During the first half, baby and children, fashion casual and rugged footwear accounted for 42%, 44% and 14% respectively of total turnover. Average selling price (ASP) decreased slightly as baby and children shoe products accounted for a larger share of the product mix than targeted. The Group will further intensify its efforts to expand the casual premium footwear product lines so as to improve the ASP.

Fuel has been going through a roller-coaster ride this year, and despite its latest softening, the surging crude oil prices have been putting a tight squeeze on the Group's profit margin. Gross margin fell 2-percentage-points to 12% against a backdrop of rising outsole and other material costs and inbound freight expenses to meet demanding delivery schedules. This also reflected increased research-and-development expenses for new premium casual footwear products.

The implementation of the lean manufacturing system has begun to have effect in alleviating a spectrum of cost-bearing issues. Shortage of experienced labour in the Pearl River Delta remains a hindering concern, but the Group has improved the working environment for staff and labour. The introduction of the lean manufacturing system will continue to help reduce labour cost, as reflected in the drop of the total wage expenditure, despite a rise in individual salary.

The Group currently operates 25 production lines in China and 12 lines in Vietnam. In view of the difficult business environment in China, the Group made the strategic decision to suspend the previously proposed addition of two production lines in Zhongshan. It plans to focus on enhancing the productivity and efficiency of the existing facilities and holds off substantial capital expenditure in next few years.

Mr Mickey Chen Ming-hsiung, Chairman and Managing Director, Kingmaker Footwear Holdings said: "The potential impact of high oil prices on consumer purchasing power and economic growth weighs heavily on our customers and they tend to be more cautious and prudent in making procurement decisions. For the period, turnover to the US fell 4%, partly because of the tension in the trade relationship between China and the US that had deterred some customers from placing orders, and partly as a result of the appreciation of Renminbi."

The Group has been making intensive marketing efforts in expanding market presence in the EU but business growth derived from existing branded customers, was lower than expected while new customers had been slow in making order commitments. Trade disputes and weakening Euro resulted in a 22% drop in turnover to the EU countries in the first half. Overall, orders from the US, EU and Asian customers contributed 66%, 29% and 5% respectively of group turnover.

Mr Chen added: "Increasing anti-dumping allegations and trade imbalance concerns from the US and the EU, as well as the overall economic improvement worldwide, are in support of our move to develop more premium products. The difficult operating environment in China also validates our diversification of production bases to Vietnam, even though the output from the Vietnam facility for the period was below expectation as a result of softer than expected orders from EU customers."

The Group has been diligently conservative in cash-flow management. As at September 30, 2005, the Group had cash in hand of approximately HK$220 million. Financial Highlights

	Six months ended September 30,
	2005	2004
	HK$ '000	HK$ '000
Turnover	722,342	831,399
Gross Profit	88,353	119,805
Profit from operations	45,741	64,033
Net profit attributable to shareholders	43,955	61,955
Interim dividend per share	HK3.5 cents	HK3.5 cents
Earnings per share - basic	HK6.71 cents	HK9.46 cents

About Kingmaker Footwear Holdings
Kingmaker Footwear Holdings Limited (HKEx: 1170) is a premium name-brand footwear manufacturer specializing in fashion casual and baby shoes. The Group operates 37 production lines in China and Vietnam with a staff of 15,000. Its largest branded customers include Skechers, Timberland, Clarks, Stride Rite and Wolverine.

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