Yue Yuen Industrial (Holdings) Limited, the largest sports footwear manufacturer, recorded revenue of $1.97 billion in the three months ended March 31, representing a decrease of 20.6 percent compared to revenue of $2.48 billion recorded in the same period of 2019.

The loss attributable to owners of the company was $56.3 million, compared to a profit attributable to owners of the company of $75.5 million recorded in the same period of 2019. The fall in revenue and the loss attributable to owners of the company was mostly attributed to the 2019 Novel Coronavirus (“COVID-19”) pandemic, which significantly impacted the Group’s operations.

During the period, the Group recorded a non-recurring loss of $20.2 million, which included a loss of $33.7 million due to fair value changes on financial instruments at fair value through profit or loss (“FVTPL”) that was partly offset by a one-off gain of $11.4 million on the partial disposal of an interest in a joint venture. In the same period of 2019, the Group recorded a non-recurring profit of $6.2 million, which included a gain of $5.9 million due to fair value changes on financial instruments at FVTPL. Excluding all items of non-recurring in nature, the recurring loss attributable to owners of the company amounted to $36.1 million.

Revenue
Total revenue attributable to footwear manufacturing activity (including athletic shoes, casual/outdoor shoes and sports sandals) during the period decreased by 8.9 percent to $1.17 billion, whereas the volume of shoes shipped decreased by 12.5 percent to 71.5 million pairs. The decrease was mostly due to shipment delays amid lower operating efficiency at some of the Group’s manufacturing facilities in China and other countries resulting from the COVID-19 pandemic. The pandemic delayed work resumption at the Group’s factories in China after the Lunar New Year; it also adversely impacted its supply chain, resulting in a shortage of certain raw materials. This also led to additional production capacity adjustments in China and other countries. The average selling price increased by 4.1 percent to $16.36 per pair, as compared with the same period of last year.

The Group’s total revenue with respect to the manufacturing business (including footwear, as well as soles, components and others) during the period was $1.26 billion, representing a decrease of 9.6 percent as compared with the same period of last year.

During the period, the revenue attributable to Pou Sheng, the Group’s retail subsidiary, decreased by 27.5 percent to $708.1 million, compared to $976.1 million in the same period of last year. In RMB terms (Pou Sheng’s reporting currency), revenue during the first three months in 2020 decreased by 25.0 percent to RMB4.95 billion, compared to RMB6,597.0 million in the same period of last year. The decrease was a result of various strict control measures implemented by the Chinese government to contain the spread of COVID-19, which resulted in the temporary closure of Pou Sheng’s business offices and retail stores between Lunar New Year and mid-March 2020.

Gross Profit
During the period, the Group’s gross profit decreased by 33.4 percent to $415.9 million. The gross profit of the manufacturing business decreased by 21.9 percent to $198.2 million whilst the gross profit margin contracted by 2.5 percentage points to 15.7 percent, as compared to the same period in 2019. The decrease in the gross profit margin for the manufacturing business was primarily due to the impact of COVID-19 on the Group’s operations and adjustments made to its production capacity.

Selling & Distribution Expenses and Administrative Expenses
The Group’s total selling and distribution expenses during the period amounted to $234.2 million (2019: $313.9 million), equivalent to approximately 11.9 percent (2019: 12.7 percent) of revenue. Administrative expenses for the period were $185.0 million (2019: $158.9 million), equivalent to approximately 9.4 percent (2019: 6.4 percent) of revenue.

Share of Results of Associates and Joint Ventures
During the period, the share of results from associates and joint ventures was a combined profit of $4.9 million, compared to a combined profit of $4.7 million recorded in the same period of last year.

Outlook
The spread of COVID-19 to the U.S. and Europe had severely dampened global consumer demand for athletic footwear, the chain effect of which is negatively affecting both footwear manufacturers and sports retailers. In addition, government lockdowns and other social distancing measures being imposed in various Southeast Asian countries to contain the COVID-19 pandemic is expected to further hinder the operating efficiency of the Group’s manufacturing facilities in this region. This, together with uncertainty about demand, may result in temporary factory closures and further adjustments to the Group’s production capacity.

There is still great uncertainty around how the COVID-19 pandemic may continue to impact orders and sales visibility for the Group’s various business segments, which will inevitably impact its performance throughout the remainder of 2020. In view of the challenges and uncertainties ahead, the Group will continue to proactively monitor the situation and impose cost control measures as appropriate. The Group will also focus on its cash flow management, including adopting a more prudent approach when evaluating capital expenditure projects in 2020.

Photo courtesy Yue Yuen