Fountain Set (Holdings) Limited, a global leader in the manufacturing of knitted fabrics, announced its audited consolidated final results for the year ended 31st August, 2007.
he result of the Group for the year under review was approximately HK$167,481,000. In the previous financial year, 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 for the financial year of 2007 decreased by 5.9% and profit margin was similar to last year. Otherwise, profit attributable to shareholders decreased by 45.4% if the net gain on disposal of property interests in previous year is included.
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 increase in minimum wage, the appreciation of Renminbi against the US dollars and the decrease in VAT rebate, have created pressure on the profit margin of the Group.
During the year under review, revenue from the production and sales of dyed fabrics, sewing threads and yarns reached approximately HK$6,271,544,000, a decrease of 5.5% as compared with last year, and accounted for 89.3% of the Group’s total revenue.
Annual revenue from the production and sales of garments was approximately HK$751,447,000, an increase of 51.6% as compared with last year, and accounted for 10.7% of the Group’s total revenue. Following proactive restructuring and downsizing measures implemented in the previous financial year, the performance of this segment has improved.
For business outlook, Mr HA Chung Fong, Chairman and Managing Director of the Group, said, “While the retail sales report for Thanksgiving holiday in the US was better than expected, many customers indicated that they are still concerned over the market condition in the coming year. In addition, foreign customers have also expressed concern over the cost increase in the PRC that could result in inflation in product pricing which could in turn affect their margin and sales volume.
The conservativeness of retailers could be one of the reasons for reduction or delay in their order placements. Since majority of our fabrics are ultimately made into garments sold in the US market, the demand for the Group’s product has already been negatively impacted due to the conservative order placements by US retailers.
Like other manufacturers in the PRC, the Group is expecting to face several continuing challenges including the appreciation of Renminbi, potential increase in local minimum wage, the escalating international fuel prices and the new tax system in the PRC. Since the sales of the Group are mainly denominated in Hong Kong dollars and US dollars, the risk of exchange rate fluctuation may impose additional pressure on profit margin.”
