Thursday, March 28, 2024
 
Columnist
Martin Hennecke
 
WIN HANVERKY
HKEx Stock Code : 03322 
 
Corporate Profile
Principally engaged in the manufacturing, distribution and retailing of garment products, including sportswear, golf and high-end fashion apparel and related accessories. Sales are primarily under an OEM arrangement to customers in Europe, North America and Asia and distribution and retail modes in Mainland China and Hong Kong.

Business Review - For the year ended December 31, 2012

The Group is an integrated manufacturer, distributor and retailer for renowned sports brands. The financial performances of the two business segments, namely ¡§Manufacturing Business¡¨ and ¡§Distribution and Retail Business¡¨ are summarised as below.

Manufacturing Business

The Group's Manufacturing Business operates mainly on OEM arrangement for various renowned sports brands. Most of the Group's products are exported and sold to Europe, Mainland China and other countries around the world. The Group has a long history and a remarkable position in sportswear garment manufacturing, and has established long term business relationship with its key customers.

In 2012, the global economic environment remained tough. Revenue from Manufacturing Business decreased by 3.7% to HK$2,829.0 million for the year ended 31 December 2012 (2011: HK$2,937.7 million), accounting for 91.8% of the Group's total revenue (2011: 91.8%). The poor economies of European countries have been continuously impacting the Group's Manufacturing Business.

Gross profit from Manufacturing Business was HK$592.6 million for the year ended 31 December 2012 (2011: HK$591.5 million). The segmental gross profit margin slightly increased to 20.9% in 2012 (2011: 20.1%) as a result of the management's efforts in enhancing labour efficiency and controlling manufacturing overheads. The PRC government's policy to enhance labour income in order to stimulate the domestic demand will keep the labour salary in Mainland China on increasing. Therefore, the Group is actively expanding its production capacity in Vietnam and Cambodia where labour costs are more reasonable to fulfill the needs of our customers for orders outside Mainland China.

Despite the decrease in revenue, operating profit from our manufacturing business increased by 6.5% to HK$175.9 million (2011: HK$165.1 million) as a result of the management's cost control measures.

Distribution and Retail Business

This segment includes the businesses of distribution of Diadora Products through the Winor Group and retailing of multi-brand and mono-brand products and distribution of sportswear products through the Win Sports Group.

In 2012, the increasingly intensified competition in retail market and higher retail discounts, coupled with rising labour costs and rentals, led to further shrinking profit margin in our retail business. Revenue of this business segment decreased by 4.1% to HK$252.8 million (2011: HK$263.6 million), accounting for 8.2% of the Group's total revenue (2011: 8.2%). The segmental gross profit and its margin also decreased to HK$87.6 million (2011: HK$103.9 million) and 34.7% (2011: 39.4%) respectively.

Operating loss in this segment significantly reduced by 69.5% to HK$51.3 million (2011: HK$168.1 million) as the Group recognised an impairment loss of HK$112 million on ¡§Diadora¡¨ trademark for the year ended 31 December 2011 whereas there was no such impairment recognised for the year ended 31 December 2012. Further discussion of the performance in each stream of this segment is set out below:

Distribution of Diadora Products

The Winor Group owns the trademark of ¡§Diadora¡¨ in Mainland China, Hong Kong and Macau and hence has the respective right to manufacture, sell and distribute Diadora Products. Under the competitive retail market in Mainland China, the Winor Group's revenue for the year ended 31 December 2012 was HK$53.1 million (2011: HK$65.7 million). We will focus on streamlining the sales network and tightly control the inventory level to minimise the loss.

As at 31 December 2012, the Winor Group had a sales network comprising approximately 20 Diadora distributors operating approximately 101 points-of-sales in Mainland China. The Win Sports Group is also one of the distributors selling Diadora Products, details of which are presented as below. The Winor Group also self-managed 24 retail shops in Mainland China, Hong Kong and Macau.

Retail of Multi-brand Products

The Win Sports Group mainly operates sportswear retail business selling Umbro and Diadora products in Mainland China and sportswear products of various brands in Hong Kong.

Revenue and gross profit of the Win Sports Group for the year ended 31 December 2012 were HK$202.7 million (2011: HK$206.3 million) and HK$70.7 million (2011: HK$80.9 million) respectively.

In Mainland China, the sportswear market was still under adjustment period for the year ended 31 December 2012. Market players had tried to clear excess inventories through heavy discounting. As a result, revenue and gross profit from our sportswear retail business in Mainland China for the year ended 31 December 2012 dropped to HK$65.7 million (2011: HK$ 90.2 million) and HK$21.7 million (2011: HK$34.3 million) respectively. We had managed to mitigate the negative impact by streamlining our sales network and closing non-performing shops. The shop closure plan will be substantially complete by the end of June 2013. We expect the loss will be substantially reduced accordingly. Besides, Nike Inc. had sold the trademark of ¡§Umbro¡¨ to Iconix Brand Group Inc (¡§Iconix¡¨), a company listed in the United States of America, in December 2012. We are actively discussing with Iconix the future development of the brand in the Mainland China.

On the other hand, revenue and gross profit from our sportswear retail business in Hong Kong for the year ended 31 December 2012 increased to HK$137.0 million (2011: HK$116.1 million) and HK$48.9 million (2011: HK$42.1 million) respectively as a result of overall growth in retail market and vibrant inbound tourism in Hong Kong. Our sportswear retail business in Hong Kong recorded an operating profit of HK$0.3 million for the year ended 31 December 2012 (2011: operating loss of HK$1.5 million).

As at 31 December 2012, the Win Sports Group had approximately 145 mono-brand shops in Mainland China, majority of which were selling Umbro Products and the remaining were selling Diadora Products, and 14 self-managed retail shops in Hong Kong, of which 2 were traded under the name of ¡§Futbol Trend¡¨, 7 were under the name of ¡§Sports Corner¡¨ and 5 mono-brand shops for several international sports brands made up the rest.

Discontinued Operations

Distribution of Umbro Products

In 2011, the Group entered into an agreement with UIL for the early termination of the Umbro Distributor Agreement which granted T&S Group exclusive distribution rights of the Umbro branded products in the Greater China from March 2007 to December 2020. Concurrent with the termination of the Umbro Distributor Agreement, the Group entered into a transition services agreement with UIL and its related entities, under which the T&S Group will provide services to UIL and its related entities for the period from 2 June 2011 to 30 June 2012 to assist them in avoiding disruption in the transition and operation of the distribution business after the termination of distribution rights by T&S Group. As a result, the Group has recognised a service income of HK$18.4 million for the year ended 31 December 2012 (2011: HK$21.6 million).

As a result of the above transactions, the T&S Group has the rights to distribute Umbro branded products up to 30 June 2012 only. Therefore its results were presented as a discontinued operation and its assets and liabilities were classified as a disposal group, as assets/liabilities held for sale. During the current year, revenue and profit from the discontinued operations decreased to HK$10.7 million (2011: HK$113.1 million) and HK$8.8 million (2011: HK$161.6 million), respectively. The profit from the discontinued operations in 2011 included a gain of HK$214.5 million from termination of the Umbro distribution rights whereas no such gain was recorded in 2012.

Business Outlook - For the year ended December 31, 2012

Looking into 2013, the worldwide challenging economic situation will be continued. Under Manufacturing Business, customer orders in 2013 will be stable but no growth is expected as no major sports events will be held. However, the 2014 FIFA World Cup may have positive impact on our customer orders in the last quarter of 2013 and the first half of 2014. Besides, the Group is actively looking for new customers with a view to rebuild the growth opportunity. Under the Distribution and Retail Business in Mainland China, the environment is still very tough. It may take one to two years for the market to consume the excess inventory. Our strategy is to scale down our sales network to minimise the loss.

Manufacturing Business

It is expected that the labour cost in Mainland China will continue to rise in the coming years; whereas more and more customers have been requesting their strategic supply chain partners to expand its non-China production capacity to diversify the cost inflation risk. The Group is expanding its production facilities in Vietnam and Cambodia. Those areas provide relatively stable labour supply with lower labour costs. We have started trial run in our new factory in Cambodia in February 2013. We believe our overseas expansion strategy will offer us a more cost-effective position so that the Group could sustain a reasonable profit margin. We have been shifting the Group's production capacity to overseas significantly in 2013 and ultimately we expect half of the Group's production capacities will be outside Mainland China earliest by the end of 2014.

In addition, we also continue to explore the opportunities to diversify our Manufacturing Business to include fashion garment.

Distribution and Retail Business

The sportswear market adjustment in Mainland China is likely to last for one to two more years. The Group will focus on clearing inventory, streamlining sales network and improving retail efficiency.

On the other hand, we expect the demand of high-end fashion in Mainland China and Hong Kong will continue to grow as a result of continued increase in disposable income of Mainland China citizens. According to the statistics released by the National Bureau of Statistics of China in January 2013, the growth rate of per capita disposable income of urban households was 9.6% in 2012 (2011: 8.4%). To capture these opportunities, the Group entered into a subscription agreement in August 2011 with the Shine Gold Limited, the group of which is principally engaged in retailing of fashion wears and accessories. The Shine Gold Group has a self-managed retail network for self owned brands ¡§D-mop¡¨, ¡§Blues Heroes¡¨ and ¡§Loveis¡¨ etc in Hong Kong and Mainland China, for brands under exclusive distribution rights, including ¡§Y-3¡¨ in Hong Kong and Mainland China and ¡§moussy¡¨ and ¡§SLY¡¨ in Hong Kong and for brands under non-exclusive distribution rights, including ¡§AZUL by moussy¡¨ and ¡§SHEL' TTER¡¨ in Hong Kong.

Pursuant to the subscription agreement, the Group agreed to subscribe for convertible bonds of Shine Gold Limited in an aggregate principal amount of HK$70.0 million which would be issued in two tranches. The convertible bonds bear interest from its date of issue at a rate of 5% per annum on the principal amount of the convertible bonds outstanding on the interest payment date, and may be converted in full into 60-70% of the issued share capital of Shine Gold Limited any time over five years, depending on certain conditions. On 16 August 2011, the Group acquired the first tranche of convertible bonds with principal amount of HK$31.2 million. On 21 February 2013, the Group acquired the second tranche convertible bonds with principal amount of HK$38.8 million and now holds convertible bonds of Shine Gold Limited in the aggregate principal amount of HK$70.0 million. Together with the existing sportswear retail network under the Win Sports Group, the Group will run a series of self owned retail brands including ¡§D-mop¡¨, ¡§Futbol Trend¡¨ and ¡§Sports Corner¡¨ and self-owned product brands including ¡§Diadora¡¨, ¡§Blues Heroes¡¨ and ¡§Loveis¡¨ in Mainland China and Hong Kong. The Group will also run retail shops for ¡§Y-3¡¨, ¡§moussy¡¨, ¡§SLY¡¨, ¡§AZUL by moussy¡¨, ¡§SHEL'TTER¡¨ and some international sports brands.

Discontinued Operations

Distribution of Umbro Products

As mentioned in Business Review section agreement on 30 June 2012. However, the Group will, according to the key account agreement (¡§KAA¡¨), continue to act as a key account of Umbro by operating a certain number of shops until 30 June 2013. The Group will further receive approximately US$2.5 million (equivalent to HK$19.5 million) from UIL as an incentive upon reaching certain shop opening targets. Details of which have been included in the announcement of the Company dated 21 April 2011.



Source: Win Hanverky (03322) Annual Results Announcement
Chairman LI Kwok Tung Roy Issued Capital (shares) 1,268M
Par Value HKD 0.1 Market Capitalisation (HKD) 1,078M
 
Login
Password
Register  Forget Password
Advanced Search
© 2024 The Standard, The Standard Newspapers Publishing Ltd.
Home | Business | Metro | Focus | Opinion | Markets | World | Sports | Entertainment | Monday Money | Property | Macau | Weekend