FINAL RESULTS ANNOUNCEMENT

Transcription

1 (incorporated in Hong Kong with limited liability) (Stock Code: 420) FINAL RESULTS ANNOUNCEMENT The Board of Directors of Fountain Set (Holdings) Limited is pleased to announce that the audited consolidated financial statements of the Company and its subsidiaries for the year ended 31st August, 2006 are as follows: Consolidated Income Statement Notes (restated) Turnover 3 7,134,788 6,636,298 Cost of sales (5,832,331) (5,432,673) 1,302,457 1,203,625 Other income 77, ,882 Gain on disposal of property interests 144,028 Distribution expenses (379,204) (390,930) Administrative and other expenses (654,089) (633,410) Finance costs 4 (103,498) (56,727) Share of results of jointly controlled entities (409) Reversal of impairment loss recognised in respect of amounts due from jointly controlled entities 1,040 2,163 Profit before taxation 388, ,194 Income tax charge 5 (41,145) (26,107) Profit for the year 6 347, ,087 Attributable to: Shareholders of the Company 306, ,490 Minority shareholders 40,316 36, , ,087 Dividends paid 7 91,311 83,371 Basic earnings per share 8 HK38.64 cents HK20.59 cents

2 Consolidated Balance Sheet Notes (restated) Non-current assets Investment properties 10,230 84,267 Property, plant and equipment 2,165,327 2,102,421 Prepaid lease payments - non-current portion 65, ,269 Interests in jointly controlled entities Amounts due from jointly controlled entities 13,729 Deferred tax assets 21,834 13,717 2,263,256 2,364,403 Current assets Inventories 1,563,176 1,543,423 Prepaid lease payments - current portion 1,567 3,655 Trade and other receivables 9 1,568,681 1,565,907 Amounts due from jointly controlled entities 13,169 Derivative financial instruments 493 Tax recoverable 9,654 7,205 Bank deposits with restricted use 3,979 2,675 Short-term bank deposits 292, ,176 Bank balances and cash 367, ,500 3,820,430 3,657,541 Current liabilities Trade and other payables , ,684 Bills payable , ,565 Amounts due to minority shareholders 13,350 Derivative financial instruments 1,666 Tax payable 61,864 19,408 Bank borrowings - due within one year 344, ,498 Bank overdrafts 3,415 3,147 Obligations under finance leases - due within one year 5,049 16,728 1,248,522 1,298,030

3 (restated) Net current assets 2,571,908 2,359,511 Total assets less current liabilities 4,835,164 4,723,914 Non-current liabilities Bank borrowings - due after one year 1,827,990 1,910,000 Obligations under finance leases - due after one year 440 5,430 Deferred tax liabilities 7,084 29,268 1,835,514 1,944,698 Net assets 2,999,650 2,779,216 Capital and reserves Share capital 158, ,802 Reserves 2,639,513 2,427,001 Equity attributable to shareholders of the Company 2,798,315 2,585,803 Minority interests 201, ,413 Total equity 2,999,650 2,779,216 Notes: 1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards ( HKFRSs ), Hong Kong Accounting Standards ( HKASs ) and Interpretations (hereinafter collectively referred to as new HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants that are effective for accounting periods beginning on or after 1st January, The application of the new HKFRSs has resulted in a change in the presentation of the income statement, balance sheet and statement of changes in equity. In particular, the presentation of minority interests has been changed. The changes in presentation have been applied retrospectively.

4 (A) Application of Hong Kong Financial Reporting Standards The adoption of the new HKFRSs has resulted in changes to the Group s accounting policies in the following areas that have an effect on how the results for the current and prior years are prepared and presented: (1) Investment properties Under HKAS 40 Investment Property, the Group has elected to use the cost model to account for the building portion of the investment properties, under which investment properties are carried at cost less accumulated depreciation and any accumulated impairment loss. For the land portion of the investment properties, it follows HKAS 17 Leases as set out in (3) below. (2) Deferred Taxes related to Investment Properties HK(SIC) Interpretation 21 Income Taxes Recovery of Revalued Non-Depreciable Assets which removes the presumption that the carrying amount of investment properties is to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the investment property at each balance sheet date. (3) Leasehold Interests in Land Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. The leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost less any impairment loss and amortised over the lease term on a straight line basis. (4) Financial instruments HKAS 32 Financial Instruments: Disclosure and Presentation requires retrospective application whereas HKAS 39 Financial Instruments: Recognition and Measurement, which is effective for accounting periods beginning on or after 1st January, 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The application of HKAS 32 has had no material impact on how the financial instruments of the Group are presented for the current and prior accounting periods. From 1st September, 2005 onwards, all derivatives that are within the scope of HKAS 39 are required to be carried at fair value at each balance sheet date regardless of whether they are deemed as held for trading or designated as effective hedging instruments. The Group has applied the relevant transitional provisions in HKAS 39.

5 (5) Share-based Payment HKFRS 2 Share-based Payment requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares ( equity-settled transactions ), or in exchange for other assets equivalent in value to a given number of shares or rights over shares ( cash-settled transactions ). In accordance with the relevant transitional provisions, the Group has not applied HKFRS 2 to those share options granted on or before 7th November, 2002 and those share options that were granted after 7th November, 2002 but were vested before 1st September, (B) Change in accounting policy for buildings In previous years, certain land and buildings held for own use were stated in the balance sheet at their revalued amount prior to 30th September, 1995, less any subsequent accumulated depreciation and any accumulated impairment loss. Under the predecessor Standard, the surplus arising on revaluation of these properties prior to 30th September, 1995 was credited to the asset revaluation reserve. Any future decrease in value of these properties were dealt with as an expense to the extent that it exceeds the balance, if any, on the asset revaluation reserve relating to a previous revaluation of the particular properties. On the subsequent disposal of a revalued asset, the attributable revaluation surplus not yet transferred to retained profits in previous years is transferred to retained profits. Upon adoption of the new HKFRSs, as mentioned above, land leased under an operating lease is recognised as prepaid lease payments in the balance sheet and measured at cost and amortised over the lease term on a straight line basis. Management therefore reassessed the Group s accounting policy for the subsequent measurement of buildings and determined that the use of the cost model under HKAS16 Property, Plant and Equipment for the buildings element would result in more meaningful information to the readers of the financial statements. Under the cost model, the buildings are carried at cost less accumulated depreciation and any accumulated impairment loss. This change in accounting policy has been applied retrospectively. Upon the change in accounting policy, the revaluation surplus that arising in 1995 not yet transferred to retained profits in previous years has been reversed retrospectively. As a result, the carrying amount of the buildings, the related deferred tax liabilities and the asset revaluation reserve have been restated (see note 2 for the financial impact).

6 2. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES The effects of the changes in the accounting policies described in note 1 above on the results for the current and prior years are as follows: Increase (decrease) in surplus arising on revaluation of investment properties 5 (78) Increase in gain on disposal of property interests 170,606 Decrease in depreciation of buildings 1,143 2,206 Decrease in amortisation of land (now reclassified as amortisation of prepaid lease payments) 579 1,123 Increase in depreciation of investment properties (1,428) (2,024) Increase in losses arising from changes in fair value of derivative financial instruments (45) Decrease in deferred tax credit (10,663) (174) Increase in profit for the year 160,197 1,053

7 The cumulative effects of the changes in accounting policies on 31st August, 2005 and 1st September, 2005 are summarised below: As at As at As at 31st 31st 1st August, Effect of August, September, 2005 HKAS 16, HK(SIC) 2005 Effect of 2005 (originally stated) HKAS 1 17 & 40 INT 21 (restated) HKAS 39 (restated) Balance sheet items Investment properties 178,162 (93,895 ) 84,267 84,267 Property, plant and equipment 2,368,968 (266,547 ) 2,102,421 2,102,421 Prepaid lease payments 153, , ,924 Trade and other receivables 1,565,907 1,565,907 34,066 1,599,973 Bank borrowings (2,205,645) (2,205,645) (34,442) (2,240,087) Derivative financial instruments assets 1,401 1,401 Derivative financial instruments liabilities (2,529) (2,529) Deferred tax liabilities (48,352) 19,391 (307) (29,268) (29,268) Other assets and liabilities 1,107,610 1,107,610 1,107,610 2,966,650 (187,127 ) (307) 2,779,216 (1,504) 2,777,712 Asset revaluation reserve 231,313 (230,791 ) (522) Retained profits 2,215,662 43, ,259,541 (1,504) 2,258,037 Minority interests 193, , ,413 Share capital and other reserves 326, , ,262 2,773, ,413 (187,127 ) (307) 2,779,216 (1,504) 2,777,712 Minority interests 193,413 (193,413 ) 2,966,650 (187,127 ) (307) 2,779,216 (1,504) 2,777,712

8 The financial effects of the changes in accounting policies to the Group s equity attributable to shareholders of the Company on 1st September, 2004 are summarised below: As originally As stated Adjustments restated Asset revaluation reserve 229,844 (229,844) Retained profits 2,138,596 42,826 2,181,422 Share capital and other reserves 318, ,549 2,686,989 (187,018) 2,499,971

9 3. SEGMENT INFORMATION Turnover represents the amounts received and receivable for goods sold and services rendered by the Group, net of returns, to outside customers during the year. Turnover and contribution to operating results by business segment have not been prepared as over 93% (2005: 94%) of the Group s turnover was derived from the production and sales of dyed fabrics, sewing threads and yarns. The Group s primary format for reporting segment information is geographical segments (based on location of customers) The People s Republic Rest Hong Kong of China Taiwan Korea of Asia America Europe Eliminations Consolidated TURNOVER External sales 2,739, , , ,608 1,660, ,494 99,229 7,134,788 Inter-segment sales (note) 6,702,508 4,162, ,148 50,860 (11,109,986 ) Total turnover 9,442,256 4,357, , ,608 1,854, ,354 99,229 (11,109,986 ) 7,134,788 RESULT Segment result 97,924 7,550 34,831 37, ,029 31,441 3, ,963 Interest income 13,393 Gain on disposal of property interests 144,028 Unallocated corporate expenses (693 ) Finance costs (103,498 ) Reversal of impairment loss recognised in respect of amounts due from jointly controlled entities 1,040 Profit before taxation 388,233 Income tax charge (41,145 ) Profit for the year 347,088

10 2005 The People s Republic Rest Hong Kong of China Taiwan Korea of Asia America Europe Eliminations Consolidated (restated) TURNOVER External sales 2,868, , , ,133 1,418, , ,014 6,636,298 Inter-segment sales (note) 6,764,975 4,219, ,428 42,487 (11,245,949 ) Total turnover 9,633,450 4,401, , ,133 1,637, , ,014 (11,245,949) 6,636,298 RESULT Segment result 105,511 7,327 38,730 25,979 80,437 4,819 7, ,506 Interest income 6,202 Unallocated corporate income 4,459 Finance costs (56,727 ) Share of results of jointly controlled entities (409 ) Reversal of impairment loss recognised in respect of amounts due from jointly controlled entities 2,163 Profit before taxation 226,194 Income tax charge (26,107 ) Profit for the year 200,087 Note: Inter-segment sales are charged at prices with reference to the prevailing market rates.

11 4. FINANCE COSTS (restated) Finance costs on: Bank borrowings wholly repayable within five years 77,352 49,370 Bank borrowings not wholly repayable within five years 29,730 10,187 Finance leases wholly repayable within five years Total finance costs 107,867 60,510 Less: amounts capitalised (4,369) (3,783) 103,498 56,727 Finance costs capitalised during the year arose on the general borrowing pool and has been calculated by applying a capitalisation rate of 4.7% (2005: 2.4%) per annum to expenditure on qualifying assets. 5. INCOME TAX CHARGE (restated) Current tax: Hong Kong Current year 59,387 11,457 Overprovision in prior years (48) (87) 59,339 11,370 Other jurisdictions 12,107 18,468 71,446 29,838 Deferred tax: Current year (30,301) (3,731) Taxation attributable to the Company and its subsidiaries 41,145 26,107 Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for both years. Pursuant to the relevant laws and regulations in the PRC, the Group s certain PRC subsidiaries are entitled to exemption from the PRC enterprise income tax for two years commencing from their first profit-making year of operation and thereafter, they are entitled to 50% relief from the PRC enterprise income tax for the following three years. The reduced tax rate for the relief period is 12%. In addition, the Group s certain PRC subsidiaries are entitled to a 50% reduction in tax rate in the year as over 70% of their turnover are for export purposes. The reduced tax rate is 12%. Taxation arising in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

12 6. PROFIT FOR THE YEAR (restated) Profit for the year has been arrived at after charging: Amortisation of prepaid lease payments included in administrative expenses 2,466 3,653 Depreciation of investment properties 1,428 2,024 Depreciation of property, plant and equipment 233, ,966 Impairment loss recognised in respect of goodwill included in administrative expenses 2,503 Loss on disposal of property, plant and equipment (other than property interests) 3,741 8,822 Losses arising from changes in fair value of derivative financial instruments 45 and after crediting: Interest income 13,393 6, DIVIDENDS PAID Final, paid HK7.0 cents for 2005 (2004: HK7.5 cents) per share 55,581 59,551 Interim, paid HK4.5 cents (2005: HK3.0 cents) per share 35,730 23,820 91,311 83,371 A final dividend of HK6.5 cents (2005: HK7.0 cents) per share has been proposed by the directors and is subject to approval by the shareholders in the forthcoming annual general meeting.

13 8. BASIC EARNINGS PER SHARE The calculation of the basic earnings per share attributable to the shareholders of the Company is based on the profit for the year attributable to shareholders of the Company of approximately HK$306,772,000 (2005: HK$163,490,000 as restated) and on 794,010,960 (2005: 794,010,960) ordinary shares in issue during the year. Diluted earnings per share is not presented as there were no potential ordinary shares in respect of share options in existence for both years. The following table summarises the impact on basic earnings per share as a result of adjustments arising from changes in accounting policies: HK Cents HK Cents Figures before adjustments Adjustments arising from changes in accounting policies (note 2) Adjusted/restated TRADE AND OTHER RECEIVABLES The Group allows an average credit period of 45 days to its trade customers. The following is an aged analysis of trade receivables at the balance sheet date: Not yet due 701, ,439 Overdue 1-30 days 273, ,191 Overdue days 141, ,887 Overdue > 60 days 114,118 95,844 1,230,221 1,262,361

14 10. TRADE AND OTHER PAYABLE AND BILLS PAYABLE The following is an aged analysis of trade payables at the balance sheet date: Not yet due 295, ,960 Overdue 1-30 days 27,065 21,984 Overdue days 12,368 10,083 Overdue > 60 days 8,985 6, , ,338 All bills payable of the Group are not yet due at the balance sheet dates. BUSINESS REVIEW For the year ended 31st August, 2006, the turnover was approximately HK$7,134,788,000, an increase of 7.5% over last year. The profit attributable to shareholders amounted to approximately HK$306,772,000, an increase of 87.6% over last year. Profit margin for the year under review was 4.3%, an increase of 1.8 percentage points over last year. Basic earnings per share was HK38.64 cents, compared to HK20.59 cents in The Group has completed the disposal of certain non-core property interests in Hong Kong during the first half of the financial year. The disposal of these property interests resulted in a net gain (after tax) of approximately HK$128,796,000 which has been adjusted to take into account the effect of the adoption of new accounting standards and the change of accounting policies during the year under review. If the net gain on disposal of property interests is excluded, the profit attributable to shareholders increased by 8.9% to approximately HK$177,976,000 and profit margin was 2.5%, similar as last year. The related net proceeds received of approximately HK$485,844,000 has been used to reduce bank borrowings and for general working capital purposes. Since all production facilities have been moved away from Hong Kong by late 1990 s, there was no impact on the Group s operations due to the disposal of such property interests. Several adverse effects on the business environment for the manufacturing industry in the PRC affected the Group s financial results of the year under review. The upsurge in the international fuel and energy prices throughout the year under review increased the cost of certain raw materials and electricity generation. Costs increase in the PRC, including the

15 increase in minimum wage, the appreciation of Renminbi against the US dollar and the increases in interest rates, have created pressure on the profit margin of the Group. The finance cost for the year under review increased by approximately HK$46,771,000 to approximately HK$103,498,000. In respect of the excessive effluent discharge notification by the PRC government on the Group s joint venture subsidiary, Dongguan Fuan Textiles Limited ( Fuan ) in June 2006, Fuan had immediately reduced the production volume since June 2006 by relocating the workload to other manufacturing locations including the Group s fabric mill in Jiangyin, Jiangsu Province and had paid for the shortfall in effluent discharge fees of approximately RMB11,500,000 in August Whereas minor increases in additional costs were incurred as a result of these remedial actions, the Group was able to minimise the impact to the shipment schedule of goods between July and September of Through cooperation and communication with customers and the prompt remedial actions taken, the Group was able to maintain the support and understanding of our long term clients. Despite the occurrence of the incident, the Group was able to maintain its major clients during the year under review and was still able to record an increase in business volume for the second half of the financial year as compared to the same period of the previous year. With construction commenced since mid of 2005, a new effluent treatment unit at Fuan has commenced test operation since late September The test run is expected to complete during the first half of the financial year of 2007, and the production capacity of Fuan will not be fully recovered during the testing period. Upon the official and complete operation of the facility, the effluent discharge capacity at Fuan will increase by over 30% as compared to that in August Production and Sales of Dyed Fabrics, Sewing Threads and Yarns During the year under review, turnover from the production and sales of dyed fabrics, sewing threads and yarns reached approximately HK$6,639,230,000, an increase of 6.4% as compared with last year, and accounted for 93.1% of the Group s total turnover. It s operating results margin was 5.0% which was higher than that of last year. Following the acquisition of the entire minority interests in July 2005, our sewing thread business has continuously shown encouraging improvement both in sales and contribution to the Group.

16 Production and Sales of Garments Annual turnover from the production and sales of garments was approximately HK$495,558,000, an increase of 25.8% as compared with last year, and accounted for 6.9% of the Group s total turnover. Following proactive restructuring and downsizing measures implemented in the previous financial year, the performance of this segment has improved. Analysis by Customer Geographical Regions The Group s major customers were garment manufacturers located in Asia and accounted for approximately 87.3% of the Group s total turnover, a slight decrease of 0.9 percentage points when compared with 88.2% of last year. The remaining 12.7% was generated from sales to customers based in America and Europe. A more substantial growth was achieved in business with customers based in Korea and America where the Group has established local liaison/ marketing office. With respect to operating results contribution, the profit margin of sales to customers based in Korea, Rest of Asia and America increased compared with last year. FINANCIAL REVIEW Liquidity and Financial Information At 31st August, 2006, the Group s total assets amounted to approximately HK$6,083,686,000, representing an increase of approximately HK$61,742,000 over last year. Total assets included non-current assets of approximately HK$2,263,256,000 and current assets of approximately HK$3,820,430,000. The above assets were financed by current liabilities of approximately HK$1,248,522,000, non-current liabilities of approximately HK$1,835,514,000, minority interests of approximately HK$201,335,000 and equity attributable to shareholders of approximately HK$2,798,315,000. The Group met its funding requirements in its usual course of operation by cash flows from operations, as well as long-term and short-term borrowings. The capital expenditure was mainly financed by long-term borrowings. Due to the disposal of certain property interests and tight control on inventories and trade receivables during the year under review, cash position as well as financial ratios of the Group were improved. Bank borrowings, bank overdrafts and obligations under finance leases totally decreased by approximately HK$46,496,000 and the total amount of short-term bank deposits, bank balances and cash increased by approximately HK$126,339,000.

17 At 31st August, 2006, the principal financial ratios (after inclusion of proposed final dividend) were as follows: 31st 31st August, August, (Restated) Gearing ratio Bank borrowings ratio Net bank borrowings ratio The sales of the Group are mainly denominated in Hong Kong dollars and US dollars and the purchase of raw materials is mainly made in Hong Kong dollars, US dollars and Renminbi. Bank borrowings are also denominated in Hong Kong dollars and US dollars and interests are mainly charged on a floating rate basis. In addition, the Group mainly operates in the PRC and is exposed to foreign exchange risk arising from Renminbi exposure. The fluctuations in the US dollars and Renminbi have always been the concern of the Group. In order to mitigate the foreign currency risk and interest rate risk, the Group will enter into appropriate hedging arrangements in accordance with the Group s risk management policies. Capital Expenditure For the year ended 31st August, 2006, the Group invested approximately HK$460,086,000 (2005: HK$411,832,000) in the addition of property, plant and equipment and prepaid lease payments. The Group expects that capital expenditure for the next financial year will be approximately HK$420 million. Contingent Liabilities At 31st August, 2005, the Group had contingent liabilities amounting to approximately HK$37,992,000 in respect of trade receivables factored with recourse. At 31st August, 2006, there were no trade receivables factored with recourse. Charge over Assets The Group s obligations under finance leases are secured by the lessors charge over the leased assets. At 31st August, 2006, the carrying value of those leased assets was approximately HK$63,207,000 (2005: HK$100,560,000) and the amount of obligations under finance leases was approximately HK$5,489,000 (2005: HK$22,158,000).

18 Employees and Emolument Policies At 31st August, 2006, the Group had approximately 22,000 full time employees. The Group s emolument policies are formulated on the performance of individual employee and on the basis of the salary trends in the various regions, and will be reviewed regularly. Subject to the Group s profitability, the Group may also distribute discretionary bonus to its employees as an incentive for their contribution to the Group. The Group has established a share option scheme for its employees, and also provides regular training courses and subsidies for continuing education so as to improve the skills of its employees with respect to production, selling and management. BUSINESS OUTLOOK The global textile industry showed a sign of stability following the signing of the Sino-EU and the Sino-US trade agreements on textile products on 10th July, 2005 and 8th November, 2005 respectively that established a clear and predictable growth path for exports from the PRC. This enabled the Group to better plan its production lines to fulfill the sourcing plans of the garment manufacturing and branded customers. Since the Sino-EU trade agreement and the Sino-US agreement will expire at the end of 2007 and end of 2008 respectively, the Group, like the rest of the industry, is looking forward to the likelihood of further increase in the PRC s export to these markets, which could present a growth opportunity for the Group as well as the PRC s textile industry going forward. The Group will closely monitor the situation as it could significantly influence the future outlook for the US and EU markets. However, the manufacturing sector in the PRC is expected to continue facing several challenges including the recent increment in local minimum wage, the escalated international fuel and energy prices and the continuous appreciation of Renminbi. As for export-oriented manufacturers in the PRC, the challenges may also include the potential of slowing down in the US economy and the reduction in VAT rebate for export products by the PRC. On the other hand, the domestic economy in the PRC is expected to continue growing in the long-term which should result in increase in consumer spending and demand for better quality textile products. Therefore, the two key opportunities for driving future growth for the Group over the next few years continue to be: Firstly, volume increase in demand for the PRC made knitted fabrics from the existing and new clients in the US and the EU as sourcing of textile products in the PRC continues to increase; and secondly, the Group will also continue to strategically target new clients in the PRC as the local consumer preference shift towards better product quality and innovations. The Group has well positioned itself to meet with the potential growth in the future. We are committed to increase market share in the PRC s

19 domestic market by continuous expanding the Shanghai office and increasing product promotions. Last year, the Group launched its first-ever integrated knitted fabric brand name, fabric by Fountain Set TM and this business strategy aims to create a distinctive edge by highlighting our product attributes to enhance customer recognition and to differentiate the Group s products from those of the competitors. The Group will continue to build this product branding in the future by further featuring the fabric by Fountain Set TM brand at industry trade shows as well as publicity and marketing activities. The Group had started migration of its fabric production from Hong Kong to the Southern part of the PRC since 1988 and the current production capacities of the two fabric mills in the Southern part of the PRC have reached their limits. In order to further expand our production capacity in the PRC, the Group has started the development of a third fabric production base in the PRC in Jiangyin, Jiangsu province in the second half of 2002, which has since expanded its production to exceed one-third of the Group s total capacity. With an experienced and dedicated management and operations team, the Group was able to accomplish this remarkable achievement of developing a green field site into such a significant production base in less than three years time. The Jiangyin mill has continued to develop in its second phase and its production has been progressively expanding as planned. It is estimated that the plant alone will achieve approximately half of the Group s total production capacity by the end of A coal-fired electricity and steam co-generation facilities has been in operation in Jiangyin mill since March 2006 to provide the Group with higher energy reliability and efficiency. It is expected that the Group s overall production efficiency will benefit from economies of scale as well as the more streamlined design of new production lines at Jiangyin mill, thus enhancing the Group s competitiveness in the global market. Furthermore, the Group is always forward planning and evaluating investment opportunities to ensure the continuity of long-term growth. In view of the recent move by the PRC government to reduce the volume of effluent discharge of environmentally sensitive industries in Guangdong province and the relatively high cost of operating in the Southern part of the PRC, the Group has been selecting potential locations in the PRC with well developed infrastructure and resources for supporting the partial migration of production from the Southern part of the PRC. Recently, the Group has been actively reviewing potential sites in Jiangsu province as the location for establishing our next manufacturing base. The selected location should not only offer attractive investment environment but must also be able to provide complete infrastructural solutions to the Group similar to those available in Jiangyin, including reliable water, steam and electricity supply as well as effluent treatment based on the national standard.

20 As a result of our internal restructuring of our garment business since 2004, the turnover of our garment business reduced from approximately HK$514,743,000 in 2004 to approximately HK$393,936,000 in The consolidation has started to show its effect and operation of our garment business has improved since With the investment in a new garment joint venture unit this year, it is estimated that the overall production capacity of our garment business will significantly increase in the next financial year. The Group will also extend its scope of business to manufacturing and selling of fabric production machineries and a wholly owned subsidiary of the Group, Jiangyin Jintian Machinery Limited was established in Jiangyin, Jiangsu province, the PRC. The Company is expected to commence operation in the second quarter of With over 37 years of experience in the textile industry, the Group has accumulated vast knowledge and exposure in the engineering of various machineries. Combining our experience in performing in-house repair and modification to our machineries, the Group is able to develop user-friendly and efficient machineries for the market. In the past few years, the Group has produced numerous machines for internal use with satisfactory performance. During the initial stage of production, majority of the machineries produced will be used to support the growth of our fabric mills while the balance will be sold to external customers. The objectives of this new business are to diversify our source of revenue as well as to reduce our machinery cost. In addition, the Group will continue to develop the necessary infrastructure and human resources for supporting future growth. Particular emphasis will be put on further enhancing functions including management information systems, cost and performance management, risk management and corporate governance. Based on the current assessment, the Group maintains a somewhat optimistic view on the Group s performance for the next financial year. AWARDS This year, the Group was accredited two recognised awards by the China National Textile and Apparel Council Statistics Center: No 1 turnover in textile knitting industry in China in and No 1 export in textile and garment industry in China in

21 DIVIDEND The Board has recommended the payment of a final dividend of HK6.5 cents per share for the year ended 31st August, 2006 payable to shareholders whose names appear on the register of members on Thursday, 25th January, Subject to approval of the shareholders at the forthcoming annual general meeting, the total dividend for the year will be HK11.0 cents per share, compared to HK10.0 cents per share of last year. CLOSURE OF THE REGISTER OF MEMBERS The register of members will be closed by the Company from Friday, 19th January, 2007 to Thursday, 25th January 2007, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the proposed final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company's Registrars, Secretaries Limited, 26/F, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong, not later than 4:00 p.m. on Thursday, 18th January PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S LISTED SECURITIES During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities. CODE OF CORPORATE GOVERNANCE PRACTICES The Company has complied throughout the year with the Code provisions of the Code of Corporate Governance (the Code ) promulgated by The Stock Exchange of Hong Kong Limited (the Stock Exchange ) except that, with respect to the Code provision A.2.1, the roles of chairman and chief executive officer ( CEO ) are performed by the same individual. Under the Code provision A.2.1, the roles of chairman and CEO should be separate and should not be performed by the same individual. The division of responsibilities between the chairman and CEO should be clearly established and set out in writing. Mr. Ha Chung Fong is presently the Chairman and Managing Director of the Company. Having considered the current business operation and nature of the Company, the Board is of the view that Mr. Ha acting as both the roles of chairman and CEO is in the best interest of the Company. The Board will review this situation periodically.

22 AUDIT COMMITTEE The Company has established an Audit Committee for the purposes of reviewing and providing supervision over the Company's financial reporting process and internal controls. The Audit Committee presently comprises the three independent non-executive directors of the Company. The Audit Committee has reviewed the audited final results. The followings are the directors of the Company as at the date of this announcement: Executive Directors Non-executive Directors Independent Non-executive Directors Mr. Ha Chung Fong Mr. Ha Hon Kuen Mr. Ng Kwok Tung Mr. Lau Hong Yon Mrs. Fung Yeh Yi Hao, Yvette Mr. Wong Kwong Chi Mr. Ha Kam On, Victor Mr. Chow Wing Kin, Anthony, SBS, JP Dr. Yen Gordon Mr. Wai Yick Man On behalf of the Board HA CHUNG FONG Chairman Hong Kong, 15th December, 2006 Please also refer to the published version of this announcement in The Standard.