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Production & sales of dyed fabrics drop at Fountain Set

03
Jun '09
Fountain Set (Holdings) Limited, a global leader in the manufacturing of knitted fabrics,announced its unaudited consolidated interim results for the six months ended 28th February, 2009. The Group's revenue was approximately HK$2,488,319,000, a decrease of 19.1% over the same period last year. Unaudited loss attributable to shareholders amounted to approximately HK$166,158,000. Net loss margin for the period under review was 6.7%, a decrease of 6.3 percentage point over the same period last year or an increase of 3.8 percentage point if excluding last year's cost in relation to the reduction of production capacity of Dongguan Fuan Textiles Limited ”Dongguan Fuan”, one of the Group's non wholly-owned subsidiaries. Basic loss per share was HK20.9 cents, compared to basic loss per share HK50.3 cents for the first half of financial year 2008. The Board has resolved not to pay any interim dividend for the period under review (2008: HK1.0 cent per share).

During the first half of financial year 2009, the world economy was still challenging due to the worsening of the US sub-prime mortgage crisis towards the end of calendar year 2008 which has adversely affected the economic climate and consumer markets, especially those in the US and Europe. During the period under review, many brands and retailers in the US & Europe were aggressively reducing their inventories, thus the order volume for knitted fabrics of the Group has been negatively impacted. The overall operating environment of the period under review remained difficult given the weak global economy and high operating costs.

The decrease in the Group's revenue compared to the same period last year was due mainly to the reduction in capacity in Dongguan Fuan. Moreover, the weaker economy has led to reduced buying budgets and tougher price negotiations by the customers, resulting in lower average selling price for the Group. Despite decline in commodity prices such as cotton and coal during the first half of the current financial year, the Group could not benefit significantly until the full replenishment of lower cost inventory. Similarly, the relief from increase in textile and apparel export related VAT rebate by the Chinese government from 13% to 14% on 1st November, 2008 and from 14% to 15% on 1st February, 2009 will only be fully reflected in the second half of this financial year. At the same time, the reduction in capacity also brought down the economies of scale for the Group resulting in lower operating margin.

On 27th April 2009, Dongguan Fuan entered into a Property Agreement with an independent third party in China, for the disposal of its whole land and property interest for a total cash consideration of RMB255,000,000 (approximately HK$288,136,000) payable in five installments over a 24-month period. The Board considered that this was a good opportunity for the Group to realize its investment in the Properties and to increase the liquidity of the Group through this transaction. At the same time, the Group also entered into certain Share Acquisition arrangements with the other four shareholders of Dongguan Fuan.


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