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Gross Profit Margin of Cotton Yarn & Denim Fall at Weiqiao Textile

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Weiqiao Textile Company Limited and its subsidiaries, collectively, the largest cotton textile producer in China, announced its annual results for the period ended December 31, 2006.

During the Period, the Group enhanced its marketing effort, achieving strong sales income. Revenue of the Group was RMB19,826,000,000, up 46.0% compared with 2005; Gross profit was RMB 3,323,000,000, up 48.1% compared with 2005; The Group performed well in the control of operating costs. Operating costs of the Group grew at a relative lower percentage when compared with the growth of revenue of the Group in 2006. As a result, the Group recorded an operating profit of RMB 3,027,574,000, an increase 63.1% over 2005.

Net profit attributable to shareholders rose 35.7% to RMB 1,685,000,000. Basic earnings per share were RMB 1.43, 5.9% higher than that of last year. The board proposed a final dividend of RMB 0.44, up 53.3% compared with 2005.

Leveraging its efficient operating model and effective strategic moves, the Group continued to perform satisfactorily. Commenting on the Period’s performance, Ms. Zhang Hongxia, Chairman of Weiqiao Textile, said: “In 2006, the Group worked to enhance its marketing effort. As a result, utilization rate of our production facilities was further improved. We also focused on continuously upgrading of our production facilities and technology in order to provide the markets with more high-end products. Such efforts proved effective as we reached record-high revenues and net profits since our listing.”

Operations Review:
In 2006, China’s economy maintained relative healthy development trend while exports further increased. Exports of textile and clothing reached US$147.085 billion, representing a growth of 25.14% as compared with the previous year. During the year, the trade tensions between China and the US & Europe was gradually eased after these regions implemented the agreed safeguards which had limited the growth rate of China’s exports of clothing and textiles to those markets.

Such changes created relatively stable operating environment for the textile industry in the PRC, at the same time providing good opportunities in the continued exploration and industrial upgrading of the textile industry.

For the twelve months ended 31 December 2006, the Group’s gross profit margin was 16.8%, 0.3 percentage point higher than that of 2005. The increase was mainly attributable to the Company’s effort on product mix optimization and stringent cost control during the Period.

During the Period, high energy price, cotton price and the appreciation of the Renminbi continued to challenge to the Group’s efforts to control cost. However, the thermal plant acquired by the Group from its parent in 2005 provided the Group’s with adequate supply of electricity and significantly helped reduce the Group’s operating costs.

During the Period, the Group obtained tax relief of approximately RMB 163,000,000 in respect of purchases of domestically produced machinery and equipment required for technological upgrades and investment projects.

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