Gome Retail Holdings Limited · HKEX:493
Gome Retail — GOME Electrical Appliances Holding — Q1 2012 Earnings Presentation
42 slides from Gome Retail's earnings presentation, May 25, 2012
Slide 1: 2012 First Quarter Performance Review and E-Commerce Strategic Initiatives
2012 First Quarter Performance Review and E-Commerce Strategic Initiatives 25th May, 2012
Slide 2: Disclaimer
Disclaimer § This presentation and the accompanying slides (the “Presentation”) which have been prepared by GOME Electrical Appliances Holding Limited (“GOME” or the “Company”) do not constitute any offer or invitation to purchase or subscribe for any securities, and shall not form the basis for or
Slide 3: Content
Content l 2012 First Quarter Performance Review l E- Commerce Strategic Initiatives l Appendix - I First Quarter Performance Supplement - II Cost Allocation Method Analysis - III Glossary - IV Cost Control Analysis 1Q12 Results | Page 2
Slide 4: 2012 First Quarter Performance Review
2012 First Quarter Performance Review
Slide 5: Challenges and Opportunities
Challenges and Opportunities 1. E-commerce records Challenges significant growth. 1. Sales slowed following 2. T2 market continues to be end-2011 expiration of an integral part of overall government subsidies. development. 2. Fierce competition 3. 3C is the driving force in online has led to more bo
Slide 6: 2012 First Quarter Business Initiatives
2012 First Quarter Business Initiatives Store Network n During the reporting period, the Group opened 31 stores and closed 9 stores Expansion and with a net increase of 22 stores, total number rose from 1,079 at the end of 2011 Optimization to 1,101, covering 239 medium to large cities in China. n
Slide 7: Income Statement Summary and Analysis
Income Statement Summary and Analysis RMB Million 1Q11 1Q12 Change % Revenue 13,677 9,762 (28.6)% Consolidated Gross Profit 2,546 1,948 (23.5)% Operating Profit 685 53 (92.3)% Profit Before Tax 714 95 (86.7)% Net Profit Attributable to Owners 552 67 (87.9)% of the Parent Company Consolidated Gross P
Slide 8: Consolidated Gross Profit Margin
Consolidated Gross Profit Margin Consolidated Gross Profit Margin Factors Contributing to Growth in Consolidated Gross Profit Margin 1Q12 Results | Page 7
Slide 9: Consolidated Gross Profit Margin Analysis (con’t)
Consolidated Gross Profit Margin Analysis (con’t) RMB Million % of Revenue 18.6% 20.0% Item 1Q2011 1Q2012 2,546 1,948 Revenue 13,677 9,762 RMB Million Consolidated gross margin 18.6% 20.0% Gross profit margin 13.2% 13.9% Total other income 5.4% 6.1% Include: Income from suppliers 3.5% 3.9% Managemen
Slide 10: Expenses Breakdown
Expenses Breakdown RMB Million 1Q11 1Q12 Change % Selling & Distribution Expenses 1,515 1,534 1.3% Rent 619 714 15.3% Sales Salaries 382 372 (2.6)% Advertising 158 107 (32.3)% Delivery 65 71 9.2% Utilities 91 82 (9.9)% Other S&D 200 188 (6.0)% Administrative Expenses 292 307 5.1% Other Expenses 53 5
Slide 11: Operating Profit Margin and Net Profit Margin
Operating Profit Margin and Net Profit Margin Operating profit margin Net profit margin 1Q12 Results | Page 10
Slide 12: Financial Statement Summary and Analysis
Financial Statement Summary and Analysis RMB Million As of 31st As of 31st Change December, 2011 March, 2012 Cash and Cash Equivalents 5,971 5,527 (7.4)% Pledged Deposits 4,389 3,190 (27.3)% Inventories 9,625 7,553 (21.5)% Trade Payables 7,177 5,854 (18.4)% Bill Payables 9,963 7,775 (22.0)% Inventor
Slide 13: Store Network and Operating Efficiency
Store Network and Operating Efficiency Number of stores Period-end sales area 1,000 sq.m Average sales per store Sales per sq.m RMB 10,000 RMB: Yuan 1Q12 Results | Page 12
Slide 14: Store Efficiency
Store Efficiency Same store sales growth Consolidated growth Number of period end comparable stores： 680 669 662 661 661 788 1Q12 Results | Page 13
Slide 15: Next Steps
Next Steps Increase gross profit margin, control cost and improve operating efficiency Increase gross profit margin • Strengthen collaboration with suppliers • Integrate and manage store sales, marketing and promotion, store operation and customer service • Raise operational capability through estab
Slide 16: E-Commerce Strategic Initiatives
E-Commerce Strategic Initiatives 1Q12 Results | Page 15
Slide 17: Outlook
Outlook n Trade volume is estimated to exceed RMB 1.9 trillion by 2014. n With its unparalleled growth rate, e-commerce has become the retail channel with the most significant potential. n New round of government subsidy was introduced on 16th May, 2012. E-commerce trade volume in China , 2008 -
Slide 18: Our Determination
Our Determination 2014 2013 1. E-commerce is GOME’s future core 2012 business area and focus of investment. 2011 2. GOME will continue to accelerate development of the e-commerce business. 3. E-commerce is an integral part of the physical stores. Accelerated online/offline integration 1Q12 Results |
Slide 19: Our Targets
Our Targets traditional appliances: offline operations as the priority, complementary with online platform Future source of profit growth Listed co. small appliances and 3C Multi channel retailer in E-commerce products: online/offline simultaneous multiple products Non-listed co. development; non-el
Slide 20: Our Strengths
Our Strengths 1 §25 years experience in traditional appliances retail industry §E-commerce logistics network of 300 warehouse, 1,700 stores §Over RMB 100 billion procurement capacity 2 3 §Advanced information §Brand loyalty system §Experience in pricing §Capacity to offer strategy differentia
Slide 21: Constraints
Constraints Listed co. could not operate business in non-listed regions. E-commerce could not leverage on non-listed co. resources. E-commerce platform 1 Listed co. Non-listed co. stores stores Legal and technical constraints 1Q12 Results | Page 20
Slide 22: Constraints (con’t)
Constraints (con’t) Details 1. Territory: according to the Non-Competition Deed entered into on 29th July 2004 and Non-Conventional Mode Deed entered into on 28th February 2006, GOME (listed co.) is restricted from carrying on the retail business (conventional retail stores or non-conventional mod
Slide 23: Constraints (con’t)
Constraints (con’t) Details: The use of cost allocation model requires separation of the entities - listed and non-listed co., resulting in technical constraints: 1.Higher complexity of product classification 2.High back-end handling costs with poor consumer Technical experiences Constraints 3.Hig
Slide 24: Solutions
Solutions Financial advisor: Rothschild (Hong Kong) Limited • 【non-listed co.】injects cash to e- commerce platform. • 【non-listed co.】and【listed co.】become Leverage on both online/offline joint shareholders procurement, logistics and after- sales platforms • The combined effect is that the listed co
Slide 25: Solutions (con’t)
Solutions (con’t) stores Offline + E-commerce + Offline stores GOME (listed) GOME (non-listed) 40% share of Kuba and Xinruimei the right to operate in non-conventional business (minority shareholder) Non- Listed and 40% of historical losses listed Co. 73.33 million RMB in cash Co. authorization to u
Slide 26: Solutions (con’t)
Solutions (con’t) Current shareholding Capital injection Shareholding structure after structure Non-listed co. makes cash injection in the capital injection form of equity capital/cost of investment (RMB 73.33 million). Non-listed co. (RMB) Shareholding • RMB in Shareholding cash 100% 40% Cost of in
Slide 27: Solutions (con’t)
Solutions (con’t) 1. Shareholding: Ø Proportion of revenue and stores of listed and non-listed co. 2. Valuation: Ø Non-listed co. grants list co. the right to use GOME Ø Benchmarked by the investment made by listed trademark: non-exclusive, indefinite and without co. in Kuba and Xinruimei. consid
Slide 28: Advantages of An Integrated E-Commerce Platform
Advantages of An Integrated E-Commerce Platform • Make a positive contribution to the overall business • Leverage on both listed and non- listed co. store network • Integrate online/offline procurement, logistics and after-sales platforms • Enhance consumer experience with no limits in geographical
Slide 29: Appendix
Appendix
Slide 30: I. 1. Sales by Regions
I. 1. Sales by Regions 1Q2011 1Q2012 Total: RMB 13.68 Billion Total: RMB 9.76 Billion 1Q12 Results | Page 29
Slide 31: I. 2. Sales by Product Categories
I. 2. Sales by Product Categories 1Q2011 1Q2012 Total: RMB 13.68 Billion Total: RMB 9.76 Billion 1Q12 Results | Page 30
Slide 32: I. 3. Gross Profit Margin by Product Categories
I. 3. Gross Profit Margin by Product Categories v Continuous increase in the gross profit margin of different product categories due to: n Further optimizing the product mix, increasing the sales proportion of high-margin products such as small home appliances, accessories, ODM/OEM products n Str
Slide 33: I. 4. Store Network Expansion
I. 4. Store Network Expansion As of 31st March, 2012 Group GOME China Paradise CellStar Flagship stores 210 167 43 0 Standard stores 360 306 54 0 Specialized stores 531 409 74 48 Total: 1101 882 171 48 T1 Market 699 533 124 42 T2 Market(1) 402 349 47 6 Net store increase in 1Q12: 22 16 4 2 Number of
Slide 34: I. 5. Stable Supplier Relationships
I. 5. Stable Supplier Relationships Top Five Suppliers in 1Q11 Top Five Suppliers in 1Q12 1Q12 Results | Page 33
Slide 35: II. 1. Cost Allocation Method Analysis
II. 1. Cost Allocation Method Analysis 1 n Cost is allocated on the basis of listed/non-listed regions and revenue: – requires allocation of cost in procurement, sales and delivery – potentially preferential order placement could negatively impact sales in both listed and non-listed co., creating i
Slide 36: II. 2. Illustration of Cost Allocation Model
II. 2. Illustration of Cost Allocation Model Listed/non-listed co. is divided by the following： Case study order content：refrigerator+ Business requirement Backgrounds mobile handset + clothing items Xinruimei is divided into listed co. and non-listed co. in the following: Regions Beijing Harbin n
Slide 37: II. 2. Illustration of Cost Allocation Model (con’t)
II. 2. Illustration of Cost Allocation Model (con’t) Problems Complexity in product classification with the system: 1 G3PP*: regional procurement, sales and logistics Listed .co 3PP*: regional procurement and Product classification sales, suppliers’ logistics and installation Non-listed co. SMI*: e-
Slide 38: II. 2. Illustration of Cost Allocation Model (con’t)
II. 2. Illustration of Cost Allocation Model (con’t) Problems High back-end handling cost s with poor consumer experiences with the system: 2 Current online shopping: Customer places an Customer makes Customer receivers order. payment. delivery. Advantages: order placement，one-off payment，one-off de
Slide 39: II. 2. Illustration of Cost Allocation Method (con’t)
II. 2. Illustration of Cost Allocation Method (con’t) Problems Difficulty in inventory management with the n E-commerce inventory has to be divided into listed/non-listed , causing inefficiency in cargo system: 3 space management. – Identical merchandise (3C, books, furniture etc) has to be classif
Slide 40: III. Glossary
III. Glossary 1. G3PP products: e-commerce collaborates with GOME regional headquarters in inventory management. Regional headquarter records an e-commerce transaction which is booked under e-commerce receivable when a order is placed on-line. GOME regional headquarter organizes the delivery of the
Slide 41: IV. Cost Control Analysis
IV. Cost Control Analysis Store categorization Benchmark Benchmark Benchmark Category Level revenue Sq.m no. of staff million 1 xx xx xx New Life Plaza 2 xx xx xx 3 xx xx xx Existing stores Flagship 4 xx xx xx 5 xx xx xx 6 xx xx xx Standard 7 xx xx xx New stores 8 xx xx xx 9 xx xx xx Specialized 10
Slide 42: Thank you
Thank you 1Q12 Results | Page 41
GOME Electrical Appliances Holding — Q1 2012 Earnings Presentation on 6ix