Download M8 Powerpoint Template

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 problem-solving 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:
 Evaluate the business performance of Sa Sa in the
following aspects
 financial position
 Relevant to BAFS Compulsory Part – Basic Ratio
Analysis and Accounting Module - Financial
Analysis
 marketing management
 Relevant to BAFS Business Management Model –
Marketing Management
 Operation management
 Relevant to BAFS Business Management Model –
Human Resources Management

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: Profitability
 Liquidity
 Asset management
 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
$'000
$'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
$'000
$'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
3,608,990
3,221,429
2,676,816
2,425,314
2,122,215
Increase/ Decrease in
%
12%
20%
10%
14%
0
Net profit margin
8.75%
8.58%
8.24%
7.98%
9.78%
Increase/ Decrease in
%
2%
4%
3%
-18%
0
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%
Profit for the year
Net Assets
Return on equity
Increase/ Decrease in %
2009
2008
2007
2006
2005
$'000
$'000
$'000
$'000
$'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
$'000
$'000
$'000
1,195,902
1,220,768
NA
NA
NA
277,723
325,031
NA
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 are 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 *365days
Closing inventory
Cost of sales
Stock turnover days
Increase/ Decrease in %
2009
2008
2007
2006
2005
$'000
$'000
$'000
$'000
$'000
468,670
470,543
NA
NA
NA
2,032,124
1,831,949
NA
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
$'000
$'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
(b) Total gross retail area
2009
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
(c) Net cash and bank balance
(in HK'000)
Increase/ Decrease in %
2009
2008
2007
2006
2005
620,496
651,643
695,847
695,696
743,134
-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%
7.40%
8.80%
7.70%
7.70%
100.00%
100.00%
100.00%
100.00%
Mainland China
(incl. HK & Macau)
Malaysia
3.90%
Sasa.com
4.30%
100.00%
Turnover by region gets more varieties. Sa Sa is expanding its market
geographically.
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%
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
2
2
China
23
12
6
0
0
Taiwan
0
0
0
0
0
Singapore
0
0
0
0
0
Malaysia
0
0
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%
Rental expenses
Turnover
Rental to turnover
ratio
Sa Sa
2009
Sa Sa
2008
$'000
$'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 (
), 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 2nd 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