Royale Furniture profit up 50.8% to HK$90.5mn

Unique growth strategies and expansion plans boosted revenue and profit growth.

Leading PRC furniture designer, manufacturer and distributor Royale Furniture Holdings Limited (“Royale Furniture”) announced an outstanding interim results for the six months ended 30 June 2011.

For the six months ended 30 June 2011, the Group’s revenue achieved a healthy growth of 30.7% to HK$712.2 million attributable to its unique growth strategy. Gross profit rose by 40.3% to HK$223.7 million driven by the improved gross profit margin at 31.4%. Thanks to rigorous cost management policies exercising stringent control over selling and distributing and administrative expenses, profit attributable to equity holders surged by 50.8% to HK$90.5 million and net profit margin improved further to 12.7%.

The Board of Directors has recommended the payment of an interim dividend of HK3.0 cents per share for the six months ended 30 June 2011.

Mr. Jackson Tse, Chairman of Royale Furniture, said, “Even though the tightened monetary policy and inflation have dampened the ever-growing appetite of Chinese consumers and demand for home furniture to a certain extent, with effective growth strategies and stringent cost control policy in place, we managed to sustain satisfactory growth in revenue and profit in the first half of 2011. Moreover, it is encouraging to see that both our franchise and self-operating stores maintained healthy same store sales growth over the period.”

During the period under review, the Group’s business has been growing across many fronts. As a major business strategy, the expansion of same store sales amongst franchisees and self-operating stores was able to keep up with the overall same store sales growth rate of 2010. As at 30 June 2011, the Group had a total of 1,990 specialty stores in China, comprising 1,853 franchise stores and 137 self-operating stores.

The Group has implemented a distribution strategy of multiple franchisees within the same city since 2011. This differs from the past when each franchisee had an exclusive dealership of all product series within that city which sometimes resulted in many product series not being available-for-sale. This new growth strategy enables the Group to accelerate opening of more stores as well as ensuring the availability of more products series, ultimately boosting sale. Leveraging the successful “Sofa Week” promotion last year, the Group launched “Royal Sofa” specialty stores that received enthusiastic responses from franchisees across various regions.

The Group has been actively planning for the two new production facilities at Tianjin Municipality and Jiangxi Province to come on stream in 2012, while it also expanded existing production facilities to get well-prepared for the demand of the peak sales period later this year. In terms of management capabilities, the Group recruited experienced senior executives who brought to the Group new management insights and bolstered the professionalism of its operational management. Certain new team heads have formed a sales operations sub-committee which enables a proactive and timely fine tuning of the Group’s sales policies and marketing activities. Subsequent to the Beijing 2008 Olympic Games, the Group won the contract as the sponsor of furniture products to the 26th Summer Universiade (the “Universiade”) to be held at Shenzhen in August 2011. The Universiade serves as a major warm-up competition for many of the world’s top athletes before the London 2012 Olympic Games. All of the specifically ordered products have been produced and delivered to the Universiade sites in July and August.

Looking ahead, the Government’s restrictive monetary measures have adversely affected the furniture industry in the first and second tier cities; however, its intention to build 10 million units of affordable housing in 2011 provides significant business opportunity for the Group. In addition, due to the urbanisation policy in China, millions of households will be migrating from rural villages into the county townships or the fourth tier cities, implying a continuous demand for furniture products in these cities, according to a Royale Furniture report.

“Seeing both challenges and opportunities head, we are cautiously optimistic about our business in the foreseeable future. Our product penetration strategy enlisting multiple franchisees in each city will definitely assure the continued expansion of the store network, while the recently launched ‘Royal Sofa’ sales channel will become another growth driver. We will continue to strive for the best performance, aiming to bring satisfactory returns to shareholders,” concluded Mr. Tse.