Giordano International Limited · HKEX:709

Giordano International — FY2015 Earnings Presentation

40 slides from Giordano International's earnings presentation, Mar 3, 2016

  1. Slide 1: 2015 Annual Results

    2015 Annual Results  3 March 2016

  2. Slide 2: Overview

    Overview  Brand sales 1%, CSS ↑3%. Accounting sales 3%, 1% in local currency  First half brand sales 1% as a strong China New Year offset by store closures  Second half brand sales 3% as warm weather depressed sales in Greater China  Gross margin 0.4pp  Improved from 1.4pp in 1H to 0.5p

  3. Slide 3: Sales Growth and Contribution by Region

    Sales Growth and Contribution by Region (HK$ millions) 6,000 5,545 5,381 5,000 1,580 (28%) Mainland China 6%* / 8% 1,451 (27%) 4,000 Mainland China Hong Kong & Taiwan Hong Kong & Taiwan 1,640 (30%) Flat* / 2% 1,610 (30%) Rest of Asia Pacific 3,000 Middle East Wholesale sales to overseas & others

  4. Slide 4: Brand Sales Growth by quarter – Group

    Brand Sales Growth by quarter – Group Returned to positive CSS with right merchandise 4Q sales was impacted by warm weather 15% 2015 2014 Variance Global brand sales (HK$ millions) 7,327 7,379 -1% 10% Comparable store sales growth 3% (4%) 7% 6% 5% 4% 0% 0% -1% 2% -2% 1% -2% 0% -2% -5% -6% -6% -3% -4

  5. Slide 5: Brand Sales Growth by quarter – Mainland China

    Brand Sales Growth by quarter – Mainland China Good CNY but warm weather impacted jacket sales in 4Q Store closure on loss making shops impacted total sales 20% 14% 15% 10% 10% 4% 5% 1% 1% 1% 0% -2% -3% 1% -5% -3% -10% -6% -10% -7% -10% -10% -11% -11% -15% -15% -20% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q1

  6. Slide 6: Brand Sales Growth by quarter – Hong Kong

    Brand Sales Growth by quarter – Hong Kong CSS +7% against -7% of HK apparel sales Volatile due to weak demand and decline in tourist visits 15% 12% 12% 10% 6% 5% 5% 4% 4% 0% -3% -4% -1% -5% -2% -5% -3% -7% -4% -6% -7% -10% -8% -8% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sale

  7. Slide 7: Brand Sales Growth by quarter – Taiwan

    Brand Sales Growth by quarter – Taiwan Strong CNY but on declining trend due to weak consumer sentiment 20% 18% 15% 16% 10% 6% 5% 5% 5% 3% 5% 1% 4% 0% 3% 0% 1% 0% -1% -5% -10% -10% -13% -11% -15% -13% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sale

  8. Slide 8: Brand Sales Growth by quarter – Rest of Asia Pacific

    Brand Sales Growth by quarter – Rest of Asia Pacific  SG returned to growth after improved merchandising  MY impacted by GST implementation and weak currency  ID & TH are still growing with new shops SMIT SG 3% 15% SMIT ID 15% 13% MY 3% SG 3% ID 6% TH 25% 10% 12% 8% 8% MY 6% TH 12% 7% 8%

  9. Slide 9: Brand Sales Growth by quarter – Singapore

    Brand Sales Growth by quarter – Singapore 25% 19% 20% 18% 15% 16% 10% 10% 6% 4% 5% 0% 0% -2% 3% -5% -7% -3% -3% -4% -10% -12% -10% -15% -17% -16% -20% -18% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sales Growth 3 March 2016 Giordano 2015 Annual Re

  10. Slide 10: Brand Sales Growth by quarter – Indonesia

    Brand Sales Growth by quarter – Indonesia 25% 21% 20% 17% 16% 15% 15% 14% 13% 12% 10% 10% 6% 6% 4% 5% 6% 3% 0% -2% -1% -5% -7% -10% -9% -11% -15% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sales Growth 3 March 2016 Giordano 2015 Annual Results 10

  11. Slide 11: Brand Sales Growth by quarter – Malaysia

    Brand Sales Growth by quarter – Malaysia 10% 7% 6% 5% 3% 0% 0% 0% 1% -5% -6% -6% -7% -8% -10% -10% -8% -11% -9% -9% -12% -15% -13% -16% -20% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sales Growth 3 March 2016 Giordano 2015 Annual Results 11

  12. Slide 12: Brand Sales Growth by quarter – Thailand

    Brand Sales Growth by quarter – Thailand 40% 30% 30% 28% 25% 24% 25% 20% 20% 12% 10% 10% 6% 5% 9% 9% 1% 0% -2% -4% -10% -6% -10% -10% -20% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sales Growth 3 March 2016 Giordano 2015 Annual Results 12

  13. Slide 13: Brand Sales Growth by quarter – Middle East

    Brand Sales Growth by quarter – Middle East Weak consumer sentiment on the back of falling oil prices Some growth from Pakistan and Sri Lanka but impacted by political instability in other regions 15% 10% 10% 5% 5% 3% KSA 14% UAE 9% 4% -1% -1% 4% Others 19% 0% KSA 9% 1% UAE 14% -6% -2% Others 

  14. Slide 14: Brand Sales Growth by quarter – South Korea

    Brand Sales Growth by quarter – South Korea Modest recovery in second half after outbreak of MERS 10% 5% 5% 3% 4% 0% 0% 0% 0% 1% -3% -1% -5% -3% -8% -5% -5% -10% -11% -8% -11% -12% -15% -13% -20% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Jan+Feb 2016 Total Brand Sales Growth Comparable Store Sales Gro

  15. Slide 15: Global Retail Network

    Global Retail Network Kuwait -2 to 9 outlets Mainland China -70 to 891 outlets Armenia 3 outlets South Korea Georgia -21 to 198 outlets 11 outlets Pakistan Japan Canada +3 to 8 outlets +3 to 9 outlets 1 outlet Lebanon Nepal Hong Kong & Macau 2 outlets 1 outlet -8 to 71 outlets Saudi Arabia Sri Lanka

  16. Slide 16: Gross Profit Reconciliation

    Gross Profit Reconciliation Volume ↑4% after focusing on core items Improvements in product costs realized through simpler product mix and purchasing savings Weakening currencies impacted GP margin by 1.4pp (HK$ millions) Average cost Average price Volume 3% 4% 4% 4,500 4,000 6% 3% 3,500 160 27

  17. Slide 17: 4Q Gross Profit Reconciliation

    4Q Gross Profit Reconciliation (HK$ millions) Average cost Average price Volume 6% 4% 4% 1,400 10% 4% 1,200 1,000 66 (23) 9 800 (60) (40) (7) (39) -17m 600 906 812 400 (57.0%) -94m (10%) (57.8%) 200 0 4Q14 Decrease in Currency Price Volume Kuwait and Stock Exchange 4Q15 Gross profit merchandis

  18. Slide 18: Gross Margin Changes over the last 8 quarters

    Gross Margin Changes over the last 8 quarters Tighter buying budgets, healthier inventory levels and strong price discipline resulted in gross margin improvements 4.0% 2.8% 3.0% 2.0% 0.8% 1.0% 0.1% 0.0% -0.9% -1.0% -1.7% -1.8% -2.0% -2.3% -2.9% -3.0% -4.0% -4.4% -5.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3

  19. Slide 19: Gross Margin Reconciliation

    Gross Margin Reconciliation 59% 58% 0.2% Rest of 0.7% Asia Pacific (1.1%) 0.1% 0.2% (0.1%) 57% (1.4%) (0.1%) 56% 55% 54% 58.0% -0.4pp 57.6% 53% 52% 51% 50% 2014 Increase in Margin Margin erosion Margin Margin Margin More 2015 Gross margin purchase costs improvement in Hong Kong improvement improveme

  20. Slide 20: Total Operating Expenses Reconciliation

    Total Operating Expenses Reconciliation OPEX to sales down 1pp. Decreased rent and shop overhead from store closures was partially offset by staff cost increase to merit improved profitability (HK$ millions) Shop area 3% Total headcount 4% 4,000 Rent/sq.ft. 2% Average salaries 9% Shop headcount/

  21. Slide 21: PATS Reconciliation

    PATS Reconciliation (HK$ millions) 600 73 5 1 9 500 (10) 33 7 400 (7) (93) 300 519 27% 426 200 408 4% 100 0 2014 PATS Mainland Hong Kong Taiwan Rest of Middle East Wholesale Share of Tax, NCI & 2015 PATS Currency 2015 China and Macau Asia Pacific business profit of corporate (exclude impact on PAT

  22. Slide 22: EBIT and Free Cash Flow from Operations

    EBIT and Free Cash Flow from Operations Strong cash flow from healthy working capital and less capex due to change in store mix (HK$ millions) 900 800 112 19 134 700 (40) 600 (83) (18) (89) 500 400 2015 vs 2014 Profit after tax 480 +3% 644 300 609 Free cash Flow 644 +61% 200 Conversion rate* 134% +4

  23. Slide 23: Changes in Working Capital

    Changes in Working Capital Completion Changes in Kuwait & Qatar dividend payable At Dec-14 working capital acquisition & others At Dec-15 Inventory 514 (27) 4  491 Trade receivables 291 (27)   264 Other receivables 180 (14) 4  170 Trade payables (167) (64) (1)  (232) Other payables (293) 20 (5)

  24. Slide 24: Total Inventory including finished goods at suppliers

    Total Inventory including finished goods at suppliers Dec 2014 Dec 2015 Variance Inventory balance held by the Group 514 491 (23) Inventory held by franchisees in Mainland China 80 75 (5) Finished goods at suppliers (not yet shipped) 23 67 44 Total system inventory 617 633 16 3% Inventory Ageing An

  25. Slide 25: Inventory, Trade Receivables, Trade Payables, Capex

    Inventory Trade Receivables (HK$ millions) (Days) (HK$ millions) (Days) 700 82 80 78 90 350 60 600 80 300 48 48 48 50 70 500 250 60 40 400 50 200 30 300 40 150 316 291 518 514 491 30 264 20 200 100 20 100 50 10 10 0 0 0 0 Dec 2013 Dec 2014 Dec 2015 Dec 2013 Dec 2014 Dec 2015 Inventory Turnover days

  26. Slide 26: 2015 Final Dividend

    2015 Final Dividend Dividend at 27.0 HK cents, 99% payout (In HK cents) Dividend yield Net cash DPS[1] EPS Payout Ratio on full year average on current (HK$ millions) share price share price[2] 2015 1,076 27.0 27.1 99% 7% 9% 2014 915 25.0 26.0 96% 5% (HK cents) 192% (%) 60 200% 50 160% 40 109% 120%

  27. Slide 27: Outlook & Strategy

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  28. Slide 28: Develop 5R as our core competency

    Develop 5R as our core competency RIGHT RIGHT RIGHT RIGHT RIGHT PRODUCT PRICE PLACE QUANTITY TIME 3 March 2016 Giordano 2015 Annual Results 28

  29. Slide 29: Develop 5R as our core competency

    Develop 5R as our core competency RIGHT RIGHT RIGHT RIGHT RIGHT PRODUCT PRICE PLACE QUANTITY TIME  Differentiate through quality  Continue to strengthen Matrix Management (Brand & Market) 3 March 2016 Giordano 2015 Annual Results 29

  30. Slide 30: Global Strategic Products

    Global Strategic Products 3 March 2016 Giordano 2015 Annual Results 30

  31. Slide 31: Giordano Family Collection

    Giordano Family Collection 3 March 2016 Giordano 2015 Annual Results 31

  32. Slide 32: Develop 5R as our core competency

    Develop 5R as our core competency RIGHT RIGHT RIGHT RIGHT RIGHT PRODUCT PRICE PLACE QUANTITY TIME  Maximize gross profit and margin through increasing average price Pricing is a branding tool. Differentiate from competitors with right pricing  Sustain/lift up average price through:  Identify and

  33. Slide 33: Roadmap to stronger brand positioning

    Roadmap to stronger brand positioning Focus in 2016 Enhance brand Invest in positioning global Introduce marketing category ASP mgt to strategy: Invest in strengthen sustain our shop execution Improved product ambiance product margin Introduced and fast selection , matrix mgt marketing allocation an

  34. Slide 34: 3 March 2016 Giordano 2015 Annual Results

    3 March 2016 Giordano 2015 Annual Results 34

  35. Slide 35: Develop 5R as our core competency

    Develop 5R as our core competency RIGHT RIGHT RIGHT RIGHT RIGHT PRODUCT PRICE PLACE QUANTITY TIME  Continue to close/turnaround loss making shops:  Closure of loss making shops improved earnings by HK$57m  Geographic expansion:  Mainland China: focus on franchisee expansion and third/ fourth tie

  36. Slide 36: Franchisee expansion in Mainland China

    Franchisee expansion in Mainland China In 2015, franchisee initiatives in China brought positive growth in CSS (4%) and shop numbers (6%) and this will continue to be the focus for 2016 900 800 700 No. of AD shops in Mainland China 600 500 489 517 528 400 300 200 100 0 Dec Mar Jun Sep Dec Mar Jun

  37. Slide 37: Develop 5R as our core competency

    Develop 5R as our core competency RIGHT RIGHT RIGHT RIGHT RIGHT PRODUCT PRICE PLACE QUANTITY TIME  Strengthen inventory management through DBOTB and improve SCM flexibility  Only certain products are selected as volume drivers, rest by lifting ASP  Reduce SKUs to achieve price and margin focus 3

  38. Slide 38: Q&A

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  39. Slide 39: Accounting Sales and Comparable Store Sales Growth by Market

    Accounting Sales and Comparable Store Sales Growth by Market Accounting Sales Comparable Store Sales Growth (HK$ millions) 2015 2014 Variance 2015 2014 Mainland China 1,451 1,580 (8%) 6% (2%) Hong Kong & Macau 971 978 (1%) 7% (5%) Taiwan 639 662 (3%) 1% 1% Singapore 317 325 (2%) 10% (8%) Indonesia 4

  40. Slide 40: Global Retail Network

    Global Retail Network As at 31 December 2015 As at Number of outlets Giordano Giordano Change BSX Others Total Dec-14 & Junior Ladies Mainland China 851 22 17 1 891 961 -70 Hong Kong & Macau 44 12 15  71 79 -8 Taiwan 174 16 15  205 199 +6 Singapore 44 3   47 49 -2 Indonesia 164 6  54 224 203 +2

Giordano International — FY2015 Earnings Presentation on 6ix