Yue Yuen released first quarter financials that showed the manufacturing company diversifying both its categories and regional distribution.
Net sales showed a 5.4% increase over last year, from $611.5 million to $644.7 million. Gross margin dropped 170 basis points from 26.2% in 2003 to 24.5% for Q1 this year. A $23.4 million boost from the sale of the groups investment in the Taiwanese Pou Chen Corporation allowed the Chinese footwear manufacturing giant to post a 5.4% increase in net profit.
Yue Yuen said that it will continue to “streamline” its business through “disposal of non-core assets” but it will also explore opportunity through broadening its product mix. The company is actively pursuing acquisitions that will allow further diversification, “mainly in the areas of upstream raw materials, apparel, and Chinese retail sales.”
This continued momentum toward a more vertical operation should give the company more opportunity for growth in the future.
In related news, Yue Yuen has announced that it will be purchasing a 30.88% share in Eagle Nice Holdings for HK$318.4 million ($40.9 million). Part of the transaction involves Yue Yuen purchasing 105 million new shares of Eagle Nice for HK$ 111.3 million ($14.3 million), or HK$1.06 each (13.6¢).
The remainder of the deal involves YY paying HK$207.1 million ($26.6 million) for a three-year convertible note from Eagle Nice. Together with the new shares, YYs stake in Eagle Nice will rise to 44.96% from 30.88% upon the exercising of the note. This makes YY the new controlling shareholder. Eagle Nice also plans to raise HK$37.1 million ($4.8 million) by selling 35 million new shares at HK$1.06 (13.6¢) to at least six independent investors.
YY and Eagle Nice said that their complementary customer bases would not compete with each other. YY also said it does not have any plan to inject assets or business into Eagle Nice.
Eagle Nice said in a published report that it will use the HK$339.8 million ($43.6 million) proceeds to expand its core business in the design and manufacture of sports apparel. The company will be acquiring new machinery and production facilities to meet a substantial increase in sales from customers introduced by Yue Yuen.
Under international trade agreements, the U.S. will end all textile and apparel import quotas by January 2005. This move by YY is apparently designed to capitalize on the removed trade barriers. Alan Wong, an analyst with GK Goh, told a local paper that YY “is building scales and position in the U.S. apparel market in light of the potential apparel liberation from China export to the U.S. in January 2005.”
