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
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Agenda
The HKIAAT Accounting and Business Management Case Competition
The Case – Sa Sa International Holdings Ltd. Business performance evaluation Sustainable development plan Q&As
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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.
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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.
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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
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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
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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
Profit for the year 315,951 348,213 221,793 185,171 202,056
Turnover 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
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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.
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Evaluation of Business Performance – Financial Position
(1) Profitability (cont'd)
(b) Return on equity = Profit for the year / Net Assets *100%
2009 2008 2007 2006 2005
$'000 $'000 $'000 $'000 $'000
Profit for the year 315,951 348,213 221,793 185,171 202,056
Net Assets 1,122,749 1,108,493 950,590 913,827 910,046
Return on equity 28.14% 31.41% 23.33% 20.26% 22.20%
Increase/ Decrease in %
-10% 35% 15% -9% 0
ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7%).
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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
Current assets 1,195,902 1,220,768 NA NA NA
Current liabilities 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
There are abundant current assets to cover the current liabilities. There may be some idle current assets as well.
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Evaluation of Business Performance – Financial Position
(3) Asset Management
Stock turnover days = Closing inventory/ Cost of Sales *365days
2009 2008 2007 2006 2005
$'000 $'000 $'000 $'000 $'000
Closing inventory 468,670 470,543 NA NA NA
Cost of sales 2,032,124 1,831,949 NA NA NA
Stock turnover days 84 94 90 89 101
Increase/ Decrease in % -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.
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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
Profit from continuing operations 315,951 276,253 220,257 185,171 202,056
Weighted average of shares 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
Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share.
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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.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
2009 2008 2007 2006 2005
(b) Total gross retail area 244,829 225,544 205,611 181,634 138,886
Increase/ Decrease in % 9% 10% 13% 31% 0
The business is expanding steadily.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
2009 2008 2007 2006 2005
(c) Net cash and bank balance (in HK'000)
620,496 651,643 695,847 695,696 743,134
Increase/ Decrease in % -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.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
(d) Turnover by region- retails & wholesale business
2009 2008 2007 2006 2005
Mainland China84.30% 88.50% 87% 88.90% 89.60%
(incl. HK & Macau)
Taiwan 3.60% 4.10% 4.20% 3.40% 2.70%
Singapore 3.90%7.40% 8.80% 7.70% 7.70%
Malaysia 3.90%
Sasa.com 4.30%
100.00% 100.00% 100.00% 100.00% 100.00%
Turnover by region gets more varieties. Sa Sa is expanding its market geographically.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
(e)
i. No. of retail outlets2009 2008 2007 2006 2005
(Sa Sa Stores)
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
The increase of store number mainly concentrates in China and Malaysia.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
(e)
ii. No. of retail outlets2009 2008 2007 2006 2005
(Image Stores/ Counters)
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
Increase/ Decrease in % 79% 75% 300% 0% 0
The growth of image stores and counters is limited to Mainland China.
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Evaluation of Business Performance – Financial Position
(5) Other Important Ratios
(f) Rental to turnover ratio = Operating lease rental / Turnover *100%
Sa Sa 2009
Sa Sa 2008
Bonjour 2008
Bonjour 2007
$'000 $'000
Rental expenses 350,364 338,106
Turnover 3,608,990 3,221,429
Rental to turnover ratio
9.71% 10.50% 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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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This powerpoint will be available for download at HKIAAT Website
www.hkiaat.org
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Q & A Session
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