese apparel and footwear market is expected to reach US level in the
coming 5 years, driven by key trends which all represent key opportunities:
Rise of the middle class
Urbanization and growing small cities
Trading-up
Health and wellness
E-commerce
Dongxiang has experienced extreme growth the past few years and now needs to strengthen its
foundations to be ready to grab new opportunities
2011 will be a year of adjustment:
Close monitoring of retail inventory and reduction to more healthy levels
Stronger brand pull through brand and product improvement
Improvement of existing store productivity via retail and sales management, with special focus
on sub-distributors
Optimization of current store portfolio
34
Long-term Strategies
Store / network management (Optimize and expand network)
Retail management
Supply chain (Improve supply chain efficiency)
Process, org and others (Strengthen process/mgmt
discipline)
Brand (Clarify brand positioning and strengthen equity)
Product (Leverage Phenix platform)
Customer (GX relationship)
management (Basic customer
mgmt)
Improve basic competency Build advantages
35
Long-term Strategies
Strengthen
brand identity
and product
differentiation
Store network
optimization
and geographic
expansion
Brand
diversification
Optimize
product
creation
Expand
footwear
products
Develop online
sales platform
Shift focus from
sell-in to sell-
through
Strengthen Brand Identity - Clarify Kappa brand positioning
36
Kappa is a color offer
• Full of life, passion, richness of youthful energy, in-motion, expressive, impulse, bold, warmth, open-minded, positive, optimistic
• Unisex-to-feminine relevance
• An expression of youthful optimism or compensation for the lack of it
(Focus group Feb. 2011)
“Live the creative beauty of sport”
The aesthetics and creativity of sports
Fashionable casual look
Art as action expression
Romantic and artsy
• Clarify brand image and point of differentiation in the eyes of consumers
• Regain momentum, especially among higher tier city and younger consumers
• Strengthen fundamentals of brand in order to be able to expand range beyond core casual business
Objectives
Expand Range to Street and Fashion - Introduction of C19
Inspired by the colorful street fashion and bicycle component
38
Form free
Engineered function Sexy
Exercises
Expand Footwear Products — Introduction of “Curves”
Optimize store portfolio
39
Strategize store portfolio management POS development and expansion
Refine store opening criteria and support policies
Develop, manage and control of store opening plans
Develop and execute granular store footprint
1
2 2
Develop strategic alliance with department stores and developers
Strengthen retail premium location of Tier 1 cities
1
4
Enlarge average store size
3 Apply consumer/product segmentation to store segmentation and grasp
opportunities in casual space
3
Progressively replace low performing/inadequate stores
4
40
Optimize store portfolio - Store segmentation based on systematic consumer/product segmentation
Sports Fashion
Consumer / Product
segmentation
Store segmentation
(examples)
Sports floor
Low tier city store focus
Casual floor
Sports Fashion Casual
Participant Lover Sports inspire Brand driven Classic smart Follower Early adaptor
• Professional athletes
• Sports lovers
• Requires basic function sportswear
• KAPPA Fans
• Simple and clean style
• Edgy fashion lovers
• Trend followers
41
Optimize store portfolio - New retail format
RETAIL OBJECTIVE 2012 NEW LOOK in Retail
2006
2009
EVOLUTION
INN
OV
AT
ION
• More IMPACT on brand voice
• More CREATIVITY in space
•More ATTRACTIVE & PRODUCTIVITY on product
Shift Focus From Sell-in to Sell-through
42
Zero control on the POS
Full control on the POS
•Move from "pure wholesale" to "managed retail” •Leverage GX partnership •Special focus on sub-distributors
Pure wholesale
Level of control on the POS
Where we are now
Where we want to be in the
future
• Improve business intelligence – Expand
POS system • Develop retail
operation standards:
– VM, format, services
• Develop retail academy for customers
• Develop retail operation supervision system and link incentives to it
• Develop geography and segment based assortment plans and tools
Franchise Retail
"Managed retail"
43
Brand Diversification
Achieved satisfactory results since
the opening of the first RDK store in
Beijing in 2010
Further promote the RDK series
through various marketing campaigns
Expect to open over 50 RDK stores in
China in 2011
Officially introduce Phenix to the
China market in 2011
Plan to open 20 to 30 stores in 2011
Optimize Product Creation
44
Further optimize product creation by strengthening R&D efforts and further evolve Taicang factory
(Jiangsu) into a technical centre which works in close cooperation with Dongxiang technical centre in
Niigata, Japan
Leveraging the talents and resources in Phenix design department and at R&D centre in Japan
Expand Kappa’s official online store to a greater number of internet channels
Establish iKappa website: a multi-purpose platform covering online sales, marketing,
customer service, brand education, feedback on news products and a forum for Kappa
fans
Develop Online Sales Platform
45
Expand the online sales business leveraging
on the investment in Mecox Lane Limited
46
Open Forum