Accounting For Management - Syndicate Project

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Table of Contents

1 Introduction……………………………………………………………………………………………………. 1

2 Background ……………………………………………………………………………………………………. 2

2.1 Giordano Holdings International Limited

(0709.HK) ……………………………………………………………. 2

2.2 Esprit Holdings Limited

(0330.HK) ………………………………………………………………………………………. 2

3 Industry Factors …………………………………………………………………………………………….3-4

3.1

Distributions …………………………………………………………………………………………………………….

…………. 3

3.2 Fashions and Product

Mix ……………………………………………………………………………………………………. 3

3.3

Technology ………………………………………………………………………………………………………………

………….. 4

3.4 Seasonaility and

Weather ……………………………………………………………………………………………………… 4

4 Economic Factors………………………………………………………………………………………….5-6

4.1 Current Economic

Conditions ………………………………………………………………………………………………. 5

4.1.1 Income /

Output ………………………………………………………………………………………………………………. 5

4.1.2

Unemployment………………………………………………………………………………………………………….

…….. 5

4.1.3

Inflation……………………………………………………………………………………………………………………

………. 5

4.1.4 Interest

Rate …………………………………………………………………………………………………………………….. 5

4.2 Expected Economic

Conditions …………………………………………………………………………………………….. 6

5 Financial Ratios Analysis ……………………………………………………………………………..7-11

5.1

Profitability ……………………………………………………………………………………………………………..

…………… 7

5.2

Liquidity ………………………………………………………………………………………………………………….

………….. 8

5.3

Risk…………………………………………………………………………………………………………………………

……………. 8

5.4 Leverage and Capital

Structure………………………………………………………………………………………….9-11

5.4.1

Leverage…………………………………………………………………………………………………………………..

………. 9

5.4.2 Capitalization

Raio…………………………………………………………………………………………………………… 9

5.4.3 Equity

Ratio…………………………………………………………………………………………………………………….

5.4.4 Debt

Ratio……………………………………………………………………………………………………………………….

5.4.5 Asset

Turnover ……………………………………………………………………………………………………………….

5.4.6 Times Interest

Earned……………………………………………………………………………………………………… 11

6 SWOT Analysis……………………………………………………………………………………………12-13

6.1 Giordano Holdings International Limited

(0709.HK) ………………………………………………………….. 12

6.2 Esprit Holdings Limited

(0330.HK) …………………………………………………………………………………12-13

7 Recommendations………………………………………………………………………………………… 14

Appendices ………………………………………………………………………………………………..15-18

Appendix A: Table of

Ratios …………………………………………………………………………………………………15-16

Appendix B: Charts of

Ratios …………………………………………………………………………………………………… 17

Appendix C: Share Price Figures and

Graphs ………………………………………………………………………….. 18

Page 1 of 18

1. Introduction

This report serves the purpose of identifying companies, which are publicly listed in

Hong Kong stock exchange and with strong financial background, for long-term

investments for a professional investor.

We will provide an in-depth analysis on the financial statements for the selected two

companies, within the same industry, listed on the local stock exchange. And, we

will provide recommendations as to which company should the client invest.

Page 2 of 18

2. Background

Looking at the recent strong demand trend on retail business, we think it is wise for

investors to consider investing in this business for long-term investments with

highexpected

return. Amongst all the companies with retail business on the local stock

exchange, we select Giordano and Esprit as part of the financial analysis, because

they seemed to have strong financial background, competing each other. Now, let

us take closer look at the background for each company.

2.1 Giordano Holdings International Limited (0709.HK)

Giordano was a leading clothing manufacturer and retailer internationally in the

1970s. It opened its own brand shop “Giordano”“ in 1981 by Jimmy Lai (who is no

longer with Giordano). In the past two decades, it has been gradually developing

and there are about 1,700 shops in Asia Pacific today. It started with low-end

simple casual wear, i.e. T-shirts and denim products. Up to now, Giordano has

developed to have four brands, namely Giordano, Giordano Junior, Giordano

Ladies and Giordano Concept. The “Giordano mainly targets for selling affordable

trendy casual wear, whereas the “Giordano Junior”“ for – selling kid clothes. The

“Giordano Ladies”“, which was introduced in 1996, focuses on office ladies clothes,

and “Giordano Concept”“, which was recently introduced, tends to target high-end

consumers.

Giordano International Limited has been listed on the Hong Kong Stock Exchange

since June 1991.

2.2 Esprit Holdings Limited (0330.HK)

The brand Esprit established in 1968, founded by Susie and Doug Tomkins. There

are 12 different product lines including men wear, women wear, kid wear,

shoes, bedding and accessories etc. Its wide ranges of products are both

fashionable and stylish.

In 1971, Hong Kong businessman Michael Ying joined Esprit, in which he managed

Asia Pacific market for the company. According to the record, Esprit has over 660

shops worldwide and 11,450 controlled-space wholesale point-of-sales. In 2001,

the company also introduced its own cosmetic brand “Red Earth”“. Lately, Esprit

also widened their business by providing hairdressing service.

Esprit has been listed on the Hong Kong Stock since 1993.

Page 3 of 18

3. Industry Factors

Let us take a brief review on the industry factors for Giordano and Esprit, in the

areas of Distribution, Fashion/Product Mix, Technology and Seasonality as detailed

below:

3.1 Distribution

With Giordano long history of establishment, good quality of products and

services, and good network of retail shops, Giordano has attracted loyal customers

and increased its market share in Hong Kong compared to other companies with

same industry nature such as Bossini, U2, and Baleno. Although the turnover in

Hong Kong and Mainland China market had been increased by 5% and 9%

respectively, the overall turnover in 2006 was decreased by 0.93% compared to

that in 2005. It also recorded a decrease in sales in some Asia-Pacific countries

such as Malaysia, Japan, and South Korea. The majority of the opportunities for

Giordano are still in Hong Kong and Mainland China. The fast economic growth in

China has given rise to the average income, allowing consumers to spend more

money on clothing. However, with increased spending potential, Giordano also had

to accept new challenges such as the increased competition in Hong Kong and

mainland China – new brands emerged, increasing production cost of raw material

and labor in China, and continuous changes of policies and regulations in China

As for Esprit, its main markets were in Europe, which accounted for approximately

85% of 2006 sales; and in Asia, which accounted for approximately 12% of 2006

sales. The Esprit brand products were principally sold via directly managed retail

outlets, wholesale customers, including department stores, specialty stores and

franchisees, and by licensees in relation to products manufactured under license,

principally through the licensees own distribution networks. As of result of the cash

strength from its operating activities in the recent years and its large network of

retail outlets already established worldwide, Esprit should take advantage and

increase its online retail presence as well as further expand the network of retail

stores in Asia-Pacific regions, especially in mainland China. Thanks to the

economic growth of Mainland China, sales will increase under the low price and

high-value apparels. Quite a few of the consumers in China can afford and are

willing to spend more money on higher priced and higher quality casual wears.

3.2 Fashions and Product Mix

Initially, Giordano positioned its product within the low-priced apparel market; In the

late 90s, Giordano introduced a new product line to venture into the mid-priced

market of women fashion, hoping to attract young, stylish women and benefit from

the higher profit margins. However, Giordano wandered into a market crowded with

seasoned players and it had to compete with more than a dozen other brands