Yue Yuen Industrial (Holdings) Limited reported that revenues for the year ended 30th September, 2004 rose 8.4% year-on-year to US$2,720 million and net profit declined 1.6% year-on-year to US$303 million for the fiscal year 2004. Earnings per share dropped 4.6% to US$0.188, from US$0.197 in 2003.

The Directors have recommended payment of a final dividend of HK$0.46 per share; this compares with HK$0.46 per share in 2003. (An interim dividend of HK$0.25 per share was paid in 2004 and HK$0.23 per share plus a special dividend of HK$0.37 per share in 2003). Including the interim dividend, the total dividend payment for the year amounts to HK$0.71 per share.

The Group achieved a satisfactory increase in turnover, although profitability was affected by rises in raw
material costs. The operating environment remained difficult throughout the year. The surge in crude oil and
commodity prices exerted substantial pressure on the costs of petrochemical derivatives, the key components in the manufacture of midsole and outsole of shoes. The volatility in the raw materials market last year was something that had not been seen for at least five years.

Fluctuations in raw material prices affected the Group’s gross profit margin, due to the time lag in reflecting
to the new pricing and resistance levels in the market. The increase in average selling price (ASP) in the
second half of fiscal year 2004 was not enough to prevent an overall reduction in the margin during the full
year. The jump in these material costs also had an impact on the Group’s upstream businesses, which, by their very nature, were more exposed to the volatility in the raw materials market. Elsewhere, utility costs rose following the surge in crude oil prices and direct labor costs climbed due to an overall increase in salary levels in the Pearl River Delta area. At the same time, staff recruitment was not an issue for the Group-despite a general labor shortage in the Pearl River Delta region-due to the good working environment and fringe benefits that the Group offers.

Total shoe production during the fiscal year amounted to 167.2 million pairs, an increase of 6% compared with the previous year. At the end of fiscal year 2004, the Group maintained 309 production lines, an increase of 19 lines over 2003.

The Group’s major product, athletic shoes accounted for 61.2% of total turnover, slightly lower than in the
previous year. The casual/outdoor shoes and sports sandals categories saw rises in their contribution to revenue, of 16.3% and 32.5% year-on-year in 2004, respectively. Soles and components, which includes the upstream businesses acquired in 2002, reported 7.1% year-on-year growth in turnover. China retail sales jumped to US$74.2 million in 2004, as a result of continued expansion of the Group’s retail network and a more than 30% increase in year-on-year same store sales.

Sales to the U.S. grew 7.7% in 2004 but there was a decline in sales to Europe.