Business and Financial Analysis - Case Study of Sa Sa International Holdings Limited Wan Shiu Kee Convener of HKIAAT Accounting and Business Management Case Competition/ Vice Principal – CCC Kei Heep Secondary School
Agenda § The HKIAAT Accounting and Business Management Case Competition § The Case – Sa Sa International Holdings Ltd. § Business performance evaluation § Sustainable development plan § Q&As 2
HKIAAT Accounting and Business Management Case Competition § Aims to enhance students’ ability in using accounting information for business development and their generic skills, such as research, analysis, team-building, communication, critical thinking, creativity and problemsolving as required by today’s business world. § Provides students with fundamental accounting and business management knowledge and skills, and to develop their positive values and attitudes. § Comprises two rounds: written report and oral presentation. § Written report based on Annual Report of a listed company § Six teams will be shortlisted to enter the final competition – oral presentation, to present the key points of their reports. 3
The Case – Sa Sa International Holdings Limited § Sa Sa International Holdings (Sa Sa) is the selected company for case study in Competition 2009 -2010. § A leading cosmetics retailing group operating in Asia. § Two scope of business areas: § Cosmetic retail – selling over 400 brands, including its own-brands and exclusive products § Brand management – being sole agent for many international cosmetic brands in Asia. It accounts for 38% of its total retail turnover. § In 2008/09, the turnover from the continuing retail and wholesale business rise 12% to HK$3, 609 while profit from the continuing operations increased by 14% to HK$316 million. 4
The Case – Sa Sa International Holdings Limited (cont'd) § Requirements for written report: l Evaluate the business performance of Sa Sa in the following aspects ü financial position Ø Relevant to BAFS Compulsory Part – Basic Ratio Analysis and Accounting Module - Financial Analysis ü marketing management Ø Relevant to BAFS Business Management Model – Marketing Management ü Operation management Ø Relevant to BAFS Business Management Model – Human Resources Management l Develop a sustainable development plan for next three years 5
Evaluation of Business Performance – Financial Position § Study of different financial ratios to analyze the following aspects: - ü Profitability ü Liquidity ü Asset management ü Investment appraisal § Types of financial ratios to be analyzed may vary from industry to industry § e. g. "Book value per share" is only required for retail, banking, and property industries § Compared with its competitors when necessary 6
Evaluation of Business Performance – Financial Position (1) Profitability § (a i) Net profit margin = Profit for the year/ Turnover *100% 2009 2008 2007 2006 2005 $'000 $'000 315, 951 348, 213 221, 793 185, 171 202, 056 3, 608, 990 3, 221, 429 2, 676, 816 2, 425, 314 2, 122, 215 Net profit margin 8. 75% 10. 81% 8. 29% 7. 63% 9. 52% Increase/ Decrease in % -19% 30% 9% -20% 0 Profit for the year Turnover 7
Evaluation of Business Performance – Financial Position (1) Profitability (cont'd) (a ii) Net profit margin = Profit from the continuing operation / Turnover *100% 2009 2008 2007 2006 2005 $'000 $'000 Profit from continuing operation 315, 951 276, 253 220, 527 193, 607 207, 614 Increase/ Decrease in 14% % 25% 14% -7% 0 Turnover 3, 221, 429 2, 676, 816 2, 425, 314 2, 122, 215 Increase/ Decrease in 12% % 20% 14% 0 Net profit margin 8. 75% 8. 58% 8. 24% 7. 98% 9. 78% Increase/ Decrease in 2% % 4% 3% -18% 0 3, 608, 990 Performance in 2009 is not as good as in 2008. The performance of its competitor, Bonjour (with net profit margin 11% in 2009), is also better than Sa Sa. 8
Evaluation of Business Performance – Financial Position (1) Profitability (cont'd) (b) Return on equity = Profit for the year / Net Assets *100% 2009 Net Assets Return on equity Increase/ Decrease in % 2007 2006 2005 $'000 Profit for the year 2008 $'000 315, 951 348, 213 221, 793 185, 171 202, 056 1, 122, 749 1, 108, 493 950, 590 913, 827 910, 046 28. 14% 31. 41% 23. 33% 20. 26% 22. 20% -10% 35% 15% -9% 0 ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62. 7%). 9
Evaluation of Business Performance – Financial Position (2) Liquidity Working capital ratio = Current assets/ Current liabilities 2009 2008 2007 2006 2005 $'000 $'000 1, 195, 902 1, 220, 768 NA NA 277, 723 325, 031 NA NA Working capital ratio 4. 31 3. 76 2. 64 2. 61 2. 63 Increase/ Decrease in % 15% 42% 1% -1% 0 Current assets Current liabilities There abundant current assets to cover the current liabilities. There may be some idle current assets as well. 10
Evaluation of Business Performance – Financial Position (3) Asset Management Stock turnover days = Closing inventory/ Cost of Sales *365 days 2009 Cost of sales Stock turnover days Increase/ Decrease in % 2007 2006 2005 $'000 Closing inventory 2008 $'000 468, 670 470, 543 NA NA 2, 032, 124 1, 831, 949 NA NA 84 94 90 89 101 -10% 4% 1% -12% 0 Stock turnover days become shorter than previous years. It means that the goods are sold faster than before. However, when compared with Bonjour (i. e. 61 days), Sa Sa still requires longer turnover days. 11
Evaluation of Business Performance – Financial Position (4) Investment Appraisal Earning per share = Profit for the year / No. of shares 2009 2008 2007 2006 2005 $'000 $'000 315, 951 276, 253 220, 257 185, 171 202, 056 1, 380, 511 1, 374, 283 1, 354, 259 1, 332, 919 1, 306, 761 Earning per share- Basic (HK Cents) 22. 9 20. 1 16. 3 13. 9 15. 5 Increase/ Decrease in % 14% 24% 17% -10% 0 Profit from continuing operations Weighted average of shares Earning per share has been improving steadily. However, when compared with Bonjour (70. 8), Sa Sa still has a lower earning per share. 12
Evaluation of Business Performance – Financial Position (5) Other Important Ratios (a) Shareholders fund as at book value per share 2009 2008 2007 2006 2005 Book value per share 0. 81 0. 8 0. 69 0. 68 0. 69 Increase/ Decrease in % 1% 16% 1% -1% 0 Shareholders fund as at book value per share is better than before. 13
Evaluation of Business Performance – Financial Position (5) Other Important Ratios 2009 (b) Total gross retail area 2008 2007 2006 2005 244, 829 225, 544 205, 611 181, 634 138, 886 9% 10% 13% 31% 0 Increase/ Decrease in % The business is expanding steadily. 14
Evaluation of Business Performance – Financial Position (5) Other Important Ratios 2009 (c) Net cash and bank balance (in HK'000) Increase/ Decrease in % 2008 2007 2006 2005 620, 4 96 651, 6 43 695, 8 47 695, 6 96 743, 1 34 -5% -6% 0. 02% -6% 0 Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation. 15
Evaluation of Business Performance – Financial Position (5) Other Important Ratios (d) Turnover by region- retails & wholesale business 2009 2008 2007 2006 2005 84. 30% 88. 50% 87% 88. 90% 89. 60% Taiwan 3. 60% 4. 10% 4. 20% 3. 40% 2. 70% Singapore 3. 90% Malaysia 3. 90% 7. 40% 8. 80% 7. 70% Sasa. com 4. 30% Mainland China (incl. HK & Macau) 100. 00% 100. 00% Turnover by region gets more varieties. Sa Sa is expanding its market geographically. 100. 00% 16
Evaluation of Business Performance – Financial Position (5) Other Important Ratios (e) i. No. of retail outlets 2009 2008 2007 2006 2005 Hong Kong & Macau 62 58 53 51 43 China 10 4 5 2 1 Taiwan 13 14 11 8 4 Singapore 14 13 13 10 9 Malaysia 26 21 14 10 11 Total 125 110 96 81 68 Increase/ Decrease in % 14% 15% 19% 0 (Sa Sa Stores) The increase of store number mainly concentrates in China and Malaysia. 17
Evaluation of Business Performance – Financial Position (5) Other Important Ratios (e) ii. No. of retail outlets 2009 2008 2007 2006 2005 Hong Kong & Macau 2 2 2 China 23 12 6 0 0 Taiwan 0 0 0 Singapore 0 0 0 Malaysia 0 0 0 Total 25 14 8 2 2 79% 75% 300% 0% 0 (Image Stores/ Counters) Increase/ Decrease in % The growth of image stores and counters is limited to Mainland China. 18
Evaluation of Business Performance – Financial Position (5) Other Important Ratios (f) Rental to turnover ratio = Operating lease rental / Turnover *100% Sa Sa 2009 $'000 Rental expenses Turnover Rental to turnover ratio Sa Sa 2008 $'000 350, 364 338, 106 3, 608, 990 3, 221, 429 9. 71% 10. 50% Bonjour 2008 Bonjour 2007 11. 00% 12. 50% Rental to turnover ratio has slightly decreased and lower than Bonjour, implying that Sa Sa is not suffering from serious rental payment pressure even though the property price surged in the past year. 19
Evaluation of Business Performance – Marketing Management Market Environment § Key competitors: § Bonjour (卓悅), Angel (天使化 ), Sephora § Market opportunities § Huge potential in Mainland China market § The inflow of Mainland visitors in domestic market 20
Evaluation of Business Performance – Marketing Management Target markets § Geographic § Core markets: • Hong Kong, Macau and Mainland China -> representing 84% of total turnover § Regional markets: • Taiwan, Singapore and Malaysia -> accounted for 11% of turnover § Target customers § Customers who are seeking value-for-money 21
Evaluation of Business Performance – Marketing Management Marketing strategies § Positioning § A one-stop cosmetics specialty store offering a broad product range with a full price spectrum § Place/ Distribution § Diversification of distribution network -> a total of 152 "Sasa" § § stores and 25 specialty stores/ counters in various markets Store locations are prime Offer trendy and comfortable shopping environment -> customers can choose different products at ease Planning to appoint local distributers for the wholesale business -> can help sharpen the market penetration Online portal – Sasa. com -> reach worldwide customers 22
Evaluation of Business Performance – Marketing Management Marketing strategies § Product § Offers a comprehensive product range of 200 brands targeted at diversified customer base § Also develops its own-brands § Product selections tailored to Chinese and Asians § Also offers value-added services, such as free skin analysis, free make-up and beauty treatments § Price § A broad price range to entertain a wide customer base § Diversification of pricing strategy also help to reduce the impact of economic environment § Can offer competitive prices due to • Strong bargaining power with bulk purchase • Long-term relationships with vendors 23
Evaluation of Business Performance – Marketing Management Marketing strategies § Promotion § Aggressive promotion efforts, including print advertisements, public relations activities and online advertising (Sa Sa is a top 10 of online advertisers in 2009) § Customer loyalty programme § Regular production promotions and free product samples § People (i. e. Service) § Professionally trained staff with good product knowledge, selling skills, customer service skills, and general management skills § External monitoring scheme e. g. Mystery shoppers 24
Evaluation of Business Performance – Marketing Management Marketing strategies § Brand Management § 400 famous brands among which 100 are exclusive brands § In 2008/09, more than 1, 600 new exclusive products were added to its portfolio § Having its own brands or exclusive brands can build strong customer loyalty § However, the promotion of these exclusive brands tend to be not enough and mainly focus on a very few selected brands > affecting the sales of niche brands and new brands 25
Evaluation of Business Performance – Operation Management § Manpower development § Staff motivation strategies • Bonus system • Let staff understand the corporate goals and the ways they can contribute • Enhance communications with staff and nourish a caring culture of the company • Review remuneration on regular basis § Staff trainings • 150 -hour training for new frontline staff • Management Trainee Programme for up-and-coming leaders • Product, language, attitude, selling skills trainings • Leadership Management Skills training for shop supervisors 26
Evaluation of Business Performance – Operation Management § Inventory Management § Investment in IT infrastructure and logistic systems -> enhance stock taking § Implementation of Just-in-time system to reduce cost § Resources Management § Settlement of purchases is made by HK or US dollars -> minimize price fluctuation due to currencies exchange difference § Keep minimal idle assets through careful asset planning 27
Evaluation of Business Performance § Key success factors of Sa Sa § § § § § Enjoy economy of scale and has strong bargaining power with vendors Extensive industry experience (over 32 years) Clear business focus Having a wide spectrum of products and many of them are exclusive brands Focus on product development Developed an on-line shopping platform and extend its market reach (66% increase in turnover when compared with previous year) Established excellent relationship with vendors Quality services Strong distribution network Dedicated to staff training and development 28
Sustainable Development Plan Suggestions for product offerings and marketing strategies § Continue to focus on the two existing core businesses – cosmetic retail and brand management § Increase market penetration in these businesses, with focus on Mainland market § Adopt different marketing strategies in different markets § Differentiated marketing strategies with different pricing, promotion strategies to target distinctive market segments (e. g. offer exclusive brands for high to middle-class segments) -> can prolong product life cycle and high profit margin § Undifferentiated marketing strategies in identical markets e. g. in 2 nd tier cities e. g. Wuhan, Suzhou 29
Sustainable Development Plan Suggestions for product offerings and marketing strategies (cont'd) § Develop flagship stores § Further strengthen its on-line business and support with good customer service e. g. delivery and after-sale service § Enhance the corporate image e. g. reinforce its commitment to social responsibilities and environmental protection 30
Sustainable Development Plan Some suggestions for operation management a) Supply chain management § Exert higher influence in purchase terms with her strong bargaining power § Improve logistics flow through organization reengineering b) Quality management § Enhance quality assurance through the development of quality engineering mechanism 31
Sustainable Development Plan Financial management § § § Suggested financial strategies should match with its product offering, marketing strategies and operation management Take into consideration of external factors and challenges e. g. economy, growing competitors Unless with justifiable reasons, financial strategies should be in line with the past practice of Sa Sa, e. g. § § § § Not to engage in any highly leveraged or speculative derivative products Conservative approach to financial risk management with no significant borrowing Implement a general freeze on wages Review and increase the cost effectiveness of the overhead expenses and their marketing initiatives Tighten inventory management Take further measures to manage the rental pressure Maintain excellent long-term relationship with its suppliers 32
This powerpoint will be available for download at HKIAAT Website www. hkiaat. org 33
Q & A Session 34
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