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Man Wah FY2017 Interim Profit Reaches Record   2016-11-16

(Hong Kong-16 November 2016) - Man Wah Holdings Limited (“Man Wah” or the “Group”, stock code: 1999) today announced its interim results for the six months ended 30 September 2016 (“1H FY2017” or the “Review Period”). During the Review Period, despite the global economy was ridden with challenges, the Group managed to achieve a record high profit for the same period. Man Wah Group Limited (“Man Wah Group”), a wholly-owned subsidiary of the Group, today has also signed a Memorandum of Understanding (“MOU”) with Home Group Ltd. with manufacturing bases in Europe to strengthen its competitive edge in the Europe and China markets.

During the Review Period, although all major markets faced uncertainties, the Group timely adjusted its product mix and strengthened sales management. As a result, its total revenue was maintained at HK$3.59 billion, similar to that in the same period last year. Thanks to lower costs of key raw materials and depreciation of the Renminbi against the US dollar as well as improving operating efficiency of the Group, gross profit rose by 12.5% to HK$1.53 billion and gross profit margin grew by a notable 5.7 percentage points to 42.7%. That plus the decreasing proportion of selling and distribution expenses and administrative expenses as a percentage of revenue, profit attributable to owners of the Company grew significantly by 43.9% to HK$880 million. Net profit margin increased to 24.6%. Basic earnings per share climbed by 45.3% to HK23.0 cents.

As at 30 September 2016, the Group was in a sound financial position with bank balance and cash of approximately HK$1.88 billion and current ratio at 2.8. To reward shareholders for their long-term support, the Board has proposed payment of an interim dividend of HK14 cents per share, representing a dividend payout ratio of 61.1%.

Dr. Wong Man Li, Chairman of Man Wah, said, “Although the global economic environment has been complicated, with the advantage in the R&D of reclining sofas, we launched more than 130 new sofa products. Complemented by our shrewd brand marketing strategy and improving operating efficiency, we have again achieved impressive results. During the period, we looked out for opportunities in the China market and successfully exploited its potential. Consequently, the China market again became the Group’s fastest growing region in terms of revenue and profit. Riding on ‘Double 11’ activities this year, the Group received orders worth more than approximately RMB90 million from TMALL that day, up approximately 26% year-on-year. That fully reflected the high consumer recognition of the Group’s products.”

Business Review

Sales of sofas and auxiliary products as well as other products remain steady

During the Review Period, revenue from sofas and auxiliary products amounted to HK$3.33 billion, accounting for around 92.8% of the Group’s total revenue. The Group’s revenue from bedding, furniture components and other products increased by 13.6% to HK$260 million, driven by significant growth in wholesale revenue from “CHEERS Five-star Mattress” brand bedding distributor-operated retail stores, revenue from other furniture products sold to commercial clients and revenue from furniture components.

China market

Although economic growth and growth of consumer spending in China have slowed down, the Group has been effective in enhancing its brand reputation, implementing meticulous management practices, expanding its sales network, boosting sales performance of its stores and building the online sales platform. As a result, revenue from the sofa market in China grew by around 33.0% to HK$1.27 billion during the period, making the region again the fastest growing in terms of revenue and profit contribution to the Group.

As at 30 September 2016, the Group had a total of 1,777 “CHEERS,” “MOREWELL” and “CHEERS Five-star Mattress” self- and distributor-operated retail stores in China, including a net increase of 132 stores during the Review Period.

As for online sales, the Group continued to sell sofas and ancillary products to consumers via Internet platforms such as TMALL (www.tmall.com). Revenue from Internet and TV sales more than doubled, up by around 151.6% to HK$77.0 million during the Review Period.

North America, Europe and other overseas market

Factors including the slow economic recovery in the U.S., weak economic growth in Europe and Brexit have inevitably presented pressure on the Group’s business in overseas markets. During the Review Period, revenue from the North America market amounted to HK$1.72 billion. The Group optimized its product mix timely to match changes in the market and launched Quick Delivery Plan to cater the need for quick delivery among new small and medium customers. It also adjusted the selling price of some products. These initiatives are expected to bring positive impact on the Group’s performance in the second half of the financial year.

Revenue from Europe and other overseas markets amounted to HK$340 million. The Group began to see result of its effort to rally new customers and expand sales channels. Not only had the decline in sales slowed down, sales in September this year achieved an around 5.4% growth year-on-year.

Prospects

Going forward, the Group will enhance its efficiency and cost-effectiveness on all aspects from product design and production to sales, so as to reinforce its competitive advantages. As for internal operation, it has set up a intelligent manufacturing division which focuses on raising the standard of the Group’s smart and automated production to enhance its production efficiency, in order to meet the growing consumer demand and better control costs.

With the China market boasting the strongest potential, the Group will build on its past successes and advantages to develop “CHEERS” into a well-known household brand. It will also continue to enrich its product lines, expand sales channels and improve service quality to achieve its goal of capturing a larger market share.

Furthermore, although overseas markets are affected by external uncertainties, the Group believes that where there are challenges, there are opportunities. Over the years, the Group has developed strong goodwill in the North America market. To maintain its market leadership, it will timely adjust its products mix, strengthen its sales team and unearth market potential. The Group remains confident of the prospects of the market. As for the Europe market, the Group will continue to actively rally new customers. It will conduct in-depth market research to understand the needs and demands of different countries and different customer types, and thus be able to tailor products that can best meet the changing needs of customers.

On 16 November 2016, Man Wah has entered into an MOU with Europe-based Home Group Ltd. to invest cash into the latter and hold 50% of its stake, with the remaining 50% stake owned by the existing founders of Home Group Ltd. and its affiliates (“Home Group”). The total investment amount depends on the financial performance of Home Group Ltd. in the next three calendar years ending 31 December 2019, and the maximum amount payable by Man Wah in three installments would be no more than Euro 50,692,890. Leveraging Home Group’s expertise in sofa production and its multiple sofa production bases in Eastern Europe covering Poland, the Baltic States and Ukraine, the Group can meet demands for commissioned orders or small order volumes more efficiently in the Europe market. At the same time, the launch of the European collection of high quality and affordable products manufactured by Home Group Ltd. could appeal to young consumers in the China market, enabling the Group to increase its penetration with the enriched product mix.

Dr. Wong added, “Given the fast changing demand in the Europe and China markets, the strategic alliance with Home Group will create synergies across product development, sourcing, manufacturing and sales. Apart from leveraging the production capacity of Home Group, we can establish production lines for reclining sofas more quickly based on the existing manufacturing premises in Eastern Europe. Through the benefits accruing from this alliance, we are confident of seizing the business opportunities and strengthening Man Wah’s leading position in both the Europe and China markets in the future.”

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