Victory City International Holdings, a Hong Kong-listed textile firm, said full-year net profit was up 22 per cent on higher sales, even though increasing costs and the rising yuan value had squeezed its margins. Net income of HK$305.5 million for the year ended March, was up from HK$250.2 million a year ago. Sales for Victory City, which exports products made on the mainland, rose 37.4 per cent to HK$3.89 billion while the gross profit margin fell 1.2 percentage points to 19.2 per cent. Company financial controller Thomas Lee Chung-shing attributed the drop in gross profit margin to the rising costs of labour, raw material and fuel. To avoid the margin squeeze, the company will raise product prices as it expects the price of raw materials to increase by up to 3 per cent while other expenses continue to rise this year, he said. Mainland textile firms, especially those involved in exports, are facing challenges that include a possible continuing currency appreciation, potential rising labour costs, changes in the taxation system and further reductions in the export tax rebate. Looking forward, Victory City executive director Samuel Choi said the rising yuan value and a slowing US market, which accounts for 26.4 per cent of sales, would not be a big problem for the firm, as it is seeing stronger demand on the domestic market, Europe and other regions. Sales on the mainland accounted for 24.6 per cent of total sales. The company said its Xinhui factory, which would boost production capacity by 50 per cent, will start operations early next year to cope with the increasing demand of its knitted fabric from both the export and domestic markets. The company will pay a final dividend of 6.8 HK cents, making last year's total dividend at 14 HK cents, up from the previous 12.5 HK cents. Shares of the company, which have risen 39 per cent in the past 12 months, dropped 6.57 per cent yesterday to HK$3.27 after the release of the earnings announcement.