Yue Yuen Industrial Holdings Limited first half, which ended 31st March, 2006, turnover surged 16.5% to $1.72 billion and net profit increased by 15.1% to $168.3 million.
Upon adopting the new Hong Kong Financial Reporting
Standards (“HKFRS”), there was an aggregate one-time gain of US$10.2 million related to the
derivatives and convertible bonds issued in 2003. Excluding this gain, net profit would have
increased by 8.1% year-on-year to $158.1 million.
The Board of Directors has resolved to recommend the payment of an interim dividend of HK$0.29
per share, an increase of 7.4% from HK$0.27 per share last year.
Operations
For the period under review, the Group has continued to record steady sales growth in the footwear
manufacturing operation and strong growth momentum in the Greater China wholesale and retail
contributions. The Group has produced a total of 96.6 million pairs of shoes, an increase of 6.9%
compared with last year. By the end of March 2006, the Group was operating about 359 production
lines, an addition of 17 lines over the last six months.
In light of soaring fuel costs and increasing
labor expenses, the operating environment has been volatile. The Groups gross profit margin still
faced pressure, declining year-on-year by 0.8 percentage point to 23.4% during the period under
review. However, the Group continues to work very closely with customers and suppliers to cope
with the impact of rising production and input costs.
The Group had experienced a stable growth in the core athletic and casual/outdoor shoes segments.
Turnover from wholesale and retail operations rose year-on-year by 110.7% to $138.0 million,
underpinned the Groups overall sales growth. By the end of March 2006, the Group was managing
about 600 self-run and 200 franchised shops/counters in mainland China. Also, the Group has
maintained about 1,800 distributors for the three licensee brands, Converse, Hush Puppies and
Wolverine in the greater China region.
As a continuous effort to expand horizontally into different footwear product categories, sports
apparel and accessories manufacturing, the contributions from associates and jointly controlled
entities started to kick in with a total contributions of $29.5 million compared to $16.6 million
in the corresponding period last year.
Sales from athletic shoes accounted for 59.1% of total sales, compared to 62.2% last year. The
decline in contribution from the core manufacturing operation was mainly due to accelerating sales
from wholesale and retail operations, which accounted for 8% of total sales, up from 4.5% last year.
There were also encouraging growth in the sole and components and others (mainly sports apparel
manufacturing) categories during the period under review. Turnover distribution among three major
markets, the USA, Europe and Asia has also become more balanced.
Looking Forward
Following a 16.5% year-on-year growth in sales in the first half of FY2006, the momentum of the
sales growth continued to be resilient in the first two months of the third quarter of FY2006 (April
and May of 2006). Total turnover for April and May 2006 amounted to about US$669.7 million, an
increase of 20% year-on-year. Healthy growth in the core manufacturing and the wholesale and retail
operations is expected to supplement the Groups sales growth in the second half of FY2006.
The Group is committed to further expand its production capacity to accommodate customers
expansion plans. However, mounting pressure from rising material costs and labor expenses is still
expected. The Group will continue to quest for improvement in production efficiency and flexibility
to mitigate the impact from rising production costs and the trade dispute.
“The Group has maintained a healthy growth in sales amid a competitive environment. It is well
positioned to further expand the business horizon, aiming for persistent improvement in its business
operations,” said Mr. Tsai Chi Neng, Chairman of the Group.
