The mild decrease in net profit margin from 11.01% of the corresponding period last year to 9.60% reflected higher operating costs, including the slight increase in leather material cost and additional training expenses for newly recruited staff to support capacity expansion. Also included in the operating costs were a depreciation charge of HK$5,000,000 for the new factory in Zhongzhan, China, and research and development expenses for the launch of new premium casual footwear styles.

Mr Mickey Chen Ming-hsiung, Chairman and Managing Director, Kingmaker Footwear Holdings noted: "The Group continued to steer through worldwide difficulties by constantly advancing operational efficiency and active business pursuits. The Group has also proceeded prudently and with flexibility in the pace of its long-term capacity expansion to cope with demand growth and to sustain our leadership advantage in high-end fashion casual footwear."

During the period, the Group had added 4 production lines to its Vietnam facility and 2 more to the premises in Zhongshan, summing up to an aggregate of 35 production lines to turn out 20 million pairs of footwear per annum. Kingmaker's commitment in investing in future production capability is expressed in its mid-term target of growing its scale to 40-42 production lines by 2005.

The geographical focus for market expansion still remained in Europe, leading to a further diversified spread among core markets. In the first half, 67% and 28% of total revenues were derived respectively from the North American and European markets.

Balanced development remained the key to the Group's management of portfolio of its three core product lines - casual, baby and children, and rugged shoes, which contributed 32.68%, 45.02% and 21.23% respectively of the headline turnover in the reporting period. It is the Group's mid-term target to achieve a 40:40:20 spread among the three core product lines.

The Group maintained its strong franchise in premium brand-name footwear manufacturing. In the past six months, Timberland, Skechers, Clarks, Stride Rite and Wolverine remained its five largest customers. At the same time, the Group had devoted considerable management efforts to the development of new programs for Geox, Pony, Nautica, Stonefly and other new customers.

The distribution operation for Lotto footwear label in mainland China was scaled down to provide the Group with more effective coverage mainly in southern China. Loss from this segment was trimmed down as a result and management holds an optimistic view of the segment's imminent turnaround.

Mr Chen added: "Although the first signs of recovery are finally foreseeable, business operators are expected to remain conservative in order placements. Price pressures will therefore prevail for a further period before full recovery becomes more visible. Our Group's near-term results will also be somewhat restrained by the anticipated investments in further R&D of new products to sustain its product versatility and innovative edge."

As at September 30, 2003, the Group had cash in hand of HK$195 million, with gearing ratio at 6.78%.

About Kingmaker Footwear Holdings
Kingmaker Footwear Holdings Limited (SEHK: 1170) is a premium brandname footwear manufacturer of fashion casual and baby footwear. The Group operates 35 production lines in China, Vietnam and Macau with a staff of 20,000. Its largest branded customers include Skechers, Timberland, Stride Rite, Wolverine and Clarks.

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