(8 March 2016 - Hong Kong) - As a leading international sportswear brand enterprise in China, 361 Degrees International Limited ("361˚" or the "Company", together with its subsidiaries, the "Group"; HKSE stock code: 1361), is pleased to announce its results for the year ended 31 December 2015.
Financial Analysis
In 2015, the Group's turnover rose by 14.1% to RMB4,458.7 million (2014: RMB3,906.3 million). The growth was mainly driven by 11%, 16% and 18% growth in the order of 2015's spring/summer, autumn and winter trade fair, respectively; which also reflects the Chinese sportswear industry has been growing steadily. Sales of major products continued to improve. Due to the focus on developing footwear segment, volumes and average wholesale selling price (AWP) of footwear recorded a significant growth, representing 42.3% of the Group's turnover. Apparel sales accounted for 42.5% of the Group's turnover. In addition, 361 Kids continued its strong momentum, with turnover up 16.0% to RMB588.9 million (2014: RMB507.5 million), representing 13.2% of the Group's turnover. This also demonstrated the established customer base for the kids business, a segment with huge potential for further growth.
Gross profit in 2015 was RMB1,823.0 million (2014: RMB1,596.8 million), gross margin remained stable at 40.9%. During the year under review, thanks to increased AWP and the drop in major raw material costs, gross margin of the footwear segment increased by 2.3 percentage points to approximately 40.9%. However, the gross margin of the apparel segment was dragged from 43.0% to 40.9% due to a fierce competition in this segment. Kids segment maintained a stable gross margin, with marginal increase of 0.3 percentage points to 41.0%.
During the year under review, administrative expenses increased by 85.7% to RMB377.6 million (2014: RMB203.3 million), accounting for approximately 8.5% of the Group's turnover (2014: 5.2%). The increase was mainly attributable to the non-recurring reversal of impairment loss of RMB111.4 million in the previous year, as well as the surge in R&D expenses and depreciation costs. During the year under review, the Group continued to invest in both internal and external R&D teams to enhance product development and competitiveness, which drove R&D expenses up to RMB139.6 million (2014: RMB95.7 million), representing 3.1% of the Group's turnover (2014: 2.4%).
As at 31 December 2015, more than 75.7% of trade debtors were within 90 days (2014: 62.0%) with none over 180 days.
After deducting finance costs of RMB125.5 million (2014: RMB92.2 million), profit before taxation climbed by 29.9% to RMB789.2 million (2014: RMB607.5 million).
After deducting the income tax of RMB259.5 million, profit attributable to equity shareholders grew 30.2% to RMB517.6 million (2014: RMB397.6 million), equivalent to earnings per share of RMB25.0 cents (2014: RMB19.2 cents).
During the year under review, net cash generated from operating activities amounted to RMB245.4 million (2014: RMB911.2 million). Net cash position of the Group (including deposits and other cash equivalents) was RMB2.4 billion (2014: RMB2.6 billion). Its strong financial position places the Group in good stead for future business opportunities in China's sportswear industry.
Noting the satisfactory results of the Group, the Board of Directors have declared a final dividend of RMB5.3 cents per share, which together with the interim dividend of RMB5.0 cents, bringing the total dividend for the year amounted to RMB10.3 cents per share (2014: RMB8.0 cents), representing an annual dividend payout ratio of 41.1%. The Group will strive to steadily improve dividend payout ratio, in order to reward its shareholders for their long term support.
Operational Highlights
In 2015, 361˚ continued to focus on China's mass functional sportswear market, and adopted a multi-brand strategy with 361˚, 361˚Kids and outdoor brand ONE WAY, to capture multi-channel sales opportunities. As of 31 December 2015, the Group has a franchised network of 7,208 stores in China. The Group considers the current network to be optimal and it will focus on building a sustainable business model, enhancing store efficiency and store image, and boosting the profitability of stores, strengthening the core competitiveness of retailers to respond swiftly to market changes. The Group currently encourages the development of large-scale 2-in-1 (with 361˚ Kids) or 3-in-1 (also includes Innofashion) composite stores, so as to enhance footfall and further drive sales. At the same time, the Group has increased investment in R&D, product differentiation, terminal payment methods upgrade to increase shop efficiency, all of which have yielded significant results. Same store sales growth of 361 has achieved high single-digit growth for four consecutive quarters in 2015.
Internet sales has evolved to become an important driving force of all retail business in recent years. To grasp the opportunities, the Group has formulated a product differentiation strategy by supplying exclusive products to online platforms, to create synergy between online shops and offline retail stores. Online exclusive merchandises include 361 - Baidu smart shoes for kids, 361 - LeTV Sports smart shoes, one-time products with specific themes of sporting events or star athletes and other jointly-developed innovative high-tech products. The Group aims to expand online sales business, bringing its sales contribution to make up a significant portion of the Group's turnover in the future.
The Group has carried out an extensive range of R&D endeavors to capture market share with more brand-new, multi-functional and value-for-money products. In June 2015, 361˚ signed a strategic framework agreement with LeTV Sports to commence cross-border cooperation to build a smart sports ecosystem. 361˚ and LeTV have also collaborated in the areas of R&D and production of smart sports equipment, APP application, promotion and marketing. In addition, 361˚ has begun independent R&D of smart running shoes in the second half of 2015. The product will focus on enhancing the running experience, and it's expected to be launched in June 2016.
Since the commencement of 361˚ kids business in 2009, it has gained huge popularity in China as it has provided hundreds of millions of children with a wide variety of value-for-money quality products. In 2015, 361˚Kids sales continued to grow, and contributed to more than 10% of the Group's turnover. During the year, Baidu and 361˚ jointly launched the second generation of kids' smart shoes, and were generally well-received by China's one-child families. 361˚Kids has established a strong foothold in the rapidly growing and promising children's sportswear market. With the abolition of the one-child policy, demand from two-child families will be gradually released and will thus boost spending on kids. The new wave of baby boomers will bring about thousands of billions of dollars in consumption in the next four to five years.
In addition to focusing on existing core business, the Group has been actively expanding new businesses and tapping into the overseas markets. With Beijing's successful bid to host the 2022 Winter Olympics, it has become the first city to host both the Summer and Winter Olympics. The Group's joint venture brand ONE WAY, immediately seized new opportunities in winter and outdoor sports activities. As of 31 December 2015, this high-end brand operates 47 self-owned stores in 23 major cities in China including Beijing, Shanghai and Shenzhen, to meet the growing demand. In 2015, 361˚ propelled its overseas expansion through its subsidiary 361˚ International. The subsidiary, which is positioned as a brand of high-end and professional running gear, launched footwear with 361˚'s self-developed patented technology" Quikfoam" that targeted specialty retailers in the US and Brazil. Quikfoam, a CPU-coated foam that offers outstanding support with ultra-comfort, is a revolutionary technology that marks a milestone in the Group's development. As of 31 December 2015, the Group had 116, 415 and 30 points of sales in the United States, Brazil and Europe, respectively, laying a solid foundation for the global expansion of 361˚. During the year, 361˚ International's innovative footwear Sensation and KgM2 were highly favored by the market. Their comfort, durability, and value won them awards and recognition from industry professionals.
As a leading brand in China's sportswear industry, 361 upholds the brand philosophy of "One Extra Degree of Passion", and actively embodies the corporate culture of "passion" to promote the development of social, economic, sports and other social undertakings. The Group has always devoted no less than 10% of its turnover to brand building and promotion. By sponsoring a number of Chinese national teams and the Swedish national curling team, and working closely with well-known Chinese athletes, the Group has enhanced the 361˚'s brand penetration and targeted audience exposure. Following the sponsorship of 2010 Asian Games in Guangzhou, 2011 Shenzhen Universiade (World University Games), 2014 Nanjing Youth Olympic Games and 2014 Asian Games in Incheon, South Korea, the Group will become the official partner of 2016 Rio Olympic and Paralympic Games, bringing the 361˚ brand to its peak in 2016.
The Group has been consistently strengthening product innovation and optimizing its R&D capabilities to yield greater product differentiation. During the year, the Group adopted a number of constructive ideas in fashion design, shape and fabric selection, to constantly optimize its product design. 361˚ introduced advanced materials made of cutting-edge technology in all kinds of shoes and apparel products, such as colored reflective material, carbon composite materials, prism reflective material, strong grip soles, double suspension soles, air suspension soles, SORONA fabric, N/T stretch jersey, 3M reflective printed fabric and CD stretch mesh. In addition, the Group worked closely with the Beijing Institute of Fashion Technology and other professional institutions to timely integrate popular elements into the design concept. This year, the Group will continue to seamlessly work with the joint venture OEM to respond to the burgeoning orders in a flexible, timely and cost-efficient manner.
It is also worth mentioning that 361˚ and SINA jointly set up a running club in the year, and introduced the new concept "Beyond Runner". The running club intends to group running enthusiasts and organize tailored running and personalized training sessions for runners of different levels. The running club will host themed marathons according to different geographical characteristics in the future, or even participate in marathons in China and around the world. 361˚ invited Ms. Sun Weiwei, a world marathon winner to lead the running group, and has attracted many professional runners to join. A variety of 361˚'s functional running shoes became runners' choices, demonstrating the Group's value-for-money products are highly welcomed by consumers in China's mass market. On top of that, the Group has sponsored Jinmen Marathon for the eighth consecutive year, promoting sports and cultural exchanges across the Taiwan Straits with its brand appeal, product functionality and event execution capability.
The Chinese government has introduced a number of reforms to promote the development of football. It is expected to boost the popularity of the sport, and take the standard of Chinese football sports to new heights. In response to this emerging trend, the Group has developed four new football boots and a pair of training shoes, and officially launched them in September 2015. Its fast execution and professionalism of products received warm market response again. During the year, 361˚ has signed Yang Xu, a current member of China's national soccer squad, as its spokesperson to promote 361˚ football products with his enthusiasm and love for the sport. In the forthcoming future, the Group will further strengthen R&D capabilities and introduce more value-for-money and professional football equipment to help popularize football along with national policy.
Prospects
Looking ahead, as China's economic development goes on, the public demand for sports and entertainment will remain on the rise. 361˚ is confident in the prospects of the Chinese sportswear industry and the Group. The reforms implemented by the Chinese government to encourage a healthier society and stimulate domestic consumption have laid a solid foundation for the sustainable growth of China's sportswear industry. It is expected that both international and domestic brands will dedicate more resources to launch new products to the market, and competition will remain intense. The Group will continue to invest in R&D to maintain its leading position in the industry with the latest product technology. In addition, the Group also plans to set up its own e-commerce business platform to achieve long-term profitability and secure the Group's dominant position.
Mr. Ding Wuhao, President of 361˚ Group concludes, "361˚ will continue to target the mass market, and establish a consumer-oriented retail management system to achieve a sustainable business model, and solidify its leadership position in industry. The Group will continue to leverage its multi-brand development strategy to support the sustainable growth of five business segments. 361 Sports plans to stay focused on the core business segments and further develop products for running, basketball, training and football sports. In addition, in view of the flourishing online shopping mania, the Group will promptly set up a modern e-commerce system, and design online exclusive products to differentiate product portfolio to increase online sales. The Group will also continue to invest in R&D to dominate the market with new product technology. This year, the Group will be the official partner of the 2016 Rio Olympic and Paralympic Games. This will be the first time that a Chinese brand is involved in a leading international sporting event of such a high level. Our brand is expected to gain huge prominence. And this will further consolidate 361˚'s position as one of the leading sportswear companies in China thus push our brand to new heights."
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About 361 Degrees International Limited
Established in 2003, 361˚ is a leading international sportswear brand enterprise in China. The Group is an integrated sporting goods company which engages in brand management, research and development, design, manufacturing and distribution. Its key products include footwear, apparel, accessories, kids' footwear and apparel, and professional outdoor sportswear under the 361 Sports brand.
The Group operates a wholesale franchise business model through exclusive distributors and franchisees to manage an extensive nationwide distribution network of more than 7,000 retail stores, covering 31 provinces, autonomous regions and municipalities across China. It has established a leading position in third-tier and below cities in China.
For more details, please refer to its website: www.361sport.com.
For further information, please contact:
361 Degrees International Limited
Ms. Nina Zhan
Vice-President, Investor Relations
361 Degrees International Limited
Email: nina@361sportshk.com
iPR Ogilvy & Mather
Natalie Tam / Lorraine Luk / Hazel Chan / Lokyi Chan
Tel: (852) 2136 6182 / 2169 0467 / 3920 7651 / 3920 7656
Fax: (852) 3170 6606
Email: 361@iprogilvy.com
End of Press Release
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