Friday, March 5, 2021
Martin Hennecke
HKEx Stock Code : 01836 
Corporate Profile
Principal activities of the Group are development, manufacturing, sales and retailing of footwear products.

Business Review - For the year ended December 31, 2012

Commitment to Quality and Delivering Promises Support Performance

Stella's reputation for quality, flexibility and reliability ensured continued demand for our products, despite the volatile global economy. Our biggest asset is the long-term relationships and level of trust we have forged with our clients by consistently exceeding customers' expectations.

Our ability to deliver quality customised products saw us attract more niche brands as clients this year. This reduced Stella's overall reliance on larger customers, with our top five customers accounting for 56.5% of total revenue in 2012, down from 58.3% in the previous year.

Stable Margins despite Higher Labour Costs Stella has not been immune to the various labour force challenges faced by Asian manufacturers, including high labour turnover and increasing wages. Despite this, our profit margins throughout the year remained steady, due to:

X Stable global demand for high-end products, as industry consolidation pushes a number of brands to engage specialised suppliers such as Stella
X Our high position in the value chain and design-led process, allowing us to attract a higher ASP than the industry average

X Cutting-edge R&D capabilities, led by our design studios in Dongguan, China and Venice, Italy

X The expansion of our production base in low-cost locations, which allowed us to control costs and stabilise our labour supply

Removal of Temporary Capacity Constraints

The Group ramped up production at our new low-cost facilities in inland China (Guangxi and Hunan) and Indonesia in the second half of 2012, removing the temporary capacity constraints that were partially responsible for lower shipment volume this year. Capacity during the year was also temporarily affected by the closing of a trade-processing factory in Dongguan, China (upon the expiration of a trade-processing contract with the local government) and stricter controls on overtime labour hours.

The push to expand our low-cost production base is part of our long-term plan to shift labourintensive operations away from coastal regions of China where the labour turnover rate is high. However, design and higher-skilled processes will continue to remain in Dongguan, China allowing us to increase operational efficiency, without compromising quality.

Our other manufacturing facilities in Dongguan, China and Vietnam operated at close-to-full capacity throughout the year.

Growing Portfolio of Retail Brands

The Group introduced two new retail brands in 2012 as part of our efforts to diversify our retail business and tap more niche markets. In the first half of the year, we launched JKJY, our first malefocused retail brand, opening 9 stores in China. JKJY crossovers fashion and sports footwear and retails for between RMB2,000 to RMB4,000 per pair.

We also opened our first 2 joint-venture stores in China with prestigious Paris-based brand Pierre Balmain.

Our Stella Luna and What For brands continued to increase their reach in the affordable luxury footwear markets of China and other regions, opening new standalone stores at quality retail locations in line with the Group's retail strategy.

Stella Luna targets the high-end footwear and leather goods markets, with prices ranging from RMB1,200 to RMB6,000 per pair. What For, our contemporary and lifestyle brand, retails for between RMB800 to RMB2,800 per pair.

Introducing our Brands on the Global Stage We opened our first Stella Luna store in Paris in December 2012. Located in the city's high-end Saint-Germain shopping district, the store will be the centre of our global marketing and public relations efforts to build a global presence for our brands and to interact more with the western retail market.

Business Outlook - For the year ended December 31, 2012

Steady Order Pipeline despite Volatile Economic Outlook We expect the challenging operating environment present in 2012 will continue in 2013. However, our order pipeline should remain steady as a result of our strong client relationships and our unique positioning as a high-quality manufacturer.

Labour costs and availability will remain a challenge, although we are well advanced in shifting production to locations with labour and cost advantages. We expect the cost of raw materials to remain steady or slightly decline in 2013.

Key risks in the coming years will include a sudden downturn in consumer sentiment in our main export markets. We will also closely monitor the effects of policies adopted by the Chinese government that may provoke RMB inflation or affect the price of input costs.

Addition of more Niche Retail Brands to Further Diversify Retail Business

We remain cautiously optimistic about the medium-to-long term growth potential for mid-to-upper tier footwear products in China. In particular, we feel there is room for growth in niche segments of the market which are emerging alongside the continued sophistication of Chinese consumers.

The launch of our new JKJY and joint venture Pierre Balmain brands this year is the first part of our strategy to engage these niche markets. Leveraging on the experience we build with these brands, we will prudently consider introducing additional brands, either self-developed or as a joint-venture, in order to further diversify our business.

Setting the Stage for Future Growth

As an experienced high-end footwear manufacturer, we will continue to help our customers expand and improve their product categories (including in areas such as leather goods) and consolidate resources for their portfolios.

On the retail side, we will leverage on our recently opened Paris store to build a global platform for our brands and as a stage for future expansion in the years ahead. Closer to home, we will continue our efforts to broaden same-store sales and our product base to further develop our retail business in China. This includes the possibility of extending the retail products offered by some of our brands to include leather goods.

Another focus in the coming year will be the prudent refining and optimisation of our existing retail store network, in order to boost our overall competitiveness and set a solid foundation for future growth and success.

Source: Stella Holdings (01836) Annual Results Announcement
Chairman CHIANG Jeh-Chung, Jack Issued Capital (shares) 794M
Par Value HKD 0.1 Market Capitalisation (HKD) 15,173M
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