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Edited Transcript of 2020.HK earnings conference call or presentation 24-Mar-20 7:00am GMT

Full Year 2019 ANTA Sports Products Ltd Earnings Call (Chinese, English)

Hong Kong Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of ANTA Sports Products Ltd earnings conference call or presentation Tuesday, March 24, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jie Zheng

ANTA Sports Products Limited - Group President, CEO of the Outdoor Sports Brand Group & Executive Director

* Shixian Lai

ANTA Sports Products Limited - COO, CFO & Executive Director

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Presentation

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Operator [1]

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Investors, ladies and gentlemen, on the telephone or on webcast, good afternoon. Welcome to the 2019 Results Announcement of ANTA.

First of all, while the organization of this meeting is rather exceptional, we are all online. Still, I'm going to introduce members of our management. They are: Chairman and CEO, Mr. Ding Shizhong; Mr. Zheng Jie, President and Head of Outdoor Sports; Mr. Lai, CFO; and Mr. Wu Yonghua. Today's presentation will be started by Mr. Lai. He will go through the 2019 financial results. And then Mr. Zheng will talk about the business and outlook. In the Q&A session, Mr. Ding and other members of the management will take your questions. We will give priority to questions asked over the phone. And then after that, we will take questions from webcast.

Now Mr. Lai, over to you, please.

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Shixian Lai, ANTA Sports Products Limited - COO, CFO & Executive Director [2]

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Investors, good afternoon. Today, it is rather exceptional. This is the first time that we are presenting results in this way throughout our past 10-odd years history of listing.

Now let me go through our financial performance in 2019. The management is quite happy with the results in 2019. While all the different indicators are at the best in history for revenue and profit for 6 consecutive years, we enjoyed double-digit growth. Revenue was up 40.8% at CNY 33.93 billion. Operating profit, up 52.5%, RMB 8.69 billion. If we do not include the loss of JV, the profit was CNY 6.16 billion, up 47.8%. But to include JV's loss, then the profit was CNY 5.62 billion, up 32.8%. Profit attributable to shareholders, up 30.3% at CNY 5.34 billion. EPS, up 30%.

GP margin, 55%, up 2.4 percentage points. Operating profit margin, 25.6%, up 1.9 percentage points. Profit attributable to equity holder, 15.8%, including Amer's loss. The Board proposed to pay out HKD 0.36 of final dividend. For the whole year, HKD 0.67 dividend. Dividend payout exceeded 30%.

In 2019, profit was up 40% to CNY 33.93 billion. This is the second year that we are over 40% in growth. For ANTA, up 21.8%, this is rather stable. This is revenue. So I'm referring to revenue growth, and ANTA growth is quite apparent.

For FILA, we also enjoyed high-speed growth, up 73.9%. The brand and product market and systems have been enhanced. And then we have enhanced efficiency, store efficiency, and then e-commerce also developed fast.

For other brands, we also enjoyed good development. So up 33.3%, and revenue is at CNY 1.7 billion.

GP margin, up 2.4 percentage points at 55%. And contribution mainly was from FILA because FILA had high GP margin, and its share of the total is also quite high. If you look at the brand breakdown, ANTA's GP margin came down from 42% to 41.3% this year. It came down slightly because we launched some high-performance price ratio footwear products. And then 99.9% (sic) [69.9%] up to 70.4%, that's GP margin of FILA. For the other brands, 61.8% average. So GP margin has boosted the overall level.

Operating profit margin, up 1.9 percentage points to 25.6%. FILA had higher GP margin, and its retail business had pushed up profit margin. And also, expense ratio is quite stable. For ANTA, operating profit margin, 15.7% -- 26.8%, comparing with 2018, slightly up, up 0.9 percentage points. FILA operating profit, CNY 1.02 billion (sic) [CNY 4.02 billion], up 1.9 percentage points in margin. For the first time, it exceeded that of ANTA. For the other brands, there is small loss, around CNY 50-odd million loss, less than CNY 60 million.

And then operating expenses, we are quite stable as a group. Advertising and promotion, its share came down 1.5 percentage points to 10.6% because sales scale increased fast. In terms of advertising and promotion, we continued to put in a lot of resources, but revenue grew faster.

Staff cost as a share of total was up 0.8 percentage points to 11.7% because our retail business accounted for a bigger share and staff cost for retail business is usually higher. And in the past year, we offered stock option incentive. So as a whole, staff costs as a share of total went up 0.8 percentage points.

R&D as a share of total came down 0.2 percentage points to 2.3%. This is because the scale sales went up fast. The absolute figure also increased quite a lot, but because revenue growth was even faster.

Concerning loss of JV was Amer and also profit attributable to shareholders, in earlier announcement we already reported to you. The loss was RMB 630 million, and there is impact of almost CNY 500 million of apportionment of the fair value of acquisition. And there is also one-off transaction expenses, no more than CNY 200 million. We have taken into consideration past performance of Amer and also related cost of acquisition, so it is within our expectation. Because of the loss of JV and also expense -- interest expenses, profit attributable to shareholders margin came down 1.2 percentage points to 15.8%. Tax rate increased a bit, and there was loss for Amer. As a result, the decline in profit attributable to shareholders was affected by these factors.

Our turnover was quite healthy. Inventory turnover days went up 6 days to 87 days. This is very healthy because FILA's business contribution exceeded 40-odd percent. For FILA, that was mainly self-operated retail. So inventory, comparing with ANTA's wholesale, is more. So there's an increase by 6 days. For ANTA and FILA, inventory was at healthy levels.

Receivables and payable turnover days were more or less the same as in the past. Receivable turnover days, 34 days, down 1 day; and payable turnover days, an increase by 5 days. So now we have stronger cash flow as a result.

Cash flow, our free cash inflow exceeded RMB 6.4 billion in 2019. Operating cash inflow was around RMB 7.5 billion, up 68.6% year-on-year. The increase was even bigger than the growth in profit. So this shows that we have done a good job in cash flow management. At the end of 2019, our cash and bank deposits was at RMB 12-odd billion. As you know, we had a EUR 1 billion convertible bond, and it was mature in February this year. So total cash now exceeded RMB 18 billion. Of course, there were some loans during acquisition and listing. But then on the whole, our cash position is very adequate. Our gearing ratio is also very healthy.

Now my presentation will end here. Now James will report to you our business review.

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Jie Zheng, ANTA Sports Products Limited - Group President, CEO of the Outdoor Sports Brand Group & Executive Director [3]

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Investors, good afternoon. Thank you very much for spending time with us despite your busy schedule. We are announcing our 2019 results. Just now, Mr. Lai reported our overall results in 2019. He had given a very comprehensive report. And this year's presentation is very exceptional, so I believe this is really the biggest crisis since the Second World War globally. And in this crisis, we saw huge blows and impacts on the industry and on the whole world arising from COVID-19. For ANTA Group, as such as now, this is the best year since our listing in terms of our results.

In 2019, global economy and Chinese economy have seen quite big challenge. However, in 2019, if you look at the sportswear industry, especially the industry in China, there's still relatively stable and healthy development.

In 2019, if you look at the macro environment, the state introduced the 2019 to 2022 Action Plan on boosting sports consumption. The goal is in 2020, we should reach CNY 1.5 trillion in overall sportswear industry expenditure. So it seems that our industry still faces a good environment for us to grow. So in 2019, ANTA Group achieved very good results. And you can see that we have put in place some important change in management.

In 2019, we put in place some transformation and enhanced our effectiveness in management. So this is a year of synergy and value. We categorized our brands into Performance Sports Brands Group, Fashion Sports Brands Group and Outdoor Sports Brands Group. And for Performance Sports, we have ANTA and SPRANDI; Fashion Sports, FILA and KINGKOW; Outdoor Sports, DESCENTE, KOLON SPORT and Amer Sports, which was acquired in April. So for these 3 groups, well, actually, there was strong cooperation among different functional units and departments. And this has further boosted the development of our business. So today, if you look at our results, actually, this is because of the implementation of this reorganization or transformation, and we have a lot of effective tools to enhance our management efficiency.

Now I'm going to go through each brand in greater detail. ANTA is our core brand. And we are a high-quality functional professional sports products brand. In 2019, well, we stuck closely to technology and consumer taste. For the whole year, in 2019, business growth was 21.8%. And in this year, ANTA stuck to technology development and consumer preference in order to meet the needs of consumers. Our basketball products, well, the Klay Thompson signature basketballs have seen record high achievement. And if you look at the basketball segment, we had gained a leading position for our running shoes, Challenge202 and the Hydrogen Running Shoes, in 2019 and achieved very big success, and we are well received in the market. On Tmall, in the running shoes category, among Chinese sportswear brands, we were in a leading position. We have good supply chain management and sustainable development implementation. So we offered unisex products, which enjoyed good development.

In 2020, we worked with Beijing Olympic Committee. And in 2019, ANTA brand has worked with various sports teams and achieved good results. So 2019 for ANTA brand is a very stable and healthy growing year.

For ANTA KIDS, well, this is a branch -- brand of ANTA. So in the kidswear industry in China, well, again, 2019 was the best year for us, and we are a leading brand. We feel very proud that in the kidswear sports industry, we further strengthened ourselves. In 2019, ANTA KIDS' theme was Playmaker. And in 2020, we showcased ourselves in the New York Fashion Week, and we're the first Chinese kidswear sports brand entering New York Fashion Week. And then we enjoyed very good promotion. We organized 20 Grow Up with Fun events. And in different places, we got the support and interest of many consumers and children. So ANTA KIDS in 2019 achieved very good growth and reinforced our leading position in the category.

FILA. In 2018, we got a growth of more than 80%. In 2019, in terms of fashion sports development, we are still in a leading position. In 2019, we grew more than 70%. And then in this year, we successfully entered the high-end fashion sports brand area as a leader. And then in September, once again, we were showcased in Italy, Milan Fashion Week. And in December, we organized FILA X 3.1 Phillip Lim fashion show, and we won many people's attention. In the year, we launched CLASSIC KICKS shoes, DISRUPTOR SANDALS and so on, and then we have the FILA JAGGER series. In 2019, they became highlights of sports shoes, fashion sports shoes. And then in the year, we also successfully sponsored China Tennis Open. Tennis is a very popular sports category. And then we have showcased our very good tennis DNA. So in 2019, FILA continued to perform well as a leader in the high-end fashion sports brand in China.

Besides, we successfully incubated 2 brands -- sub brands, FILA KIDS and FILA FUSION. After a year of incubation in 2019, these 2 brands, in their own segments, achieved very good business growth. And in their segments, they have become highlights. FILA KIDS this year launched the WHITE LINE series. And FILA FUSION last year signed contracts with Koki, a Japanese popular model, as our brand ambassador. And so we entered the youth segment, youths who are between 15 to 25 years old. So in 2019, we have developed FILA KIDS and FILA FUSION, well. Apart from the main FILA brands, we now also have FILA KIDS and FILA FUSION. So that in various segments, FILA continues to grow. And in the future, we will have even bigger room for growth. So now we have a multiple brand matrix.

After 3 years of incubation in 2019, we achieved a breakthrough for DESCENTE. So the sell-through exceeded or approximated CNY 1 billion, and we achieved profitability. In high-end professional sports segment, we had built a very strong DNA and status, and we are well received among high-end groups. In the future, DESCENTE will enjoy huge room for growth.

So just now, I had talked about the overall development of various brands in 2019. Now let me talk about our store network of various brands. As of 31st December 2019, ANTA brand had 10,516 stores. High-effectiveness stores accounted for 45%. The number of FILA stores was 1,951. FILA KIDS and FILA FUSION stores also grew rapidly in number. DESCENTE has 136 stores. KOLON SPORT, 185. So in China and in Greater China region, the total number of stores almost reached 12,900 as of the end of 2019. So in 2019, we grew the number of stores. At the same time, we improved quality of stores.

In 2019, in Chongqing and Shanghai, we introduced the ninth-generation stores. So brand image and also consumer experience were enhanced. And we had injected the digital, young or youthful and professional elements. For ANTA KIDS, we launched the 4.0 stores. For FILA, we also launched our 5.0 flagship stores. That's our new image.

Now I would like to turn to our e-commerce business. E-commerce business in 2019 grew more than 40%. And our group-leading position in e-commerce was further reinforced. Our e-commerce platform offered exclusive online stores as well as same-style off-line products. And there are also crossover products, and there are very popular IP products as well. So this year, we had organized more than 100 live broadcasts to interact directly with fans. And then on the e-commerce platform, we had accumulated 250 million consumers data. And in the future, our various brands in terms of future development could have better interaction with online consumers over various online platforms.

Supply chain and product management, we continued to deepen them in 2019. We applied effective supply chain management to encourage suppliers to produce more innovative products. At the same time, we strategically combined internal production and outsourced production, so that we can respond to market environment change and consumer preference change very rapidly. And then in terms of positioning, we hope that consumers' preferences can be satisfied.

As of the end of 2019, our own R&D for products accounted for 2.3%. And then for our self-produced apparel and footwear of ANTA, they accounted for 32.2% and 11.4% of the total. Now for our R&D input ratio, it was 2.3% of revenue. It is slightly lower. But then comparing with 2018, we already increased 40%. So we continued to promote innovation, and we have big determination in this.

So just now, I talked about our businesses in 2019 and also our various brands. Looking into 2020, as we all know, we are in a very exceptional period. For the industry and for the whole world, 2020 is full of challenges. This is not an easy year. COVID-19 and after all the infection control work in the past 2 years -- in the past 2 months, the situation is now under control in China, but the outbreak just started in different parts of the world. So for ANTA, 2020 is a year full of challenge. At the beginning of the epidemic, we already worked closely with our retail-working partners and supply-working partners. We communicated with them, and we looked at changes in consumption. We thought of different measures and listened to your views. We hope to make sure that this year, our business will still be able to develop healthily.

Overall speaking, as you can see from Mr. Lai's presentation, if you look at our own business trends and our cash reserve and our management and control measures, we are still confident that in 2020, despite the epidemic, we're still able to recover our business in the coming months to the level that we are looking at. The whole group is working very hard now. The whole world is also working hard. We concentrate all our resources and energy on various important measures to face up to the impact of the epidemic. And concerning inventory management, cash flow management, expenses management, we hope that at the end of 2020, we will be able to deliver a satisfactory report card to investors.

That's all in my presentation. Thank you.

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Operator [4]

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Thank you, Mr. Zheng and Mr. Lai.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]