GROUP FINANCIAL HIGHLIGHTS

RESULTS

The directors of Yue Yuen Industrial (Holdings) Limited (the "Company") are pleased to announce the audited results of the Company and its subsidiaries (collectively referred to as the "Group") for the year ended 30th September, 1998 with comparative figures as follows:

Notes:

1. Taxation

A substantial portion of the Group's profits neither arose in, nor was derived from, Hong Kong and therefore was not subject to Hong Kong Profits Tax.

Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.

2. Dividends

The amount of the final dividend proposed for the year ended 30th September, 1998 has been calculated by reference to 670,382,953 ordinary shares in issue as at the date of this report.

3. Earnings per Share

The calculation of the basic and diluted earnings per share for the year is based on the following data:

The adoption of the revised Statement of Standard Accounting Practice No. 5 "Earnings per share" issued by the Hong Kong Society of Accountants ("SSAP 5") has resulted in some modifications to the basis of calculation of earnings per share amounts and to the disclosures presented for earnings per share. Amounts presented for the prior year have been restated to reflect the requirement of the revised SSAP 5.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from 5th March, 1999 to 12th March, 1999, both days inclusive, during which period no transfer of shares will be effected. All transfers, accompanied by the relevant share certificates must be lodged with the Company's Branch Share Registrars, Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not later than 4:00 p.m. on 4th March, 1999 in order to qualify for the final dividend mentioned above.

BUSINESS REVIEW AND PROSPECTS

Results

Turnover for the year ended 30th September, 1998 was US$1,430 million compared to US$1,414 million in the previous year. Profit attributable to shareholders was US$171 million, an increase of 8.2% over the corresponding period last year. Earnings per share were 25.6 US cents (HK$1.98) as against 23.6 US cents (HK$1.83) in 1997.

Business review

A challenging market environment

As a principal supplier to the world's leading brandnames for sports and casual footwear, the Group experienced the general softening of retail demand in this sector. Manufacturing demand in 1998 was also lower than it might have been due to a backlog of wholesale inventory from 1997. In this challenging environment we have worked hard to achieve turnover above the level reached in the previous year.

Geographical markets

With a decline in demand in the US market, we have seen a reduction from 67% to 64% in the US share of the Group's turnover. Europe on the other hand has increased its share from 14% to 16%, a welcome step towards sustained growth in this market. In the face of the Asian turndown, the Group has done well to maintain the Asian share at 13% of its turnover.

Product diversification

To strengthen the Group's capability for future growth in the face of changes in consumer tastes, we have continued to penetrate the casual shoe sector. A healthy volume growth of 39% was achieved with the Group shipping 14 million pairs of casual shoes for the year. Casual and outdoor shoes now represent 18% of total volume of sales as against 14% in 1997 and 11% in 1996. The Group has prepared well for the growth trend for casual and outdoor shoes and is now reaping the benefits of its investment in this direction.

Controlling costs

During the year, despite of the increased expenses for the improvement of working environment, the management has worked hard and managed to reduce costs of operations. Inventory turnover in days has been reduced from 51 days to 45 days - primarily because of easier access to materials in China. Centralised purchasing of certain supplies and equipment as well as and use of our own water and electricity supplies have also helped to maintain downward pressure on costs.

Powerful production resources

The maturing of our production lines is helping us to make better use of our existing facilities. This has had a positive impact on profit with increasing efficiency and rises in productivity. In 1998, the Group produced a total of 78 million pairs of shoes compared to 74 million pairs in the previous year. Production at our Indonesian plants (23 out of 169 production lines or 14% of the total in September 1998) continued normally in an otherwise uncertain environment.

Staff benefits and environmental initiatives

The Group takes due care in developing a high standard workforce by providing fair compensation, education and vocational training to members of our staff. The Group is equally committed to promoting a safe and healthy workplace. To this end, we have worked together with consultant organizations to review and implement environmental health and safety management system. During the year, we have invested in new equipment to improve the standards at our factories, particularly in the areas of air quality, and the handling of waste and chemicals in the production process.

Financial stability

The Group has improved its financial position during the year with a reduction in gearing from 59% to 42%. With its production capacity now well established through the region, the Group was able to bring down capital expenditure to US$187 million in 1998 (representing a reduction of about 1/3 as against 1997). The next few years are expected to see continued reductions in capital expenditure. Total borrowings is down from US$313 million in 1997 to US$276 million as of September 1998; net debt down from US$263 million to US$205 million; and the net debt to equity ratio down from 50% to 32%. Additional cost savings and an increase in non-manufacturing income also contributed to earnings during the year.

Outlook

The directors are optimistic as to the broad economic outlook and market demand in its key markets of US and Europe which together account for 80% of the Group's turnover. The Group remains well positioned to build on its success thanks to factors including: the scale of manufacturing operations; product research and development capability; the diversification of product range; broad customer base; and experienced and focused management.

THE YEAR 2000 ISSUE

The Group defines "Year 2000 Compliant" as the performance and functionality of its computers and automatic control systems, which operate by using dates, not being affected by dates prior to, during and after the year 2000.

The Group is fully aware of the importance of the Year 2000 Compliance. There could be an adverse impact on the Group if its computer systems do not function properly with respect to date-related data in the year 2000 and beyond. Therefore a Y2K Committee has been organised and formed to lead the Year 2000 compliance programme.

Under the programme, a review has been completed to identify the software and hardware of the Group that may be subject to the Year 2000 problem. Modification, replacement and upgrading of these software and hardware are progressing on schedule. The Group is pleased with the overall progress to-date since about 60% of the major work necessary to achieve compliance have been completed. The process will continue until the Year 2000 Compliance is achieved, which is targeted before July 1999. Based on the review and actions taken, the Group does not anticipate that the Year 2000 issue will have a significant effect on its business and operations.

Costs for the compliance programme, including modification and replacement of software and equipment, are estimated to be totalling US$1.43 million, of which US$0.56 million has been incurred to-date. Costs related to modification and conversion are charged to the profit and loss account as incurred, while costs of replacement and new software are capitalised and depreciated in accordance with the Group's accounting policies.

The Group has not entered into any significant commitments in respect of the Year 2000 modification costs.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.

By Order of the Board
Tsai Chi Neng
Chairman

Hong Kong, 28th January, 1999

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