Financials

Quarterly Report For The Financial Period Ended 31 December 2011

Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.

Unaudited Condensed Consolidated Statements of Comprehensive Income
For The Second Quarter Ended 31 December 2011

Condensed Consolidated Statements of Financial Position
As At 31 December 2011

Review Of Performance

1. Financial Year-to-date vs. Previous Financial Year-to-date

   The Group achieved a revenue and PBT of RMB867.1 million and RMB165.9 million respectively for the 6 months financial period ended 31 December 2011 ("FPE 2012"). The revenue of RMB867.1 million represents an increase of 18.6% as compared to the revenue of RMB730.8 million recorded for the 6 months financial period ended 31 December 2010 ("FPE2011").

   The increase in revenue is contributed by the following:

   1. Increase in sales volume of shoe sole and apparel from approximately 7.7 million pairs and 2.6 million pieces respectively in FPE2011 to approximately 11.5 million pairs and 3.0 million pieces respectively in FPE2012.

   2. Increase in average selling price of shoe from RMB107.8 per pair in FPE2011 to RMB109.8 per pair in FPE2012, and increase in average selling price of apparels from RMB96.8 per piece in FPE2011 to RMB104.9 per piece in FPE2012. The substantial increase in the selling price of apparels is due to the successful brand upgrade to GERTOP which is in the outdoor casual wear segment compared to the previous outdoor sports wear. Outdoor casual wear in general tends to have higher selling prices compared to outdoor sports wear.

   The PBT of RMB165.9 million for FPE2012 represents an increase of 18.8% as compared to the PBT of RMB139.7 million recorded for FPE2011. The increase in PBT was mainly due to the increase in revenue as mentioned above.

   The increase in selling and distribution expenses from RMB69.1 million in FPE2011 to RMB95.7 million in FPE2012 is mainly due to higher expenses in relation to renovation subsidies for the sales outlets amounting to RMB15.7 million, display shelf for the sales outlets amounting to RMB26.9 million and expansion of sales network expenses amounting to RMB25.2 million.

   The profit after taxation ("PAT") of RMB133.8 million for FPE2012 represents an increase of 32.1% as compared to PAT of RMB101.3 million recorded for FPE2011 due to higher profit before tax.

   In the current quarter, sales incentives have been netted off against revenue instead of included under selling and distribution expense as was the previous classification as the management is of the opinion that the nature of the expense is akin to sales rebate. The comparative amount of RMB24.5 million for the financial period ended 31 December 2010 was accordingly reclassified from selling and distribution expense to revenue.

   The effective tax rate decreases from 27.4% in FPE2011 to 19.3% in FPE2012 due to higher contribution from Addnice China that is entitled to a 50% reduction in income tax.

   Based on the Income Tax Law of the PRC for Enterprises with Foreign Investments and Foreign Enterprises, Addnice Sports, Addnice China and Xingquan Plastic are entitled to full exemption from income tax for the first two years and a 50% reduction in income tax for the next three years starting from their first profitable year of operation. Addnice China is exempted from the state corporate income tax for its first two profitable calendar years of operation (i.e. from 1 January 2008 to 31 December 2009) and thereafter, is entitled to a 50% relief from the state corporate income tax for the third to fifth consecutive years (i.e. from 1 January 2010 to 31 December 2012). Addnice Sports and Xingquan Plastic had fully utilised their tax incentives and are subject to the full state corporate income tax.

   Performance of the respective operating business segments for FPE2012 as compared to FPE2011 is analysed as follows:

   Shoe sole - The increase in revenue from RMB140.0 million in FPE2011 to RMB206.6 million in FPE2012 was mainly due to increase in sales volume from 7.7 million pairs in FPE2011 to 11.5 million pairs in FPE2012.

   Shoe - The increase in revenue from RMB325.4 million in FPE2011 to RMB329.8 million in FPE2012 was mainly due to increase in average selling price from RMB107.8 per pair in FPE2011 to RMB109.8 per pair in FPE2012.

   Apparel - The increase in revenue from RMB249.5 million in FPE2011 to RMB310.9 million in FPE2012 was mainly due to increase in sales volume and average selling price from 2.6 million pieces and RMB96.8 per piece in FPE2011 to 3.0 million pieces and RMB104.9 per piece in FPE2012.

2. Current Quarter vs. Previous Year Corresponding Quarter

   The Group achieved a revenue and profit before taxation ("PBT") of RMB440.8 million and RMB76.8 million respectively for the current quarter ("Q2FY2012"), representing an increase of 11.7% and 7.9% respectively as compared to the corresponding period in the preceding year.

   The increase in revenue is contributed by the following:

   1. Increase in sales volume of shoe sole from approximately 3.8 million pairs in Q2FY2011 to approximately 5.7 million pairs in Q2FY2012.

   2. Increase in average selling price of apparels from RMB99.9 per piece in Q2FY2011 to RMB108.0 per piece in Q2FY2012.

   The PBT of RMB76.7 million for Q2FY2012 represents an increase of 7.8% as compared to the PBT of RMB71.1 million recorded for Q2FY2011. The increase in PBT was mainly due to the increase in revenue as mentioned above.

   Performance of the respective operating business segments for Q2FY2012 as compared to Q2FY2011 is analysed as follows:

   Shoe sole - The increase in revenue was mainly due to increase in sales volume.

   Shoe - The marginally decrease in revenue was mainly due to slight decrease in average selling price from RMB111.6 per pair in Q2FY2011 to RMB110.7 per pair in Q2FY2012.

   Apparel - The increase in revenue in Q2FY2012 was mainly due to increase in both sales volume and average selling price.

Prospect for FYE 2012

Based on market research conducted by Converging Knowledge Pte Ltd, the outdoor casual wear market is estimated to be worth RMB27 billion in 2010. Generally, growth rates for the northern region in China tend to be higher as Chinese consumers in the said region have a preference for a more "rugged" outlook, which outdoor casual wear can offer. On the average, the outdoor casual wear market is expected to see growth of 30% annually for the next two years (2011-2012), thereafter slowing down to 20% in the third year (2013). On this basis, the market is expected to reach in approximately RMB55 billion by 2013.

Nevertheless, we are aware that the global economic uncertainties may impact the spending pattern of the Chinese consumers which may then impact our business. As such, we will continue to be wary of the changes in the economic conditions. In view of the above, our Board of Directors believes that the Group's prospects for the financial year ending 30 June 2012 should remain positive.