FY2018 Annual Results Announcement Analyst Meeting 27 June, 2018
Highlights of Strategic Divestment After a review of operations to enhance shareholder value, we decided to improve our balance sheet, simplify our organization, and focus on less established lines of business with high growth potential Disposal of substantial part of North American licensing businesses to Differential Brands Group Inc. - Includes Kids, Accessories, and certain fashion businesses in Men s & Women s fashion businesses - These command a high value - Represents approx. US$2.2 billion of revenue against total revenue of US$4 billion in FY2018 Cash consideration of US$1.38 billion Employees and management team associated with these businesses will transition with the sale Target closing date is 31 August 2018 Allows the company to reduce financial debt, working capital needs and pay a special cash dividend up to HK$0.325 per share (Based on market close on 26 June 2018) The deal is a very substantial disposal and requires shareholders approval 2
Overview of Divestment Scope of Business Divestment North American licensing business - All North American Kids Business - All North American Accessories Business - Certain Men s and Women s Fashion Brands: Brands include Joe s Jeans, Bebe, BCBG and Buffalo Jeans GBG Post Divestment North American licensing business - All Footwear Business: Licensing business for footwear brands - Men s and Women s Fashion Brands: Brands include Spyder, Jones New York, Kenneth Cole, Frye, ASL Tahari and Juicy Couture etc. All European Businesses All Asian Businesses Global Brand Management Business (CAA-GBG) Location of Offices Size of Business Number of Employees North America: NYC, LA, North Carolina, Montreal FY2017 Revenue: approx. US$2.0 billion FY2018 Revenue: approx. US$2.2 billion 4,000 employees U.S. Europe Asia FY2017 Revenue: approx. US$1.9 billion FY2018 Revenue: approx. US$1.8 billion 3,000 employees 3
Post Divestment Focus on businesses that have strong growth potential A very focused operation Working capital for brick and mortar locations dramatically reduced Stronger balance sheet and credit profile Continue to grow and operate businesses on a global basis 4
Key Financial Highlights - FY2018 (US$m) Pre-transaction FY2017 FY2018 Change Annual Results FY2017 FY2018 Change Revenue Total Margin % of Revenue Operating Costs % of Revenue Other Gains/(Losses) (1) Impairment of Goodwill (2) Operating Profit / (Loss) % of Revenue EBITDA (3) % of Revenue Net Profit / (Loss) Attributable to Shareholders % of Revenue (1) FY2017: Gain on remeasurement of contingent consideration payable of US$20m 3,891 4,023 + 3.4% 1,111 1,254 + 12.8% 28.5% 31.2% 1,030 1,265 +22.8% 26.5% 31.4% 20 (56) 197 (1) -100.4% 5.1% 0.0% 380 379-0.3% 9.8% 9.4% 90 (74) -182.8% 2.3% -1.8% 3,891 4,023 + 3.4% 1,111 1,254 + 12.8% 28.5% 31.2% 1,030 1,265 +22.8% 26.5% 31.4% 20 (56) 1,050 197 (1,050) -633.1% 5.1% -26.1% 380 379-0.3% 9.8% 9.4% 90 (903) -1,106.2% 2.3% -22.4% FY2018: Gain on remeasurement of contingent consideration payable of US$15m, gain on disposal of business of US$12m, gain on disposal of trademarks of US$11m, net off with write off of loan receivable of US$34m and write off of intangible assets of US$59m (2) Impairment of Goodwill: a non-cash impairment of goodwill taking into account the strategic divestment, the external market condition and business performance (3) EBITDA is defined as net profit before net interest expenses, tax, depreciation and amortization. This also excludes share of results of associate and joint ventures, material gains or losses which are of capital nature or non-operational related, acquisition related costs and non-cash gain on remeasurement of contingent consideration payable 5
Net Profit Analysis - FY2018 (US$m) FY2017 FY2018 Total Margin 1,111 1,254 Operating Costs (1,030) (1,265) Other Gains / (Losses)* 20 (56) Gain on Disposal of Interest in a Subsidiary / an Associate 96 67 Impairment of Goodwill (1,050) Operating Profit / (Loss) 197 (1,050) Interest Income 2 3 Non-cash Interest Expenses (14) (26) Cash Interest Expenses (65) (75) Share of Profits of Associate and Joint Ventures 4 8 Change in Redemption Value on Put Option written on Non-Controlling Interests - 24 Profit / (Loss) Before Taxation 124 (1,116) Taxation (29) 230 Net Profit / (Loss) for the Year 95 (887) Non-Controlling Interests (5) (16) Net Profit / (Loss) Attributable to Shareholders 90 (903) * FY2017: Gain on remeasurement of contingent consideration payable of US$20m FY2018: Gain on remeasurement of contingent consideration payable of US$15m, gain on disposal of business of US$12m, gain on disposal of trademarks of US$11m, net off with write off of loan receivable of US$34m and write off of intangible assets of US$59m 6
Balance Sheet Highlights - FY2018 (US$m) Mar 2017 Sep 2017 Mar 2018 Total Debt (1) 1,118 996 1,201 Cash 174 81 98 Net Debt 944 915 1,103 Total Equity 2,456 2,549 1,615 Total Capital (2) 3,400 3,465 2,718 Gearing Ratio (3) 27.8% 26.4% 40.6% Net increase in debt due to investment in infrastructure, settlement of consideration payable for prior years acquisitions, and purchasing certain assets for the operation of new brands Operating cash flow decreased due to lower operating profit, increase in working capital due to higher revenue With the strategic divestment, CAPEX, acquisition payments and working capital expected to significantly decrease in FY2019 (1) Total debt represents bank loan and bank overdraft ; (2) Sum of net debt and total equity; (3) Net debt divided by total capital 7
Looking Ahead
Looking Ahead Strategic Divestment: Consideration Special Cash Dividend up to US$ 1,380 m HK$ 0.325 per share A simpler and more nimble organization, with a tighter and deeper focus Continue to attract new licenses and brands to our portfolio U.S. to focus on footwear and men s and women s fashion businesses; all European and Asian businesses, and brand management business have no change Continue to improve our cash flow via tighter working capital management and stronger cost discipline, with emphasis on businesses that require lower working capital Further improve efficiency of our verticals and enhance synergies across our platforms 9
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FY2018 Annual Results Announcement Analyst Meeting 27 June, 2018