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Belle International Holdings Limited 2008 Annual Results March 2009
Belle International Holdings Limited2008 Annual Results March 2009
Page 1
This presentation and the accompanying slides (the “Presentation”) which have been prepared by Belle International Holdings Limited (“Belle” or the “Company”) do not constitute any offer or invitation to purchase or subscribe for any securities, and shall not form the basis for or be relied on in connection with any contract or binding commitment whatsoever. This Presentation has been prepared by the Company based on information and data which the Company considers reliable, but the Company makes no representation or warranty, express or implied, whatsoever, on the truth, accuracy, completeness, fairness and reasonableness of the contents of this Presentation. This Presentation may not be all-inclusive and may not contain all of the information that you may consider material. Any liability in respect of the contents of or any omission from this Presentation is expressly excluded.Certain matters discussed in this presentation may contain statements regarding the Company’s market opportunity and business prospects that are individually and collectively forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict. The Company’s actual results, levels of activity, performance or achievements could differ materially and adversely from results expressed in or implied by this Presentation, including, amongst others: whether the Company can successfully penetrate new markets and the degree to which the Company gains traction in these new markets; the sustainability of recent growth rates; the anticipation of the growth of certain market segments; the positioning of the Company’s products and services in those segments; the competitive environment; and general market conditions. The Company is not responsible for any forward-looking statements and projections made by third parties included in this Presentation.
Disclaimer
Page 2
Company Snapshot
Brand PortfolioCompany Overview
Footwear
Sportswear
Founded in 1991 in Shenzhen, China
9,169 self-managed retail stores in mainland China and 215 retail stores in HK, Macau and Taiwan
Belle (1st), Teenmix (2nd), Tata (4th), Staccato (6th) , Senda (7th) ,Basto (9th): top ranked ladies’footwear brands by revenue in PRC in 2008.
Market cap: HKD 32.6 billion as of Mar 23, 2009
Share price: HKD 3.86 as of Mar 23, 2009
IPO date: May 23, 2007
(1)
(1) Source: China Industrial Information Issuing Center (CIIIC)
Page 3
Agenda
Prospects
Year 2008 Financial ResultsYear 2008 Financial Results
Market Overview and Management Discussions
Page 4
Year 2008 Financial Highlights
15.012.8%Operating margin
50.651.7%Gross margin
29.91,754.92,279.3RMB mOperating profit
25.03
17.0
1,979.1
5,902.5
11,671.9
2007% ChangeYear ended 31 December
56.39,228.4RMB mGross profit
1.62,010.4RMB mProfit attributable to equity holders
- 4.823.82RMB centsEarnings per share
11.3%Margin of profit attributable to equity holders
53.017,855.8RMB mRevenue
2008
（1）Profit attributable to equity holders increased by 1.6% to RMB 2,010.4 million. The percentage increase is smaller than the increase in operating profit, mainly owing to the change in domestic enterprise income tax rate and the absence of the one-off interest income of RMB364.2 million earned from the tied-up fund during the listing in 2007.
（1）
Page 5
Vertically Integrated Business Model
Belle operates a unique vertically integrated business model that covers product design and development, procurement, production, marketing and promotion, distribution and retail capabilities.
ConsumersDistribution Retail
Footwear Segment
Sportswear Segment
Consumers
Distribution
Production Process
Auxiliary Material,
Semi-Finished Products
Raw Materials
PurchaseProcurement Finishing
OEM Outsourcing
RetailProduct Design
Brand Management
Distribution Retail
Company-owned / Licensed Footwear
Casual Footwear Distribution
Page 6
Revenue Analysis
Revenue
RMB m
2007 2008
Footwear Sportswear
100.0%45.9%54.1%
% total
20082007
53.0%17,856100.0%11,672Total49.8%8,19246.9%5,470Sportswear
9,664
Revenue
55.8%53.1%6,202Footwear
% change% totalRevenue(RMB m)
Revenue Breakdown by Business Segment
+53.0%
17,856
6,202
5,470
11,672
9,664
8,192
(1) Inter-segment elimination amount is not significant – combined with Footwear to simplify analysis
(2) Sportswear business includes the distribution of sportswear brands and sports complex business
(1) (2)
Page 7
Footwear Revenue Comparison
Company-Owned Brands Distribution Brands OEM
Footwear Revenue Breakdown
RMB m
2007 2008
Footwear Revenue
RMB m
2007 2008 2007 2008 2007 2008
139.9179.7
697.4
151.8
8,826.4
5,870.4
50.4%
359.4%
55.8%
6,201.9
9,663.7
- 22.1%
Page 8
Sportswear Revenue Comparison
1st-Tier Sportswear Brands 2nd-Tier Sportswear Brands（1） （2）
Sportswear Revenue BreakdownRMB m
2007 2008 2007 2008
Sportswear Revenue
2007 2008
RMB m
(1) 1st-Tier Sportswear Brands include Nike and Adidas.(2) 2nd-Tier Sportswear Brands include Kappa, LiNing, Mizuno, PUMA, Reebok, Converse and Fila.
1409.9684.7
6,713.0
4,731.5
41.9%
105.9%
49.8% 8,192.1
5,470.0
Page 9
Belle directly manages and controls an extensive nationwide retail distribution network with 9,169 retail outlets across mainland China as of 31 Dec 2008
<100 Retail Outlets100 to 200 Retail Outlets200 to 300 Retail Outlets>300 Retail Outlets
Xinjiang (117)
Qinghai (61)
Yunnan(306)
Gansu (80)
Ningxia(60)
Shaanxi(299)
Shanxi(193)
Henan(302)
Hubei(494)
Guizhou(210)
Guangxi(167)
Hainan (92)
Jiangxi(102) Fujian
(229)
Zhejiang (382)
Shandong (618)
Inner Mongolia(129)
Jilin (267)
Heilongjiang(282)
Hunan(205)
Shanghai (527)Tibet
Liaoning (612)
Tianjin (171)
Guangdong(959)
Hong KongMacau
Taiwan
AnHui(172)
Jiangsu (574)
Hebei(369)
Beijing(606)
Chongqing(198)
Sichuan(386)
Company-Managed Retail Network in Mainland China
Page 10
Notes:1. In addition to the above, the Group also has 215 stores in Hong Kong, Macau and Taiwan as of Dec 31 2008.2. Number of retail outlets shown in the table are for stores in China mainland ONLY, sportswear stores in Guangzhou
are combined into Southern China. 3. Number of retail outlets shown in the table includes Millie's, Jiangsu Senda and Mirabell.4. 1st-tier Sportswear Brands include Nike and Adidas. 2nd-tier Sportswear Brands include Kappa, LiNing, Mizuno,
PUMA, Reebok, Converse and Fila.
Number of Retail Outlets – Mainland China (as of 31 Dec 2008)
957 171 1,128 392 135 - 527 1,655980 106 1,086 270 89 23 382 1,468859 77 936 234 133 - 367 1,303644 60 704 272 185 - 457 1,161389 21 410 270 240 - 510 920423 45 468 118 113 - 231 699391 23 414 158 18 - 176 590367 25 392 116 109 - 225 617249 17 266 114 130 - 244 510231 15 246 - - - - 246
5,490 560 6,050 1,944 1,152 23 3,119 9,169
Number of Retail Outlets – Mainland China
Sales RegionCompany-
owned brandsDistribution
brandsSub-total 1st-tier
brands2nd-tierbrands
Apparel Sub-total Total
Footwear Sportswear
Eastern China
Northern China
Southern China
North-eastern China
Shandong and Henan
Central China
South-western China
North-western China
Yunnan and GuizhouGuangzhou
Total
Page 11
Footwear Store Breakdown Sportswear Store Breakdown
Company-ownedBrands90.7%
Distribution Brands 9.3%
1st-tierBrands62.3%
2nd-tierBrands37%
Apparel 0.7%
(1) Total Number of retail outlets as of 31 Dec 2008.
Store Statistics – Mainland China
Total Store Count Footwear Sportswear
12/31/08
62.1%6,050
3,732
12/31/07 12/31/08
3,119
2,358
32.3%
12/31/07 12/31/08
50.6%9,169
6,090
12/31/07
（1） （1）
Page 12
Gross Margin
Overall Gross Margin
Footwear: Gross Margin Sportswear: Gross Margin
50.6% 51.7%
2007 2008
63.8% 64.9%
2007 2008
35.6% 36.1%
2007 2008
Page 13
Operating margin
Footwear: Operating Margin
23.7% 20.8%
2007 2008
Sportswear: Operating Margin
5.9% 4.6%
2007 2008
Overall Operating Margin
15.0% 12.8%
2007 2008
(1) Segment operating margin is before amortization of intangibles and unallocated income / expenses.
(1) (1)
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Working Capital
Account Payable DaysDays
RMB m
Account Receivable DaysDays
12/31/2007 12/31/2008
33.434.9
12/31/2007 12/31/2008
Net Working Capital
6,4128,244
12/31/2007 12/31/2008
44.133.7
Page 15
Inventory turnover
Average Inventory Days
12/31/2007 12/31/2008
138122
（1）Inventory contains raw material, work in process and finished goods.
（1）
Footwear: Average Inventory DaysDays
Sportswear: Average Inventory DaysDays
12/31/2007 12/31/200812/31/2007 12/31/2008
（1）
Days
11899
169157
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Capital expenditure
755.3 418.9 274.7 1,448.9
242.8 330.8 573.6
121.1 58.0 4.9 184.0
213.0 213.0
7.9 0.2 8.1
170.5 29.9 470.2269.8
CAPEXFootwearBusiness
SportswearBusiness Unallocated Sub-total
RMB m
Decoration of Retail Outlets
Others *
Factory
Intangible Assets
Properties
Total
* Others include logistics, office equipment and back office support.
Page 17
Fixed Asset Items
PP&E
From M&A (565)
Other (33)
Amortization (505)
YE07 (1113) YE08 (2226)
Additions (1085)
0
500
1000
1500
2000
2500
3000
RM
B M
illio
n
Opening
Plus
Minus
Ending
Leasehold land and land use rights
From M&A (567)
Other (14)
Amortization (29)
YE07 (550) YE08 (1437)
Additions (364)
0
400
800
1200
1600
RM
B M
illio
n
Opening
Plus
Minus
Ending
Property, plant and equipment
In 2008 additions 1,085 million:
• Store decorations: 570 million
• SZ factory: 213 million
• SZ & HK head office buildings: 106 million
• Office equipments: 97 million
• SZ factory: 213 million
• Plant & equipment: 66 million
• Other: 18 million
Leasehold land and land use rights
In 2008 additions 364 million
• Mainly office building sites
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Agenda
Prospects
Year 2008 Financial Results
Market Overview and Management DiscussionsMarket Overview and Management Discussions
Page 19
Footwear Brand Portfolio
Note:1. Brands within dark blue circle are newly added to Belle in 2008.2. Brands within solid circle are company-owned brands.3. Brands within dotted circle are distribution brands.
Pric
e
Fashion--
+
200
RMB
300
400450500550600650
800
1200
1400
Page 20
Belle’s Sportswear Brands Portfolio
2nd-tier Sportswear and Apparel
1st-tier Sportswear
Page 21
Impact of the Macroeconomic Environment
· HK & Macau economies significant affected
· Mainland China:
· Growth momentum slowdown· Export slide · Sluggish stock market, real estate
market and etc.
2008 was a year full of challenges for the consumer retail industry in China and for the Group
Global Financial Crisis Natural Disasters
· Snow storm in Southern China
· Sichuan earthquake
· Prolonged heavy rain in Southern China
Beijing Olympics • Help boost the confidence of the Chinese people and their awareness of sports• Unrealistically high expectations also hurt the sportswear market
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Change in Enterprise Income Tax Rates
Overall effective tax rate
Overall effective tax rate increased significantly in 2008 compared with 2007.
In the future two years, the Group’s applicable tax rates will be around the level of 2008.
The Group’s effective tax rate
2007 2008 2009 2010
9% 10% 11%
New Belle, our major domestic operating unit, enjoys a reduced tax rate at half of the prevailing rate in the region.
Newly acquired businesses (Senda, Millie’s, and Mirabell) are subject to the 25% tax rate in mainland China.
Applicable tax rate for New BelleFootwear business: effective tax rate
The new corporate tax rate at 25% is not significantly different from what it was for the sportswear business.
Applicable tax rate for sportswear business in Shenzhen: 18% in 2008, 20% in 2009, 22% in 2010.
0%
2007 2008 2009 2010
Applicable tax rate for the sportswear business
25% 25% 25% 25%
2007 2008
2.1%
11.4%
Sportswear business: effective tax rate
Close to
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Changes in Business Structure
Footwear vs. Sportswear
1H07 2007 1H08 2008
54.6% 53.1% 51.7% 54.2%
• Footwear sales as a percentage of overall business rebounding. The Group intends to maintain footwear as the core business.• Sportswear business shifting from revenue-driven growth to profitable growth. The percentage weighting is expected to further scale back.
footwear sportswear
Sportswear: 1st-tier vs. 2nd-tier brands
1H07 2007 1H08 2008
91.3% 86.5% 81.4% 81.9%
8.7% 13.5% 18.6% 18.1%
1st tier 2nd tier
• Will focus on first-tier brand business.
• The percentage weighting of second-tier sports brands will continue to edge lower.
Regional Mix
1H07 2007 1H08 2008
96.4% 96.6% 95.7% 95.8%
3.6% 3.4% 4.3% 4.2%
mainland China HK and other locations
• The percentage weighting of HK and other locations slightly increased in 2008 mainly due to high portion of the newly acquired Millie’s and Mirabell businesses in HK.
• Longer term, the percentage weighting of businesses in HK and other locations will edge lower. Business in mainland China will remain the key growth area.
45.4% 46.9% 48.3% 45.8%
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Sportswear – POS growth 1st-tier vs. 2nd-tier brands
1st-tier Sportswear Store Count Growth 2nd-tier Sportswear Store Count Growth
·On the back of our adjustments to the growth strategy underway the contribution from 2nd-tier sports brands will continue to edge lower. ·This shift in business composition will help enhance the profitability and efficiency of the Group’s overall sportswear business.
·On the back of our adjustments to the growth strategy underway the contribution from 2nd-tier sports brands will continue to edge lower. ·This shift in business composition will help enhance the profitability and efficiency of the Group’s overall sportswear business.
12/31/2007 12/31/2008
19.4%
36.4%1,492
1,944
843
1,152
06/30/2008
1,150
0.2%
12/31/2007 12/31/200806/30/2008
1,7829.1%
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Development in 1st, 2nd and 3rd Tier Markets
1st TierMarkets18%
2nd TierMarkets35%
3rd TierMarkets47%
Revenue Growth in 1st, 2nd and 3rd Tier Markets
Revenue Breakdown in 1st, 2nd and 3rd Tier Markets
2007 2008 2007 2008 2007 2008
22.9%31.4%
48.2%
Similar trend in both footwear and sportswear markets: 3rd tier market grew at a faster rate than 2nd tier market; 2nd tier market faster than 1st tier market.
For more mature businesses incl. existing core footwear brands and 1st-tier sportswear brands, POS expansion will be more focused on 2nd and 3rd tier markets with lower penetration
For newly acquired businesses and new distribution brands, POS expansion plans will be set individually based on the specific positioning of the brands
Definitions:
1st Tier Markets: Beijing, Shanghai, Guangzhou, Shenzhen;
2nd Tier Markets: Provincial Capital Cities (except Beijing, Shanghai and Guangzhou);
3rd Tier Markets: All cities other than cities included in 1st and 2nd tier markets
1st TierMarkets16%
2nd TierMarkets34%
3rd TierMarkets50%
2007 2008
Developmentof 1st, 2nd and 3rd Tier Markets
1st Tier Markets
2nd Tier Markets
3rd Tier Markets
Note - Revenue breakdown is based comparable retail value of comparable business of the Group
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Post Merger Integration
Millie’sJiangsu Senda Mirabell
For Senda, we have largely completed the internal integration process of R&D, production and retail network.
Currently focusing on: Expanding nationwide retail networks; Entering department stores with similar positioning; Achieving fast revenue growth
At the same time working on transforming production models, strengthening inventory control and improving inventory management efficiency
On company-owned brands we plan to implement a vertical integration model and achieve lean sales management.On distribution brands we plan to aggressively develop their business in mainland China with the Group’s channel
management capabilities.Define retail development plans for relevant brands through detailed segmentation of department stores. Complete the
network formulation of newly acquired brands in a 2-year horizon.We expect the economies of scale and synergies resulted from the completion of internal integration and network expansion
will have noticeable impacts on operating metrics and financial measures, which will improve to similar levels of existing core brands, within a time horizon of two to three years.
The integration of retail network as well as regional team management is underway.
Leverage Mirabell’s brand equity and expand its business in the mainland market through the Group’s extensive retail networks nationwide.
The integration of retail network as well as regional team management is largely complete.
The next step is to start in-sourcing R&D and production for company-owned brands, revamp supply chain models and improve inventory management efficiency
At the same time actively expand the retail network
Brand
Status
Target
Page 27
Agenda
ProspectsProspects
Market Overview and Management Discussions
Year 2008 Financial Results
Page 28
Prospects: Sales growth
Average Store Count
59.4%
2008 *2009
6,500
2,870
5,100
1,670
71.9%
2007
3,200
27.5%
2008 *20092007
3,120
8.7%
Footwear
Sportswear
*2009: Projected for 2009
2009: New & quasi-new stores driving growth
Long term: Continuous Same Store Sales Growth will be the main driver in the long haul
Medium term: Newly acquired business and new distribution brands will be new areas of growth
(1) Average Store Count: Average number of stores at quarter ends. All numbers rounded.
(1)
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Prospects- Managerial focus and development strategies of different businesses
• Differentiated managerial focus based on specific development phases• No major risk of cannibalization due to sufficient differentiation of brand positioning
Managerial Focus
Millie’s, Mirabell and international brands:
• Complete internal integration
• Improve supply chain models
• Store network expansion2nd tier sportswear brands:
• Optimize store mix
• Replace nonperforming stores
Senda and Basto:
• Ramp up of store network
• Improve operational metrics
Existing footwear business and 1st-tier sportswear business:
• Optimize operational metrics
• Measured store expansion, esp. in 2nd and 3rd tier cities
• Manage expenses and maintain profitability
Business Development Phase
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Belle’s
Core Competencies
Extensive Nationwide Retail Network
Through direct control and mgmt of the retail network, Belle is well positioned to obtain first-hand market information and leverage into sportswear retail business.
Market-oriented and Fast RespondingSupply Chain
The vertically integrated business model enables Belle to exert maximum control over all the key stages of the supply chain and to synchronize production with market trends.
Successful Multi-Brand Strategy
Multi-brand strategy has enabled Belle to become the largest retailer of ladies’ footwear in mainland China, with a wide range of consumer segments.
Localized Sales Management With Centralized Coordination
Belle has optimized its decision-making process by dividing China into ten sales regions and delegating authority for merchandizing and sales management to regional levels. The headquarters are responsible for coordinating and overseeing operations at group level.
Experienced and MotivatedManagement Team
The management team is experienced and has an in-depth understanding of the PRC retail industry. All key personnel in the senior management teams of the headquarters, sales regions and production units are Belle shareholders.
Core Competencies
Long term growth is driven by our distinctive competencies and competitive advantages
Page 31
12F Excellence Mansion
98 Fuhua 1st Road
Futian District
Shenzhen China
Postal code: 518048
Address:
Fax:
Telephone:
Email: [email protected]
(86 755) 8287 9066
(86 755) 8287 7385
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