Friven & Co. completes China Children Fashion Holdings takeover

Acquisition aimed to take advantage of China's S$18.37 billion yearly spending on children’s apparel.

Friven & Co. Ltd. (“Friven & Co.”, the “Company” or together with its subsidiaries, collectively known as the “Friven Group”) announced on Wednesday that it has completed the very substantial acquisition of China Children Fashion Holdings Pte. Ltd. (“CCFH”) (the “Acquisition”) and a four (4) to one (1) share consolidation (the “Share Consolidation”), following its shareholders’ approval of all resolutions at an extraordinary general meeting on 15 July 2010, according to a Friven & Co. report.

The Acquisition is a strategic step towards Friven & Co.’s vision to become a leading specialty retailer of home and children’s lifestyle products in Asia, catering to the complete lifestyle needs of women and young families in Southeast Asia and China. Since a few years ago, the Company started its transition from the manufacturing and distribution of upmarket bedding and bedlinen products as well as the distribution of a wide variety of home living accessories, to a lifestyle company today with its own brand management platform supported by its Media & Content, Sales & Distribution, Sourcing & Procurement and Apparel & Bedding Manufacturing business units.

Enhanced financial strength
Friven & Co. and CCFH (the “Enlarged Group”) will now be a larger entity in terms of revenue and profit. Based on unaudited pro-forma combined financial information of the Enlarged Group for the financial year ended 31 December 2009 (“FY2009”), revenue amounted to S$119.9 million, which translated to a growth of 5.9% or S$6.7 million over S$113.2 million for the financial year ended 31 December 2008 (“FY2008”).

In terms of geographic contribution, China contributed S$110.2 million or 91.9% to the Enlarged Group’s total revenue in FY2009 because of growth from the children’s apparel retail business in China and the ODM business, of which CCFH designs and contract manufactures children’s and infants’ apparel.

Profit before income tax increased by S$5.5 million or 203.7% from S$2.7 million in FY2008 to S$8.2 million in FY2009, due to significant revenue growth and gross profit margin improvements. Consequently, the Enlarged Group’s net profit after tax also increased to S$6.3 million in FY2009 compared to S$0.4 million in FY2008.

Incentive profit target
As part of the Acquisition, the Company will also make an additional payment of 280 million new shares at S$0.05 (or 70 million Consolidated Shares) to the Vendors of CCFH should the audited net profit after tax of CCFH for financial year ending 31 December 2010 (“FY2010”) be equal or more than RMB55 million. This incentive profit target bodes well for the financial performance of the Enlarged Group for FY2010.

Commenting on the Acquisition, Mr Gary Loh, Executive Chairman of Friven & Co. said, “More importantly for our shareholders, with CCFH in the fold, we are now a bigger and more profitable company. This will help us execute our plans which include acquiring and developing new brands using our brand management platform, designing and developing new merchandise under the various brands in our portfolio, and extending our merchandise reach through our enhanced sales network in China and Southeast Asia.”

Growing China market
The Group understands that in the Chinese market alone, the annual demand for children’s apparel (for children up to 14 years of age) has been projected to increase to RMB92.0 billion (S$18.37 billion) in 2013. Consumers in China now focus more on fashionable apparel, especially for consumers in the developed cities, where fashionable and brand name children’s apparel have gained popularity.

This augurs well for the “JJL Kids” brand of apparel, which is sold through CCFH’s self-operated retail stores and franchise outlets in China and with sales gaining momentum since its launch in 2008. The “JJL Kids” brand is targeted at middle to high-end consumers in China who have a preference for local brand name, fashionable, and high quality apparel for their children.

Business Synergies
The Enlarged Group’s distribution of a variety of children’s bedlinen, accessories and toys under its “Friven Kids” brand will now be augmented with children’s apparel under CCFH’s “JJL Kids” brand to form a complete children’s product offering in apparel, bedlinen and accessories.

Furthermore, its existing Sales & Distribution channels will be immediately enhanced with the addition of CCFH’s ten (10) self-operated retail stores and fifty-eight (58) franchise outlets across ten (10) provinces and three (3) municipalities in China. Moving forward, the Enlarged Group will also expand and grow its combined businesses by using each other’s retail presence in Southeast Asia and China to expand their customer bases and the geographical coverage for the distribution of Friven & Co. products and “JJL Kids” apparel.

The Enlarged Group also aims to further strengthen its in-house design, product development, sourcing and procuring capabilities by expanding its design and product development teams. It will also embark on extensive market research to build up strong relationships with manufacturers, importers and retail groups in Southeast Asia. Lastly, the Enlarged Group will enhance its brand management platform and brand portfolio by attracting new customers and helping them to develop their brands for Asia.