CHINA ZAINO has FY08 sales statistics that are amazing:
* It sold RMB2.2 billion (up 48.1% year on year) worth of backpacks and luggages.
* It raked in RMB412.1 million in net profit (up 35.0% year on year).
According to a Frost & Sullivan report, China Zaino had a market share of 35.8% in 2006. That may be more than two years ago and the market share may have increased or decreased since, but the company can safely claim to be the No.1 in backpacks in China.
At the 2008 Beijing Olympic Games, it was the only PRC backpacks brand associated with the event.
The company generated from operations a healthy RMB 383.8 million. Cash and bank balances stood at RMB800.4 million as at 31 Dec 2008.
Lawrence Lam, CFO. Photo by Sim Kih
Taking analysts through a recent presentation of the financial results, the chief financial officer, Lawrence Lam, said that the company believed it can maintain its 32-33% profit margins this year, although they may fluctuate from quarter to quarter.
For example, Q1 sales and margin are expected to be lower compared to Q4 which is a holiday period ahead of the Chinese New Year.
China Zaino will continue to count on TV advertising (2008 expenditure: RM97 million) as the key way to build its brand, and is budgeting more than RMB100 million for this year.
The advertising and promotion efforts are paying off as seen from increased average selling prices year-on-year and quarter-on-quarter.
”People ask if it’s necessary to advertise during this economic downturn. On the contrary, I would say it’s a golden opportunity to build brand awareness and loyalty. Our Q4 results were satisfactory because of the TV adverts in the second half of the year,” said the chairman, Chen Xizhong.
Mr Lam explained a few aspects of the financial results, including the jump in trade receivables from RMB 186.7 million in FY07 to RMB 318.6 million FY08.
The reason was simply the higher sales - but not to worry. “In Jan 09, we have received about 80% of the Dec 08 debt.”
Chen Xizhong, chairman, China Zaino. Photo by Sim Kih
For the full year 2008, the trade receivables turnover days was 41 days. The credit terms to distributors are 30 days, 40 days and 60 days. If any distributor owes money for more than 60 days, China Zaino will make a full provision for the debt.
In the FY08 results statement, the company did not have to make any provisions.
On trends, Mr Chen said that his company’s brand of luggage (Dapai) is proving more attractive, value-wise, compared to luxury brands like Samsonite. And aside from business and leisure travelers, he noticed two new major customer groups:
a) Students who use luggage for travel and storage.
b) Production workers who travel to and from their hometowns. Dapai luggages are affordable at 200-400 RMB, as compared to their income of 1,500 RMB a month.
Here are some questions and answers from the analyst briefing session on Tuesday (Mar 3) at Fullerton Hotel:
Q Who are your top 5 customers? Have they been increasing their orders in the last few years?
A They are distributors, especially, in Shanghai, Beijing and Guangzhou. Individually, they don’t account for too high a percentage of our Group’s revenue. For some of them, it’s 6-8%. They increase their orders every year – we grow, they also grow. Among the top 10, there is some change – if a distributor is not performing well, we will cut his ‘portion’ and give it to another distributor in the same region.
Q Your company has opened outlets in many parts of China but not focused on your home province, Fujian. Now that you have 3,250 outlets, do you intend to expand into Fujian?
TV advert for Dapai backpags
A We wanted to expand in other parts of China through distributors and planned to do sales on our own in Fujian. In fact, this year we plan to open 150-160 points of sale in Fujian. These are shops in shops (supermarkets, hypermarts) and some standalone shops.
Q Regarding your cash balance, you said you have gotten 80% of the accounts receivables, so now your balance is higher than RMB 800 million as at end of the year?
A It is higher. But after we sign a contract for the construction of our new factory and contracts for TV advertisements, the cash will diminish steadily. Between RMB 140-200 million will be for the factory, RMB 50 million for billboards, RMB80 m in dividends for shareholders, RMB100-150 million for TV advertisements.
So the total is up to RMB500 million. For opening points of sales in Fujian, we will spend RMB100-150 million this year.
As for dividends, I would like to pay it every year, so when I come to Singapore I get smiles from the shareholders!
Q Regarding your plan to open your own retail outlets in Fujian – isn’t there a risk? Why don’t you want to go through distributors?
A It’s a good idea for business development because right now we give a big discount to the distributors. As we are based in Fujian and have close connections with our end-users, we believe we can earn this part of the sales money. We will take care of the rental, the staff and other expenses of the shops.
Q For FY08, you have a 1.97-cent-a-share dividend payout, which is 20% of the net profit. Do you have a policy for FY09?
A We will declare at least 20% of the profit after tax.
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