Mr Li Ming Hung, Chairman of Victory City International, said: "It is particularly notable that our encouraging results were achieved against the backdrop of various unfavourable conditions including the Iraqi war, outbreak of Severe Acute Respiratory Syndrome, as well as substantial escalation of cotton price and fuel costs."

Turnover of the Group's core business segment - knitted fabrics and dyed yarn - gained 43% year on year to reach HK$1,091,100,000, fueled both by the enhanced production capability and dedicated marketing efforts. Part of the business growth was derived from new customers in Taiwan, South Korea, Bangladesh, Singapore, Mainland China and the local market. The Group's is confident that the strong order book will sustain into the coming years.

Another contributing factor for the Group's turnover increase was the establishment of its new yarn dyeing operation in August 2003. The new facility, with an investment of over HK$150 million, commands a monthly capacity of close to 4 million pounds. Although the dyeing plant is still in its inaugural phase of operation, it has begun to contribute to group turnover and profit since the second half of fiscal 2003/04.

Gross profit margin of the segment was further improved from 23.5% in 2002/03 to 24.3% of the current year. "Apart from driving turnover growth, our management's focus is also to enhance business fundamentals, operational efficiency and effectiveness and cost control. In light of the abrupt rises in prices of cotton and cotton yarn since last September, we have decided to increase inventory and conclude contracts with suppliers at the early stage of the price upsurge. Adjustments in selling prices, coupled with cost control measures, expansion of economies of scale and full utilization of the coal-fired power generation facility, have been effective in defending our gross margin." noted Mr Li.

The Group's downstream integration into garment trading since 2001 has also proved to be a successful diversification. Turnover of this business segment, which accounted for 36% of overall revenues, gained 29% year on year to HK623,700,000. In addition to buyers in the USA and Canada, who enjoyed this value-added service through the landed-duty-paid programme, new orders were received from customers in England, Ireland, Europe and Japan. The operation managed to maintain a steady profit margin amidst keen competition. This vertical expansion has also helped the Group better serve its customers by providing comprehensive, high-quality and efficient services.

As at March 31, 2004, the Group had total assets of HK1,968,941,000 (2003: HK1,043,507,000). The Group's current ratio at the end of the reporting period was maintained at a comfortable level of 1.7 (2003:1.6), with gearing ratio at 51.1% (September 30, 2003: 53.5%).

Mr Li concluded: "Through years of dedicated efforts, we have established a vertical set-up from yarn dyeing, fabric knitting to sourcing and export of garments. To cater for future expansion of production lines, our second coal-fired facility in the Xinhui premises will be completed in July 2004 to double our power output. A new manufacturing facility will also become operational by September 2004 to boost capacity of knitted fabrics to 12 million pounds, further advancing our leading position in the textile industry. We are also well prepared to meet new challenges brought about by the abolishment of garment quotas among World Trade Organization member countries in January 2005. In addition to organic growth, will also continue to explore value-enhancing investment opportunities."

About Victory City
Victory City International Holdings Limited (SEHK: 539) is one of Hong Kong's major manufacturers of knitted fabrics with a 7-million-sq-ft production plant in Xinhui City, Guangdong Province. The Group's principal business operations include production and sale of knitted fabric and dyed yarn, and the trading of garment products.

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Victory City International Holdings Limited

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