Chee Jiong – CFO Qiming Xu – Founder, Chairman and CEO

Welcome everyone to China Xiniya Fashion Limited’s 2013 Quarter Three Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. And for your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.xiniya.com under the Investor Relations sections. I would now like to introduce Chee Jiong, Chief Financial Officer. You may begin.

Thank you. Good morning and good evening to all participants. Welcome to Xiniya third quarter 2013 earnings conference call. You may find a copy of our earning press release that we issued last night in the IR section of our website or through PRNewswire. Joining me on the call is our Chairman and CEO, Mr. Qiming Xu. Please note that we will be making a number of forward-looking statements today and all such statements are subject to risks and uncertainties, that could cause actual results to differ materially from the expectations and assumptions mentioned today, due to a variety of factors that affect the company, including the risk specified in the most recently filed Form 20-F. Let me turn the call over to Qiming Xu, who will like to make some introductory comments.

[Foreign language – Chinese]

[Interpreted] Good morning and good evening, everyone and thank you all of you for joining us today. With our business continue to face the difficulty of softening China economy and among menswear brand, I am pleased to see that the strategy we have implement began to take roof [ph], I’m confident that we have made some changes needed to navigate through this difficult time and support our retail network as we push forward.

[Foreign language – Chinese]

[Interpreted] The Chinese menswear industry continue to face challenges. These challenges have a direct impact on how we operate our business and it has reduced the overall profitability of the industry as a whole, as we only have one brand to manage, our ability to adapt and remain flexible has been key to our success during this time. Despite this, I am pleased to see that sentiment among our distributor and our authorized retailers has improved steadily over the quarters. We have consistently encouraged our authorized retailers to remain cautious and conservative when placing orders this year, to ensure their long-term profitability and sustainability. Their well-being has always been one of our highest priorities. In previous sale fairs, we have consistently reduced our recommend retail price level in order to adapt and maintain the price competitiveness of our apparel in the market. This year however, we maintained price level, as we believe to support our providing our distributors to overcome the short-term difficulty has taken effect and is providing them the momentum they need to move forward confidently. I believe this is the turning point we have been waiting for. During the third quarter, we implement a new credit imitative that complements and further support the long-term health and the other imitative already in place. The new credit initiative provide a solid base for steady retail expansion, to a select five distributors by encouraging them to open more self-owned retail outlet.

[Foreign language – Chinese]

[Interpreted] Now I would like to talk about our business situations. On the production front, we continue to focus on gradually optimizing our outsource manufacturers and building our own production facility. We’ll continue to optimize our OEMs for the 2014 spring and summer collection, by reducing the numbers of OEMs from over 30s to just over 20s. Apart from ensuring product quality and timely delivery, larger OEMs are also able to provide economy of scale production allowing us to obtain preferential pricing, improve our gross margin and enhance the price competitiveness of our product in the market.

[Foreign language – Chinese]

[Interpreted] As for the building our own plant and logistic center, we are currently awaiting approval from the government to acquire the land use right for our own production and the new logistic facility. We will update investor as soon as we have confirmations.

[Foreign language – Chinese]

[Interpreted] On the marketing front, we continue to implement many long-term initiatives to boost the recognition of our brand. We continue to implement shop rack subsidies to attract by the quality retailers to join us, upgrading and renovating the assisting retail outlets which include spending retail space of assisting retail outlet and [indiscernible] less efficient retail outlets. Also, we continue to provide training to our distributors and authorized retailers, with the objectives to improve the sales performance of each retail outlet. We engage external professional trainers to train these distributors and authorized retailers, store managers and sales staff. Training topics include; management of store inventory and sales staff, management of store performance goals, resources allocations, training of store managers and sales staff to improve their services to customers which includes [indiscernible] skill for apparels, apparel display and etiquette etcetera. Moreover, should there be opportunity, we are actively seeking to jointly open retail outlet with our distributors in better, more attractive commercial location, which may include buying this retail locations to open our own or jointly operate this store.

[Foreign language – Chinese]

[Interpreted] In terms of ERP, we continue to use the new ERP system internally since January 2013. If all goes well, we may roll out this ERP system next year, by selecting a few retail outlets to a test run.

[Foreign language – Chinese]

[Interpreted] Our solid capital and cash position continue to be the key aspect of our strategy and long-term sustainability in the future. We continue to revamp our retail outlets, adjust our business and focus our core strength with the support of our new credit initiatives and the exciting collection we accepted [ph] in September 2013. I’m certain that our efforts will pay off. The billboard advertisement in over 22 China provinces we placed last quarter along with the sales that provide the short-term support needed to maintain momentum.

[Foreign language – Chinese]

[Interpreted] Having turned a corner, I am very optimistic about our future’s development based on our strategy and solid network of distributors and authorized retailer that strongly believe in the Xiniya brand. We will continue to manage our business prudently and leverage our strategy to cease market opportunity and drive future growth.

[Foreign language – Chinese]

[Interpreted] I would like to turn the call back to our CFO, Mr. Jiong who is currently on the [indiscernible] show in U.S. who will review our operating and financial results. We appreciate your continued support and believe in Xiniya futures.

Thank you, Mr. Xu. Let me now walk you through the financial and operational performance of our business in the third quarter. During the third quarter of 2013, Xiniya had revenue of RMB389.8 million, a decrease of 6.7% year-over-year. The company delivered approximately 1.63 million units during the third quarter of 2013 compared with 1.96 million units during the third quarter of 2012. Xiniya network of authorized retailers has a net reduction of 23 retail outlet in the third quarter of 2013 consist of 78 new retail outlet opened and 101 retail outlet closed. As of September 30, 2013, the total number of authorized retailers was 1,635 compared with the 1,658 as of June 30, 2013. Gross profit decreased to RMB115.9 million during the third quarter of 2013, a decrease from RMB144.3 million during the third quarter of 2012. Gross margin during the third quarter was 29.7% compared with 34.5% during the same period last year. The decrease in gross margin was primarily due to a reduced price offered by the company on its 2013 Fall/Winter Collections and the increased rebates offered by Xiniya to further enhance its distributors and authorized retailer ability to compete in an increasing, challenging retail environment. Selling and distribution expenses increased to RMB104.3 million compared with RMB71.1 million during the third quarter of 2012. The increase was primarily due to increase in advertising expenses of RMB28.5 million and in rack expenses for authorized retailer outlet of RMB4.7million. As part of the company overall strategy to unify the image of its authorized retail outlet, the company has been paying for shop rack, signage and various other outlet related accessory for authorized retail outlet opened or refurbished since July 2011. During the third quarter of 2013, the company paid for the shop rack, signage and various outlet…

We will now begin the question-and-answer session. [Operator Instructions]. And we do have a question and it’s from the line of Peter Cyrus from [indiscernible]. Please go ahead. The line is open.

Hey Jiong. How are you?

I am fine. How are you?

I have a comment and a question. First my comment, I think you guys are doing all the correct things to succeed in your changing industry. I love the fact that you’re spending money on ERP, on racking, on financing your distributors, on fixing up the stores, I think these are all the right things to do. So first I congratulate you for doing the right things.

[Foreign language – Chinese] Peter?

And as much as I know other investors want to see you back stock and want to see you paying dividend, I want to see you be aggressive in going from market share and driving at the competition. So I’m happy to see what you’re doing.

[Foreign language – Chinese] Okay Peter?

But the – here is what I would like to better understand. The – How many small players are there in the industry? What – when do you think the small players will start closing stores and what do you think your industry is going to look like three years from now versus what it looks like today? And three years from now, how much profit are you going to be able to make after all – after you implement all these programs? I want to understand the long-term direction that you’re going.

[Foreign language – Chinese]

[Foreign language – Chinese]

[Interpreted] Mr. Xu say that he did notice this small player opening stores however, he noticed many of the sportswear company they are closing stores and many of them switch over to menswear brand.

[Foreign language – Chinese]

[Interpreted] For the menswear brand he noticed that menswear will now be going through a phase of consolidation. They have been retiling less efficient stores and they are spending existing space of existing stores and they have been going after better location a better shopping district kind of to acquire those locations.

[Foreign language – Chinese]

[Interpreted] With the administrative we’ve been implementing so far and the acquiring of land from the government, the implementation of ERP – the sales manufacturing can improve our gross margin and we can take on reorders for selling items. So he expects that in three years we will see very positive results.

[Foreign language – Chinese]

[Interpreted] By ensuring our strong cash positions, we will be able to maintain our flexibility when the opportunity arise to acquire a brand that will help accrete our earnings over the next three years.

[Foreign language – Chinese]

[Interpreted] Also, with our financial strength, we’ll be able to with many of our menswear brand have been closing their shops. And this gives us the best opportunity to take over that location and buy the best retail locations and give us very good opportunity for the next three years.

[Foreign language – Chinese]

[Interpreted] What we said just now and many initiatives implemented we strongly believe that over the next three years, our profitability will be tremendously positive. Peter, we have addressed your comments.

I have one more question just on that. How many companies would you – you have 1,600 stores, how many small companies are there in the industry now and what does he think they’re going to be – how does he think the industry is going to consolidate over the next three years? That was the question I didn’t get answered.

[Foreign language – Chinese]

[Foreign language – Chinese]

[Interpreted] Peter Xu mentioned that the small player, he expect they will not be able to compete the company with a strong financial strength and over the next three years they probably will be out of the market. And with our financial strength we’ll be able to survive and we will be able to get become stronger.

But no, he doesn’t have any guess as to how many small companies there would be in your business?

We wouldn’t have this kind of data available, but we have a feeling that all small players would be out of the market.

Okay. Thank you.

We have no further questions registered. I hand the conference back to you, sir. Would you like to end [ph] the conference?

Yes please.

Okay. Thank you for your participation in Xiniya’s conference. There would be a webcast replay within an hour. Please visit www.xiniya.com under the Investor Relations section. You may now disconnect your lines. Good bye.

Good bye. Bye, bye.