Knitted fabric and dyed yarn production remained the Group's principal business line contributing HK$910 million, or 71% of consolidated turnover. Segment turnover grew 86% mainly as a result of the commencement of yarn dyeing operation since late August 2003. Equipped with the most advanced machineries, the yarn dyeing facility increased monthly production capacity from 4 million to 5 million pounds in September 2004. The facility also helped advance the Group's competitiveness by providing comprehensive and quality services to customers.

Knitted fabric production also sustained strong growth in the first half, due to improvements in production efficiency and product quality, as well as dedicated new business and market developments. With investments in state-of-the-art machineries, the Group was able to double the monthly capacity of its Xinhui factory from 6 million to 12 million pounds from October 2004. The strong order book points to sustained growth momentum for this business segment.

In the face of severe power shortage, the Group has planned well ahead with its second coal-fired facility in the Xinhui factory premises commencing operation in late August 2004. The new coal-fired facility, with an output more than doubling the existing one, not only helped stabilize power supply for production plants but also further reduce fuel costs.

The garment trading business continued to contribute to both turnover and profit growth. Segment turnover, accounting for 29% of total, achieved a 19% growth to HK$374 million. Price competition was keen resulting in a slight drop in profit margin during the period.

Mr Chen Tien Tui, Managing Director of Victory City International, noted: "The abolishment of garment quotas amongst the World Trade Organization members with effect from 2005 will undoubtedly bring changes to the entire garment and textile industry. Our garment trading arm is well prepared to encounter new challenges and to capture new business opportunities ahead."

To defend its long-term competitive position, the Group has rolled out a 5-year business expansion plan including upstream and downstream integration as well as further strengthening of existing core businesses.

Mr Andy Li, Chairman of Victory City International added: "Our Group has decided to move downstream into garment manufacturing in a bid to pro-actively capture opportunities arising in the new quota-free era. Production facilities would be established in China and other offshore countries. We have already engaged a new management team with solid experience in garment manufacturing, merchandising, marketing as well as logistic services. Our 5-year plan also earmarked the establishment of a yarn spinning factory to stabilize the supply of quality raw yarn."

On December 2, 2004, the Group concluded a syndicated loan of HK$688 million from 27 banks. Part of the proceeds will be used to refinance a previous syndicated loan of HK$288 million to reduce finance costs.

Mr Chen continued: "We are cautiously optimistic of our performance in the second half as our business developments are on the right track on the back of our strong vertical set-up from yarn spinning and dyeing, knitted fabric manufacturing to garment manufacturing and trading."

Financial Highlights

	Six months ended September 30,
	2004	2003
	HK$ '000	HK$ '000
Turnover	1,284,432	802,863
Profit from operating activities	125,996	91,243
Net profit attributable to shareholders	102,964	73,065
Earnings per Share
- Basic	HK18.4 cents	HK14.8 cents
- Diluted	HK18.2 cents	HK14.5 cents
Interim dividend per share	HK5.5 cents	HK4.5 cents

About Victory City
Victory City International Holdings Limited (SEHK: 539) is one of Hong Kong's major manufacturers of knitted fabric with production facilities in Xinhui City, Guangdong Province covering an area of approximately 10 million square feet. The Group is principally engaged in the 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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