Incident: The company achieved operating income of 810 million yuan in 2012, a year-on-year decrease of 5.3%; net profit attributable to shareholders of listed companies was 39.66 million yuan, a year-on-year decrease of 46%; and earnings per share were 0.19 yuan. Regarding the 2012 operating results, the company's chairman & general manager, financial director Gao Jian, director Ling Yun, and the sole director (Guo Peng) held an online briefing session (Snowball and Juchao Network) this afternoon. We have summarized the main contents as follows: Communication content: Q: Why did the company's net profit drop sharply in 2012? What is the reason for the increase in sales expenses? In 2012, the company's revenue declined by 5.26%, mainly due to the weak global economy and the slump in the textile export market; during the reporting period, the company's net profit fell by 46.03%, mainly due to investment and promotion of the company's own KR and SN new stores, increased marketing expenses, depreciation of new fixed assets, and rising labor costs. Sales expenses increased by 32.58% over the previous year. The main reason for the increase was due to increased promotion of domestic and foreign clothing brands. (Chief Financial Officer: Gao Jian) Q: How much impact does the company's employee compensation expenses have on the company's performance? During the reporting period, the company's labor wages accounted for 10.86% of product costs. The company provides competitive remuneration in the industry to grassroots employees. Employee remuneration consists of basic wage and performance pay. (Director: Ling Yun) Q: How can the company cope with rising costs? How to stabilize gross profit levels? Faced with many objective adverse factors in production and operation, including rising labor costs, rising energy and utility costs, and price increases for raw materials (and labor in the distribution process) due to continuous increases in minimum wage standards and social welfare expenses, the company raised prices for some products sold in mid-year in response to rising costs in the first half of 2012. At the same time, in order to stabilize the middle and high-end customer base, a series of measures have been taken, including continuing to improve the informatization construction of logistics and warehousing systems to shorten product delivery, strengthen detailed management, and thoroughly implement process reengineering and integration to control production costs, actively developing new products to enhance product added value, and developing new customers in developed countries, mainly Europe, America, and Japan, based on long-term partnerships established with major international high-end customers, etc., and the most important means of this is to guarantee product delivery. In terms of ready-to-wear products, since demand in the outdoor goods terminal market has been affected to a certain extent by the recession of the economic situation, customer orders place more and more emphasis on the timeliness of product delivery, which in turn requires a single fabric supplier to shift to an integrated brand garment supplier. As a result, the majority of the company's final products are exported in the form of processed ready-to-wear products. During the reporting period, since the company did a good job in dealing with the above aspects and extended the product value chain, in the face of many objective adverse factors, the gross margin of these ready-to-wear products was still rising steadily. (Financial Director: Gao Jian) Q: Facing the continuous rise in raw material prices, what strategies has the company adopted to control costs? The company's main raw materials are wool yarn, polyester yarn and a small amount of cotton yarn. During the reporting period, based on predictions and judgments on price changes in the raw materials market, the company adopted various methods, including developing new products with strong bargaining power, importing some raw materials and hedging exchange rate risks through financial means, to effectively control the impact of fluctuations in raw material prices. (Director: Ling Yun) Q: What are the benefits of the company's fund-raising projects? In 2012, the company's fund-raising project was completed and put into use. During the reporting period, the benefits achieved were RMB 16.216 million. (Financial Director: Gao Jian) Q: What was the biggest difficulty the company faced in operating last year? Are improvements expected this year? In 2012, the international textile market was affected by adverse factors such as the escalation of the European debt crisis. Compared with the same period in 2011, there was a marked decline in consumption in the terminal market; while various costs in the domestic manufacturing industry continued to rise, leading to an acceleration in the pace of international transfers in the textile industry, many industry giants successively closed domestic manufacturing companies to seek lower cost production bases. All of this added more uncertainty to the textile industry. Compared with the same period in 2011, the company's operating income fell 5.26% during the reporting period, mainly due to the weak global economy and textiles This is due to the impact of the slump in the export market. In 2013, the company will actively explore the international market to deal with the financial crisis, including developing new international customers while increasing investment in its own brands to increase market share; using and enhancing the resource advantages of the vertical industry chain; and gradually transforming the industry by cultivating its own export brands. (Sole Director: Guo Peng) Q: What is the current progress of the company's own brand? What's the plan? How many new stores are planned to be added in 2013? Can we reach break-even in 2013? Kroceus for the domestic market: In 2013, Jialinjie Sporting Goods Company, a wholly-owned subsidiary responsible for the operation of the brand, will speed up brand promotion and promotion efforts, and make improving the single-store sales performance of existing stores a top priority, aiming to get rid of operating losses as soon as possible and achieve breakthroughs in sales and profits. There is no clear target for the number of new stores added this year.In 2013, SN's specific market goal is to continue to stabilize the European market and actively explore distribution channels in North America, Japan, South Korea and other regions. At the same time, it is necessary to improve the functional construction of the Shanghai headquarters, rationalize the communication channels between the headquarters and various branches and distributors, and strive to turn losses into profits at the Shanghai headquarters as soon as possible.At the same time, in terms of internal management, subsidiaries need close communication and cooperation with the parent company's financial and internal control departments to develop standardized and standardized procedures to reduce the company's operational risks. (Director: Ling Yun) Q: What new production capacity was released by the company in 2013? The company released no new production capacity in 2013. The development of production capacity in the next few years will depend on the speed of construction of the new production base in Jiayu, Hubei. (Director: Ling Yun) Q: Does the continued appreciation of the RMB have a significant impact on the company's profits? Regarding the issue of RMB appreciation, the company realizes that it will indeed have a certain impact on operations, but the impact is limited and manageable, and can be controlled through the following aspects: First, the company's main customers are high-end international customers. These customers have high gross sales profits, and they place much more importance on product quality and delivery dates than on product price increases due to exchange rate changes or tax rate adjustments. When the exchange rate fluctuates too much or the tax rate is adjusted, to a certain extent, the company can transfer exchange rate risk by negotiating price increases with the customer; secondly, the average business cycle of the company is about 3 months from accepting the customer's order until payment is returned. The company's finance department actively monitors and tracks exchange rate changes, predicts exchange rate trends for the next three months, and forms a quotation guide price in the context of fully considering future exchange rate trend factors. Generally speaking, the gross margin quoted by the company's sales department is not less than 15%. In the context of exchange rate fluctuations, the company can guarantee the expected gross profit margin by adjusting the price. Furthermore, through measures such as information system upgrades and process reengineering, the company has optimized production processes, shortened product delivery times, and minimized the impact of exchange rate fluctuations and contingent tax rate changes; third, the import of raw materials can hedge the risk of exchange rate changes to a certain extent; finally, the company also hedged exchange rate risks through financial means. The relevant departments have formulated an immediate settlement budget broken down to the month, and have adopted measures such as RMB forward settlement transactions (currently the company has basically locked in the forward risk of the US dollar based on next year's payment expectations), and foreign currency loans to reduce the risk of RMB appreciation. (Director: Ling Yun) Q: Does the fluctuation in cotton prices affect the company's profits or operations? The products produced by the company mainly use wool yarn and polyester yarn. The amount of cotton yarn used is small, and fluctuations in cotton prices have little impact on the company's performance. (Director: Ling Yun) Q: What are KR's business difficulties? Sales goals for 2013? How will it expand in the future? Are you considering replacing the original person in charge? KR is currently still in the brand development period, and its low popularity may be a prominent issue. The company's future development places equal emphasis on both. In 2012, KR sales exceeded 20 million yuan, an increase of nearly 250% over the previous year. The management gave the KR team a sales target of 100% growth for this year, and the profit target was to minimize losses. After more than three years of operation, the KR brand is still in a loss phase and brand development period. In 2013, Jialinjie Sporting Goods Company, a wholly-owned subsidiary responsible for the operation of the brand, will speed up brand promotion and promotion efforts, and make improving the single-store sales performance of existing stores a top priority, aiming to get rid of operating losses as soon as possible and achieve breakthroughs in sales and profits. In 2012, KR opened a total of 22 new stores in China, bringing the number of directly managed stores to more than 50, distributed in golden business districts and high-end shopping malls in Tier 1 and 2 cities such as Beijing, Shanghai, Xi'an, Shenyang, Hangzhou, Chengdu, Dalian, Harbin, and Urumqi. The company launched a trial run of e-commerce online marketing in the middle of last year. At the same time, it reformulated the brand positioning suitable for KR's development based on KR's lack of individuality in product design and scattered channel distribution, further clarified key issues such as core market segments and targeting the main consumer audience, and has been promoting through sponsorship or participation in many outdoor activities (such as the “Mount Everest Maintenance Campaign” that it participated in the previous year) and various communication methods such as new media, internet marketing, product experience and evaluation. However, limited to KR's current scale, it is difficult to quantify the effects of these scientific research or mountaineering sponsorships. The company currently has some popular products, such as sports wool and functional T-shirt series suitable for spring and autumn wear. (Director: Ling Yun) The company's KR operation team has been making specific business personnel adjustments for the past two years, and the possibility of continuing to bring in external veterans to the team is indeed not ruled out. (Director: Ling Yun) Q: Will the company enter new market segments and fields, and expand its market share? Other than its current main business and the extended construction of its own clothing brand, the company has no mature plans to enter new market segments or fields for the time being. The company has always been committed to expanding the market influence of its products, but due to the large size of the textile industry, we are currently unable to give an accurate forecast of market share. (Chairman & General Manager: Huang Weiguo) Q: How is the company developing new customers? What new partners are there in the future? Are you more optimistic about the export market or the domestic market in the future? Every year, the company upgrades new fabrics and develops new customers based on its advantages in fabric research and development. The new customers developed this year include many new high-end international customers, including Moncler (Italy), Rapha (UK), Montane (UK - members of the royal family also choose this brand), and Mons Royale (New Zealand). Personally, I'm more optimistic about the export market. (Director: Ling Yun) Q: Domestic market development plans? What is the potential order size of domestic brand companies? What are the differences between domestic and foreign outdoor brand clothing? More than 95% of the company's fabric products are exported for export, and there are currently plans to develop the domestic market. In July of last year, the company announced “plans to invest in the construction of a new high-end fabric and garment production and R&D base in Jiayu County, Xianning City, Hubei Province”. The project plans to invest 400 million yuan, adding 18 million meters/year of fabric production capacity, including sports functional fabrics, polyester fleece fabrics, wool blended fabrics and cotton fabrics; adding 6 million pieces/year of ready-to-wear processing capacity, with a construction period of about 36 months. At present, the preliminary EIA work for this project has been carried out as scheduled. For future development of the domestic market, please pay attention to the disclosure of relevant information at that time. Domestic outdoor brand clothing is still an emerging market, while the foreign outdoor market is relatively mature, and pays great attention to brand outreach such as products and even the supplier's environmental protection concept. (Director: Ling Yun) Q: Does the company cooperate with NIKE, Adidas, Li Ning, etc.? Currently, NIKE and ADIDAS are all cooperative customers of the company. (Chairman & General Manager: Huang Weiguo) Q: The company's 2012 profit distribution plan? Is there any suspicion that the sudden adoption of a high-return profit distribution plan this year will raise stock prices? The company issued the following announcement on February 26: “In 2012, the company plans to distribute cash of 0.7 yuan (tax included) to all shareholders for every 10 shares based on a total share capital of 208 million shares at the end of 2012, with a total distribution total of 14.56 million yuan; it also plans to transfer 10 shares for every 10 shares from the capital reserve fund to all shareholders based on the total share capital of 208 million shares at the end of 2012.” This year, the company plans to use the Provident Fund to return shareholders in the form of an increase in share capital plus cash dividends. The company's management cannot comment on stock price fluctuations in the secondary market. (Director: Ling Yun) Q: Does size reduce holdings? Are incentive plans implemented? The company's management has not made any moves to reduce its holdings. (Director: Ling Yun) The company does not rule out introducing other incentives at an appropriate time on a current basis, but there are currently no specific plans to introduce equity incentives. (Chairman & General Manager: Huang Weiguo)