Dear friends, investors, good afternoon. Welcome to the webcast of Xtep International's 2019 full year results announcement. I am the Chairman and CEO, Ding Shui Po. Today, let me take you through our 2019 results highlights. After that, I will pass the floor to our CFO, Mr. Ricky Yeung, to go through in greater detail our results. Before we begin, please enjoy the following video on our 2019 achievements. 2019 marks the milestone of Xtep in transforming from a local Chinese brand into an international sportswear brand. In the rapid development of the Chinese sportswear industry, Xtep's business also developed at the right time. Our revenue was up 28% year-on-year, reaching CNY 8.1 billion. Net profit was up 11% at CNY 730 million. In 2019, we started a multi-brand strategy. At the beginning of the year, we brought in professional sportswear brands, Saucony and Merrell.
We also acquired fashion brands, K-Swiss and Palladium. We seized the opportunities in different sports segments to expand market share. Our main Xtep brand focused on the mass market, especially running. We launched the lightest carbon fiber sports shoes in the market. Together with Chinese Athletics Association, we promoted running for the whole country. We signed contract with Jeremy Lin to enter the basketball segment, and we strengthened this business. With his healthy and good image, our brand reputation can be enhanced to attract young consumers. For professional sports, in March, we brought in Saucony and Merrell for Tier 1, Tier 2 city consumers. Xtep focuses mainly on the mass market. In this way, we can achieve synergy with our R&D strength. Secondly, in August, we acquired K-Swiss and Palladium.
Sports, leisure, and trends are all combined in order to enrich our product mix. In the future, our focus will be Asia-Pacific. In 2020, there was the outbreak of the new coronavirus, and this epidemic has spread all over the world. For global economy and our company's business, there was unavoidable short-term impact. To face up to this situation, we put in place the following strategies. Number one, we actively moved sales onto e-commerce platform. We exercised cost control measures. Number two, after the outbreak, we believe that Chinese are getting more and more health conscious. For our long-term business development and the outlook of the sportswear industry, we are still confident. Looking into the future, the main Xtep brand will be able to maintain sustainable growth.
For Saucony and Merrell, we want to enhance the products and we want to merge the classic products with new design elements. In 2020, we will open stores in China. Number three, Palladium. Right now, business is very stable and it continues to grow. We will continue its development. Next, K-Swiss. We are putting in place a feasible five-year development plan. We will reposition the brand and redesign the products. In 2021, we will launch a new image in China. Now I will pass the floor to Mr. Yeung to go through our financial performance in greater detail.
Good afternoon. Welcome to our full-year results announcement. Please turn to page two of the PPT. This is the second year after three years of transformation, and we continued the strong growth from last year. Sales broke record. Revenue was up 28% at CNY 1.18 billion. If we do not include new brands, the Xtep brand grew 21%. Operating profit was up 18%, profit attributable to shareholders up 11%. If we exclude the CNY 100 million one-off expenses for acquisition, net profit was up 26%. Operating cash inflow up 5x at CNY 778 million. If we exclude the $260 million for acquisition at the end of 2019, we still have a net cash position.
The balance was CNY 2.132 billion, around HKD 1 per share. From these results, you can see that since we completed the three-year transformation in 2018, for two consecutive years, our results grew strongly. For two consecutive years, sales growth was over 20%. In order to pay back to shareholders, the board proposed a final dividend of HKD 0.075 per share, including interim dividend of HKD 0.125. The full-year dividend is HKD 0.20 per share, payout ratio 60%.
Now, let's take a look at our 2019 operational highlights, page three. Xtep brand in 2019 achieved retail sale through growth of 22%. Stores operating for more than one year achieved SSS of a low teen figure. As of 31st December, 2019, not including children's stores, we have 6,379 Xtep-branded stores in mainland China. 2019 is very meaningful strategically because we do not only want to be a single-brand China company. We want to become a multi-brand international sportswear company. This year, on 4th March, with a U.S. sportswear company, Wolverine, in China, Hong Kong, and Macau, we set up a JV to operate Saucony and Merrell. This year, on 2nd May, we announced that we will use $260 million to acquire K-Swiss, Palladium, and Supra, and on 1st August, the acquisition was completed. Multi-brand strategy will be our future strategy.
We strategically categorized the brands into three categories: mass sports, professional sports, and athleisure. For mass sports, they include Xtep main brand. Xtep main brand will continue to focus on running, offering professional sports products with high performance-price ratio. Professional sports include Saucony and Merrell. They are mainly for those who need high functional, high performance products. These are high-end consumers. Next, athleisure, K-Swiss and Palladium. This is mainly corresponding to the leisure trend and for consumers who look for comfort and fashionable elements. On 9th August, we signed contract with Jeremy Lin as our spokesperson to expand our product line. All these moves are laying strong foundation for our long-term future growth. Next, we can look in greater detail our 2019 operation data. Now, let's first take a look at our income statement, page five. Revenue was up 28.2%, gross profit up 25.5%.
Gross profit growth was lower than that in revenue because the new acquired businesses have lower GP margin. Overall, GP margin last year was 44.3%. It came down to 43% this year. SG&A was up 32.6%. The increase was bigger than that in revenue because there is a CNY 100 million one-off expense from acquisition. This expense includes CNY 36 million legal and intermediary cost, CNY 10 million cost related to layoff, and CNY 50 million is we sold Supra inventory at lower than marked price.
If we exclude the CNY 100 million expenses, actual SG&A growth was 27.5%, more or less the same as growth in revenue. Operating profit up 18%. If we exclude CNY 100 million one-off expenses, operating profit grew 27%. OP margin 16.4%, the same as last year. Profit attributable to shareholders up 10.8%. If we exclude CNY 100 million one-off expenses, then profit attributable to shareholders increased 26%.
Net profit margin 10.2%. Last year is 10.3%, so more or less the same. Basic earnings per share up 1.7% because it was affected by the share placement. Now, let's take an in-depth look at some revenue data, page six. Revenue up 28.2% year-on-year. Xtep brand grew 20.7%. New brands made additional sale of CNY 476 million, accounting for 5.8% of the total. For new brands, K-Swiss, Palladium, and Supra made contribution for five months, CNY 466 million of sales. Professional Sports, CNY 10 million sales contribution, mainly from Saucony e-commerce sales. Merrell in 2019 did not make sales contribution. Starting from March 2020, there will be e-commerce sales contribution. Now let's look at Xtep brand 2019 income statement, page seven. In 2019, Xtep brand revenue up 20.7%, reaching CNY 7.7 billion. Gross profit up 19.3% at CNY 3.375 billion.
Gross profit growth rate was smaller than that in revenue because last year, GP margin was 44.3%. It came down to 43.8% this year. GP margin declined slightly because e-commerce and childrenswear sales accounted for bigger share. For children's, GP margin was only 33%. Offline adults is 45%. Offline adult GP margin can still be maintained at around 45%. In the past, we have been emphasizing that we can keep GP margin at 43%-44%. We are confident that this year, Xtep brand can still maintain this level of GP margin. SG&A accounted for a share of revenue and operating profits of more or less the same ratio. There is only a change of 0.1%-0.3%. Now, let's look at Xtep brand revenue by product, page eight. For footwear, apparel, and accessories, there is growth. For apparel, it grew 42.8% year-on-year.
Last year, it accounted for 36.4% of total sales. This year, 43.1%. In the future, in the coming one to two years, the share will continue to go up. Eventually, footwear and apparel will be 50/50. For apparel, growth was strong because our product design and quality was well-received by consumers. Footwear growth was only 7%. This is because in the second half, we started to do some transformation for e-commerce. In the past, e-commerce only sold some low-priced items. Most were footwear products. Starting from second half of last year, we changed. So we hope that offline and offline, we will be selling the same styles and products, and we will increase the share of apparel. At the end of this year, we believe we will see some good results and achievements. For the new basketball series and RC160, they are well-received.
As a result, Xtep running shoes can enjoy a growth. In the future, they will become new growth drivers. Page nine, GP margin. Xtep brand GP margin declined slightly by 0.5% to 43.8%. The reason was explained just now because e-commerce and childrenswear sales increased in share. Their GP margin comparing with offline adults was lower, especially regarding footwear. Footwear GP margin came down 1.6 percentage points. Offline adults GP margin was up 0.4% at around 7%. This is because the sale of strong functional products like RC160 and basketball shoes enjoyed growth. For apparel, we increased sale of functional apparel. Functional apparel GP margin as compared to leisure apparel was higher. So we are confident that in the future, overall GP margin will be at 43%-44%. Page 10, SG&A. Xtep brand SG&A increased 19.7% to CNY 2.37 billion. Percentage of sales came down 0.2% to 30.8%.
SG&A accounted for not much change as a percentage of sales from last year. A&P expenses came down 0.4% to 12.6%. This is within our expectation of 12%-13%. Other expenses are logistics, warehousing, amortization, depreciation, and audit expenses. Page 11. Xtep brand operating profit was up 23.3%, reaching CNY 1.288 billion. The increase was faster than 21.1% of first half and also faster than 20.7% of last year. The main reason is other income was up 45% at CNY 284 million. This is mainly because wealth management gain increased by CNY 40 million to CNY 97 million. Government subsidy in the form of tax rebates increased to CNY 126 million. SG&A increased only 19.7%, lower than the growth in revenue, so operating profit was up 23.3%. OP margin was up 0.3% to 16.7%. Page 12, income tax breakdown. Including new businesses, effective tax rate was 34.8%.
Last year, it's 31.4%, so there's an increase because of some reasons. For new businesses, most operations are in overseas, and they incurred a loss. As a result, before tax, profit was down, and this means that effective tax rate was from a smaller base, so the rate went up. For newly acquired businesses, even though there was an overall loss, in Taiwan, there was profit, so there's the need to pay profit tax. Besides, because of acquiring new brands, there is a CNY 36 million expenses. Such expenses were incurred overseas, so they cannot be deducted from the tax. Overall speaking, profit tax went up. If we only include Xtep brand, effective tax rate was more or less as last year, 31.5%. Page 13. Profit attributable to equity holders. Profit attributable to shareholders, CNY 728 million. Net profit margin last year was 10.3%. It came down to 8.9%.
This is because of the newly acquired businesses being at a loss. If we only consider Xtep brand, net profit margin will be more or less like last year, 10.3%. Page 14, dividend. In order to pay back to shareholders, the board proposed to pay final dividend of HKD 0.075 per share. Including HKD 0.125 interim dividend for the whole year, dividend would be HKD 0.20 per share. Payout ratio, 60%. Page 15, working capital analysis. Looking at this chart, you can see the red line, receivables line, showing a decline. 96 days. Last year, it's 105 days, so there is a big improvement. Besides, I would like to make one point. Many people asked me why our receivable turnover days was bigger than the other peers. Because our business models are not the same.
Some of the companies have half of their business in retail. It's cash business. But we are in wholesale. Besides, we offer to our clients 120 days of credit period, around four months, turnover days. For inventory turnover, 77 days, down three days from last year. Receivables, 88 days. Overall, operating turnover last year was 87 days. This year, it improved to 85 days. Channel inventory was at four months, which is a healthy level. Because of the coronavirus epidemic, after CNY, sales declined. So latest channel inventory rose by 1.5 months to 5.5 months. But at the end of the year, it will be restored to normal, four months level. This is because the industry inventory level has all along been healthy, and the market has strong demand for sportswear. Page 16, trade receivables.
Looking at this slide, on the left-hand side, you can see trade receivables turnover days from 2017. It has been improving since then. From 2018, we are able to write back past provision made. This year, we wrote back CNY 78 million, more or less the same as last year. After the write back, there is still CNY 400 million of bad debt provision. You may be curious to know whether there would be write back in 2020. It is difficult to answer this question now because the epidemic still has not stabilized. But there is only small chance of write back in the first half of the year because we were affected by the disease, the virus, so there would be funding pressure. We had taken the initiative to offer one additional month of credit period.
When the epidemic stabilizes and when business resumes normal, then we will amend the credit period to the original period. Page 17, balance sheet. Overall speaking, our balance sheet is very healthy. Current ratio is 2.5x. Gearing ratio last year was 21.1%. It came down to 19.1% this year. Even though we paid $260 million for acquisition, we still have net cash. Net cash was CNY 2.1 billion , so we are short of last year by CNY 300 million . Net cash is equal to around HKD 1 per share. Page 18, cash flow. On this slide, you can see our fund flow in 2019. In 2019, operating cash inflow CNY 718 million. Last year is CNY 154 million, so there is a big improvement. Besides, in April we did share placement. Net funds raised CNY 1.162 billion . We paid acquisition expense of CNY 690 million.
Newly added bank loans, CNY 318 million, and we paid dividend of CNY 414 million. Bank deposits balance was down by CNY 220 million comparing with last year. Now, let's take a look at financial performance of new brands. Page 19. K-Swiss, Palladium, and Supra were consolidated into Xtep Group starting 1st August. They made contribution to sales for five months. Revenue was CNY 466 million , Saucony started to have e-commerce sales contributing around CNY 10 million in sales. Operating loss was CNY 54 million for these brands. Goodwill from acquisition, CNY 834 million. Trademark after valuation CNY 789 million . That's intangible assets. Business review, page 21. Let's first look at Xtep brand. As of 31st December 2019, for Xtep branded stores, there were 6,379, an addition of 114 stores year-on-year. 20% were in shopping malls.
In order to offer better shopping experience to consumers, we have designed the new generation store image, the eighth-generation stores. They are wider and bigger in area, and in the stores, there are LCD screens to promote the products. Here you can see our Changsha, Fuzhou, and Jinan eighth-generation stores. The areas were 1,554 sq m, 507 sq m and 352 sq m respectively. For eighth-generation stores, the average area was 150 sq m. Up till now, there are more than 1,000 stores that have been turned into eighth-generation stores. Together with the newest stores, we have 90% of the stores that are opened after transformation. They are new image stores. Page 22. Xtep Run Club. In order to offer more in-depth experience to runners, in 2016 August in Beijing Olympic Forest Park, we started the first Xtep Run Club.
In Changsha, Hefei, Nanjing, Xiamen, Suzhou, Wuhan, we opened eight run clubs. In 2019, we opened two new ones, one in Wuhan East Lake, the other is in Xiamen Island Ring Boulevard. Here you can see these pictures on the PPT. Xtep Run Club combines events, social, equipment, and services under one roof. It offers one-stop service. It wants to make sure that runners find us very sticky. Now we have more than 200,000 members, and more than 430 running events have been organized. We have built more than 20 km of running track and also 14 runner stations. Page 23. After many years of technology enhancements, in 2019 December, we launched the newest style, RC160X. There is 3D shape, and it is a carbon fiber propulsive cushioning technology. It offers very stable support to absorb shock.
In Germany Berlin Marathon, it is the first runner in China who had completed the marathon. In two hours and eight minutes, he completed the whole race. It broke Chinese record. After that, more and more marathon runners have worn these shoes in different events, and they completed the full marathon in less than two hours, 15 minutes. They attracted a lot of attention. Together with Jeremy Lin, we launched the first basketball shoe style in November 2019. For this new style, the market showed very positive response. On Double 11 sale on Tmall, within one minute, all the shoes were sold out. After launch till now, there are already more than 200,000 orders, and it drove the sale of other basketball shoe styles. Page 24. Crossover products. This is one way for us to increase sale and enhance our reputation.
In 2019, we worked with a U.K. design company, House of Holland, to design products, and we were the first Chinese sportswear brand to debut at London Fashion Week. With Batman, Ali, Tom & Jerry, we work together to launch different products. These crossover collaboration sales results are very good. Page 25. Advertising and promotion. We continue to sponsor marathon and other running events to build Xtep's leading position. We continue to be the brand in China which sponsored the most marathon events. Altogether 53 such races in 2019. We sponsored 10 odd marathon runners. As I said just now, Dong Guojian wore RC160X in Berlin Marathon, and he broke a marathon record. We sponsored other runners in different marathon races, and they achieved championship. Page 26. We also sponsored celebrities, sports stars, and also some TV variety shows to promote our brand and products.
We also have crossover products together with these spokespersons and celebrities, and they made good contribution to sales. Page 27. Now I would like to talk about our new brands. First, JV Saucony and Merrell. The JV team members, most of them are in place, and the R&D team has developed some products in the price range of CNY 500-CNY 800. Looking at this slide, you can see that together with Wolverine, we developed the first Saucony running shoes, especially for China market. This year, after January, in Xiamen Marathon, we organized an expo, which was well-received. Saucony e-commerce platform, Tmall platform in second half of 2019, started. The Merrell e-commerce platform in January 2020 was transferred from Wolverine to Xtep, and the Tmall flagship store was launched in March 2020. Page 28. Palladium. Palladium brand was established in France in 1947.
At the beginning, it made military shoes. Up till now, the main products contain elements of military shoes, and they are mainly for young people. Palladium in Hong Kong and Taiwan have 29 self-operated stores in China. There are distribution stores more than 150. Palladium has a scale smaller than that of K-Swiss. In the past few years, growth was better than K-Swiss, especially in Greater China. In the past, Palladium sales, 70% and above was in Europe. European sale has been coming down. In Greater China, in the past three years, sales increased by 30% year-after-year. This year, Greater China business would account for over 50% of total sales for Palladium. Page 29, K-Swiss. It was set up in 1966 by two brothers from Switzerland. They established the brand in L.A. of the U.S.
There are many classic products, and they created the first genuine leather sports shoes, and there is strong U.S. heritage DNA. Now they have more than 40 self-operated stores, mainly in Hong Kong and Taiwan. The global sales is such that North America, 60%, Asia Pacific, 25%, Europe, 15%. Most K-Swiss sales are in the form of wholesale. In subsequent slides, I will go through detailed developments plan of K-Swiss and Palladium. Now I will talk about business outlook for various brands. First, Xtep brand, page 31. As we all know, because of the epidemic, various industries in mainland China were significantly affected. Xtep is not an exception. It is lucky that the epidemic did not affect the sales peak period before CNY. 15 days before CNY, Xtep brand in China had overall sales sell-through up 20% year-on-year. The epidemic mainly affected the period after CNY.
In February, the decline was more or less the same as that in the market. After CNY, sales was usually slower. It seems that in February, other counterparts sales came down 80%-90%, but if you only look at January to February, the decline was not as bad as February. Retail sell-through came down 20% year-on-year in February and January. In March, business recovered gradually. It grew 60%-70% already. From early March till now, every day there was improvement. Apart from Hubei, most stores have recovered. Supply chain has resumed normal operation, basically. We will put in place measures to reduce impact from the epidemic. First, online, increase e-commerce business. We also introduced a Xtep partners scheme. For offline, there are orders that have not been produced yet, and we allow distributors to cancel them.
Even though there is short-term impact, there is a positive impact on our overall development. In this way, we can maintain our competitiveness. Concerning inventory management, we will reduce price, and then by means of outlets and also some small communities, we will try to sell the unsold Q1 products. For cost control, we will reduce the unnecessary A&P expenses. Then we will reduce office accommodation and entertainment-related expenses. For receivable turnover days, we will lengthen the credit period from 120 days to 150 days for the principal distributors in order to show support for them. This is just a short-term measure. When the epidemic is over, we will abolish this short-term measure. These measures for our cash flow and income statement will exert some pressure in the short run.
However, our cash position is adequate to face up to this epidemic, and most of our distributors have been in this business for 10 - 20 years. They have good strength. We are confident that we are able to ride out this very difficult epidemic. Many people will be worried that there may be a price war. We think that there may be a price war in the short run. However, the duration will only be very short because this is different from the time in 2012. Before the epidemic, industry inventory level was very healthy. Because of this epidemic, the market stopped operation for one month or so. There was accumulated inventory. In order to cancel the unproduced orders, the market still has strong demand for sportswear. We are confident that we can resume growth in the second half.
Overall speaking, concerning Chinese sportswear industry and our Xtep brand, we are still very confident. Page 32. Concerning Saucony and Merrell, because of the impact of the epidemic, the store opening plan will be deferred by a few months. The first Saucony store will be opened in Q3 this year. For Merrell, it will happen at the end of this year. The expected store efficiency will be 180,000 - 200,000. This is based on our original estimates about e-commerce. For the whole year, these two brands will open 30 - 50 stores. The original expected loss will be CNY 30 million - CNY 40 million for each brand. But because of the epidemic, we will start opening stores a few months later, so loss will be smaller. For each brand, the loss will be around CNY 30 million- CNY 40 million, and the JV shareholders will share the loss.
On the book, the loss will be CNY 30 million- CNY 40 million for these brands. We have set a five-year plan for these two brands. At the end of 2024, we hope that these two brands in mainland China can achieve CNY 1.5 billion of sales. As said before, JV will see the first two years as investment years, so there would be some loss. As of the end of 2020, we will break even, and in the third year there will be 200 - 300 stores for each brand. Then, the scale will reach a certain size, and concerning procurement and fixed cost sharing, there will be some efficiency, and we would be able to break even. Page 33. Concerning K-Swiss and Palladium. After acquisition, we started to do restructuring and consolidation.
We need 18 - 24 months for that, and the direction is that we will focus on K-Swiss and Palladium. Then the focus will be shifted to Asia-Pacific, especially Greater China. We will improve the Greater China business so that it will influence Asia-Pacific and then Europe. Then we will integrate with Xtep resources, especially in product and also supply chain, to fill the gap in K-Swiss and Palladium. We will increase the share of apparel. Right now, apparel only accounted for 10%, so there is big room for growth. Number six, we will open self-operated stores, and when the business is more mature, we will work with distributors. For K-Swiss and Palladium, we have formulated a five-year plan. After five years, we hope that these two brands can have a sales scale of $500 million .
Last year, sales was $160 million, roughly, but a lot was some local sales of low quality. This year is a year of consolidation. The low-quality sales would be eliminated. This year there is the epidemic. This year we believe that sales would be at around $150 million - $160 million, and profit goal is breakeven. We hope to reposition K-Swiss brand, but we will maintain their brand DNA, and we will improve their products and enhance quality. We will increase share of apparel. After 18 - 24 months, we hope to introduce new products and image. We will start in mainland China, and we will open flagship stores. We will increase A&P investment. For example, we will appoint celebrities, spokespersons, and after that, we will increase investment in the market.
For example, in Los Angeles store of K-Swiss, we will also open self-operated stores. We will improve existing product quality, and at the same time, we will reduce excessive SKUs. We will focus on the classic styles. We want to make sure that no more loss will be incurred. K-Swiss is a very good sportswear brand in the market. After four to five years, when the brand and products are repositioned and after a certain scale is built, then sales and profit contribution to the group will be more significant. For Palladium products, comparing with K-Swiss, the room for improvement is smaller. We only need to increase share of apparel and invest more in advertising. In China, we will continue to allow some agents and distributors to operate. We will also open self-operated stores in China for Palladium, and very soon, the scale can be built.
In two to three years' time, in terms of sales and profit, they can make good contribution to Xtep. These new brands do not account for a big business share. Still not up to 1/5, but after two to three years, these new businesses will become our new growth drivers. We believe that the Xtep brand, even though affected by the epidemic this year, can still maintain fast growth of a double-digit rate. That is all in our presentation. If you have any questions, please send email to ir@xtep.com.hk and contact our Investors Relations department and our Corporate Communications department. We would also invite investors to take part in our conference call after this presentation. You can have a further discussion with us about our business. Thank you.