Thursday, March 28, 2024
 
Columnist
Martin Hennecke
 
BAWANG GROUP
HKEx Stock Code : 01338 
 
Corporate Profile
The principal activities of the Group are the designing, manufacturing, trading and distribution of Chinese herbal products, including shampoo products, hair-care products, skin-care products, herbal tea products and household cleaning products.

Business Review - For the year ended December 31, 2012

The Directors report that the total revenue of the Group for the year ended 31 December 2012 was RMB560.0 million, representing a decrease of 37.5% when compared to 2011. The operating loss of the Group for the year ended 31 December 2012 was RMB535.5 million, representing a decrease of 14.4% when compared to 2011. For the year ended 31 December 2012, the Group has recorded a loss of RMB617.6 million when compared to a loss of RMB558.6 million in 2011. For further details of the operating performance of the Group, please refer to the Financial Review section of this announcement.

The Directors would like to indicate that we have actually made some improvements in the monthly sales revenue of our core products in the first quarter of 2012 when compared to the corresponding period in 2011. Owing to the overall macroeconomic economy issues, the operating environment became challenging. Additionally, the Group's decision to scale down the operations of Herbal Tea segment resulted in a significant decline in the sales of Bawang Herbal tea products. To cope with the tough operating environments prevailing then, the Directors reviewed the business and operational strategies and identified a series of measures for improving the performance, which include cost controls and expansion of revenue streams. By the end of the year, we could find that the selling and administration expenses further decreased with sales revenue of our core products stabilized.

For the cost control measures, apart from the continuous implementation of the Sales Automation Management System (SAMS) to enhance the operational efficiency and effectiveness, the Group kicked off the “Project Excel (卓越項目)” in July 2012. This project aims at cost reduction whereby the Group has drawn up plans to realign its organizational structure, to optimize the organizational resources through downsizing a substantial number of staff members in sales promotion and logistic support, and to further tighten the budgetary control over the selling and administration expenses. The management reviews and compares the budget with actual operating performance every month, appropriately adjusts the ongoing marketing and promotion strategies where necessary, and reasonably allocates Group's resources to achieve objectives.

To enhance our corporate image and quality of products, our well-designed new Bawang Industrial Complex was inaugurated in August 2012. Following the successful inauguration of the complex, all of our production lines have been upgraded and the quality of our products has been fully enhanced. For the purpose of enhancing the consumers' knowledge about the application and benefits of traditional Chinese medicine, the Group took the opportunity of the inauguration of Bawang Industrial Complex to carry out a Chinese Herbal Cultural Trip for a group of consumers to visit our herbal plantation in Luoding, Guangdong and to see our new industrial complex and new production lines with Mr Han Geng. Through these visits, we hope to show our corporate image and quality of products for consumers and create an image of our industrial complex as “Transparent Factory” so as to enhance our brand image and the consumers' confidence in our products.

For the two core branded shampoo and haircare products, namely Bawang and Royal Wind, the Group's future directions for developing this product segment are through continuous innovation, management excellence and win-win cooperation with business partners. The Group has commenced to execute a new value-chain-oriented business model, known as “Project Win-win (共贏項目)”, since October 2012 whereby the whole value chain is split into two parts. Whilst the Group is mainly responsible for the activities in the upper stream such as research and development, manufacturing, and marketing, etc., our business partners, namely distributors and retailers, are responsible for the activities of the lower stream such as channel and in-store management. The Group will provide full supervision and essential supports to business partners. In addition, the Group will offer marketing and promotion allowances, which is calculated as a certain percentage of the sales volumes, to its business partners as a reward for their efforts in taking charge of the lower stream work. To a large extent, the Group has now controlled its marketing expenses within the budget. To enhance the management skills for attainment of sales targets and hence increase the retail sales revenues, the Group will also offer training and development programs for its business partners.

For expanding the revenue streams generated from Bawang branded product series, the Group speeded up the rollouts of new/enhanced Chinese herbal shampoo products. Consequently, a brand new herbal shampoo series which targets the female customers market, Bawang Anti-hair Fall Shampoo for Ladies and Nutri-repairing Moisturing Conditioner, were rolled out by the Group in August 2012. Furthermore, to boost the sales performance of the existing product series, the Group rolled out a nationwide promotion campaign for Bawang products known as “The Five Key Success Factors that Build up the Premium Quality of Bawang Branded Products” (五大實力,成就霸王冠 軍品質). Both Mr. Jackie Chan and Ms. Kim Hui Seon continue to be the brand ambassadors.

As of 31 December 2012, the Bawang brand distribution network comprised approximately 488 distributors and 46 KA retailers, covering 26 provinces and four municipalities. Furthermore, the products are already sold in Hong Kong, Macau, Singapore, Myanmar, Thailand, Malaysia, Brunei, and Australia. The Group expects to export its products to Vietnam and Indonesia in the second half of this year.

In early 2012, the Group rolled out a nationwide promotion campaign for Royal Wind products known as “Whirlwind Action (颶風行動)”. We carried sales and promotional activities and offered the products at a discounted price, which lets the consumers experience Royal Wind products so as to promote its brand recognition. In August 2012, two new products under the Royal Wind shampoo series — Royal Wind Anti-hair Fall Shampoo, and Royal Wind Hydra-fresh Shampoo were rolled out which express the brand positioning of Royal Wind as “Youthful and Trendy Way to Eliminate Dandruff through Traditional Chinese Herbal Medicine” and “Eliminating Dandruff and Nourishing Your Scalp Simultaneously”. Mr. Han Geng continues to be the brand ambassador.

As of 31 December 2012, the Royal Wind brand distribution network comprised approximately 440 distributors and 45 KA retailers, covering 26 provinces and four municipalities. The products are already sold in Singapore.

The Litao (麗濤) range of enhanced products is mainly comprised of shower gels targeting the mid-low end segment in the traditional channel of the PRC market to achieve the Company's goal of increasing the market coverage. As of 31 December 2012, the Litao brand distribution network comprised approximately 373 distributors, covering 26 provinces and four municipalities.

For the Herborn Chinese herbal skincare products series (本草堂系列), the Group rolled out a new high-end skincare product, Herborn Imperial Series (本草堂貴妃系列), in June 2012. The Group intends to make this new skincare series as our signature product. The internationally renowned celebrity Ms. Faye Wong (王菲) continues to act as the brand ambassador of Herborn to promote its brand image. The Group has been appointed for the third time as exclusive sponsor of skincare products to the Miss World Pageant China Finals in 2012. Apart from providing our Herborn Chinese herbal skincare products for the contestants, we also conducted a series of skincare seminars for the contestants to allow them to understand the concepts and benefits of traditional Chinese medicine. In terms of sales channels, the Group adopted a channel strategy to sell the products mainly through hypermarkets in the first three quarters of 2012, but the sales performance was not satisfactory. Effective from the fourth quarter, the Group have changed its strategy to sell the products through mainly cosmetics specialty shops, to reallocate the resources to different channels, and to provide training and development to the sales and marketing staff as well as the beauty consultants. Consequently, sales of the products has started picking up again.

As of 31 December 2012, the Group successfully set up distribution network comprising approximately 108 distributors and 11 KA retailers covering 27 provinces and four municipalities and 77 counters in department stores and/or hypermarkets. The number of counters in cosmetics specialty shops in the PRC substantially increased to approximately 4,200. In addition, the products were sold in Mannings, Watsons, Sasa and Bonjour chain stores in Hong Kong.

During the year under review, we have re-designed the packaging of our natural plant skincare products series, Smerry (雪美人). Its target customers are young females aged between 18 and 28 who pursue a natural and healthy lifestyle. In order to promote its new brand image, the new generation popular idol Ms. Jing Tian (景甜) has been appointed as its brand ambassador. With her pure and natural image, we believe that she will successfully portray the natural plant essence brand positioning of Smerry and increase its brand awareness and recognition.

As for the Chinese herbal beverage product series — Bawang Herbal Tea (霸王涼茶), the Group has taken a prudent approach when operating and developing this business since the beginning of 2012, and has outsourced most of the business operations to selected distributors. The Group has significantly scaled down sales and distribution network in 2012. As of 31 December 2012, the distribution network comprised approximately 172 distributors, covering 22 provinces and four municipalities.

According to a research report released by Euromonitor in July 2012, in terms of retail sales value, Bawang has been the No. 1 Chinese Herbal Shampoo in China from 2007 to 2011. Additionally, Bawang is also the No. 1 Chinese Anti-hair Fall Herbal Shampoo in China for the same period.

Since the second quarter in 2012, the Group has formulated and implemented a series of strategic measures to reform and streamline our business operations of each of our core products. The Directors believe that such measures would enable us to strengthen the foundation for our long term development and the sustainability of our business. Please refer to the Outlook section of this announcement for discussions of strategic development plans for the portfolio of our various brands.

In terms of the recognition gained by the Group, on top of those honors and awards which have been mentioned in the Interim Report of 2012, we have further accomplished more honors and awards in 2012.

In May 2012, the “Herborn Whitening & Nouvishing Cream” obtained the “2012 China Meiyi Award” from the China International Beauty & Cosmetics Expo in Shanghai.

In June 2012, Bawang (Guangzhou) Co., Ltd (“Bawang Guangzhou”) was appointed as member of a professional sub-committee in Fragrance, Cosmetic, and Laundry Products of Guangdong Provincial Light Industry Federation.

In October 2012, Bawang Guangzhou was confirmed as Guangzhou Municipal Enterprise Technology Centre by the Guangzhou Municipal Bureau of Economy and Trade. In December 2012, Bawang Guangzhou was validated as Traditional Chinese Medicine Products Key Engineering Technology Research & Development Centre of Guangzhou Municipal by the Guangzhou Municipal Bureau of Science & Communication.

In December 2012, Bawang Guangzhou was appointed as standing member of Guangdong Provincial Food & Drug Assessment & Accreditation Federation of Technology.

These achievements serve as recognition of the Group's strong capability in the research, development and industrialization of Chinese herbal medicine.

From time to time, we submit applications for registration of patents relating to research findings about the application of Chinese herbs on haircare, skincare and healthcare. The successful registration of which will prove to be a further testament to the recognition and breakthrough in our research and development efforts.

Business Outlook - For the year ended December 31, 2012

At the opening of the First Session of the 12th National People's Congress, Premier Wen Jiabao remarked that China would boost its fiscal spending in 2013 in a bid to deliver economic growth of 7.5 percent for the year. With China gradually steering the focus of its economy from exports and public construction to consumers, the increase in fiscal spending will be used more and more on social projects. These funds will be used to ensure and improve its people's well-being and maintain support for economic growth and structural adjustment.

As a matter of fact, to cope with the global financial crisis, China has implemented a proactive fiscal policy since 2009. Onto 2013, the Chinese leaders have again decided to continue with a prudent monetary policy and a proactive fiscal policy to prevent the economy from sliding further.

The Directors are of the view that the increase in fiscal spending would help toward improving people's lives, which would support economic growth. This could in turn help increase the per capita disposable income and living standard, and may spur demand for consumer products. Whilst the Group will continue to be cautious about its recovery progress and take a prudent approach to operate and sustain its business, we hope that the government's fiscal policy would lead to a stable macroeconomic environment which may indirectly facilitate the recovery our business. We outline below our plans and strategies for 2013.

Since the beginning 2013, the Group has adopted cost control approach supplemented by sales growth operating strategy to run its business i.e. to enhance the sale of anti-hair fall product series with new Bawang Anti-hair Fall for Ladies as main product, and to reinforce the leading brand position of Bawang herbal shampoo. We strive to enhance our brand image through two main themes: sentiment marketing and proof of quality.

For sentiment marketing, we will organize further social publicity campaigns “Shampooing for your love (為愛洗一次頭)”. Whilst enhancing our brand image, the audience could feel the atmosphere of love and care and get close to the Bawang brand name. With the help of movie/TV pop stars, the campaigns will be held on selected festivals. The purpose is to foster positive response and attitude towards our corporate image, our brands and our products. So far this year, we have already coordinated two campaigns in Beijing and Guangzhou. We found from each of the campaign that the on-site atmosphere aroused the emotions and sentiments of the consumer-audience.

For proof of quality we will continue to organize the Traditional Chinese Medicine Cultural Trip so as to create an image of “Transparent Factory”. We would regularly organize government officials, media, consumers and students to visit our factory, so that they can see our automated production lines and facilities for themselves and to allow them to assess the quality of our products, thereby enhancing our brand image as well as the consumers' confidence in our products.

In the beginning of 2013, the Group started to implement a performance-based rewards system, whereby the key members in the sales and marketing team have signed up Job Targets and Responsibility Statement (崗位目標責任書). Their year-end bonus will be determined based on how well they have achieved their predetermined sales target.

The successful commencement of the operations of our automated production complex in August 2012 is an important steppingstone in the development of our Group, which also strengthened the Group's determination to maintain the uncompromising quality of our products. We can now work on enhancing of various aspects of our production quality management, viz.: new product launch management, our ability to fulfill orders in time, production cost control and inventories control.

For Bawang branded products, leveraging on our core competence in traditional Chinese medicine, we market the theme “Natural and Healthy Way for Hair Regrowing (中藥養發,天然健康)” to pinpoint the difference between our products and those of our competitors. Leveraging on our strong brand recognition, we will work on enhancing our corporate image as well as brand image.

To increase the revenue stream from the Bawang branded products, the Group will further promote the Bawang Anti-hair Fall Shampoo for Ladies and upgrade the Nutri-nurishing series, so as to satisfy the needs of the office ladies who intend to have their hair nourished. Furthermore, the Group will upgrade and re-pack the Natural series. We will also roll out family size packing for Hair-blackening series and Anti-dandruff series. The Group will also develop new sales channels such as online sales and explore the possibility of selling our shampoos through the cosmetic specialty shops. We will also make use of trade fairs to drive revenue growth.

For Royal Wind branded products, the Group will continue to promote the brand image and recognition through modern media such as the internet, public transport TV commercials and mobile phone messaging. Combining with promotion and publicity events of the new movie “Dedicating to our Fading Adolescence《致我們終將逝去的青春》” of our brand ambassador Mr. Han Gen, we would get in the campus for giving out trial packing to the general consumers so as to let the young people feel the experience of “Eliminating dandruff and nourishing your scalp at the same time” offered by Royal Wind, to let them understand the new concept of “The Fresh Traditional Chinese Medicine Haircare Essence” produced by Royal Wind, and to know the new brand image “Young, Trendy and Natural”. We will also focus our resources to enhance the brand recognition and brand image through internet, TV, meeting with the movie stars, give-away and freebies. Similar to Bawang branded product, the Group also plans to roll out online sales for Royal Wind shampoos.

For Herborn Chinese herbal skincare products, we will continue to enhance its brand image and brand recognition through investing in advertising and marketing campaign. We intend to use the theme “Whitening & Nourishing to Sparkle the Beauty of Chinese Ladies” to build up Herborn Imperial series as one of our signature products in the future. We plan to increase the revenue from Herborn through launching new product series and penetrating the cosmetics specialty shop channel. Similar to our two herbal shampoo branded products, we also plan to roll out online sales for Herborn.

For Bawang Herbal Tea, we will continue to adopt a prudent approach for operating and developing the business with minimum amount of spending. Our main current intention is to maintain the continuity of the brand name.

In relation to the launch of new products, the Group will mainly focus its efforts in strengthening its existing portfolio of brand products as mentioned above. We may expand our existing core products portfolio. We do not have plans for rolling out brand new major product lines for the time being.

In terms of our development plan in overseas markets, the Group will continue to explore the possibility with potential distributors for launching our branded products to other countries. The Group is open to explore all further business opportunities with potential overseas distributors.

The Company does not have any outstanding acquisition opportunity in hand and will not actively explore opportunities that may involve potential acquisition for the time being.

Looking forward, the strategic directions to sustain and develop our business in the midst of the volatile internal and external operating environments are two folds. In the short run: to regain sales growth and profitability; to continue building up a management team with strong experience in both domestic and global HPC sectors; and to improve investor confidence. In the long run: to build up business model and positioning against both domestic and international competitors; to maintain well-balanced multi-brand and multi-product strategy in HPC sectors, to become a global leader of branded Chinese herbal HPC products operator; and to bring the best return to our investors.

Source: BaWang Group (01338) Annual Results Announcement
Chairman Chen Qiyuan Issued Capital (shares) 2,911M
Par Value HKD 0.1 Market Capitalisation (HKD) 1,121M
 
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