texhong textile group limited

www.texhong.com

Texhong Textile Group Limited(Stock code: 2678.HK)

www.texhong.com

2018 Annual Results Presentation

7 March 2019

www.texhong.comwww.texhong.com 2

1 Business Review

2 Financial Review

1

Future Plans3

4 Q&A

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Business Review

3


2018 Highlights

4

Revenue

17.5%RMB19.156 billion

Gross Profit

1.4percentage points

Profit attributable to

shareholders

19.4%*RMB1.163 billion

01

02

03

All business segments

recorded growthRevenue of midstream and downstream

businesses more than double• A joint venture between Changzhou

Hualida and the Group

started generating profit

Vertical Integration Strategy Yielded Results Gradually

Contribution from Midstream & Downstream Increased

Vertical Integration of

Vietnam industry chain

accelerated

Record high

to16.4%*Excluding the one-off accounting gain of RMB177

million derived from acquisition of enterprises in 2017


Diversified Business Development

5

Yarns (81.2%)

Jeans (4.3%)

Revenue rose 29.7% YoY to

RMB820 million

Sales volume reached

15.5 million pairs

Garment Fabrics (10.0%)

Grey Fabrics (4.5%)

(Stretchable grey fabrics and

other grey fabrics)

Revenue rose 43.2% YoY to

RMB857 million

Sales volume surged by 45% to

about 96 million meters

Benefitted from the partial vertical

integration of the fabrics and yarn

factories in Vietnam, gross profit

margin increased significantly to

14.8%

(Woven garment fabrics and

knitted garment fabrics)

(Stretchable core-spun yarns and

other yarns)

The Group’s core product

Revenue increased 6.7% YoY to

RMB15.554 billion

Sales volume increased 2%

to 660,000 tonnes

Gross profit margin returned

to the normal range at 18%

Revenue amounted to RMB1.92 billion, which

surged by 2.9 times compared to FY 2017

Sales volume of woven garment fabrics and

knitted garment fabrics were 66.4 million

metres and 16,800 tonnes

Gross profit margin of woven garment fabrics

and knitted garment fabrics were 7.7% and

14.5% respectively

Integrating woven dyed fabric business with

Winnitex Group will enhance sales and

development capabilities


Consolidation with Winnitex Group on Woven Dyed Fabric Business

6

Established JV with leading company in woven dyed

fabrics industry

Co-development of spinning, weaving, dyeing &

finishing one-stop quality woven dyed fabric business

擴大擴大Expansion of Vietnam & Nicaragua production scale

Establishing worldwide vertical integration of industry chain

擴大擴大First annual production capacity target of

woven dyed fabrics increases to 180 million meters

擴大擴大JV’s combined annual revenue will reach

RMB4.0 billion


Internationalized Production Base

7

LocationAs of 31 Dec 2018

Production facilities

As of 31 Dec 2017

Production facilities

The PRC

2.12 million spindles,

941 looms and

circular knitting machine and

7 production lines of jeans


835 looms and

circular knitting machine and

7 production lines of jeans

Vietnam


448 weaving and knitting

machine ,

14 production lines of jeans and

2 dyeing and finishing

production lines


448 weaving and knitting machine ,

14 production lines of jeans and

2 dyeing and finishing production lines

Cambodia 9 production lines of jeans 10 production lines of jeans

Nicaragua 1 dyeing and finishing

production line

1 dyeing and finishing

production line

0.34 million

spindles

0.13 million

spindles


DiversifiedCustomer Base

8

Over 3,000 customers, of which more than 2,700 are domestic and

more than 300 are overseas customers. About 73.5% of products

are sold in the PRC, mainly in areas around Jiangsu, Zhejiang,

Guangdong and Shandong

Sales network spanning across the

PRC, Vietnam, North America,

Europe, Brazil, Turkey, Bangladesh,

Japan and South Korea

• Toray International, Inc.

• Shaoguan Beijiang Smart Textile Technology Co., Ltd.

• Guangdong Qianjin Jeans Co., Ltd.

• Ningbo Daqian Textile Co., Ltd.

• American Eagle Outfitters, Inc.

• TCE Vina Denim Joint Stock Company

• Chintex Enterprises Ltd.

• Yixing Magnolia Garment Co., Ltd.

• Haining Denim Weaving Co., Ltd

• Zhejiang Limayunshan Textile Co., Ltd.

Sales to top 10 customers only accounted for 17% of total revenue in 2018

www.texhong.com


Strong Product Development & Enhance Vertical Integration

9

Enhance

the vertical

integration

among the various

business segments

New products

& improve

product quality

Integrate

woven dyed

fabric business

with Winnitex

Group

Tap

into the

differentiated

high-end market


Financial Review


Revenue

Revenue reached to RMB19.156 billion

Revenue breakdown by products

81.2%

4.5%

10.0%

4.3%

Yarns Grey Fabrics Garment fabrics Jeans

Yarns

467.4 649.1

131.4

208.1

0.0

500.0

2017 2018

Other grey fabrics

Stretchable grey fabrics857.2

Grey Fabrics

JeansGarment fabrics

2018

493.6

1,122.4

799.9

2017 2018

Knitted Garment fabrics

Woven garment fabrics

7,958.7 7,993.9

6,621.5 7,560.2

2017 2018

Stretchable core-spun yarns

Other yarns

633.9 822.1

2017 2018年

1,922.3

14,580.215,554.2

598.8

RMB (Million)

11


Profit & Net Profit Margin

12

2,440.0

3,145.8

15.0%16.4%

2017 2018

28.9%

974.4 1,163.1

6.0%6.1%

2017 2018

19.4%

Gross ProfitRMB (Million)

Gross Profit Margin

Gross ProfitAdjusted Profit attributable to shareholders1

Net Profit Margin

Adjusted Profit attributable to shareholders1

RMB (Million)

1Excluding the one-off accounting gain of RMB177 million derived from acquisition of enterprises in 2017


Sales Volume & Selling Price

13

Knitted garment fabrics

2018

29.3

66.4

Woven garment fabrics

2017 2018

337,794

309,672

329,954 330,438

Stretchable core-spun yarns Other yarns

2017 2018

Yarns (Tonne)

RMB

per tonne

Stretchable

core-spun yarns Other yarns

2018 24,227 22,879

2017 23,561 21,382

Grey fabrics (Million meters)

RMB

per meter

Stretchable

grey fabrics

Other grey

fabrics

2018 9.3 8.1

2017 9.7 7.4

Woven garment fabrics(Million meters)

RMB

per meter

Woven

garment fabrics

2018 16.9

2017 16.8

Jeans (Million pairs)

13.1 15.5

Jeans

2017 2018

RMB

per pairJeans

2018 53.0

2017 48.4

48.1

17.8

69.9

25.6

Stretchable grey fabrics Other grey fabrics

2017 2018

Knitted garment fabrics (Tonne)

RMB

per tonne

Knitted garment

fabrics

2018 47,745

2017 -

16,753


Cost Structure

14

Raw

Materials

77.6%

Direct

Labour

9.9%

Depreciation

3.7%

Utilities

5.8%

Consumables

1.9%Others

1.1%

2018

Consumables

1.6%

Utilities

6.2%

Depreciation

4.2%

Direct

Labour

9.9%

Raw

Materials

77.0%

Others

1.1%

2017


Other Income

15

RMB (million)

One-off Policy Incentives

Operating

Subsidies1 Total

Xinjiang 4.4 78.9 83.3

Other areas 101.9 29.0 130.9

Total 106.3 107.9 214.2

1) Operating subsidies refer to business-related recurring subsidies, such as subsidies for loan interest, transportation etc.


ConsolidatedIncome Statement

16

RMB (million) 2018 2017

For the year ended 31 December

Revenue 19,155.7 16,306.4

Cost of sales (16,009.9) (13,866.4)

Gross profit 3,145.8 2,440.0

Selling and distribution costs (685.1) (581.7)

General and administrative expenses (721.0) (511.9)

Reversal of net impairment losses on financial assets 0.6 -

Other income 214.2 169.6

Other losses — net (59.0) (64.7)

Operating profit 1,895.5 1,451.2

Finance income 18.4 9.2

Finance costs (511.9) (85.7)

Share of profits less losses of investments

accounted for using the equity method 21.9 (12.8)

Profit before income tax 1,423.9 1,361.8

Income tax expense (256.0) (187.1)

Profit for the period 1,167.9 1,174.7

Profit attributable to owners of the Company 1,163.1 1,151.9

Adjusted Profit attributable to owners of the Company* 1,163.1 974.4

1Excluding the one-off accounting gain of RMB177 million derived from acquisition of enterprises in 2017


Balance Sheet – Assets

17

RMB (million) As at 31 Dec 2018 As at 31 Dec 2017

Freehold land and land use rights 1,011.2 863.1

Property, plant and equipment 7,716.9 6,660.1

Intangible assets 70.7 -

Investments accounted for using the equity method 204.7 182.8

Deferred income tax assets 96.4 107.6

Other non-current assets 236.1 -

Total non-current assets 9,336.0 7,813.6

Inventories 5,211.3 3,764.2

Properties under development 226.1 -

Trade and bills receivables 1,783.8 1,630.1

Prepayments, deposits and other receivables 867.9 637.2

Derivative financial instruments 145.2 134.4

Pledged bank deposits 145.0 88.2

Cash and cash equivalents 1,054.7 1,466.7

Total current assets 9,434.0 7,720.9

Total assets 18,770.0 15,534.4


Balance Sheet – Liabilities and Equity

18

RMB (million)

As at 31 Dec 2018 As at 31 Dec 2017

Trade and bills payables 3,522.7 2,961.7

Contract liabilities 88.3 -

Accruals and other payables 727.2 741.5

Current income tax liabilities 70.1 36.6

Borrowings 2,252.5 2,562.4

Derivative financial instruments 89.5 113.0

Finance lease obligations 0.8 5.6

Long-term payables due within 1 year 22.3 -

Total current liabilities 6,773.4 6,420.7

Borrowings 4,875.2 2,987.2

Deferred income tax liabilities 161.7 149.2

Finance lease obligations - 1.6

Long-term payables 122.9 -

Total non-current liabilities 5,159.8 3,138.0

Share capital: nominal value 96.7 96.7

Share premium 433.8 433.8

Other reserves 712.9 616.4

Retained earnings 5,495.3 4,763.3

Non-controlling interests 98.2 65.6

Total equity 6,836.8 5,975.7


Cash Flow Statement

19

RMB (million)

2018 2017


Net cash generated from operating activities 766.7 2,192.6

Net cash used in investing activities (1,821.9) (1,337.7)

Net cash generated from / (used in) financing activities 643.2 (1,201.4)

Cash and cash equivalents at end of the period 1,054.7 1,466.7


Other Financial Ratios

20

2018 2017


Inventory Turnover Days 101 87

Trade and Bill Receivables Turnover Days 32 36

Trade and Bill Payables Turnover Days 73 78

Current Ratio 1.39 1.20

Debt to Equity Ratio 1 1.06 0.94

Net debt to Equity Ratio 2 0.88 0.68

Return on Equity 3 18% 21%

1) Based on total borrowings over equity attributable to shareholders

2) Based on total borrowings net of cash and cash equivalents and pledged bank deposits over equity attributable to shareholders

3) Based on profit attributable to shareholders for the financial year ended of the reporting date over the average of the equity

attributable to shareholders at the beginning and ending of the period


Future Plans


Growth Strategies & Future Plans

22

Continuous expansion

of midstream &

downstream

businesses

Establishing worldwide

leading integrated

industry chain

Avert trade barriers

Slowdown China

Investment

Continuous Integration

of Vietnam industry

chain

Reinforcement of

market position


Jeans

Grey fabrics Yarns

Continuous worldwide expansion of

yarn production capacity

Production capacity prioritize internal

demand for vertical integration

business strategy, external sales will

temporarily reduce

Joint development in woven dyed fabrics business with Winnitex Group

Expansion in Vietnam and Nicaragua’s production

Woven dyed fabrics business is expected to turn around in 2019

2019 sales target：Woven dyed fabrics：120 million meters

Knitted dyed fabrics：18,000 tonnes

Garment fabrics

More efficient after 2 year adjustment

Is expected to record profit in 2019

2019 sales target：

18 million pairs

Growth Strategies & Future Plans (Excluding Sales Volume Under Trading Business)

Garment

JV with Changzhou Hualida continues to expand in 2019

2019 sales target：80 million meters

2019 sales target：720,000 tonnes

2019 Total CAPEX: RMB1.5 billion*

*Excluding the consideration for the acquisition of Winnitex Group


Q&A

texhong textile group limited

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