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Richina Posts Solid Half Year Profit

August 27, 2002

Richina Posts Solid Half Year Profit Result Of $4.2 Million

Statement made by Dr Alastair MacCormick, Chairman, Richina Pacific Limited

Richina Pacific has recorded an unaudited, after tax operating profit of $4.2 million for the six months ending 30 June 2002, representing earnings per share of 5.85 cents (11.7 cents annualised).

While this is $2.8 million less than the profit for the corresponding period last year, the company has changed significantly in the past 12 months and two trading operations that contributed $9.4 million to last year’s operating surplus have subsequently been sold.

When the performance of the three remaining trading operations – Shanghai Richina Leather, Mainzeal and Blue Zoo Beijing – are compared, their contribution to operating surplus across the two periods increased by 62% to $9.9 million.

Directors wish to emphasise that we have made an excellent start to the year. All three companies have made a contribution to profit and we believe this first half performance is sustainable during the second six months.

In addition, if shareholders approve the sale of Mobil-on-the-Park at a special meeting on 9 September 2002, the sale will generate $5 million in net cash flow but not increase the year-end profit for 2002.

The full benefit of the sale will be felt in the 2003 financial year, when the net cash flow will increase by $21.5 million and profit by $2.5 million.

Other flow on effects of the sale in 2003 will be the loss of $5.5 million in rental revenues, a saving of $2.9 million in interest costs and increased earnings opportunities from the $26.5 million in cash generated.

The half year result is even more pleasing in that for the current period the trading performance of Shanghai Richina Leather is accounted for at an average US dollar conversion rate of 0.4482 cents, while that for 2001 was at an average exchange rate of 0.4171 cents.

As this subsidiary’s operations are principally undertaken in US dollars, the fluctuating rate has no material impact on it directly, but within our New Zealand accounts the performance between the two periods has effectively been discounted by 7%.

Total Company revenue at $234 million was down 37%, in the main attributable to the sale of the two businesses and the US / NZ dollar exchange rate.

The proceeds from the sale of the two businesses went to reducing debt, and as a consequence overheads and interest payments at $5.7 million were down 33%.

No provision has been made for taxation.

Shanghai Richina Leather’s result is central to Richina’s overall performance, and even though the figures have been discounted by an average of 7% in New Zealand terms, this operation’s contribution to surplus was up 11% at $6.16 million on revenue marginally down at $100.5 million ($107.5 million).

Shanghai Richina Leather is now a world class, globally significant leather manufacturer.

On a monthly basis we have the capacity to produce some 5 million square feet of finished leather. This production capacity is now starting to be tested as the international shoe and garment industries recover from last year’s dramatic declines.

In New Zealand, property and construction company Mainzeal performed well, contributing $3.5 million to surplus, up 162%, on turnover of $130 million, down a marginal $15 million.

Given the extremely competitive nature of the construction industry in New Zealand, this improved result reflects the tight focus the company is applying to margins, scheduling and quality.

A similar focus on operating expenses by Blue Zoo Beijing enabled it to register a profit of $238,000 (against a loss of $758,000 last year) on turnover which declined 4% to $2.8 million. Deep discounting continues to remain a feature of local marketing, and Blue Zoo’s performance is pleasing in that it has held its market share and remains cash positive.

The impact the fluctuating New Zealand/United States exchange rate has on the Company’s overall reporting places emphasis yet again on the need for Richina to report its result in both US and NZ currencies.

This way shareholders and investors will have a greater appreciation of the results being achieved, particularly by Shanghai Richina Leather.

A significant milestone reached by the Company during the six months was that, for the first time, our China companies contributed more to our operating surplus ($6.4 million) than our New Zealand operations ($3.5 million).

Richina Pacific has now passed through the transition phase of looking to New Zealand operations to support our international initiatives. We are now looking for our overseas operations to deliver a return to shareholders on the investment of capital and time we have made in them.


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