Golden Shield profit up 2.9% to RMB48.8mn

The group focuses on expanding business of higher profit combed cotton yarns.

Golden Shield Holdings (Industrial) Limited (“Golden Shield”), a leading cotton spinning product supplier in northwestern China, on Friday announced the unaudited interim results for the six months ended 30 June 2011.

During the period under review, the Group continued its strategic measures to expand the proportion of cotton yarn business in response to changing market demand. For the six months ended 30 June 2011, the Group’s turnover increased from RMB336.8 million in the first half of 2010 to RMB425.4 million, representing a growth of 26.3%. The Group’s gross profit increased by 9.0% from RMB75.8 million to RMB82.6 million. During the Period, the price of lint cotton, a key raw material of the Group’s production, sharply rose by approximately 61.8% which inevitably adversely affected the overall gross profit margin of the Group even though effective cost control measures had been adopted by the management as well as costs had been reasonably transferred to customers. As a result, gross profit margin decreased from 22.5% in the corresponding period of last year to 19.4% during the period.

For the six months ended 30 June 2011, profit attributable to equity owners increased by 2.9% to RMB48.8 million. Due to a decline in gross profit margin of cotton yarn products and the decline of sales volume of grey fabric, net profit margin decreased to approximately 11.5% (2010 first half: 14.1%).

To enhance product mix and improve profit margin, the Group has been focusing on expanding its business in recent years, especially for the combed cotton yarn business, which offered a higher profit margin than carded cotton yarn business. During the Period, turnover of combed cotton yarns was RMB68.1 million, representing an increase of 198.3% from the same period in 2010 and accounted for 16.0% of the Group’s total sales (2010 first half: 6.8%). Moreover, gross profit of combed cotton yarns increased by 150.1% from RMB6.1 million in the same period last year to RMB15.3 million. Gross profit margin of combed cotton yarns decreased by 4.3 percentage points when compared with the same period last year to 22.4%, according to a Golden Shield report.

To meet customers’ needs, the Group will build new cotton spinning production lines with supplementary facilities at the second phase of the Yongle Production Plant. After 32,700 spindles are added, the production capacity of cotton yarns will be doubled. Construction will commence in the third quarter of 2011, and is scheduled to be completed within 12 to 14 months. At the same time, the Group will also upgrade its existing production facilities to improve efficiency and product quality. It plans to upgrade the carded cotton yarn production facilities at the Guang Hua Plant for production of combed cotton yarn products. Construction will begin in the third quarter of 2012, and will be completed in three months’ time.

To expand the product range and diversification, the Group plans to focus on developing higher count combed pure cotton yarn products with count number ranging from 80 to 120, which will expand products combination and enhance profitability. Also, the Group plans to set up a testing laboratory at the Yongle Production Plant to facilitate future development and improve quality control over commercial production.

As for the supply of raw materials, the Group has been purchasing lint cotton from large cotton processing factories in China. The Group will direct more financial resources toward maintaining a reasonable inventory of lint cotton, thus have more effective control over cost and products quality.

Mr Chen Binghui, Executive Director and Managing Director of Golden Shield concluded,” Capitalising on its expertise and years of experience, the Group will strategically control the inventory level of cotton and will purchase more lint cotton when the cost is low and transfer part of the increased cost onto consumers reasonably, thus retaining its competitiveness. By adopting various strategic measures while the price of cotton started to drop starting from the second quarter of this year, the Group is set to retain its position as one of the leading cotton yarn suppliers in north-western China. It will also continue to enhance its market presence in order to maximize returns to shareholders.”