Investors' Information
Business Review

Market Overview
In the first half of 2023, the global economy continued its moderate recovery following the end of the pandemic, with major economies having low to mid-single-digit growth. However, high inflationary pressure in Europe and the United States of America (“USA”), and rising geopolitical friction have continued to adversely affect consumption.

According to data from the International Trade Administration, USA Department of Commerce, the amount of apparel imported by the USA decreased by 30%, compared to the same period in 2022. Ladies’ apparel, a product category which the Group has large proportion of sales exposure, was witnessed an even greater decline by 34%.

In reaction to high inflation, end consumers tend to select cheaper alternatives for discretionary products. Furthermore, high inventory levels have continued to be a common challenge to our brand customers, which has suppressed the apparel industry starting in the second half of 2022. In view of the high inventory-to-sales ratio, brand customers generally adopted the strategy of streamlining inventories. This, coupled with the lack of a significant growth in sales forecasts, has led to a general slowdown in the pace of procurement. The combination of unfavorable factors described above placed serious downward pressure on the garment industry in the first half of the year.

Business Review
The Group’s performance was inevitably and adversely affected by the strong headwinds that are facing the whole garment industry. The Group’s revenue for the six months ended 30 June 2023 decreased by 18.7% to US$1,009 million, compared to the same period last year (six months ended 30 June 2022: US$1,242 million).

On the positive front, our team actively seized the opportunities brought by the full relaxation of global travel restrictions, which has provided greater convenience for developing our business in global markets. The increase in in-person meetings and facilitated interactions have given full play to the advantages of the Group’s co-creation model and diversified product matrix, laying a solid foundation for healthy business development. By jointly developing product design solutions and utilising the features of our comprehensive product lines, the Group continued to increase customer stickiness. During the period under view, revenue from the Sweater segment recorded an increase against the tide, and sales to China enhanced with the backdrop of a better demand recovery in the China market.

The Group also saw improved performance in terms of gross and net profit margins. Thanks to our long-term strategic relationship with our brand customers, the slowdown in the pace of procurement was foreseen, and the Group proactively matched production personnel to maintain highly efficient output. Furthermore, upgrading automation and streamlining the cost structure, two of the Group’s major focuses in recent years, have continually contributed to better cost control. Thus, the gross margin increased to 19.1% from 18.5% in the same period last year. Net profit for the six months ended 30 June 2023 decreased by 2.6% to US$74 million (six months ended 30 June 2022: US$76 million) while the net profit margin increased to 7.3% from 6.1% in the same period in 2022.

The development of vertical integration has also achieved certain results. After the optimisation and upgrading of the equipment in the fabric factory in southern Vietnam, which was acquired in 2020, output continued to ramp up, along with readiness for a full range of synergistic practices with the adjacent garment manufacturing plant. Also, the renovation plan for the fabric factory in Bangladesh, which was acquired in 2022, proceeded on schedule.

The Group continues to uphold the practice of sharing operating results with shareholders. Despite the decline in our results of the first half of the year because of external market shocks, the Group improved its net cash position. Thus, the Board resolved to maintain the same dividend payout amount as in the same period last year and declared an interim dividend of HK5.0 cents per ordinary share.

Outlook and Prospects
The second half of the year is traditionally the peak season for the industry. The combined effects of factors such as the return to school and festival holidays are expected to boost consumer sentiment. Most of our brand customers adopted various promotion marketing strategies over the past three quarters to reduce excess inventory. It is expected that the progressive decline in the inventory-to-sales ratio will pave the way for a rebound in procurement in second half.

Even though rebound in second half may not fully cover the sharp decline in first half. With continuing strict cost control, we aim to drive up our profit margin through sales rebound. Moreover, our brand customers are further consolidating their supply chain, which will benefit the Group in a long run.

In terms of upstream fabric development, the Group will continue to actively implement our vertical integration expansion plan. The self-developed fabric factory in northern Vietnam obtained the key wastewater emission license and will commence construction in the second half of this year.

(Extracted from 2023 Interim Report)