Although turnover dropped, average selling price (ASP) slightly rose by 7% points as the Group's dedicated two-pronged efforts to maintain a greater portion of baby and children shoes products, and to increase the output of premium casual footwear with higher margin paid off. Net profit attributable to equity holders of the Group therefore dropped to HK$23 million (2005: HK$44 million). Earnings per share were HK3.5 cents (2005: HK6.7 cents). The Group declared an interim dividend of HK1 cents (2005:HK3.5 cents) per share.

Shipments to US market dropped from 65.81% to 52.58% of Group's total turnover, but support from other major names such as Clarks and Skechers remain strong. Orders from Europe accounted for 42% of the turnover in the period.

During the first half, baby and children and fashion casual footwear accounted for 39% and 47% respectively of total turnover. As the revenue contribution from baby and children shoes category has been maintained at approximately 40%, it is the Group's intention to increase the contribution of premium casual footwear. The Group expects the casual premium products to be the key growth driver in the next few years.

In respect of the Group's manufacturing facilities, the principle of geographical diversification remains. Currently, the Group has a total of 37 production lines of which 10 is located in Vietnam, 10 in Zhongshan and 17 in Zhuhai. While the plant in Vietnam has been affected by less forthcoming orders from EC customers because of the duties, the Group remains cautiously positive as to its growth prospect.

Meanwhile, a new factory in Cambodia is under construction at a site very close to the Vietnam plant for efficient logistical support to EC orders. It is expected that the first two production lines of the first phase of the Cambodia factory will commence trial production in the first quarter of 2007.

The factories in Cambodia and Vietnam are designed to complement each other. In addition to the 2 more production lines in the first phase of the Cambodia factory, it is also planned that additional production facilities may be established in China and Vietnam. In addition, the manufacturing facilities in the Mainland will also be upgraded to improve the working environment to retain skilled workers.

The expansion plan, together with the regular upgrading, repair and maintenance of production lines, will increase the Group's capital expenditure in the next few years. Notwithstanding to the above, the management will continue to maintain its conservative cash-flow management to strengthen the Group's financial position. The Group's cash-flow remained strong and as at 30 September 2006, the Group had no borrowings and maintained a cash position of HK$218 million.

Mr Mickey Chen Ming-hsiung, Chairman and Managing Director, Kingmaker Footwear Holdings remarked: "We combat to protect our bottom-line against the usual negative environmental factors. The cost of operating in China continues to rise, in wages, electricity, transportation and materials. While crude oil prices stabilize at around US$60 a barrel, this level is still high and continues to drive up the cost of transportation and petrochemical materials such as outsoles. Through strenuous and effective controls on new product and materials development, we have been able to alleviate some of the pressure on profit margin. Nevertheless, this is an ongoing effort and the volatility of crude oil prices is a constant threat."

The Group sees increasing production efficiency as key to offsetting higher cost elements and improving profit margin. The successful launch of the lean manufacturing system helps to better utilize skilled labor which is in acute shortage in China, and shorten the production lead time to improve transportation cost efficiency. Meanwhile, the Group will further tighten control on administrative and selling costs.

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 staff and labor of 12,000. Its branded customers include Skechers, Lands~end, 310, New York, Marc Ecko, Clarks, Stride Rite and Elefanten.