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Exceed Company Ltd.Third Quarter 2010 Results Presentation
November 16, 2010
喜得龙 Official Partner of Fitness for All
Safe Harbor Statement
This presentation contains forward‐looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995 regarding future eventsd f t f f E d C Ltd (“E d”) Thand future performance of Exceed Company Ltd (“Exceed”). These
statements are based on management’s current expectations or beliefs.Actual results may vary materially from those expressed or implied by thestatements herein. This information is qualified in its entirety by cautionarystatements and risk factor disclosure contained in certain of Exceed'sSecurities and Exchange Commission filings. For a description of certainfactors that could cause actual results to vary from current expectations andforward‐looking statements contained in this presentation, please refer tog p , pdocuments that Exceed files from time to time with the Securities andExchange Commission. Exceed is under no obligation to, and expresslydisclaims any obligation to, update or alter its forward looking statements,whether as a result of new information future events changes inwhether as a result of new information, future events, changes inassumptions or otherwise.
2© 2010 Exceed Company Limited
Agenda
• Company Overview
l O i• Results Overview
• Financial Highlights
• Operational Updates
• Strategy & Outlook
3© 2010 Exceed Company Limited
Company Overview
NASDAQ listing: October 2009
Ticker: NASDAQ: EDS (Global Market)
Market Cap: US$225.7 Million, as of Nov 15, 2010
Shares Outstanding: Approximately 25.3 Million, as of September 30, 2010
About Exceed:
Headquarters: Fujian, China
Business ProfileThe owner and operator of “Xidelong” brand, one of the leading domestic sportswear brands in China with strengthsBusiness Profile leading domestic sportswear brands in China with strengths in 2nd and 3rd cities
Investor Information:
www.ir.xdlong.cn
4© 2010 Exceed Company Limited
Results Overview
New product demand and increased brand equity drove sales revenue growth
Effective cost control enhances profitability
• Revenue: RMB832.4 million (US$124.4milion), 25.8% year‐over‐year increase
G fi 2 2 8 illi (US$3 8 illi ) 28 3%
Effective cost control enhances profitability
• Gross profit: RMB252.8 million (US$37.8million), 28.3% year‐over‐year increase
• Gross margin: 30.4%, 0.6 percentage point year‐over‐year increase
• Operating profit: RMB128.1 million (US$19.1million), 91.1% year‐over‐year increase
• Net profit: RMB111.0 million (US$16.6million), 98.6% year‐over‐year increase
• Growth drivers:– Strong demand in China’s sportswear market lays solid ground – “Happy Lifestyle” advertising campaign building brand equity and boosting ASPEffective expansion plan broadens geographical reach– Effective expansion plan broadens geographical reach
– Diligent cost allocations improve margins
5© 2010 Exceed Company Limited
Financial HighlightsFinancial Highlights
6© 2010 Exceed Company Limited
Financial Highlights
(In millions, except EPS data)Q3 2010US$ 4
Q3 2010RMB
Q3 2009RMB
Y‐o‐Y%
Total Net Revenue 124 4 832 4 661 7 25 8%Total Net Revenue 124.4 832.4 661.7 25.8%
Gross Profit 37.8 252.8 197.1 28.3%
Operating Profit 19.1 128.1 67.0 91.1%
Profit for The Period Attributable to 16 6 111 0 55 9 98 6%
Equity Holders of The Company 16.6 111.0 55.9 98.6%
Basic EPS 1 0.66 4.39 9.73 ‐54.9%
Diluted EPS 2 0.59 3.98 8.86 ‐55.1%
Q3 2010 Q3 2009 Y‐o‐Y
Gross Margin 30.4% 29.8% 0.6pts
Operating Margin 3 15.4% 10.1% 5.3pts
Profit Margin Attributable to Equity Holders of the Company 3
13.3% 8.4% 4.9pts
Notes:
1. The weighted average basic shares outstanding for the three months ended September 30, 2010 was 25,303,727; the weighted average basic shares outstanding for the three months ended September 30, 2009 was 5,741,466. The increase is mainly due to new shares issued during new listing in Oct 2009.
2 The weighted average diluted shares outstanding for the three months ended September 30 2010 was 27 909 665 the weighted average diluted shares outstanding
7© 2010 Exceed Company Limited
2. The weighted average diluted shares outstanding for the three months ended September 30, 2010 was 27,909,665 the weighted average diluted shares outstanding for the three months ended September 30, 2009 was 7,220,478.
3. The operating margin for the 9 months ended September 30, 2010 and 2009 are 15.8 % and 13.3% , respectively. The net profit margin for the 9 months ended September 30, 2010 and 2009 are 13.6% and 11.3%, respectively. Both margins improved for the 9 months period.
4. RMB to $US conversions were made using the exchange rate of US$1.00=RMB6.6905.
Revenue – Strong Apparel Sales Growth
Revenue Contribution by ProductNet Revenue
1,296.4
1,820.3
2,078.0
30%
40%
1,500
2,000
2,500 53.1%
45.5%45.8%53.4%
40%50%60%
661.7 832.4
0%
10%
20%
0
500
1,000
1.1% 1.1%
0%10%20%30%
Q3 2010 Q3 2009 Y‐o‐Y 9M ended Sep. 9M ended Sep. Y‐o‐Y
FY 07 FY 08 FY 09 3Q09 3Q10
0%3Q09 3Q10
Footwear Apparel Accessories
(In millions)
Q3 2010RMB
Q3 2009RMB
Y o Y%
9M ended Sep. 30, 2010
9M ended Sep. 30, 2009
Y o Y%
Footwear 378.4 351.1 7.8% 986.3 791.6 24.6%
Apparel 444.3 303.0 46.6% 1,036.3 670.8 54.5%
8© 2010 Exceed Company Limited
Accessories 9.7 7.6 27.7% 20.4 16.1 26.7%
Revenue – Rising Volume and ASP Support Growth
Sales Volume Growth: Footwear & Apparel
16.013
1718
16
20
Wholesale Average Selling Price (ASP) Growth: Footwear & Apparel
65 368.8 68.8 64 9
72.8 80
90
10.3
13.4
16.0
5.4
13
6.78
12
Pairs
/Pie
ces
in
mill
ions
65.3 64.9
45.5 51.0 53.6
58.3 66.3
30
40
50
60
70
RM
B
5.25.2
0
4
FY 07 FY 08 FY 09 3Q09 3Q10
Footwear Apparel
0
10
20
FY 07 FY 08 FY 09 3Q09 3Q10
Footwear Appareloot ea ppa e
Y-o-Y growth: 3Q YTD
Footwear: -3.9% 17.8%
Y-o-Y growth: 3Q YTD
Footwear: 12.1% 5.8%
9© 2010 Exceed Company Limited
Apparel: 29.0% 37.2% Apparel: 13.7% 12.6%
Improving Gross Margin
Gross Profit & Gross Margin
YTD (first 9 months)GPM 31 5%
497
613.1
26.0%27 3%
29.5%29.8% 30.4%
30%
40%
500
600
700
ons
• Xidelong brand momentum driving increased ASP
• Cost control in footwear
GPM: 31.5%Y-o-Y growth: 2.1pts
336.9
197.1 252.8
27.3%
10%
20%
200
300
400
RM
B in m
illio Cost control in footwear
production further enhanced overall gross margin
0%
10%
0
100
FY 07 FY 08 FY 09 3Q09 3Q10
Gross Profit Gross Margin
10© 2010 Exceed Company Limited
Operating Margin Enhanced with Better Cost Management
• A&P expenses: Change in spending cycle led to lower expenses; YTD15.4%
20%
500
600
Operating Profit and Operating Margin
YTD (first 9months)OPM: 15.8%Y-o-Y growth: 2.5pts
cycle led to lower expenses; YTD expense to sales ratio maintained
• R&D expenses: Continued investments in new design to enhance
d t ff i157.9
194.2
281.4
12.2%
10.7%
13.5%
10.1%10%
200
300
400
500
RM
Bin
mill
ions
product offering
• Administrative expenses: Slightly increased due to legal and professional fees after listing
67 128.1
0%0
100
FY 07 FY 08 FY 09 3Q09 3Q10
Operating profit Operating Margin
A&P Expenses
209
247.9 16.3%
11 7% 16%
20%
250
300
lions
Administrative Expenses
44.5
3%
4%
40
50
ns
R&D Expenses
2525
30 3%
lions
127.7
209
107.9 97.1
9.9%11.5%
11.9%
11.7%
0%
4%
8%
12%
6%
0
50
100
150
200
RM
Bin
mil 30
29.2
10.2 11.7
2.3%1.6%
2.1% 1.5% 1.4%
0%
1%
2%
3%
0
10
20
30
RM
Bin
mill
ion
12.8
17.6
7 8.11.0% 1.0%
1.2%1.1% 1.0%
0
5
10
15
20
25
0%
1%
2%
RM
Bin
mil
11© 2010 Exceed Company Limited
FY 07 FY 08 FY 09 3Q093Q10A&P % of Sales
FY 07 FY 08 FY 09 3Q09 3Q10Administrative % of Sales
FY 07 FY 08 FY 09 3Q09 3Q10R&D % of Sales
A& P Expenses YTD (first 9 months):2009: 11.7% 2010: 11.7%
Tax Expenses
( ll )3Q 10US$
3Q 10RMB
3Q 09RMB
Y‐o‐Y %(in millions) US$ RMB RMB
Tax Expenses 2.5 16.7 1.9 +779.0%
Profit Before Tax 19.1 127.6 57.8 +120.8%
Effective Tax Rate (%) 13.0% 3.3% +9.7 pts
• Tax expense increase primarily due to the expiration of the full exemption period of Xidelong (China) Co. Ltd., EDS’s principal PRC subsidiary, from PRC corporate income tax on Dec. 31, 2009.
• This subsidiary however will be entitled to a 50% reduction in the PRC• This subsidiary, however, will be entitled to a 50% reduction in the PRC corporate income tax until Dec. 31, 2012.
12© 2010 Exceed Company Limited
Net Income Growth; EPS Impacted by New Listing
(in millions, except for EPS)
3Q 10US$
3Q 10RMB
3Q 09RMB
Y‐o‐Y %YTD 10RMB
YTD 09RMB
Y‐o‐Y %
Net Income 16.9 111.0 55.9 98.6% 278.6 167.8 66.0%
Basic EPS 0.66 4.39 9.73 ‐54.9% 11.06 29.23 ‐62.2%
Diluted EPS 0.59 3.98 8.86 ‐55.1% 9.73 26.61 ‐63.4%
B i i ht dBasic weighted average number of shares outstanding
25,303,727 25,303,727 5,741,466 ‐ 25,201,293 5,741,466 ‐
Diluted weighted average number of shares 27,909,665 27,909,665 7,220,478 ‐ 28,632,885 7,220,478 ‐outstanding
, , , , , , , , , ,
Pro forma diluted EPS 0.38 2.51 ‐ ‐ 6.30 ‐ ‐
Pro forma diluted number of shares 44,187,376 44,187,376 ‐ ‐ 44,187,376 ‐ ‐outstanding *
, , , , , ,
* A ll ti t i bl h t t t di d t i t d h f l i ti
13© 2010 Exceed Company Limited
* Assume all contingent issuable shares, warrant outstanding and restricted shares from employee incentive plan are included in the number of diluted shares outstanding
Liquidity and Balance Sheet
(in millions)Sep 30, 2010
US$Sep 30, 2010
RMBDec 31, 2009
RMBChange
%
Cash and bank balances and pledged time deposits
98.0 655.7 277.2 136.5%
Inventory 12.8 85.6 56.0 52.9%
Trade Receivables 87.6 585.9 812.7 ‐27.9%
Total Current Assets 203.4 1,360.7 1,165.9 16.7%
Trade and Bills Payables 18.4 122.9 195.5 ‐37.1%
Total Current Liabilities 31.1 208.3 319.4 ‐34.8%
Total Equity 218.0 1,458.3 1,148.4 27.0%
(in millions)3Q10 US$
3Q10 RMB
3Q09 RMB
9 Months 2010 RMB
Net Cash flow 19.0 127.3 ‐17.5 393.5
3Q10 3Q09 Y‐o‐Y Change
Inventory Turnover Days 13 15 ‐2
14© 2010 Exceed Company Limited
Trade Receivables Turnover Days 64 74 ‐10
Trade Payables Turnover Days 19 47 ‐28
Operational UpdatesOperational Updates
15© 2010 Exceed Company Limited
Sales Network – Deepening Penetration
• Expanding nationwide sales network: – 4,194 stores at the end of Sep 2010
dd d f– 557 new stores added from Sep. 30, 2009 to Sep. 30, 2010 to meet growing demand
• Deepening penetration into new areas: – Focus in 3rd tier cities in Guangdong, Liaoning 110
Jilin 45
Heilongjiang202
Focus in 3 tier cities in Guangdong, Jiangsu and Zhejiang provinces
– Added 123 stores in these provinces from Sep. 30, 2009 to Sep. 30, 2010
Jiangsu 105
Xinjiang 85
Qinghai 8
Sh hAnhu
Shandong 128Hebei 56
Beijing 27Tianjin
Liaoning 110Inner Mongolia
62
Gansu62
Shaanxi318 Henan
170
Shanxi130
Ningxia41
N b f R il S hTibet 3
Sichuan214
Yunnan375
Guizhou66Guangxi Guangdong
Fujian 116
Shanghai
Zhejiang 388
Anhui
277Chongqing
196
Hunan136
Jiangxi143
Hubei 290
170
3 277
3,694 3,637
4,194
3,600
4,000
4,400
Number of Retail Stores hiaiai
375 Guangxi193
Guangdong248
With over 200 retail storesWith 100-200 retail storesWith 50 100 retail stores A f S t b 30 2010
Total = 4,194
3,277
2,519
2 000
2,400
2,800
3,200
3,600
Stor
es
16© 2010 Exceed Company Limited
With 50-100 retail storesWith less than 50 retail stores
As of September 30, 20102,0002007 2008 2009 2009 2010
Dec 31 Sep 30
Marketing Initiatives – Enhancing Brand Value
• “Happy Lifestyle” promotional campaign – Broad and effective television advertising campaign
• New product launches in lifestyle apparel segment– Prominent store displays
• Sponsorship “Inter‐City” television program – Sponsorship of popular CCTV entertainment show since early 2010
Initiatives improve and enhance the Xidelong brand profile
17© 2010 Exceed Company Limited
Initiatives improve and enhance the Xidelong brand profile
Strategy and OutlookStrategy and Outlook
18© 2010 Exceed Company Limited
Growth Strategy
Capitalize on high growth potential of 2nd and 3rd tier iti d t ti t d i i iti th
Deepen Market Penetration cities, deepen penetration to drive acquisitive growthPenetration
Focused marketing efforts to strengthen brand profile Strengthen Market
Elevate “XIDELONG” brand equity to achieve higher
g g pand improve store traffic
gPosition
Elevate XIDELONG brand equity to achieve higher ASPs and margin expansion Enhance Brand Equity
Focused three‐pronged strategy to drive organic and acquisitive growth and to
improve profitability
19© 2010 Exceed Company Limited
Operational Initiatives
• Expand distribution network to meet fast‐growing demand– Addition of 700 stores on average in 2010 and 2011, to reach around 5,000 stores by the end of 2011, representing an 35.4% increase from 2009.
– Total of 500 stores added in the first nine months of 2010. – Penetrate new cities, with the focus in 3rd tier cities in Guangdong, Jiangsu and Zhejiang provinces
– Select expansion in 2nd tier cities
• Increase sales efficiency – Raise brand profile through strategic advertising campaign– New marketing campaign and spokespersons to align brand image and product, enhance brand equity
• Drive ongoing margin expansionE d i th h hi h ASP– Expand margin through higher ASP
– Improve production efficiency
20© 2010 Exceed Company Limited
Fiscal Year 2010 Guidance
• Exceed expects to generate net revenues in the range of RMB 2,639.0 million to RMB 2 680 6 million in the fiscal year 2010 representing anmillion to RMB 2,680.6 million in the fiscal year 2010, representing an approximately 27% to 29% year‐over‐year increase compared with RMB2,078.0 million in 2009.
• This forecast reflects the Company’s current and preliminary view, and is subject to change.
21© 2010 Exceed Company Limited
Q and AQ and A
22© 2010 Exceed Company Limited