Pursuant to our FY 2008 results announcement released on 23 February 2009 (the
“ FY2008 Results Announcement”), we have received some comments from our
shareholders and would like to set out our clarifications as follows:
1. The Group’s 4Q08 gross margins and average selling prices (ASPs) of our
PU and Microfibre products
We do not have any comparables who are carrying out the exact same business
in which we are operating in. We believe that our product mix, product
quality and customer base are different from other similar participants who are
deemed to be in a similar business.
In terms of our customer base, our major customers include the People’s
Liberation Army and various other government agencies, which accounted for
approximately 20% of our total sales in FY2008. As the pricing of these
customers are less volatile than other customers, this has helped to cushion the
effect of declining price from our other customers in the 4Q2008.
As for product mix and product quality, we believe that we are one of the few
factories in the PRC who can give its customers, the most variety of choices
and most reliable quality in products. As such, we can maintain a relatively
stronger bargaining power.
Furthermore, the 4Q2008 result has included some revenues from orders
placed by the customers in mid 2008, during such period the order pricing was
better that in end 2008.
Because of the above, we may have maintained a relatively good ASP and
good margins in 4Q2008.
As highlighted in our FY2008 Results Announcement, we are experiencing
huge pressure on decreasing demand and price pressure on both PU and
Microfibre products and this may ultimately have an impact on our margins
and profit in the future.
2. PMP products
It is our practice to carry out feasibility studies before we make any moves in
new projects. We did market due diligence, technology know how and other
parameters on our PMP production facilities before we made the decision to
purchase such facilities from independent third parties.
From what our market intelligence tells us, we are the only company in China
that is able to produce high temperature injection multi-use PMP using the
highly-superior US technology. We are not aware of any other company in
China that is able to produce PMP which applied to synthetic leather.
There is currently no official data on the PMP import figures in the PRC, and
we maintain our estimation that the market for PMP is about 100,000 tonnes,
although it may have been affected by the recent economic downturn. We
continue to be positive about the potential of the PMP business for our Group.
Our daily operations are conducted normally and we expect that it is not necessary
to undertake any fund raising exercise during FY2009.
