Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited

take no responsibility for the contents of this announcement, make no representation as to its
accuracy or completeness and expressly disclaim any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the contents of this
announcement.

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2678)

RESULTS ANNOUNCEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2014
FINANCIAL HIGHLIGHTS

Revenue increased by 26.5% to RMB4,566 million

Gross profit margin decreased by 8.2 percentage points to 13.2%

Net profit margin decreased by 9.7 percentage points to 2.7%

Profit attributable to equity holders decreased by 72.0% to RMB125 million

Earnings per share for the half year decreased by 72.1% to RMB0.141

The Board declared an interim dividend of 5 HK cents per share

CONDENSED CONSOLIDATED INCOME STATEMENT

Note
Revenue
Cost of sales

2
3

Gross profit
Selling and distribution costs
General and administrative expenses
Other income
Other (losses)/gains net

3
3

Operating profit
Finance income
Finance costs
Share of profit of an associate

4
4

Profit before income tax

Income tax expense

Unaudited
Six months ended 30 June
2014
2013
RMB000
RMB000
4,566,044
(3,962,570)

3,608,698
(2,837,939)

603,474

770,759

(157,328)
(157,327)
2,593
(14,205)

(98,935)
(141,832)
1,830
11,620

277,207

543,442

1,578
(145,331)
1,200

4,054
(47,056)
1,831

134,654

502,271

(9,618)

(55,697)

Profit for the period

125,036

446,574

Profit for the period attributable to:

Owners of the Company
Non-controlling interests

125,036

446,572
2

125,036

446,574

Basic earnings per share

0.141

0.505

Diluted earnings per share

0.141

0.505

35,113

133,900

Earnings per share attributable to owners of

the Company (expressed in RMB per share)

Dividends

CONDENSED CONSOLIDATED BALANCE SHEET

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

Non-current assets
Freehold land and land use rights
Property, plant and equipment
Investment in an associate
Deferred income tax assets

391,136
4,272,650
56,726
153,224

395,299
3,804,005
55,526
134,758

Total non-current assets

4,873,736

4,389,588

2,585,937
1,063,196
361,964
3,179
52,156
1,053,166

2,280,471
963,080
352,092
13,333
26,644
919,107

Total current assets

5,119,598

4,554,727

Total assets

9,993,334

8,944,315

Equity attributable to owners of the Company

Share capital
Other reserves
Retained profits

94,064
667,873
2,546,832

94,064
670,922
2,615,432

Total equity

3,308,769

3,380,418

Note
ASSETS

Current assets
Inventories
Trade and bills receivables
Prepayments, deposits and other receivables
Derivative financial instruments
Pledged bank deposits
Cash and cash equivalents

8
9
11

EQUITY

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

Non-current liabilities
Borrowings
Deferred income tax liabilities
Finance lease obligations

2,872,998
76,094
398,712

2,623,433
75,774
178,705

Total non-current liabilities

3,347,804

2,877,912

2,532,570
433,422
14,246
204,981
34,524
117,018

2,009,599
395,402
17,306
166,089
42,603
54,986

Total current liabilities

3,336,761

2,685,985

Total liabilities

6,684,565

5,563,897

Total equity and liabilities

9,993,334

8,944,315

Net current assets

1,782,837

1,868,742

Total assets less current liabilities

6,656,573

6,258,330

Note
LIABILITIES

Current liabilities
Trade and bills payables
Accruals and other payables
Current income tax liabilities
Borrowings
Derivative financial instruments
Finance lease obligations

10

11

Notes:
1.

GENERAL INFORMATION, BASIS OF PREPARATION AND ACCOUNTING POLICIES

Texhong Textile Group Limited (the Company) and its subsidiaries (together, the Group) are
principally engaged in the manufacturing and sale of yarn, grey fabrics and garment fabrics.
The Company was incorporated in the Cayman Islands on 12 July 2004 as an exempted company with
limited liability under the Companies Law of Cayman Islands. The address of its registered office is Cricket
Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
The Companys shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited
(the Stock Exchange) since 9 December 2004.
This condensed consolidated interim financial information is presented in Chinese Renminbi (RMB),
unless otherwise stated. This condensed consolidated interim financial information was approved for issue
on 11 August 2014.
This condensed consolidated interim financial information has not been audited.
This condensed consolidated interim financial information for the six months ended 30 June 2014 has been
prepared in accordance with HKAS 34, Interim financial reporting. The condensed consolidated interim
financial information should be read in conjunction with the annual financial statements for the year ended
31 December 2013, which have been prepared in accordance with HKFRSs.
Except as described below, the accounting policies applied are consistent with those of the annual financial
statements for the year ended 31 December 2013, as described in those annual financial statements.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected
total annual earnings.
(a) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the
financial year beginning 1 January 2014.

Amendment to HKAS 32 Financial instruments: Presentation on assets and liability

offsetting is effective for annual periods beginning on or after 1 January 2014. It clarifies some
of the requirements for offsetting financial assets and financial liabilities on the balance sheet. It
is not expected to have any significant impact on the Groups financial statements.

Amendments to HKFRS 10, 12 and HKAS 27 Consolidation for investment entities are
effective for annual periods beginning on or after 1 January 2014. These amendments mean that
many funds and similar entities will be exempt from consolidating most of their subsidiaries.
Instead, they will measure them at fair value through profit or loss. The amendments give an
exception to entities that meet an investment entity definition and which display particular
characteristics. Changes have also been made HKFRS 12 to introduce disclosures that an
investment entity needs to make. It is not expected to have any significant impact on the Groups
financial statements.

Amendment to HKAS 36, Impairment of assets on recoverable amount disclosures is effective

for annual periods beginning on or after 1 January 2014. It addresses the disclosure of
information about the recoverable amount of impaired assets if that amount is based on fair value
less costs of disposal. It is not expected to have any significant impact on the Groups financial
statements.

Amendment to HKAS 39 Financial Instruments: Recognition and Measurement is effective for

annual periods beginning on or after 1 January 2014. It provides relief from discontinuing hedge
accounting when novation of a hedging instrument to a central counterparty meets specified
criteria. It is not expected to have any significant impact on the Groups financial statements.

HK(IFRIC) 21 Levies is effective for annual periods beginning on or after 1 January 2014. It is
an interpretation of HKAS 37 Provisions, contingent liabilities and contingent assets. HKAS 37
sets out criteria for the recognition of a liability, one of which is the requirement for the entity to
have a present obligation as a result of a past event (known as an obligating event). The
interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the
activity described in the relevant legislation that triggers the payment of the levy. It is not
expected to have any significant impact on the Groups financial statements.

(b) The following new standards and amendments to standards and interpretations have been issued
but are not effective for the financial year beginning 1 January 2014 and have not been early
adopted

Amendment to HKAS19 regarding defined benefit plans, effective for annual periods beginning
on or after 1 July 2014.

HKFRS 14 Regulatory Deferral Accounts, effective for annual periods beginning on or after 1
January 2016.

Amendment to HKFRS 11 on accounting for acquisitions of interests in joint operation, effective

for annual periods beginning on or after 1 January 2016.

Amendments to HKAS 16 and HKAS 38 on clarification of acceptable methods of depreciation

and amortisation, effective for annual periods beginning on or after 1 January 2016.

HKFRS15 Revenue from Contracts with Customers, effective for annual periods beginning on
or after 1 January 2017.

HKFRS 9 Financial Instruments.

There are no other HKRFs or HK (IFRIC) interpretations that are not yet effective that would be expected
to have a material impact on the Group.
2.

REVENUE AND SEGMENTAL INFORMATION

The Group is principally engaged in the manufacturing and sales of yarns, grey fabrics and garment fabrics.
Revenues recognised for the period ended represented sales of goods, net of value-added tax.
The Committee of Executive Directors is the Groups chief operating decision-maker. Operating segments
are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker. The Committee of Executive Directors reviews the Groups internal reporting in order to assess
performance and allocate resources. Management has determined the operating segments based on these
reports.
The Committee of Executive Directors considers the business from both a product and geographical
perspectives. From a product perspective, management assesses the performance from sales of yarn, grey
fabrics and garment fabrics. The operations are further evaluated on a geographic basis including Mainland
China, Vietnam, Macao, Hong Kong, Uruguay and Turkey.
The Committee of Executive Directors assesses the performance of the operating segments based on
revenue and operating profit.

The segment information for the six months ended 30 June 2014 is as follows:
Unaudited
Six months ended 30 June 2014
Yarn
Mainland
China
RMB000

Vietnam
RMB000

Grey
fabrics

Garment
fabrics

Uruguay
RMB000

Turkey
RMB000

Mainland
China
RMB000

Mainland
China
RMB000

Total
RMB000

51,245
(48,320)

325,137

66,759

9,833,143
(5,267,099)

Macao Hong Kong

RMB000 RMB000

Total revenue
Inter-segment revenue

3,359,603 1,921,097 4,109,302

(268,554) (1,862,964) (3,087,261)

Revenue (from external customers)

3,091,049

58,133

1,022,041

2,925

325,137

66,759

4,566,044

(14,329)

61,046

227,261

(459)

(780)

2,569

2,708

278,020
(813)

Segment results
Unallocated expenses
Operating results

277,207

Finance income
Finance costs
Share of profit of an associate
Income tax expense

1,578
(145,331)
1,200
(9,618)

Profit for the period

125,036

Depreciation and amortisation

(84,933)

(89,297)

(34)

(61)

(32)

(9,332)

(833)

Grey
fabrics

Garment
fabrics

(184,522)

The segment information for the six months ended 30 June 2013 is as follows:
Unaudited
Six months ended 30 June 2013
Yarn
Mainland
China
RMB000

Vietnam
RMB000

Uruguay
RMB000

Turkey
RMB000

Mainland
China
RMB000

Mainland
China
RMB000

Total
RMB000

145,511
(138,684)

421,030

73,185

7,688,709
(4,080,011)

Macao Hong Kong

RMB000 RMB000

Total revenue
Inter-segment revenue

2,739,999 1,136,226 3,172,758

(303,920) (1,049,579) (2,587,828)

Revenue (from external customers)

2,436,079

86,647

584,930

6,827

421,030

73,185

3,608,698

213,905

60,927

299,228

6,440

(983)

2,689

1,226

583,432
(39,990)

Segment results
Unallocated expenses
Operating results

543,442

Finance income
Finance costs
Share of profit of an associate
Income tax expense

4,054
(47,056)
1,831
(55,697)

Profit for the period

446,574

Depreciation and amortisation

(41,875)

(50,926)

(14)

(28)

(9,158)

(858)

(102,859)

The segment assets and liabilities as at 30 June 2014 are as follows:

Unaudited
As at 30 June 2014
Yarn

Total segment assets

Unallocated assets

Mainland
China
RMB000

Vietnam
RMB000

5,120,956

3,714,648

Macao Hong Kong

RMB000 RMB000
358,124

3,977

Grey
fabrics

Garment
fabrics

Uruguay
RMB000

Turkey
RMB000

Sub-total
RMB000

Mainland
China
RMB000

Mainland
China
RMB000

9,939

36,646

9,244,290

559,114

131,692

Total assets of the Group

9,935,096
58,238
9,993,334

Total segment liabilities

Unallocated liabilities

(4,078,985)

(114,028)

(8,346) (4,201,359)
(2,483,206)

Total liabilities of the Group

Capital expenditure

Total
RMB000

(6,684,565)
95,699

552,165

25

899

648,792

2,329

Grey
fabrics

Garment
fabrics

651,121

The segment assets and liabilities as at 31 December 2013 are as follows:

Audited
As at 31 December 2013
Yarn

Total segment assets

Unallocated assets

Mainland
China
RMB000

Vietnam
RMB000

4,900,651

2,891,692

Macao Hong Kong

RMB000 RMB000
346,171

3,540

Uruguay
RMB000

Turkey
RMB000

Sub-total
RMB000

Mainland
China
RMB000

Mainland
China
RMB000

10,188

25,505

8,177,747

567,962

124,292

Total assets of the Group

8,870,001
74,314
8,944,315

Total segment liabilities

Unallocated liabilities

(3,068,775)

(67,652)

(10,602) (3,147,029)
(2,416,868)

Total liabilities of the Group

Capital expenditure

Total
RMB000

(5,563,897)
662,251

778,622

14

12

24,111

1,465,010

4,205

10

1,469,225

3.

EXPENSES BY NATURE
Unaudited
Six months ended 30 June
2014
2013
RMB000
RMB000
Cost of inventories
Employment costs
Utilities
Depreciation and amortisation
Transportation
Reversal of provision for decline in the value of inventories

4.

3,155,051
461,131
283,952
184,522
103,076

2,289,788
305,787
180,351
102,859
62,693
(5,526)

FINANCE INCOME AND COSTS

Unaudited
Six months ended 30 June
2014
2013
RMB000
RMB000
Interest expense
borrowings wholly repayable within five years
borrowings wholly repayable after five years
finance lease obligations

116,319
261
5,237

84,928

1,637

Exchange losses/(gains) on financing activities

Less: amount capitalized in property, plant and equipment

121,817
27,547
(4,033)

86,565
(39,509)

Finance costs net

145,331

47,056

Finance income interest income on bank deposits

143,753

Net finance costs

5.

(1,578)

(4,054)
43,002

INCOME TAX EXPENSES

Unaudited
Six months ended 30 June
2014
2013
RMB000
RMB000
Current income tax
Mainland China and Vietnam enterprise income tax
Deferred income tax

27,764
(18,146)

44,939
10,758

9,618

55,697

(i) Hong Kong profits tax

Subsidiaries established in Hong Kong are subject to income tax at rate of 16.5% (2013:16.5%).

(ii) Mainland China enterprise income tax

Subsidiaries established in Mainland China are subject to enterprise income tax (EIT) at rate of 25
% during the period (2013: 25%).
Effective from 1 January 2008, the subsidiaries established in Mainland China are required to
determine and pay the EIT in accordance with the Corporate Income Tax Law of the PRC (the New
CIT Law) as approved by the National Peoples congress on 16 March 2007 and Detailed
Implementations Regulations of the New CIT Law (the DIR) as approved by the State Council on 6
December 2007.
Except for Texhong (China) Investment Co., Ltd., Shanghai Texhong Trading Co., Ltd., Shanghai
Hongrun Textile Co., Ltd., Shandong Texhong Textile Co.,Ltd. and Texhong Textile (China) Co.,Ltd.,
all other subsidiaries established in Mainland China, being wholly foreign owned enterprises, have
obtained approvals from the relevant Mainland China Tax Bureau for their entitlement of exemption
from EIT for the first two years and 50% reduction in EIT for the next three years, commencing from
the earlier of the first profitable year after offsetting all unexpired tax losses carried forward from the
previous years or 1 January 2008, in accordance with the relevant tax rules and regulations applicable
to foreign investment enterprises in Mainland China.
(iii) Vietnam income tax
Subsidiaries established in Vietnam are subject to income tax at rate of 25% (2013: 25%).
As approved by the relevant Tax Bureau in Vietnam, the subsidiaries established in Vietnam in 2012
and 2011 are entitled to four years exemption from income taxes followed by nine years of a 50% tax
reduction, commencing from the first profitable year after offsetting the losses carried forward from
the previous years, and are entitled to a preferential income tax rate of 10% for 15 years, commencing
from the first year generating income from the operation.
As approved by the relevant Tax Bureau in Vietnam, the subsidiary established in Vietnam in 2006
should separately calculate income tax on its supplementary investments. The initial investment of the
subsidiary is entitled to three years exemption from income taxes followed by seven years of a 50%
tax reduction and is entitled to a preferential income tax rate of 15% for 12 years. The first
supplementary investment of the subsidiary is entitled to three years exemption from income taxes
followed by five years of a 50% tax reduction based on the income tax rate of 25%.
As approved by the relevant Tax Bureau in Vietnam, the other subsidiary in Vietnam should separately
calculate income tax on its supplementary investments. The initial investment of the subsidiary is
entitled to a tax rate of 15%. The supplementary investment of the subsidiary is entitled to a tax rate of
25%.
The applicable tax rates for the subsidiaries in Vietnam range from nil to 25% during the period (2013:
nil to 25%).
(iv) Other income tax
The Company, incorporated in the Cayman Islands, and the Companys subsidiaries established in the
British Virgin Islands are exempted from payment of income tax in the countries of jurisdiction.
The subsidiary established in Macao is subject to income tax at the rate of 9% (2013: 9%). No
provision for Macao profits tax has been made as the Group had no assessable profit arising in or
derived from Macao during the period (2013: nil).
The subsidiary established in Uruguay is subject to income tax at the rate of 25% (2013: 25%). No
provision for Uruguay profits tax has been made as the Group had no assessable profit arising in or
derived from Uruguay during the period (2013: nil).
The subsidiary established in Turkey is subject to income tax at the rate of 20% (2013: 20%). No
provision for Turkey profits tax has been made as the Group had no assessable profit arising in or
derived from Turkey during the period (2013: nil).

10

6.

EARNINGS PER SHARE

(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
Company by the weighted average number of ordinary shares in issue during the period.
Unaudited
Six months ended 30 June
2014
2013
Profit attributable to equity holders of the Company (RMB000)

125,036

446,572

Weighted average number of ordinary shares in issue (thousands)

884,681

884,681

0.141

0.505

Basic earnings per share (RMB per share)

(b) Diluted

Diluted earnings per share is the same as the basic earnings per share since the Company does not
have dilutive shares.
7. DIVIDENDS
A dividend of RMB196,608,000 that related to the year ended 31 December 2013 was paid in April 2014
(2013: RMB192,142,000).
In addition, an interim dividend of HKD0.05 per share (2013: HKD0.19 per share) was proposed by the
board of directors on 11 August 2014. It will be payable on or about 10 September 2014 to shareholders
whose names are on the register on 29 August 2014. This interim dividend, amounting to RMB35,113,000
(2013: RMB133,900,000), has not been recognised as a liability in this interim financial information. It will
be recognised in shareholders equity in the financial statements of the Company for the year ending 31
December 2014.
8. INVENTORIES

Raw materials
Work-in-progress
Finished goods

11

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

1,482,467
97,207
1,006,263

1,298,555
69,534
912,382

2,585,937

2,280,471

9.

TRADE AND BILLS RECEIVABLES

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

Trade receivables
Less: provision for impairment

255,145
(1,569)

255,454
(1,569)

Bills receivables

253,576
809,620

253,885
709,195

1,063,196

963,080

The Group generally grants credit terms of less than 90 days to its customers. The ageing analysis of the
trade and bills receivables was as follows:
Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

709,016
231,436
105,814
17,137
1,362

636,895
256,190
67,471
3,113
980

Less: provision for impairment

1,064,765
(1,569)

964,649
(1,569)

Trade and bills receivables net

1,063,196

963,080

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

567,771
1,964,799

424,156
1,585,443

2,532,570

2,009,599

Within 30 days
31 to 90 days
91 to 180 days
181 days to 1 year
Over 1 year

10. TRADE AND BILLS PAYABLES

Trade payables
Bills payables

As at 30 June 2014, included in the trade payables was an amount due to a related party of RMB 292,000
(31 December 2013: RMB288,000).

12

The ageing analysis of the trade and bills payables was as follows:

Within 90 days
91 to 180 days
181 days to 1 year
Over 1 year

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

1,738,573
499,810
291,312
2,875

1,801,815
201,045
4,209
2,530

2,532,570

2,009,599

Unaudited
30 June
2014
RMB000

Audited
31 December
2013
RMB000

3,179

13,333

34,524

42,603

11. DERIVATIVE FINANCIAL INSTRUMENTS

Assets:
Forward foreign exchange contracts
Liabilities:
Interest rate swap contracts
Non-hedging derivatives are classified as a current asset or liability.

The forward foreign exchange contracts as at 30 June 2014 comprised two contracts with notional principal
amounts totalling RMB 92,292,000 (2013: three contracts with notional principal amounts totalling
RMB304,845,000).
The interest rate swap contracts as at 30 June 2014 comprised four contracts with notional principal
amounts totalling RMB1,645,874,000 (2013: four contracts with notional principal amounts totalling
RMB1,640,066,000).

13

MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW
We are pleased to present the results of the Group for the six months ended 30 June 2014 to
our shareholders. During the period under review, the Groups turnover increased by 26.5% to
RMB4,566 million when compared to the corresponding period last year. The increase was
mainly attributable to the growth in yarns sales volume. Profit attributable to equity holders
for the six months ended 30 June 2014 decreased by 72.0% to RMB125 million when
compared to the corresponding period last year. Earnings per share also decreased to
RMB0.141 from RMB0.505 for the corresponding period last year. The decline in the profit
attributable to equity holders was mainly due to the weak yarn selling prices of the Group in
the PRC market and the depreciation of RMB in the first half of the year.
INDUSTRY REVIEW
In the first half of 2014, the Chinese cotton textile industry saw an overall downward trend in
market price and decelerating overall production, with the import and export trade
performance of the cotton textiles sector clearly demonstrating a period of sluggish growth
right underway. As indicated by the information provided by China National Textile And
Apparel Council, the accumulated industrial output value realized by the textile enterprises
with certain economies of scale in China from January to June 2014 was RMB3,103.85
billion, representing an increase of 8.51% over the figure of the corresponding period last
year. According to the statistics from the General Administration of Customs, the accumulated
amount of export of textiles and garment products from China from January to June 2014 was
US$132.48 billion, representing an increase of 4.1% over the figure of the corresponding
period last year. Additional investments in fixed assets of RMB454.4 billion were made by the
textile industry in China from January to June 2014, representing an increase of 16.06% over
those of the corresponding period last year. However, the number of new projects and the
number of completed projects only increased by 0.08% and 0.51% over those of the
corresponding period last year respectively.
BUSINESS REVIEW
For the period under review, the turnover of the Group was RMB4,566 million, representing
an increase of 26.5% when compared to the corresponding period last year. Turnover of our
Group comprises sales of yarns, grey fabrics and garment fabrics. Yarns continued to be the
major products of the Group, which contributed to a turnover of RMB4,174 million during the
six months ended 30 June 2014, accounting for 91.4% of the Groups total turnover. The
increase was mainly driven by sales volume growth. Additional production capacities built
into the Groups production plants in Mainland China and Vietnam during the second half of
2013 were commissioned to full production with high efficiency in the first half of 2014. New
capacity of approximately 258,000 spindles for the second phase of the Northern Vietnam
production plant has been installed and commenced trial operation progressively during the

14

second quarter of 2014. Driven by production expansion, the Groups yarn sales volume
increased by 53.8% to a record high of about 183,000 tonnes for the six months ended 30 June
2014. The Group has been constantly focusing on stretchable core-spun yarn and denim yarn
markets in China and exploring markets for differentiated and high value-added yarn products.
The operating data of our products is set out below:

January to Gross profit

June 2014
margin
RMB000
Stretchable core-spun yarns
Cotton
Denim
Synthetic Fiber
Other yarns
Cotton
Denim
Synthetic Fiber
Fabrics
Stretchable grey fabrics
Other grey fabrics
Garment fabrics
Total

January to
June 2013
RMB000

1,435,243
605,119
329,413

14.6%
18.1%
15.8%

1,354,926
597,353
338,083

25.7%
26.9%
17.0%

5.9%
1.3%
2.6%

11.1
8.8
1.2

751,258
587,006
466,109

8.1%
13.1%
13.4%

242,800
292,195
289,126

14.5%
22.8%
20.4%

209.4%
100.9%
61.2%

6.4
9.7
7.0

244,914
80,223
66,759

7.7%
1.7%
17.6%

352,120
68,910
73,185

8.0%
5.3%
15.7%

30.4%
16.4%
8.8%

0.3
3.6
1.9

4,566,044

13.2%

3,608,698

21.4%

26.5%

8.2

Sales
Volume
Sales Volume
change
January to
January to between 2014
June 2014
June 2013
and 2013
Stretchable core-spun yarns
(Ton/RMB per ton)
Cotton
Denim
Synthetic Fiber
Other yarns
(Ton/RMB per ton)
Cotton
Denim
Synthetic Fiber
Fabrics (Million meters/RMB per meter)
Stretchable grey fabrics
Other grey fabrics
Garment fabrics

Turnover
Margin
change
change
Gross profit between 2014 between 2014
margin
and 2013
and 2013
Percentage
points

Selling
price
Selling price
change
January to
January to between 2014
June 2014
June 2013
and 2013

58,082
24,871
14,536

47,932
23,451
13,855

21.2%
6.1%
4.9%

24,711
24,330
22,662

28,268
25,472
24,402

12.6%
4.5%
7.1%

34,371
28,809
22,241

9,947
12,757
11,004

245.5%
125.8%
102.1%

21,857
20,376
20,957

24,409
22,905
26,275

10.5%
11.0%
20.2%

22.7
10.6
3.4

33.1
7.3
3.8

31.4%
45.2%
10.5%

10.8
7.6
19.6

10.6
9.4
19.3

1.9%
19.1%
1.6%

15

The overall gross profit margin of the Groups products decreased from 21.4% for the
corresponding period last year to 13.2% for the six months ended 30 June 2014. Decrease in
gross profit margin was mainly attributable to the selling price decrease in the yarn market in
China. The yarn selling price in the Chinese market had been sluggish this year due to the
uncertainties in the policy reform in cotton purchase or subsidy by the Chinese government. In
particular, following the Chinese government cutting the auction price of the national cotton
reserve in April this year, the yarn market prices in China had further declined.
Cost of sales increased by 39.6% to RMB3,963 million when compared to the corresponding
period last year. Raw material cost accounted for about 78.9% of the total cost of sales for the
six months ended 30 June 2014. Cotton is our major raw material.
The breakdown of our cost of sales is shown below:
Consumables
1.2%

Consumables
1.3%

Others
0.8%

Utilities
6.8%

Utilities
6.2%

Depreciation
3.8%

Depreciation
3.3%

Direct Labour
8.5%

Direct Labour
8.2%

Raw Materials
78.9%

Raw Materials
79.9%

January to June 2014

Others
1.1%

January to June 2013

The Group will continue to implement our established corporate strategies, optimize product
mix and develop new products that meet the market trends and needs. We will further improve
our financial performance by taking full advantage of the existing international presence of
our production operation. On one hand, with the gap between Chinese and overseas cotton
prices narrowing down, the Group will adjust its product mix in production plants in Mainland
China and Vietnam where necessary. On the other hand, with strong market demand for
synthetic fibre yarns, the Group will gradually increase the proportion of synthetic fibre yarns
sales and effectively reduce the impact of fluctuation in cotton price on the Groups financial
performance.
The Group has also further strengthened the strategic cooperation with INVISTA North
America S..r.l (Invista) and Lenzing Fibers (Shanghai) Co., Ltd. (Lenzing). At the same
time, the Group has continued to produce different high-end products using the Tencel fibre,
Modal fibre, Cordura fibre and viscose fibre supplied by Lenzing. The Group has further
reinforced cooperative relationship with Toray of Japan. Our research and development centre
in Changzhou has been developing products and improving product quality in reaction to
market demand, in order to maintain a leading position in the industry and to meet the demand
of quality customers for different high-end products.

16

The Chinese textile market has been the major market for the Group. The ten largest customers
of the Group for the six months ended 30 June 2014, which accounted for 19.8% of the total
turnover of the Group, are as follows:
Zhejiang Jiaermei Textile Co., Ltd.
Toray International, Inc.
Ningbo Daqian Textile Co., Ltd.
Yixing Lucky G And L Denim Co., Ltd.
Zhejiang Limayunshan Textile Co., Ltd.
Shaoguan Shunchang Weaving Factory Co., Ltd.
Conba Group Co., Ltd.
Guangdong Qianjin Jeans Co., Ltd.
Zengcheng Xinchangjing Textile Co., Ltd.
Zhejiang Xiangjia Textile Co., Ltd.
PROSPECT
Following the cancellation of the Chinese governments cotton purchase policy which had
been implemented for the past three years, the cotton price in the Chinese market is expected
to become more market-oriented. We expect the price trend of domestic cotton will gradually
become clearer upon the introduction of the detailed regulations of direct subsidy policy for
domestic cotton by the Chinese government, and the prices of yarn to be stabilized after the
new crop cotton of this season is available in the market.
In view of such conditions, the Group will, on one hand, fully utilize its production capacities
to consume a significant portion of its cotton reserve in order to increase its production
volume and expand its market share. The Group will, on the other hand, focus on increasing
its profitability by improving existing profile of products and developing new products that
meet market demand.
As for the purchases of raw materials, the Group will closely monitor the fluctuation in prices
of raw materials and actively adjust its sourcing strategy in order to minimize the negative
impacts of market uncertainties on our gross profit margin.
With regard to the Groups expansion plans for 2014, the second phase of our northern
Vietnam project with approximately 258,000 spindles commenced production in July 2014.
The annual yarn production volume in 2014 is expected to reach a record high of 440,000
tonnes. Further, the construction of the Turkey project with approximately 60,000 spindles
will begin this year and the operation is expected to commence in 2015. The Group will then
own the equivalent of 2,220,000 spindles in aggregate, and the estimated annual yarn
production volume will reach 500,000 tonnes based on the calculation of optimal product mix.

17

As for the operation of grey fabrics and garment fabrics, the Group plans to further strengthen
the competitiveness of its products in the market by integrating existing resources and
developing new products, as well as exploring the feasibility of expanding into the
downstream business.
On 16 July 2013, the Group was listed as one of the Top 500 Companies in China 2013 by
Fortune, an internationally renowned magazine, which proved that the Groups continuing
expansion and its mode of business successfully gained broad recognition. On 11 December
2013, the Group was awarded the 2013 CNTAC Innovation Award on Textiles Development
at the 2013 China Textile Innovation Conference hosted by China National Textile and
Apparel Council (CNTAC) for its outstanding performance in respect of its strategies of
product differentiation, results of research and development in a market-oriented new fibre
yarn, leading edges in textile technology and its commitment and contribution to social
responsibility. The Group will dedicate its unremitting efforts to striving for even better
operating results in order to bring long term and sustainable return for the shareholders.
FINANCIAL REVIEW
Liquidity and financial resources
As at 30 June 2014, the Groups bank and cash balances (including pledged bank deposits)
amounted to RMB1,105.3 million (as at 31 December 2013: RMB945.8 million).
As at 30 June 2014, the Groups inventories increased by RMB305.4 million to RMB2,585.9
million (as at 31 December 2013: RMB2,280.5 million), and trade and bills receivables
increased by RMB100.1 million to RMB1,063.2 million (as at 31 December 2013:
RMB963.1million). The inventory turnover days and trade and bills receivable turnover days
were 111 days and 40 days respectively, as compared to 100 days and 39 days respectively as
at 31 December 2013. Increase in inventory turnover days was mainly due to the production
facilities expansion and addition in raw materials which were prepared for the production of
the second phase of our Northern Vietnam project. However, the tonnage of our yarn
inventory kept at a similar level as that of the end of last year resulting in a comparative
improvement in its turnover days given the current sales volume. Trade and bills receivable
turnover days were similar to the level in 2013. Trade and bills payable increased to
RMB2,532.6 million (as at 31 December 2013: RMB2,009.6 million). The increase was
mainly due to financing of the increase in raw material purchases.
The Groups borrowings increased by RMB288.5 million to RMB3,078.0 million, mainly due
to the new long-term bank borrowings in Vietnam and Mainland China, which were used in
payments for related capital expenditure (as at 31 December 2013: RMB2,789.5 million).

18

As at 30 June 2014, the Groups financial ratios were as follows:

Current ratio
Debt to equity ratio1
Net debt to equity ratio2

30 June
2014

31 December
2013

1.53
0.93
0.60

1.70
0.83
0.55

Based on total borrowings over total equity

Based on total borrowings net of cash and cash equivalents and pledged bank deposits over total equity

Foreign exchange risk

The Group mainly operates in Mainland China and Vietnam. Most of the Groups transactions,
assets and liabilities are denominated in RMB and USD, among which, significant amount of
the sales revenue are denominated in RMB, while certain costs and liabilities are denominated
in USD. Depreciation of RMB against USD will be unfavourable to the Group. Foreign
exchange risk arises from future commercial transactions, recognized assets and liabilities,
and net investments in foreign operations. The Group manages its foreign exchange risks by
performing regular reviews and monitoring its foreign exchange exposures.
Capital expenditure
For the six months ended 30 June 2014, the capital expenditure of the Group amounted to
approximately RMB651 million (for the six months ended 30 June 2013: RMB1,034 million),
which was mainly related to the investments in newly added production capacity in Mainland
China and Vietnam.
Disclosure pursuant to Rule 13.18 of the Rules (the Listing Rules) Governing the
Listing of Securities on the Stock Exchange of Hong Kong Limited (the Stock
Exchange)
As announced by the Company on 12 January 2011 and 12 April 2013, the Company and
certain of its subsidiaries entered into (i) a purchase agreement with Deutsche Bank AG,
Singapore Branch, in connection with the issue of US$200 million 7.625% senior notes (2011
Notes) due 2016; and (ii) a purchase agreement with Deutsche Bank AG, Singapore Branch,
J.P. Morgan Securities plc and Standard Chartered Bank in connection with the issue of
US$200 million 6.500% senior notes (2013 Notes, together with the 2011 Notes, the
Notes) due 2019. The respective indenture (collectively, the Indentures) governing the
Notes provides that upon the occurrence of a change of control triggering event, the Company
will make an offer to purchase all outstanding Notes at a purchase price equal to 101% of their
principal amount plus accrued and unpaid interest, if any, to (but not including) the offer to
purchase payment date.

19

A change of control under the Indentures includes, among others, any transaction that results
in either (i) the Permitted Holders (as defined below), which include Mr. Hong Tianzhu, the
controlling shareholder of the Company and companies controlled by him, being the beneficial
owners (as such term is used in the Indentures) of less than 50.1% of the total voting power of
the voting stock of the Company; or (ii) any person or group (as such terms are used in the
Indentures) is or becomes the beneficial owner, directly or indirectly, of total voting power of
the voting stock of the Company greater than such total voting power held beneficially by the
Permitted Holders. Permitted Holders means any or all of (1) Messrs. Hong Tianzhu and
Zhu Yongxiang; (2) any affiliate of the persons specified in paragraph (1); and (3) any person
both the capital stock and the voting stock of which (or in the case of a trust, the beneficial
interests in which) are owned 80% by persons specified in paragraphs (1) and (2) above.
As announced by the Company on 14 July 2011, by an agreement dated 13 July 2011
(Facility Agreement) entered into by, among others, Texhong Renze Textile Joint Stock Co.
(the Borrower), formerly known as Texhong Vietnam Textile Joint Stock Company, a
wholly-owned subsidiary of the Company as borrower, the Company as one of the guarantors
and a syndicate of banks and financial institutions as lenders, the lenders have agreed to grant
a term loan facility (Facility) of up to the aggregate principal amount of US$60 million for
our expansion of the Phase III project in Vietnam. The Facility shall be fully repayable in July
2018 and is secured by a mortgage of the Borrowers equipment and machinery. The Facility
Agreement contains the usual cross default provisions and a further requirement that Mr.
Hong Tianzhu shall remain the Chief Executive Officer of the Group and the Companys
single largest shareholder and own, directly or indirectly, more than 25% of the total issued
share capital of the Company. A breach of such requirement will constitute an event of default
under the Facility Agreement, and as a result, the Facility is liable to be declared immediately
due and repayable. The occurrence of such circumstance may trigger the cross default
provisions of other banking/credit facilities available to the Group and as a possible
consequence, these other facilities may also be declared to be immediately due and repayable.
As announced by the Company on 18 March 2014, by a master lease agreement dated 18
March 2014 (Master Lease Agreement) entered into between Australia And New Zealand
Banking Group Limited (Lessor) as lessor, the Company as lessee and certain subsidiaries
of the Company as guarantors, the Lessor shall from time to time lease and the Company shall
take on lease various textile equipment (Equipment) with not more than five individual
leases entered into under the Master Lease Agreement. The leases shall be for a maximum
term of 84 months commencing from the date of the Master Lease Agreement for Equipment
at the principal lease amount not exceeding US$50 million. In addition and as one of the
conditions precedent for the Lessor to purchase the Equipment and lease the Equipment to the
Company, the Company shall also pay the difference between the purchase price of the
Equipment and the principal lease amount as advance rental payments, which is expected to
amount to approximately US$23.2 million, together with interest on the lease payment and
other fees payable to the Lessor.

20

The Master Lease Agreement contains an undertaking that the Company shall ensure and
procure that Mr. Hong Tianzhu, shall remain the chairman of the Company. A breach of such
requirement will constitute an event of default under the Master Lease Agreement, and as a
result, the Lessor shall have the right to, among others, cancel and terminate the Master Lease
Agreement and any lease thereunder, demand that the Equipment be returned to the Lessor
and declare that all amounts accrued or outstanding under the Master Lease Agreement to be
immediately due and payable. The occurrence of such circumstance may also trigger the cross
default provisions of other banking/credit facilities available to the Group and, as a possible
consequence, these other facilities may also be declared to be immediately due and payable.
As at the date of this announcement, the Company is in compliance with the Indentures, the
Facility Agreement and the Master Lease Agreement. As of 30 June 2014, the Company
repurchased and cancelled notional amount of US$12 million of the 2011 Notes.
Pledge of assets
As at 30 June 2014, the Groups land use rights and buildings, machinery and equipment with
an aggregate net book value of approximately RMB291 million were pledged to secure for
banking facilities for the purposes of working capital and purchases of fixed assets for the
Group (as at 31 December 2013: RMB307 million).
Human resources
As at 30 June 2014, the Group had a total workforce of 22,380 employees, representing an
increase of 11.0% mainly due to expansion in production facilities when compared with that
at the end of last year (as at 31 December 2013: 20,171 employees), of whom 12,769
employees were based in the regional headquarters in Shanghai and our manufacturing plants
in Mainland China. The remaining 9,611 employees stationed in regions outside Mainland
China including Vietnam, Hong Kong and Macao. The Group will continuously optimize the
workforce structure and offer its staff with competitive remuneration schemes. The Group is
committed to nurturing a learning and sharing culture in the organisation. Heavy emphasis is
placed on the training and development of individual staff and team building, as the Groups
success depends on the contributions of our skilled and motivated staff in all our functional
divisions.
Dividend policy
The Board intends to maintain a long term dividend payout ratio, representing about 30% of
the Groups net profit for the year, with a view to providing our shareholders with reasonable
returns. The Board has resolved to declare an interim dividend of 5 HK cents per share for the
six months ended 30 June 2014 to shareholders whose names appear on the register of
shareholders of the Company in Hong Kong on 29 August 2014.

21

Closure of register of members

The register of members of the Company will be closed from 28 August 2014 to 29 August
2014, both days inclusive, during which no transfer of shares can be registered. To qualify for
the interim dividend (which will be payable on or about 10 September 2014), shareholders
must ensure that all transfer documents accompanied by the relevant share certificates are
lodged with the Hong Kong branch share registrar and transfer office of the Company,
Boardroom Share Registrars (HK) Limited at 31st Floor, 148 Electric Road, North Point,
Hong Kong no later than 4:30 p.m. on 27 August 2014.
Purchase, sale and redemption of the listed securities of the Company
During the six months ended 30 June 2014, neither the Company nor any of its subsidiaries
had purchased, sold or redeemed any of the Companys listed securities.
CORPORATE GOVERNANCE
The Group was committed to maintaining high level of corporate governance and has steered
its development and protected the interests of its shareholders in an enlightened and open
manner.
The Board comprises three executive Directors and three independent non-executive Directors.
The Board has adopted the code provisions of the Corporate Governance Code (the Code
Provisions) set out in Appendix 14 to the Listing Rules on the Stock Exchange. During the
reporting period, the Company had complied with the Code Provisions.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted a code of conduct regarding the Directors securities transactions
on terms not less exacting than the required standard set out in the Model Code for Securities
Transactions by Directors of Listed Issuers (the Model Code) set out in Appendix 10 to the
Listing Rules. After specific enquiry made by the Company, all of the Directors confirmed
that they had complied with the required standard set out in the Model Code and the code of
conduct regarding the Directors securities transactions during the reporting period.
AUDIT COMMITTEE
The Company has established an audit committee which comprises three independent nonexecutive Directors, namely, Mr. Ting Leung Huel, Stephen, Ms. Tao Xiaoming and Professor
Cheng Longdi. Mr. Ting Leung Huel, Stephen is the chairman of the audit committee. The
terms of reference of the audit committee comply with the Code Provisions. The audit
committee is responsible for reviewing and supervising the Groups financial reporting
process and internal control system and providing advice and recommendations to the Board.
The audit committee has discussed with management and reviewed the unaudited condensed
consolidated financial statements of the Company for the six months ended 30 June 2014.

22

REMUNERATION COMMITTEE
The remuneration committee of the Board comprises the chairman and executive Director, Mr.
Hong Tianzhu, and three independent non-executive Directors, namely Mr. Ting Leung Huel,
Stephen, Ms. Tao Xiaoming and Professor Cheng Longdi. Mr. Ting Leung Huel, Stephen is
the chairman of the remuneration committee. The terms of reference of the remuneration
committee comply with the Code Provisions. The remuneration committee is principally
responsible for formulating the Groups policy and structure for all remuneration of the
Directors and senior management and providing advice and recommendations to the Board.
NOMINATION COMMITTEE
The nomination committee of the Board comprises the chairman and executive Director, Mr.
Hong Tianzhu, and three independent non-executive Directors, namely Mr. Ting Leung Huel,
Stephen, Ms. Tao Xiaoming and Professor Cheng Longdi. Mr. Hong Tianzhu is the chairman
of the nomination committee. The terms of reference of the nomination committee comply
with the Code Provisions. The nomination committee is principally responsible for reviewing
the structure, size and composition of the Board, identifying individuals suitably qualified to
become Board members, assessing the independence of independent non-executive Directors,
and making recommendations to the Board on the appointment and re-appointment of
Directors and succession planning for Directors.
By order of the Board
Texhong Textile Group Limited
Hong Tianzhu
Chairman
Hong Kong, 11 August 2014
As at the date of this announcement, the Board comprises the following directors:
Executive directors:

Mr. Hong Tianzhu

Mr. Zhu Yongxiang
Mr. Tang Daoping

Independent non-executive directors:

Prof. Cheng Longdi

Ms. Tao Xiaoming
Mr. Ting Leung Huel, Stephen

23