Yue Yuen Industrial results for the six months ended 31st March, 2004 showed overall turnover increased by 1.3% to $1,258.4 million and net profit rose by 4.4% to $158.3
million respectively for the six months ended 31st March, 2004. Earnings per share declined by 1.0% to 9.8 cents compared with 9.9 cents in the same period last year The Board of Directors has resolved to declare an interim dividend of HK$0.25 per share, an increase of 8.7% compared with the regular interim dividend of HK$0.23 per share last year.
Yue Yuen achieved steady growth in turnover and net profit during the period amidst a tough
operating environment triggered by spiraling raw material costs. A surge in crude oil prices led to an
increase in prices of commodities and petrochemical products such as rubber, EVA, fabric, Phylon
and synthetic leather, which are the major raw materials for making of soles and uppers in shoes. As
a result, the gross profit margins for the shoes manufacturing operations as well as the upstream
businesses have been negatively affected during the period under review.
Total number of shoes produced during the period reached 81.2 million pairs, an increase of 2%
against the same period last year. Sales to Asia remained strong but sales to North America and
Europe slowed down. The Group recorded growth in sales of casual/outdoor shoes and sports sandals
but there was a marginal decline in athletic shoes.
As of March 2004, the Group maintained 298 production lines (September 2003: 290 lines) located
in China, Vietnam and Indonesia. The capital investment made in expanding the Groups production
base and other facilities as well as existing machinery replacement during the period amounted to
The Groups wholesale and retail operation in China continued to grow, recording a 170% year on
year increase in turnover to US$29.8 million for the six months to 31 March, 2004. The Group has
established a wholesale network of about 790 distributors and operated over 250 retail
stores/counters selling branded athletic footwear and apparel in major cities in China.
Sports apparel and accessories manufacturing is the Groups new business venture, which recorded a
turnover of US$6.5 million during the period under review. Contributions from this new venture will
rise in the future following the recent acquisitions and most of these will be accounted for in the
associates and jointly controlled entities level.
During the period under review, the contributions from associates and jointly controlled entities
jumped to US$17.7 million mainly due to strong performance of various joint ventures. Also,
disposals of investment securities generated US$26.3 million profits to the Group.
The Groups financial position remains strong. As of 31st March, 2004, the Group had cash on hand
of US$479 million (September 2003: US$383 million) and total borrowings of US$777 million
including the US$317 million convertible bonds (September 2003: US$ 640 million). This represents
a gearing ratio of 46% (September 2003: 40%) and a net debt-to-equity ratio of approximately 18%
(September 2003: 16%).
Yue Yuen is well positioned to benefit from increasing spending in footwear and consumer sporting
goods. The global economic environment is expected to continue its improvement in 2004, boosting
consumer confidence and retail sales. As US economic growth continues to accelerate, the creation of
new jobs will buoy personal consumption in North America.
The Chinese market for sporting goods is also growing in a rapid pace, riding on increased consumer
spending power and programs aimed at promoting sports activities. In China, growth in the Groups
wholesale and retail operations will be underpinned by gradual lifting of restrictions in wholesale and
retail regulations, which are expected by the end of the year. The Group is committed to expanding
its wholesale and retail network to become one of the largest sporting goods chain stores in China.
Although the new business in manufacturing sports apparel and accessories is still in its early stages,
the Group believes its expertise in production management and close customer contacts will
spearhead the growth of this new business area. More meaningful returns are expected from these
new ventures in the medium term especially following the removal of global quotas on textiles and
apparel next year.
An increase in orders and the slowing decline of average selling prices are positive signs that will
form the foundation of the Groups growth for the remainder of the year. Mr. Tsai Chi Neng,
Chairman of Yue Yuen Industrial (Holdings) Limited, commented, “This will be a challenging year
in light of rising raw material costs and continued expansion through M&A activities. However, Yue
Yuen is well positioned to benefit from further consolidation in the consumer product supply chain,
as well as the removal of global trade barriers.”
Mr. Tsai concluded, “Yue Yuen will strive to enhance its return to shareholders through
improvements in production efficiency and exploration into new product categories.”