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

Distinguished investors, good afternoon. Welcome to the investor presentation session on ANTA Sports. We just announced the interim results so we are still growing at a high rate and achieved results that exceeded expectations of the market. Before the presentation, we have prepared an interim results video. Please enjoy. [Presentation]

Now let me introduce our management in attendance. Chairman and Executive Director, Mr. Ding Shizhong; Executive Director and Joint CEO, Mr. Lai Shixian; Executive Director and CEO, Mr. Wu Yonghua; Executive Director, Mr. Zheng Jie; and, Executive Director and CFO, Mr. Bi Mingwei. In today's presentation, Mr. Bi will first introduce the interim results and financial performance. After that, Mr. Lai will go through a business review and outlook. Finally, in the Q&A. Mr. Ding, together with other Members of the management will take your questions. Now may I invite Mr. Bi to go through the 2023 1st half financial results. Mr. Bi, please.

Investors, good afternoon. I'm very happy to meet you all here physically. Now I'm going to present to you the main financial performance in the first half of 2023, and I will also do some analysis. The group strategy of single-focus multiple brand globalization showed strong performance on the back of economic recovery. In the first half 2023, overall revenue increased by 14.2% year-on-year to RMB 29.65 billion compared with same period of 2019, our overall revenue more than doubled. Every brand achieved high-quality growth. In the first half this year, operating efficiency has improved, operating profit margin increased by 3.4 percentage points year-on-year to 25.7%. So this actually reached a very high, very good historical level of our group. Profit attributable to shareholders, excluding Amer Sports loss, well, it is an increase and profit is RMB 4.75 billion, up 32% year-on-year. This year, for Amer Sports joint venture, it has achieved good results. Revenue was up 37% to RMB 13.27 billion, EBITDA increased by 150%. This revenue level is the best level since acquisition. In the first half, our operating cash flow is RMB 10 billion. Same period last year, RMB 5 billion, so a year-on-year increase of 100%. This is because of our very good control of receivables and inventory in the first half. So after B2C transformation, you can see that this is a very good cash-generating capability. Our overall revenue up 14.2% at RMB 29.6 billion and if we look at different brands: FILA, RMB 11.2 billion, up 13.5%; ANTA, RMB 14.17 billion up 6.1%; all other brands, RMB 3.2 billion, up 77.6%. So overall, up 14.2%. So overall speaking, our revenue is rising steadily. Gross profit, 63.3%, gross profit margin up 1.3 percentage points. For ANTA, 55.8%, up 0.7 percentage points for ANTA gross profit improvement that is because B2C's share has increased. FILA brand GP margin, 69.2%, up 0.6 percentage points. At the beginning of the year, we said that starting from last year, FILA had lowered inventory. And this year for new product sell-out rate is high. So discount has improved, so GP margin improved. All other brands, GP margin, 73.4%. So this -- there is some impact from impairment of inventory. Apart from that factor, overall speaking, GP margin for other brands is rising steadily. Operating profit margin, 25.7%, up 3.4 percentage points. Let me explain for operating profit margin improvement, the main reason is that at the retail end because store efficiency has improved and our staff costs decreased. Store and manpower efficiency went up. For the ANTA brand, the store productivity rose a high single digit on a year-on-year basis, FILA shop productivity, high double-digit improvement. FILA's store productivity is almost RMB 1 million, so this is a benefit derived from the business model of the group. So now retail accounts for a bigger share and on the retail end after Covid'19 all the physical stores resumed operations, store productivity improved. So that's why there is this satisfactory operating efficiency. And then operating expenses. A&P expenses, down 3.2 percentage points year-on-year to 7.1%. This is because last year, there was expenses related to Beijing Winter Olympics. So this year first half, the fewer large-scale A&P expenses. For staff costs, the share is 15.5%, staff costs remained stable. At the same time, we continued to invest in R&D in the first half, R&D cost ratio, 2.3%. So more or less flat year-on-year. This year, for the JV, as I said just now, revenue, RMB 13.2 billion, up 37% year-on-year and net loss on operation level EBITDA increased quite well, mainly because of Amer Sports peak performance, one-off impairment. This is in accordance with accounting standards. So we made that impairment. And in the future, impairment will be small. So this is just a one-off impact. For the group shareholders, Well, profit attributable to shareholders, including Amer sports, up 2.2 percentage points to 16%. That is margin of profit attributable to equity shareholders, management of working capital, overall inventory turnover days, down 21 days to 142 days. So looking at the total inventory, for each brand, there is double-digit decline in the total inventory amount. So our retail sell-through achieved single-digit and double-digit increase, but inventory down single digits. So we used the least amount of inventory to achieve the maximum yield. So we have a number of measures to control inventory. So when we made purchase and also for old stock clearance, we did a lot to improve the situation. Overall speaking, for ANTA and FILA brands, they already resumed a below 5%, very healthy inventory sales ratio. Operating cash flow RMB 10.1 billion; free cash flow, RMB 9.5 billion as of 30th June, total cash and equivalent, RMB 45.4 billion, total debt net cash position, RMB 31.6 billion. So we have an additional RMB 16.6 billion of cash. So in total, we have a lot of cash -- adequate cash to face up to future growth. So this is a very sound cash level. Finally, let me talk about our dynamic management on operation level. Our business model is brand plus retail. As you all know, for retail every month, on the retail end -- so the results will be seen in our financial statements in each quarter after each month. So from operation and business level at the middle and back office, we can respond fast based on our results. So this is dynamic management. On a business level, where we have consumer experience, product management, channel management. And from operations side, we have operation data analysis, holistic budget management, operating standard database and so on. So the final target is to achieve high-quality growth. So when we say high-quality growth, that means we want to achieve our retail sell-through target. At the same time, we would like to maintain long-term stable profitability. So for our consumers, the society, our shareholders and our employees we would like to achieve sustainable value. That's all for me. Thank you.

Thank you, Mr. Bi. So we have a globalization strategy. So in this way, we are able to achieve our strength. Now I'm going to invite Mr. Lai to see how we can achieve high-quality growth by strengthening our overall layout.

Investors, friends, good afternoon. Now I'm going to report to you our first half business and future outlook. First of all, let me talk about our overall market. In first half 2023, the economy steadily recovered. And for government policies, they were frequently introduced to stimulate consumption. According to data from the National Bureau of Statistics, Total amount of social retail consumer goods resumed growth. It returned to growth with an increase of 8.2% in first half, and sales of clothing, shoes, hats and needles, and so on in the first half of the year, increased by 12.8% comparing with same period last year. Consumer confidence index also rebounded, but did not return to the benchmark value. GDP growth was 4.5% in the first quarter, 6.3% in second quarter and accelerated quarterly. The Chinese government launched a series of economic stimulus measures. We believe that in the future, they can supplement the driving force of economic growth and boost consumption. So concerning the operating environment of the second half, we are cautiously optimistic. In the first half, there are changes in the consumption market. First of all, for the development of the sportswear industry, it is still optimistic. Many sports events are resumed. And multiple ministries and departments have released various measures. So there are the opinions on deepening integration of sports and education to promote healthy development of adolescence or youths. So this will lead to an increase in physical education classes for children. So with the decentralization and diversification of sports, consumers have raised higher demand for brand differentiation, leading to new demands. And number four, [ turn off ] continued rise of Chinese sports goods brands. And they are being placed by domestic consumers more and more, especially young consumers. Well, they recognize domestic brands more and more. So all these for our company as a multiple brand sports company, meaning that we will see a lot of good opportunities. Now business review of various brands. ANTA brand, we insist on professional development and also our brand building so we will continue to be led by Olympic technology. Olympic technology is being converted to our professional and functional products. So that's why our functional products are more and more well liked by consumers. Secondly, for our -- and also to our portfolio, well, in the first half, we have signed with NBA star Owen and in the second half of the year and next year, we will also launch some events and products in the name of Owen. And then our brand power is rising because of affiliation with the Olympic and overall professional standing has been enhanced. Number four, our coverage of core markets is rising. We have better layout in high-tier cities and also major cities. We opened flagship stores, [ ANTA ] kids, we need to win the children's sportswear market. We are #1 in market share in the first half, for girls where we developed a number of additional sports scenario, for example, dense and also kid yoga, body shape training and so on. And then we expanded children's footwear share. We continue to promote exclusive technology, particularly for children, and we enhance the functionality of our footwear products. And then the operation of children's communities are very successful. So we joined hands with World Champions, Olympic champions and also national team athletes to offer some professional sports courses for children. For D2C progress as of the end of June for ANTA and ANTA Kids, there are 9,633 stores, 7,700 of these stores are operated in the D2C model. And for ANTA core brand, 43% are directly operated, 57% are operated by franchisees for children, 66% of the stores were directly operated, 34% by franchisees. So around half-half overall speaking. For FILA, so we stay on top of trends to lift brand salience. We continue to emphasize top-notch products, top-notch brands and top-notch channels. For the brand, we are #1 in fashion awareness among sportswear brands, and in fact, we are 23% in this regard. And then for our products or merchandise, footwear, performance sports like golf and tennis, growth is very good, better than overall growth rates. So we strengthened professional sports mind share, and we enhance performance sports as an important growth driver. Operating efficiency is greatly enhanced. As Mr. Bi said, FILA's operating profit margin improved significantly. So in the future, for example, there is smart logistics center and our logistics and supply chain capabilities will further strengthen for the subsidiary brand, FILA Kids and FILA fusion, where they achieve good developments. FILA Kids will focus on spot scenario, and there will be additional product series, FILA Fusion, will focus on crossovers and that will be brand-new brand concepts and ideas in order to make the brand more diversified and young. And then DESCENTE and KOLON. Well, in the first half, they achieved very good results for DESCENTE. Revenue grew by almost 70%, KOLON, almost 100% growth. For DESCENTE, we continue to develop it into a high-end and high-quality professional sports brand for branding. So in Triathlon and golf, we have achieved some enhancement and then members activity level is rising for products. There are many flagship products like female, training, running shoes and so on, they have achieved good performance, retail experience. Off-line stores have increased for high-level stores with more than 30 million-ish store productivity, there are now more than 40 such stores. For DESCENTE, there are altogether 100-odd stores for high productivity stores, the number increased 100%. Discount, retail discounts has decreased. So productivity keeps on improving. KOLON Sport has become an outdoor lifestyle brand that consumers look up to for branding and operation, we have developed a number of high salience products. And our brand awareness and reputation improved. Our sellout rates and retail discounts also improved. From time to time, we organized a very focused core activities and events to drive contribution from young customers and members in some core areas and shopping malls, we opened good quality stores. For e-commerce, our growth is very fast, discount is also small. Retail channel management. ANTA adults, our core brand, at the end of June has 6,941 stores; ANTA kids, 2,692 stores. So this is stable. There is only an increase or decrease by a few dozen. Overall store productivity, 300,000 for kids, 170,000. FILA has 1,942 stores, comparing with the past, there is a slight decrease because we have closed down some low-tier city low productivity stores. FILA store productivity has improved significantly at around 1 million. So the same period last year is only 800,000. For DESCENTE and KOLON, the number of stores is stable, 100-odd store productivity improved significantly. For DESCENTE, it rose more than 60% at RMB 1.8 million. For KOLON Sports, store productivity is above 900,000, around double that of last year. E-commerce and digitalization, e-commerce revenue contributed 31% of the total overall revenue of the group and we continued to make horizontal layout of our brand portfolio. According to live streaming and traditional e-commerce platforms, we set different operating standards to make sure that, that is consistent with our brand image, and we can strengthen our competitiveness. For FILA in the first half, for short video and live streaming, the brand achieved fast growth. And then for products, online and off-line products, online exclusive products, in-season and off-season products. We did some very good positioning and fine-tuning. For e-commerce, in the first half of this year, they successfully cleared inventory. Supply chain platform. We implemented the [ 5+N ] logistic network strategy. We built 5 first-tier regional warehouses and multiple second-tier cloud warehouses in China. Now in Guangdong, Suzhou, Chengdu and Changzhou and our headquarters region. There are five these first-tier regional warehouses in Suzhou. There is an integrated operation center and we believe that in the second half of this year, construction will start. We joined a sustainable apparel coalition or SAC to continue to optimize supply chain effectiveness in the first half and self-produced footwear and apparel accounted for 18.7% and 9.7%, respectively. For FILA, 7.1% and 3.7%, respectively, for self-produced footwear and apparel share. In the second half of the year, we believe that the economy still has some uncertainty. However, for strategies, there are many strategies in relation to consumption. And so we believe that they will bear effects gradually. So we are full of confidence we will continue to invest in talent, team, products and innovation so as to drive our business development for ANTA, we will be positioned for the mass market, and we will achieve breakthrough in the field of performance sports and focus on brand upgrades. We will reinforce our market share in the mass market, besides, after signing contract with Owen, we will seize the opportunities to reinforce ANTA basketballs status. Next year is the Paris Olympic. So that would also effectively add value to our brand. For FILA, we'll continue to develop some high potential products. We'll focus on elite sports category. So again, we will focus on enhancing brand salience and excellence in retail to continue to improve our efficiency. For the outdoor brands, the two outdoor brands, we will continue to strengthen these two brands positioning and focus on their differentiation so as to achieve high-quality growth, we will not blindly increase the number of stores. We'll continue to enhance the same-store growth. And then we will introduce more and more iconic products. At the same time, we will increase the share of footwear of these two brands. For Amer Sports, in the first half of this year, we achieved good results. We set the 5 -- EUR 1 billion target and these have been gradually implemented and achieved. In the second half of the year, we believe that Amer Sports will maintain healthy growth. And differentiation will also widen and the brand influence will be stronger globally. Our vision is that we would like to be a world-leading multiple brand sportswear group and we will focus on healthy development of our brand in terms of brand value, scientific innovation, social responsibility, engagements of staff and so on, we want to become industry benchmark, and we will continue to make improvements. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]