Mr Mickey Chen, Chairman and Managing Director of Kingmaker Footwear Holdings noted: "The drop in orders from Europe had hindered the Group's further business expansion in Europe and also shrunk the total turnover for the year. One of the major reasons is the anti-dumping allegations and investigations by the European Commission (EC) on China-manufactured products which first emerged in the early 2005 continued to create uncertainties which had deterred customers from placing orders with the Group."

Contribution to turnover from the US and European markets were 61% and 33% respectively.

The higher operating costs in China for wages, electricity, transportation and material costs, as well as high crude oil prices, have affected the overall profit margin. However, the Group managed to improve the average selling price (ASP) slightly by 3% through a more defensible product mix strategy of increasing the share of premium casual footwear with higher ASP, while continuing to grow the traditionally strong baby and children shoes category.

The Group is pleased with the successful introduction of the lean manufacturing system that continues to improve production flow and efficiency and has helped reduce the overall labor cost in China despite increases in individual salaries and wages.

The target product mix of 4:4:2 for premium casual, baby and children, and rugged footwear remains although the development of casual products was slower than expected. These three main product categories currently accounted for 31%, 53% and 15% of total turnover respectively. New customers for niche products of higher margin are being negotiated and the Group is confident that the efficient development of premium casual products for existing customers under separate brand names and also for potential new customers will become a major growth driver. The Group is actively reviewing and reconstructing its marketing strategy to rebuild its presence in Europe. At present, the Group operates a total of 37 production lines - 12 in Vietnam, 9 in Zhongshan and 16 in Zhuhai.

As the production output of the Group's manufacturing plant in Vietnam is below expectation, the Group has decided to shelve the third phase expansion temporarily until the market prospect improves. The Group is considering to open a new factory in Cambodia at a location close to the existing plant in Vietnam for efficient logistical support and to actively strengthen the arrangements of orders to Europe. The Group plans to invest approximately HK$30 million in the first phase development of the Cambodia factory with 3 production lines.

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 12,000. Its branded customers include Skechers, 310, Marc Ecko, Clarks, Stride Rite and Caterpillar, etc.