KINGHERO AG: Trading-up strategy boosts revenues in 9 months 2012

Results 9 months 2012

Munich, (PresseBox) - .
- Revenues add up to EUR 88.6 million
- EBIT margin of 22.9%
- Net profit increases by 20.4% to EUR 15.0 million
- Average unit prices climbed up by 32%
- Sales and margin development in line with the company's expectations

KINGHERO AG, the German holding company of a fast-growing Chinese fashion company, announced its full results for the first nine months 2012 today.

In the third quarter 2012 KINGHERO AG continued its growth path. Due to the company's trading-up strategy, which includes continuous brand development and increased advertisement, KINGHERO was able to augment the average unit selling prices. This led, together with the higher demand for KINGHERO products in China, to a revenue growth of 40.5% to EUR 88.6 million in the first nine months 2012.

Despite higher raw material prices, gross profit rose by approximately 41.1% to EUR 34.4 million mainly driven by the higher average unit selling prices, which rose by 32.0% to EUR 18.30 compared to EUR 13.80 in the same period last year. The gross profit margin remained almost stable at 38.8% compared to the first nine months 2011.

In the first three quarters, EBIT increased to EUR 20.3 million, representing a plus of 24.6% compared to the same period in 2011. However, EBIT margin decreased to 22.9% (9M 2011: 25.9%), mainly due to rising distribution and selling expenses caused by higher promotion costs and rental expenses for the increased number of KINGHERO-owned stores.

The net profit grew in line with the operating profit by 20.4% to EUR 15.0 million. The net profit margin decreased by 2.9 percentage points to 16.9% compared to 19.8% in the nine months period last year. Nevertheless this is still a very satisfying result compared to the profitability of most KINGHERO's domestic and international competitors.

Revised distribution strategy

This positive business development shows that KINGHERO's growth strategy pays off. Within the last year the company was able to expand its sales network by enhancing its number of distributors from 39 (as of September 2011) to currently 48 which are operating a total of 370 KINGHERO stores.

Additionally, over the period of the last two years KINGHERO has enhanced its distribution strategy by opening own flagship stores. As of 30 September 2012, the number of flagship stores amounted to 62, which account for 13.5 percent of the total revenues in the first nine months 2012.

After focusing on growth of this new distribution channel during the past two years, the company is currently evaluating the flagship store network on a store by store basis especially in terms of sales and profitably. Underperforming stores were and will be relocated or closed. This led to a slightly lower number of flagship stores at the end of September 2012 compared to the number as of 30 June 2012. Nevertheless, the flagship stores strengthen the connection to KINGHERO's end customers and also accelerate and improve the feedback from the target group. The company will continue to set up flagship stores in the future but not meet the previously stated guidance of 100 flagship stores in 2012.

Besides the flagship store strategy, the company is planning to set up department store counters to complement the existing retail channels. Compared to the flagship stores, this channel has lower fixed costs since there are no rental fees.

Expectations achieved

Pursuant to its growth strategy, KINGHERO seeks to develop its existing merchandise categories and increase sales, both via distributors as well as its own flagship stores. The overall sales and margin development in the first nine months of 2012 is in line with company's expectations. Based on these results, KINGHERO expects overall sales of approximately EUR 125 million and sustainable margins at previous year's level for the full year 2012. Given that there are no material negative effects in the fourth quarter of 2012, the Management Board considers proposing a payment of a dividend about 10 to 15% of the 2012 net profit.

For more information on KINGHERO's business and financial development in the first nine months of 2012 please see the interim statement for the first 9 months 2012 published on the company's website www.kinghero.de.

Disclaimer concerning prognoses

This communication contains forward-looking statements. Forward-looking statements are statements that are not historical facts instead they reflect KINGHERO's current views and expectations and the assumptions underlying them about future events. Forward-looking statements are subject to many risks and uncertainties. If any of such risks and uncertainties materialise or if the assumptions underlying any of KINGHERO's forward-looking statements are proving to be incorrect, KINGHERO's actual results may be materially different from those expressed or implied by such forward-looking statements. KINGHERO does not intend or assume any obligation to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made.

KINGHERO AG

KINGHERO AG is the German holding company of the KINGHERO Group of companies, mainly active in the Peoples Republic of China (PRC). The Group is a strongly growing apparel manufacturer and designer, featuring a leading Chinese fashion brand for the strongly growing urban middle class in China. The key to the company's success is a high fashion degree with a European "touch and feel" as well as an upscale quality. The high speed of the design and marketing of new collections ensures a fit to the changing demands of the growing urban middle class in China. Being in this business for more than 25 years, the group and its more than 1,000 employees produce attire for all seasons under the KINGHERO brand. The product portfolio includes suits, jackets, shirts, pants and sweaters for men and women and is divided into a business casual range and a general casual range.

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