GROUP FINANCIAL HIGHLIGHTS
Six months ended Percentage
31st March, Increase
2000 1999
Turnover (US$'000) 823,403 715,768 15.0%
Profit from ordinary activities
before taxation (US$'000) 111,915 97,941 14.3%
Profit attributable to
shareholders (US$'000) 109,477 95,618 14.5%
Basic earnings per share (US cents) 15.5 14.3 8.4%
Interim dividend per share (HK cents) 40.0 25.0 60.0%
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RESULTS
The Directors of Yue Yuen Industrial (Holdings) Limited (the "Company") are pleased to announce the unaudited results of the Company and its subsidiaries (collectively referred to as the "Group") for the six months ended 31st March, 2000 with comparative figures for the corresponding period in 1999 as follows:
Six months ended
31st March,
2000 1999
US$'000 US$'000
Turnover 823,403 715,768
Cost of sales (604,135) (519,903)
----------- -----------
Gross Profit 219,268 195,865
=========== ===========
Operating Profit 107,483 96,072
Share of Results of Associated
Companies 3,339 -
Share of Results of Jointly
Controlled Entities 1,093 1,869
----------- -----------
Profit from Ordinary Activities
before Taxation 111,915 97,941
Taxation (Note 1) (2,575) (2,250)
----------- -----------
Profit before Minority Interests 109,340 95,691
Minority Interests 137 (73)
----------- -----------
Profit Attributable to Shareholders 109,477 95,618
Dividends (Note 2) (36,795) (21,659)
----------- -----------
Profit for the period, retained 72,682 73,959
=========== ===========
Earnings per share (Note 3)
- Basic 15.5 cents 14.3 cents
=========== ===========
- Diluted 14.9 cents 13.8 cents
=========== ===========
Notes:
1. TAXATION
Six months ended
31st March,
2000 1999
US$'000 US$'000
The charge comprises:
Hong Kong Profits Tax
calculated at 16% of
the estimated assessable
profit for the period 45 50
Overseas taxation 2,440 2,200
Share of Taxation of
Associated Companies 90 -
-------- --------
2,575 2,250
======== ========
A substantial portion of the Group's profits neither arose in, nor was derived from, Hong Kong and therefore is not subject to Hong Kong Profits Tax.
Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.
2. DIVIDENDS
Six months ended
31st March,
2000 1999
US$'000 US$'000
Interim dividend of 40 Hong
Kong cents per share
(1999: 25 Hong Kong cents
per share) 36,251 21,659
Additional final dividend
for prior year due to
exercise of share options
during the period 544 -
-------- --------
36,795 21,659
======== ========
INTERIM DIVIDEND
The Directors are pleased to declare an interim dividend of 40 Hong Kong cents per share for the six months ended 31st March, 2000 to members whose names appear on the Registrar of Members on 14th July, 2000. The dividend will be paid on or before 20th July, 2000.
3. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share for the period is based on the following data:
Six months ended
31st March,
2000 1999
Earnings:
Profits attributable to
shareholders and earnings
for the purposes of basic
and diluted earnings
per share US$109,477,000 US$95,618,000
=============== ===============
Number of shares:
Weighted average number
of ordinary shares for
the purposes of basic
earnings per share 706,220,882 670,382,953
Effect of dilutive potential
ordinary shares
- share options 28,131,866 20,110,943
--------------- ---------------
Weighted average number
of ordinary shares for
the purposes of diluted
earnings per share 734,352,748 690,493,896
=============== ===============
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 10th July to 14th July, 2000, 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 7th July, 2000 in order to qualify for the interim dividend mentioned above.
REVIEW AND PROSPECTS
Result
The Group registered strong growth for the six months to 31st March, 2000. During this period, overall turnover rose by 15.0%, compared to the previous corresponding period. The total number of shoes produced during the period reached 50.8 million pairs, an increase of 21.0% against 1999. Growth was driven by several factors, primarily an increase in orders from existing customers and the addition of several casual shoe brand customers. This was assisted by a rebound in the global branded athletic shoe wholesale market, which registered positive growth in 1999, and a 8.9% rise in the global casual/outdoor shoe wholesale market (figures supplied by Sporting Goods Intelligence (SGI)).
Profit attributable to shareholders during the six-month period was US$109.5 million, an increase of 14.5% compared with last corresponding period. Cost of sales increased by 16.2% against a 15.0% increase in turnover; this was primarily due to an increase in manufacturing labor expenses.
Operations
As of March 2000, the Group operated 198 production lines (March 1999: 178 lines) located in China, Indonesia, and Vietnam. During the six-month period, 16 lines were added.
With the future entry of China into the WTO, Yue Yuen sees increased investment opportunities and a more open and favorable business environment in China. Thus, we expect the Group's operations in China to continue to play an important role. In the meantime, the Group's operations in Vietnam have become more mature and are now in a position to take advantage of future growth opportunities. The Group's factory in Indonesia also continues to operate smoothly and is consistently enhancing production quality.
Financial Position
The Group maintains a strong financial position derived from the steady growth of its business, together with the net proceeds of US$85 million raised from a private placement of 35.3 million new shares last October. As at 31st March, 2000, the Group had cash on hand of US$122 million and total borrowing of US$209 million, representing a net debt to equity ratio of approximately 9.3% (March 1999: 23%).
Growth Strategy
The Group is vigorously pursuing its growth strategy as planned. Besides recently investing US$16 million in a joint venture with a vulcanized shoe factory in Indonesia to expand its product base horizontally, the Group has commenced work on several projects that will further the vertical integration of its business to upstream footwear material production. The Group will team up with leading material manufacturers from Taiwan to establish facilities in China to produce Polyurethane (PU) resin and synthetic leather, and facilities in Vietnam that will produce cloth and synthetic fabric for making shoes and sportswear. The Group's initial investment in these projects will be approximately US$50 million, to be financed by the proceeds of the private placement mentioned above.
These new investments will enable the Group to procure the upstream shoe material locally on a just-in-time basis and shorten the production cycle. We believe the trend towards such supply chain systems provides a good opportunity for major material suppliers to link up with large manufacturers, distributors and retailers to achieve shorter lead-time in product delivery and better control of the flow of goods. We hope we can further develop our business in this area to better serve our customers and create new sources of growth in the future.
Industry Review
The athletic footwear market continues to demonstrate a constant demand for quality brand-named products that display high standards of innovation, fashion and performance. The latest available data compiled by Sporting Goods Intelligence (SGI) indicated that the global branded athletic shoe wholesale market rose 1% to US$16.3 billion in 1999 after an 8.4% decline from 1998. These data also show an improvement in the wholesale segment of the industry.
Sales of casual and outdoor shoes, as reported by the same source, rose 8.9% to US$5.7 billion in wholesale amount, which is approximately a third of the total athletic footwear market.
Corporate Responsibility
As an integral part of our manufacturing operations, corporate responsibility (CR) addresses the issues of workers' rights, benefits and opportunities; health and safety in the workplace; environmental concerns and community involvement, etc. The Group has been constantly working with our blue-chip customers to address these issues and considerable progress throughout the years have been made. We have set up an internal system and organizational team involving the Board to factory units to plan, implement and evaluate various programs from time to time. During the period under review, we focused on managing the length of working hours, improving air quality, counseling and education for our workers, representation and participation in the union, and developing group CR policies and internal audit systems. We firmly believe in developing and putting in place a pro-active and long-term CR program for the ongoing benefit of the Group.
Looking Forward
Building on the strong operating results of the first half, and riding on the continued buoyancy of the economic conditions of the major export markets, the Directors are confident that the Group will record satisfactory results for the rest of the year.
AUDIT COMMITTEE
Pursuant to the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited, an audit committee (the "Committee") was established on 28th January, 1999. Our two independent non-executive directors, namely Mr. John J.D. Sy (Chairman of the Committee) and Mr. Shih Hung, were appointed the members of the Committee. Written terms of reference specifying the Committee's authority, responsibilities and specific duties were also approved and adopted on the same date.
YEAR 2000 COMPLIANCE
From 1998, the Group operated an internal Y2K Committee to lead the Year 2000 compliance program. We did not experience any Year 2000 problem and all computer systems functioned properly without disruption.
The total cost incurred for the Year 2000 compliance program was US$1.4 million and there is no further commitment in respect of the Year 2000 issue.
CORPORATE GOVERNANCE
During the six months ended 31st March, 2000, the directors were not aware of any information that would indicate that the Company was not in compliance with those paragraphs of the Code of Best Practice, as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the six months period ended 31st March, 2000, the Company made the following repurchase of its own shares on The Stock Exchange of Hong Kong Limited for the purpose of enhancing the net assets per share:
| Number | Average | ||
| of Shares | Price per | Total | |
| Month | Repurchased | Share | Consideration |
| March 2000 | 2,598,000 | HK$17.66 | HK$45,892,250 |
Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the period.
ACKNOWLEDGEMENT
I would like to take this opportunity to express our sincere appreciation of the support from our customers, suppliers and shareholders. I would also like to thank my fellow directors for their valuable contribution and the staff members of the Group for their commitment and dedicated services throughout the year.
By the Order of the Board
Tsai Chi Neng
Chairman
Hong Kong, 20th June, 2000
Web site: http://www.irasia.com/listco/hk/yueyuen
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