Mr Mickey Chen, Chairman and Managing Director of Kingmaker Footwear Holdings said: "This year, Kingmaker steps into the tenth listing anniversary in Hong Kong. Over the past decade, our business scale has grown on a greatly expanded production base with facilities in China, Macau and Vietnam. Business has not only advanced in volume but also in quality as well as market and product mix. The past several years have been marked by unprecedented changes in the operating environment, but our mission to achieve sustainable, profitable growth has always been clear and firm, although the need to adjust the pace with reference to the macro environment has at times inevitably impaired our short-term performance."

During the year, the Group has added 1 production line in China and also 4 lines in Vietnam bringing capacity to a total of 35 production lines. Contribution from the Vietnam production base increased to approximately 30% of group turnover as its operations began to run smoothly. The Group will continue to make rational and market-driven investments in order to maintain its prowess and leadership in production capabilities. In fiscal 2004/05, the Group plans to invest HK$50 million by adding 3 more lines in Vietnam to handle European business and 3 lines in Zhongshan, China, giving it a total of about 40 lines, or more than 10% capacity increase year on year.

Overall gross margin dropped by 3.8 percentage points to 17.5% due to rising materials and labour costs and overhead. The Group's launch of new product lines such as premium casual footwear has also called for more specialised training for staff and increased R&D expenses. Depreciation increased by HK$9 million in the year for new factories in Zhongshan, China and newly added production lines in Vietnam. To keep pace with customer expectations and to address global concerns on environment and labour rights, Kingmaker has enhanced both its production facilities and working environment. New environmental control facilities have also been installed. These enhancements will ensure the Group's long-term competitiveness but have inevitably caused one-off investment and overhead increases.

Kingmaker continued to strengthen the product mix with its three core lines - baby and children, fashion casual and rugged footwear - contributing 42.66%, 31.67% and 24.66% respectively of group revenues. The baby and children lines are expected to register mild growth and new growth driver will be the premium casual line with orders from both existing and new European and American customers. Despite lower-than-expected growth in the European market, the Group maintains confidence in the potential of this market in view of the growing outsourcing trend there. During the year, Kingmaker has added such new labels as Pony and Nautica to its growing list of customers.

The Group maintains a sound financial position with a net cash of HK$180 million as at March 31, 2004 (September 30, 2003: HK$195 million).

"To strengthen Kingmaker's long-term competitive position we will continue to uphold the highest standards of corporate governance and operational control. The cancellation of the quota system between World Trade Organisation countries as from January 2005 is expected to change the operating landscape for Asian economies, and to spark new demand from European countries. Currently, we have an order visibility of about 2 months. We will monitor our order books closely to ensure a healthy growth in the capacities of our two production bases in China and Vietnam," Mr Chen concluded.

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

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