Business and Financial Analysis - Case Study of Sa Sa International Holdings Limited

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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
• QAs

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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 todays 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
  HK3,609 while profit from the continuing
  operations increased by 14 to HK316 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

• 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

• Profitability (cont'd)

(a ii) Net profit margin Profit from the continuing operation / Turnover 100 (a ii) Net profit margin Profit from the continuing operation / Turnover 100 (a ii) Net profit margin Profit from the continuing operation / Turnover 100 (a ii) Net profit margin Profit from the continuing operation / Turnover 100 (a ii) Net profit margin Profit from the continuing operation / Turnover 100 (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. 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. 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. 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. 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. 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

• Profitability (cont'd)

(b) Return on equity Profit for the year / Net Assets 100 (b) Return on equity Profit for the year / Net Assets 100 (b) Return on equity Profit for the year / Net Assets 100 (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). ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7). ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7). ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7). ROE for 2009 decreased. It is also not as good as Bonjour (ROE 62.7). 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 Working capital ratio Current assets/ Current liabilities Working capital ratio Current assets/ Current liabilities 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. There are abundant current assets to cover the current liabilities. There may be some idle current assets as well. There are abundant current assets to cover the current liabilities. There may be some idle current assets as well. There are abundant current assets to cover the current liabilities. There may be some idle current assets as well. There are abundant current assets to cover the current liabilities. There may be some idle current assets as well. 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 Stock turnover days Closing inventory/ Cost of Sales 365days Stock turnover days Closing inventory/ Cost of Sales 365days Stock turnover days Closing inventory/ Cost of Sales 365days 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. 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. 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. 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. 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. 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 Earning per share Profit for the year / No. of shares Earning per share Profit for the year / No. of shares 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. Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share. Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share. Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share. Earning per share has been improving steadily. However, when compared with Bonjour (70.8), Sa Sa still has a lower earning per share. 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 (a) Shareholders fund as at book value per share (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. Shareholders fund as at book value per share is better than before. Shareholders fund as at book value per share is better than before. Shareholders fund as at book value per share is better than before. Shareholders fund as at book value per share is better than before. 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. The business is expanding steadily. The business is expanding steadily. The business is expanding steadily. The business is expanding steadily. 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. Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation. Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation. Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation. Net cash and bank balance is in positive balance, indicating that Sa Sa has enough cash and cash equivalents for the operation. 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 (d) Turnover by region- retails wholesale business (d) Turnover by region- retails wholesale business (d) Turnover by region- retails wholesale business
2009 2008 2007 2006 2006 2005
Mainland China 84.30 88.50 87 88.90 88.90 89.60
(incl. HK Macau) 84.30 88.50 87 88.90 88.90 89.60
Taiwan 3.60 4.10 4.20 3.40 3.40 2.70
Singapore 3.90 7.40 8.80 7.70 7.70 7.70
Malaysia 3.90 7.40 8.80 7.70 7.70 7.70
Sasa.com 4.30
100.00 100.00 100.00 100.00 100.00 100.00

Turnover by region gets more varieties. Sa Sa is expanding its market geographically. Turnover by region gets more varieties. Sa Sa is expanding its market geographically. Turnover by region gets more varieties. Sa Sa is expanding its market geographically. Turnover by region gets more varieties. Sa Sa is expanding its market geographically. Turnover by region gets more varieties. Sa Sa is expanding its market geographically. Turnover by region gets more varieties. Sa Sa is expanding its market geographically. 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 outlets 2009 2008 2007 2006 2005
(Sa Sa Stores) 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

The increase of store number mainly concentrates in China and Malaysia. The increase of store number mainly concentrates in China and Malaysia. The increase of store number mainly concentrates in China and Malaysia. The increase of store number mainly concentrates in China and Malaysia. The increase of store number mainly concentrates in China and Malaysia. 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 outlets 2009 2008 2007 2006 2005
(Image Stores/ Counters) 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

Increase/ Decrease in 79 75 300 0 0

The growth of image stores and counters is limited to Mainland China. The growth of image stores and counters is limited to Mainland China. The growth of image stores and counters is limited to Mainland China. The growth of image stores and counters is limited to Mainland China. The growth of image stores and counters is limited to Mainland China. 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 (f) Rental to turnover ratio Operating lease rental / Turnover 100 (f) Rental to turnover ratio Operating lease rental / Turnover 100 (f) Rental to turnover ratio Operating lease rental / Turnover 100 (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. 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. 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. 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. 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. 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 (??), Angel (????), 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 -gt
  representing 84 of total turnover
• Regional markets
• Taiwan, Singapore and Malaysia -gt 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 -gt a
  total of 152 "Sasa" stores and 25 specialty
  stores/ counters in various markets
• Store locations are prime
• Offer trendy and comfortable shopping environment
  -gt customers can choose different products at
  ease
• Planning to appoint local distributers for the
  wholesale business -gt can help sharpen the market
  penetration
• Online portal Sasa.com -gt 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 -gt 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 -gt enhance stock taking
• Implementation of Just-in-time system to reduce
  cost
• Resources Management
• Settlement of purchases is made by HK or US
  dollars -gt 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) -gt 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
• 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