Financials

Full Year Results Financial Statement And Related Announcement

Financials Archive

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Financial Statement For Full Year Ended 31 December 2009

Income Statement

Balance Sheets

Review of the Group's Performance for the full year ended 31 December 2009 ("FY2009") compared to the full year ended 31 December 2008 ("FY2008")

Revenue

The Group's revenue increased by RMB 183.4 million or 20.7% to RMB 1,067.4 million in FY2009. This was mainly attributable to the following:

1. Sales of C.Banner amounted to RMB 662.2 million, contributing 62.0% of total revenue, compared to RMB 521.7 million in FY2008.The increase of RMB 140.5 million or 26.9% revenue was mainly attributable to 70 new outlets opened during the year, bringing the total number of outlets to 718, compared to 648 in the previous corresponding year.
2. Sales of E.Blan footwear amounted to RMB 156.7 million, an increase of RMB 74.5 million or 90.6% compared to RMB 82.2 million in FY2008.The increase was attributable to an additional 57 new outlets set up during the year. As at the end of FY2009,the Group has 296 E.Blan outlets;
3. Revenue from the Contract Manufacturing segment, contributing RMB 193.7 million which represented 18.2% of total revenue for FY2009, decreased by RMB 5.6 million due mainly to a lower sales order.
4. Jiangsu Unity Corporation Co. Limited ("JUC") registered a 51.5% decrease in revenue to RMB 32.4 million in FY2009, compared to RMB 66.8 million in FY2008. This was attributable to the downsizing of the JUC retail network with a total closure of 29 outlets during the year, bringing the total number of outlets to 16 as at the end of FY2009;
5. Naturalizer footwear generated a revenue of RMB 22.4 million in FY2009 compared to RMB 13.9 million in FY2008, an increase of RMB 8.5 million due mainly to improved sales achieved by individual outlets during the year. As at the end of FY2009, there are 31 retail outlets, compared to 41 outlets in the previous corresponding year.

Other operating income

The increase in other operating income of RMB 2.7 million or 33.4% was attributable to an increase in interest income and the recognition of negative goodwill upon the acquisition of an entity, Nanjing Ruihe Trade Co, Ltd ("Nanjing Ruihe")

Gross Profit

Gross profit margin decreased from 39.4% in FY2008 to 38.2% in FY2009. The reduction in gross profit margin was attributable to lower selling prices, greater promotional discount in departmental stores and expansion of retail outlets.

Profit Before Income Tax

For FY2009, the Group registered a slight decrease in profit before income tax of RMB 126.1 million or 10.5% to RMB 112.8 million. This was attributable to the following:

1. Selling and distribution expenses increased by RMB 65.7 million or 40.0% to RMB 229.9 million. With the increase in retail outlets, outlet rental expenses, renovation expenses and sales personnel costs also increased correspondingly. The Group also incurred promotional expenses arising from the departmental sales campaigns.
2. Administrative expenses increased by RMB 8.3 million or 14.0% to RMB 67.5 million owing primarily to the increase in expenses recognized for the share-based payment to employees and the impairment of goodwill in view of continuous losses suffered by JUC.
3. Finance costs comprise solely interest expense of RMB 1.0 million incurred on bank borrowings.
4. Share of losses of joint venture increased to approximately RMB 7.1 million compared to a loss of RMB 6.2 million in the prior year.

Income Tax Expense

For FY2009, income tax expense increased by RMB 13.5 million or 68.6 % to RMB 33.2 million.

The effective income tax rate for FY2009 is 29.4%, which was higher than the applicable income tax rate of 25% due mainly to losses and non-deductible expenses made by certain entities of the Group.

The lower effective income tax rate of 15.6% in FY2008 was due mainly to certain PRC subsidiaries enjoying certain tax exemptions.

Profit for the Year

In line with the above analysis, the Group achieved a profit for the financial period of RMB 79.6 million in FY2009 which is RMB 26.8 million or 25.18% lower than its profit of RMB 106.4 million in FY2008.

Review of the Group's Financial Position

The Group's total current assets increased by RMB 137.0 million or 21.0% to RMB 789.9 million as at 31 December 2009.This was due mainly to the increase in trade receivables of RMB 42.2 million and cash and fixed deposit of RMB 167.9 which was partially offset by the decrease in inventories of RMB 73.5 million. The increase in trade receivables was in line with the increase in revenue. The decrease in inventories was due to better stock control.

The Group's non-current assets increased by RMB 26.7 million or 21.0% to RMB 153.8 million as at 31 December 2009. This was due mainly to the increase in investment property of RMB 44.6 million (see Note A of the statement of Cash Flow on page 5) and deferred tax assets of RMB 1.3 million which was partially offset by the decrease in joint venture of RMB 7.1 million, property, plant and equipment of RMB 9.6 million and goodwill of RMB 2.0 million.

Current liabilities amounted to RMB 281.8 million as at 31 December 2009, representing an increase of RMB 77.9 million or 38.2%.This was due mainly to the increase in trade payables of RMB 44.1 million and other payables of RMB 26.9 million and income tax payable of RMB 7.0 million. The increase in trade payables was due to leveraging by the Group on the credit terms extended by the suppliers.

The increase in deferred tax liabilities was due to timing differences in income tax payable. The increase in other payables comprised mainly value added tax, directors' and staff remuneration.

Review of the Group's Cash Flow Statement for the full year ended 31 December 2009

For FY2009, net cash generated from operating activities amounted to RMB 200.5 million due mainly to profit for the year of RMB 112.8 million after:

1. adding back RMB 36.3 million of non-cash items which comprise mainly RMB 18.0 million of depreciation expenses, RMB 9.6 million of inventories obsolescence allowance, RMB 7.1 million share of joint venture's losses and RMB 2.0 million of goodwill impairment.
2. adding back RMB 51.4 million cash inflows from working capital requirements which comprise mainly an increase in trade receivables of RMB 42.2 million, notes payable of RMB 4.9 million, trade payables of RMB 25.3 million and other payables of RMB 26.9 million, a decrease in inventories of RMB 63.9 million and income tax payment amounting to RMB 26.1 million during the year.

Net cash flow used in investing activities for FY2009 was RMB 32.5 million. This was due mainly to additional equipment purchased for the new production facilities for the Group of RMB 16.0 million and acquisition of a subsidiary of RMB 26.9 million, which was offset by the increase in external interest income received of RMB 3.1 million and proceeds from the disposal of property, plant and equipment of RMB 7.2 million.

Net cash flow used in financing activities amounted to RMB 4.9 million for FY2009 due mainly to increase in fixed deposits pledged.

Overall, the Group registered a net cash increase of RMB 163.0 million for FY2009.

Commentary

With signs of the PRC economy recovering, the Group will intensify its effort to expand the market share of its in-house brands, C.Banner and E.Blan, and promote the sales of Naturalizer. Notwithstanding the various challenges across the Group's geographical markets in the PRC, the global economic front is recovering from the global financial crisis. The Group will continue to adopt a cautious outlook for its business for the next 12 months.