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Naibu Global Intl Co (NBU)

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Friday 12 September, 2014

Naibu Global Intl Co

Unaudited Interim Results

RNS Number : 4818R
Naibu Global International Co PLC
12 September 2014
 



 

 

Press Release

12 September 2014

 

Naibu Global International Company Plc

 

("Naibu", the "Company" or the "Group")

 

Unaudited Interim Results

 

Naibu Global International Company Plc(AIM:NBU), a leading Chinese manufacturer and supplier of branded sportswear, today announces its unaudited interim results for the six months ended 30 June 2014.

 

Highlights

 

-

Revenues for H1-2014 increased by 8.4% to RMB 1,029.9 million (approximately £98.1 million) (H1-2013: RMB 950.1 million)

-

Profit before tax for H1-2014 was RMB 206.5 million (approximately £19.7 million) (H1-2013: RMB 214.8 million)

-

Earnings per share for H1-2014 of RMB 2.59 (H1-2013: RMB 2.90)

-

Nil interim dividend for the period due to significant capital investment in the coming year (2013: 2 pence)

-

Group balance sheet with cash position of RMB 332.7 million as at 30 June 2014.  The Group has no outstanding bank loans or overdue debt

-

3,192 Naibu-branded stores in total  (H1-2013:3,144)

-

R&D expenditure in H1-2014 accounted for 1.7% of turnover (H1-2013: 1.4%) with further strengthening of R&D investment going forward

 

The illustrative exchange rate as at 30 June 2014 is 1 GBP : 10.4978 RMB.

 

Commenting on the interim results, Huoyan Lin, Executive Chairman of Naibu, said:  "The Group has delivered record sales in the first half of 2014 and this has been achieved in a marketplace which has witnessed competition intensify as well as increased pressures on costs.  As anticipated, consolidation in the sportswear sector has occurred and a number of smaller players have now exited the market.  With a substantial clearance of inventory, leaner sales networks, stricter cost control measures and a prudent approach in placing and accepting orders, the stronger sportswear manufacturers are now in better shape and there are some signs of recovery in our end markets.

 

"Due to the competitive pressures that the Group is currently seeing as well as the significant future capital requirements for the Dazhu Industrial Zone Project, no interim dividend will be paid this year to enable the Group to conserve cash.

 

"Although the Group has encountered some difficulties with putting the Quangang factory into operation due to a sudden change in the labour market in the coastal regions, given the revenue achieved in H1-2014 and the orders that have been received for the remainder of the year, I am confident that my management team has the capability to overcome the setback at Quangang.

 

"The Group is ready to accept the challenge and to achieve sustainable development going forward.  Achieving sustainable business growth and creating value for stakeholders in the long-term are objectives which the Board continues to focus on."

 

- Ends -

 

 

For further information:

Naibu Global International Company Plc


Huoyan Lin, Executive Chairman

Tel: +44 (0) 20 7398 7702

Li Zhen, Chief Financial Officer

www.naibu.com

 

Daniel Stewart & Company Plc

Tel: +44 (0) 20 7776 6550

Paul Shackleton / Martin Lampshire

www.danielstewart.co.uk

 

Media enquiries:

Abchurch


Henry Harrison-Topham / Quincy Allan

Tel: +44 (0) 20 7398 7702

[email protected]

www.abchurch-group.com

 



Chairman's Statement

 

On behalf of the Board, I am pleased to present Naibu's interim results for the six months ended 30 June 2014 to shareholders of the Company.

 

Industry review

 

China's sportswear industry was on relatively firmer ground in 2014 and showed signs of recovery during the first half year of 2014during which market surpluses were cleared and excess retail outlets closed.  Sportswear manufacturers and distributors continued to work together to clear their stocks by offering discounts, controlling the volume of orders placed, and re-arranging delivery schedules to match actual sales achieved in the previous season.  With a substantial clearance of inventory, leaner sales networks, stricter cost control measures and a prudent approach in placing and accepting orders, the stronger sportswear manufacturers are now in better shape.

 

However, China's sportswear market continues to be highly competitive as foreign brands have stepped up their business expansion from first tierinto second and third tier cities.  To compete, domestic sportswear manufacturers have had to differentiate themselves with innovative products, niche markets and distinctive brand images.

 

Operational review

 

During the first half of 2014, the Group achieved record half-year sales of RMB 1,029.9million, an increase of 8.4% over the same period in 2013.  However, pre-tax profits for the same period decreased slightly by 3.9% to RMB 206.5million, mainly due to a reduction in gross profit margin.

 

In this period, Naibu continued to reinforce its brand position by differentiating the Group from itspeers as an affordable leading fashion sportswear brand.  The Group continued to focus its strategy on raising awareness of the Naibubrand in its primary target markets in third and fourth tier Chinese cities where, through urbanisation, the disposable income of young consumers has steadily increased. These interim results reflect the growing recognition of Naibu's brand amongst that target market.

 

During the period under review, the Group adopted a defensive business strategy to address the challenges in the market.  To further strengthen the competitiveness of the Group's distribution channels, the Group has increased monitoring of its sales network, increased the guidance and training it provided to its distributors' retail channels and reinforced its operational management.  The Group has also adopted a more prudent approach in its expansion plans by focusing on growing existing stores versus new store openings.  The Group also encouraged authorised retailers to close underperforming retail outlets and streamlined its product offering to focus on high-margin and best-selling products.  

 

Due to current competitive pressures in the market, as of May 2014, the Company extended the credit terms to distributors by an additional month to 120 days.  This has not, however, impacted the Company's ability to collect its trade receivables, and the Company has not seen any bad debts accrue as a result.

 

Overall, the Group consolidated its position in its mass markets of China's third and fourth tier cities.  Naibu will continue toenhance its execution capabilities at all levels to gain market share in Western China, to further optimise its nationwide network and to prudently mitigate future business risks. 

 

Product range and sales

 

In the six month period ended 30 June 2014, the Group continued to manufacture Naibu-branded leisure and sports shoes, which were sold through its nationwide network of Naibu outlets alongside Naibu-branded leisurewear, sportswear, sports accessories and equipment sourced from original equipment manufacturer ("OEM") suppliers.  During the period, sales and marketing of these items remained focused on mass-market buyers, especially those young, innovative consumers aged between 12 and 35, targeted by three separate product lines: "Vital Campus", "Urban Business" and "Holiday Leisure".

 

During H1-2014, the sale of shoes accounted for approximately 53.6% of the Group's revenues (H1-2013: 53.4%), clothing for 44.2% (H1-2013: 44.4%), and sales of accessories made up the balance.

 

Shoes continued to account for the majority of the Group's sales, with first half-year sales of RMB 551.7million, up 8.8% compared to the same period last year, and which is slightly higher than the overall increase in sales of 8.4%.  This sales growth is mainly attributable to increases in sales volume.

 

The Group also achieved growth in the sale of clothing and accessories.  Clothing sales reached RMB 455.3 million, an increase of 7.8% compared to the same period in the previous year.  Sales of accessories such as rucksacks, caps, socks and balls, increased significantly by RMB 2.2 million or 10.6% compared to the same period last year.  Both increases in growth were primarily driven by increases in sales volume.

 

In summary, sales growth in the first half of 2014 was mainly a result of sales volume growth.  Unit sale prices remained at 2013 levels due to tough competition from other sportswear brands.

 

Research and development ("R&D")

 

The Group currently has a R&D team of 81 staff (H1-2013: 95) at its Jinjiang factory, and this team is responsible for the design of all shoes and clothing.  The R&D team consists of both design and sample production teams.  The fall in the overall number of R&D staff members was principally attributable to a reduction in the sample production teams that were based at the now closed Shishi factory.

 

The R&D team comprises three divisions respectively covering product design, product development and technology development.  It creates two seasonal collections each year ("Spring and Summer" and "Autumn and Winter").  The Group successfully launched a number of new designs during the 2014 seasonal fairs.  The R&D department plans to launch 560 new Naibu products in 2014.

 

Innovation is the key to Naibu's success.  The Group is constantly striving to offer high quality value-added products at affordable prices for its target customers.  The Group continued to improve or upgrade itsproducts in terms of functionality, comfort and design.  In addition, the Group has incorporated advanced fabrics and up-to-date designs into its apparel products in response to its consumers' increasingly sophisticated tastes.

 

As previously outlined, the Group is developing a new brand, "NIBO", based on a European fashion concept and this new brand is targeted for launch in 2015.

 

During the six month period ended 30 June 2014, R&D expenditure as a proportion of Group turnover was 1.7% (H1-2013: 1.4%).  This level of R&D expenditure is considered essential to maintain the Group's competitiveness.

 

Manufacturing

 

Naibu's production centeris located in Jinjiang, Fujian Province, where the Group leases two shoe production lines.

 

At 30 June 2014, the Group employed 839 staff in the production and warehousing departments (H1-2013: 1,950).  The fall is a result of the closure of the Shishi factory.  Approximately 19.8% of the shoes sold and distributed by the Group during the period were produced at the Jinjiang plant.  The remaining shoes, as well as all of the Group's clothes and accessories, were sourced from OEM suppliers.

 

As previously announced, the new Quangang plant has not commenced production due to a lack of skilled workers.  The Group has considered some alternative options, including letting out the factory or marketing the facility for sale.  As it could take some time to find a buyer who would be able to acquire the Quangang plant at a reasonable price in one payment and not over several installments, the Group will lease out the facility in the meantime while it seeks such a buyer.  The Group has signed a property lease contract with a tenant who will rent the Quangang property and facility at an annual rent of RMB 6 million over a three year term.

 

In the interim, the Company has made arrangements with its OEM suppliers to supply the shoes which it would have otherwise have produced at Quangang and therefore, there will not be any disruption to production.

 

Regarding the progress of the Naibu Industrial Zone in Dazhu County, Sichuan Province, the Group paid the second instalment of RMB 30 million for the land use rights in May 2014, and the remaining RMB 22 million is expected to be paid upon the grant of the land use rights certificate, which is expected in Q1-2015.

 

The land is in the process of being prepared by the local government.  It is expected that this work will be completed in October 2014 and the facility to be operational in Q2-2016.

 

Sales and distribution

 

The Group has an active and experienced sales team of 68 staff (H1-2013: 71) responsible for product sales.

There are six regional sales managers responsible for individual geographic areas across Naibu's established sales network, communicating regularly with key customers and monitoring consumer trends and competitor performance.  In 2014, Northern China, Eastern China and Southern China remained the key markets for Naibu.  Total revenues from these three regions in H1-2014 and H1-2013 accounted for 65.5% and 66.1%% respectively of Group sales.  However, those regions where sales were lagging, the Central and North Western parts of China, will in the near future become the focus of the Group's sales initiatives.

 

During H1-2014, the Group maintained stable relationships with 25 distributors, and the number of Naibu stores increased to 3,192.  New store locations continued to be selected jointly by distributors and the Group, and are based on market research, estimated costs and local sales potential.  The Group continued to provide its distributors with guidance on store decoration layout and how products should best be presented, in order to maintain the Naibu brand image and the Group's high standards of service.

 

Over the past six months, thanks to the combined efforts of the Group, its distributors and sub-distributors, sales from Naibu stores have increased.  Total sales space of Naibu stores increased to approximately176,000 square meters as at the end of June 2014, with average annual sales of Naibu stores reaching a record of more than RMB 11,700 per square metre, up 6.4% over the same period in 2013.  However, the Group is not planning to expand sales space too quickly in order to mitigate potential business risk, and is trying to consolidate and improve sales in existing outlets.

 

Marketing

 

Naibu continued to invest in brand marketing and promotional work during the first half of 2014.  Advertising expenditure as a proportion of turnover during the six months period was 1.4% (H1-2013: 1.4%).

 

The marketing and sales teams analyse retail data and share market information on a timely basis with the distributors.  The Group also endeavours to keep its retailers competitive by offering comprehensive training and guidance for store openings and quarterly ordering plans.  In order to help network partners reduce their operating cost pressures, the Group granted subsidies to distributors for the refurbishment of store outlets at the end of 2012 to standardise store layout and improve brand image.  This investment has seen the Group's sales benefit in 2013 and in the first half of 2014, through offering a refreshing new shopping experience for customers.  The distributors have signed three year contracts to keep these Naibu branded shops open and the Group believes that the provision of such a subsidy has been of direct assistance in upgrading the retail stores and improving the Group's competitive advantage in the market.

 

Management and staff

 

As at 30 June 2014, the Group had 1,029 full time staff (H1-2013: 2,320).  The significant reduction in personnel was due to the closure of the Shishi factory as a result of the lease expiring at the end of 2013.

 

The Group continues to offer staff various training programmes and promotion opportunities, and organises skills competitions and social events for team building.  The Group also continues to improve management systems and develop a strong corporate culture to attract talented staff.

 

Interim Dividend

 

Due to the competitive pressures that the Group is currently seeing as well as the significant future capital requirements for the Dazhu Industrial Zone Project, no interim dividend will be paid this year to enable the Group to conserve cash.

 

Outlook

 

Looking ahead, industry players will continue to be challenged by cost pressures and increasing competition.  The consolidation of the sportswear industry is near the end, as a considerable number of smaller companies have already exited the market.  Naibu believes that the remaining players in the industry will take a more cautious stance when expanding their businesses in order to avoid another round of excess inventory.

 

It is believed that the economy of China will benefit from the New Type of Urbanisation Plan proposed by the Central Government.  The Naibu Board is expecting another round of demand growth for the sportswear industry in China as the economy growth model shifts to one primarily driven by consumption.  The Group will use its competitive edge to seize every market opportunity.

 

Although the Group has encountered some difficulties with putting the Quangang factory into operation due to a sudden change in the labour market in the coastal regions, given the revenue achieved in H1-2014 and the orders that have been received for the remainder of the year, I am confident that my management team has the capability to overcome the setback at Quangang.

 

The Group is ready to accept the challenge and to achieve sustainable development going forward.  Achieving sustainable business growth and creating value for stakeholders in the long-term are objectives which the Board continues to focus on.

 

 

Huoyan Lin

Executive Chairman

11 September 2014



 

Financial review

 

Key financials

 


H1-2014 (RMB)

H1-2013 (RMB)

Revenue

1,029.9 million

950.1 million

Profit before tax

206.5 million

214.8 million

Earnings per share (basic)

2.59

2.90

Cash used in operations

105.5 million

63.2 million

Proposed interim dividend per share

Nil

2 pence

 

Turnover

Naibu's revenue increased year-on-year by 8.4% during the half year period, rising to a record RMB 1,029.9million.

 

Turnover Breakdown by Product

Shoes remained the strongest contributor of turnover to the Group.  Clothing and accessories accounted for 44.2% and 2.2% respectively.  Accessories showed the strongest growth during the period.  Sales of clothing lagged behind the other two categories, mainly due to a timing difference in the delivery of sales orders.

 


For the six months period ended 30 June

                  2014                                             2013

Category

Revenue

(RMB, 000)

% of

turnover

Revenue

(RMB, 000)

% of

turnover

% of

increase

Shoes

551,657

53.6%

507,073

53.4%

8.8%

Clothing

455,320

44.2%

422,267

44.4%

7.8%

Accessories

22,935

2.2%

20,740

2.2%

10.6%

Total

1,029,912

100.0%

950,080

100.0%

8.4%

 



Turnover Breakdown by Region

Sales in the Group's principal markets of North, East and South China accounted for 65.5% of total revenues in H1-2014 (H1-2013: 66.1%), while market growth in Central China and South-West China showed the greatest increase during the period.  This reflected the Group's progress in building its distribution channels in SouthWest and Central China.  The Group will continue to strengthen and build its distribution channels in North West and Central China.

 

Area

Six Months Period Ended

30 June 2014

Six Months Period Ended

30 June 2013

%

change

(RMB,000) 

% of

turnover

(RMB,000)  

% of

turnover

North China

260,815

25.3%

244,510

25.7%

6.7%

East China

241,894

23.5%

225,110

23.7%

7.5%

South China

172,063

16.7%

157,948

16.6%

8.9%

Central China

126,812

12.3%

116,776

12.3%

8.6%

North-West China

90,738

8.8%

83,037

8.8%

9.3%

South-West China

137,590

13.4%

122,699

12.9%

12.1%

Total

1,029,912

100.0%

950,080

100.0%

8.4%

 

 

Cost of Sales

Cost of sales of the Group for the first half of 2014 increased by 11.9% year-on-year to RMB 766.0 million.

 


Six months ended

30 June 2014

Six months ended

30 June 2013

 

%

Change

Operating Cost

(RMB,000)

% of total

costs of

sales

Operating Cost

(RMB,000)

% of total

costs of

sales

Group Manufacturing (Shoes)

Raw materials

57,486

7.5%

142,877

20.9%

-59.8%

Labour costs

17,677

2.3%

42,955

6.2%

-58.8%

Overheads

8,133

1.1%

13,659

2.0%

-40.5%

Subtotal

83,296

10.9%

199,491

29.1%

-58.2%



 

 

OEM Supplies

Shoes

337,904

44.1%

172,418

25.2%

96.0%

Clothing

329,146

43.0%

298,829

43.7%

10.1%

Accessories

15,624

2.0%

13,844

2.0%

12.9%

Subtotal

682,674

89.1%

485,091

70.9%

40.7%

Total

765,970

100.0%

684,582

100.0%

11.9%

 

During the period, the percentage of OEM supplies increased significantly compared with the same period last year, as a result of internal production capacity constraints due to the closure of the Shishi factory and the difficulties encountered in opening Quangang.  Self produced shoes amounted to 1.2 million pairs, and the volume of shoes via OEM was 5.0 million pairs during the period under review.  The increased OEM percentage has impactedgross profit margins due to the higher unit purchase cost.

 

During the six months under review, research and development costs were RMB 17.6 million, an increase of 36.4% year-on-year, representing 1.7% of the turnover (H1-2013: 1.4%), or 2.3% of the cost of sales (H1-2013: 1.9%).  The Group will continue to increase investment in research and development to further improve product quality and adapt to consumer preferences.

 

Gross Profit

Gross profit for the Group was RMB263.9million for the first half of 2014.  The gross profit margin was 25.6%, down from 27.9% compared to the same period of 2013.  This was mainly due to three reasons: first, there was increased delivery of shoe products during the period, with shoes having a lower gross profit margin than the other two product categories; secondly, costs increased by more than the increase in the sale price of shoes,clothingand accessories during the period under review, mainly as a result of cost pressures in the industry; and thirdly, more of the Group's shoe production had to be sourced from its OEM suppliers.

 


For the six months period ended 30 June

                        2014                                                              2013

Category

Gross Profit

(RMB, 000)

Gross Profit Margin %

Gross Profit

(RMB, 000)

Gross Profit

Margin %

Shoes

130,457

23.7%

135,165

26.7%

Clothing

126,174

27.7%

123,438

29.2%

Accessories

7,310

31.9%

6,895

33.3%

Total

263,941

25.6%

265,498

27.9%

 

Other income

Other income refers to the interest income of the Group.  During the period under review, the interest income of the Group was RMB0.9 million.

 

Selling and distribution expenses

Selling and distribution expenses decreased by4.2% to RMB 39.0 million during the six months period under review, primary as a result of the reduced amount of renovation subsidy for new open outlets, which was reducedby 90.4% to RMB 0.4 million (H1-2013: RMB 4.4 million).  The number of new Naibu branded outlets or stores during the year was significantly reduced compared with the same period last year as a result of the Group pursuing a prudent strategy.

 

During the six months under review, the amount of advertising and marketing expenses increased by 10.7% year-on-year to RMB 14.5 million.  Advertising and marketing expenses as a percentage of turnover was 1.40% (H1-2013: 1.38%), a level the Group considers appropriate to allow it to continue to consolidate brand image and strengthen market awareness and thereby drive increases in market share.

 

Administrative expenses

Administrative expenses increased by 26.5% to RMB 16.9 million for the six months ended 30 June 2014.

 

The increase was mainly due to a rise in administrative labour cost, which increased by 69.4% year-on-year. During the period, only two production lines at the Jinjiang factory were operational, and the salary for redundant workers was booked in administrative expenses instead of cost of production.  

Finance expenses

Finance expenses during the period under review refers to foreign exchange losses.  The Group incurred an exchange loss of RMB 1.8 million during the period under review, as a result of the depreciation of the Hong Kong Dollar.  In the period ended 30 June 2013, the Group had a foreign exchange gain of RMB 2.5 million which was booked in the account of other income.

 

Other expenses

Other expense during the period under review refers to the loss following the disposal of old production lines that were used in the Shishi factory.

 

Income tax expenses

During the period under review, income tax expenses for the Group amounted to RMB 54.9 million (H1-2013: RMB 55.5million), including current income tax expenses RMB 53.9 million and deferred income tax expenses RMB 1.0 million.  The current income tax charge for the six months ended 30 June 2014 has been based on the standard corporate income tax rate of the PRC of 25%, being the same for the six months ended 30 June 2013.

 


Six months period ended

30 June

Year

Ended 31

December

Item

2014

2013

2013

Profit margin before tax

20.0%

22.6%

21.6%

Impact of income tax expense on net profit margins

 

-5.2%

 

-5.7%

 

-5.6%

Impact of deferred tax on net profit margins

-0.10%

-0.15%

-0.09%

Net profit margins

14.7%

16.8%

16.0%

 

Profit for the period

Profit for the period under review was RMB151.6million, representing a reduction of 4.8% year-on-year.  Basic earnings per share for the period under review was RMB 2.59, a decrease of 10.8% year-on-year.  The net profit margin for the period under review was 14.7%, and the reduced gross profit margin mainly contributed to the reduced net profit margin compared with the same period in 2013.

 

Balance sheet position

As of 30 June 2014, the Group's total assets amounted to RMB 1,649.3 million, total liabilities were RMB 222.8 million, and shareholders' equity rose to RMB 1,426.5 million.  The Group has no bank loans and no overdue debts.

 

Category

Six Months Period

Ended 30 June

Year Ended

31 December

2014

2013

2013

Asset-liability ratio

13.5%

15.1%

14.7%

Current ratio

665.6%

677.9%

609.4%

Proportion of current assets

85.7%

97.4%

85.4%

Proportion of shareholders' equity

 

86.5%

 

84.9%

 

85.3%

 

As of 30 June 2014, the Group's cash and cash equivalent was RMB 332.7million, down from RMB 468.3 million as at 31 December 2013.  The Group's cash was mainly deposited in the Agriculture Bank of China, which is one of the four largest stated-owned banks in China.  The effective interest rate for the Renminbi current deposits during the period under review was 0.35%.

 

Working capital management

The average working capital cycle for the six months ended 30 June 2014 was 119 days (year ended 31 December 2013: 102 days).  This was mainly due to the increase of trade receivable days when compared with six months ago.

 

Trade receivables rose significantly by 46.8% to RMB916.8million as at 30 June 2014 compared to six months ago, and the average trade receivable turnover days rose to 135 days during the period under review.  Due to the competitive market conditions, as of May 2014, the Company extended the credit terms to its distributors by an additional month to 120 days.  None of the trade debtors were considered impaired.  The Group believes that the support it provides to its distributors and retailers in running their stores network is important and it maintains close contacts with all the distributors and will continue to monitor all the debts.

 

The average inventory turnover cycle was 17days for the six months ended 30 June 2014, a further decrease from the level of in 2013 (20 days),which reflects relatively good stock control and management.  Inventory amounted to RMB 56.2 million, a decrease of 38.6% when compared with the RMB 91.6 million at 31 December 2013.

 

The average trade payable cycle was 33days for the six months ended 30 June 2014, compared with the 35 days for the year ended 31 December 2013.  This is due to timely payment to suppliers to secure quality and cost of raw materials.

 

Category

Six Months Period Ended

30 June

Year Ended

31 December

2014

2013

2013

Accounts receivable (average debtor days)

 

135

 

116

 

106

Inventory (days)

17

20

20

Accounts payable (days)

33

33

35

 

As at 30 June 2014, the balance of prepayments to suppliers was RMB 65.2 million, the same amountas at the year ended 31 December 2013.  The prepayments were upfront deposits paid to suppliers for the acceptance of orders and to establish long-term cooperation relationship.  The main reason for the relatively high level of prepayment to trade suppliers was to lock in favourable purchase prices with suppliers and avoid unfavourable fluctuation of raw material costs to secure the gross margin of products.

 

Employees and emoluments

As at 30 June 2014, the Group employed a total of 1,029 (H1-2013: 2,320) full time employees in the PRC which included management and administrative staff, R&D staff, sales persons and workers.

 

For the six months ended 30 June 2014, the Group's total remuneration of employees (including non-executive directors) was RMB 23.9 million, representing 2.3% (H1-2013: 4.1%) of the turnover of the Group.  The Group's emolument policies, based on the performance of individual employees, are formulated to attract talent and retain quality staff.  Discretionary bonuses are awarded to employees according to individual performance.  The Group believes its strength lies in the quality of its employees and has placed a great deal of emphasis on benefits offered to employees.


Commitments and contingencies

As at 30 June 2014, the Group had not provided any form of guarantee for any company outside the Group.  The Group is currently not involved in any litigation matters and is not aware of any pending or potential material legal proceedings relating to the Group.

 

Financial management policy

The Group continues to maintain a prudent approach to financial risk.  The directors recognise the value of the UK Corporate Governance Code ("the Code"), and whilst under AIM Rules full compliance is not required, the directors believe that the Company applies the recommendations insofar as is practicable and appropriate for a public company of its size.  The Group's business is principally conducted in RMB, so the impact of exchange rate risk on Group activities is limited.  The Group does not take positions with financial instruments for hedging purposes.  The Board does, however, continue to monitor foreign exchange risk, and is prepared to implement prudent risk-reduction measures such as hedging as and when necessary.

 

Significant investments and acquisitions

During the period under review, the Group has made no major investments or any material acquisition or disposal of any subsidiaries or businesses.  The Group will, however, continue to seek business opportunities such as cooperation with international business partners to increase returns on shareholders' equity.

 

 

Li Zhen

Chief Financial Officer

11 September 2014

Unaudited condensed consolidated statement of comprehensive income

For the six month period ended 30 June 2014

 



Six months

ended

30 June 2014

Six months

ended

30 June 2013

Year

ended

31 Dec 2013


Notes

Unaudited

Unaudited

Audited



RMB'000

RMB'000

RMB'000






Revenue

3

1,029,912

950,080

1,927,967

Cost of sales


(765,971)

(684,582)

(1,392,483)

Gross profit


263,941

265,498

535,484

Other income


888

3,376

1,985

Selling and distribution expenses


(39,013)

(40,726)

(90,403)

Administrative expenses


(16,911)

(13,369)

(29,027)

Finance expenses


(1,798)

-

(924)

Other expenses


(647)

-

-

Profit before taxation


206,460

214,779

417,115






Income tax expense

4

(54,898)

(55,496)

(109,332)






Profit after taxation for the period attributable to equity holders


151,562

159,283

307,783

Other comprehensive income, net of tax

Exchange differences on translating foreign operations


 

 

 

1,667

 

 

 

(2,608)

 

 

 

784

Total comprehensive income for the period attributable to equity holders of the parent


 

 

153,229

 

 

156,675

 

 

308,567






Earnings per share (RMB)

7




Basic


2.59

2.90

5.54

Diluted


2.54

2.84

5.42

 

 

Unaudited consolidated statement of financial position as at 30 June 2014

 

 






 

 

 

 

 

 

 

 

Notes

As at

30 June

2014

As at

30 June

2013

As at

31 December

2013








Unaudited

Unaudited

Audited



RMB'000

RMB'000

RMB'000

Assets





Non-current assets





Property, plant and equipment


132,731

10,245

105,202

Intangible assets - land use rights


97,500


97,500

Long-term prepayment


6,132

24,227

15,179



236,363

34,472

217,881

Current assets





Inventories


56,211

83,521

91,606

Trade and other receivables


1,024,094

821,298

713,395

Cash and cash equivalents


332,658

389,754

468,281



1,412,963

1,294,573

1,273,282

Total assets


1,329,045

1,491,163

Equity and liabilities





Current liabilities





Trade payables


141,784

120,034

137,872

Other payables and accruals


36,484

36,923

42,674

Amount due to shareholders


3,235

2,155

4,228

Income tax payable


30,769

31,869

24,168






 


212,272

190,981

208,943 

 

  




Non-current liabilities

Deferred income tax liabilities

 


10,547

9,306

9,564

Total liabilities

 

 


222,819

200,287

218,507

Capital and reserves





Stated capital account

5

77,667

54,314

77,667

Reserves

5

184,853

148,012

183,186

Retained earnings


1,163,987

926,432

1,011,803

Total equity attributable to equity holders of the parent


1,426,507

1,128,758

1,272,656






Total equity and liabilities


1,649,326

1,329,045

1,491,163

 



Unaudited condensed statement of cash flows

For the six month period ended 30 June 2014

 


Six months

ended

30 June 2014

Six months

ended

30 June 2013

Year

ended

31 Dec 2013






Unaudited

Unaudited

Audited


RMB'000

RMB'000

RMB'000

Cash flows from operating activities








Profit before taxation for the period

206,460

214,779

417,115





Adjustments for:




Depreciation of property, plant and equipment

9,991

10,370

21,063

Interest income

(888)

(837)

(1,691)





Operating profit before working capital changes:

215,563

224,312

436,487

Changes in working capital




(Increase)/decrease in inventories

35,395

(18,693)

(26,777)

Increase in trade and other receivables

(307,761)

(214,429)

(101,183)

(Decrease)/increase in trade payables

3,912

(14,561)

3,277

Increase/(decrease) in accruals and other payables

(6,193)

1,914

7,666

Cash generated from/(used in) operating activities

(59,084)

(21,457)

319,470

Interest received

888

837

1,691

Income tax paid

(47,313)

(42,628)

(103,907)

Net cash (used in)/generated from operating activities

(105,509)

(63,248)

217,254





Cash flows from investing activities




Acquisition of property, plant and equipment

(800)

(1,000)

(89,602)

Purchase of land use rights

(30,000)

-

(105,500)

Disposal of fixed assets

1,680

-

-

Net cash used in investing activities

(29,120)

(1,000)

(195,102)





Cash flows from financing activities




(Repayments to) / advances from shareholders

(994)

1,096

3,169

Dividends paid

-

-

(9,946)

Net cash (used in) / from financing activities

(994)

1,096

(6,777)





Net (decrease) / increase in cash and cash equivalents

(135,623)

(63,152)

15,375





Cash and cash equivalents at the beginning of the period

468,281

452,906

452,906





 

Cash and cash equivalents at the end of the period

332,658

389,754

468,281





 


Unaudited condensed consolidated statement of changes in equity

For the six month period ended30 June 2014

 


Stated

capital

account

Statutory

reserve

Retained

earnings

Reconstruction

reserve

Foreign

currency

translation

reserve

Total equity attributable to

equity holders

of the parent


RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000








Balance at 1 January 2013

54,314

116,547

767,149

31,415

2,658

972,083

Profit for the period

-

-

159,283

-

-

 

159,283

 

Other comprehensive income:







Exchange differences on translation of foreign operations

-

-

-

-

(2,608)

 

(2,608)

Total comprehensive income for the period

-

-

159,283

-

(2,608)

 

156,675

Balance at 30 June 2013

54,314

116,547

926,432

31,415

50

1,128,758

 

 


Stated

Capital

account

Statutory

reserve

Retained

earnings

Reconstruction

reserve

Foreign

currency

translation

reserve

Total equity

attributable to

equity holders

of the parent


RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000








Balance at 1 January 2014

77,667

148,329

1,011803

31,415

3,442

1,272,656

Profit for the period

-

-

151,562

-

-

151,562

 

Other comprehensive income:







Exchange differences on translation of foreign operations

-

-

-

-

1,667

1,667

Total comprehensive income for the period

-

-

151,562

-

1,667

153,229

Share based payments



622



622

Balance at 30 June 2014

77,667

148,329

1,163,987

31,415

5,109

1,426,507


Notes to the financial information

 

1

General information

 

The Company was incorporated in Jersey, the Channel Islands, on 15 December 2011.  The Company's registered office is at 26 New Street, St Helier, Jersey JE4 9WG, Channel Islands.  The nature of the Company's operations and its principal activities are to act as the holding company of a group engaged in the design, manufacture and supply of Naibu branded sports shoes and the design and supply of Naibu branded clothing and accessories.

 

2

Basis of preparation

 

The financial information for the six months ended 30 June 2014 set out in this interim financial information is unaudited and does not constitute statutory financial statements.

 

The financial information for the year ended 31 December 2013 set out in this interim financial information does not comprise the Group's statutory financial statements.  The consolidated results of the Company for the year ended 31 December 2013 have been audited.  The auditor has expressed an unqualified opinion on those financial statements in their report dated.

 

The interim financial information has been prepared in accordance with the principles of International Financial Reporting Standards as adopted by the European Union ("IFRSs").  The standards have been applied consistently (except as otherwise stated).

 

The principal accounting policies used in preparing the interim results are those the Group expect to apply in its financial statements for the year ending 31 December 2013 and are consistent with the principles of those applied in the financial statements of the Company for the year ended 31 December 2012.

 

The preparation of the interim financial report in conformity with the principles of IFRSs, requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis.  Actual results may differ from these estimates.

 

The interim financial report contains consolidated financial information and selected explanatory notes.  The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance since the financial statements for the year ended 31 December 2013. The interim financial report thereon does not include all of the information required for full set of financial statements prepared in accordance with IFRSs.

 

The directors approved the interim financial information for the six months ended 30 June 2014 on 11 September 2014.

 

Copies of this interim financial information will be available on the Company's website.

 

3

Turnover and segment reporting

 

(a) Turnover

 

The principal activities of the Group are design, manufacturing and trading of sporting goods and leisure wear, including shoes, apparels and accessories in the PRC.  Turnover represents the sales value of goods sold less returns, discounts and value added taxes and other sales taxes, which are analysed as follows:

 


Six months

ended

Six months

ended

Year

ended


30 June 2014

30 June 2013

31 Dec 2013


RMB'000

RMB'000

RMB'000





Shoes

551,657

507,073

1,033,431

Apparels

455,320

422,267

828,789

Accessories

22,935

20,740

65,747


1,029,912

950,080

1,927,967

  

 

The Group's customer base is diversified.  For the six months ended 30 June 2014, there was only one customer with whom the transaction has exceeded 10% of the Group's turnover (H1-2013: One).  The percentage of sales to this customer accounted 10.1% of total turnover during this period. (H1-2013: 10.7%)

 

(b) Segment reporting

 

The Group has adopted IFRS 8, Operating Segments for the June 2013 interim reporting. IFRS 8 requires that segments represent the level at which financial information is reported to the Board of directors ("The Board") of the Group, being the chief operating decision maker as defined in IFRS 8.  The Board consists of the Chairman, the Chief Executive Officer, the Chief Financial Officer and the independent director.  The Board determines the operating segments based on reports reviewed and used by the Board for strategic decision-making and resource allocation.

 

Segment information is presented in respect of the Group's geographical and operating segments.  The Group's operating segments are as follows:

 

(i)         Shoes

(ii)        Apparel and accessories

 



Operating segments - Six months ended 30 June 2014

 







Shoes

Apparel and

accessories

Head office

and other

adjustments

Consolidated


RMB'000

RMB'000

RMB'000

RMB'000






Revenue

551,657

478,255

-

1,029,912

Gross profit

130,457

133,484

-

263,941

Profits before taxation

101,853

109,247

(4,640)

206,460

Taxation

29,405

25,493

-

54,898

Net profits after tax

72,448

83,754

(4,640)

151,562

Segment assets

557,677

529,791

561,858

1,649,326

Segment liabilities

120,990

83,968

17,861

222,818

Other income

476

412


888

Finance expenses

-

-

1,798

1,798

Depreciation and amortisation

5,609

4,382

-

9,991

Capital expenditure

30,429

371

-

30,800

 

Operating segments - Six months ended 30 June 2013

 







Shoes

Apparel and

accessories

Head office

and other

adjustments

Consolidated


RMB'000

RMB'000

RMB'000

RMB'000






Revenue

507,073

443,007

-

950,080

Gross profit

135,164

130,334

-

265,498

Profits before taxation

108,004

106,604

171

214,779

Taxation

29,619

25,877

-

55,496

Net profits after tax

78,385

80,727

171

159,283

Segment assets

493,834

435,358

399,853

1,329,045

Segment liabilities

113,304

70,595

16,388

200,287

Finance income

444

388

2,544

3,376

Depreciation and amortisation

5,906

4,464

-

10,370

Capital expenditure

534

466

-

1,000

 

 

 

Operating segments - Year ended 31 December 2013

 







Shoes

Apparel and

accessories

Unallocated

and other

adjustments

Consolidated


RMB'000

RMB'000

RMB'000

RMB'000






Revenue

1,033,431

894,536

-

1,927,967

Gross profit

272,265

263,219

-

535,484

Profit before taxation

212,799

211,490

(7,174)

417,115

Taxation

58,604

50,728

-

109,332

Net profit after tax

154,195

160,762

(7,174)

307,783

Segment assets

575,358

442,356

473,449

1,491,163

Segment liabilities

109,736

90,394

18,377

218,507

Other income

1,200

785

-

1,985

Finance expenses

4

3

917

924

Depreciation and amortisation

12,030

9,033

-

21,063

Capital expenditure

97,601

1

-

97,602

 



 

4

Income tax expense

 

The income tax charge for the six months ended 30 June 2014 has been based on the standard corporate income tax rate of 25%, being the same for the six months ended 30 June 2013.

 

Deferred tax for the Group is a result of the tax treatment for dividend payments.  Pursuant to prevailing PRC tax laws and regulations, dividends distributed to a foreign investor by Foreign Invested Enterprises ("FIE") in the PRC are subject to a withholding tax of 5% to 10%.  Deferred tax liabilities arising from such tax rules are recognised to the extent that the management intends to distribute dividends from retained earnings.  The PRC corporate rules stipulates that FIE should provide 10% of the current year profit for the reserve fund, and the remaining 90% can be used for distribution to investors.  During the period, the deferred tax calculation of Group is based on 10% of the retained earnings which can be distributed to investors.

 


Six months ended 30 June


2014

2013


RMB'000

RMB'000




PRC income tax

53,480

54,051

PRC withholding tax

435

-

Total current tax

53,915

54,051

Deferred tax

983

1,445

Total income tax charge

54,898

55,496

 

 

5

Capital and reserves

 

(a) Stated capital account

For the six months ended 30 June 2014, no ordinary shares of no par value were issued.  Therefore, the stated capital account remained unchanged from 31 December 2013: the number of ordinary shares in issue was 58,576,611 with the stated amount of RMB 77,667,000.

 

(b) Statutory reserve

Pursuant to applicable PRC laws and regulations, the subsidiary of the Company established in the PRC is required to appropriate 10% of its profit after taxation (after offsetting prior year losses) to the statutory reserve until such reserve balance reaches 50% of the respective registered capital.  The transfer to the reserve must be made before distribution of dividends to shareholders.  The statutory reserve can be utilised, upon approval by the relevant authorities, to offset accumulated losses or to increase paid-in capital of the subsidiary, provided that the balance after such issue is not less than 25% of its registered capital.

 

(c) Reconstruction reserve

Reconstruction reserve arises from the reorganisation of the group structure during the year.

 

(d) Foreign currency translation reserve

Currency translation reserve represents translation differences arising from translation of functional currency financial statements into the Group's presentation currency.

 

6

Share options and warrants

 

(a)  Share options

The Group has established a share option scheme for Directors of the Group.  The share option scheme is administered by the Remuneration Committee.

Details of the share options outstanding at the period end are as follows:


Number

30 June 2014

Exercise Price

30June 2014

Number

30 June 2013

Exercise Price

30 June 2013

Outstanding at 1 January

645,161

124p

-

-

Granted during year

-

-

645,161

124p

Outstanding at 30 June

645,161

124p

645,161

124p

Exercisable at 30 June

-

-

-

-

The options were issued to Giles Elliott, and will vest in three equal tranches on 30 March 2014, 30 March 2015 and 30 March 2016.  The options can be exercised from 30 March 2014 and will expire on 30 March 2022.

A charge of RMB 622,279 (H1-2013: RMB nil) has been recognised in the statement of comprehensive income within administrative expenses on a pro-rata basis over the vesting period for the year relating to these options.

These fair values were calculated using the Black Scholes option pricing model. The inputs into the model were as follows:


Share Options

granted 30

March 2012

Options Granted

645,161

Stock price

124p

Exercise price

124p

Risk free rate

0.35%

Volatility

50.05%

Time to maturity

10 years

 

 

(b) Warrants

 

On 30 March 2012, the Group executed a warrant instrument to create and issue warrants to Daniel Stewart Securities plc to subscribe for an aggregate of 548,387 ordinary shares. The warrants will expire five years after admission and were exercisable immediately at the placing price of 124p. The ordinary shares to be allotted and issued on the exercise of any or all of the warrants will rank for all dividends and other distributions declared after the date of the allotment of such shares but not before such date and otherwise pari passu in all respects with the ordinary shares in issue on the date of such exercise allotment.

These fair values were calculated using the Black Scholes warrant pricing model. The inputs into the model were as follows:


Warrants

issued 30

March 2012

Warrants Granted

548,387

Stock price

124p

Exercise price

124p

Risk free rate

0.35%

Volatility

50.05%

Time to maturity

5 years

 

A charge of RMB nil (H1-2013: RMB nil) has been recognised in equity for the period within stated capital with an equivalent increase in stated capital.

 

 

 

7        Earnings per share

 

(a) Basic

 

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period:

 


Six months

ended

Six months

ended

Year

ended


30 June

2014

30 June

2013

31 December

2013


RMB'000

RMB'000

RMB'000





Profits attributable to equity holders of the Company (RMB'000)

151,562

159,283

307,783

Weighted average number of ordinary shares in issue ('000)

 

 

58,577

 

 

54,839

 

 

55,589





Profit per share (RMB)

2.59

2.90

5.54

 



 

Diluted earnings per share is calculated by adjusting the weighted number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares during the period.

 


Six months

ended

Six months

ended

Year

ended


30 June

2014

30 June

2013

31 December

2013


RMB'000

RMB'000

RMB'000





Profit attributable to equity holders of the Company (RMB'000)

 

151,562

 

159,283

 

307,783

Weighted average number of ordinary shares in issue ('000)

 

 

59,770

 

 

56,033

 

 

56,782





Profit per share (RMB)

2.54

2.84

5.42

 

The weighted average number of shares for the purposes of diluted earnings per share include approximately 1.2 million options of shares granted to Giles Elliott and Daniel Stewart Securities Plc as part of the IPO process.  The share options have an exercise price of £1.24 and expire after five years.

 

 

8

Significant related party transactions

In addition to the transactions and balances detailed elsewhere in this report, the Group had the following transactions with related parties at agreed rates:

 

(1)  Transaction with related parties

 


30 June


2014

2013


RMB'000

RMB'000




Rental paid to a related party(a)

480

480

Other receivable from a related party(a) (deposit payment)

 

5,100

 

10,100

Remuneration of Ms. Lin Zhenzhi(b)

68

68

 

(a)Related party relates to Fujian Jun Xiang Bags Co., Ltd. (formerly known as Quanzhou Naibu Sports Co., Ltd) in which a director, Mr Lin Huoyan was the shareholder in 2008 and 2009.  Mr Lin Huoyan transferred his shareholding to his mother in 2010.

 

The transaction for the acquisition of factory premise owned by the related party Fujian Jun Xiang Bags Co., Ltd. did not take place and was cancelled in 2012.  The deposit for the property acquisition RMB 10 million has been partly returned to the Company and the rest RMB 5 million was transferred to the deposit of long-term lease payment for the property. The remaining RMB 5 million has been returned to the Company on 26 August 2014.

 

(b) Ms. Lin Zhenzhi is the finance director of the Group's operating subsidiary Naibu China Co., Limited and she is Mr. Lin Huoyan's sister.

 



 

(2)  Remuneration of group directors

 

Directors' remuneration

  (inclusive of retirement scheme contribution)

Six month period ended 30 June


2014

2013


RMB'000

RMB'000




-       Mr. Lin Huoyan

900

900

-       Mr. Lin Congdeng

798

798

-       Ms. Li Zhen

246

246

-       Mr. Giles Elliott

309

287

-       Mr. David Thomas

206

191

-       Mr. Stephen Cheung

206

191

-       Mr. Chi Keung (Kenny) Law(c)

-

316




(c) On 22 January 2013, Mr. Kenny Law resigned from the board and the position of CFO and decided to return to Singapore.  On the same day, the Company announced the appointment of Ms. Zhen Li, as Mr. Law's successor as CFO of the Company.  The remuneration of Mr. Kenny Law paid during the period ended 31 December 2013 also included the amount of SGD 50,000 as a listing bonus.

 

9

Dividends

 

Dividends disclosed represent dividends on ordinary shares declared and paid by the Company to its equity holders.

 

The Company has declared a final dividend for the year ended 31 December 2013 of 4 pence per share.  The dividend was paid on 15 August 2014 by the Company.  To those shareholders who elected for a scrip dividend, the Company has issued a total of 1,972,759 new ordinary shares of no par value.

 

The Company has resolved not to pay an interim dividend in respect of the period ended 30 June 2014.

 

10

Non-adjusting events after the reporting period

Except for the interim dividend as set out in Note 9 above, there is no other non-adjusting event after the reporting period.

 

 

- Ends -


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