Financial Highlights

(24 August 2011, Hong Kong) - The leading international sportswear brand enterprise in the PRC, China Dongxiang (Group) Co., Ltd. ("China Dongxiang" or "the Group"; stock code: 3818) announced its interim results for the six months ended 30 June 2011.

During the period under review, in the context of intensifying competition in China sportswear market, China Dongxiang has taken decisive and crucial measures to ensure that it can capture chances when the dawn comes. In an effort to relieve channel inventory pressure, two critical measures including repurchase of excess inventory from distributors and reduction of sell-in targets for distributors to avoid further retail inventory build-up, were implemented. As a consequence of the Group's proactive actions, results of China Dongxiang for the six months ended 30 June 2011 were inevitably affected. The Group recorded RMB1,179 million in revenue, representing a 45.1% year-on-year decrease. During the period, the Group's gross profit margin decreased 1.3 percentage points to 61.3%. Profit attributable to equity holders amounted to RMB225 million, down 71.4% year-on-year. Basic earnings per share were RMB3.99 cents, down 71.2% compared to the same period last year. In view of our solid cash position and to enhance shareholders value, the Board proposed to distribute 70% of the Group's profit attributable to equity holders for the period under review as interim dividend.

Mr. Chen Yihong, Chairman of China Dongxiang, said, "In the first half of 2011, the impact from challenges, including moderating market growth, intensifying competition and retail inventory buildup, has deepened. Yet, a clearer picture was shown for concrete steps to remedy and recharge for growth. We have switched our focus from sell-in to sell-through and are working on the improvements of our product offering to ensure sustainable growth. We are also committed to tighten cooperation with our distributors in order to get closer to the market pulse and improve store operating efficiency. With the healthy growth in overall retail market backed by the continual rapid economic development, we believe that the fundamentals of the China sporting goods industry are still strong."

During the period under review, the Group enhanced business strategies in different aspects. By introducing flow reengineering, sharing platforms and enhancing cross-functional communication, Kappa has further defined the matrix of responsibilities of different departments, promoted information transparency and efficient communication in order to improve the GTM flow. On the marketing front, 360 degree integrated marketing strategy makes use of advertisement, PR promotion, Internet and street events. All these marketing strategies echo with each other and jointly propel products to the market more efficiently. In the first half, a series of campaigns, for example, "Back to the Mainstream of Fashion" and "Caravan Art Tour" have been carried out for brand building and marketing. Also, the Group continued to cooperate with BasicNet S.p.A., the other owner of the Kappa brand, together with licensees of Kappa brand in other countries in a series of sporting sponsorships, including Virgin Racing F1 Team and Borussia Dortmund Soccer Team, to promote Kappa's brand as a fusion of sports and fashion.

In the ever-changing market, new products are the essential engine for sustainable growth. As of today, the Group has launched Curves Series, new Soccer Series and new P-A.C Series this year. Curves, which denotes contours of the human body, has the unique design of dual curvy sole which can activate women's leg muscles and help burn more energy from each step. The Kappa Curves series kick-starts the initiative to systematically feed technology and design into footwear. Such functional and trendy products were achievements from the Group's design expertise in China and Japan cooperating with renowned design houses in The United States and Europe. By leveraging the integrated marketing strategy, the Group's product portfolio is broadened and expected to attract new customers and income for Kappa.

The Group has been committed to enhance its sales distribution network and store operating efficiency. During the period under review, the Group restructured its sales network by redefining five sales regions and eight functional divisions for better specialization and dedication with an aim to increase sales contribution. As of 30 June, 2011, the Group had 40 distributors who directly or indirectly operated 3,502 retail outlets selling Kappa brand products in China. Going forward, the Group store opening strategy will focus on high tier cities in conformity with Kappa brand and products positioning, while it will capture the opportunities from the rising middle and affluent class in mid- and low- tier cities and penetrate into lower-tier markets. During this geographical expansion, it will restructure its retail portfolio through conversion and more openings of direct customer stores so as to gain better channel control and monitoring. Nevertheless, the Group will continue to explore the development of online sales platform, and ensure competitive market share in the online channels.

To develop a diversified brand and product portfolio, the Group continues to develop Kappa's sister brand, Robe Di Kappa (RDK), following its official launch in China last year. As of 30 June, 2011, there were 22 RDK stores. The Group also plans to promote ski and outdoor brand, Phenix, extensively this year. A series of promotion activities will be carried out in a more comprehensive way in the second half of 2011. New stores of Phenix will be opened in Beijing and first-tier cities in North and Northeast China.

Looking ahead, the Group has implemented a series of medium- to long-term action plans for turnaround and sustainable growth in the coming years. The Group will refine and strengthen its product positioning of sports performance and sports style that can utterly demonstrate Kappa brand DNA. Key account management and local field retail teams have been established for efficient retail management. The Group will also build its own retail stores in selected prime locations in high-tier cities, to detect the market pulse for new products, provide holistic Kappa brand experience for consumers, and also assist in implementing staff training and best practices sharing, thus achieving further retail excellence.

Chairman Chen concluded, "2011 is a year of adjustment. We expect to continue facing challenges in the second half. However, we believe the transforming business environment will bring along new business opportunities, with which we shall be able to propel for further growth of the Group in the long term. With clear initiatives and roadmap, we are confident to take this opportunity to recharge for growth in the near future."

Source:irasia