Investors, media friends, good afternoon. Welcome to XTEP's 2020 interim results investors and media webcast. I am the Director on Investors Relations and Corporate Communications, Sophia. Online, we have our management, including Chairman and CEO, Mr. Ding Shui Po. CFO, Mr. Yeung Lo Bun. Today's webcast will be conducted in Mandarin, and we have arranged English simultaneous interpretation. After the management's presentation, there will be a Q&A session. If you would like to ask questions, please input questions in the Q&A window of the webcast. Now, may I invite Mr. Ding Shui Po, our Chairman and CEO, to deliver his speech. Mr. Ding, please.
Media, investors, good afternoon. Welcome to XTEP's 2020 interim results presentation webcast. I am Chairman Ding Shui Po.
Today, I would like to summarize a few main points of our interim results in 2020, and then I will pass the floor to our CFO, Mr. Yeung Lo Bun, to make more detailed presentation. In first half 2020, we faced unprecedented challenges arising from COVID-19. It is fortunate that the Chinese government very quickly controlled the pandemic, and XTEP brand physical stores and self-operated factories resumed operation in late February. At the same time, we actively moved sales to e-commerce platform, and we encourage agents and our employees to make use of their private domain data traffic and put in place different control measures. In Q2, our business started to recover. However, in the U.S. and Europe, pandemic was severe. Most economic activities stopped. For the newly acquired brands, the overseas business was affected.
In first half 2020, XTEP core brand revenue was down 4.6% at CNY 3.2 billion. Together with newly acquired brands and JV companies revenue contribution, our total revenue reached CNY 3.7 billion. Operating profit was down 30.2% at CNY 500 million, and net profit came down 46.5% to CNY 248 million. Interim dividend, HKD 0.065 per share. Dividend pay up to 60%, more or less the same as last year. We have put in place the following strategies. We have three major business categories, and that is first mass market, XTEP core brand. Our focus is to innovate the running series. That is, we offered very professional 160X running shoes. At the same time, we put into some collaboration with Shaolin Temple in launching some fusion series in order to showcase Chinese culture. Then there is also online/offline business. Then professional sports, Saucony and Merrell.
Saucony and Merrell will open stores in tier one, two cities in China to expand sales network. Saucony, in the first half, has already opened 12 stores in China, mainly in tier one, two cities. In June, in Shanghai Zhengda Plaza, the store was also opened, and it was well-received. The third category is athleisure. That is K-Swiss and Palladium. K-Swiss, we will reshape the brand positioning. At the end of 2021 or early 2022, they will open store. For Palladium, in second half this year, we will start operation, and we are going to open 30 to 50 stores in the second half in China. Besides, we will do more to develop the Asia-Pacific network. In Hong Kong, in Harbour City, we have also opened a Palladium store.
Looking into the future, we believe that our business in the second half this year and next year, our business will gradually improve. This is mainly about XTEP core brand. We will continue to develop it in a stable manner. For professional sports, including Saucony and Merrell in China this year, we will open 30 to 50 stores in China, and we will invest more into R&D on apparel. For Palladium, in the U.S. and Europe, it will take some time until the recovery after the pandemic. However, we will do more in Asia-Pacific, especially China. This year, for Palladium, I believe 50 stores will be opened in China. This is basically the situation. Now, I will pass the floor to the CFO, Mr. Yeung, to present in greater detail our results.
Thank you, Mr. Ding. Good afternoon. Welcome to XTEP's 2020 interim results presentation. Looking back in the first half this year, we encountered unprecedented challenge under the pandemic. At first, the pandemic broke out in China, and the Chinese government in January implemented a lockdown, and most economic activities actually stopped. XTEP core brand, which accounted for almost 90% of our business, had to close many retail stores. Starting February, XTEP stores and plants gradually resumed operation. However, our results were affected. In China, in the first quarter, our sales revenue came down more than 20% year-on-year. Inventory level in the past, the normal level was four months, and now it rose to 5.5 months. In order to tackle impact of the pandemic, we put in place some measures.
First, because of closure of physical stores and also the suspension of traditional e-commerce logistics, we encourage agents and employees to make use of, for example, WeChat Mini Program and WeChat Moments to promote and enhance sales. Number two, in Q1, in February to March, the sales window was lost, so we put in place some product replacement work. We use new products for Q3 to exchange Q1 products from agents. Then we offer to agents an additional month of payment cycle in order to lower their funding pressure. At the same time, we offer to our agents in advance some rental and renovation subsidy in the form of sales discount. Besides, we minimized unnecessary expenses in order to save costs. After adopting a series of measures in April or after April, our results gradually recovered. In May and June, there was growth.
In Q2, sales revenue improved to the level such that there is only single-digit decline. Overall speaking, for XTEP core brand in the first half, sales only fell 4.6%, and profit on an apple-to-apple basis. If we do not include the CNY 16 million receivable bad debt write-back, and also this year, the CNY 44 million provision for receivables, operating profit only came down 9.1%. Please turn to page two of PPT, financial highlights. Sales increased 10%, operating profit down 30%, profit attributable to shareholders down 47%, and I will explain later the reasons behind these change. The Group still has healthy financial position. Net cash balance was more or less the same as last year at CNY 2.16 billion. Dividend payout was more or less the same as the past, 60%. Interim dividend, HKD 0.065 per share.
Total number of XTEP brand stores, 6,124, down by 255 stores comparing with the end of last year. The TFA did not change much because we only closed the not profitable small stores, but we opened bigger stores in good locations. Next, consolidated income statement. Sales grew 9.6%. This is because of the four new brands which made contribution to sales of CNY 478 million. Gross profit down 0.5% to CNY 1.489 billion. This is because for XTEP main brand, Q1 inventory was recalled for sales, so GP margin came down. At the same time, we offered to agents some rental and renovation subsidy in the form of discount instead of as in the past, instead of using sales and marketing expenses. SG&A up 30.5%, mainly because last year in the same period, the new brands did not incur any expenses.
At the same time, there was the impact about the receivable provision. Last year, that was write-back. This year, provision. So the impact was around CNY 104 million. Operating profit down 30%, profit attributable to shareholders down 46.5%, and the drop comparing with operating profit is such that this year, the net financing cost grew. We have also done a market-to-market revaluation in order to lock down the low interest rate. We had got two, three-year IRFs, leading to a non-cash loss of CNY 15 million.
On page five, we can see that for XTEP main brand, it accounted for 87% of total sales. Four new brands, 13%. We are confident that in the coming five years, XTEP core brand will be able to have low to mid double-digit growth. For new brands, the growth will be faster. Income statement core XTEP brand. Because of the pandemic, it is down 4.6%.
Gross profit margin down 4.1 percentage point at 40.5%. So gross profit came down 13.4% comparing with the change in sales of 4.6%, it is higher. This is because we recovered the Q1 inventory for sales. As a result, gross margin came down. At the same time, we offered some subsidy in terms of rental and renovation to our agents. SG&A rose 2%. However, the share of revenue was up 2 percentage points at 29.3%. If we do not take into consideration the impact of receivable provision of CNY 104 million impact, SG&A actually down 8.2%. Operating profit down 23%. If we disregard the impact of provision on receivables, the actual decline was 9.1%. Next, XTEP main brand, apparel, footwear, and accessories. For footwear, the decline was bigger than apparel. This is because last year there was order replenishment for footwear. This year, because of the pandemic, there wasn't.
It accounted for total sales, in terms of share, was down 0.9% to 56.1%. In the future, the proportion between apparel, footwear will be 55: 45. Next, page eight. Gross profit margin for XTEP core brand. Gross margin down 4.1% to 40.5%, mainly because we recovered Q1 inventory for sales, so GP margin came down. In the past, we offered rental and renovation subsidy to sole agents, and this is in the form of selling discount. So in the past, this took the form of selling expenses. Besides, we believe that in the second half, GP margin will be around 40%-41%. This is because rental and renovation subsidy will be in the form of selling discount. In Q4 trade fair for 2020, the pricing times or multiples will also be down. There will be an impact on GP margin of around 2 percentage points.
SG&A slightly rose 2%. If we exclude the provision on receivables, last year there was write-back CNY 60 million. This year, provision CNY 44 million. SG&A actually fell 8.1%. Others, its share of revenue will not grow significantly from 6.7% last year to 10.5% this year. Because of the pandemic, we had saved a lot of cost. For others, when we disregard the impact of receivable provision, actually, it came down from 8.9% last year to 8.1% this year. A&P expenses fell from 13.4% to 10.7%. We attach much importance to R&D. R&D expenses did not decrease. It increased 22% to around CNY 100 million. Its share of sales rose from 2.4% to 3.1%. XTEP core brand operating profit came down 23%. If we do not include the provision impact, then operating profit only down 9.1%.
Effective tax rate increased from 32% of last year to 39.6% this year, higher than the normal rate in Mainland China of 25%, because there was loss in overseas business, so the profit before tax was reduced. Receivable, bad debts provision is not tax deductible. Lending interest in Hong Kong banks cannot be tax deductible in China. At the same time, we have to pay. We have to take our 5% dividend tax for profit in China. Profit attributable to shareholders came down 46.5% to CNY 248 million. If we disregard the receivable provision, then it fell 27.4%. Dividend is HKD 0.065 per share. Dividend payout 60%, higher than same period of last year. Next, inventory increased because we recovered some inventory from agents. For new brands, the inventory this year is incorporated into our Group.
Receivable increased because we offer to agents an additional month of payment term. Our payable turnover date increased because we make good use of the payment term or payment credit period from suppliers. For XTEP core brand in Mainland China retail inventory, because of pandemic, last year it was four months, and at the end of June, it rose to five to 5.5 months. We are confident that at the end of the year, it can go back to around five months. Page 14, receivable analysis. Because of the pandemic, we took the initiative to offer to principal agents an additional month of payment term. Because our auditor was conservative, they asked us to make some provision. However, we see that retailers' sales had resumed normal, and so their cash flow is also better than before. We believe that the possibility of bad debt is small.
Next, balance sheet. Balance sheet, overall speaking, is very healthy. Last year, the Group did acquisition, and the new business is still making a loss. However, we still have a net cash position. Net cash balance, comparing with last year end, was an addition of CNY 31 million at CNY 2.163 billion. Current ratio, very healthy at 2.4 x. Last year it was 2.5 x. Gearing ratio came down from 19.1% last year to 18.1%. Page 16, cash flow. At the end of June this year, cash balance was up CNY 81 million from December of last year. In first half, there was cash inflow of CNY 274 million net cash inflow. That is from operation. There is CNY 63 million of fixed deposit maturing. Main cash outflow was bank repayment, CNY 64 million. We also paid dividend of CNY 156 million.
Page 17, K-Swiss and Palladium and their performance in first half this year. K-Swiss and Palladium accounted for 12.5% of total sales of the Group. In the first half, sales was CNY 459 million, operating loss, CNY 48 million. This is worse than our budget done before the pandemic. Based on the situation in Europe and the U.S., we believe that in the second half of the year, the financial performance will be more or less the same as first half. Business review. Page 19. XTEP core brand has 6,124 independent stores globally. 6,080 stores are in Mainland China. Because of the pandemic, some loss-making small stores will not be continued. They will be closed when the tenancy agreement expires. However, at some good locations, we have opened some big stores.
In the first half, net closure was 265 and number of closure in the second half will decrease, and at the end of the year there will be around 6,000 to 6,100 stores. For running clubs, in first half this year in Hangzhou, we started a run club and as a result, in China, there are altogether nine run clubs. Page 20, products. At the end of last year, we launched XTEP's first carbon fiber running shoes, RC160X, and it was well received. We sponsored Dong Guojian and he wore RC160X in Germany Berlin Marathon. He completed the whole marathon in two minutes and eight seconds. This broke a Chinese record. At the same time, we sponsored other athletes and they wore RC160X and they won championship in different marathons. So they are all able to complete the marathon within two hours, 20 minutes.
We also expanded our professional product series. We changed RC series into UltraFast series. There are three models, mainly for professional runners. They are UltraFast 160X for race and also UltraFast X and UltraFast for race as well as for training. Page 21. Lifestyle products. We launch fusion products in order to increase sale and enhance reputation. In June 2020, we cooperated with Shaolin Temple and launched some fusion products. In Shaolin Temple, we also opened a specialist store. Besides, we also worked with Batman, Ali, Tom and Jerry to launch different products. The sales were very good for these fusion products. Page 22. Brand promotion. We continue to subsidize or sponsor marathon and other running events to build our leading position in running. In first half this year, because of the pandemic, the number of marathon races we sponsored was smaller.
In order to minimize contact among people, we have organized five virtual marathons. Runners can run indoor or outdoor, and then they can send their record through our app to us. We will offer certificate. The five virtual marathon and the Xiamen Marathon in January altogether attracted around 700,000 participants. Besides, we sponsor top stars, famous athletes as well as TV variety shows to promote our products. We have also launched some fusion products with good results. Because of the pandemic, about Saucony, our store opening plan was delayed from March to June. In early June in Shanghai, we opened the first store. In June in Beijing, Shanghai, Dalian, Shenzhen, we have altogether opened 12 stores and the outcome was better than expected. Saucony in May launched the first carbon fiber shoes with very good response in the market. Page 25, Merrell.
At the beginning of this year, we officially incorporated Merrell into XTEP Group. In early March on Tmall, we started Merrell's flagship store. In April and July in Beijing, we opened two stores. For K-Swiss, K-Swiss is in the stage of integration. We expected that at the end of next year or early period in the year after next year, we will launch new image stores and products. K-Swiss in Hong Kong and Taiwan altogether has 42 directly operated stores. In Europe and the U.S., its business is mainly wholesale. Because of the pandemic, K-Swiss' European and U.S. business basically was semi-suspended and K-Swiss sales only accounted for a mid-single-digit share of total sales. This year and next year, its positioning will be to integrate and focus on R&D. The loss is controllable. Palladium.
Same as K-Swiss, its European and American business was greatly affected by the pandemic, and Asia-Pacific sales was rather stable even though there is a decline. At the end of June, Palladium had 34 self-operated stores, mainly in Hong Kong and Taiwan. In China, there are 150 stores operated by agents or franchisees. Page 29. XTEP main brand business outlook. We can see that its operation and performance keeps on improving. From Q1 2020, the decline in retail revenue was more than 20%. In Q2, there was only a single-digit decline. In July to August, it is flat at a single-digit revenue growth. We believe that in the second half, performance will definitely be better than first half. In 2021, our outlook is still very optimistic. If the pandemic is kept under control, we are confident that it can go back to quite a satisfactory growth. Page 30, JV.
Even though development was deferred by a few months, we are full of confidence in the future. Store opening plan because of the pandemic is being affected. This year, originally, we planned to open 50 to 80 stores, and now the plan is to reduce to 30 to 50, mainly Saucony stores. Fewer stores will be opened this year. The expected loss will fall from CNY 80 million- CNY 90 million to CNY 70 million-CNY 80 million. XTEP will bear part of the loss, around CNY 30 million- CNY 40 million. For K-Swiss and Palladium, the pandemic mainly affected overseas performance. Its impact in China was not big. It is mainly that the store opening plan was deferred by a few months. K-Swiss brand is in the process of integration. So, in the second half, next year, there will be the launch of new products.
In China, new image store will be opened. For Palladium, this brand is operated by agents and distributors. In the second half, they will open their self-operated stores around 20 to 30. After the pandemic stabilizes, we have confidence that Palladium will be profitable. That's all from me. Thank you.