KINGDOM HOLDINGS LIMITED Stock code: 528.HK 2016 Annual Results
COMPANY OVERVIEW One of the leading linen yarn manufacturers and suppliers in the world; accounted for 36% of the PRC s pure linen yarn export in FY2016 The PRC s largest linen yarn exporter for 14 consecutive years About Kingdom Holdings Limited Stock information Stock code : 528.HK Stock price (as of 17 Mar 2017) : HK$ 1.14 Market cap (as of 17 Mar 2017) : HK$ 717.8 mn Historical P/E*(as of 17 Mar 2017) : 9.3 x No. of shares outstanding : 629,678,000 * Currency Rate: RMB1 = HKD1.12 FY2016 Result highlights Revenue dropped 16.5% to RMB 856,243,000 Mainly produces high quality linen yarn In FY2016, 61.5% of revenue was derived from export sales to markets such as the EU, Korea, Japan & India; approximately 38.5% of the revenue was contributed by domestic sales in China Annual production capacity reached 18,000 tonnes, the largest in China Products are used in the following international brands/manufacturers: Gross margin at 17.7% due to strategic price reduction since April 2016 (FY2015: 25.8 %) Profit attributable to Owners of the parent RMB 66,344,000, down 44.9% yoy Earnings per share amounted to RMB 0.11, dropped 42.1% yoy 2
WHAT MAKES KINGDOM UNIQUE
COMPETITIVE ADVANTAGES Scale No. 1 exporter of linen yarn in China for 14 consecutive years Largest production capacity (18,000 tons p.a.) of linen yarn in China Largest raw material (fiber flax) buyer in Europe Skill / Technology New factory with latest and most advanced technology machinery Owns 55 patents including invention patents Management Green production Collaboration with leaders in each field, e.g. Siemens Continuous improvement projects Brand Kingdom brand is a renown international linen yarn brand Represents high quality linen yarn Sales office in Italy and sales agents in Portugal, Korea, Japan, Turkey and India 4
GREEN MATTERS Interesting Facts Not Everyone Knows: 100% of the raw materials used for production of linen yarn are recycleable. Based on a study in France about the Life Cycle Assessment of cotton shirt and a linen shirt: A linen shirt consumes only 1/4 of the water used for its life cycle compared with that of a cotton shirt A cotton shirt causes 6 times more freshwater aquatic ecotoxicity* than a linen shirt Kingdom already published its first Environmental, Social and Governance (ESG) report for FY2014, despite HK listing rules on ESG report only became mandatory for accounting periods starting 1 Jan 2016. Kingdom planted 10,000+ trees in and around the production facilities. Kingdom uses only dew retting fiber flax. Dew retting is a purely natural and organic process, resulting zero water pollution (compared with pond or stream retting methods). * The freshwater aquatic ecotoxicity potential describes the toxic impact that the emitted substances have in the aquatic environment. 5
2016 ANNUAL RESULTS
RESULTS SUMMARY RMB 000 FY2015 FY2016 Change Change Revenue 1,025,403 856,243 (169,160) -16.5% Gross profit 264,045 151,878 (112,167) -42.5% Profit attributable to Owners of the parent 120,369 66,344 (54,025) -44.9% Gross Margin 25.8% 17.7% -8.1 % pt. Net Margin 11.7% 7.7% -4.0 % pt. Weighted average number of ordinary shares ( 000 shares) 630,195 629,678 (517) -0.08% Earnings per share (RMB) 0.19 0.11 (0.08) -42.1% Dividend per share (HK cents) 8.0 5.0 (3.0) -37.5% Dividend payout ratio* 35.3% 40.9% +5.6 % pt. * Currency Rate: RMB1 = HKD1.12 7
REVENUE ANALYSIS Revenue analysis Revenue contribution from major linen yarn products RMB million 1,200 1,000 800 600 1025.4-16.5% 856.2 FY2016 (FY2015) 24NM 22.4% (22.5%) 26NM 22.0% (23.8%) 36NM 20.2% (24.8%) 400 200 0 FY2015 FY2016 Others 31.1% (24.0%) Average selling price and sales volume of standard linen yarn products 39NM 4.3% (4.9%) *Comparable figures of FY2015 in parentheses Average selling price * (RMB 000/ton) FY2015 FY2016 Change 61.8 58.3-6.7% Sales volume (ton)* 15,610 13,679-12.4% Gross profit margin 25.8% 17.7% - 8.1 % pt. * Other miscellaneous products not included. 8
REVENUE GEOGRAPHICAL BREAKDOWN Sales in Mainland China accounted for 38.5% of sales FY2016 (FY2015) Geographical Breakdown FY2015 FY2016 Change The EU 29.4% (25.2%) Mainland China 38.5% (35.0%) Non-EU 32.1% (39.8%) Mainland China 35.0% 38.5% +3.5 % pt. Italy 17.9% 19.6% +1.7 % pt. India 15.4% 12.2% -3.2 % pt. Korea 10.5% 8.8% -1.7 % pt. Turkey 8.8% 7.2% -1.6 % pt. Portugal 3.7% 4.9% +1.2 % pt. Lithuania 1.9% 4.0% +2.1 % pt. *Comparable figures of FY2015 in parentheses Japan 3.5% 2.7% -0.8 % pt. Others 3.3% 2.1% -1.2 % pt. Total 100.0% 100.0% - 9
GROSS PROFIT AND GROSS MARGIN ANALYSIS For the year ended 31st Dec Gross profit and gross margin Cost structure RMB million 400 350 25.8% Gross margin (%) 30% 25% FY2016 (FY2015) Energy 9% (10%) Depreciation 5% (5%) 300 250 264.0 17.7% 20% Raw material 61% (57%) Labour 16% (16%) 200 150 151.9 15% 10% Others 9% (12%) *Comparable figures of FY2015 in parentheses 100 50 5% Major costs FY2016 and FY2015 Average unit cost comparison Raw material (1) : + 15% 0 FY2015 FY2016 0% Energy (2) : + 3% Labour : + 3% (1) Due to higher material price and depreciation of RMB (2) Due to coal to gas conversion and installation of Central Air-conditioning in workshops. 10
NET PROFIT AND NET MARGIN ANALYSIS For the year ended 31st Dec Net profit and net margin RMB million Net margin (%) 200 14% 11.7% 12% 150 10% 120.4 8.2% 8% 100 70.0 6% RMB 000 FY2015 FY2016 Change Marketing (commission, events) Transportation costs Insurance expenses Selling and distribution expenses 14,020 13,069-6.8% 16,188 16,757 +3.5% 4,798 4,422-7.8% Others 3,681 3,703 +0.6% 50 4% Total 38,687 37,951-1.9% 2% 0 FY2015 FY2016 0% As % of sales 3.8% * 4.4% * +0.6%pt. * The increase in selling and distribution expenses as a percentage of revenue mainly due to higher proportion of products being sold to European countries with longer distance and higher shipping costs. 11
KEY FINANCIALS RMB 000 As of 31 Dec 2015 As of 31 Dec 2016 Change Net assets 1,043,978 1,086,436 + 4.1% Inventories 340,902 509,591 + 49.5% Cash and cash equivalents 237,214 279,511 + 17.8% Interest-bearing bank loans 368,033 631,903 + 71.7% Current ratio 179.1% 166.7% - 12.4 % pt. Net asset value (RMB) per share 1.66 1.73 + 4.2% Gearing ratio* 35.3% 59.2% + 23.9 % pt. Effective tax rate 26.7% 24.4% -2.3 % pt. *Total borrowings / equity attributable to owners of the parent 12
INVENTORY, A/R & A/P TURNOVER DAYS FY2015 FY2016 Inventory turnover days 153 220 Trade receivables turnover days 96 129 Trade payables turnover days (60) (59) Net turnover days 189 290 RMB 000 As of 31 Dec 2015 As of 31 Dec 2016 Raw materials 178,318 205,594 Work in progress 32,741 39,235 Finished goods 129,843 264,762 13
SHAREHOLDING STRUCTURE Chairman and Executive Director Mr. Ren Weiming Executive Director Ms. Shen Hong Non-executive Director Mr. Ngan Kam Wai Albert Public Shareholders 48.01% 0.07% 41.21% 10.71% KINGDOM HOLDINGS LIMITED 金达控股有限公司 Stock Code:528.HK Total number of issued shares as at 31 Dec 2016: 629,678,000 shares 14
GROWTH STRATEGIES AND PLANS
CATALYSTS 1. Possible to increase price of linen yarn in 2H2017 2. New Heilongjiang factory will commence trial production in Q3 2017 Provide additional production capacity New product industrial hemp yarn 3. Ethiopia factory is expected to commence trial operation in second half of 2018 Provide additional production capacity Cost competitive 16
GROWTH STRATEGIES 1 Expansion of production capacity Heilongjiang Plant expects to commence trial production in Q3 2017 Designed annual production capacity of 5,000 tonnes of linen yarn Ethiopia Project: Phase 1 with annual production capacity of 5,000 tonnes of linen yarn Expects trial operation in 2H 2018 Advantage Labour and energy cost savings Enjoys free export tariff and no quota restriction to most countries in the world like E.U. African Growth and Opportunity Act (AGOA) of U.S. - export apparel duty-free into the United States Exemption of income tax for ten years Africa Ethiopia 2 Enhancement of production efficiency Collaboration with Siemens for energy management system Recycle of heat and water used environmental friendly and reduce costs Technical upgrade and automation on 1st and 2nd factories Continuous R&D 17
Production plant Haiyan, Zhejiang Phase I PRODUCTION AND CAPEX PLAN Product Linen yarn / dyed linen yarn Designed Annual production capacity Remarks 7,000 tonnes Close to 100% utilisation Rugao, Jiangsu Linen yarn 6,000 tonnes Close to 100% utilisation Haiyan, Zhejiang Phase II Linen yarn 5,000 tonnes Close to 100% utilisation Qinggang, Heilongjiang Adama, Ethiopia (Phase I) Industrial hemp yarn/ linen yarn Linen yarn 5,000 tonnes Will commence trial production in Q3 2017 5,000 tonnes Expects trial production in 2018 FY2017 CAPEX plan Project CAPEX Source Construction of production facility in Heilongjiang, PRC Construction of production facility in Ethiopia Enhancement of production efficiency projects RMB 150 million Internal resources Bank loans Capital market FY2018 Construction of production facility in Ethiopia Enhancement of production efficiency projects RMB 150 million Internal resources Bank loans Capital market Total RMB 300 million 18
MAJOR MARKETS OF LINEN TEXTILE PRODUCTS USA Mainland China Brazil South Africa Mature market Emerging market Potential market 19
BUSINESS OVERVIEW
BUSINESS MODEL Kingdom Holdings Limited (528 HK) Raw material procurement Linen yarn production Garment and textile manufacturers End application Raw material fiber flax are mainly procured from Europe Kingdom is the largest raw material buyer in Europe, with strong bargaining power Good relationship with suppliers Raw material processing requires high expertise and experience Linen raw materials need to be processed to match the standard of linen yarn manufacturing Linen raw materials can be stored for several years; generally, humid condition is more suitable for long term storage Linen yarn is produced through wet spinning process, which can not be easily replicated by cotton yarn manufacturers Kingdom is capable to produce wide range of products ranging from 3-75NM High-end garment manufacturers Household textile manufacturers Outdoor textile manufacturers Kingdom s products have become the benchmark in linen yarn market Flax flower and flaxseed Flax Production process Clothes 21
RAW MATERIAL PROCUREMENT The largest raw material purchaser in Europe with strong bargaining power over suppliers Raw material procurement FY2015 FY2016 Volume (tons) Unit cost (RMB/ton) Volume (tons) Unit cost (RMB/ton) Europe (Mainly France, Belgium & Netherland) 23,640 19,559 23,203 21,200 Self-owned raw material production base in Xinjiang Location : Zhaosu County, Yili, Xinjiang Area : 6,000 mu Raw material production base in Xinjiang Mainly produce high quality certified organic raw materials and sold to third parties Production capacity : 400 tonnes 22
SALES NETWORK & BRANDS Extensive sales network covering over 20 countries and regions worldwide With 5 distribution agents located in textile manufacturing centers Sales network and agents 5 sales agents located in Europe and Asia: 1 in Portugal, Turkey and India respectively 2 in Korea Portugal Italy Turkey A subsidiary in Italy with stocks to ensure quality and timely services to high-end customers in Europe Sales agent India Subsidiary Brands Products: Linen yarn Products: Linen yarn Products: Linen yarn Markets: Korea, Japan and EU Markets: Domestic market Markets: Eastern Europe Established in 2005 Established in 2002 Established in 2001 23
APPENDIX
CORPORATE MILESTONES The Phase I 5,000-ingot flax production line was put successfully into production, and the first batch of flax was launched into the market, marking Kingdom's entry into the flax industry. Obtained OEKO-TEX Standard 100 certificate The"CRAPE MYRTLE" trademark obtained the registration certificate issued by the International Trademark Bureau Kingdom Europe srl was established in Italy Obtained the organic textile certificate issued by the Netherlands Control Union CRAPE MYRTLE was recognized as the "Export brand of Zhejiang" by the Department of Commerce of the Zhejiang Province The Zhejiang Jinlainuo Fiber Co., Ltd., which is able to produce differential flax fibres used for cotton, wool, silk blending, was founded Established a strategic cooperation with Siemens and signed the implementation of the energy-saving renovation project First session of the overseas linen yarn seminar was held in Istanbul, Turkey Signed an supplementary agreement to the investment agreement with the Ethiopian Investment Commission to change land for the project site. KINGDOM was listed as the "Zhejiang Top Export Brand" by the Department of Commerce of the Zhejiang Province 2000 2003 2005 2006 2007 2008 2010 2012 2013 2014 2015 2016 Zhejiang Jinyuan Flax Co., Ltd and Jiangsu Jinyuan Flax Co., Ltd were founded Listed on the main board of the Hong Kong Stock Exchange Jiangsu Ziwei Flax Co., Ltd was founded China's first specialized organic dew retting flax production base Zhaosu Jindi Flax Co., Ltd commenced operation The wet spinning of coarse linen yarn project of Jiangsu Ziwei Flax Co., Ltd commenced operation The dope-dyed linen yarn officially launched into the market The Technical Center of Zhejiang Jinyuan Flax Co., Ltd. was recognized as a provincial technical center of the Zhejiang Province Haiyan New Plant (Haiyan Phase II) was put into operation and has an annual production capacity of 5,000 tonnes of linen yarn Signed an investment agreement with the minister of the Ethiopian Ministry of Industry Signed a strategic cooperation agreement with Siemens in Shanghai Formed a JV to produce flax and hemp yarn in Heilongjiang. 25
DIRECTORS AND SENIOR MANAGEMENT Mr. Ren Weiming Chairman and Executive Director Mr. Shen Yueming Executive Director Responsible for the overall management of the Group and drafting business development strategy of the Group Has over 30 years of experiences in the textile industry The vice-president of the PRC Bast and Leaf Fibers Textile Association and The Hong Kong General Chamber of Textiles Ltd. Responsible for the day-to-day operations and management of the Group and also take part in the decision making of the Group A director of Kingdom Creative since April 2000 A director and general manager of Zhejiang Jinyuan and Jiangsu Jinyuan. Mr. Zhang Hongwen Executive Director With years of professional experiences in finance and audit industry The director and financial controller of Zhejiang Jinyuan and Jiangsu Jinyuan. Ms. Shen Hong Executive Director Mr. Ngan Kam Wai Albert Non-executive Director Mr. Andy Chan Chief Financial Officer and Company Secretary Management controller of the Group Has over 20 years of finance related experience. The chairman of Millionfull Company Limited, a company incorporated in Hong Kong engaged in the trading of linen and linen blend textiles Years of professional experiences in trading and procurement of linen Permanent honorary chairman of The Hong Kong General Chamber of Textiles Ltd. Over 20 years of experience in accounting and the financial sector A fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants A holder of Practitioner s Endorsement certificate issued by the Hong Kong Institute of Chartered Secretaries. 26
CONSOLIDATED STATEMENT OF INCOME For the year ended 31 Dec For the year ended 31 Dec RMB 000 FY2015 FY2016 Revenue 1,025,403 856,243 Cost of sales (761,358) (704,365) Gross profit 264,045 151,878 Other income and gains 12,274 54,358 Selling and distribution expenses (38,687) (37,951) Administrative expenses (55,628) (58,968) Other expenses (4,432) (643) Finance costs (13,236) (16,059) Share of profits and losses of an associate (28) - Profit before tax 164,308 96,615 Income tax expense (43,939) (22,586) Profit for the year 120,369 70,029 Attributable to: Owners of the parent 120,369 66,344 Non-controlling interests - 3,685 Basic earnings per share (RMB) 0.19 0.11 Gross profit margin 25.8% 17.7% Net profit margin 11.7% 7.7%
CONSOLIDATED STATEMENT OF FINANCIAL POSITION RMB 000 As at 31 Dec 2015 As at 31 Dec 2016 Total current asset 973,514 1,211,644 Inventories 340,902 509,591 Trade and notes receivables 306,821 297,964 Prepayments, deposits and other receivables 28,226 44,435 Derivative financial instruments - 5,788 Pledged deposits 60,351 74,355 Cash and cash equivalents 237,214 279,511 Total non-current assets 626,333 718,791 Property, plant and equipment 543,976 601,537 Investment property 2,080 8,129 Prepaid land lease payments 52,065 66,283 Intangible asset 9,083 8,137 Prepayments for equipment 13,194 31,401 Deferred tax assets 5,935 3,304 Total current liabilities 543,681 726,915 Trade and notes payables 98,048 129,489 Other payables and accruals 51,462 50,314 Interest-bearing bank loans 368,033 531,103 Dividend payable 187 - Derivative financial instruments 2,258 - Tax payable 23,693 16,009 Total non-current liabilities 12,188 117,084 Deferred tax liabilities 12,188 16,284 Interest-bearing bank loans - 100,800 Net assets 1,043,978 1,086,436 Total equity 1,043,978 1,086,436 Equity attributable to owners of the parent 1,043,978 1,067,751 Issued capital 6,329 6,329 Reserves 995,445 1,033,260 Proposed final dividend 42,204 28,162 Non-controlling interests - 18,686
Thank you! Disclaimer This document may contain statements that constitute forward-looking statements, including, but not limited to, statements relating to the implementation of strategic initiatives, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other statutory requirements may render actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technology developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparts, and changes in the developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our business group structure and (8) other key factors that may adversely affect our business and financial model. We are not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise. This material may not be reproduced, distributed or transmitted to any other person or incorporated in any way into another document or other material without the prior written consent of us. This document is not: a) an offer of securities for sale in Hong Kong or elsewhere; or b) an invitation to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities; or related to the issue of any securities. This document (and the information contained herein) is not for publication or distribution to any person(s) except as permitted by us. Investor relations contact: ir@kingdom-china.com;
INVITATION TO PARTICIPATE IN KINGDOM ESG STAKEHOLDERS QUESTIONNAIRE In order to better understand the view of the stakeholders on Kingdom s practices on environmental, social and corporate governance (ESG) aspects, Kingdom has been publishing ESG reports since FY2014. In order to establish effective communication with stakeholders, please provide your comments and suggestions, to assist Kingdom to understand your concerns and the areas of improvement, serving as a reference of information and disclosure to be made for the ESG report in next year. This questionnaire is only used internally for analysis of stakeholders interested topics. We appreciate your assistance and thank you in advance! Kingdom ESG Stakeholders questionnaire (2 minutes to complete): http://www.kingdom-china.com/en/esg.php Kingdom ESG Report (Online version): http://www.kingdom-china.com/en/csr.php If you have any questions, please feel free to contact us to discuss. Contact person: Andy Chan Email: ir@kingdom-china.com 30