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Public company info - Xtep International Holdings Ltd. , 01368.HK

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Xtep International Holdings Ltd., 01368.HK - Company Profile
Chairman Ding Shui Po
Share Issued (share) 2,221,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Footwears
Corporate Profile Business Summary: The Group is principally engaged in the design, development, manufacturing and marketing of sportswear, including footwear, apparel and accessory products, sold mainly under the self-owned Xtep brand. Performance for the year: In 2016 the Group achieved growth of 1.9% in revenue to RMB5,396.6 million (2015: RMB5,295.1 million). Gross profit margin gained 1.0 percentage point in to 43.2% (2015: 42.2%), and operating profit before provision for impairment of trade receivables rose by 19.6% to RMB1,139.2 million (2015: RMB952.8 million). Profit attributable to equity Shareholders declined by 15.2% to RMB527.9 million (2015: RMB622.6 million). Basic earnings per Share amounted to RMB23.89 cents (2015: RMB28.97 cents). Business Review: RESTRUCTURING TO ENSURE FUTURE SUSTAINABLE GROWTH XTEP’s restructuring towards being a professional sports brand with stylish and functional products deepened in 2016, with internal resource realignment. Running remained the core sports category focus for the Group, and XTEP’s professional sports brand image was well accepted by our target customers. We consolidated our comprehensive management of products, branding and marketing, and retail management. The XTEP professional sports products and XTEP Kids products were distributed through our highly effective Exclusive Distributors and online e-commerce platform, all to benefit the overall long-term growth prospects of the Group. Restructurings will often lead to temporary adjustments in growth rate. In 2016 the Group achieved growth of 1.9% in revenue to RMB5,396.6 million (2015: RMB5,295.1 million). The product mix shift towards higher margin professional sportswear products continued to drive increase in margins. Gross profit margin gained 1.0 percentage point in to 43.2% (2015: 42.2%), and operating profit before provision for impairment of trade receivables rose by 19.6% to RMB1,139.2 million (2015: RMB952.8 million). Profit attributable to equity Shareholders declined by 15.2% to RMB527.9 million (2015: RMB622.6 million) mainly due to the provisions for impairment of trade receivables amounted to RMB222.2 million (2015: RMB31.7 million) which were related to the restructuring and realignment of XTEP Kids business. Basic earnings per Share amounted to RMB23.89 cents (2015: RMB28.97 cents). The Group maintained strong cashflow, with total bank deposits and bank balances of RMB4,245.3 million and cash from operating activities of RMB345.8 million. We continued to believe in giving a substantial portion of our profits back to Shareholders. To show our appreciation to Shareholders for their long-term support of the Group, the Board recommends and has resolved to declare a final dividend of HK3.25 cents (2015: HK7.0 cents) per Share and a special dividend of HK2.75 cents (2015: HK3.5 cents) per Share. Together with an interim dividend of HK10.5 cents (2015: HK10.0 cents) per Share, the annual payout ratio maintained at 60% (2015: 60%). SPORTS MARKETING BOLSTERING PROFESSIONAL SPORTS BRAND IMAGE Following the directional change of marketing emphasis to professional sports, we continued to be the sportswear sponsor of the most number of marathons in China in 2016, with 44 marathons and running events sponsored or organized by the Group. As XTEP’s core product line remained to be running products, we feel that marathons are one of the best ways for us to directly reach our target consumers – Chinese runners, and sales of running products generally show positive momentum around the time a marathon is held locally. To boost the “Chinese Runner’s Choice” image further, we have signed on additional sports spokespersons, such as Xie Zhenye, who represented China in the 2016 Olympics in the 4x100m relay and 100m dash. In April 2016, we launched our comprehensive football strategy – “Blade Project”, with the goal of serving 5 million Chinese football youths in the coming five years. The strategy included the continuation in sponsorship of XTEP China College Futsal League for the 5th consecutive year since 2011 and XTEP China University Football League for the 4th consecutive year, as well as adding the sponsorship of China High School Football League, serving over 17,000 participants each year in total. We have established official sportswear partnerships with many Chinese youth football education and training services providers, who will promote XTEP products through their events. Besides, we have signed Andriy Shevchenko, the former “European Footballer of the Year” and current head coach of the Ukraine National Football Team, to be the spokesman for our brand new football products launched in June 2016. Football will be an additional product series that complements running for our future growth. The Group feels that branding not only entails advertisement and promotions efforts, but also, XTEP stores as a physical representation of our brand. Thus, we have continued our store upgrades from a fashion to a sports-oriented look to 7th generation designs, completely changing color-tones and display methods, giving customers enhanced experiences of the new XTEP sports image. We understand that the customers are looking more and more for a shopping experience, in addition to quality products. INNOVATIVE FUNCTIONAL SPORTS PRODUCTS, ALWAYS VALUE FOR MONEY The Group believes that innovation is absolutely necessary in defining the value of a brand, from staying ahead of competition to increasing consumer demand. We continued to hire international designers from leading global sportswear brands to help drive both technical and aesthetics upgrades, as well as partner with global giants in fiber material technology, such as Toray from Japan, and the Dow Chemical Company and 3M from the United States, to co-develop materials to which we hold exclusive usage rights. We have changed the way we look at our footwear products, from focusing on single-technology series, to combining different technologies together to best fit the needs of the Chinese runner. We continued to use new generations of the core technologies of “Dynamic Foam”, “Reactive Coil” and “Air Mega”, each with unique attributes for support, shock absorption and rebound to enhance the runner’s performance. Apparels follow footwear, we have employed new materials such as “Xtep Sports Elastic Technology (X-S.E.T.)”, “XTEP-FROZEN”, “XTEP-DRY” and “XTEP-WARM” for increased comfort in different sports performance needs, namely elasticity, coolness, ultra-quick dry, and warmth in the winter. As we have created products from the perspective of consumer demand, we believe these products will help XTEP become the runners’ brand of choice. Following the announcement of our overall football strategy in April 2016, the Group launched our new football product line in retail stores in June 2016. XTEP football products’ aim at providing high quality value-for-money products to consumers is consistent with the Group’s strategy. We recognized that football is still a small segment of the sportswear sector in China, we have stayed ahead of the competition by having our football products worn by over 70,000 Chinese football players in competition over the past five years with our sponsorship of various levels of school football leagues in China. They have provided us with valuable feedback to help improve the performance and comfort of our products. “Blade” series football cleats tailor European football shoe designs to Chinese football players’ feet and Chinese football facilities which are dominated by artificial grass. We will continue to unveil new product series in football going forward. CHANNEL REORGANIZATION DRIVES RETAIL RESULTS, E-COMMERCE BOOSTS FURTHER GROWTH The Group continues to find effective retail channel management to be the key to success. Flattening of the distribution channel and detailed management down to the store level has contributed to significant improvements in overall operational efficiency and profitability. The Group has set detailed guidelines on controlling inventory, unifying store image, and product pricing based on real-time data gathered through the Group’s DRP-system. The DRP-system now covers over 90% of XTEP retail stores and feeds into an APP which allows retail staff of all levels to monitor, analyze and quickly react to retail data in order to generate higher store sales efficiency. As a result of the past three years of channel flattening process to improve channel management, stores have become more standardized, retail stores and distributors have become quicker to react, and channel inventory levels have been controlled within our guideline levels. We strategically increased the proportion of retail stores directly-managed by Exclusive Distributors to reduce multi-layered sales, and will continue to do so for the next year. XTEP e-commerce has generated stellar sales because of the Group’s dedication to this retail channel. We view it as complementary to our offline retail growth, and the two retail channels cooperated closely. XTEP has captured top sales volume positions in the sports footwear product category on both Tmall.com and JD.com, and continues to generate high sales growth with our dedicated team of over 300 professionals. In 2016 we launched O2O, defined as inventory sharing with our distributors, where they can utilize the online platform as another retail channel for products they have ordered for offline sales. This increased the Group’s overall sales, and created a win-win situation where both the Group and our distributors can enjoy higher profitability. E-commerce will remain a key part of our overall retail channel going forward, as we believe China online retail will remain robust in the near future. RUNNERS’ BRAND OF CHOICE, AN ECOSYSTEM The Group will continue on the path of the “3+” strategy, which fuels our organic growth through “Products+,” “Sports+” and “Internet+.” Each of these will be a part of the long-term business strategy of the Group, creating a running ecosystem that differentiates us from our competitors. In “Products+”, the Group will be shifting the way we look at products from focusing on technology categories to user behavior driven product segmentation. Footwear products will be separated into three levels based on runner usage frequency, namely RUN FAST (競速快跑), RUN STRONG (動力暢跑) and RUN FIT (舒適易跑) to better serve marathon runners, routine runners and entry-level runners respectively. We introduced six core technology platforms in apparel products: XTEP-DRY, XTEP-COOL, XTEP-WARM, XTEP-SHIELD, XTEP-COMFORT and XTEP-STRONGER, to match different weather conditions that runners encounter. Other sports categories products that started in the second half of 2016, such as indoor training, outdoor, and yoga will continue to grow, and XTEP will increase cooperation with celebrity spokespersons to increase our brand exposure. “Sports+” exemplifies the Group’s dedication to running that goes beyond products. We intend to continue XTEP 3.21 Running Festival as an annual celebration dedicated to runners that involves both offline and online channels to create a multifaceted impactful event to promote a healthy and sporty lifestyle. We will be sponsoring and organizing a greater variety of running events, such as evening marathons, women’s marathons, retail store led local running events, and training camps and activities revolving around local communities. In “Internet+”, XTEP uses technology to create a seamless retail system that includes user experience and community building. We plan to continue to roll-out smart retail and payments in our offline stores and use big data to increase sales and profitability, customer stickiness, and better serve the running community. E-commerce will continue to maximize the O2O model to increase sales efficiency for those products available both offline and online, while benefiting from its fast retail characteristics to quickly react to new fashion trends and replenishment orders. XTEP official online store will not only be a POS, but also a channel for interaction with runners, providing access to running advice and events. Vice versa, the “Xtep Motion Tracker” running APP will give customized product suggestions and promotions based on a runner’s data for ease of online purchase. Prospects: PRODUCT+ Running products We have changed the way we look at our running products design, from focusing on single technology series to combining different technologies to best fit the needs of the Chinese runner of different experience levels. The Group will introduce three new series of running shoes, which are RUN FAST (競速快跑), RUN STRONG (動力暢跑) and RUN FIT (舒適易跑) in the second quarter of 2017, to better serve marathon runners, routine runners and entry-level runners, respectively. The new shoes employ silicon technology, new generation of our core Dynamic Foam, Reactive Coil, and Air Mega technologies, together with the Softpad™ materials to create a light-weight comfortable running experience for consumers. One of the highlights is the RC 160 (競速160) running shoes in the RUN FAST series, which is the lightest running shoe in China, weighing only 160 grams. It is designed for professional marathon runners with high permeability and strong shock absorbance. For example, during the Beijing Half Marathon, Sium Kiflom from Eritrea and Worku Neri Tigist from Ethiopia won the men and women’s half marathon competition respectively wearing the RC 160 series. Following the official signing of the Group’s cooperation with the Dow Chemical Company, the jointly developed Softpad™ shoe insoles have been applied to both functional and lifestyle XTEP footwear products. The Group has exclusive use of this patented trademark till 2019, and will continue to use this technology in future footwear products. In running apparel, the Group consolidated our technologies into six core technology platforms, which are XTEP-DRY, XTEPCOOL, XTEP-WARM, XTEP-SHIELD, XTEP-COMFORT and XTEP-STRONGER, to match the different weather conditions runners encounter. The Group will introduce new XTEP-ENERGY (馭能科技) technology in the second quarter of 2017 within the XTEPSTRONGER technology platform. The materials with XTEP-ENERGY (馭能科技) could release negative ions to enhance runners’ metabolism and alleviate sports fatigue. New sports category product launches XTEP product categories will expand beyond running to other sports in which we see high growth potential and is an extension of our expertise in running. Following the launch of football products in June 2016, smart running-shoes in the third quarter of 2016, and outdoor products in the winter of 2016, XTEP will launch more female focused products, such as yoga and fitness products, as well as products specifically for indoor training in 2017. We see the female sportswear category and fitness sportswear category as underpenetrated niche categories with high growth potential. XTEP image fits well with these sports categories that command both functionality and aesthetic appeal. New celebrity and film product lines The Group announced the cooperation with Nicholas Tse in July 2016 involving him in the design and promotion of his related product line. In winter 2016, we cooperated with Transformers to launch a product line bearing images and inspirations from the popular comic/film. We believe this type of cooperation between celebrities and popular culture and XTEP strengthens our brand recognition, broadens consumer base, and leads to additional revenue for the Group. We will continue to cooperate with our celebrity spokespersons to develop new product lines that enhance our brand exposure and increase our profitability. SPORTS+ The Group continues our vision of being a part of, and operating, a running ecosystem beyond products and sponsorships. What we envision is a comprehensive suite of running related services that starts with products, goes to events and activities, to the community, and even beyond the sports industry to applications in other industries. In 2017, the Group will continue to sponsor major marathons and running events to further enhance XTEP’s association with running in China. We intend to continue the XTEP 3.21 Running Festival as an annual celebration dedicated to runners that involves both offline and online channels to create a multifaceted impactful event that promotes healthy and sportive lifestyle. We will be sponsoring and organizing more varieties of running events, such as evening marathons, women’s marathons, retail store led local running events, and training camps and activities revolving around local communities. Our Beijing Olympic Forest Park XTEP Running Track and XTEP flagship stores serve as symbolic gathering points for runners nation-wide, where they can receive professional advice on running wear and techniques, and learn about local running events and activities. The Xtep Motion Tracker APP will foster a closer bond between the Group and runners, and we will be able to provide tailor-made product, activity, training, health advice, even ancillary products and services provided by third-party partner to individual users by analyzing their usage data. The Xtep Runner’s Club will continue to serve as the center of local running communities in organizing Xtep teams for marathons and local running events. In August 2016, the Group established the first Xtep Running Club (特步跑步俱樂部) at the Beijing Olympic Forest Park XTEP Running Track. It is a club house type facility that serves the needs of Runner’s Club members, with facilities such as locker rooms with showers, t-shirt printing and medallion making, new product borrowing and testing, and etc. More of these club houses will be set up across the nation in 2017 to benefit loyal XTEP runners. INTERNET+ Internet+ signifies our commitment to two things, technology and connectivity. The Group will harness the power of the Internet, mobile Internet and other digital technologies for big data gathering, O2O community building, seamless multi-channel marketing and sales to achieve omni-channel precise marketing. Technology will connect our offline customers to online shops and online customers to offline stores, as well as connect all of our XTEP Runner’s Club members, XTEP Motion APP users, and participants in our sponsored marathons, to create a seamless retail system and runners’ community. In retail stores, the Group will continue to carry out smart retail in 2017, using automatic traffic counter (客流計數器), e-payment, foot scanner (足型掃描器) and other new technologies to provide consumers with more customized service and to help us gain more insights in consumer behavior. During sponsored marathons and running events, the Group will provide foot scan service to runners to let them know accurately their footwear requirements, as well as enable us to cumulate a larger runners’ database, which will help us design the best fitting shoes for the Chinese runner and precisely target the promotion of our products. In e-commerce, the Group will complete the O2O loop by linking our online channel with our factory outlet stores, thereby maintaining a minimum retail inventory level for our entire retail network. We expect to use the nimbleness of e-commerce to increase sales of popular offline items through rapid replenishment and fast delivery. E-commerce will also be a convenient channel for expanding XTEP footprint overseas, as a lower risk way to test new markets while raising XTEP’s profile.

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