RNS Number:9475P
Esprit Holdings Ld
19 September 2003
Esprit Holdings Limited
(Incorporated in Bermuda with limited liability)
FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED JUNE 30, 2003
FINAL RESULTS
The Board of Directors of Esprit Holdings Limited (the "Company") is pleased
to announce that the audited consolidated results of the Company and its
subsidiaries (the "Group") for the year ended June 30, 2003 together with
comparative figures for the previous year are as follows:
Consolidated Profit and Loss Account
for the year ended June 30, 2003
2003 2002
Note HK$'000 HK$'000
Turnover
Company and subsidiary companies 12,381,458 9,219,114
Share of associated companies 297,574 263,590
12,679,032 9,482,704
Company and subsidiary companies
Turnover 2 12,381,458 9,219,114
Cost of goods sold (6,198,869) (4,690,369)
Gross profit 6,182,589 4,528,745
Staff costs (1,603,630) (1,198,415)
Depreciation and amortization (378,884) (278,533)
Other operating costs (2,479,118) (1,735,345)
Operating profit 3 1,720,957 1,316,452
Interest income 41,584 22,635
Finance costs (32,463) (13,923)
Share of results of associated companies 61,024 35,811
Profit before taxation 1,791,102 1,360,975
Taxation 4 (605,532) (375,239)
Profit after taxation 1,185,570 985,736
Minority interests - (58,526)
Profit attributable to shareholders 1,185,570 927,210
Dividends 5 831,918 328,513
Earnings per share
- Basic 6 100.5 cents 80.5 cents
- Fully diluted 6 100.3 cents 79.9 cents
Dividend per share 5 70.0 cents 28.0 cents
Consolidated Balance Sheet
as at June 30, 2003 2003 2002
Note HK$'000 K$'000
Intangible Assets 1,744,125 1,849,940
Fixed Assets 1,077,505 988,697
Other Investments 7,846 7,686
Associated Companies 101,568 78,368
Deferred Tax Assets 45,765 4,233
Current Assets
Stocks 918,268 955,321
Debtors, deposits and prepayments 7 1,206,333 824,248
Amounts due from associated companies 26,196 17,808
Short-term bank deposits 167,443 331,647
Bank balances and cash 1,944,793 650,026
4,263,033 2,779,050
Current Liabilities
Creditors and accrued charges 8 1,429,881 976,365
Taxation 775,441 681,556
Obligations under finance leases - due within one year 219 593
Bank overdrafts - secured 197 35,164
Bank overdrafts - unsecured 15,374 12,831
2,221,112 1,706,509
Net Current Assets 2,041,921 1,072,541
Total Assets Less Current Liabilities 5,018,730 4,001,465
Financed by:
Share Capital 118,869 117,694
Reserves 4,118,858 3,086,025
Shareholders' Funds 4,237,727 3,203,719
Obligations Under Finance Leases 336 450
Long-term Bank Loan 776,411 780,000
Deferred Tax Liabilities 4,256 17,296
5,018,730 4,001,465
Notes to the Financial Statements
1. Principal Accounting Policies
In the current year, the Group adopted the Statement of Standard Accounting
Practice ("SSAP") No. 34 "Employee benefits" issued by the Hong Kong
Society of Accountants which is effective for accounting periods commencing on
or after January 1, 2002. The adoption of the new SSAP has no material effect on
the results for the current and prior accounting periods. Certain comparative
figures have been reclassified to conform with the current year's presentation.
2. Turnover and segment information
The Group is principally engaged in the wholesale and retail distribution,
sourcing and licensing of quality fashion and life-style products designed under
its own internationally known ESPRIT brand name, together with Red Earth cosmetics,
skin and body care products and the operation of Salon Esprit.
2003 2002
HK$'000 HK$'000
Turnover
Sales of goods 12,177,503 9,061,516
Commission income 5,534 11,859
Licensing and other income 198,421 145,739
12,381,458 9,219,114
Primary reporting format - business segments
The Group's businesses are managed according to the nature of their operations
and the products and services they provide. Each of the Group's business
segments represents a strategic business unit that offers products and services
which are subject to risks and returns that are different from those of other
business segments.
Licensing
Wholesale Retail Sourcing and others Eliminations Group
2003 2003 2003 2003 2003 2003
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Turnover 7,070,143 5,107,360 5,534 198,421 - 12,381,458
Inter-segment revenue - - 736,682 258,723 (995,405) -
Segment revenue 7,070,143 5,107,360 742,216 457,144 (995,405) 12,381,458
Segment results 964,465 2,055 567,325 233,981 6,739 1,774,565
Intangible assets amortization (105,815)
Unallocated net income 52,207
Operating profit 1,720,957
Licensing
Wholesale Retail Sourcing and others Eliminations Group
2002 2002 2002 2002 2002 2002
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Turnover 5,220,258 3,841,258 11,859 145,739 - 9,219,114
Inter-segment revenue - - 530,628 190,588 (721,216) -
Segment revenue 5,220,258 3,841,258 542,487 336,327 (721,216) 9,219,114
Segment results 844,577 4,471 429,924 196,142 (22,855) 1,452,259
Intangible assets amortization (56,709)
Unallocated net expenses (79,098)
Operating profit 1,316,452
Secondary reporting format - geographical segments
In determining the Group's geographical segments, turnover is attributed to the
segments based on the location of customers. The Group has changed the
presentation of its geographical segments to reflect its current internal
financial reporting which was revised following the implementation of the Group's
new global management structure in the current year. Accordingly prior year
comparatives have been re-stated to conform with the current year presentation.
Turnover
2003 2002
HK$'000 HK$'000
Europe 9,843,095 6,866,121
Asia 1,631,685 1,621,076
Australasia 605,491 541,844
North America and others 301,187 190,073
12,381,458 9,219,114
3. Operating profit
2003 2002
HK$'000 HK$'000
Operating profit is arrived at after crediting and charging the following:
Crediting:
Provision for obsolete stocks written back - 6,302
Net exchange gain 151,475 22,724
Charging:
Auditors' remuneration 4,680 5,304
Depreciation
- Owned assets 272,541 220,767
- Assets held under finance leases 528 1,057
Intangible assets amortization 105,815 56,709
Impairment of fixed assets 36,140 -
Loss on disposal of fixed assets 44,960 6,693
Operating lease rental expenses
- Land and buildings 1,131,434 863,411
Provision for obsolete stocks and stock write-offs 88,918 -
Provision for doubtful debts 29,086 3,435
Provision for retail store exit costs 63,589 -
4. Taxation
2003 2002
HK$'000 HK$'000
Company and its subsidiaries:
Hong Kong profits tax 37,889 51,801
Overseas taxation 602,559 302,386
Deferred taxation (48,240) 9,129
592,208 363,316
Associated companies - overseas taxation 13,324 11,923
605,532 375,239
Hong Kong profits tax has been provided at the rate of 17.5% (2002: 16%) on the
estimated assessable profit for the year.
Overseas (outside of Hong Kong) taxation has been calculated at the rates of
taxation prevailing in the countries in which the Group operates.
5. Dividends
2003 2002
HK$'000 HK$'000
Paid interim dividend of 7.5 Hong Kong cents
(2002: 6.0 Hong Kong cents) per share 88,426 69,229
Proposed final dividend of 32.5 Hong Kong cents and
special dividend of 30.0 Hong Kong cents
(2002 final: 17.0 Hong Kong cents,
special: 5.0 Hong Kong cents) per share 743,492 259,284
831,918 328,513
6. Earnings per share
The calculation of basic earnings per share is based on the profit attributable
to shareholders of HK$1,185,570,000 (2002: HK$927,210,000) and the weighted
average number of shares in issue during the year of 1,179,721,133 (2002:
1,152,349,097).
The calculation of fully diluted earnings per share is based on the profit
attributable to shareholders of HK$1,185,570,000 (2002: HK$927,210,000), and the
weighted average number of shares in issue during the year of 1,181,438,207
(2002: 1,159,817,263) after adjusting for the number of dilutive ordinary shares
deemed to be issued at no consideration based on the assumption that all
outstanding share options granted under the Company's share option schemes had
been exercised.
7. Debtors, deposits and prepayments
Debtors, deposits and prepayments included trade debtors and their ageing
analysis is as follows:
2003 2002
HK$'000 HK$'000
0-30 days 791,644 460,168
31-60 days 45,828 21,341
61-90 days 10,774 6,758
Over 90 days 27,688 32,392
875,934 520,659
The Group's retail sales to customers are mainly on cash basis. The Group also
grants credit period which is usually 30 days to certain wholesale and franchise
customers.
8. Creditors and accrued charges
Creditors and accrued charges included trade creditors and their ageing analysis
is as follows:
2003 2002
HK$'000 HK$'000
0-30 days 489,189 415,178
31-60 days 30,048 29,367
61-90 days 8,095 8,038
Over 90 days 15,938 11,561
543,270 464,144
PROPOSED FINAL AND SPECIAL DIVIDEND
The directors have proposed a final dividend for the year ended June 30, 2003 of
32.5 Hong Kong cents per share (2002: 17.0 Hong Kong cents) and a special
dividend of 30.0 Hong Kong cents per share (2002: 5.0 Hong Kong cents), payable
on or about Tuesday, December 9, 2003 to the shareholders whose names appear on
the Register of Members of the Company at close of business on Wednesday,
November 26, 2003 ("Shareholders"). The relevant dividend warrants will be
dispatched to Shareholders on or about Monday, December 8, 2003.
OPERATION REVIEW
Esprit has achieved a decade of consecutive growth. Group turnover grew by 34.3%
year-on-year to reach HK$12.38 billion. Our operating profit (EBIT) increased by
30.7% to HK$1.72 billion. Profit attributable to shareholders increased 27.9%
year-on-year to HK$1.19 billion. Turnover from key product categories, lines of
business and continents with operations have recorded growth.
Channels of Distribution
Wholesale
Our wholesale business continued to grow in double-digits during the year.
Turnover grew by 35.4% to HK$7.07 billion (FY2001/02: HK$5.22 billion). Germany
remained our largest wholesale market and recorded 25.8% growth. We have also
successfully diversified into Benelux, France and Scandinavia, each of which
achieved over 50% increase in turnover. The main reason for our remarkable
wholesale performance was our continued triumph in gaining wholesale partners'
confidence through the consistent profitability offered by ESPRIT merchandises.
Success in cross-selling our progressively diversified product lines, evident in
men's wear wholesale turnover growth of 56.2%, also contributed to outstanding
results in FY2002/03.
During the year, the number of shop-in-stores in department stores, stand-alone
partnership stores and identity corners in multi-label stores increased to over
1,700, 400 and 3,300, totaling over 78,000 m2, 64,000 m2 and 68,000 m2 in
selling space respectively. Another channel of wholesale distribution involved
country distributors, such as China and Switzerland which have delivered
promising results. Our China joint venture has over 600 point-of-sales, totaling
over 53,000 m2. This combination of our different wholesale formats enabled us
to flexibly and speedily penetrate into various locations and markets without
major capital commitment.
Breakdown of Wholesale Turnover
Market Germany Benelux France Scandinavia Austria Others
% of wholesale turnover 55.9% 20.2% 6.6% 5.1% 5.0% 7.2%
% point(s) difference
(FY2002/03 vs. FY2001/02) -4.3% pts +2.2% pts +1.7% pts +0.8% pt -0.1% pt -0.3% pt
% growth from last year +25.8% +52.1% +80.2% +61.8% +33.8% +29.8%
Retail
Our retail operation achieved 33.0% turnover growth to HK$5.11 billion (FY2001/
02: HK$3.84 billion) amid challenging operating environment. Instrumental to
this growth was the combined effect of a 6.9% comparable-store sales growth and
a 9.2% increase in the Group's net sales per square meter. Europe led all other
regions in comparable-store growth and recorded a 14.1% increase over last year.
In spite of charges and provisions for retail space restructuring in Hong Kong,
U.K. and Canada, operating profit for this business segment remained flat. In
FY2002/03, we have successfully improved inventory turnover and reduced
markdowns through better merchandising, demand-driven pricing, and inventory
management.
During the year, we invested HK$231.1 million in capital expenditure to increase
our net directly managed retail floor space by 11,049 m2 representing a 7.8%
growth to 152,108 m2, and ended the fiscal year with a total of 569 directly
managed retail stores worldwide. The majority of the new space opened was in
Germany where we were able to take advantage of the adverse market conditions by
securing favorable locations at reasonable costs.
Breakdown of Retail Turnover
Market Germany Benelux Australasia Hong Kong Others
% of retail turnover 45.9% 11.8% 11.4% 11.2% 19.7%
% point(s) difference
(FY2002/03 vs. FY2001/02) +11.0% pts +0.4% pt -2.1% pts -4.8% pts -4.5% pts
% growth from last year +74.8% +36.8% +12.5% -6.8% +8.5%
Licensing
Since global unification of the brand, we have committed additional resources to
grow the licensing business. Our increased licensing activities have further
complimented our brand penetration worldwide. Product license partners
distributed ESPRIT licensed products through their own distribution channels, such as
department stores and speciality stores, some of which also distribute our other
lines of products such as women's or kids' wear. Our U.S. market was the main
growth factor in this business segment and we granted 5 new U.S. licenses
between May 2002 and June 2003.
Products
Key product categories achieved double-digit turnover growth. Women's wear
continued to be our major contributor, making up 58.1% of our total turnover and
recording 37.9% year-on-year growth. Men's wear was the best performer in terms
of sales growth among all product categories, recorded 52.9% year-on-year growth
and accounted for 13.1% of the Group's turnover.
The outstanding sales performance was attributable to the alignment of local
management team in executing global product strategy and the implementation of
12 collections-year and injection ordering. These factors gave rise to better
market-driven products at the right time and generated healthy sales. Our focus
remains in offering high quality products at fair prices. This year, on the back
of strong Euro, we passed on some of the cost savings from better sourcing to
our customers through lower prices or enhanced product quality.
In addition to our own products, we currently have more than 20 product license
partners offering merchandises in over 20 categories, including eyewear,
jewellery, timewear and footwear.
Breakdown of Turnover by Product Mix
women's shoes &
Products wear men's wear accessories kids' wear others
% of total sales 58.1% 13.1% 12.5% 7.9% 8.4%
% point(s) difference
(FY2002/03 vs. FY2001/02) +1.5% pts +1.6% pts -2.0% pts -0.2% pt -0.9% pt
% growth from last year +37.9% +52.9% +15.5% +31.5% +21.3%
FINANCIAL REVIEW
Operating Profit
Gross margin improved 0.8% point to 49.9% (FY2001/02: 49.1%). Contributing
positively to the margin was the lower sourcing cost resulting from the
appreciation of Euro, and the successful execution of our 12 collections-year
strategy, which led to increased full price sales. These positive factors were
partly offset by price point adjustment or improvement in product quality while
keeping price stable.
EBITDA (operating profit before depreciation and amortization) for the Group
improved by 31.7% to HK$2.10 billion, and EBITDA margin was slightly lowered by
0.3% point to 17.0%. As a percentage of sales, building expenses (which
accounted for 27.1% of total operating expenses) decreased by 0.4% point while
staff costs remained flat despite the addition of a number of key personnel.
Greater economies of scale was offset by charges and provisions for retail space
restructuring primarily in Hong Kong, U.K. and Canada.
Depreciation and amortization expenses were HK$378.9 million, that is HK$100.4
million or 36.0% higher than last year's. The significant increase was partly
due to an additional amortization charge of HK$48.8 million attributable to
intangible assets acquired in the second half of FY2001/02. Both the Financial
Accounting Standards Committee of the Hong Kong Society of Accountants and the
International Accounting Standards Board are currently reviewing the comments on
their proposed treatment on intangible assets including non-amortization of
intangible assets with indefinite useful lives but assessing for impairment of
such assets on a regular basis. Depending on the timing of release of any
revised standard in this regard, we will align our accounting policies to be
consistent with the standard.
Net Profit
The Group's effective tax rate was 33.8%, which was 2.7% points lower than the
year before, excluding the one-time tax benefit of HK$120.9 million in FY2001/
02. The increase in trademark amortization described above, as well as
additional tax on the acquired minority interest in Esprit International, was
balanced by our continuous efforts in implementing yield enhancement and
efficient tax strategies worldwide. Profit attributable to shareholders
increased by 27.9% reaching HK$1.19 billion. Net profit margin, excluding the
one-time tax benefit of HK$120.9 million in FY2001/02, improved 0.9% point to
9.6%.
Liquidity and Financial Resources
Net cash from operating activities increased by 18.3% to HK$1.57 billion. The
Group's net cash (i.e. cash and cash equivalents less long-term bank loan which
is payable in 2005) as at June 30, 2003 increased HK$1.17 billion to HK$1.32
billion after having spent HK$332.6 million in capital expenditures during the
year. Our debt to equity ratio, expressed as a percentage of interest bearing
external borrowings over shareholders' funds of HK$4.24 billion, was 18.7%. The
Group had assets of HK$74.5 million pledged as security for overdraft and
short-term revolving facility. The current ratio (current assets divided by
current liabilities) improved to 1.9:1 from 1.6:1.
During the year, as is our policy, the Group entered into foreign exchange
forward contracts to reduce exposure to foreign exchange risks. These agreements
were contracted with large and reputable financial institutions, thereby
minimizing credit risk. As at June 30, 2003, outstanding contracts increased to
HK$375.2 million, from HK$251.3 million last year, which corresponded with the
increase in European and U.S. orders.
PROSPECTS
Our targets for FY2003/04 are to continue delivering double-digit top and bottom
line growth. To achieve these goals, we are going to further leverage on the
success of our European operations, halve the retail losses in Hong Kong, U.K.
and Canada and deepen our market penetration into North America.
The ESPRIT brand and products, as well as our global distribution channels, remain our
focus. In September 2003, we have launched a global image campaign to further
nurture our most valuable assets. We will also continue to strengthen our brand
dominance in continental Europe.
On the products front, we are focusing on getting the right product to the right
location at the right time. We will continue to enhance the breadth and quality
of our global offerings to cater to the needs of our markets and further improve
the price-quality correlation. A new position of International Product Director
has already been created to orchestrate and coordinate these plans. Another
initiative was the product re-launch exercise in September 2003 in Hong Kong. In
addition to product betterment, we will facilitate our successful licensees to
enter other markets, further diversifying our offerings in the global
marketplace.
Our other main focus is the development of our global distribution network.
Europe will remain the growth driver for FY2003/04. Additional space is already
booked to begin operation in FY2003/04, including 500 new shop-in-stores in
department stores, 100 new stand-alone partnership stores, and around 24,000 m2
of directly managed retail space. We feel that we have accumulated enough
knowledge of the U.K. market to accelerate its retail and wholesale development.
New stores will be opened around the central London area and we have already
started wholesaling in the U.K..
The next phase of channel development in North America will begin as we extend
our U.S. distribution network beyond department stores into free-standing retail
stores. We have accelerated our entrance into the retail business and planned to
open around 5 retail stores in the U.S. by the end of 2004, subject to
availability of suitable store locations. Roll-out of wholesale shop-in-stores
will continue with the expansion to other channels including independent and
chain stores in the U.S.. Moreover, we are making plans to introduce e-shop, our
online store that is already yielding good return in Europe, to the U.S. in the
second half of 2004. In Canada, we target to launch wholesale in FY2003/04.
In Asia, we will continue our retail space restructuring as well as improvement
in store displays and layouts. We are also stepping up efforts to grow our
wholesale business within the region. Furthermore, Esprit's joint venture
business in China is recovering from the impact of Severe Acute Respiratory
Syndrome and is set for further growth.
As for Australasia, we will focus our attention on achieving comparable store
growth and strengthening brand penetration in New Zealand.
We have budgeted around HK$600 million in capital expenditure for FY2003/04, of
which approximately HK$400 million is for opening new stores and upgrading
existing ones primarily located in Europe. We will also dedicate around HK$90
million for implementation of IT systems mainly for merchandise planning and
retail management, to facilitate our global unification as well as to enhance
productivity and efficiency. Another HK$100 million has been allocated for
furnishing new showrooms and our global business headquarter in Ratingen,
Germany due to open in October 2003.
With our major markets in varying stages of advancement, each promising exciting
opportunity into the future, we believe that we will remain on track to expand
internationally, both in market penetration and in brand recognition.
HUMAN RESOURCES
As at June 30, 2003, the Group employed a total of 5,751 people (FY2001/02:
5,936). Since human capital is key to our growth and profitability, heavy
emphasis has been placed on staff training and development. The Group also
offers competitive remuneration packages to its employees in compensation for
their contribution. In addition, share options and discretionary bonuses are
also granted based on the Group's and individuals' performance. All employees
from around the world are connected in the Esprit community through the
quarterly newsletter and the intranet sharing of the Group's vision and values.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from Friday, November 21,
2003 to Wednesday, November 26, 2003, both days inclusive, during which period
no transfer of shares will be effected.
In order to qualify for the final and special dividend mentioned above, all
transfers accompanied by the relevant share certificates must be lodged with the
Company's share registrar in Hong Kong, Secretaries Limited, at G/F., Bank of
East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later
than 4:00 p.m. on Thursday, November 20, 2003.
PURCHASE, SALE OR REDEMPTION OF SECURITIES
Neither the Company nor any of its subsidiaries have purchased, sold or redeemed
any of the Company's shares during the year.
CORPORATE GOVERNANCE
During the year, the Company has complied with the Code of Best Practice as set
out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited ("Listing Rules").
As a matter of good corporate governance, our Board and the Audit Committee have
conducted quarterly review of the Group's performances. Our outsourced internal
audit function is working well with the first audit report already submitted by
KPMG. We have also improved the speed and transparency of disclosure through
proactive investor relations and enhancements to our investor relations website.
All these efforts are made to safeguard our shareholders' interests and to
promote better communication between the Group and the public.
DISCLOSURE OF INFORMATION ON THE STOCK EXCHANGE'S WEBSITE
Information that is required by paragraphs 45(1) to 45(3) of Appendix 16 of the
Listing Rules will be published on the website of The Stock Exchange of Hong
Kong Limited (http://www.hkex.com.hk) in due course.
By Order of the Board
Esprit Holdings Limited
John Poon Cho Ming
Executive Director & Group CFO
Hong Kong, September 18, 2003
This announcement can also be accessed through the internet at the Company's
website www.espritholdings.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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