Annual Report to Shareholders
Melbourne, Mar 8, 2016 AEST (ABN Newswire) - The Directors of XPD Soccer Gear Group Limited (
ASX:XPD) ('XPD') present their Report together with the financial statements of the consolidated entity, being XPD ('the Company') and its Controlled Entities ('the Group') for the year ended 31 December 2015.
Principal activities
During the year, the principal activities of entities within the Group were: designing, developing, manufacturing, distributing and marketing sportswear with a focus on soccer wear under the "XPD" brand.
There have been no significant changes in the nature of these activities during the year.
Review of operations and financial results
FY2015 has been an outstanding year for XPD Group. The team has delivered continued growth in revenue and profit, whilst managing the successful listing of the Group on the ASX. We continued to increase XPD distributors and retail outlets in China, and invested significantly in XPD brand marketing and promotion.
- Sales revenue of FY2015 increased by 35.9% to $102.3million when compared to FY2014 as a result of continued expansion of sales channels and network, and increased in sale of XPD brand footwear in particular soccer footwear.
- The gross profit margin has maintained at 33%.
- Net profit (excluding non-recurring costs of $818,177 associated with the IPO) increased by 11.4% to $17.05 million for FY2015 from $15.3 million in FY2014. Such increase in net profit during the period was primarily due to an increase in sales and marketing effort by the Company.
- Total sales and marketing expenses for FY2015 amounted to approximately $6.9 million (FY2014: $3.0 million), representing an increase of 130% from FY 2014. The increase was mainly attributable to increased expenses associated with advertising and promotion activities for our brand and increase in staff costs.
- Total administrative expenses for FY2015 amounted to $3.0 million (FY2014: $0.9 million), representing an increase of 233% when compared to FY2014. The increase was mainly caused by increased staff costs, consulting costs and donations made to schools and community.
- Foreign exchange translation gain of $2.2million, arising from the appreciation of RMB against AUD during the year.
- Cash balances as at end of FY2015 have increased from $12.6million to $37.7million. The two primary sources of this increase are the capital raising in FY2015 and positive net cash inflow from operations.
Operations review
Distribution
The XPD retail outlets, which are owned and operated either by our distributors or by independent third parties, have been providing an effective retail channel for our products throughout China. The Group continued to increase the number of both distributors and retail outlets. As at 31 December 2015, the total number of XPD retail outlets was 2,062, representing a net increase of 124 outlets when compared to FY2014, and the number of distributors increased to 240 (FY2014:226). Low-tier cities in China in particular the second, third and fourth tier cities have been the Group's focused markets because of their faster economic growth, less intense competition and less brand loyalty when compared to the first-tier cities. Accordingly, most of XPD retail outlets are located in those cities.
E-commerce
We believe e-commerce is an effective and efficient way to further promote our brand and products beyond geographical boundaries. We have on-line stores on well-known third party e-commerce platforms including Tmall, JD.com. Paixie.net.
Campus soccer
In line with Chinese Governments' recent move to make soccer a compulsory part of the national curriculum and to further promote soccer among youngsters in China, we have strengthened our resources in junior soccer and launched soccer collections for children/teenager. We sponsored football leagues and individual football clubs at school and college levels, and innovatively introduced "school + XPD+ soccer club" model, which XPD provide soccer products and soccer club provide coaches. This model has been firstly rolled out in Fujian Province where the Group is located.
Marketing and promotion
Brand marketing and promotion is crucial to our continuous success in the sportswear industry. To maintain a simple and consistent brand message to our consumers, XPD has been employing a focused marketing strategy by focusing on soccer since 2005 although it offers products for other sports. During FY2015, XPD invested significantly in marketing and promotion. XPD employs various traditional media such as commercial television, outdoor, newspapers and magazines, while it supports the growth in its brand through social media promotion activities.
XPD endeavoured to establish its brand recognition and reputation in Australia by sponsorships. We sponsored Queensland U15 Soccer Tour to Japan in September 2015 and Queensland U19 Soccer Team for the Pacific School Games in Adelaide in November 2015.
Production
Our footwear products are manufactured either by the Group's own production facility located in Jinjiang City or contract manufacturers. We believe that maintaining in-house production capabilities has several advantages including better control over the production process, greater ability and flexibility to respond promptly to market changes, and better bargaining power over contract manufacturers. The in-house production of footwear for FY2015 accounted for 67% (2014: 62%) of the total production volume. All apparels and accessories production are outsourced.
Henan Yuanlong
The Group entered a joint venture, Henan Yuanlong Industrial Co., Ltd (Yuanlong), with six other independent parties in 2013. The company owns a 26% equity interest in Yuanlong (refer to Note 19 for further information). Yuanlong purchased a land of approximately 324,002 sqm in Sui County of Shangqiu City of Henan Province for developing sportswear related business. The land is under development in three stages. Construction of eight factory buildings and two dormitories is being currently completed.
Labor costs in Eastern coastal areas in China continue to increase and are significantly higher than Central China where Henan Province is located. In order to decrease labor costs and increase in-house production to meet increasing demands for our products, XPD plans to lease factories from the associate and install two new production lines in the first half of FY2016. That will provide additional production capacity of two million pairs of shoes per annum.
Significant changes in the state of affairs
During the year, the following changes occurred within the Group:
- issue of share capital:
o Pursuant to a Share Sale Deed dated 16 February 2015, China Soccer Holdings, the intermediate holding company incorporated in Hong Kong, and its controlled entities, became subsidiaries of the Company; and
o on 18 May 2015, the Group issued 33,075,500 shares as part of its capital raising program which resulted in proceeds of $6.6m. Each share issued has the same terms and conditions as the existing ordinary shares.
- The Company was listed on the Australian Securities Exchange on 21 May 2015.
Dividends
On 3 March 2016, the Directors have recommended an unfranked final dividend of 1cent per share to be paid on 30 May 2016 (2014: $nil).
Events arising since the end of the reporting period
Other than the dividend declared above, there are no other matters or circumstances that have arisen since the end of the year that have significantly affected or may significantly affect either:
- the entity's operations in future financial years
- the results of those operations in future financial years; or
- the entity's state of affairs in future financial year
Likely developments, business strategies and prospects
The development of the sports sector has been designated as a China national strategy, with specific goals including the promotion of national participation of sports activities, enhancement of the sports industry, and boost in related consumption to create a RMB5 trillion market by 2025.
As awareness of health and popularity of sports participation rise, consumers will place more emphasis on the functional and professional features of sportswear products. With soccer gaining popularity across China, demand for related soccer products will continue to surge as a result of more participants in this sport.
XPD has developed a comprehensive strategy to deliver continued growth through:
- further enhancement of brand awareness
- distribution growth in China
- innovating new products with new technologies/materials
- focus on soccer sector while increasing sales in sportswear for other sports categories in particular badminton and table tennis
- ramping up in-house production capacity by investing in two production lines at the Yuanlong facility in Henan Province
To view the full report, please visit:
http://media.abnnewswire.net/media/en/docs/ASX-XPD-911384.pdf
About XPD Soccer Gear Group Ltd
XPD Soccer Gear Group Ltd (ASX:XPD) is a leading and fast-growing sportswear business in China. The Company listed on the Australian Securities Exchange on 21 May 2015.
The company is primarily engaged in the design, development, manufacturing, marketing and distribution of sportswear products under the “XPD” brand. XPD has a focused branding strategy on soccer products including soccer boots, soccer gear and accessories.
XPD has established an extensive supply chain management system through in-house and sub-contracted manufacturing operations; and an extensive distribution network throughout China.
| ||
|
