Hong Kong footwear manufacturer Yue Yuen Industrial (Holdings) Ltd. reported revenue for the six months ended June 30 grew 7.2 percent to $4.8 billion. Profit declined 41.9 percent to $150.1 million from $258.5 million the same period last year, and basic earnings per share declined 41.8 percent to $9.14 from $15.71.

Excluding all items of non-recurring nature, the recurring profit for the six months ended June 30, 2018, declined by 31.5 percent to $165.0 million compared to a recurring profit of $240.9 million for the corresponding period of last year. For the six months ended June 30, 2017, the company recognized a non-recurring profit of $17.6 million, which included a fair value gain of $9.4 million on derivative financial instruments and a one-off gain of $9.8 million on the disposal of associates. By contrast, during the first half of 2018, the group recorded a non-recurring loss of $14.9 million, included a fair value loss of $22.5 million on derivative financial instruments that was partly offset by one-off gains arising from disposal of associates and subsidiaries.

The board is pleased to declare an interim dividend of HK$0.40 per share for the six months ended June 30, 2018 (interim 2017: HK$0.40 per share).

Financial Highlights

  • Revenue for the first half of 2018 rose 7.2 percent to $4.77 billion, compared to $4.45 billion in the same period last year
  • Gross profit rose 5.3 percent to $1.19 billion compared to $1.13 billion for last year
  • Recurring profit attributable to owners of the company fell 31.5 percent to $165.0 million
  • Non-recurring loss amounted to $14.9 million
  • Profit Attributable to owners of the company fell 41.9 percent to $150.1 million. Basic earnings per share fell 41.8 percent to US9.14 cents.
  • An interim dividend of HK$0.40 per share was declared

Business Review: Revenue

In the six months ended June 30, 2018, the revenue attributed to footwear manufacturing activity (including athletic shoes, casual/outdoor shoes and sports sandals) declined 4.5 percent to $2,563.6 million, compared with the corresponding period of last year, with the volume of shoes produced and the average selling price per pair decreasing by 2.5 percent to 158.9 million pairs and by 2.0 percent to $16.14 per pair, respectively, as compared with the corresponding period of last year. As a result, the group’s total revenue with respect to the manufacturing business (including footwear, as well as soles, components and others) and the apparel wholesale business (Texas Clothing Group, “TCG”) during the first half of 2018 was $3,016.6 million, a decrease of 1.7 percent.

Total Revenue by Product Category

During the first half of 2018, the revenue attributable to Pou Sheng, the group’s retail subsidiary, grew by 27.1 percent to $1,752.8 million, compared to $1,379.6 million in the previous financial year. In RMB terms (Pou Sheng’s reporting currency), revenue increased by 17.7 percent to RMB11,202.0 million, compared to RMB9,515.1 million in the corresponding period of last year.

Gross Profit

The gross profit for the manufacturing business in the first half of 2018 decreased by 14.9 percent to $530.0 million due to fluctuating order patterns and unfavorable product mix, which resulted in operating deleverage and negatively impacted the gross profit margin for the manufacturing business.

Pou Sheng’s gross profit margin decreased from 34.6 percent in the same period of last year to 33.5 percent in the first half of 2018, mainly due to channel mix changes and increased discounts and clearance sales for emerging brands.

Selling & Distribution Expenses and Administrative Expenses

The group’s total selling and distribution expenses for the first half of 2018 amounted to $582.6 million (first half of 2017: $467.5 million), equivalent to approximately 12.2 percent (first half of 2017: 10.5 percent) of revenue. The increase in selling and distribution expenses was attributable mainly to the group’s distribution business (i.e. Pou Sheng and the apparel wholesale business), which has a higher ratio of selling and distribution expenses to revenue compared to the manufacturing business.

Administrative expenses for the first half of 2018 were $309.1 million (first half of 2017: $304.3 million), equivalent to approximately 6.5 percent (first half of 2017: 6.8 percent) of revenue, remaining stable.

Fair Value Changes on Derivative Financial Instruments

During the first half of 2018, the group recorded a fair value loss of $22.5 million due to fair value changes on derivative financial instruments, compared to a fair value gain of $9.4 million during the corresponding period of last year.

Share of Results from Associates and Joint Ventures (“Share of A& JV”)

During the first half of 2018, the share of results from associates and joint ventures recorded a combined profit of $20.0 million compared to a combined profit of $26.7 million in the corresponding period of last year.