Despite mounting pressure from retailers to cut prices and the dock strike incidence, gross profit grew in tandem with turnover by 7.3% to HK$139 million, validating the effectiveness of the Group's cost control measures. As a result of the US ports lockup and one-off expenses incurred in the expansion of the Zhongshan plant and renovation of Zhuhai office, as well as the decline in interest income by HK$6 million due to the fall in cash level and interest rate, net profit fell marginally by 3.6% to HK$72 million. The Group declared an interim dividend of HK3.5 cents.

In response to softening demand and subdued consumer sentiment, the Group shifted more of its focus to the high- and mid-priced product category including baby and children shoes and casual footwear. This had transformed the Group's product mix, with rugged, casual, and baby and children shoes respectively comprised 22%, 29% and 46% of the headline turnover.

Mr Mickey Chen Ming-hsiung, Chairman and Managing Director, Kingmaker Footwear Holdings said: "Significant progresses had been made in strengthening our manufacturing operations to better equip us with the muscles to embrace growth opportunities in the future. The Group's total annual production capacity had reached 18 million pairs by the end of the period under review, contributed by the 17 production lines in Zhuhai, 6 lines in each of Vietnam and Zhongshan and one in Macau."

The six production lines in Vietnam had commenced full-scale operation, powered by a 4,500-strong labour force and achieving an annual capacity 3-3.5 million pairs. Second phase expansion will kick off in early 2003 to accommodate growth in demand from EU markets and opportunities emerging from normalization of Vietnam-US relations. The new facilities in Zhongshan commenced trial production in August 2002. Employing 4,500 workers, this production base has been specifically equipped and structured to accommodate the needs of some of the Group's largest customers such as Timberland and Wolverine, enabling them to monitor the production process online. This production base is still expected to incur the Group a moderate loss in the coming months, but the Group is confident it will evolve to be a most advanced and profitable production operation in the PRC.

The baby and children shoes segment continued to be the star growth performer, accounting for 46% of the Group's total revenue, up from 40% a year ago. Demand for products in this category has been proven to be much more stable under tough and challenging market conditions. With years of dedicated efforts, Kingmaker has already developed into one of the world's largest premium baby footwear producers. The Group is currently developing the less costly "athleisure" sector in response to growing popularity and demand.

The distribution operation of "Lotto" and "Head" footwear labels in mainland China was marginally lagging behind the Group's expectations due to keen competition in the retail sector in the PRC. The business accounted for 1.85% of the Group's revenue during the period under review.

"Leading footwear brand owners, labels and retailers around the world will continue to consolidate their sources of supply as economic downturn continues in an effort to better manage their supply chains, control costs and react to changing market conditions and end-user preferences. As a result, we need to continue our strategy of fostering future development and growth through expansion, even under the current deflationary environment," added Mr Chen.

About Kingmaker Footwear Holdings
Kingmaker Footwear Holdings Limited (SEHK: 1170) is a premium brandname footwear manufacturer of baby and fashion casual footwear. The Group operates 30 production lines in China and Vietnam with a staff of 18,000. Its largest branded customers include Skechers, Timberland, Stride Rite, Wolverine and Clarks. The Group was named "The World's 200 Best Small Companies" by Forbes Global in October 2002 for the second year in a row.

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