The significant growth in turnover was mainly attributable to the Group's successful enhancement of customer portfolio with the addition of high-end clients, as well as the satisfactory performance achieved from the existing customers. During the year. the Group succeeded in soliciting a number of prominent name-brands to strengthen its customers base.
Mr. Augustine Chu, Chairman, Sino Golf Holdings noted, "Our focus on product innovation and research and development has resulted in significant increased sales to key customers during the year, and serves as a bedrock to sustain our long term growth. We are progressing along this direction to better serve our customers and further equip ourselves to cultivate business opportunities with other top tier golf companies."
Being traditionally the largest business segment, golf equipment sales continued to dominate and accounted for approximately 81.5% (2005: 82%) of the Group's annual turnover. Sales of golf equipment increased by about 33.6% to approximately HK$402.2 million of which about 58% were realized during the first half of 2006 taking into account the seasonal effect and some order rescheduling by customers during the latter part of the year. In consideration of the current order book status and a competitive market environment, the management maintains a cautious but confident view for a further strengthened golf equipment business going forward.
The reporting year witnessed the successful launch of the hybrid iron set program in the United States by the Group's largest customer, as well as significant growth on sales to a number of other customers. The Group is also well positioned to solicit business from other high profile new customers following the completion of the new production facility in Shandong Province, the P.R.C. during the latter part of 2007, and on the back of our capability to produce sophisticated high-end golf clubs and the ability to react swiftly to rapid market changes. Taking advantage of cheaper land and labor cost in Shandong Province, it is anticipated that the Group can achieve further cost savings when the new golf club facility commences operations.
During the first half of 2006, titanium plate and graphite sheets prices went up further and supply of graphite sheets was volatile and scarce. To secure uninterrupted production, the Group has opted for more direct components purchase, or for purchase of materials from customer-specified suppliers. The situation has somewhat improved as the material prices and supply began to stabilize during the latter part of the year. To optimize material cost and supply, the Group strategically stocked up selected key materials to help preserve product margins and to ensure materials availability for order fulfillment. The overall inventory level thus increased as a result.
The impact of such cost increases has been mitigated to some extent by sales price adjustments on new models and other cost control measures, but such price adjustments reflected mostly the cost increase and did not carry a meaningful profit margin. The overall increase in production overheads and the learning curve effect brought by the production of certain advanced new models further restricted the room to improve margins.
Sales of the golf bag segment increased by about 37.7% during the year to approximately HK$91.2 million, representing approximately 18.5% (2005: 18%) of the Group's turnover. The significant surge in golf bag segment turnover came as a result of the stepping up of production capability and the gaining back of orders lost in the preceding year due to delivery problems. Taking into account the current order book status and the competitive advantage of the Group, the golf bag segment is expected to grow continually at an uninterrupted pace.
The higher-margin Japan line of golf bags continued to dominate and took up over 60% of the segment sales, with strong momentum expected for the coming period with businesses secured by the Japanese partner. The SOE (Standard of Engagement) compliant status of the Group's golf bag facility has also helped generate new business. The Group possesses strong reputation in the golf bag industry and is now serving substantially all the major brand names in the golf bag sector. To cope with increasing demand, the Group has rented additional factory space of approximately 12,000 square meters near the existing golf bag facility to provide extra production capacity and to reduce subcontracting requirements.
During the year, major material prices for golf bags production like PVC, PU and nylon continued to escalate while the energy and overhead costs remained high. To combat the impact of price hikes, the Group will continue to expand the Japan line of golf bags that offer higher average margins and implement measures to uplift productivity and reduce wastages.
The Group's geographical spread has not changed materially throughout the years. North America continues to represent the largest geographical segment contributing approximately 68.6% (2005: 67.6%) of the Group's annual turnover. Other geographical regions comprising Japan, Europe and other countries contributed 15.3% (2005: 11.2%), 15.3% (2005: 6.8%) and 11.8% (2005: 14.4%) of the Group's annual turnover respectively.
As not uncommon in the golf industry, the Group conducts its business through a relatively small number of active key customers. The Group safeguards recoverability of trade debts by procuring non-recourse factoring or insurance on shipments to major customers. It also takes steps to ensure prompt collection of outstanding debts and regularly reviews the credit policies in accordance to the performance of the customers. With regard to the restructuring plan of Huffy Corporation, one of the Group's customers, the Group is entitled to receive a proportionate share of a promissory note and class B common stock against the debts that Huffy owes to the Group. It is considered that no material impairment in value of the debts unprovided for has happened and no further provision is required. Sales to Huffy Corporation during the reporting year amounted to approximately HK$11 million which was timely settled and covered by insurance.
Total shipments during the first quarter of 2007 amounted to HK$112 million (1Q2006: HK$113 million), comprising golf equipment and golf bag sales of HK$73 million and HK$39 million respectively.
Financial Highlights| 12 months ended December 31, | ||
| 2006 | 2005 | |
| HK$ '000 | HK$ '000 | |
| Turnover | 493,376 | 367,257 |
 Golf equipment |
301,046 | 327,425 |
| Golf bags |
91,188 | 66,211 |
| Profit from Operations | 55,317 | 44,037 |
| Net profit attributable to equity holders | 33,315 | 31,560 |
| Dividend per share | ||
| - Interim | HK3.3 cents | HK3.0 cents |
| - Final | HK3.0 cents | HK4.0 cents |
| Basic Earning per share | HK11.0 cents | HK10.4 cents |
| Diluted earnings per share | HK11.0 cents | Nil |
About Sino Golf Holdings Limited
Sino Golf Holdings Limited (HKEx: 361) is engaged in the design, development, manufacture and sale of fully assembled and packaged golf clubs, club heads, shafts and golf bags and accessories. Headquartered in Hong Kong and with production facilities in China, Sino Golf commands leading-edge in-house R&D capability supported by professionals from Japan and the United States. The Group has a staff of over 3,100 serving the production requirements of some of the world's major name-brands in golf accessories. For more information, please visit www.sinogolf.com.
Issued by : Through :
Sino Golf Holdings Limited
t6.communications limited
Jenny Lee or Angus Ho
tel: 2511 8388 / fax: 2511 8238
URL : http://www.t6pr.com
email: enquiry-at-t6pr.com (use "@" to replace "-at-")