The world's largest branded athletic and casual footwear maker, Yue Yuen Industrial Holdings Ltd, on Monday (19 June) posted a 15.1% rise in fiscal first-half net profit, despite rising production costs and an ongoing trade dispute with the EU.

Yue Yuen, a unit of Taiwan's Pou Chen Corp, said net profit was US$168.25m in the six months ending 31 March, up from US$146.23m in the same period the previous year.

The company, which makes athletics shoes for brands including Nike and Adidas at factories in China, Vietnam and Indonesia, reported a 16.2% rise in revenue to US$1.72bn from US$1.48bn.

Sales were helped by its core footwear unit and strong growth in the Greater China wholesale and retail business.

Sales of athletic shoes accounted for 59.1% of the total, compared to 62.2% last year. The decline in contribution from the core manufacturing operation was mainly due to accelerating sales from wholesale and retail operations, which accounted for 8% of total sales, up from 4.5% last year.

Turnover from wholesale and retail operations rose by 110.7% to US$138.0m. The company began its franchise operations in China in 2005, and at the end of March 2006 had more than 600 self-run and 200 franchised shops/counters in the country. It also had about 1,800 distributors for the three licensee brands - Converse, Hush Puppies and Wolverine - in the greater China region.

Yue Tuen said it produced a total of 96.6m pairs of shoes in the six month period, an increase of 6.9% over last year.

By the end of March 2006, the company was operating about 359 production lines, an addition of 17 lines over the last six months.

However, the company described the operating environment as "volatile" due to soaring fuel costs and increasing labour expenses. The firm relies on oil and petrochemical derivatives to make soles and linings. As a result, the Group's gross profit margin fell year-on-year by 0.8 percentage points to 23.4% during the period.

It also has to contend with anti-dumping duties imposed by the EU on Chinese leather shoes, starting from 4% in April and rising to 19.4%.

Looking forward, Yue Yuen says is intends to expand its production capacity to meet customer demand. But it cautions that mounting pressure from rising material costs and labor expenses is still expected.

"The Group will continue to quest for improvement in production efficiency and flexibility to mitigate the impact from rising production costs and the trade dispute," said Yue Yuen chairman Mr Tsai Chi Neng.

The company declared a first-half dividend of HK$0.29, an increase of 7.4% from HK$0.27 per share last year.