Financials

FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE 6 MONTHS ENDED 30 JUNE 2008

Profit & Loss

Click here for the complete Half Year 2008 Financials.
Click here for the Full Year 2007 Financials.

Review of Performance

CONSOLIDATED INCOME STATEMENT

Revenue

The Group's revenue decreased by RMB 59.8 million or 65% from RMB 91.8 million in HY2007 to RMB 32.0 million in HY2008. The main reasons for the decrease are:

• The decrease in fabric sales of approximately RMB 15.0 million as a result of the decline in the demand in the garment market especially for the high quality fabric and yarns segment. The slowdown of the US economy has also affected the sales performance of the period ended 30 June 2008.
• Revenue from the garment industry, which is export driven, is priced in US currency. The appreciation of the RMB against the US dollar has cause a further decline in garment sales for the HY2008.

Gross Profit and Gross Profit Margin

Gross profit decreased by RMB 9.3 million or 95% from RMB 9.8 million in HY2007 to RMB 0.5 million in HY2008. Gross profit margin was 1.6% for HY2008 (HY2007: 10.7%). The decrease in gross profit margin of 9.1 percentage points was due mainly to the following:

• The decrease in sale has in turn increased the unit fixed cost of production as most of the production facility costs are fixed.
• The continuing appreciation of RMB to USD reduced the gross profit margin of our export business.

Other Income

Other income increased by RMB 0.7 million or 114% from RMB 0.7 million in HY2007 to RMB 1.4 million in HY2008. The increase was due mainly to the government grants received in relation to our Agri-Produce mulberry and silkworm cocoon facility located at Guizhou, interest income from bank deposits and resale of electricity to neighbouring factories. The interest income from bank deposits was mainly due to the increases in bank balance and interest rate during the reporting period.

Distribution Expenses

Distribution expenses decreased by 2% to RMB 1.9 million in HY2008 due mainly to decreased in sales volume.

Administrative Expenses

Administrative expenses increased by RMB 0.7 million or 18% from RMB 4.0 million in HY2007 to RMB 4.7 million in HY2008 due mainly to increase in administration related expenses, loss on disposal of property, plant and equipment and amortisation expenses.

Other Operating Expenses

Other operating expenses decreased by RMB 0.1 million or 17% from RMB 0.7 million in HY2007 to RMB 0.6 million in HY2008. The decrease was due to the decreased cost of electricity sold to the neighbouring factory.

Finance Costs

Finance costs for HY2008 increased by RMB 0.1 million or 6% from RMB 1.7 million in HY2007 to RMB 1.8 million in HY2008. This is mainly due to HY2008 increase in interest cost from loan from related party.

CONSOLIDATED BALANCE SHEET

Non-Current Assets

The non-current assets of the Group as at 30 June 2008 were RMB 53.7 million (31 December 2007: RMB 56.6 million). The decrease was mainly due to depreciation and amortisation charges.

Current Assets

Current assets as at 30 June 2008 were RMB 103.0 million (31 December 2007: RMB 160.2 million). The decrease was due mainly to the decrease in trade receivables and cash and bank balances.

Current Liabilities

Current liabilities as at 30 June 2008 amounted to RMB 40.2 million (31 December 2007: RMB 94.0 million). The decrease was due mainly to the decrease in trade and other payables and the decrease in bank loans.

Non-Current Liabilities

Non-current liabilities as at 30 June 2008 were RMB 24.9 million (31 December 2007: RMB 24.2 million).

On 8 October 2004, an agreement was signed between Wuxi Dingqiu and Jiangsu Xindingqiu in relation to the amount due to Jiangsu Xindingqiu of RMB27.9 million which is unsecured and interest-free. Under the agreement, Jiangsu Xindingqiu has agreed that the amount is repayable on demand but not earlier than 1 October 2009. The company has repaid RMB 2.0 million to Jiangsu Xindingqiu in FY2007. With the adoption of FRS 39, the net amount owing to Jiangsu Xindingqiu of RMB 25.9 million was discounted using the prevailing market rate of interest and accordingly, stated at its fair value of RMB 23.0 million as at FY2007 and RMB 23.7 million as at 30 June 2008 respectively.

Shareholders' Equity

Shareholders' equity of the Group was RMB 91.4 million as at 30 June 2008 (31 December 2007: RMB 98.3 million). The decrease of RMB 7.0 million or 7% was due to the net loss attributable to shareholders for the period ended 30 June 2008 of RMB 7.0 million.

CONSOLIDATED CASH FLOW STATEMENT

For the period ended 30 June 2008, the Group experienced a net cash outflow from operating activities of approximately RMB 10.8 million. This was attributed mainly to operating losses and the decrease in trade payables.

Net cash used in investing activities of RMB 0.1 million for the period ended 30 June 2008 was due mainly to the purchase of new plant and equipment.

Net cash inflow in financing activities of RMB 8.6 million for the period ended 30 June 2008 was mainly attributed to net repayment of bank loans and decrease in pledged deposits.

Commentary

The current downturn in the global economy will continue to adversely impact the result of the Group with losses also expected in the second half of FY2008. The effects of the unfavourable economic conditions are expected to be mitigated by the 2 percentage point increase in VAT rebate for textile exports implemented by the PRC government with effect from August 2008.

Balance Sheet