Mainland Headwear Holdings Limited reported sales for the six months ended June 30 rose slightly to HK$362 million, up from HK$360.5 million last year.
During the period under review, the group achieved a satisfactory performance in its overall business, mainly attributable to the outstanding results in both the Trading Business and the Manufacturing Business.
The Board Directors declared the payment of an interim dividend of 2 HK cents per share for the six months ended 30 June 2012 (2011 Interim: 1 HK cent).
The Manufacturing Business remained the group’s main income contributor during the period under review, accounting for approximately 72 percent of total sales. However, the group was unable to meet all the orders due to labor shortages in the PRC, causing turnover of the Manufacturing Business to drop by 6 percent to HK$272.7 million (2011 Interim: HK$291.4).
However, the group has embarked on a number of initiatives to strengthen its operational efficiency and save costs, such as the adoption of new technology to reduce materials costs without sacrificing product quality. Thus the gross profit margin of the Manufacturing Business increased by 140 basis points, from 19.9 percent in the same period last year to 21.3 percent. Operating profit surged more than 2-fold from HK$9.98 milion to HK$32.2 million.
Efforts to strengthen the sales team of this segment and to expand the customer base boosted sales of Trading Business to HK$46.7 million (2011 Interim: HK$22.9 million), a leap of 104 percent compared to that of last year. Operating profit also surged by 85 percent to HK$3.92 million.
Turnover in the Retail Business amounted to HK$59.9 million, 9 percent higher than the total of HK$54.8 million recorded in the corresponding period last year. On the other hand, subject to the rising cost of labor and rental in the PRC and Hong Kong, and a provision of HK$3.80 million made for inventory during the period, the Retail Business recorded an operating loss of HK$11.6 million (2011 Interim: Operating loss of HK$5.24 million).
The group has established an e-commerce platform for its Sanrio Business last year, as well as launching a series of nationwide promotional campaigns to boost sales. As a result, turnover rose 10 percent to HK$ 45.6 million. However, the rapid rises in rentals for retail outlets and labor cost in the PRC caused an operating loss of HK$7.38 million (2011 Interim: Operating loss of HK$2.64 million). On the other hand, the group has strategically diversified development of its LIDS Business. This strategy has boosted sales of this segment from HK$13.3 million to HK$14.3 million, representing an increase of 7 percent. However, due to the rising costs and the provision of approximately HK$2.6 million for inventory, the LIDS Business recorded an operating loss of HK$3.99 million (2011 Interim: Operating loss of HK$1.81 million).
As of June 30, 2012, the group operated a total of 53 Sanrio self-owned stores and 55 franchise stores, while there are a total of 30 self-owned “LIDS” and “NOP” stores, 21 of which were in PRC while 9 in Hong Kong. The group had 11 “LIDS” franchise stores. Besides, the group had 1 “New Era” retail store.
For the Manufacturing Business, the group has established a solid partnership with New Era. The group is confident it can secure orders exceeding US$35 million as stipulated in its agreement. Taking into account the orders from other customers, the group expects to see further growth in business after the products are delivered in the second half of the year.
For the Trading Business, H3 Sportgear plays a key role for the group’s business expansion into the United States and European markets. H3 Sportgear offers a major strategic advantage through direct access to the US retail market. To date, the Group has received satisfactory orders from renowned local retailers there, so a bigger profit contribution is expected after the products are delivered in 2013. In addition, the group will continue its business diversification strategy. Apart from licenses for English Premier League headwear, the group’s sales team will strive to secure more licenses for other products, such as items for cartoon characters and children brands to further enrich its product mix.
For the Retail Business, the group will continue to boost the sales of Sanrio products via the online e-commerce platform, and to maintain inventory at a healthy level through nationwide promotional activities. Mainland Headwear will also introduce added product varieties such as fashion and accessories, as well as a more comprehensive product mix to attract more customers. Regarding the LIDS Business, the group will remain flexible in its expansion strategies and will open new stores with close reference to market condition. The group will also uphold its multiple brands merchandising strategy to attract wider customer groups, aimed at boosting business performance.
“Going forward, we expect the group continues to encounter severe challenges such as labor shortages in the PRC, as well as rising labor cost and rents both there and in Hong Kong,” said Ngan. “However, we believe that opportunities can also be found during the challenging times. The consolidation in the headwear market will eliminate the weaker players and with our leading presence in the industry and strong reputation in the market, we remain confident about our prospects and will strive to deliver the best return for shareholders.”