Yue Yuen Industrial Holdings, the world's largest footwear manufacturer,
is being hit by a growing spiral of strikes at its factories in Guangdong province by thousands of workers and their rising demands for better social benefits and higher wages. The company is one of the major suppliers of Adidas, Nike and other important sports, outdoor and casual footwear brands. According to China Labour Watch, a non-governmental organization based in New York, the situation is evolving into the largest strike action in China in recent memory with the participation of a total of about 30,000 workers. According to other sources, the number of people on strike is more like 12,000.
Apparently, the wave of protests began around April 5 with a series of street demonstrations in Dongguan, where the company employs about 40,000 people. The protests developed into scattered strike action around April 14, and it turned more bitter and more widespread as the workers didn't accept Yue Yuen's proposals. The strike spread yesterday to a sister factory in neighboring Jiangxi, where about 2,000 workers clocked in but refused to work, joining about 10,000 colleagues in Dongguan. The latter factory works mainly for Adidas.
In Dongguan, the workers' demands are apparently escalating. They started off by asking the company to comply with its commitments for social security payments. In particular, they complained about their inability to cash in or transfer social insurance contributions after leaving the company. They have reportedly voiced concern that Yue Yuen may transfer a larger part of its production in Guandong province to the interior of China, where it already employs a similar number of workers.
After several days of protest, Yue Yuen agreed to make the overdue payments for social security and housing, starting on May 1, and added a monthly $37 cost of living allowance, but indicated that it may not be able to regularize the situation before the end of 2015. Independent labor groups have estimated the additional cost for Yue Yuen at between $11 million and $24 million a year.
However, according to Bloomberg News, the workers have rejected Yuen Yuen's proposals and are now asking for a 30 percent increase in wages and better contractual terms. More important perhaps, they are insisting for the right to negotiate new conditions with the management through their own elected representatives. They have reportedly asked Nike to put pressure on the management to reform labor union regulations in this regard.
Yue Yuen has admitted that the stoppages hav e led to a “significant distruption” to its daily production and that the additional costs incurred in satisfying the workers' demands “may have a material adverse effect on the financial performance of the Group,” which has not been flourishing lately.
YY had reported a 7.4 percent increase in consolidated revenues to US$1,835 million for the first quarter of this year, with a 12.7 percent increase for March alone, but it did not give any indications about its profitability.
For the financial year ended last Dec. 31, the group had provided more detailed figures a few days ago. The group's operating profit dropped by 2.4 percent to $430.8 million, excluding a non-recurring gain of $3,945,000, equal to an operating margin of 5.73 percent of sales, compared with 6.43 percent in the previous year. Increased personnel expenses led to an increase of 4.8 percent in the operating costs of the manufacturing operations. at the same time, cost control measures allowed the group to reduce the operating costs of its retail activities by 3.8 percent. Yue Yuen's share in the net losses of Pou Sheng declined by 47.8 percent to $5.9 million for the year.
The consolidated net income attributable to the company's shareholders amounted last year to $434.8 million, off by 7.1 percent from 2012.
The group's sales of casual and outdoor shoes rose a little faster than those of athletic footwear in the past year. Revenues from athletic footwear represented 50.3 percent of the total turnover, but they grew by only 2.7 percent to US$3,813.5 million, indicating that some of its clients are relocated their sourcing operations to other countries in spite of Yuen Yuen's transfer of a large portion of its Chinese production to a lower-cost inland region.
The group's revenues from casual and outdoor footwear rose in contrast by 9.7 percent to $1,356.8 million. Much lower revenues were realized from the sale of sports sandals – down 3.9 percent to $86.2 million – and from soles, components and others – up 2.9 percent to $599.6 million. The group's retail turnover, represented mainly by Pou Sheng, increased by 4.0 percent to $1,726.6 million.
All these figures are based on a pro-forma comparison between the 2013 financial year and the corresponding 12 months of 2012. Yue Yuen had decided in 2012 to change the termination of its fiscal year from September to December. On this same pro-forma basis, the group's total turnover increased by 4.1 percent to $7,582 million in 2013.
The volume of manufactured shoes went up by 1.1 percent to 313.4 million pairs, indicating a slight increase in average selling prices. There was a decline in the gross profit made on the manufacture of shoes for the international sports brands, as compared to the previous year, but the gross margin tended to improve from one quarter to the next. As a percentage of the total turnover, the gross margin for the year was down to 21.72 percent from 22.80 percent in the previous year.