During the period, the Group's gross profit margin for aluminum extrusion products decreased from 24% to 18% on the back of 14% increase in aluminum ingot prices. Dr Benby Chan, Deputy Chairman & CEO, Asia Aluminum explained: "Although we adopt a cost plus approach in pricing our products which protects our Group from exposure to risks associated with aluminum price fluctuations, we had taken the strategy to absorb part of the exceptional increase in costs of raw material and fuel during the first half in order to strengthen client relationship and further penetration for defined market segment."

China (excluding Hong Kong) continued to remain the Group's largest market contributing 83% of total revenues. Sales to North America also advanced significantly to 8% of Group turnover, up from 2% of first half 2002/03, as a result of closer sales collaboration with Indalex, increased direct sales in the market and improving market demand. The two core business segments, aluminum extrusion and panels and stainless steel contributed HK$1,159 million and HK$273 million respectively in revenues, or 80% and 19% of total turnover. Despite a very competitive operating environment, the Group achieved 2.4-times increase in sales of stainless steel products. Steady income of HK$17 million was derived from design and testing services.

Dr Chan continued: "Going forward, with a strengthened client relationship and a stronger platform, we are already experiencing margin recovery. The management aims to achieve further improvement with our scale expansion and value creation through both vertical and downstream integration."

In order to capture the continued increase in demand of aluminum extrusion products, the Group decided to accelerate its expansion plan to increase total aluminum extrusion capacity in phases from the existing 140,000 tonnes to 300,000 tonnes before the end of 2005. The establishment of a new production base "Asia Aluminum Industrial City" in Zhaoqing, Guangdong Province, is a major part of the Group's capacity expansion and integration objective. Overall design of the industrial city has been approved and construction work will commence forthwith.

Upon completion and smooth pilot operation of the new facilities in Zhaoqing, the Group will integrate its five factories currently in different parts of Foshan City, Guangdong Province, and relocate to a centralized site inside the industrial city. The move will facilitate the Group's cost-control and operating efficiency enhancement initiatives. This will enable the Group to maintain its leadership as the largest and one of the most profitable aluminum extruders in Asia.

A new plant for the manufacturing of high-grade rolled product - premium aluminum sheets - will also be constructed in the industrial city. The project is 60% owned by the Group with an annual capacity of 400,000 metric tonnes.

When fully operational the new Zhaoqing base will house aluminum extrusion facilities, an aluminum sheet factory, stainless steel production lines, testing chambers and other complementary downstream facilities. The expansion plan for the extrusion facilities will call for a total investment of HK$1 billion, which is to be partly financed by the proceeds of HK$507 million raised from a placement of 332,000,000 shares in January 2004. The remainder of the costs will be funded by internal resources.

Other projects under the Group's master expansion blueprint include the establishment of a 2,000-metric-ton metal related finished product processing facility. It will cover products including anchor channels for pre-casting systems, stainless steel aerial/tower work platforms and scaffolding products, and is scheduled for production in October 2004.

In order to secure a steady supply of raw materials for its aluminum extrusion business, the Group has recently entered into a 5-year raw material supply agreement with a major aluminum producer in Henan Province. Under the agreement, the Group will be supplied with molten (liquid) aluminum for up to 100,000 metric tonnes each year starting from October 2004 for the production of aluminum billets. With this arrangement, the Group is secured with a stable long-term supply of raw materials at a much lower cost that can effectively reduce production costs by approximately HK$35 million each year.

Dr Chan continued: "The expansion plan will help us secure our ongoing success and fuel our growth momentum. We expect the coming three years to offer a lot of opportunities as well as challenges in view of our expansion plan and strong demand in China and North America. Given our solid foundation and strengthened capabilities, our core businesses will continue to prosper and create long-term value for our shareholders."

As at December 31, 2003, the Group had total and net assets of HK$5,024 million and HK$1,916 million respectively. Shareholder funds increased 6% to HK$2,124 million. Cash and bank balances were HK$2,495 million.

About Asia Aluminum
Asia Aluminum Holdings Limited (SEHK: 930) possesses one of the highest and most advanced aluminum processing capabilities in Asia. It operates five state-of-the-art plants in China with an aggregate annual capacity of 140,000 metric tonnes and equipped with top-class equipment and facilities to provide one-stop solutions for its customers. Through an equity alliance with Indalex, the second largest aluminum extruder in North America, the Group has made inroads in expanding international sales and product portfolio. The Group was cited as one of "The World's Best 200 Under-a-Billion Companies" by Forbes Global for two consecutive years in a row.

Issued by :
Asia Aluminum Holdings Limited

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