GOME 2012Q3 Results en Final 1700

7/28/2019 GOME 2012Q3 Results en Final 1700

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19th November, 2012

2012 First Nine-Month Results

Announcement


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9M 2012 Results Announ cement | Page 1

Disclaimer

This presentation and the accompanying slides (the Presentation) which have been prepared by GOME

Electrical Appliances Holding Limited (GOME or the Company) do not constitute any offer or invitation topurchase or subscribe for any securities, and shall not form the basis for or be relied on in connection with anycontract or binding commitment whatsoever. They are only being furnished to you and may not be photocopied,reproduced or distributed to any other persons at any time without the prior written consent of the Company.This Presentation has been prepared by the Company based on information and data which the Companyconsiders reliable, but the Company makes no representation or warranty, express or implied, whatsoever,and no reliance shall be placed on, the truth, accuracy, completeness, fairness and reasonableness of thecontents of this Presentation. This Presentation may not be all inclusive and may not contain all of theinformation that you may consider material. Any liability in respect of the contents of or any omission from this

Presentation is expressly excluded.

Certain matters discussed in this presentation may contain statements regarding the Companys marketopportunity and business prospects that are individually and collectively forward-looking statements. Suchforward-looking statements are not guarantees of future performance and are subject to known and unknownrisks, uncertainties and assumptions that are difficult to predict. The Companys actual results, levels ofactivity, performance or achievements could differ materially and adversely from results expressed in orimplied by this Presentation, including, amongst others: whether the Company can successfully penetrate newmarkets and the degree to which the Company gains traction in these new markets; the sustainability of recent

growth rates; the anticipation of the growth of certain market segments; the positioning of the Companysproducts and services in those segments; the competitive environment; and general market conditions. TheCompany assumes no obligation to update any forward-looking information contained in this presentation. Anyforward-looking statements and projections made by third parties included in this Presentation are not adoptedby the Company and the Company is not responsible for such third-party statements and projections.


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Content

Market Environment

Financial Results in the First Nine Months, 2012

Key Messages to Investors

4Q12 Strategies and Outlook

Appendix

1

2

3

4

5


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Market

Environment


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1. Home Appliances Market

SourceMcKinsey; GFK; Euromonitor

Market Size (E-commerce inc luded) RMB Bil lion

Market size: RMB 1.306 tri llion in 2012

Tier 1: 30%Tier 2: 45%GOMEs market shareTier 1:traditi onal app liances(25%)/small appli ances(22.5%)/3C(12%)

Tier 2: tradi tional appli ances(10%)/small appliances(5%)/3C(3%)


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2. Growth Opportunity

13%

2nd tier market will be the major

growth driver in the home

appliance market

RMB Billion; %

Significant increase in ownership ofall categories of home appliances

Home for Appliance Subsidy

Program promotion continued

Urbanization furthered demand for home

appliance

Product advancement and replacement

Growth Driver

2010

1,053

16%

20%

25%

29%

10%

2016

2,023

18%

20%

26%

26%

10%

Healthy GDP grow th

Per capita income level grew continuously

Penetration rate and replacement rate of 3C

products increased

CAGR

7%

9%

11%

10%

8%

28%24%

20%20%

Growth Comparison by City Tiers

in 2010-2016

Home Appliance Market Breakdown by Cities

1 Rural areas included

GOME 2nd Tier Market

Home appliance retailer market

growth in 2nd tier market is

significantly higher than in 1st

tier cities1st Tier City 2nd Tier City 3rd Tier City 4th Tier City Beyond 4thTier City

1st Tier City

2nd Tier City

3rd Tier City

4th Tier City

4th Tier CityBeyond

SourceMcKinsey Global Research; Small group analysis

Tier 2 market will be the growth engine for future


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Financial Results

in the First Nine

Months, 2012


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RMB Mill ion 1Q 2Q 3Q 9M12Change

vs. 9M11

Revenue 9,762 13,364 12,931 36,057 (18.0)%

Consolidated Gross Profit 1,948 1,837 1,940 5,725 (31.0)%

Operating Profit / (Loss) 53 (581) (235) (763) (133.5)%

Profit / (Loss) Before Tax 95 (538) (168) (611) (125.8)%

Profit / (Loss) Attributable toOwners of the Parent Company

67 (568) (186) (687) (138.4)%

Consolidated Gross Margin 20.0% 13.7% 15.0% 15.9% (3.0) pct pt

Operating Margin 0.5% (4.3)% (1.8)% (2.1)% (7.3) pct pt

Effective Tax Rate1 20.2% --- --- --- ---

Net Profit Margin (Attributable toOwners of the Parent Company)

0.7% (4.3)% (1.4)% (1.9)% (6.0) pct pt

(1) Effective tax rate =income tax expense/ ( profit before tax +non deductable items)

1. Income Statement Summary and Analysis

Operating results affected macro environment


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Items 9M11 9M12

Revenue 43,983 36,057

Consolidated gross

margin18.9% 15.9%

Gross margin 12.8% 12.3%

Total other income 6.1% 3.6%

Include:

Net income from

suppliers3.9% 1.7%

Management fee from

GOME Parent Co.0.5% 0.6%

Management fee from

Dazhong0.2% 0.0%

Air condit ioner

installation 0.2% 0.1%

Gross rental income 0.3% 0.5%

Government subs idy 0.2% 0.3%

Others 0.8% 0.4%

RMB Million

2. Consolidated Gross Margin Analysis

E-commerce

excluded, theconsolidated

gross margin

woul d be 17.0%.

9M11 9M12

Consolidated

gross margin

18.9% 15.9%

Consolidated

gross profit

(RMB Million)

8,292 5,725


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RMB Mill ion 1Q 2Q 3Q 9M12Change

vs. 9M11

Selling & Distribution

Expenses1,534 1,917 1,727 5,178 6.5%

Rent 714 754 732 2,200 21.8%

Sales Salaries 372 415 404 1,191 (7.9)%

Advertising 107 326 220 653 14.0%

Delivery 71 84 90 245 (17.8)%

Utilities 82 96 98 276 (6.0)%

Other S&D 188 242 183 613 3.0%

Administ rat iveExpenses

307 378 365 1,050 25.8%

Other Expenses 54 123 84 261 (18.3)%

Total 1,895 2,418 2,176 6,489 7.9%

3. Expenses Breakdown

Cost measures started to take effect in 3Q


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4. Store Indicators

Sales per sq.m Same Store Sale Growth

Number of

comparable stores

Store improvement plan started in 2Q

Period-end sales area 1,000 sq.m Average sales per store 10,000 RMB

Yuan RMB

680 669 662 661 788 763 741


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RMB Mill ion 9M11 9M12 Change

5. Balance Sheet Summary

RMB Million As at 31st

December, 2011

As at 30 th

September 2012

Change

3Q Inventory turnover days reduced, posit ive cash flow f rom operating activities

Inventory Turnover Days (1) 77 days 82 days 5 days

Trade Payables Turnover Days 48 days 65 days 17 days

Bil l Payables Turnover Days 85 days 92 days 7 days

Pledged Deposit Ratio (2) 49.4 % 52.7% 3.3 pct pt

Cash and Cash Equivalents 5,971 6,665 11.6%

Pledged Deposits 4,389 5,964 35.9%

Inventories 9,625 9,306 (3.3)%

Trade Payables 7,177 7,871 9.7%

Bill Payables 9,963 11,311 13.5%

(1) 3Q12 inventory tu rnover w as 65 days, 18 days reduction compared wi th 3Q11

(2) Pledged deposit ratio was 30.9% by exclud ing domestic guarantee pledged for overseas loan

Cash flows from operating activities (386) 3,853 ---

Cash flows from investing activities (278) (586) ---

Cash flow from financing activities 146 (2,559) ---


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Key Messages to

Investors


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Differentiated

Products

E-commerce

Bricks &Mortar

During the reporting period, the Group remained under macro pressure Sales revenue reached RMB 36.06 billion, decreased by 18.0% y-o-y.

Sales decline, operating cost increased, and investment in e-commerce during

build-up phase led to a loss of RMB 687mill ion.

Opened 93 stores and closed 102 stores. Total number of stores reached 1,070, covering 245 citiesnation-wide. Streamlined 107,000 m2 through sub-lease and lease termination.

Continued to expand differentiated products range and optimize the product structure.

The sales proportion of differentiated products reached 20%.

The legal procedures in the JV were completed for Coo8.com and gome.com.cn on 21st and 25th

September respectively, 40% minority interest wil l be reflected from 4Q12 onwards . The Group

completed the online and offli ne integration in procurement platform in the ERP system. At the endof the repor ting period, e-commerce sales was RMB 3.1 billi on, which was a 160% y-o-y growth.

Gross margin turned positi ve from -4.9% for ful l year 2011 to 3.4% for 9M12.


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1 2 3 4 5 6

Loss reduced and

profitability

improved

Operating

expenses started

to reduce

Inventory

turnover days

shortened

Cash flow from

operationsincreased

Decline in SSSG

slowed down

Optimization in

store networkcontinued

Cost measures started to take effect, business started to bot tom out in

2Q12 and showed signs of improvement


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Consolidated gross margin

improved

Net loss narrowed

Sales Revenue Consolidated Gross Margin Net Profi t

Revenue increased gradually




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Store optimization continued Operating expenses including

rent, labour and advertising costsreduced

SSGG decline slowed down

Optimized area 10,000 sq.m Same store sales decline narrowed

Floor Area Optimization Operating Expenses to Sales Ratio Same Store Sales Growth




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4Q12 Strategies &

Outlook


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SAP based ERP System

100 billi onprocurement capacity

Nation-widelogistics network

Nation-wideafter-sales network

Supply Chain

Multi-Channel Retailer:

online/offl ine businesses with one integrated infrastructure

Tier 1 market

E-commerce

Steady

growth

Consumer demand Oriented

(1st 2ndTier ci ties)

Same store

sales growth

Tier 2 market

(3rd 4th

Tier c ities)

Network

coverage

1. Strategic Layout


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2. Tier 1 Market

Tier 2 market

3rd 4th tier cities

Same store sales growth focused

Growth

potential

Strengthen procurement capacity on individual product, produc t

competitiveness and prof itability

Improve marketing campaigns and individual store competitiveness

Optimize store layout and enhance consumer experience

Accelerate st ore optimization and closure of ineff ic ient s tores

Standardize stores size, control rent/sales ratio

Implement individual store budget management

Total market value of approx. 632 billi on by 2016

Total market value of approx. 361 billi on in 2012, of which GOMEstraditional appliances, small appliances and 3C accounted for

approx. 25%, 22.5% and 12% share, respectively

Technological advancement, rising per capita income, expanding

domestic demand

Strategies

1 2 3

Tier 1 market

1st 2nd tier cities E-commerce Multi-channelRetailer


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3. Tier 2 Market

Tier 2 market

3rd 4th tier cities

Strong growth engine for physical stores

Growth

potential

Streamline supply chain

Sporadic development

Strengthen infrastructures in lo gistics and after-sales

Implement in dividual store budget management, strictcontrol of rent/sales ratio

Concentrate on small and medium size stores, with

focus on in-house sales team and product mix

optimization

Total market value of approx. 1 trill ion by 2016, exceeds

tier 1 market Total market value of approx. 506 bill ion in 2012, of

which GOMEs traditional appliances, small appliances

and 3C accounted for approx. 10%, 5% and 3% share,

respectively

Fragmented channels, potentials for integration

Strategies

1 2 3

Tier 1 market



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4. E-commerce

Tier 2 market

3rd 4th tier cities

Integrate online/offl ine infrastructure to become a multi -channel

retailer

1. Procurement integration (completed ) Gross margin rose from -4.9%

for f ull year 2011 to 3.4 % for 9M12

2. After-sales integration (completed) Cost ratio dropped from 18.7% for

full year 2011 to 18.4% for 9M12

3. Continue to develop strategic cooperation and increase SKU

4. Convert physical stores to provide pick-up services5. Seek alternative sources of capital, maximize value

1. High operating cost

2. Low gross margin

3. Continuous loss

Leading profitable E-commerce player in home appliance

1 2 3

Tier 1 market


Goal

Current issues

facing B2C players

Strategies


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5. Strengthening Supply Chain Operations

Merchandizing deliver right products to the right stores at right inventory level

Speed up inventory turnover, reduce loss caused by price reductionand inefficiency use of capital, minimize impact on margins causedby short supply

Select best distribution center, delivery route and network to reducedistribution cost

Good inventory management to reduce passive promotion needswhile systematic pricing and promotion planning to promote theeffectiveness

Effective supply chain management to offer better services tocustomers and improve their shopping experience in the store

Supply chain

elements

Strengthen

supply chain

Boost product competitiveness and consolidated gross profi t margin

Measures

Supplier

management

Centralized

Logistics

Pricing &

promotion

In-store

Logistics

Customer -

ShelfOptimize sample management to reduce waste

Ordering and

Replenishment

1. Pro-active supply chain: ODM/OEM/exclusive products

2. Coordinative supply chain: supplier participation (transition from suppliers to products management

3. Platform supply chain: small appliances and consignment products to increase product mix and

improve customer experience

Increase

competitiveness

Increase

consolidated gross

margin

Strategic alliance reduced cost


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Appendix


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9M2012 Total: RMB 36.06 bil lion

9M2011 Total: RMB 43.98 bil lion

Sales by Regions


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Sales by Product Categories

G C


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13.9% 13.9% 14.5% 10.3% 15.9% 9.3% 11.2%

13.0% 13.3% 13.8% 9.5% 15.4% 8.2% 10.3%

Gross Margin by Product Categories

Further optimization of prod uct mix, increasing the sales proportion of high -margin products such as small

appliances, accessories, ODM/OEM produc ts

Strengthening collaboration with suppliers and optimize contract terms

Continuous increase in gross profit margin due to:

Gross Margin

(E-commerce excluded)

Gross Margin

S N k E i


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As of 30th September, 2012 Group GOME China Paradise CellStar

Flagship stores 216 171 45 0

Standard s tores 391 338 53 0

Specialized stores 463 352 65 46

Total: 1070 861 163 46

T1 Market 672 511 120 41

T2 Market(1) 398 350 43 5

Net store increase/decrease in 9M2012: (9) (5) (4) 0

Number of stores newly opened: 93 74 12 7

T1 Market 48 32 9 7

T2 Market 45 42 3 0

Number of cities accessed: 245 209 58 6

T1 Cities 28 22 9 1

T2 Cities 217 187 49 5

Number of cities newly accessed 10 9 1 0

Store Network Expansion

(1) During the reporting period, Foshan and Dongguan were reclassified as T1 market.

St bl S li R l ti hi


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Top 5 suppl iers for 9M2011

Top 5 suppliers for 9M2012

Stable Supplier Relationship


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Thank you

Documents

GOME 2012Q3 Results en Final 1700