During the first half the Group's average selling price improved slightly by 2.7%. It expects the ASP to continue to improve as the Group adds more premium casual-footwear items to its product offerings.

Gross margin fell 3.4-percentage-points to 14.4% against a backdrop of rising salaries and wages, outsole and other material costs, inbound freight expenses and outbound shipment costs to meet demanding delivery schedules. This also reflected increased research-and-development expenses for new premium casual-footwear products.

Tight supply of skilled labour in the Pearl River Delta region has not only resulted in increased salaries and wages but, more importantly, has reduced production efficiency and capacity utilization. This, coupled with progressively more stringent requirements on working and environmental conditions imposed by US and EU customers, has posed considerable pressure on Group operations.

Efficient management of production was also hindered by power shortages, but we have installed 6 auxiliary generators in our Zhuhai and Zhongshan premises as a precautionary measure.

With the addition of two production lines to the Vietnam facilities, the Group now has 12 lines in that country. Planning for the third phase of expansion in Vietnam is now well under way, with additional site space being reserved for longer-term development. The China production base continued with 25 lines, the proposed addition of two production lines in Zhongshan being postponed in view of labour-supply bottlenecks. Overall, the Group expects to maintain total production lines at 38 by the end of this financial year, and to 40 lines by the end of 2005.

During the first half of the financial year, orders from US, European and Asian customers accounted for 60%, 32% and 8% respectively of Group turnover. Due to efforts to shift the product portfolio more towards the premium fashion end, further penetration of the EU market resulted in a 36.50% increase in turnover for this market segment.

The US market performed as targeted and continued to contribute a steady stream of income to the Group. The EU market continued to show strong demand, fueled by the strong Euro.

Mr Mickey Chen Ming-hsiung, Chairman and Managing Director, Kingmaker Footwear Holdings remarked: "To a considerable extent, we have succeeded in mitigating current price pressures by further penetrating the premium European market for higher-value-added items. Despite a short-term increase in R&D expenses, we believe that by strengthening our ODM capability in this less-crowded niche market, we will be able to enhance overall long-term profitability. With the pace of growth continuing to level off in the baby-footwear category, our new growth-driver will be the premium-casual category."

As at September 30, 2004, the Group had cash in hand of approximately HK$148 million, with gearing ratio standing at approximately 0.9%.

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 38 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.

Issued by :
Kingmaker Footwear Holdings Limited

Through :
t6.communications limited
Jenny Lee or Winnie Pang
tel: 2511 8388 / fax: 2511 8238
email: enquiry-at-t6pr.com (use "@" to replace "-at-")
URL : http://www.t6pr.com