As golf bag sales, which generally carried a lower profit margin, accounted for a greater proportion of the Group’s turnover, the average gross profit margin was thereby diluted. Coupled with the impact of a general cost rise, the average gross profit margin declined from 27.1% (as restated) in 2006 to 25.4% for 2007. The Group has managed to mitigate the adverse impact of cost rises by improving output efficiency and administering more stringent cost controls, and through sales price increases for new product models.
The Group has successfully enhanced its customer portfolio by taking on new high-end name brands from the golf bag sector while maintaining a satisfactory relationship with the existing major customers in the golf equipment segment.
Mr. Chu Chun Man, Augustine, Chairman, Sino Golf Holdings said, “Material price hikes in recent years have intensified the competition in the golf industry, but our persistent focus on product innovation and service fulfillment has enabled us to outperform other competitors. It is our mission to provide customers with one-stop premium services with value added options. We have enjoyed unprecedented growth in the golf bag business during the past couple of years, and continued to take on new clients for the golf equipment business.”
The golf equipment business continued to be the Group’s largest business segment. Partly affected by a short-term consolidation in the first half of 2007, golf equipment sales, as a percentage of the Group’s annual turnover, has declined from 81.5% in 2006 to 71.9% for 2007. During the year, sales of golf equipment increased by about 1.4% to approximately HK$408 million (2006: HK$402 million) of which about HK$176 million or 43.3% was realized during the first six months, followed by a marked rebound in the second half year when the orders for new models were fulfilled.
The hybrid iron set program launched by the Group’s largest customer a couple of years ago continued to record success. The Group has also made good progress with certain prominent name brands. It is anticipated that trial orders from these targeted name brands are likely to commence within 2008.
Following the completion of the new Shandong golf club facility, the Group now possesses an enhanced platform designed specifically to meet the criteria for engaging in business with top tier golf clients.
Construction works had substantially been completed in 2007 and a partial trial production is scheduled for the end of April 2008. At 31 December 2007, the Group invested in aggregate HK$77.6 million in this new golf club facility project. At the initial phase of operation, the new golf club facility will start up mainly with the production of golf club heads. The shaft production and assembly operation will then follow during the second half of 2008. By that time, the monthly production is anticipated to reach 100,000 units. Production will further be stepped up in the following year to achieve the targeted monthly output of over 200,000 units.
Mr. Chu continued: “The new golf club facility comes at the right time and designates a key milestone for our Group through which we enhance our industry status to engage in business with potential top tier customers. It will also provide additional capacity to fulfill growing customer needs. It is projected that the relocation of bulk production will be completed within 2010. Taking advantage of the lower operating and labor costs in Shandong Province, it is expected that the Group will benefit from additional cost savings.”
Leveraging its SOE compliant operation and capability to produce high-end innovative products, the golf bag business continued to prosper and achieved record sales of HK$160 million in 2007, an increase of 75% year on year and accounting for 28.1% of the Group’s annual turnover. Both the Japan and non-Japan lines of products grew substantially during the year, with the higher-margin Japan line continuing to dominate segment sales. The SOE compliant status has qualified the Group to engage in direct business with top tier customers and help bring in additional business.
During the year, raw material prices and production costs including labor and energy expenses continued to escalate. As the Group received most of its revenues in United States dollars, the appreciation of the Renminbi further increased operating costs. Given that price revisions were generally not feasible once the terms had been fixed, the profit margins on committed orders were thus squeezed. However, the Group has managed to revise sales prices to recoup the cost increase when negotiating orders for new models.
To secure uninterrupted production for timely deliveries, the Group has opted for the purchase of some raw materials, such as graphite sheets for shaft production, direct from specified suppliers. Such direct components purchases have limited the room to incorporate additional profit margins. To mitigate the impact of cost rises and supply shortages, the Group has also strategically compiled inventories.
During 2007, the North American market continued to represent the largest geographical segment, contributing approximately 62.4% (2006: 68.6%) of the Group’s annual turnover. Other geographical regions including Japan, Europe and Other Countries generated about 16.5% (2006: 15.3%), 3.4% (2006: 4.3%) and 17.7% (2006: 11.8%) of total turnover respectively.
Shipments of the Group during the first quarter of 2008 amounted to HK$122 million (2006: HK$112 million), comprising golf equipment sales of HK$85 million (2006: HK$73 million) and golf bag sales of HK$37 million (2006: HK$39 million).
Financial Highlights| 12 months ended December 31, | ||
| 2007 | 2006 | |
| HK$ '000 | HK$ '000 | |
| Turnover | 567,668 | 493,376 |
 Golf equipment (external sales only) |
407,966 | 402,188 |
| Golf bags (external sales only) |
159,702 | 91,188 |
| Gross profit | 144,190 | 133,779 |
| Net profit attributable to equity holders of the Company | 41,810 | 33,315 |
| Dividend per share | ||
| - Interim | HK2.0 cents | HK3.3 cents |
| - Final | HK2.5 cents | HK2.2 cents |
| Basic Earning per share | HK13.8 cents | HK11.0 cents |
| Diluted earnings per share | HK13.8 cents | HK11.0 cents |
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 3,900 serving the production requirements of some of the world’s major name brands in golf accessories. For more information, please www.sinogolf.com.
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