2017 Annual Results COMPANY OVERVIEW One of the leading linen yarn - - PowerPoint PPT Presentation

KINGDOM HOLDINGS LIMITED Stock code： 528.HK

2017 Annual Results

COMPANY OVERVIEW

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About Kingdom Holdings Limited FY2017 Result highlights

 One of the leading linen yarn manufacturers and suppliers in the world; accounted for 45% of the PRC’s pure linen yarn export in FY2017  The PRC’s largest linen yarn exporter for 15 consecutive years

Stock information Stock code : 528.HK Stock price (as of 23 Mar 2018) : HK$ 0.90 Market cap (as of 23 Mar 2018) : HK$ 566.7 mn

• No. of shares outstanding

: 629,678,000

• Mainly produces high quality linen yarn
• In FY2017, 62.2% of revenue was derived from

export sales to markets such as the EU, Korea, Japan & India; approximately 37.8% of the revenue was contributed by domestic sales in China

• Annual production capacity reached 22,000

tonnes, the largest in China

• Products are used in the following international

brands/manufacturers:  Revenue grew 19.6% to RMB 1,023,962,000  Gross margin at 11.4% due to strategic price reduction since April 2016 (FY2016: 17.7%)  Net profit for the Year RMB622,000  Loss attributable to Owners of the parent RMB 3,132,000  Loss per share amounted to RMB 0.01

* Currency Rate: HKD1 = RMB0.83591

WHAT MAKES KINGDOM UNIQUE

COMPETITIVE ADVANTAGES

Scale

• No. 1 exporter of linen yarn in China for 15 consecutive years
• Largest production capacity (22,000 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 56 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

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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
• rganic process, resulting zero water pollution (compared with pond or stream

retting methods).

5 * The freshwater aquatic ecotoxicity potential describes the toxic impact that the emitted substances have in the aquatic environment.

2017 ANNUAL RESULTS

RMB’000 FY2016 FY2017 Change Change Revenue 856,243 1,023,962 167,719 +19.6% Gross profit 151,878 116,268 (35,610)

• 23.4%

Profit/(loss) attributable to Owners of the parent 66,344 (3,132) (69,476)

• 104.7%

Gross Margin 17.7% 11.4%

• 6.3% pt.

Net Margin 7.7%

• 0.3%
• 8.0% pt.

Weighted average number of

• rdinary shares (‘000 shares)

629,678 629,678

• Earnings/(loss) per share (RMB)

0.11 (0.01) (0.12) Dividend per share (HK cents) 5.0 2.0 (3.0)

• 60.0%

Dividend payout ratio* 40.9% N/A

RESULTS SUMMARY

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* Currency Rate: HKD1 = RMB0.83591

856.2 1024.0 200 400 600 800 1,000 1,200 FY2016 FY2017

REVENUE ANALYSIS

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Average selling price and sales volume of standard linen yarn products

+19.6% Others

14.6% (31.1%)

24NM

27.0% (22.4%)

26NM

25.6% (22.0%)

36NM

30.0% (20.2%)

39NM

2.8% (4.3%) Revenue analysis Revenue contribution from major linen yarn products

RMB million FY2017 (FY2016)

*Comparable figures of FY2016 in parentheses

FY2016 FY2017 Change Average selling price * (RMB’000/ton) 58.3 53.7

• 7.9%

Sales volume (ton)* 13,679 18,328 +34.0% Gross profit margin 17.7% 11.4%

• 6.3% pt.

* Other miscellaneous products not included.

REVENUE GEOGRAPHICAL BREAKDOWN

9 Geographical Breakdown

FY2016 FY2017 Change Mainland China 38.5% 37.8%

• 0.7 % pt.

Italy 19.6% 15.7%

• 3.9 % pt.

India 12.2% 18.8% +6.6 % pt. Korea 8.8% 8.5%

• 0.3 % pt.

Turkey 7.2% 6.6%

• 0.6 % pt.

Portugal 4.9% 3.8%

• 1.1 % pt.

Lithuania 4.0% 4.0%

• Japan

2.7% 2.4%

• 0.3 % pt.

Others 2.1% 2.4% +0.3 % pt. Total 100.0% 100.0%

• 

Sales in Mainland China accounted for 37.8% of sales

Mainland China

37.8% (38.5%)

Non-EU

37.6% (32.1%)

The EU

24.6% (29.4%) FY2017 (FY2016)

*Comparable figures of FY2016 in parentheses

GROSS PROFIT AND GROSS MARGIN ANALYSIS

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151.9 116.3

17.7% 11.4%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 50 100 150 200 FY2016 FY2017 Energy 10% (9%) Depreciation 5% (5%) Labour 17% (16%) Others 9% (9%) Raw material 59% (61%)

Gross profit and gross margin

RMB million

Cost structure For the year ended 31st Dec

FY2017 (FY2016)

*Comparable figures of FY2016 in parentheses

Major costs FY2017 and FY2016 Average unit cost comparison Raw material :

• 3%

Energy (1) : + 12% Labour : + 9%

Gross margin (%)

(1) Due to coal to gas conversion and installation of Central Air-conditioning in workshops.

SELLING AND DISTRIBUTION EXPENSES

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RMB ’000 FY2016 FY2017 Change Marketing (commission, events) 13,069 10,063

• 23.0%

Transportation costs 16,757 20,403 +21.8% Insurance expenses 4,422 5,134 +16.1% Others 3,703 3,761 +1.6% Total 37,951 39,361 +3.7% As % of sales 4.4% * 3.8% *

• 0.6%pt.

Selling and distribution expenses For the year ended 31st Dec

* The decrease in selling and distribution expenses as a percentage of revenue mainly due to fewer commission paid to sales agents.

KEY FINANCIALS

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RMB’000 As of 31 Dec 2016 As of 31 Dec 2017 Change Net assets

1,086,436 1,050,196

• 3.3%

Inventories

509,591 531,212

+4.2% Cash and cash equivalents

279,511 173,824

• 37.8%

Interest-bearing bank loans

631,903 595,161

• 5.8%

Current ratio

166.7% 137.2%

• 29.5% pt.

Net asset value (RMB) per share

1.73 1.67

• 3.4%

Gearing ratio*

58.2% 56.7%

• 1.5% pt.

Effective tax rate

24.4% n/a

n/a

*Total borrowings / Total equity

INVENTORY, A/R & A/P TURNOVER DAYS

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RMB’000 As of 31 Dec 2016 As of 31 Dec 2017 Raw materials

205,594 326,175

Work in progress

39,235 37,995

Finished goods

264,762 167,042

FY2016 FY2017 Inventory turnover days

220 209

Trade receivables turnover days

129 108

Trade payables turnover days

(59) (64)

Net turnover days

290 253

SHAREHOLDING STRUCTURE

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48.01% 0.07% 41.21% 10.71%

Chairman and Executive Director

• Mr. Ren Weiming

Executive Director

• Ms. Shen Hong

Public Shareholders Non-executive Director

• Mr. Ngan Kam

Wai Albert

KINGDOM HOLDINGS LIMITED

金达控股有限公司

Stock Code：528.HK

Total number of issued shares as at 31 Dec 2017: 629,678,000 shares

GROWTH STRATEGIES AND PLANS

GROWTH CATALYSTS

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• 1. Increase selling price of linen yarn in 2018, and possibly continue in

2019

• 2. More emerging consumer markets like China and India
• 3. New Heilongjiang factory commenced trial production in Q3 2017 and

full capacity in Q2 2018

• Provide additional production capacity
• New product – industrial hemp yarn
• 4. Ethiopia factory is expected to commence trial operation in second half
• f 2019
• 1. Provide additional production capacity
• 2. Cost competitive
• One billion of population and abundant of young workers

available

• Labour and energy costs approx. 1/3 of that in Vietnam
• 3. Avoid trade tariffs and custom duties in most countries in the world
• 5. Potential Horizontal and Vertical Integration
• Horizontal – Poland competitor (to gain global price-setting power)
• Vertical – Industry Investment Fund to stabilize market demand and

price and facilitate strategic acquisitions.

GROWTH STRATEGIES

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Expansion of production capacity 1 ￭ Heilongjiang Plant expects to commence trial production in Q3 2017 – Designed annual production capacity of 4,000 tonnes of linen yarn Enhancement of production efficiency 2

Ethiopia

￭ 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 ￭ Ethiopia Project: – Phase 1 with annual production capacity of 5,000 tonnes of linen yarn – Expects trial operation in 2H 2019 ￭ 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

PRODUCTION AND CAPEX PLAN

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CAPEX plan Project CAPEX Source FY2018

• Construction of production facility in Ethiopia
• Enhancement of production efficiency projects

RMB 150 million

• Internal

resources

• Bank loans
• Capital market

FY2019

• Construction of production facility in Ethiopia
• Enhancement of production efficiency projects

RMB 150 million

• Internal

resources

• Bank loans
• Capital market

Total RMB 300 million Production plant Product Designed Annual production capacity Remarks Haiyan, Zhejiang Phase I Linen yarn / dyed linen yarn 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 Industrial hemp yarn/ linen yarn 4,000 tonnes Commenced trial production in Q3 2017 Adama, Ethiopia (Phase I) Linen yarn 5,000 tonnes Expects trial production in 2019

MAJOR MARKETS OF LINEN TEXTILE PRODUCTS

19 Brazil South Africa Mainland China USA Mature market Emerging market Potential market

BUSINESS OVERVIEW

BUSINESS MODEL

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Flax flower and flaxseed Flax Production process Clothes

Kingdom Holdings Limited (528 HK) Linen yarn production

End application Garment and textile manufacturers

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

• f 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

Raw material procurement

• High-end garment

manufacturers

• Household textile

manufacturers

• Outdoor textile

manufacturers

• Kingdom’s

products have become the benchmark in linen yarn market

RAW MATERIAL PROCUREMENT

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Raw material procurement Self-owned raw material production base in Xinjiang FY2016 FY2017

Volume (tons) Unit cost (RMB/ton) Volume (tons) Unit cost (RMB/ton)

Europe (Mainly France, Belgium & Netherland) 23,203 21,200 27,760 18,835  The largest raw material purchaser in Europe with strong bargaining power over suppliers

Raw material production base in Xinjiang

• Mainly produce high quality certified organic raw

materials and sold to third parties

Location : Zhaosu County, Yili, Xinjiang Area : 6,000 mu Production capacity : 400 tonnes

SALES NETWORK & BRANDS

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Sales network and agents Brands

 Extensive sales network covering over 20 countries and regions worldwide  With 5 distribution agents located in textile manufacturing centers 5 sales agents located in Europe and Asia:

• 1 in Portugal, Turkey and India respectively
• 2 in Korea

A subsidiary in Italy with stocks to ensure quality and timely services to high-end customers in Europe

Sales agent Subsidiary India Turkey Italy Portugal

Products: Linen yarn Markets: Korea, Japan and EU Established in 2005 Products: Linen yarn Markets: Domestic market Established in 2002 Products: Linen yarn Markets: Eastern Europe Established in 2001

APPENDIX

CORPORATE MILESTONES

25 2000 2003 2008 2010 2014 2005 2007 2006

• Listed on the main board of the

Hong Kong Stock Exchange

• Jiangsu Ziwei Flax Co., Ltd was

founded ￭Zhejiang Jinyuan Flax Co., Ltd and Jiangsu Jinyuan Flax Co., Ltd were founded

• 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.

• 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 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 2012 2013

• 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

• f Commerce of the

Zhejiang Province 2015 2016

• 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

• f Zhejiang" by the

Department of Commerce

• f the Zhejiang Province
• Obtained OEKO-TEX Standard

100 certificate

• The"CRAPE MYRTLE" trademark
• btained the registration

certificate issued by the International Trademark Bureau

• Haiyan New Plant (Haiyan

Phase II) was put into

• peration and has an

annual production capacity of 5,000 tonnes

• f linen yarn
• Signed an investment

agreement with the minister of the Ethiopian Ministry of Industry

• Signed a strategic

cooperation agreement with Siemens in Shanghai

• 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

• Formed a JV to

produce flax and hemp yarn in Heilongjiang.

DIRECTORS AND SENIOR MANAGEMENT

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• Mr. Ren Weiming

Chairman and 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.

• Mr. Shen Yueming

Executive Director

• 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

• Management controller of the Group
• Has over 20 years of finance related experience.
• Mr. Ngan Kam Wai

Albert Non-executive Director

• 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.
• Mr. Andy Chan

Chief Financial Officer and Company Secretary

• 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.

CONSOLIDATED STATEMENT OF INCOME

For the year ended 31 Dec For the year ended 31 Dec RMB’000 FY2016 FY2017 Revenue 856,243 1,023,962 Cost of sales (704,365) (907,694) Gross profit 151,878 116,268 Other income and gains 54,358 25,575 Selling and distribution expenses (37,951) (39,361) Administrative expenses (58,968) (49,670) Other expenses (643) (38,200) Finance costs (16,059) (17,712) Share of profits and losses of an associate

• Profit/(loss) before tax

96,615 (3,100) Income tax (expense) / credit (22,586) 3,722 Profit for the year 70,029 622 Attributable to: Owners of the parent 66,344 (3,132) Non-controlling interests 3,685 3,754 Basic earnings/(loss) per share (RMB) 0.11 (0.01) Gross profit margin 17.7% 11.4% Net profit margin 7.7% 0.1%

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

RMB’000 As at 31 Dec 2016 As at 31 Dec 2017 Total current asset 1,211,644 1,135,066 Inventories 509,591 531,212 Trade and notes receivables 297,964 310,215 Prepayments, deposits and other receivables 44,435 68,650 Derivative financial instruments Other current assets 5,788

• 851

Pledged deposits 74,355 50,314 Cash and cash equivalents 279,511 173,824 Total non-current assets 718,791 827,350 Property, plant and equipment 601,537 726,532 Investment property 8,129 7,529 Prepaid land lease payments 66,283 64,837 Intangible asset 8,137 5,834 Prepayments for equipment 31,401 7,571 Deferred tax assets Other non-current assets 3,304

• 14,640

407 Total current liabilities 726,915 827,230 Trade and notes payables 129,489 189,783 Other payables and accruals 50,314 93,979 Interest-bearing bank loans 531,103 519,561 Dividend payable

• Derivative financial instruments

Other current liabilities

• 7,002

851 Tax payable 16,009 16,054 Total non-current liabilities 117,084 84,990 Deferred tax liabilities 16,284 9,390 Interest-bearing bank loans 100,800 75,600 Net assets 1,086,436 1,050,196 Total equity 1,086,436 1,050,196 Equity attributable to owners of the parent 1,067,751 1,017,757 Issued capital Treasury shares 6,329

• 6,329

(19,508) Reserves 1,033,260 1,020,409 Proposed final dividend 28,162 10,527 Non-controlling interests 18,686 32,439

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

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