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Maker of CHEERS Recliner Sofa Brand Reports 49.3% Sales Increase

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Man Wah Holdings Limited ("Man Wah" or the "Company", together with its subsidiaries the "Group", HKEx: 1999), a Chinese enterprise that manufacturers the "Cheers" brand of recliner sofas, announced its annual results for the year ended 31 March 2010 ("FY2010").

Financial Highlights

In FY2010, the Group's revenue surged 49.3% y-on-y to approximately HK$2,932.2 million (approximately 377 million USD). Net profit rose by 170.7% to HK$617.3 million. Gross profit margin increased 7.2-percentage point to 42.9%. Basic earnings per share were 85.1 HK cents, representing an increase of 169.3% as compared to the same period of last year. The Board of Directors recommended a final dividend of 16 HK cents per share. To reward shareholders for the sterling performance achieved by the Group, the Board of Directors has further recommended the payment of a special dividend of 6 HK cents per share. This brings the total payout of dividend to 22 HK cents per share, representing a payout ratio of 35%.

Cash Flow

By the use of successful business model and strategy, the Group's working capital cycle improved and decreased by 4 days to -10 days compared to the same period of last year. Cash flow generated from operating activities had increased by 86.4% to HK$ 606.2 million with bank balances and cash increased by 63.7% to HK$375.5 million as at 31 March 2010.

Business Review

"Man Wah has achieved an outstanding financial performance due to our strong branding and product differentiation. According to Euromonitor International, the recliner sofa industry was growing at a tremendous rate in the past 3 years in PRC and the Group leveraged on this industry growth momentum to grow at an even faster pace," commenting on the remarkable results, Mr. Wong Man Li, Chairman and Chief Executive Officer of Man Wah said.

In addition, our strong culture also played an important part in our growth. Man Wah's culture is built on the philosophy of "Partnership". We viewed customers and shareholders as our long-term partners. The Group focus on the long-term sustainability of the business rather than short-term gains in business volatility. This has allowed the company to create significant advantages that now support the growth. These include the followings:

Developing Leading Brand

The Group views branding as a key element in growing the Man Wah business. The Group has established "CHEERS" as the market leader in PRC reclining sofa sector with a 16.2% market share but the management is not resting on its laurels and has engaged global branding consultancy firm, Ogilvy & Mather to help the Group to create a world-class PRC brand. To better promote "CHEERS" brand in China, the Group has also retained Mr. Sun Hong Lei, a famous movie star in PRC as our brand spokesman. In US and Europe, there are series of promotion activities to brand "CHEERS" as an alternative to the market leaders. There are great successes as the Group expanded the market share in the US market rapidly over the past 3 years. "CHEERS" is currently the only Chinese brand in the top 10 of the North American recliner sofa market.

The company's mattress division reported that it is also committed in growing its premium "ENLANDA" brand in Hong Kong and China while "LAND" brand is also gaining popularity for its wood-based furniture.

Expanding Distribution Channel

As Man Wah's business grew, the important of controlling the brand image and positioning also became utmost important. The Group accelerated its retail expansion plans in China during FY2010 to cater a strong growing demand for "CHEERS" and "ENLANDA" products in China.

To ensure a balance between distribution channel expansion and brand image control, the Group decided on a 2-tier strategy whereby self-owned stores will be set up in Tier 1 cities such as Shanghai and Beijing while distributor stores for "CHEERS" and "ENLANDA" brands will be opened in Tier 2 and 3 cities. In addition, the Group also assisted in its comprehensive analysis on various site selections, store image designs and customer services to ensure a "FIRST CLASS" experience for all the customers. As "CHEERS" brand grew stronger in China, the Group targeted to set up 25 flagship stores in strategic locations across China to provide customers with more pleasant shopping environment and to enhance customers' satisfaction. As for retail stores, to date, the Group has 531 retail stores (312 CHEERS and 219 Enlanda) in China carrying "CHEERS" and "ENLANDA" brands.

Expanding Capacity

The Group believe in controlling the quality of products by having the production inhouse rather than outsourcing. With the completion of Huizhou facility in 2007, the total capacity has expanded to 516,000 units per annum, which allows the Company to expand the global sales and PRC domestic retail presence. The Group have plans to expand the Huizhou capacity to 816,000 units per annum by 2011.

Future Plans

It is not possible to move on from FY2010 without reflecting on the terrible economic beretting Europe, raising the prospects of another global recession. While this episode has brought out the doomsayers in full force, the Group tends to think positively and evaluate the opportunities that lie ahead of the Company.

The management believe that many of the factors that allowed the Group to grow successfully in the past will continue to persist in FY2011. So, the Group plan to continue to follow on the strategies that have brought success these years. The Group's focus is on long-term growth sustainability and the plans are to attend to all tasks meticulously to achieve this growth in Revenue, growth in EBITDA, growth in Net Profit, and most importantly, growth in shareholder value.

Mr. Wong said: "The hard work of our employees and successful business strategies from our management have led to a very outstanding FY2010 result. We have rapidly expanded our stores and invested in the advertising & promotion in FY2010 due to the growing consumer market in China. In FY2011, we will keep increasing our stores expansion to 669 combined with our aggressive advertisement strategy."

About Man Wah Holdings Limited: Established in 1992, Man Wah Holdings Ltd. is a home furnishing group, primarily engaged in the design, manufacture and sale of a broad range of mid to high-end recliner sofas (specialty sofas with features such as recline and footrests), which are sold through extensive distribution channels in Hong Kong and the PRC, and direct export to the international market such as U.S.A. and Europe under its well-known brand - "Cheers". Man Wah is the NO.1 recliner sofa manufacturer and retailer in the PRC and No.8 in U.S.A.

The "Cheers" brand had received the prestigious China Top Brand award in September 2007 from the PRC authorities. The Group currently operates two sofa and one bedding production facilities in the PRC. With the completion of Phase II of its Huizhou Daya Bay plant in December 2007, total sofa production capacity for the Group stands at 516,000 sofa sets per annum to meet the growing demand from its expanding clientele base.

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