Fountain Set profit margins touch 8.6% in Sept'11-Dec'12

In the financial year of 2012 (“FY2012”), the Group’s revenue was approximately HK$9,167.1 million. The Group’s core business, production and sales of dyed fabrics, sewing threads and yarns, generated revenue of HK$7,977.1 million, which accounted for 87.0% of the Group’s total revenue. Revenue from production and sales of garments was HK$1,190.0 million, accounted for 13.0% of the Group’s total revenue. Loss attributable to owners of the Company amounted to approximately HK$324.2 million. Gross profit margin for the period under review was 8.6%.

Basic loss per share was HK33.5 cents. The Board has resolved not to pay any final dividend for the period under review

With effect from 10 August 2012, the financial year end of Fountain Set has been changed from 31 August to 31 December. This annual report accounts for financial results of the Group from September 2011 to December 2012, with a total of 16 months instead of the usual 12 months. FY2012 was one of the more difficult years for the textile and apparel industry and the Group. The adverse economic environment in North America and Europe caused by factors including high unemployment rate and concerns over default of European debts continued, resulting in weak demand for textile products and further deterioration in the demand for textile and apparel products.

At the same time, some large scale local brands and retailers in China have experienced over-inventory situation which negatively affected the demand for the textile products. During the period under review, there was unusually high price premium of Chinese cotton over that of the rest of the World which mainly as a result of the purchase of domestically produced cotton by the Chinese government at a guaranteed minimum price. Coupled with the surging labor cost, high energy cost and RMB appreciation, each operator of the industry value chain has experienced one of the toughest operating environments in the past decade.

During the period under review, the Group has disposed of the textile machinery business at the aggregate consideration of RMB90 million and has also ceased the cotton spinning business. The scale-back actions of our non-core businesses are in-line with our strategic business plan to reallocate our resources to the Group’s principal businesses, to realize its investment in China, reduce gearing and increase the liquidity of the Group. In respect of the disposal of the textile machinery business, the Group has recorded a gain from the disposal of approximately HK$43.1 million. For the disposal of the cotton spinning business, the Group has made a loss from the disposal of approximately HK$8.3 million. The net proceeds from these two disposals have been used for loan repayment and general working capital of the Group.