Half Yearly Report

30 September 2015

Camkids Group plc

("Camkids", the "Company" or the "Group")

Interim Results

Camkids Group plc (AIM: CAMK), a leading Chinese designer, manufacturer and distributor of branded outdoor clothing, footwear and equipment for children and teenagers, today announces its interim results for the six months ended 30 June 2015.

Financial Summary

* Earnings before interest and taxation ("EBIT") is a non IFRS measure which the Group uses to assess its performance. It is defined as earnings before interest and taxation.

The illustrative exchange rate as at 29 September 2015 is 1 GBP: 9.66 RMB.

Commenting on the results, Zhang Congming, Executive Chairman of Camkids, said: "2015 has been a challenging year for the Company. The slow-down in the economy, increased competition, lower consumer spending power and pressure on pricing have all affected Camkids' financial and operating performance. Nevertheless, Camkids remains a strong brand in China and through the hard work of our R&D team the Group continues to develop and launch new, innovative, high-quality products to further improve our market position. We are pleased to have signed an agreement with Walt Disney to license their trademark for the Captain America and Avengers characters and we believe that this important collaboration will help to further strengthen our brand in China. This agreement was signed following an extensive period of due diligence, during which a team from Walt Disney visited our manufacturing facility to satisfy themselves as to the quality of Camkids' operations.

"The Board believes that despite the challenging market conditions our brand and market position are solid and we view the future with reasonable confidence."

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Notes to editors

Camkids is a leading Chinese designer, manufacturer and distributor of branded outdoor clothing, footwear and equipment for children and teenagers.

Based in Fujian province in China, the Group focuses on children's sportswear for outdoor activities, combining functionality and innovation. The products are mid-range price based, targeting mid- and high-range markets within China.

The three main product areas are:

· Camkids outdoor clothing - all-weather jackets, waterproof trousers, shirts, tops and T-shirts, woollen sweaters, jeans, trousers, shorts and skirts;

· Camkids footwear - hiking boots, outdoor leisure footwear, flip-flops, sandals and boots;

· Camkids equipment and accessories - telescopes, backpacks, technical packs, tents, sleeping bags, headgear, caps, kettles, headlights and torches. 

The Group designs its entire product range and manufactures the majority of its footwear. Outdoor apparel and accessories are currently manufactured by third-party OEMs.

Camkids' primary route to market for the sale of its products is through its network of distributors. The Group has established an extensive distribution network across 29 provinces, 4 municipalities and 5 autonomous regions within the PRC and is successfully expanding its presence in tier 3 and tier 4 cities. The Group has 17 authorised distributors operating over 1,267 franchised retail outlets, and continues to develop its e-commerce business and currently has over 200 product lines on offer through its existing online partners of Taobao and JD.com. 

Camkids has received a number of prestigious awards. In September 2014 it was announced that Camkids had been included in the rankings as one of "The Top 500 Asia Brands". In addition to this prestigious award, the Group's Chairman has also been honoured as one of the "Top ten new brand creators in Chinese industry". 

For more information please visit www.camkids-ir.com.

Executive Chairman's statement

Overview

Trading conditions during the period under review have been difficult and the Board anticipates that this will remain the case for the remainder of 2015 and into 2016. Increased competition from both domestic and international players entering the children's segment, pricing adjustments, the recent swing of the financial market affecting consumers' confidence and reduced spending have all been affecting our sales. As previously reported, our order book was down 38% for Spring/Summer and 45% for Autumn/Winter, respectively, on a year-on-year basis. As a result, our 2015 H1 sales decreased by 40.3% to RMB 274.0 million. Despite the drop in our order book, Camkids continues to maintain its focus on the development of new, innovative and functional products. Following the deal with Walt Disney our product range will include items incorporating the Captain America and The Avengers characters. Camkids plans to utilise these opportunities to invest in advertising and marketing to further strengthen its brand.

Financial results

The Board reports that revenue for the six months ended 30 June 2015 decreased by 40.3% to RMB 274.0 million (H1-2014: RMB 458.8 million). Gross profit declined by 50.2% to RMB 50.2 million (H1-2014: RMB 175.0 million). Earnings before interest and taxation ("EBIT") decreased by 92.2% to RMB 9.8 million (H1-2013: RMB 126.0 million).

The Group's net cash position as at 30 June 2015 was RMB 440.5 million, which is a 9.3% decrease on the comparable period last year (H1-2014: RMB 485.5 million). This was prior to the proposed change in distributors which is discussed in the next section.

Change of distributors

In April 2015 our routine performance monitoring highlighted that three of our distributors had underperformed since the beginning of the year. Following the release of our annual results for the period ended 31 December 2014, the Board concluded that the distributors in question had failed to invest adequately, had undertaken little or no local advertising or marketing activities in support of the Camkids brand and had also experienced high rates of staff turnover, resulting in inexperienced sales staff. Our operating management also considered that the level of inventory held by these three distributors was excessively high, being in excess of 40% of their aggregate purchases from Camkids (rather than the 20% norm for the Group's other distributors), and that they were making no concerted effort to shift inventory from prior years. As at 31 July 2015, the level of receivables owed by these three distributors was RMB 59.5 million. These distributors operate across approximately 200 stores.

As announced on 10 August 2015, following a detailed review of the available options, the operating management team decided that the long-term commercial interests of Camkids were best served by removing the three distributors and replacing them with two new partners who would promote the Camkids' brand and maintain the high standards the Group expects of its appointed distributers.

The relevant distribution agreements contained certain provisions for termination and compensation payments which are to be paid in the event that Camkids decides to terminate the distribution agreement. In accordance with this, the parties have agreed that:

• Camkids will buy back all unsold inventory at a discount of between 10% and 20% of the original sale price, for a total amount estimated around RMB 285 million; and

• Camkids will pay compensation to the distributors based on historic sales per store and agreed distributor net profit margins.

Our agreement with the two new distributors, who will cover the territories previously covered by the out-going distributers, provides for the following:

• the new distributors have agreed to take over all inventory repurchased from the terminated distributors at a discount of 15% to 60% to Camkids' buy-back price (dependent on the age of the inventory), estimated around RMB 142.9 million, thereby resulting in a loss for Camkids estimated at RMB 142.1 million;

• the new distributors will take over selected stores from the terminated distributors, will be responsible for any new mall deposits and will re-negotiate the terms of franchises with franchisees directly. Those stores not selected will be closed and the cost of the closure will be the responsibility of the terminated distributors; and

• the new distributors will be responsible for the cost of transferring the bought-back inventory to their warehouses and for any other costs incurred in the transfer of the distribution arrangements.

This is a very important strategic decision taken by the operating management and reflects its desire to do what it considers to be in the interests of the long-term growth of the Group. The operating management team believes that the underperformance of these three regions has adversely impacted Camkids' brand and the morale and goodwill of its other distributors.

The exact cost to the Group of the termination arrangements will take some time to compute with clarity, as it requires a detailed examination of the age and condition of inventory. However, at the date of approval of these interim statements the Directors estimate that the loss on buy-back and re-sale of the inventory will be approximately RMB 142.9 million, and the cost of compensation settlements will be approximately RMB 70 million. Representatives from Camkids, the terminated distributors and the new distributors are currently conducting a stock take for the inventory and stores transferred and the Group plans to sign the agreement in early October.

From a cash flow standpoint, Camkids will pay to the exiting distributors an estimated amount of RMB 285 million less trade receivable outstanding as at the date of agreement (Net Amount), which will be disbursed as follows:

Resale of the inventory to the new distributors will trigger the following payments:

- RMB 15 million upon commencement of stock take

- RMB 18 million in October 2015

- RMB 18 million in November 2015

- The balance will be in 9 equal instalments over the period December 2015 to August 2016

Donations in kind

Camkids designs, manufactures and distributes teenage outdoor wear and equipment, primarily focused on children between the ages of 8 and 12. The Group takes its commitment to corporate and social responsibility seriously and the Directors consider that this contributes greatly to the positioning of the Camkids brand in China. In 2012 the Group launched a charitable campaign to collect a proportion of unsold children's clothing and shoes from its distributors for distribution and use in less affluent parts of China and in the last financial year the Group reacquired surplus inventory from distributors for inclusion in the scheme. In the year ended 31 December 2014 the cost for this campaign was approximately RMB 11.8 million.

The Board considers that the policy has a number of commercial benefits for the Group and the Camkids brand, for instance removing older products from the retail space (which can be detrimental to the Group's brand and degrade in quality over time whilst in storage). The Directors consider the commercial interests of the Camkids business and the promotion of brand awareness in China in the longer term are better served through the donation of surplus distributor inventory to disadvantaged children rather than by encouraging distributors to reduce inventory levels by "dumping" older and heavily discounted product into the market. The operating management also feels that this would have an adverse impact on the Group's new agreement with Disney. The widely publicised slowing in the Chinese economy has resulted in a significant increase in the levels of older and slower-moving inventory held by distributors. Management has therefore decided to take this opportunity to continue its established policy of buying back surplus Camkids inventory on a selective basis for charitable donation, but on a significantly enhanced level to reflect the current difficult trading conditions. In the year ended 31 December 2015 the cost to the Group of such donations is expected to be approximately RMB 80 million.

As at the end of June 2015, the Group's distributors operated a total of 1,267 Camkids branded retail stores, a decrease of 131 from 31 December 2014 (H1-2013: 1,336 retail stores). The distributors and their franchisees have been reviewing and restructuring their stores according to local retail market sentiment. Consolidating their resources is anticipated to put them in a better position to manage the difficult trading environment ahead.

E-commerce

E-commerce sales accounted for approximately 1.5% of our total revenue in H1-2015. (H1-2014: 0.9%). The Group believes that China's remote villages and counties represent a huge potential market for Camkids. Major logistic companies are gradually expanding their delivery scope to accommodate the increasing demand from these areas. Updating consumers on the Company's latest developments is an important tool for communication with its customers and promotion of the brand. The Group has therefore started an online account on Sina.com (an equivalent of Twitter in China) which updates subscribers on the Company's latest news and events.

Spring/Summer trade fair

Camkids' Spring/Summer 2016 sales fair was held at the Group's manufacturing facility in Fujian province between 29 August and 4 September 2015 and was the first opportunity for the Group to showcase the first series of the Captain America and Avengers character related products. Initial feedback from the distributors has been encouraging, bearing in mind the general market sentiment.

Research and development

The Group continues to focus on and invest heavily in research and development and it remains an important part of the Group's strategy of translating innovative ideas into product sales. The team has been developing innovative and fashionable products that meet the requirements of consumers while, at the same time, managing the manufacturing costs and keeping Camkids' products competitive.

Manufacturing facility

Following our review of planned costs for 2015, the Group is currently operating on four production lines at 68% capacity and it will continue to review its production plans based on orders received. An independent consultancy team has been engaged to review the Group's production processes in order to reduce waste and improve productivity.

Board Changes

On 29 September 2015 Jack-Franck Dossin and Pei Eng resigned as Directors of the Company.

Suspension of shares

On 29th September 2015 the Company's Nominated Advisor, Allenby Capital, resigned with immediate effect. This caused AIM to suspend trade in the Company's shares pending the appointment of a new nominated adviser. The Company is committed to its listing on AIM and is currently investigating options in this regard.

Outlook

As previously announced, the Board expects that trading conditions in 2015 and 2016 will continue to be challenging. The recent volatility in the Chinese stock market and the devaluation of the Renminbi currency have affected the overall business environment, already characterised by declining consumer confidence and lower spending. Nevertheless, the Board believes that despite the challenging market conditions our brand and market position are solid and we view the future with reasonable confidence.

Zhang Congming

Executive Chairman

30 September 2015

Financial Review

Results overview

The Group's order book for Autumn/Winter 2015 decreased by 52.0% as compared with the order book for Autumn/Winter 2014. As noted above, our distributors are facing excess inventory as retail trading conditions remains challenging. The slowing Chinese economy has resulted in lower consumer confidence, which appears to be resulting in lower consumer spending.

Operating results

Revenue decline for the period was driven by:

· a slowing Chinese economy;

· political policy impacting consumer spending; and

· an increasingly competitive retail market as international brands offer greater discounts or adjust their retail prices and more brands enter the children's segment.

Revenue decreased by 40.3% to RMB 274.0 million (H1 2014: RMB 458.8 million) with gross profit decreasing by 50.2% to RMB 87.2 million (H1 2014: RMB 175.0 million). Operating profit before tax decreased by 90.9% to RMB 11.5 million (H1 2014: RMB 126.4 million).

The difficult trading conditions within China, coupled with price pressure and competition from international brands, has necessitated price reductions of between 5% and 12% across our products. Our order book for H1 2015 was 38% down on the H1 2014 figure and our H2 2015 order booking is RMB 292.5 million, 52% down on the H2 2014 number.

The breakdown of proportion of the Group's revenue and gross profit margin by products group for H1 2015 and H1 2014 is as follows:

The Group's top five distributors contributed 40.5% of total revenue for the period (H1 2014: 41.4%).

Expenses

Selling and distribution expenses for the period under review increased by 91.5%, approximately 18.5% of the Group's total revenue (H1 2014: 5.8%). This is largely attributable to increased advertising costs as the Group rebrands its retail stores (which include new display shelves) and sponsored a number of local events to raise the Group's profile. It has also increased its e-commerce advertising on Tmall and JD.com and other online advertising through Sina.com (an equivalent of Twitter in China).

During the period, the Group opened 74 new retail stores and renovated 256 of its existing stores.

Administrative expenses as a proportion of revenue were approximately 9.8% (H1 2014: 4.9%), and were largely attributable to R&D expenses.

In view of the challenging market conditions, remuneration for the Board as well as supervisory level and above employees has been reduced by 5% -10%.

As a result of the above, the Group's operating profit before tax decreased by 90.9% to RMB 0.7 million resulting in an operating profit before tax margin of 0.3% (H1 2014: 27.6%).

Balance sheet

Camkids maintained its strong balance sheet during the period, with a net cash position of RMB 440.5 million as at 30 June 2015 (31 December 2014: RMB 401.5 million; and 30 June 2014: RMB 485 million). However, this is prior to the effect of the distributor changes and charitable donations, further details of which were announced on 10 August 2015 and have been discussed above.

As referred to in the Executive Chairman's Statement above, Camkids' agreements with its distributors contain provisions in relation to the repurchase of unsold Camkids products the payment of compensation should Camkids decide to terminate those agreements. The agreements also include similar provisions in the event the distributors do not exercise their priority renewal rights and the agreements are effectively allowed to expire. No distributor has ever failed to renew an agreement in the history of the Group.

Net assets increased to RMB 875.9 million, an increase from RMB 867.9 million at 31 December 2014. Trade Receivables decreased by RMB 71.6 million reflecting the trend in the order book. As announced on 10 August 2015, the Group has temporary increased the current payment terms to 180 days until the end of the 2015, after which it will revert back to 120 days. This is on account of the continuing difficult trading conditions in China faced by the Group's distributors.

Earnings per share

The earnings per share (basic and diluted) for H1 2015, based on the weighted average number of ordinary shares outstanding for the period ended 30 June 2015 of 75.4 million, is approximately 1.0 pence per share.

Huang Peijin

Financial Controller

30 September 2015

Consolidated statement of comprehensive income

Six months ended 30 June 2015

Consolidated statement of financial position

for the six months ended 30 June 2015

Consolidated statement of changes in equity

for the six months ended 30 June 2015

Consolidated statement of cash flows

for the six months ended 30 June 2015

Notes to the financial information

1. General information

Camkids Group plc ("the Company" or "Camkids") was incorporated and registered as a limited liability nil par value company under the laws of Jersey on the 10 August 2012 and with company number 111245. The Company's registered office is at 13-14 Esplanade, St Helier, Jersey JE1 1BD. The Company is domiciled in Jersey.

This financial information is for the Company and subsidiary undertakings.

Camkids Group plc is a holding company for Camkids (HK) Holding Limited, Jinjiang Mingwei Shoes & Garments Co., Ltd ("Ming Wei") and Jinjiang Lihong Clothing Co., Ltd (together, the "Group").

The principal place of business of the Group is in the People's Republic of China ("PRC").

This interim financial information is unaudited and has not been reviewed by the auditors under International Standard on Review Engagements (UK and Ireland) 2410.

This consolidated interim financial information has been approved for issue by the board of directors on 30 September 2015.

2. Accounting policies

The June 2015 interim consolidated financial information has been prepared in accordance with the principles of International Financial Reporting Standards as adopted by the European Union ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014. All principal accounting policies of the Group are consistent with those set out in the Annual Report and Accounts for 2014, have been consistently applied to all periods presented and are consistent with those which the Group expects to apply in its forthcoming financial statements for the year ending 31 December 2015.

The financial information is measured and presented in the currency of the primary economic environment in which the key trading entity operates (its functional currency). The financial information of the Group is presented in Chinese Renminbi ("RMB"). The functional currency of Ming Wei is also Chinese Renminbi ("RMB"). All financial information presented in RMB has been recorded to the nearest thousand.

Intra-group balances and transactions and any income and expenses arising from intra-group transactions are eliminated on consolidation. Unrealised gains and losses arising from transactions with associates and joint ventures are eliminated against the investment to the extent of the Group's interest in the investee.

The financial information of the subsidiary is prepared for the same reporting period as that of Group, using consistent accounting policies.

3. Business segments

The Group applies IFRS 8 Operating segments. Per IFRS 8, operating segments are based on internal reports about components of the Group, which are regularly reviewed and used by the Board of directors being the Chief Operating Decision Maker ("CODM") for strategic decision making and resource allocation, in order to allocate resources to the segment and to assess its performance. The Group's reportable operating segments are as follows:

1) Design, manufacture and sale of outdoor footwear, apparels and accessories under the "Camkids" brand to distributors in the PRC.

2) Manufacture and sale of footwear under the terms of OEM agreement entered with the PRC export intermediaries.

The CODM monitors the operating results of each segment for the purpose of performance assessments and making decisions on resource allocation. Performance is based on assessing progress made on projects and the management of resources used. Segment assets and liabilities are presented inclusive of inter-segment balances.

Geographical segments

As the business of the Group is principally engaged in the PRC, no reporting by geographical location of operation is presented.

The segment information provided to management for the reportable segments for the six month ended 30 June 2015 is as follows:

Six month ended 30 June 2015

Revenue from the Group's top three distributors represent approximately RMB71.4 million (or 26.1 per cent) of the total revenue for the six months ended 30 June 2015, comprising RMB25.7 million (9.4 per cent), RMB23.7 million (8.7 per cent) and RMB22.0 million (8.0 per cent), respectively.

The segment information provided to management for the reportable segments for the year ended 31 December 2014 is as follows:

Year ended 31 December 2014

Revenue from the Group's top three distributors represent approximately RMB274.7 million (or 27.0 per cent) of the total revenue for the year ended 31 December 2014, comprising RMB101.6 million (10.0 per cent), RMB97.4 million (9.6 per cent) and RMB75.7 million (7.5 per cent), respectively.

The segment information provided to management for the reportable segments for the six months ended 30 June 2014 is as follows:

Six months ended 30 June 2014

Revenue from the Group's top three distributors represent approximately RMB124.5 million (or 27.1 per cent) of the total revenue for the six months ended 30 June 2014, comprising RMB44.0 million (9.6 per cent), RMB43.2 million (9.4 per cent) and RMB37.2 million (8.1 per cent), respectively.

4. Taxation

The taxation charge for the six month ended 30 June 2015 has been based on the estimated effective rate of 25% in China.

5. Earnings per share

The calculation for basic and diluted earnings per share for the relevant period was based on the profit attributable to ordinary shareholders for the six months ended 30 June 2015, 30 June 2014, and the year ended 31 December 2014 of RMB8,000,000 (30 June 2014: RMB90,631,000; 31 December 2013: RMB173,667,000). The weighted average number of ordinary shares outstanding during the six months ended 30 June 2015, 30 June 2014, and the year ended 31 December 2014 and the effect of the potentially dilutive ordinary shares to be issued (of which there are none) are shown below.

6. Dividend

The directors have declared and paid an interim dividend for the period ended 30 June 2014 of 2.4 pence per share in scrip or 2.0 pence per share in cash. The dividend has been paid on 19 December 2014 by the Company, of which GBP1,326,264.64 was paid in cash and issue 678,292 in new shares.

No dividend was declared for the year ended 31 December 2014.

7. Inventories

8. Trade and other receivables

9. Other events

Change of distributors

The Camkids sales team monitors the performance of all of our distributors closely and has done since the business began manufacturing and selling its own branded apparel and footwear for children and teenagers under the "Camkids" brand in 2009. Many of our distributors have worked with us throughout that period. Our April 2015 routine performance review highlighted that three of our distributors had significantly underperformed since the beginning of the year. Following the release of our annual results for the period ended 31 December 2014, the Board concluded that the distributors in question had failed to invest adequately, had undertaken little or no local advertising or marketing activities in support of the Camkids brand and had also experienced high rates of staff turnover, resulting in inexperience selling staff. The management of Camkids also considers that the level of inventory held by these three distributors is excessively high, at over 40 per cent of their sales rather than the 20 per cent norm for other of the Group's distributors, and that the distributors were making no concerted effort to shift inventory from prior years. As at 31 July 2015, the level of receivables owed by these three distributors was RMB59.5 million. These distributors operate approximately 200 stores.

Therefore, as announced on 10 August 2015, following a detailed review of the available options, the operating management team decided that the long-term commercial interests of Camkids were best served by removing the three distributors and replacing them with two new partners who would promote the Camkids brand and maintain the high standards the Group expects of its appointed distributors.

The relevant distribution agreements contained certain termination and compensation payments which are to be paid in the event that Camkids decides to terminate the distribution agreement. In accordance with this, the parties have agreed that:

· Camkids will buy back all unsold inventory at a discount of between 10 per cent and 20 per cent of the original sales price; and

· Camkids will pay compensation to the distributors using a prescribed formula based on historic sales per store and agreed distributer net profit margins.

.

Our agreement with the two new distributors, who will cover the territories previously covered by the out-going distributers, provides for the following:

· the new distributors have agreed to take over all inventory repurchased form the terminated distributors at a discount of 15 per cent to 60 per cent to the Camkids buy back price depending on the age of inventory; 

· the new distributors will take over selected stores from the terminated distributors and will be responsible for any new mall deposits and will re-negotiate the terms of franchises with franchisees directly, those stores not selected will be closed and the cost of the closure will be the responsibility of the terminated distributors; and

· the new distributors will be responsible for the cost of transferring the buy-back inventory to their warehousing and for any other costs incurred in the transfer of the distribution arrangements.

This is a very important strategic decision taken by the operating management and reflects its desire to do what it estimates is the best option for the long-term growth of the Group. The operating management believes that the underperformance of these three regions has adversely impacted Camkids' brand and the morale and goodwill of its other distributors.

From a cash flow standpoint, Camkids will pay to the exiting distributors an estimated amount of RMB285 millions less trade receivables outstanding as at the date of agreement (Net Amount), which will be disbursed as follows:

50% of the net amount - upon completion of the stock take

Balance 50% of the net amount - within 3 working days upon taking over the inventory and completion of the transferred of the stores.

Resale of the inventory to the new distributors will trigger the following payments:

- RMB15 million upon commencement of stock take

- RMB18 million in October 2015

- RMB18 million in November 2015

- The balance will be in 9 equal instalments over the period December 2015 to August 2016

The exact cost to the Group of the termination arrangements will take some time to compute with clarity, as it requires a detailed examination of the age and condition of inventory. However, at the date of approval of these interim statements the management team estimates that the loss on buy-back and re-sale of the inventory will be approximately RMB144 million, and the cost of compensation settlements will be approximately RMB70 million. Representatives from Camkids, the terminated distributors and the new distributors are currently conducting a stock take for the inventory and stores transferred and the Group plans to sign the termination agreements in early October.

Donations in kind

Camkids designs, manufactures and distributes teenage outdoor wear and equipment, primarily focused on children between the ages of 8 and 12. The Group takes its commitment to corporate and social responsibility seriously and the directors consider that this contributes greatly to the positioning of the Camkids brand in China. In 2012 the Group launched a charitable campaign to collect second-hand children's clothing and shoes and distributing them for re-use in less affluent parts of China and in the last financial year the Group reacquired surplus inventory from distributors for inclusion in the scheme. In the year ended 31 December 2014 the cost for this campaign was approximately RMB11.8 million.

The management team considers that the policy has a number of commercial benefits for the Group and the Camkids brand, for instance removing older products from the retail space (which can be detrimental to the Group's brand and degrade in quality over time whilst in storage). The management team considers that the commercial interests of the Camkids business and the promotion of brand awareness in China in the longer term are better served through the donation of surplus distributor inventory to disadvantaged children rather than by encouraging distributors to reduce inventory levels by "dumping" older and heavily discounted product into the market. The management team also feels that this would have an adverse impact on the Group's new agreement with Disney The widely publicised slowing down in the Chinese economy has resulted in a significant increase in the levels of older and slower-moving inventory held by distributors. Management has therefore decided to take this opportunity to continue its established policy of buying back surplus Camkids inventory on a selective basis for charitable donation, but on a significantly enhanced level to reflect the current difficult trading conditions. In the year ended 31 December 2015 the cost to the Group of such donations is expected to be approximately RMB80 million.

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