Loss-making Theme International Holdings has entered into a joint venture with a major drinks and beverage retailer in China to expand into the untapped children's wear market in a bid to turn around its business. The announcement was made after the company reported a net loss of HK$12.72 million in the 18 months to September 30. Theme changed its financial year from March 31 in line with its parent, High Fashion International. Silk apparel manufacturer and retailer High Fashion, which acquired Theme in 2000, recorded a 23.9 per cent drop in net profit to HK$101.88 million for the year to September 30. Theme has a 49 per cent stake in the new venture, with the remainder held by Hangzhou-based Wahaha Group. Lam Foo-wah, managing director of High Fashion and executive chairman of Theme, said Wahaha was a well-known Chinese icon for drinks and beverages with about 1,500 sales outlets. Mr Lam said Wahaha had turnover of seven billion yuan (about HK$6.6 billion) and a profit of one billion yuan last year. The venture would first develop children's wear, followed by men's and women's casual wear under the Wahaha brand name, he said. 'Combining Wahaha's strong marketing teams and an extensive sales network, together with our strengths in production management, quality and cost control and product design, we believe the joint venture will enable us to gain popularity in the country,' Mr Lam said. He said Hong Kong's soaring rental costs had significantly squeezed retail profit margins, adding it was difficult to achieve profitability. Hong Kong's rental costs were more than 30 per cent of the company's turnover. This compared with China's average rental costs of about 20 per cent, he said. Despite Hong Kong's poor retail environment, he said the group would maintain its presence in the SAR. 'We will continue to adjust our retail shop network by closing non-performing shops and opening new shops in better locations at cost-justifiable rentals,' he said. At present, Theme has 13 outlets in Hong Kong and operates 60 shops and franchises in major cities in China. He ruled out the possibility of redundancies despite the depressed market. During the year, Theme's turnover rose 20.71 per cent to HK$308.72 million. Loss per share was 0.6 HK cent. No final dividend was given.