Weiqiao textile announces 2012 interim results (China)

Financial Summary

Revenue was approximately RMB7,709 million, down approximately 4.0% YoY.

Gross profit was approximately RMB419 million, down approximately 58.8% YoY.

Net profit attributable to owners of the parent was approximately RMB54 million, down approximately 90.1% YoY.

Gross profit margin was approximately 5.4%, representing a decrease of 7.3 percentage points as compared with the gross profit margin of approximately 12.7% for the corresponding period of last year and an increase of 3.6 percentage points as compared with the gross profit margin of approximately 1.8% for 2011.

In view of the weak overall demand in the textile market, the Group adopted flexible sales strategies, which contributed to increases in sales volumes by approximately 64.6%, 9.0% and 3.2% for cotton yarn, grey fabric and denim over the corresponding period of last year, respectively.

Weiqiao Textile Company Limited　and its subsidiaries, collectively called the "Group"; HKEX:2698), the largest cotton textile producer in China, announced its unaudited consolidated interim results for the six months ended 30 June 2012 (the "Review Period" or the "Period").

During the Period under Review, the textile industry in China was significantly affected by the challenging global macroeconomic situation. Factors such as weak demand in both overseas and domestic markets, the cotton price gap between domestic and overseas markets, and intensified international competition caused a decline in the textile industry in China. As a result, the whole industry saw a slowdown in production growth and domestic sales, greater downward pressure on exports and declining earnings.

During the Period, exports of China's textile products increased, though at a much lower rate. According to the statistics released by the Administration of China Customs, China's exports of textile products in the first half of 2012 rose by approximately 1.3% as compared with the corresponding period of 2011, to approximately US$46.5 billion. The growth rate declined by approximately 27.5 percentage points from approximately 28.8% in the corresponding period of 2011.

During the first half of 2012, the Group's production volume of cotton yarn, grey fabric and denim were approximately 206,000 tonnes, 498 million meters and 42 million meters, representing decreases of approximately 37.6%, 14.1% and 16.0%, respectively, over the corresponding period of last year. The decrease was mainly due to the Group's adjusting its production plans to lower the output with a view to reduce inventory levels on the back of intense competition, caused by weak market demand for textile products and large cotton price gap between domestic and overseas markets.

During the Period, our revenue was approximately RMB7,709 million, representing a decrease of approximately 4.0% from the corresponding period of 2011. Net profit attributable to owners of the parent was approximately RMB54 million, representing a decrease of approximately 90.1% as compared with the corresponding period of 2011.

Business Review

During the Period under Review, the Group's financial results were affected by weak demand from overseas markets, a slowdown in demand in the domestic market, and the large cotton price gap between domestic and overseas markets. Despite the challenging situation, the Group continued to strengthen its business development, internal management and cost control, and optimize its resource allocation. The Group also continued to further optimize its product portfolio to cater to market demand. It also took a more flexible approach to its sales strategy and made other improvements across its value chain, from research and development, to procurement, production and marketing and sales so as to ensure its stable operation.

Cotton yarn, grey fabric and denim are key products of the Group. The proportions of revenue generated from the sales were approximately 47.9%, 46.2% and 5.9% respectively. As at the six months ended 30 June 2012 and 2011, the breakdowns of revenue by products are as follows:

Products	Revenue	Revenue	Change	Sales proportion
	in 1H2012	in 1H2011	(%)	for 1H2012
	(RMB 000')	(RMB 000')		(%)
Cotton yarn	3,692,000	3,568,000	3.5	47.9
Grey fabric	3,563,000	3,933,000	-9.4	46.2
Denim	453,000	515,000	-12	5.9
Others	1,000	15,000	-93.3	0
Total	7,709,000	8,031,000	-4	100

For the six months ended 30 June 2012, the revenue contribution of cotton yarn increased compared with the corresponding period of last year, while the revenue contribution of grey fabric and denim decreased. The Group adopted flexible sales strategy to reduce cotton yarn inventory according to changes in market demand, which led to an increase in revenue generated from cotton yarn.

As at the six months ended 30 June 2012 and 2011, the breakdowns of revenue by geographical location are as follows:

Regions	Revenue	Revenue	Change	Sales proportion
	in 1H2012	in 1H2011	(%)	for 1H2012
	(RMB 000')	(RMB 000')		(%)
China	5,778,000	4,847,000	19.2	75
Hong Kong	733,000	755,000	-2.9	9.5
East Asia(1)	439,000	1,350,000	-67.5	5.7
Others(2)	759,000	1,079,000	-29.7	9.8

Note (1): East Asia includes Japan and South Korea; Note (2): Others mainly include Southeast Asia, the US, Europe, Taiwan and Africa.

Selling and Distribution Expenses

The Group's selling and distribution costs increased by approximately 26.5% to approximately RMB105 million for the six months ended 30 June 2012 from approximately RMB83 million for the corresponding period of last year. In particular, transportation costs increased by approximately 24.2% to approximately RMB77 million from approximately RMB62 million for the corresponding period of last year.

Finance Costs
For the six months ended 30 June 2012, finance costs of the Group were approximately RMB323 million, representing an increase of approximately 38.6% as compared with approximately RMB233 million for the corresponding period of last year.