ESPRIT HOLDINGS LIMITED e Sp RIt Hol DIn GS l IMIte D Ye AR en De D 30 June 2015
AnnuAl RepoRt FY 14/15
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AnnuAl RepoRt FY 14/15
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Esprit Holdings limitEd
Corporate information
Corporate information
Chairman
raymond or Ching Fai
independent Non-executive Director
Deputy Chairman
Paul CheNG Ming Fun
independent Non-executive Director
executive Directors
Jose Manuel MartiNeZ GUtierreZ Group Ceo
thomas taNG Wing yung Group CFo
non-executive Director
Jürgen alfred rudolf FrieDriCh
Independent non-executive Directors
José María CasteLLaNo rios (appointed with effect from
4 December 2014)
alexander reid haMiLtoN
Carmelo Lee Ka sze
Norbert adolf PLatt
Company secretary
Florence NG Wai yin
principal bankers
the hongkong and shanghai Banking Corporation Limited
Deutsche Bank aG
the Bank of east asia, Limited
BNP Paribas
hang seng Bank Limited
industrial and Commercial Bank of China
aNZ Bank
China Merchants Bank
Mizuho Bank, Ltd
Auditor
PricewaterhouseCoopers
Certified Public accountants
principal legal advisor
Baker & McKenzie
Freshfields Bruckhaus Deringer
share listing
esprit' s shares are listed on the stock exchange of hong Kong Limited (sehK). the Company has a Level 1 sponsored american Depositary receipt (aDr) program.
stock code
· sehK : 00330
aDr : esPGy
principal share registrar
MUFG Fund services (Bermuda) Limited the Belvedere Building
69 Pitts Bay road Pembroke hM08 Bermuda
hong Kong branch share registrar
tricor secretaries Limited Level 22, hopewell Centre 183 Queen's road east
hong Kong
registered office Clarendon house 2 Church street
hamilton hM 11
Bermuda
hong Kong headquarters
43/F enterprise square three
39 Wang Chiu road Kowloon Bay
Kowloon, hong Kong t + 852 2765 4321
f + 852 2362 5576
Global business headquarters
esprit-allee 40882 ratingen Germany
t + 49 2102 123-0
f + 49 2102 12315-100
For enquiries from investors and equity analysts, please contact:
Investor relations department
43/F enterprise square three
39 Wang Chiu road, Kowloon Bay Kowloon, hong Kong
t + 852 2765 4232
f + 852 2303 4610
e esprit-ir@esprit.com
Contact person:
Patrick LaU
t + 852 2765 4232
f + 852 2303 4610
e patrick.lau@esprit.com
Website
www.espritholdings.com
Corporate profile
Founded in 1968, esprit is an international fashion brand that pays homage to its roots and expresses a relaxed, sunny Californian attitude towards life. esprit creates inspiring collections for women, men and kids made from high-quality materials paying great attention to detail. all of esprit's products demonstrate the Group's commitment to make consumers 'feel good to look good'. the Company's 'esprit de corps' reflects a positive and caring attitude towards life that embraces community, family and friends
- in that casual, laid-back California style. the esprit style.
esprit's collections are available in around 40 countries worldwide, in 890 directly managed retail stores and through over 7,500 wholesale points of sales including fr anchise st or es and sales spac e in department stores. the Group markets its products under two brands, namely the esprit brand and the edc brand. Listed on the hong Kong stock exchange since 1993, esprit has headquarters in Germany and hong Kong.
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AnnuAl RepoRt FY 14/15
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AnnuAl RepoRt FY 14/15
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Content
Content
To our shareholders
Letter from Chairman 8
Letter from Group Ceo 10
Highlights of FY14/15 22
At a glance 30
Management discussion and analysis
revenue analysis 42
Profitability analysis 52
Liquidity and financial resources analysis 53
Focus and priorities in Fy15/16 55
Sustainability 60
Corporate governance
Corporate governance report 68
report of the Directors 76
Financial section
independent auditor's report 94
Consolidated income statement 95
Consolidated statement of
comprehensive income 96
Consolidated statement of financial position 97
statement of financial position 98
Consolidated statement of cash flows 99
Consolidated statement of changes in equity 100
Notes to the consolidated financial statements 102
Ten-year financial summary 134
Glossary of terms 140
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AnnuAl RepoRt FY 14/15
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AnnuAl RepoRt FY 14/15
01 To our shareholders
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to our sHarEHoldErs
01 To our shareholders
Raymond OR Ching Fai
'The intense efforts of the past year have laid the foundation of
our future business model and have resulted in positive progress.... our commitment to move forward
with our strategic plan remains intact.'
01.1 Letter from Chairman
Dear shareholders,
over the past twelve months, the Group maintained its clear focus to execute the most complex and critical phase of our strategic plan to restore the long term competitiveness of esprit. We implemented a Vertical Model to reduce product development lead-time and simplify our supply chain so that it is leaner and more cost effective. the ultimate goal of all of the initiatives behind our Vertical Model is to enable the Group to consistently deliver outstanding value for money products to our customers. additionally, we started to introduce the necessary changes to develop an ambitious omnichannel Model for our distribution, which aims to maximize sales performance across all our channels (offline and online).
While more work is still needed in both the Vertical and omnichannel areas, the intense efforts of the past year have laid the foundation of our future business model and have resulted in positive progress, giving us confidence that we are on the right track to building a sound platform for growth. our commitment to move forward with our strategic plan remains intact as we firmly believe that this plan is vital to creating long term shareholder value.
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AnnuAl RepoRt FY 14/15
01 To our shareholders
During the financial year (Fy14/15), the overall challenging market conditions adversely affected the Group's performance. in europe, our largest region, the unusually warm winter put pressure on the sales of our autumn/Winter collections and resulted in a highly promotional and discount driven market environment during the entire season. in asia Pacific, deceleration of growth in China's economy broadly impacted consumer spending in the region. the significant depreciation of the euro against our reporting currency, the hong Kong dollar, also placed considerable pressure on the Group's financial results.
against the backdrop of this difficult operating environment, the Group's turnover decreased to hK$19,421 million, representing a year-on-year decline of -11.5% in local currency (-19.8% in hong Kong dollar terms) and resulting in an operating loss of hK$3,683 million. this included non-recurring provisions and impairments, majority of which are non-cash, totaling hK$2,965 million (comprised of an impairment of China goodwill of hK$2,512 million and a provision and impairment for underperforming stores of hK$453 million as highlighted in the profit warning announcement in May 2015). as the Group recorded a loss for the full financial year, the Board has not recommended the payment of a final dividend.
in parallel to the challenging business performance, the Board has been closely monitoring the implementation of the strategic plan and we have seen first-hand good progress achieved in such a huge undertaking. While the results of Fy14/15 were certainly not what we all hoped for, we are encouraged by the improved trend of sales performance since the arrival of the new spring/summer 2015 collections, the first ones produced under the Vertical Model. as these new collections only arrived in our stores towards the later part of the financial year, the Group's Fy14/15 results do not reflect as much positive impact from the collections as we expect to see in the coming financial year and beyond.
Meanwhile, the Group's balance sheet remains healthy with a net cash position of hK$5,017 million and zero debt. Now that esprit is on a firmer footing, and in anticipation of improving product performance, we are ready to deploy some of this cash reserve to fund the final phase of our turnaround strategy, which will focus on driving sustainable top line growth. in gearing up for this new phase, the Board has approved a plan that is expected to complement our improved products by accelerating our marketing efforts and aggressively pushing forward our omnichannel strategy. We are confident that our continued focus and determined execution of the strategic priorities will gradually be reflected in the Group's financial results.
on a different note, this year, we were fortunate to be able to expand the Board's membership to bring further skill, insight and value to esprit. i am delighted to inform you that the Board appointed Dr José María Castellano ríos as an independent Non-executive Director in December 2014. Dr Castellano is a veteran of the international fashion and apparel industry, with over 30 years' experience. the Board believes that his wealth of industry knowledge and expertise will bring invaluable insight to the Group. Furthermore, the Board has taken a step forward by establishing a risk Management Committee, effective on 1 July 2015. While the full Board retains overall responsibility for risk oversight, it is hoped that the formation of this committee will enhance the Group's effectiveness and efficiency in identifying and managing potential critical risks, thereby mitigating our overall risk exposure. i am also pleased to report that this year we expanded our reporting on corporate social responsibility by publishing our first ever sustainability report. as a responsible corporate citizen, esprit has always been focused on social, environmental and ethical matters as a core part of our DNa. We believe that this approach will greatly contribute to the long-term success of our business.
in closing, on behalf of the Board, i would like to thank our shareholders for their continued support and patience as we progress through our turnaround journey. special thanks go also to all of our employees for their hard work and commitment during this difficult time of significant change for esprit. the Growth phase that we are now embarking upon is not without challenge, but there is much hope and excitement across all levels of our organization as we leverage the strong foundation that we have laid over the last two years. every successful journey takes time, and we believe that we are nearing our final destination
- which is to restore the long term competitiveness of our Group.
Dr raymond or Ching Fai//independent Non-executive Chairman
23 september 2015
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01 To our shareholders
Jose Manuel MARTINEZ GUTIERREZ
'We have gone through the most demanding phase of our strategic plan.....we are also encouraged
by the initial sales performance of the first products developed under the Vertical Model.'
01.2 Letter from Group CEO
Dear shareholders,
in my first letter to you, dated 10th september 2013, i presented the strategic plan for the turnaround of esprit as a project articulated along three distinct phases: stabilization, transformation and Growth. Following the completion of the 'stabilization' phase in June 2014, we have devoted the past financial year to the most challenging part of our strategic plan: the 'transformation' phase.
During these months of internal changes within esprit, we have seen two parallel but contrasting developments: negative financial performance for the period under review, yet positive progress made in relation to our strategic plan.
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