Mr Mickey Chen, Chairman and Managing Director of Kingmaker Footwear Holdings said: "Last year overall market sentiment had some improvement, but it is still a tough year for shoe manufacturing companies, especially those whose production bases are mainly located in China. Shortage of workers and electricity coupled with high oil prices created new challenges for the Group. In view of the difficult operating environment in China, the expansion in China had been held off, but 4 new production lines in Vietnam were completed last year as scheduled."

During the year, cost factors in China put much pressure on the profit margin of the Group. Wages and benefits needed to be raised to retain skilled workers in Guangdong. Electricity outage caused disruptions to production. In order to maintain customer driven on–time delivery, additional airfreight costs were created, a challenge that was intensified by the prevailing high oil prices. As a result, overall net profit margin dropped by 1.44 percentage points to 6.14%.

To cope with this, the Group had put much effort in developing more premium causal products to gain greater pricing flexibility. The Group has suspended the expansion plan in Zhongshan, China, and focused on the further development of its production base in Vietnam. With the addition of 4 production lines in Vietnam and the closing down of 1 line in Macau as the Vietnam plant was coming on stream, the Group now has a total capacity of 37 production lines; 25 in PRC and 12 in Vietnam.

During the year, the three main product categories – baby and children, casual, and rugged footwear – still maintained a healthy balance, contributing 47%, 28% and 24% of group total turnover respectively. Contribution to turnover from the US and European markets were 57% and 33% respectively.

With the long-term target product mix of baby and children, casual and rugged footwear maintained at 4:4:2, the Group expects the casual premium products to become its major category for the next two to three years.

The trade dispute between China and European Union has been creating uncertainties. Nevertheless, the Group will proceed with its plan for further penetration of the European market.

"We believe the trend of outsourcing in Europe will continue, which will provide us with the potential for further development in the area. The diversity of production base together with strong expertise provides the Group with enhanced export flexibility. We believe our European customers will continue to experience growth in the coming years and negotiations with new European customers are in progress. The development of the European market should help fuel the growth of the company," Mr Chen added.

The schedule of the third phase of expansion of the Vietnam site will be determined by overall market sentiment and customer expectations.

The Group maintains a sound financial position with a net cash of HK$183 million as of March 31, 2005 (September 30, 2004: HK$148 million).

About Kingmaker Footwear Holdings
Kingmaker Footwear Holdings Limited (HKEx: 1170) is a premium name-brand manufacturer of baby, fashion casual and rugged footwear. The Group operates 37 production lines in China and Vietnam with a staff of 20,000. Its largest branded customers include Timberland, Skechers, Clarks, Stride Rite and Wolverine.