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17 March 2017
Annual Results Corporate Presentation
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This presentation is prepared by Xtep International Holdings Limited (the “Company”) and is solely for the purpose
of corporate communication and general reference only. The presentation is not intended as an offer to sell, or to
solicit an offer to buy or form any basis of investment decision for any class of securities of the Company in any
jurisdiction. All such information should not be used or relied on without professional advice. The presentation is a
brief summary in nature and do not purport to be a complete description of Company, its business, its current or
historical operating results or its future prospects.
This presentation is provided without any warranty or representation of any kind, either expressed or implied.
The Company specifically disclaims all responsibilities in respect of any use or reliance of any information, whether
financial or otherwise, contained in this presentation.
This presentation contains certain forward-looking statements with respect to the financial condition, results of
operations and business of the Company. These forward-looking statements represent the Company’s
expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could
cause actual results, performance or events to differ materially from those expressed or implied in such statements.
Certain statements, such as those that include the words “potential”, “estimated”, “expect”, “anticipates”, “objective”,
“intends”, “plans”, “believes”, “estimates”, and similar expressions or variations on such expressions may be
considered “forward-looking statements”.
Forward-looking statements involve inherent risks and uncertainties. Readers should be cautioned that a number
of factors could cause actual results to differ in some instances materially, from those anticipated or implied in any
forward-looking statement. Forward-looking statements speak only as of the date they are made, and it should not
be assumed that they have been reviewed or updated in the light of new information or future events. Trends and
factors that are expected to affect the Company’s results of operations are described in the “Financial Analysis”,
“Business Review” and “Future Plans”.
Disclaimer
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Operational Highlights
Financial Highlights
Overview
Total revenue increased by 1.9% YoY to RMB 5,396.6 million
Overall gross profit margin rose 4 years in a row. 2016 gross profit margin increased by 1.0 percentage point to 43.2% YoY, attributable to the shift of product mix towards higher margin professional sportswear products
Apparel gross profit margin increased significantly by 2.0 percentage points to 41.7%, while footwear gross profit margin went up to 44.0%, and accessories gross profit margin expanded to 41.0% as well
Operating profit before provisions increased by 19.6% YoY to reach RMB 1,139.2 million
Net profit for the year declined by 15.2% to RMB527.9 million (2015: RMB 622.6 million) mainly due to the provisions of trade receivables of RMB 222.2 million (2015: RMB31.7 million) which were mainly related to the restructure and realignment of XTEP Kids business
Strong cashflow, with total bank deposits and bank balances of RMB 4,245.3 million and net cash inflow from operating activities of RMB 345.8 million
Proposed final dividend HK 3.25 cents and special dividend HK 2.75 cents per Share, together with interim dividend of HK 10.5 cents, annual payout ratio maintained at 60%
Restructuring towards professional sports brand with stylish and functional products continued with internal resources realignment
Branding: Advertising and promotion cost normalized to 11.8%, with focus on sports marketing and some less effective general marketing programs was reduced
Products: Increased R&D costs by 13.9% to RMB138.2 million, continued to hire international design talent and cooperate with leading international material developers, and built the first dedicated running research laboratory in China
Retail management: Stringent retail channel management control led to excellent inventory management. Inventory turnover days continued to drop for 4 consecutive years to 51 days (2015: 58 days; 2014: 71 days: 2013: 79 days)
E-commerce revenue continued to grow quickly and accounted for approximately high-teens percentage of overall revenue
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Result Highlights
For the year ended 31 Dec
(RMB mn) 2016 2015 Change
Revenue 5,396.6 5,295.1 1.9%
Gross Profit 2,331.3 2,236.7 4.2%
Operating Profit Before Provisions 1,139.2 952.8 19.6%
Profit Attributable to Equity Shareholders 527.9 622.6 15.2%
Basic Earnings per Share (RMB cents) 23.89 28.97 17.5%
Gross Profit Margin (%) 43.2 42.2 1.0 pp
Operating Profit Margin Before Provisions (%) 21.1 18.0 3.1 pp
Net Profit Margin (%) 9.8 11.8 2.0 pp
ROE (%) 10.8 13.0 2.2 pp
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Revenue Shifts to Functional Footwear
Revenue
Growth in revenue due to:
Successful repositioning of XTEP to a professional sports brand with stylish and functional products which focuses on running
Significant increase in revenue contribution from e-commerce business, which contributed high-teens percentage to the Group’s total revenue (2015: low-teens)
(RMB mn)
4,777.6
5,295.1
5,396.6
4,500
4,600
4,700
4,800
4,900
5,000
5,100
5,200
5,300
5,400
5,500
2014 2015 2016
1.9%
2016
RMB5,396.6mn
65.3%
2.0%
32.7% 2015
RMB5,295.1mn
61.5%
36.4%
2.1%
Footwear Apparel Accessories
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Continued Expansion in Gross Profit Margin
40.2% 40.8%
42.2%
43.2%
0.18
0.23
0.28
0.33
0.38
0.43
35%
40%
45%
2013 2014 2015 2016
Gross Profit Margin
Gross profit margin continued to improve 4 years in
a row due to product mix shifted towards higher
margin professional sportswear products:
1.0pp
For the year ended 31 Dec
GPM(%) 2016 2015 Change
Footwear 44.0 43.8 0.2 pp
Apparels 41.7 39.7 2.0 pp
Accessories 41.0 39.7 1.3 pp
Overall 43.2 42.2 1.0 pp
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Footwear
3,258.1
3,525.4
43.8% 44.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
42.0%
44.0%
46.0%
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
3,800
4,000
2015 2016 Revenue Gross Profit Margin
Apparel
(RMB mn)
Revenue & Gross Profit Margin Breakdown & Analysis
(RMB mn)
1,926.6 1,764.8
39.7%
41.7%
18.0%
23.0%
28.0%
33.0%
38.0%
43.0%
0
500
1,000
1,500
2,000
2,500
2015 2016 Revenue Gross Profit Margin
0.2pp
8.2% 8.4%
2.0pp
Professional running footwear with high functionality continued to be well-received by customers
Gross profit margin remained stable with growth
Significantly higher gross profit margin driven by professional running apparel with technology upgrades and increased ASP
Revenue decreased as the Group intentionally reduced the proportion of sports lifestyle products to speed up brand transition to professional sports
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Advertising & Promotional Costs
Operating Expenses Analysis
11.4% 11.2%
13.1%
14.7%
11.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2012 2013 2014 2015 2016
(As % of revenue)
A&P cost normalized in 2016, back to being
similar to history levels
Transformation to a more professional sports
brand led to A&P costs being relatively higher in
2014 and 2015
Re-oriented branding resources to devote more
focus to sports marketing and reduced some of
the less effective general marketing programs
2.9 pp
For the year ended 31 Dec
(RMB mn) 2016 2015 Change
A&P cost 637.2 780.5 18.4%
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Research & Development Costs
1.7%
2.6%
2.2% 2.3%
2.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2012 2013 2014 2015 2016
International Design Team Continued to hire design talent from top international sports
brands to build world class products in both technical and
aesthetics aspects
Running Research Center Built China’s first dedicated running research laboratory with
global leading research technologies and international
scientists, to develop the best running shoes for Chinese
runners
Research in Technical Material Cooperated with leading international fiber material developers
such as the Dow Chemical Company and 3M in the United
States, and Toray in Japan to co-develop fiber technology for
XTEP’s exclusive use
0.3 pp
Operating Expenses Analysis (Con’t)
(As % of revenue) For the year ended 31 Dec
(RMB mn) 2016 2015 Change
R&D cost 138.2 121.3 13.9%
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Profit Declined Mainly Due to Provisions for Trade Receivables of Kids Division
Profit Attributable to Shareholders
The increase in provision for trade receivables is mainly caused by a major restructuring in the XTEP
Kids division in order to reposition the business segment for long-term growth
Operating profit before provisions was RMB1,139.2 million, up 19.6% YoY, showing that the Group’s core
business is growing at a healthy level
Provision for account receivables amounted to RMB222.2 million, mainly related to XTEP Kids division's
long outstanding account receivables
Net profit for the year ended 31 December 2016 amounted to RMB527.9 million (2015: RMB622.6
million), a decrease of approximately 15.2%
Changes in the XTEP Kids division:
Realignment of the Group’s resources between the Kids and adult divisions, where operational
management will be consolidated
New XTEP Kids products will more closely resemble adult sports lifestyle products, and matching parent-
children sets will be available
Material sourcing and production will be more streamlined with adult business, cutting down cost and
manufacturing time
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Income Tax Analysis
For the year ended 31 Dec
(RMB mn) 2016 2015
Tax Provision for the Year (A) 269.9 248.0
Under Provision in Prior Years 7.7 5.6
Deferred Tax 15.0 3.0
Total Income Tax 292.6 256.6
Profit before Tax before Provision of Trade Receivable (B) 1,087.7 924.9
Adjusted Effective Tax Rate = (A)/(B) 24.8% 26.8%
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Stable Dividend Payout Ratio
Consistent High Dividend Payout Ratio
60% 60% 60%
0
10
20
30
40
50
60
70
2014 2015 2016
Payout ratio (%)
Dividend per Share
Interim: HK10.5 cents
Final: HK3.25 cents
Special: HK2.75 cents
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Further Improvement on Inventory Turnover
Average Inventory Turnover Days Improved by 7 days
(days) Improvements mainly due to:
Inventory turnover days continued to decrease
4 years in a row
Flattened distribution channels to reduce multi-
layered sales
Real-time management of the retail network
through DRP-system which covers over 90% of
retails stores, and feeds into internal APP
Conservative product ordering guidance and
reduction in production of sports lifestyle products
Launch of O2O for inventory sharing with
distributors since 2016, where online platform
helps reduce offline inventory, and online division
holds little inventory
79
71
58 51
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016
7 days
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Improved Trade Receivables Turnover
Average Trade Receivables Turnover Days
104 98
122 119
0
20
40
60
80
100
120
140
1H 2015 2015 1H 2016 2016
3 days
The flattening of distribution channel has begun
to stabilize along with credit period given to
distributors by the Group
Trade receivable turnover days improved by 3
days from 1H16 to 119 days
(days) As at December
Trade
Receivables
2016 2015
RMB mn % RMB mn %
Within 3 months 1,381.4 72.1 1,125.6 70.2
4-6 months 431.9 22.5 330.2 20.6
Over 6 months 102.9 5.4 147.4 9.2
Total 1,916.2 100.0 1,603.2 100.0
The above aged analysis of the Group’s trade
receivables indicated reduction in the
percentage of its long outstanding receivables
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Operating Cashflow
The Group still maintained strong operating cash inflow in 2016 of RMB647.7 million which
represented 75% of profit before tax
Operating Cashflow
2016
(RMB mn) 1H 2H Total
Operating Cash Inflow 353.3 294.4 647.7
Tax Paid (108.8) (139.8) (248.6)
Others (12.1) (41.2) (53.3)
Net Operating Cash Inflow 232.4 113.4 345.8
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Strong Cash Position
(RMB mn) 31 Dec 2016 31 Dec 2015
Treasury Deposits and Bank Deposits 1,398.8 869.8
Cash and Cash Equivalent 2,846.5 3,607.0
Total Cash and Cash Equivalent 4,245.3 4,476.8
Bank Borrowings (1,501.6) (1,610.5)
Net Cash and Cash Equivalent 2,743.7 2,866.3
Gearing Ratio 18.4% 19.8%
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Solid Balance Sheet
Sustainable growth supported by a solid and healthy balance sheet
As at 31 December
(RMB mn) 2016 2015 Change
Current Assets 7,217.0 7,050.8 2.4%
Current Liabilities 3,029.4 2,966.4 2.1%
Net Current Assets 4,187.6 4,084.4 2.5%
Current Asset Ratio (times) 2.4x 2.4x No change
Shareholders’ Equity 4,953.5 4,851.9 2.1%
Total Net Assets per Share RMB2.26 RMB2.22 1.8%
Estimated 2017 CAPEX approx. RMB 100-200 mn
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Footwear Production
Production Capacity Allocation
85% 15% 45% 55%
Self produced Outsourced Self produced Outsourced
Apparel Production
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59.8%
40.2%
Shareholding Structure
Xtep International
Holdings Limited
Stock Code: 1368
Family Trust
established by
Mr. Ding Shui Po
and
Family Members
Public
Shareholders
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Sports Marketing
Carried the No. 1 sportswear sponsor position in 2016 with 24 major marathons in major cities
44 marathons and other major running events such as “3.21 Running Festival”
Official partner of China Marathon recognized by China Athletic Association
Titled sponsor of Beijing Olympic Forest Part XTEP Running Track
8 ILLUMI RUNS were sponsored in Beijing, Guangzhou, Shenzhen, Wuhan , Xiamen , Nanjing, Chongqing and Shenyang
Running Remains the Core Sports Category Focus
Football – Blade Project
Comprehensive football strategy – Blade Project announced on 22 Apr 2016 focuses on developing wide
exposure for XTEP in the football field
Targeted to serve over 5 million Chinese football youths in 5 years
In June 2016, Xtep launched the first XTEP professional football series – “Blade I” in stores
Established partnerships with Chinese youth football education and training services providers
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Sports Celebrity Spokespersons
Sports Marketing (Con’t)
Xie Zhenye 謝震業
Part of China’s 4x100m relay Olympic team in 2016 and completed in the 100m dash
Finished second in the Men’s 60m run at IAAF World Indoor Tour Boston in Jan 2017
Participated in 20km race walk in 2016 Olympic
First PRC gold medal winner of 2012 Olympic 20km race walk event
Andriy Shevchenko
Head coach of the Ukraine National Football Team
European Footballer of the Year in 2004
Second highest scorer in the history of A.C. Milan with 175 goals scored
Zhao Qinggang 趙慶剛
2014 set current Asia record holder for the javelin event
Winner of 6th East Asian Games in javelin and National Games of the PRC in the javelin in 2013
Chen Ding 陳定
Kazakhstan National Track and Field Team
Olga Rypakova is one of the world’s leading triple jump athletes who won Gold Medal in the 2012 Olympics and Bronze Medal in the 2016 Olympics
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Entertainment Celebrity Spokespersons and Sponsored TV Program
Entertainment Marketing
湖南娱乐 Hunan TV
Entertainment Channel
湖南卫视 Hunan Satellie TV
謝霆鋒 Nicholas Tse
杜天皓 Calvin Tu
汪東城 Jiro Wang
UNIQ
Anhui Satellite TV
Youku-Tudou
李易峰 Yifeng Li
趙麗穎 Liying Zhao
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Products
Football Products
First XTEP professional football product series – “Blade I” was launched in stores in June 2016
“Blade Series” tailors European football shoe designs to Chinese football players' feet and Chinese football facilities, using wide mid-height cleats
Sports Apparel
Key technologies are :
X-SEAMLESS-TECH
XTEP-WARM
XTEP-FROZEN
XTEP-DRY
XTEP Sports Elastic Technology
X-REFLECT
Sports Lifestyle Products
Captured the growing “athleisure” trend, offering fashionable and comfortable streetwear
Two Footwear lines:
Casual sports shoes “π Series” skate shoes
Two Apparel Series:
Campus series Urban series
Sports Footwear
Dynamic Foam (動力巢) Reactive Coil (減震旋) Air Mega (氣能環)
Continued to strengthen three core running technologies and started to combine two or more technologies to improve performance and comfort
Other major technologies included SoftpadTM (柔軟墊), Air Comfort (透氣網), COMFYCUBES (柔立方), Dow (仙護盾) and ThinsulateTM
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Increased Sales Efficiency at the Retail Level
Retail Channel Management
Flattened retail distribution network to increase control
over stores and inventory
XTEP had 6,800 retail stores as at 31 December 2016
Same store sales growth maintained mid-single digit
DRP system covered over 90% of XTEP retail stores to
facilitate real-time monitoring
Inventory of XTEP products in the retail channel at
healthy 4-5 months level throughout 2016
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Introduction of O2O Model
E-commerce Complements Offline Retail
E-commerce
Maintained the TOP sports footwear seller
position on Tmall.com and JD.com by volume
Products sold through Tmall.com, JD.com, XTEP
official website (www.xtep.com.cn), and other well-
established online shopping platforms
Expected to be a key growth driver going forward
First sportswear company to start using O2O (“Online-
to-Offline”) model with distributors in China, resulting in
increased profit for both the Group and distributors
O2O model currently rolled out to 1,200 stores and
targeted to reach 2,000-3,000 stores by end of 2017
Created a win-win situation where:
XTEP products were aligned and popular items in
offline stores also generated top sales online
Exponential effect from branding and promotional
efforts
Inventory levels were better controlled
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28
Product+ - New Running Products and New Product Lines
Prospects
Introduce 3 new series of running shoes in
2017 Q2: RUN FAST (競速快跑), RUN
STRONG (動力暢跑) and RUN FIT (舒適易跑),
to better serve marathon runners, routines
runners and entry-level runners respectively,
including the lightest running shoe in China
“RC160 (竞速160)”
Consolidate running apparel technologies into
6 core technology platforms: XTEP-DRY, XTEP-
COOL, XTEP-WARM, XTEP-SHIELD, XTEP-
COMFORT and XTEP-STRONGER
Expand XTEP product to high growth
potential categories beyond running, such as
football products, smart running shoes, outdoor
products, female focused products and indoor
fitness products
Launch new celebrity product lines, as well as a
new product line with Transformers
29
Sports+ - A Running Ecosystem Beyond Products and Sponsorships
Prospects (Con’t)
Continue the vision of being a part of, and operating, a running ecosystem beyond products and
sponsorships, and even beyond the sports industry to applications in other industries
Continue to sponsor major marathons and more varieties of running events to further enhance XTEP’s
association with running in China, including XTEP 3.21 Running Festival, evening marathons, women’s
marathons, retail store led local running events, training camps and activities
Beijing Olympic Forest Park XTEP Running Track and XTEP flagship stores as gathering points for
runners nation-wide, where they can receive advice and information on running events
Foster a closer bond between XTEP and runners through Xtep Motion Tracker APP, and provide tailor-
made products and services to individual users based on user data
30
Internet+ - Technology and Connectivity
Prospects (Con’t)
Harness the power of internet, mobile internet and other digital
technologies for achieving omni-channel precise marketing
Create a seamless retail system plus runners’ community among
Xtep online shops, Xtep offline stores, customers, XTEP Runner’s
Club members, XTEP Motion APP users and marathon participants
Introduce smart retail in offline stores by using automatic traffic
counter (客流計數器), e-payment , foot scanner (足型掃描器) and
other new technologies
Maintain minimum retail inventory level in the entire retail network
through O2O
Allow rapid replenishment, fast delivery, and expansion of XTEP
footprint
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Key Investment Highlights
Investment Highlights
Sports industry is a key focus announced in the 13th Five-Year Plan by the Chinese government
Successfully repositioned and strengthened XTEP brand image to a professional sports brand with
stylish and functional products which focuses on running
Remained as the sportswear sponsor of the most marathons in China with 24 major marathons
sponsored in 2016
Maintained the position as the top sports footwear seller on Tmall.com and JD.com by volume and e-
commerce will continue to be a key growth driver. Revenue from e-commerce contributed high-teens
percentage of the total revenue in 2016
Gross profit margin continued to improve for 4 years in a row to 43.2% (2015: 42.2%)
Successfully refined and flattened the distribution channel, increased operational efficiency with
average inventory turnover continued to improve to 51 days
Strong cashflow, with total bank deposits and bank balances of RMB4,245.3 million and cash from
operating activities of RMB647.7 million (before tax paid and others)
Maintained high dividend payout of around 60% since listing in 2008
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Contacts
Please visit our website:
http://www.xtep.com.hk
Xtep Investor Relations Department
Tel : (852) 2152 0333 Email : [email protected]
Strategic Financial Relations Limited
Tel : (852) 2864 4817 Email : [email protected]
