ANTA Sports Products Limited (2020) Earnings Call Transcript & Summary

No matter whether you are on the phone or on the web Global Investors on webcast, good afternoon. Welcome to the 2021 Annual Results Presentation of ANTA Sports Products. I would first introduce our management in attendance, Chairman and CEO, Mr. Ding Shizhong Greetings, Executive Director and CFO, Mr. Lai Shixian, Executive Director, Vice President and Outdoor Sports brand of Mr. James Zheng; Greetings, Executive Director; Mr. Wu Yonghua -- in today's presentation, Mr. Lai will first present the 2021 full year financial performance. Then Zheng will present a business review and outlook. And then there will be a Q&A session. Mr. Ding and the rest of the management will take questions from investors. We will first take questions over the phone, and then we will take online webcast questions. First, let me invite Mr. Lai to go through our 2021 excellent performance. Mr. Lai, please.

Investors, Good afternoon. Now let me first report to you our group's 2021 financial review. In 2021, when the pandemic was volatile and the overall consumption environment was weak. Well, if you look at our various indicators, we have reached a record high -- there are 5 highlights which are rather outstanding. First, our revenue increased 38.9% to RMB 49.32 billion, maintaining industry-leading position in China. Number two, revenue of all other brands increased 51.1% year-on-year to RMB 3.49 billion. And operating profit increased 2.3x to RMB 640 million, becoming another growth driver of the group. Three, free cash inflow of the group increased by 56.5% year-on-year to CNY 10.37 billion and cash position at the end of the year increased CNY 4.23 billion to more than RMB 24 billion, which is cash on hand. Number four, EBITDA of the JV holding Amer Sports business increased significantly by 46.6% to RMB 2.37 billion. Share of loss to the group greatly reduced from CNY 600 million in 2020 to CNY 81 million. Revenue and operating profit from the continuing operations of Amer Sports in relation to the core brands business exceeded pre-pandemic levels in 2019 and hit a record high. Number five, the proposed final dividend is HKD 0.68, which is the same as the total dividend per share in 2020. Dividend payout ratio for the financial year is 45.6%, which is also the highest since we acquired Amer Sports. -- and very stable return is being delivered to shareholders. In terms of our revenue in 2020 we're up 38.9% in revenue. ANTA almost RMB 24 billion, up from 52.5%. FILA revenue was CNY 21.8 billion, up 25.1% for other brands, CNY 3.49 billion, up 51% -- more than 51%. for ANTA brand business growth, there are a few main drivers. First, online business developed very rapidly. In 2020, when the base was high, there is still a growth of 61.6%. And then starting second half of 2020, we started the DTC model, and there was some impact as a result. And number three, even though the pandemic was volatile, the retail market was also not stable. ANTA brand was going quarter-after-quarter. And consumers also like the brand and customer demand roles, retail discounts decreased. These are the reasons driving up the brand revenue of ANTA, more than 50%. FILA brand revenue increased by 25.1% mainly because of fast growth of e-commerce business, even though the base is high. And then FILA Brand performance continued to be stable. Retail discount decreased slightly. For all other brands, DESCENTE and KOLON sports, revenue increased by more than 50%, and operating profit margin reached record high. So this shows that -- the growth potential is gradually being released for these brands. For gross profit margin, up 3.4 percentage points to 61.6%. That's for the whole group. ANTA DTC model has caused some impact to that. ANTA and FILA and other brands performed well in terms of retail discount comparing with 2020. If you look at different brands, ANTA brand GP margin, 52.2% to 7.5% GP margin, all other brands, 71% GP margin. So comparing with 2020, there was increase. Operating profit margin, down 3.5 percentage points to 22.3%. On one hand, this is mainly because ANTA business DTC model, accounting for higher and higher share. So as a result, OP margin was driven downward because of the -- because of some selling costs, but then the profit margin is still high, but then retail discount has not reached a higher level. Another reason in 2020 there was promotion because of Olympic Games. And so advertising and promotion expenses increased. So even though GP margin was up 3.4 percentage points, OP margin came down. Operating expenses ratios, A&P expenses, up 2.4 percentage points to 12.4% because of the Tokyo 2020 Olympic games and FILA's high-end advertising and brand building campaigns. So this expense increased. Staff costs increased 1 percentage point to 13.5% because of retail business expanded and also -- we offered better salaries and wages to attract better talent to join, so staff costs increased. R&D cost as percentage of revenue was down 0.2 percentage points to 2.3% because of expansion in scale. We attach much importance to R&D. So we made a lot of investment that still increased fast. So this expense ratio came down a bit share of loans of JV and also profit attributable to equity shareholders from CNY 600 million to CNY 81 million. This is the share of loans of JV. So margin of profit attributable to equity shareholders, up 1.2 percentage points to 15.7%. This is because of decrease in effective tax rate and also mainly because of the decrease in loss , the big decrease in loss from Amer. Working capital management, average inventory turnover of 5 days to 127 days because ANTA-retail operation scale expanded -- so that's why some inventory was added, the business model changed. But then overall speaking, inventory management and credit situation of the group is very good. Average trade receivables turnover down 13 days to 26 days. This is because of increase in scale and person, the direct operation accounted for a bigger share. So that's the reason. Average trade payables turnover down 13 days to 53 days. This is also a normal turnover under the trade conditions. Usually, credit period is 30 to 60 days with the supplier liquidity. In 2021, free cash flow RMB 10.4 billion operating cash inflow, CNY 11.9 billion, up 59% year-on-year. This shows that we are strong in cash generating capability. At the end of the period, net cash was RMB 11.4 billion. After deducting all the debt and convertible bonds, we have net cash of CNY 11.4 billion comparing with the end of 2020, which was CNY 5.9 billion. We are 100% up. So this is my brief report on financial performance. Thank you.

Thank you, Mr. Lai, for the presentation. So we have high days and big total. And so we showed positive growth over 8 consecutive years. This is the result of our hard work. Now Mr. Zhang will go through our increase, especially our high-quality growth. Mr. Zhang, please.

Good afternoon, everyone. Let me briefly report to you our 2021 operations. First of all, let's take a look at the overall economy in 2021. In 2021, there was still some impact from the pandemic on our economy. The overall Chinese economy for the whole year showed 8.1% growth year-on-year. There's also 12.5% growth in retail sales of consumer goods in China. That means our overall economy is still stable. Last year, in 2021, well, it was a year of 2 Olympic Games, the Tokyo Olympic and Beijing Winter Olympics. And so this gives a big push to the sportswear market. At the same time, during Beijing Winter Olympics, well, -- there was the 300 million people joining the winter sports in terms of Isando.So I think for sportswear industry, I think this is a very positive situation. From 2021, we realized that the China sportswear industry shows 5 important characteristics. First, rise of domestic brands. So these quartile products are very well received. -- popularity of course, shall continues, and the trends of patriotic consumption is recurring. It is becoming the normal. Number two Chinese brands did technological innovation, and they have now stronger R&D capability. And if you look at products, -- they are actually on par with global brands. And then there is a part of winter Olympics as a result. There is hard development of [indiscernible] [iconopots] in China. And then for the development of the industry up till now, there is more and more personalization and segmentation trends especially on the high-end professional and niche areas. Demand increases year-after-year. In 2021, we can see multilevel online platform. So you know its very outstanding. So e-commerce layouts experienced major change. So we now have more choice. So for sportswear market, when we are having this backdrop, we can see that in the past 10 years, the top 5 brands' market share for the first time came down. This shows that diversification in the market is happening. Another thing is for ANTA Group, if you refer to our results presentation today, given this intense competition in the market, our overall market share still increased steadily. In 2021, our group's market share is #1 -- #2. And then if you look at the 3 dimensions of customers, products and channels, women's products in the market has become the main vessel field of sportswear brands. And then for Kidswear, the growth rates of sports of kids also developed fast. Even though for FILA kidswear, the situation is still rather diversified. And then I talked about [indiscernible] our products and high-end outdoor sports wine market, which is being very diversified. So consumers off-line focus more on good, high-quality experience and brand experience e-commerce diversify competition. So given all these characteristics, let's take a look at the performance of various brands in 2021. ANTA brand, in 2021, we introduced a lead to win acceleration plan. And then with the 2 Olympic games, we introduced the concepts Sports for Life and Sports for China. And with the support of the 2 Olympic games, especially the Beijing Olympic Winter Games, our overall reputation rate and also brand awareness was much enhanced. We provided 12 Chinese Winter Sports team with competition outfits and then -- in terms of number of medals won, again, we have made a historical breakthrough. So people support Winter Games a lot. And so ANTA and its professional attributes is being highly regarded by consumers. In 2021, if you look at our basketball category, we have also achieved breakthrough. Basketball shoes overall sales reached record high. We are #1 in the market in sales volume. Well, even though Klay Thompson was absent from the NBA for 3 season, our KT series was still a consumer favorite. In 2021, our D2C transformation continues to be deepened. At the end of 2021, we have 6,000 stores in the D2C model and 52% of them are directly operated by us and overall operating efficiency can be compared to some good sportswear retailers. So in the first stage, our D2C transformation had made good success. And then under the Winter Olympic Games -- but I would like to share with you 2 more numbers. Through the Winter Olympics, one big breakthrough is in Tier 1 cities. Our consumers, especially the high-end white-collar worker consumers have given a good number, 20% to 30% growth. So the overall brand was enhanced -- so we have achieved a big success in this regard. Besides in professional running shoes promotion, we also achieved very outstanding results. So for ANTA main brand in 2021, we are confident. Not only did we achieve a good result in terms of market share, a leading position, while for our overall brand reputation, word of mouth, it has been greatly enhanced. ANTA Kids. In 2021, we continue to strengthen our leading position in kids sportswear. So we are making ourselves a professional sportswear brand and professional sportswear products have also entered the KIDS wear the KIDS Series. So the children in the daily activities can get the best protection and support. In 2021, for ANTA KIDS, we have made important breakthrough, especially our footwear products. In 2021, our footwear products accounted for 45% share. And the sales volume exceeded 15 million pairs. For ANTA KIDS in 2021, in the KIDS sportswear market, achieved very good results. FILA, in 2021 annual growth was 25%. And then we have 3 major strategies: top-quality products, branding and handles. In 2021, we kept on developing our own products in the at-leisure, high-end at-leisure area. And we reinforced our credibility So with different celebrities all over the world, including Gianna Jun,Lay Zhang,Gao Yuanyuan,Ni Ni,Jiang Shuying Well, they serve as our endorsers for FILA. And then we also work on crossover series so as to promote the high-end segment and quality enhancement. For FILA, apart from the main brand, there's also FILA KIDS, and it achieved good breakthrough in 2021. For FILA KIDS in the high-end children's products segment, FILA KIDS already became a leader in the segment. DESCENTE, as Mr. Lai just mentioned, it is a Japanese high-end professional sportswear product in 2021. Overall development saw rapid growth on the basis of 2020 for DESCENTE. So we are in golf, i don't know and then in high-end professional area, sports area, we built a very strong credibility. Last year, in Q4, we launched the [indiscernible] outfits. So in that area, DESCENTE has built a leading position in [indiscernible] no outfit. And in 2021, our store efficiency exceeded 1 million. We have 180 stores. And for our stockholder 50 more than 1 million, there are 33 stores with productivity over CNY 20 million. So DESCENTE is now in -- is now a high-end elite. And it is the premium professional sports brands. For KOLON SPORT in 2021 for the first time, sell-through -- retail sell-through exceeded CNY 1 billion. And it has stepped on to a healthy development path, high-end outdoor lifestyle positioning of KOLON in such that it is for outstanding in the outdoor lifestyle area. It's product unique characteristics, especially in the outdoor segment are well liked by Northern consumers. Besides in other regions in 2021, we also made important breakthrough. We sponsored Chen Kun and Liu Shishi under KOLON, they are our brand and daughters. So with their influence, we're able to enhance our image and also our credibility in the light outdoor segment. So we believe that on the basis of 2021, in 2022 and in the future, we will see better development for KOLON SPORT. In 2021, our distribution network and also store count has not increased a lot. For ANTA store counts, there's a decrease. FILA, more or less the same as in 2020, but our business results up almost 39%. So this shows that our channel upgrading has been realized. We pay attention -- in 2021, the quality of the overall Channel, not quantity, store productivity and efficiency is the most important indicator in our store operations to drive improvement of store operation quality. So for our distribution network in 2021, experienced a very good upgrading and efficiency also improved well. Then e-commerce business. Within the year, e-commerce business contributed to 34.2%, up 61.6% year-on-year. So we are still on the high-speed development track for e-commerce. For our e-commerce platform, by means of digital allocation of resources, now we are very high in efficiency. Our operating model is also much better than the past. Social e-commerce has seen important breakthrough. So public traffic to private soothing where we have made a lot of terms so that our e-commerce business in 2021 performed very well, highly successful. Supply chain platform. 2021, our supply chain structure still has its core in inland China. So platform efficiency, well, was affected by the pandemic to a certain extent. But overall supply chain efficiency and supply capabilities have been well insured. So in 2021, business and also retail sell-through growth enjoyed some good momentum. So just now I presented about our group's direction in 2021. I gave you a very brief report then for Amer Sports. Just now Mr. Lai also said that in 2021, comparing with 2019 before the pandemic, our various businesses achieved growth, especially the 3 main brands, Salomon, Wilson and Arc'teryx. So in our core markets, all these brands achieved good breakthrough. In the Chinese market, Arc'teryx made very important and significant progress. So in 2021 and thereafter, we have good expectations concerning Amer Sports. Looking Into 2022, in 2021, we laid a strong foundation, and we will still continue our single-focus multiple brands and diversified arrangement to enhance our overall brand operation capability. So we will upgrade and break through in terms of ANTA and then FILA's high quality growth, digital transformation and organization and talent upgrades, these are the 4 must-win battles. In this way, we will enhance our operating capability. And now the pandemic is so uncertain, so for the whole group in January and February our results were better than expectation, but March was quite challenging. So when the pandemic is still uncertain, we are still very active and positive. We use our mature operating system to face up to uncertainties in the market. So regarding 2022 if there is no major pandemic outbreak in 2022, we should be able to complete all the targets for 2022. So that's all for me. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]