According to Zhitong Finance App, Yongjia Group (03322) announced that during the year ended 31 December 2023, the Group's revenue from the sportswear production business decreased by about HK$1,017 billion to HK$1,888 billion (2022: HK$2,897 million), a decrease of 35%, mainly due to inventory backlogs due to falling consumer demand in various markets, which led to a decrease in customer orders received from the last quarter of 2022. As a result, although the Group has made every effort to reduce costs, production capacity utilization and operating efficiency have also declined. In view of the adverse effects of low utilization of production facilities, the Group has accrued impairment losses of approximately HK$23 million in respect of several production facilities. Furthermore, no sales proceeds of HK$55 million were obtained from the sale of land leases in Vietnam this year. As a result, it recorded an operating loss of approximately HK$190 million in the current year (2022: profit of HK$124 million).

However, after nearly a year of rectification, the Group's customers have greatly improved the problem of excessive inventory in a difficult economic environment. The Group notes that consumer demand in Western markets is rising, particularly driven by major sporting events, and that customer orders have regained momentum. On the date of this announcement, according to the company's current data, actual orders received from customers, and the latest order indicators, earnings for the first half of 2024 are expected to increase by more than 20% compared to the same period in 2023.

Revenue from the premium functional outdoor apparel production business decreased by approximately HK$75 million to HK$586 million (2022: HK$661 million), a decrease of 11%, mainly due to a decrease in orders received from the European market, but was partially offset by increased orders from the US and mainland China markets where profit margins are low. As a result, operating profit for the year was reduced to approximately HK$5 million (2022: HK$41 million).

After steady development over the past few years, the Group anticipates that its strategic partnership with a comprehensive sportswear enterprise group in the mainland China market will be further strengthened, and the Group will continue to expand the areas of cooperation with this enterprise group, especially with its internationally renowned brands. Furthermore, as of the date of this announcement, according to the company's current data, the Group anticipates that orders from an outdoor entertainment service company in the US market may increase further in response to its increasing consumer demand.

The continuing operating revenue of the haute couture retail business increased by about HK$81 million to HK$607 million (2022: HK$526 million), or 15%. After all COVID-19-related control measures were lifted in anticipation, there was a brief rebound in store traffic in early 2023, but customer demand remained weak as suppressed demand declined. As a result, the Group needs to continue to provide large discounts to stimulate customer consumption and clean up old inventory. However, gross profit contributions have been hampered, and the performance of some retail stores has also been adversely affected by high rental costs. In view of the adverse effects on retail store performance, the Group has accrued impairment losses of approximately HK$25 million (2022: none) on certain retail store assets. As a result, operating losses of approximately HK$45 million were recorded this year (2022: HK$57 million).

After an initial sharp rise in the first quarter of 2023, the mainland China market was readjusted, and customer demand was still weak. In terms of other markets, Hong Kong, China and Macau, China gradually recovered after customs clearance in mainland China, but the two places faced fierce competition from neighboring cities at the same time. The Group anticipates that the road to recovery will still be shrouded in uncertainties and difficult.

The Group was an authorized distributor of the “Champion” fashion brand in mainland China. Since “Champion” does not have exclusive distribution rights in mainland China, and the Group is not an online store operator for the brand in mainland China, it is extremely disadvantageous for the Group to compete directly with another distributor in the mainland China market. Furthermore, the removal of all COVID-19-related control measures in the mainland China market in the first half of 2023 did not result in a strong recovery in customer demand as expected. As a result, the Group has experienced huge losses in operating the “Champion” business in recent years.

Therefore, the Group entered into a sales agreement with a third party (also an authorized distributor of “Champion” in mainland China) to sell, transfer and replace the inventory and franchise store assets of the “Champion” fashion brand to that third party. Following the completion of the sale in December 2023, the Group has terminated the operation of the “Champion” franchise. The sale will result in the termination of the Group's “Champion” business losses and removal of old inventory. Furthermore, the net proceeds from the sale will bring cash inflows to the Group and improve and strengthen the Group's cash and financial position. As a result, we achieved a loss of approximately HK$120 million after tax this year (2022: loss of HK$58 million).

In the face of an extremely challenging environment, the Group's financial and liquidity position remains stable. As at 31 December 2023, the Group had cash and bank balances of approximately HK$209 million (2022: HK$370 million). After the end of the year, on January 31, 2024, cash and bank balances increased to approximately HK$285 million due to the receipt of part of the proceeds from the sale. As at 31 December 2023, the Group had net loans (bank loans and loans from subsidiaries' non-controlling interests net of cash and bank balances) of approximately HK$265 million (2022: HK$424 million), while the net debt-to-asset ratio (i.e. net borrowing divided by total equity) was approximately 18% (2022:23%).