Mr Paul Cheung Kwok Wing, Chairman, Kingboard Chemical Holdings said: "I am glad to report to our shareholders that the Group posted respectable performance amidst a few challenges occurred in the six-month period to June 30 2003. On the macro front, the electronics industry, although most participants were convinced that the cyclical bottom was passed through, did not show many signs of sustained rebound. In addition the Iraqi war followed by SARS outbreak did not help the industry's recovery either. Fortunately they did not have any material impact on the Group's operations other than causing some brief delays in the progress of our expansion."

Pre-tax margins were down to around 12% owing mostly to seasonality and two other temporarily adverse factors: increased material costs and start up losses of new printed circuit board plants. As the Group changed its financial year end from March to December last year, the comparatives which covered the six months ended 30 September 2002 did not reflect the traditional reduction in manufacturing outputs during the Chinese New Year festival but contained higher sales in the seasonally strong quarter ended September.

In the laminate segment, despite the lack of a strong demand recovery, Kingboard Chemical was able to achieve around 20% growth of volume sales over the corresponding six months period. The surge in the costs, on the average of 15-20%, of the raw materials including copper, pulp and chemical products, had exerted heavy pressure on the laminate's EBIT (earnings before interest and tax) margin. However the Group once again was able to successfully contain the adverse conditions with a 2-3% modest increase of laminate prices in March, further increased economies of scale, strategic locating of new production to the low cost area and the successful introduction of value-added drilling services. The EBIT margin, as a result, fell marginally to around 14%.

The chemicals segment not only kept providing a reliable supply for internal consumption, but also managed building a strong franchise in the market with over 300 customers. External sales of formalin and hydrogen peroxide were up by around 30% by volume from the corresponding six-month period last year and, in dollar terms, represented around 63% of the chemicals output. However EBIT margin was also adversely impacted by increased material costs, down to around 8% from over 10% a year ago. In particular methanol, the major raw material for both formalin and hydrogen peroxide, had its price up over 40% on a year on year basis.

The printed circuit board (PCB) segment achieved volume growth exceeding 20%. Unit selling price decline was about 5% but started to slow down in the period under review. EBIT margin was also hit by the increased costs of materials including laminates and chemicals as well as start up losses incurred in the new production plants. These plants were completed in late 2002, and the progress of their ramping up was slightly affected as customers were unwilling to travel to China for plant visit during the outbreak of SARS. Excluding the start up losses EBIT margin was sustained at a healthy level above 10%.

Mr Cheung continued: "We are fully committed to investing for the Group's future. Our core competence in all three segments, laminates, printed circuit boards and chemicals, provides our shareholders with an extremely attractive growth and return potential long term. Although the lack of order visibility beyond a couple of months prevents me from making a sales growth projection into next year, the current quarter is seeing strong demand for laminates and printed circuit boards."

The laminate order book for the next couple of months is exceeding the Group's capacity and unit prices are on the uptrend. Hence the Group is in the process of increasing the monthly capacity by over 20% to around 6 million square meters by the middle of 2004, a production capacity being unparallel in the industry.

The Group is also prepared to install more production lines in the new PCB plants should demand be proven sustainable. "Anyway most of our eyes are now on a conditional offer recently made by the Group to acquire Suwa International. It has a good reputation of production capability and possesses a solid customer list for its board products for mobile handsets. This acquisition, if successful, will fill in our existing gap for the telecom market and become a significant step forward in our strategy roadmap," explained Mr Cheung.

The Group is developing capabilities for producing a range of new chemical products. We have recently commenced producing tetrabromobisphenol-A ("TBBA") with an annual capacity of 10,000 tones. A coal-based methanol plant with an initial capacity of 120,000 tones per annum in the Hebei province is under construction and scheduled to be completed by the end of 2004. In addition the Group has just reached an agreement with Hengyang City People's Government in the Hunan province to acquire a caustic soda plant with an annual capacity of 30,000 tones. Together with the plant's upgrading the acquisition costs the Group around RMB40 million.

The financial position of the Group remained healthy. As at June 30, 2003, net current assets and current ratio were approximately HK1,209 million (December 31, 2002: HK$940 million) and 1.86 (December 31, 2002: 1.69) respectively. The net working capital cycle had improved from 132 days (December 31, 2002) to 125 days.

In May 2003, the Group received net proceeds of approximately HK$380 million on the issuance of 60 million new shares to institutional investors. As a result, the ratio of interest bearing borrowings net of cash to shareholders' funds improved to 36% (December 31, 2002: 49%). The balance between short term and long term bank borrowings was 25%:75% (December 31, 2002: 31%:69%).

About Kingboard Chemical
Kingboard Chemical Holdings Limited (SEHK: 148) is one of the world's largest manufacturers of laminates, operating more than 20 plants in China, vertically integrated with in-house capability for the production of copper foil, paper, glass yarn, glass fabric, formalin, epoxy resin and hydrogen peroxide. The Group has recently been named for the third consecutive year by Forbes Global as one of "The World's Best 200 Small Companies".

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