Competitive Barriers across Multiple Dimensions Focusing on “Innovation, Efficiency, Quality, And Sustainability”
Joint Venture VS China Gains Significant Momentum and Continues to be a Growth Engine in the Medium to Long Term
Regina Miracle International (Holdings) Limited (Regina Miracle or the Company, together with its subsidiaries, the Group) (HKG: 2199), a leading global intimate wear company boasting an innovative design manufacturer (IDM) business model, has announce its annual results for the year ended 31 March 2023 (the year under review or Fiscal 2023).
During the year under review, the threat from the global pandemic receded, thereby facilitating the resumption of trade and logistics, as well as the development of diversified consumption scenarios. As a result, the Group achieved the best business performance in its history in the first half of Fiscal 2023. Nevertheless, the impact of global economic uncertainty led to greater volatility in the latter half of the year under review. Between the wax and wane of the first and second halves of the year under review, the Group recorded revenue of approximately HK$7,879.3 million (Fiscal 2022: HK$8,346.7 million), representing a year-on-year decrease of 5.6%. Gross profit decreased by 7.0% to approximately HK$1,902.1 million, with gross profit margin decreasing by 0.4 percentage points to 24.1% (Fiscal 2022: HK$2,045.4 million and 24.5%, respectively). Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased by 1.8% to approximately HK$1,310.0 million, with EBITDA margin increasing by 0.6 percentage points to 16.6% (Fiscal 2022: HK$1,333.8 million and 16.0%, respectively). The Group recorded a net profit of approximately HK$383.3 million for the year under review, representing a year-on-year decrease of 26.4%, with net profit margin decreasing by 1.3 percentage points to 4.9% (Fiscal 2022: HK$520.7 million and 6.2%, respectively). Basic earnings per share attributable to owners of the Company was HK31.3 cents (Fiscal 2022: basic earnings per share of HK42.5 cents). Excluding one-off expense items, adjusted EBITDA decreased by 0.2% to approximately HK$1,385.4 million, and adjusted EBITDA margin increased by 1.0 percentage point to 17.6% (Fiscal 2022: HK$1,388.8 million and 16.6%, respectively). Adjusted net profit was approximately HK$458.7 million for the period, representing a year-on-year decrease of 20.3%, with adjusted net profit margin decreasing by 1.1 percentage points to 5.8% (Fiscal 2022: HK$575.6 million and 6.9%, respectively).
During the year under review, the Group’s financial position was sound, with net current assets increasing to approximately HK$1,585.6 million (Fiscal 2022: HK$1,519.4 million). As at 31 March 2023, its total undrawn banking facilities amounted to approximately HK$3,783.6 million (31 March 2022: approximately HK$2,371.0 million). In order to share these fruitful results with shareholders, the Board has resolved to recommend a final dividend of HK1.8 cents per share for Fiscal 2023 (Fiscal 2022: HK7.2 cents per share), which together with the interim dividend of HK8.5 cents per share, makes a total dividend of HK10.3 cents, in line with the Group’s dividend policy of distributing no less than 30% of its net profit for the financial year.
Mr. YY Hung, Chairman, Chief Executive Officer & Executive Director of Regina Miracle, said, “As industry consolidation looms and mainstream markets undergo a destocking cycle, we recognize that striking a balance between risk and development is the key principle in surmounting current industry challenges. We have therefore continued to strengthen our competitive barriers across multiple dimensions focusing on ‘innovation, speed, quality and sustainability’. We have also maintained acuity in responding to market changes and have joined hands with partners to achieve breakthroughs. Meanwhile, the Group has been actively developing the thriving PRC market, and the establishment of a joint venture (‘VS China’) between the Group and Victoria’s Secret & Co. (‘Victoria’s Secret’) is one of our key initiatives. By leveraging our IDM capabilities and in-depth understanding of Chinese consumers, as well as the brand recognition of Victoria’s Secret, we have initially established a profitable business model that will generate tremendous synergies with our existing IDM business in the PRC market, creating a medium to long-term growth engine for the Group. By adhering to an IDM business model over the years, Regina Miracle has been able to navigate through various macroeconomic and development cycles. Our commitment to innovation has allowed us to expand our business both vertically and horizontally, enabling us to collaborate with our partners and establish a leading position in the industry. Although the second half of the fiscal year presented numerous challenges to the operating environment due to macro factors, the Group was able to withstand the market changes and maintain steady business development by leveraging our leading innovative research and development capabilities, solid strategic partnerships with brand partners, and the multiple advantages of scale, stability and flexibility of our Vietnam production base.”
BUSINESS REVIEW
The Overall Performance of Intimate Wear Segment Remains Stable, Product Value Enhanced through Leading R&D Capabilities and Innovative Technologies
During the year under review, this business segment contributed revenue of approximately HK$4,424.8 million (Fiscal 2022: HK$4,716.0 million), a year-on-year decrease of 6.2% and accounting for 56.2% of the total revenue, and remained the Group’s main source of revenue. The segment’s gross profit decreased by 6.8% to approximately HK$1,108.4 million, with gross profit margin decreasing by 0.1 percentage points to 25.1% (Fiscal 2022: HK$1,189.2 million and 25.2%, respectively). The weakened global economy further dampened consumer sentiment, and intimate wear, being part of the general consumer goods, was inevitably impacted. Despite the sales from major brand partners in the US market recorded relatively significant declines, the overall performance of intimate wear business remained stable thanks to the stable growth of major brand partner in the Japanese market as well as the new contributions of sales from VS China. However, drawing on its industry-leading R&D capabilities and innovative craftsmanship, the Group continued to implement its strategies of differentiation and sub-category expansion, while putting effective product quality management in place, thereby striving to create excellent product value through continuous innovation and quality improvement, as well as consolidating its partnerships with existing brand partners.
Sports Products Segment Remains Resilient with Revenue up over 10% year-on-year and a Diversified Product Matrix Resulting in High Development Prospects
This business segment contributed revenue of approximately HK$2,436.3 million during the year under review (Fiscal 2022: HK$2,190.7 million), representing a year-on-year increase of 11.2% and accounting for 30.9% of total revenue. The segment’s gross profit was approximately HK$566.5 million and gross profit margin was 23.3% (Fiscal 2022: HK$513.9 million and 23.5%, respectively). Sales of sport bras remained stable during the year under review, while sports leggings and sportswear were the main growth drivers for this business segment. The Group’s solid brand partnerships supported growth in different categories amid short-term business fluctuations as the three leading core technologies accelerated the R&D of new products. Meanwhile, sports leggings maintained strong growth momentum thanks to a diversified brand partners base and product matrix.
Digital and Intelligent Production to Reduce Costs and Increase Efficiency, with a Multi-Regional Footprint to Respond Flexibly to Market Changes
To respond rapidly to the demand from its domestic and international brand partners, the Group is committed to enhancing its production capacity, reducing costs and improving efficiency, thereby achieving explosive power of the production capability and economies of scale. The Group continued to optimize its production processes through four key initiatives, including manufacturing automation, management digitalization, improvement on its staff’s efficiency and supply chain localization, to improve production efficiency and product quality, while enhancing employee’s skills and reducing costs. The Group’s longstanding collaboration and continued rapport with its brand partners are instrumental in enhancing production efficiency and ultimately increasing gross profit margins. Furthermore, the localization of its supply chain is conducive to further shortening response time.
Vietnam accounted for 85% of the Group’s total revenue as of 31 March 2023 as it has played an increasingly important role as the main production base for Regina Miracle. In response to the decline in export orders in the second half of Fiscal 2023, the Group has temporarily suspended local recruitment in Vietnam since last September and made appropriate optimization of its local workforce structure, reducing the number of employees from a peak of more than 39,000 last year to approximately 31,600. It also adjusted production units and operating hours to promote workforce utilization rate. In addition, the Group has further implemented localization of personnel, with local employees accounting for 98% of the workforce. Meanwhile, in Mainland China, the Shenzhen production base employed approximately 5,100 staff members. Furthermore, construction of the first phase of the Group’s production base in the Zhaoqing New District Industrial Park is well underway as planned, and will commence operations and production in phases in the current fiscal year. It is expected to create effective synergy and collaboration with the Shenzhen production base.
VS China Joint Venture Sees Rapid Growth in the PRC and Records Profit in its First Quarter, Maintains Positive Momentum to Support a Virtuous Cycle
Benefiting from Regina Miracle’s customized supply-side and product-side mechanisms for e-commerce consumption scenarios, VS China has been able to fully capture the opportunity presented by the booming e-commerce channel just one year after [its completion/establishment], and has significantly improved its operating performance and further restored its profitability. Its operating revenue amounting to HK$1,344.2 million in Fiscal 2023 of the Group (2022/4-2023/3). In particular, profitability started to achieve significant improvement in the second half of the year, turning around a loss to profitability.
The Group has made notable progress in its integration with the VS China team. The differentiated products jointly developed by the two parties swiftly entered the market and opened up prospects by leveraging the e-commerce channel that was the focus of development and has seen rapid growth in the past year. In addition, integrated and seamless communication, as well as the agile supply mechanism, have effectively amplified the unique advantages of the e-commerce channel. As a result, the synergies created have reinvigorated VS China’s growth. The Group is confident of driving VS China’s continued growth and profitability in the future through the dual channels of e-commerce platforms and offline stores, and utilizing it to drive the growth of relevant IDM business between the Group and VS China, acting as a growth engine for purchase orders.
WHILE DESTOCKING OF BRAND PARTNERS CONTINUES, REGINA MIRACLE’s DIVERSIFICATION STRATEGY OF “PRODUCTION BASE, END-MARKET, PRODUCT CATEGORY” REMAINS INTACT TO DRIVE POSSIBLE PERIOD-ON-PERIOD IMPROVEMENT IN OVERALL BUSINESS PERFORMANCE
As it enters Fiscal 2024, the Group expects the factors that suppressed order demand in the previous fiscal year, such as high inflation and brand partners’ inventory pressure, to gradually ease, which will drive a slight period-on-period improvement in revenue in the first half of the year and a further return to year-on-year and period-on-period growth in the second half of the year. Continued strong demand for innovative products in the United States and Europe markets, coupled with ongoing supply chain concentration by brand partners and thus their strengthened strategic partnerships with industry-leading supply chain companies with outstanding R&D capabilities, will also provide strong support for the Group’s recovery from the downturn in the second half of Fiscal 2023.
Consolidate Human Resources and Strengthen Efficiency and Competitiveness through Continued Investment in Digitalization amidst Industry Cycle
While focusing on craftsmanship advancement, Regina Miracle has always been committed to innovation in production models and equipment, continuously improving automation levels and significantly reducing the use of labor in production process. These have opened up a wide room for improving productivity and flexibility. The Group will continue to reduce manual intervention and thus costs while increasing efficiency per employee through digitalized data management, production craftsmanship templating, streamlined production processes and automation of production operations. Based on the results of current internal efficiency enhancements, if the sales volumes return to the peak level seen in the first half of Fiscal 2023, the Group expects to maintain the same level of production scale with approximately 20% less manpower, reflecting the effectiveness in its production efficiency improvements and competitiveness. The cost structure can then be further optimized and the gross profit margin is expected to improve. The Group has also developed a five-year digitalization roadmap with clear implementation targets to maintain and strengthen collaboration and integration with its strategic brand partners in the field of digitalization.
Drive the Expansion of Products from Intimate Wear to Outerwear Riding on the Three Core Technologies
Over the years, the Group has adhered to the IDM business model based on three core technologies and developed a series of diversified technology matrix. Among them, the latest diversified seamless bonding technology enjoys a leading advantage in the market, opening up a novel and unique development path that is different from the traditional sewing processes. The Group will continue to strengthen the promotion of this new technology among existing and new brand partners, striving to gradually expand its application scope from intimate wear to outerwear, further enriching the Group’s product portfolio and expanding into a broader market. For example, in pursuit of better economies of scale in production, the Group has taken the initiative to terminate its cooperation with its existing footwear brand partner. With regard to the production space and capacities released by this termination, the Group will strategically redeploy them to the seamless bonding apparel business. The Group is confident that this category will add momentum to our business performance.
Regina Miracle’s own leading position in the intimate wear segment and further success in different products such as sports bras and sports leggings show that its core technological craftsmanship can be effectively applied to a wide range of scenarios, support a variety of functions and meet the positioning and needs of different brand partners. This will help replicate one product’s success to different fields, thereby creating a sustainable and efficient growth trajectory in the long run.
Leverage VS China to Expand Market Share in China and Diversify Income Streams Geographically
As part of its strategic deployment to expand market share in China, the Group’s joint venture VS China has initially established a profitable business model since the launch of its joint venture VS China last year by leveraging its IDM capabilities and its understanding of Chinese consumers, coupled with the brand recognition of Victoria’s Secret in the market and a series of strategic measures such as operation optimization and product differentiation. The gradual recovery of the overall retail market in China since this year drove the gradual restoration of offline channel business, and the rapid growth of VS China’s online business have given a tremendous boost to its overall profit improvement. VS China has achieved profit from in the joint venture in the first quarter of Fiscal 2024, and with the implementation of more initiatives to improve business performance, profits are expected to increase further in the next fiscal year. Meanwhile, the business growth of VS China also drives the corresponding IDM business of the Group, which becomes a medium to long-term continuous growth engine for the Group.
In addition, the Group has gained a better grasp of domestic market trends and will continue to optimize the process to build a more adaptable and flexible supply chain mechanism, take advantage of the industry reshuffling cycle to gain shares of cooperation with domestic brands and expand revenue from the Chinese market.
Relocation of Zhaoqing Base Well Underway to Create Synergy with Shenzhen Base
In accordance with the plan to optimize the production layout in China, the Group will relocate its domestic production base to the Zhaoqing New District Industrial Park in the Greater Bay Area, and will complete the first phase of relocation, which involves the production of consumer electronics components, in August this year. In the next two years, apart from retaining the essential functions of the Shenzhen factories, the relocation of other related production units will be completed in phases to ensure a smooth transition of production capacity. The relocation plan will incur a one-off seniority compensation for employees, which will be paid by the Group in phases as the relocation progresses.
The new production base in Zhaoqing has highly automated and digital production facilities, which will greatly improve the overall production efficiency. With the expanded scale, the Group can better support the huge local production demand for the fast-growing domestic business, and shorten the lead time to shorten the lead time to fulfill speed orders. This will facilitate the cooperation with international brand partners in their strategy to develop the PRC market and attract more quality domestic brand partners.
Fulfillment of Corporate Responsibility and Extensive Recognition for the Continuous ESG Efforts
Recognizing the importance of environmental, social and governance (“ESG”), Regina Miracle has set clear sustainable development goals under the “2030 Sustainable Development Agenda” in the four areas of carbon reduction, waste management, sustainable innovation, and people and community. The Group’s investment in ESG has been widely recognized. Mr. YY Hung, the Group’s Chairman, Chief Executive Officer and Executive Director, was named by Forbes China as one of the “2023 Greater Bay Area Best 30 ESG Entrepreneurs”, demonstrating the outstanding performance of the Group and Mr. Hung in terms of “corporate leadership”, “industry foresight”, “innovation” and “personal influence”. In addition, the Group received five awards – the “Best IR Company”, “Grand ESG Award (Small Cap)”, “Best ESG (E)”, “Best ESG (S)” and “Best ESG (G)” from the Hong Kong Investor Relations Association this year. What’s more, the Group was once again named as one of the “Top 100 Sustainable Business in Vietnam”, and also received the “Women’s Empowerment Principles” award from UN Women and the Vietnam Association of Women Entrepreneurs in 2022 and the third prize in the “Gender Equality in the Workplace” program. Going forward, the Group will continue to integrate environmental and social responsibility into management decisions, daily operations and corporate culture to promote comprehensive sustainable development and create long-term value for all stakeholders.
Mr. Hung concluded: “Despite the challenges we have faced over the last fiscal year, Regina Miracle managed to make steady progress by adhering to the IDM business model and staying agile. In light of the present circumstances, we are aware that some of our brand partners are making progress in destocking in their overseas market deployment. Therefore, we are actively seizing the opportunities arising from the supply chain consolidation of core customers, while coordinating the front-end marketing and back- end production of “VS China + Domestic Base” to firmly expand our market share in the PRC, thereby gaining a broader scope for development. At the same time, we are committed to further expanding our product categories based on our three core technologies to offer a wider range of products and consolidate our leading market position. We will continue to monitor industry trends and optimize our business model and capacity allocation strategies according to market demand. Furthermore, we will strengthen communication and cooperation with all partners in the supply chain and leverage our close working relationships with them to navigate future challenges and opportunities, and take the lead to drive industry transformation. With our strategies adapted to industry trends, we anticipate that Regina Miracle’s business essentially bottomed out in the fourth quarter of the current fiscal year and is expected to bring business growth momentum in the first and second quarters of the new fiscal year, achieving half-on-half improvement for the first six months. We will maintain the spirit of openness, innovation, cooperation and win-win, strengthen internal management and external cooperation, enhance our strength and competitiveness, striving for business recovery, while making comprehensive preparations for better future development. Last but not least, I would like to express my sincere appreciation to all colleagues for their hard work and dedication, and our brand partners and supply chain partners as well as investors for their tremendous support and enduring trust, which have enabled Regina Miracle to bring a diverse cross-category product offering to our brand partners and consumers and create long-term value for shareholders and stakeholders.”
About Regina Miracle International (Holdings) Limited
Founded in Hong Kong in 1998, Regina Miracle International (Holdings) Limited is a global leader in the intimate wear manufacturing industry. By adopting an innovative design manufacturer (“IDM”) business model and building on a diverse technology matrix with three core technologies: computer aided mold design and production, 3D compression molding, and seamless bonding, Regina Miracle is able to develop and produce market-leading products for its long-standing world-renowned brand partners which cover various key sectors comprising intimate wear (including bras, panties, shapewear) and bra pads, sports products (including sports bras, functional sports apparel), consumer electronics components, and footwear, and facilitate cross-sector and cross-category applications.