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GROUP FINANCIAL HIGHLIGHTS
Six months ended 31st March, Percentage
2001 2000 increase
Turnover (US$'000) 896,087 823,403 8.83%
Net profit for the period (US$'000) 112,227 109,477 2.51%
Basic earnings per share (US cents) 15.9 15.5 2.58%
Dividend per share (HK cents) 40.0 40.0 -
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INTERIM RESULTS
The directors of Yue Yuen Industrial (Holdings) Limited (the "Company") are pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively referred to as the "Group") for the six months ended 31st March, 2001 with comparative figures for the corresponding period in 2000 as follows:
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months
ended 31st March,
2001 2000
(unaudited) (unaudited)
US$'000 US$'000
Turnover (Note 2) 896,087 823,403
Cost of sales (659,412) (604,135)
----------- ----------
Gross profit 236,675 219,268
Other revenue 29,599 25,839
Selling and distribution expenses (27,262) (26,936)
Administrative expenses (79,154) (72,233)
Other operating expenses (Note 3) (35,638) (31,026)
----------- ----------
Profit from operations 124,220 114,912
Finance costs (13,040) (7,429)
Share of results of associates 665 3,339
Share of results of jointly controlled
entities 926 1,093
----------- ----------
Profit before taxation 112,771 111,915
Income tax expense (Note 5) (948) (2,575)
----------- ----------
Profit before minority interests 111,823 109,340
Minority interests 404 137
----------- ----------
Net profit for the period 112,227 109,477
Dividend (Note 6) (36,164) (36,795)
----------- ----------
Profit for the period, retained 76,063 72,682
=========== ==========
Earnings per share (Note 7)
- Basic 15.9 cents 15.5 cents
=========== ==========
- Diluted 15.3 cents 14.9 cents
=========== ==========
CONDENSED CONSOLIDATED BALANCE SHEET
31st March, 30th September,
2001 2000
(unaudited) (audited)
US$'000 US$'000
Non-current assets
Investment properties 50,597 50,455
Property, plant and equipment 912,578 868,833
Deposits for acquisition of properties 3,467 3,467
Interests in associates 25,351 23,280
Interest in jointly controlled entities 6,114 5,912
Long-term receivable - 1,523
Investment securities 40,837 17,802
---------- ----------
1,038,944 971,272
---------- ----------
Current assets
Inventories 208,623 184,687
Trade and other receivables (Note 9) 296,510 239,273
Taxation recoverable 3,705 3,139
Other investments 2,000 2,000
Bank balances and cash 155,434 117,405
---------- ----------
666,272 546,504
---------- ----------
Current liabilities
Trade and other payables (Note 10) 225,900 211,358
Taxation payable 2,444 3,229
Proposed dividend 36,263 49,693
Short-term bank and other borrowings 275,848 170,219
---------- ----------
540,455 434,499
---------- ----------
Net current assets 125,817 112,005
---------- ----------
Total assets less current liabilities 1,164,761 1,083,277
---------- ----------
Minority interests 1,566 4,819
---------- ----------
Non-current liabilities
Long-term bank loans 134,000 120,000
Other long-term loans 2,658 3,652
Loans from minority shareholders of a
subsidiary 2,750 2,297
Deferred taxation 3,605 3,605
---------- ----------
143,013 129,554
---------- ----------
1,020,182 948,904
========== ==========
Capital and reserves
Share capital (Note 11) 45,768 45,697
Reserves (Note 13) 974,414 903,207
---------- ----------
1,020,182 948,904
========== ==========
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The condensed financial statements have been prepared in accordance with the Statement of Standard Accounting Practice No. 25 "Interim financial reporting" issued by the Hong Kong Society of Accountants ("SSAP 25"), except that comparative figures are not presented for the first cash flow statement to be included in the interim financial report relating to accounting period ended on or after 1st July, 2000. Such departures from SSAP 25 are permitted under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules").
In the opinion of the directors, the accounting policies adopted are consistent with those followed in the Group's annual financial statements for the year ended 30th September, 2000, except that the investment properties are not stated at their open market value based on independent professional valuations as at that date.
2. SEGMENT INFORMATION
Turnover
For the six months
ended 31st March,
2001 2000
US$'000 US$'000
Geographical segment
United States of America 480,182 432,283
Europe 248,337 235,548
Asia 113,012 104,430
Canada 21,001 23,665
South America 15,661 9,441
Other areas 17,894 18,036
----------- ----------
896,087 823,403
=========== ==========
The Group has only one principal activity, namely sales of footwear and shoe-related products. Accordingly, no segmental analysis by activity is presented.
The contribution to profit from operations by individual geographical market is not presented as the contribution to profit from operations from each geographical market as a proportion of turnover from that market is in line with the overall ratio of profit to turnover achieved by the Group.
3. OTHER OPERATING EXPENSES
For the six months
ended 31st March,
2001 2000
US$'000 US$'000
Other operating expenses comprise:
Research and development expenditure 27,320 26,552
Provision for bad and doubtful debts 7,400 -
=========== ==========
4. DEPRECIATION
During the period, charged against profit from operations was depreciation and amortisation of approximately US$35,825,000 (2000: approximately US$30,017,000) in respect of the Group's property, plant and equipment.
5. INCOME TAX EXPENSE
For the six months
ended 31st March,
2001 2000
US$'000 US$'000
The charge comprises:
Hong Kong Profits Tax 44 45
Overseas taxation 803 2,440
Share of taxation of an associate 101 90
----------- ----------
948 2,575
=========== ==========
Hong Kong Profits Tax is calculated at 16% of the estimated assessable profit for the period.
A substantial portion of the Group's profits neither arose in, nor was derived from, Hong Kong and therefore was not subject to Hong Kong Profits Tax.
Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.
The Group had no significant unprovided deferred taxation for the period.
6. DIVIDEND
For the six months
ended 31st March,
2001 2000
US$'000 US$'000
Interim dividend of 40 Hong Kong cents per share
(2000: 40 Hong Kong cents per share) 36,263 36,251
Additional final dividend for prior year
due to exercise of share options during
the period - 544
Overprovision for prior year dividend due
to share repurchased and cancelled during
the period (99) -
----------- ----------
36,164 36,795
=========== ==========
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share for the period is based on the following data:
For the six months
ended 31st March,
2001 2000
Earnings:
Net profit for the period and earnings
for the purpose of basic and diluted
earnings per share US$112,227,000 US$109,477,000
============== ==============
Number of shares:
Weighted average number of ordinary
shares for the purpose of basic
earnings per share 704,870,294 706,220,882
Effect of dilutive potential ordinary
share in respect of share options 26,422,749 28,131,866
-------------- --------------
Weighted average number of ordinary
shares for the purpose of diluted
earnings per share 731,293,043 734,352,748
============== ==============
8. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
During the period, the Group acquired property, plant and equipment for an amount of approximately US$82,285,000 (year ended 30.9.2000: approximately US$202,892,000).
9. TRADE AND OTHER RECEIVABLES
The Group has defined credit terms which are agreed with each of its trade customers.
Included in trade and other receivables are trade and bills receivables of US$184,406,000 (30.9.2000: US$161,458,000) and their aging analysis is as follows:
31st March, 30th September,
2001 2000
US$'000 US$'000
0 to 30 days 127,581 113,556
31 to 90 days 47,003 35,223
Over 90 days 9,822 12,679
---------- ----------
184,406 161,458
========== ==========
10. TRADE AND OTHER PAYABLES
Included in trade and other payables are trade and bills payables of US$130,088,000 (30.9.2000: US$101,861,000) and their aging analysis is as follows:
31st March, 30th September,
2001 2000
US$'000 US$'000
0 - 30 days 94,673 76,473
31 - 90 days 26,506 18,085
Over 90 days 8,909 7,303
---------- ----------
130,088 101,861
========== ==========
11. SHARE CAPITAL
Amounts
expressed
No. of shares in thousands
Authorised:
Ordinary shares of HK$0.50 each
- balance at 1st October, 2000 and
31st March, 2001 1,000,000,000 HK$500,000
============= =============
Issued and fully paid:
Ordinary shares of HK$0.50 each
- balance at 1st October, 2000 707,333,953 HK$353,667
- exercise of share options
(note a) 7,700,000 HK$3,850
- shares repurchased and cancelled
(note b) (6,595,000) HK$(3,298)
------------- -------------
- balance at 31st March, 2001 708,438,953 HK$354,219
============= =============
Shown in the financial statements as at
31st March, 2001 US$45,768
=============
30th September, 2000 US$45,697
=============
Notes:
(a) During the period, 7,700,000 share options were exercised at a subscription price of HK$6.35 per share, resulting in the issue of 7,700,000 ordinary shares of HK$0.50 each in the Company.
(b) During the period, the Company repurchased and cancelled 6,595,000 shares of HK$0.50 each of the Company at prices ranging from HK$14.05 to HK$15.05.
12. SHARE OPTIONS
Under the Company's share option scheme, the directors may, at their discretion, grant options at nil consideration to employees of the Company or its subsidiaries, including directors of any of such companies, to subscribe for shares in the Company. The price per share payable on the exercise of an option will be the higher of the nominal value of the shares or 80% of the average of the closing price per share as quoted on The Stock Exchange of Hong Kong Limited for the five trading days immediately preceding the date of grant of the option or such price as from time to time adjusted pursuant to the scheme.
As at 31st March, 2001, the outstanding share options granted under the Company's share option scheme are as follows:
Number of share
Exercise price options
Date of grant per share outstanding
HK$
28th April, 1993 6.35 1,466,666
12th December, 1996 10.22 32,000,000
The outstanding share options can be exercised at any time within ten years from the date of grant.
13. RESERVES
Movement of reserves during the period are as follows:
Investment
properties
Share revaluation Goodwill Special Accumulated
premium reserve reserve reserve profits Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1st October, 2000 363,740 14,750 (150,692) (16,688) 692,097 903,207
Premium arising on issue
of shares 5,775 - - - - 5,775
Share repurchased and
cancelled (11,958) - - - - (11,958)
Capital reserve arising
on increasing the
Group's interest
in a subsidiary - - 1,327 - - 1,327
Profit for the period - - - - 76,063 76,063
-------- -------- -------- -------- -------- --------
At 31st March, 2001 357,557 14,750 (149,365) (16,688) 768,160 974,414
======== ======== ======== ======== ======== ========
14. CONTINGENT LIABILITIES
31st March, 30th September,
2001 2000
US$'000 US$'000
Export bills discounted with recourse 905 308
========== ==========
Guarantees given to banks in respect of
credit facilities extended to jointly
controlled entities 266 581
========== ==========
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 5th July to 10th July, 2001, 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 4:00p.m. on 4th July, 2001 in order to qualify for the interim dividend mentioned above.
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, 2001 to members whose names appear on the Registrar of Members on 10th July, 2001. The dividend will be paid on or before 17th July, 2001.
REVIEW AND PROSPECTS
Result
The Group registered solid growth for the six months to 31st March, 2001. During this period, overall turnover reached US$896 million, 8.8% higher than the previous corresponding period. The total number of shoes produced during the period was 57 million pairs, an increase of 12.4% against 2000. Growth was primarily driven by an increase in orders from most of the Group's existing customers and the addition of several branded footwear customers. The trend of U.S. and European manufacturers outsourcing the production of casual shoes has continued. The Group's casual shoes sales rose 31.7% compared to 2000; athletic footwear sales grew 5.7%.
The Group has effectively weathered the slowdown in the U.S. economy, with sales to the U.S. growing 11.1% compared to 2000. European sales rose 5.4%. Sales to the U.S. constituted 53.6% of the Group's total turnover, while sales to Europe accounted for 27.7% and Asia 12.6%. This compares to 52.5%, 28.6% and 12.7% of sales to the U.S., Europe and Asia for the same period in 2000, respectively.
Net profit during the six-month period was US$112.2 million, an increase of 2.5% compared with the last corresponding period. Cost of sales increased by 9.1% against the 8.8% increase in turnover.
Operations
As of March 2001, the Group operated 224 production lines (March 2000: 198 lines) located in China, Indonesia and Vietnam. During the six-month period, 9 lines were added. The investment made in expanding the Group's production base and other facilities during this period totalled US$82 million.
With the entry of China into the World Trade Organisation approaching, Yue Yuen continues to see an increasingly favourable business environment in the region. The Group has further enhanced its facilities in China in 2001 and remains well positioned to capitalise from the expansion of global trade with China. In addition, Yue Yuen's operations in Vietnam and Indonesia continue to perform smoothly and have become established production centers for the Group.
Financial Position
The Group maintains a satisfactory financial position derived from the steady growth of its business. As at 31st March, 2001, the Group had cash on hand of US$155.4 million (March 2000: US$122.2 million) and total borrowings of US$412.5 million (March 2000: US$209.0 million). This represents a net debt to equity ratio of approximately 25.2% compared to 9.3% for the previous corresponding period.
Growth Strategy
The Group has continued to actively execute its growth strategy through a combination of horizontal expansion and vertical integration.
Yue Yuen has achieved satisfying results with regard to horizontal expansion in the period. The Group has effectively expanded its business with both existing and new footwear customers, as well as in new product categories.
Yue Yuen has advanced its vertical integration strategy by expanding its business to upstream footwear material production. In particular, it has expanded its production and procurement capabilities in the areas of footwear components and raw materials, specifically Polyurethane (PU) resin, synthetic leather, synthetic fabric and soles. These investments will enable the Group to procure upstream shoe material locally on a just-in-time basis and shorten the production cycle. Yue Yuen remains committed to evaluate other opportunities to expand vertically as they arise.
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 its blue-chip customers to address these issues and considerable progress throughout the period has been made. During the period under review, we focused on managing working hours, improving air quality, reducing waste materials, counselling and education for our workers, 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 programme to advance both the Group's contribution to society and competitive advantage.
Looking Forward
Based on the results achieved during the period, the Directors are confident the Group, with its horizontal and vertical growth strategy firmly in place, will be able to work through the current economic slowdown in the U.S.. In addition, the Group will benefit incrementally from its recent investments in various joint venture companies, as they progress through the startup period and become increasingly established.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the six months ended 31st March, 2001, details of shares repurchased by the Company were as follows:
Number of shares Highest price paid Lowest price paid repurchased per share per share 6,595,000 HK$15.05 HK$14.05
Save as disclosed above, neither the Company nor any of the subsidiaries purchased, sold or redeemed any of the Company's listed securities during the period.
AUDIT COMMITTEE
The Audit Committee has reviewed with management and the external auditors the accounting principles and practices adopted by the Group and discussed auditing, internal controls and financial reporting matters including the review of the unaudited interim financial statements.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
None of the directors is aware of any information that would reasonably indicate that the Company is not, was not for any part of the six months ended 31st March, 2001 in compliance with the Code of Best Practice as set out in Appendix 14 of the Listing Rules.
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 period.
By the Order of the Board
Tsai Chi Neng
Chairman
Hong Kong, 18th June, 2001
Website: www.yueyuen.com
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