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Thursday, 21 August 2014, 12:35 HKT/SGT
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Source: Xtep International Holdings Limited
Xtep Announces 2014 Interim Results
- Enhanced Product Mix Drives 27.4% Revenue Growth In Footwear Products to RMB1.33 billion
- Satisfactory Net Profit Reached RMB284.2 million

HONG KONG, Aug 21, 2014 - (ACN Newswire) - Leading PRC-based fashion sportswear enterprise Xtep International Holdings Limited (the "Company," together with its subsidiaries, the "Group") (Stock code: 1368) today announced its unaudited interim results for the six months ended 30 June 2014 (the "Period").

Key Strategies
-- Enhance Product Portfolio: Increased higher margin and competitive footwear products with the segmental revenue surged by 27.4% to RMB1,326.4 million and the gross profit margin increased to 41.0% (1H2013: 40.9%)
-- Enhance Brand Equity: Increased advertising and promotional expenses by RMB77.8 million to RMB267.1 million, equivalent to 12.5% of the Group's total revenue

Results Highlights
-- The Group's total revenue increased 1.8% to RMB2,135.0 million
-- The Group's gross profit increased 2.3% to RMB862.1 million and its overall gross profit margin increased to 40.4%
-- Profit attributable to equity Shareholders decreased by RMB56.7 million to RMB284.2 million, mainly due to increase in advertising and promotional investment of RMB77.8 million compared to the same period last year
-- Basic earnings per Share is RMB13.05 cents. Payout ratio increased to 51.6%, representing an interim dividend per Share of RMB8.5 cents

Satisfactory Financial Performance Under Challenging Environment
During the Period, the Group's total revenue increased by 1.8% year-on-year to RMB2,135.0 million (1H2013: RMB2,098.0 million). The better-than-expected performance mainly due to the enhancement in product portfolio mix to increase the Group's high quality and competitive footwear products, coupled with the sales increase of the Group's e-commerce business and Xtep Kids products. The Group's gross profit increased by 2.3% year-on-year to RMB862.1 million (1H2013: RMB843.1 million) with overall gross profit margin rising by 0.2 percentage points to 40.4% (1H2013: 40.2%), driven by an enhanced product mix of higher margin footwear products. In order to enhance brand equity and lay a solid foundation for future growth, advertising and promotional expenses increased by RMB77.8 million to RMB267.1 million. As a result, profit attributable to equity Shareholders decreased by RMB56.7 million to RMB284.2 million (1H2013: RMB340.9 million).
The Board recommended an interim dividend of HK8.5 cents per Share (1H2013: HK10.0 cents per Share), representing a payout ratio of 51.6% (1H2013: 50.8%).

As at 30 June 2014, the Group's total net assets amounted to RMB4,627.3 million (31 December 2013: RMB4,505.7 million), representing an increase of 2.7%. Gearing ratio remained low at 22.4% (31 December 2013: 20.9%). The Group's net cash and cash equivalents were RMB2,268.3 million (31 December 2013: RMB2,863.1 million).

Mr. Ding Shui Po, Chairman and Chief Executive Officer of Xtep, said, "Although consolidation of China's sportswear industry has begun to wind down, the business environment remains challenging due to intense market competition and product homogeneity. However, as a strong market player with core brand values, we can overcome the challenges confronted and seize emerging opportunities such as kids and e-commerce market segments, and deliver a stable financial performance."

BUSINESS REVIEW

Proven Branding Strategies
During the Period, the Group has continued to bolster the profile of Xtep as a fashionable, trendy sportswear brand that also delivers outstanding functionality through its effective dual-marketing strategy incorporating both sports and entertainment elements. In respect to sports marketing, the Group placed a further focus on running and football - two of the most popular sports in China - to strengthen the favourable brand association of local customers with Xtep. In addition to its sponsorship of five internationally renowned marathons in China and Hong Kong, as well as its title sponsorship of two national campus football leagues in China, namely, Xtep China University Football League, and the Xtep China College Futsal League during the Period, the Group also sponsors a number of foreign and domestic football clubs such as Villarreal C.F. in Spain's La Liga.

Leveraging the successful entertainment marketing strategy and the title sponsorship of the popular Chinese entertainment TV program, "Day Day Up", on Hunan Satellite TV, the Group has entered into endorsement deals with the "Day Day Brothers", the five protagonists in "Day Day Up" and Chen Ding, the first Chinese and youngest-ever gold medallist in the Olympic 20km racewalk during the Period, in order to boost the PRC market share. Nicholas Tse, Han Geng and Justin Gatlin have continued to bolster the brand and bring it closer to target consumers. For the Period, the advertising and promotional expenses accounted for 12.5% of the Group's total revenue (1H2013: 9.0%).

Enhanced and Enriched Product Portfolio
During the Period, the Group has strategically enhanced its product portfolio as can be seen in the sales increase of footwear products, which contributes higher profit margins than apparel. Due to the Group's successful sports marketing campaigns on running and high quality footwear with the best value-for-money, the revenue from footwear products increased significantly by 27.4% to RMB1,326.4 million, boosting the revenue contribution of Xtep footwear products to 62.1% (1H2013: 49.6%) and the segment's gross profit margin to 41.0% (1H 2013: 40.9%). To bolster the Group's overall product portfolio in the long run, the Group has diligently expanded its product line-up. With Xtep products focusing on both functionality and mass market appeal, as exemplified by its performance, campus and urban series, the Group has leveraged Xtep's successful brand image and enriched the Xtep Kids series, which has broadened its customer base and been well-received by target customers. To refine the Group's overall product design and functionality, and develop innovative materials, the Group has increased its R&D investment by 9.5% to RMB51.9 million (1H2013: RMB47.4 million), equivalent to 2.4% of the Group's total revenue (1H2013: 2.3%).

Strategic Distribution Network
To optimize its distribution network and hence the retail operational efficiency and profitability, the Group has further streamlined its retail channels to 7,310 Xtep stores (31 December 2013: 7,360), of which more than 80% have been covered by its DRP System. Meanwhile, the Group continued to make appropriate sales orders reductions and maintained the wholesales discount rate at 62% (1H2013: 62%) during the Period so as to help its exclusive distributors and franchisees to better cope with market challenges. To seize emerging market opportunities, the Group has expanded the number of exclusive distributorships from 28 to 37 during the Period by introducing some distributors experienced in PRC retail sales.

Recognizing the importance of O2O integration, the Group is continuing to make significant strides in e-commerce. Apart from its official website www.xtep.com.cn, the Group operates its own flagship store on the leading online retail shopping platform, Tmall, and is cooperating with several notable e-commerce platforms such as JD and Taobao. The Group has also appointed authorised experienced and reputable online retail distributors to conduct business through various online platforms under the sales guidance of its e-commence team. In terms of the overseas sales network, the Group unveiled its Xtep mono-branded store in Valencia, Spain in March 2014, and maintained its presence overseas with more than 200 POS across the Middle East and Central and Western Europe.

Effective Supply Chain Management
Backed by a vertically integrated business model, the Group enhanced its in-house production flexibility and supply chain efficiency, plus executed greater control of production costs during the Period. With phase one of the Anhui plant commencing operation in 2013, together with the production facilities in Quanzhou, Fujian Province, the Group posted in-house production ratios of footwear and apparel at 62% (1H2013: 69%) and 30% (1H2013: 17%), respectively. To optimize production efficiency, the Group has continued to employ the DRP System enabling it to quickly react to the latest trends and market demand by readily adjusting production schedules, and thereby, control costs and protect margins. This capability has substantially reduced the possible inventory risk.

FUTURE OUTLOOK
Looking ahead, the sportswear sector is expected to remain challenging despite recent signs of recovery as market consolidation begins to wind down. The market consolidation will nevertheless result in a leaner and healthier industry that better supports competitive well-managed sportswear brands such as Xtep. Moreover, the ongoing urbanization in China and rising disposable income among its citizens likewise bodes well for the sportswear industry. To capitalize on opportunities amidst these favourable factors, the Group will continue to employ its differentiated marketing strategy, which has supported its journey towards becoming a world-class fashion sportswear brand.

Meanwhile, the constant enhancement and development of the Group's product portfolio, which encompasses not only running products, but also other sports-related and lifestyle products such as the Xtep Kids and XTOP series, complements the Group's dual-marketing efforts. To tap emerging opportunities in the outdoor market, the Group has officially launched its outdoor collection, XUP, in early August 2014, which further enriches the product offerings of its e-commerce business.

Last but not least, the Group will continue to closely monitor the operating performance of its retail channels through its extensive DRP System coverage. The management will execute prudent strategies to maximize the profitability of retailers, including a flexible ordering policy that keeps retail inventory at a healthy and efficient level. The Group expects the number of Xtep stores to remain at approximately 7,300 to 7,400 and an Xtep Kids sales network of around 350 POS by the end of 2014.

Mr. Ding concluded, "With the long-term well-being of the Group in mind, we will continue to enhance brand equity through our proven dual marketing strategies and enhanced product portfolio. To ensure that our products reach the public effectively and efficiently, we will continue to strengthen our distribution network through enhanced management procedures and close collaboration with our distributors, providing them with necessary support for mutual benefit ultimately. Capitalizing on our stable performance and our healthy financial position, and with our clear business strategies in place, we are well-positioned to pave a path towards healthier growth as market conditions further stabilize in the near future."



About Xtep International Holdings Limited

Listed on 3 June 2008 on the Main Board of the Hong Kong Stock Exchange, XTEP is a leading PRC-based professional sports brand providing stylish and functional products. It is principally engaged in the design, development, manufacturing, sales and marketing, and brand management of sportswear products, including footwear, apparel and accessories. During the past several years, the Group has been actively implementing its sports marketing strategy with a focus on running and football. It boasts an extensive nationwide distribution network in the PRC. The Company is a constituent of Hang Seng Global Composite Index and Hang Seng Composite Index Series. XTEP is selected in the Southbound Trading of Shenzhen-Hong Kong Stock Connect.

For more information, please visit Xtep's corporate website: www.xtep.com.hk or scan the Group's Wechat QR code below (or search by : xtepholdings).

Contact:
Xtep International Holdings Limited 
Janice Wong
Tel: (852) 2152 0813 
Fax: (852) 3162 8375
Email: janice.wong@xtep.com.hk

Strategic Financial Relations Limited
Joanne Lam  Tel: (852) 2864 4816  Email: joanne.lam@sprg.com.hk
Angela Ng  Tel: (852) 2864 4855  Email: angela.ng@sprg.com.hk 
Jovanni Cai  Tel: (852) 2114 4937  Email: jovanni.cai@sprg.com.hk 
Fax: (852) 2527 1196


Aug 21, 2014 12:35 HKT/SGT
Source: Xtep International Holdings Limited

Topic: Press release summary
Sectors: Daily Finance, Daily News
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