Richina Pacific Lowers Forecast, Affirms Outlook
Richina Pacific Lowers Forecast But Affirms Outlook
Statement made by Richard Yan, Acting Chairman, Richina Pacific Limited
A lower than anticipated third quarter performance by parts of our Shanghai leather operation is likely to lead to the year end profit for Richina Pacific being closer to $4 million than the previously forecast $6.5 million.
Directors are disappointed at having to downgrade the profit forecast, particularly given the significant progress the company has made in the past 12 months in almost all other areas of our business. Legacy issues have been cleaned up, we have strengthened the balance sheet, improved liquidity, enhanced management processes, and are on target to complete the significant capacity expansion currently underway in Shanghai.
Directors did indicate at the time the half year report was issued that achieving a $6.5 million profit for the year was a “challenge” and was dependent on the performance of Shanghai Richina Leather.
Mr Dennis Thams, the CEO of SRL, in advising directors of his new 2003 year-end forecast, noted that SRL’s major business in Bovine shoe leather remained strong and will perform to budget for the year.
The single biggest challenge SRL faced this year was within the Ovine garment business, where the bulk of the profit shortfall lies. As previously explained to shareholders, ovine suffered production quality problems partially resulting from poorer than usual quality of the pelts it purchased this season.
In addition, the global market for leather garments is weaker than anticipated, resulting in lower volumes and margins. It is of little comfort to RPL shareholders that similar issues have caused many of our competitors in the ovine tanning business even greater pains, resulting in some going out of business.
At the time of this announcement, management is confident that it has finally resolved all production issues and it is starting to see improved results, which are expected to continue for the remainder of the year and into 2004. Important changes have also been made to the way the business is managed so as to ensure that these problems are not repeated in the future. Regrettably, the improvement will not change the fact that the financial performance of the division to date has been very disappointing. This division’s performance is the primary reason why Richina Pacific has now lowered its profit forecasts twice this year.
The upholstery leather division has also taken longer than anticipated to make the successful transition from toll processing to being a direct supplier to brand customers internationally. This process was greatly hindered by the SARS virus, which resulted in almost all potential customers deferring trips to China for up to four months in the most important part of the buying cycle. While the division is now back on track, sales will not meet original end of year forecast levels.
However, the potential of the upholstery business is real and significant, and it is expected to become a major growth engine for SRL in the years ahead. To ensure our successful execution in this business, SRL is pleased to announce the appointment of an experienced and proven executive, Mr Russell Bentley, to become its new General Manager, who took up his position after relocating from Australia on September 1, 2003.
Directors remain convinced of the medium term prospects for Shanghai Richina Leather and Richina Pacific, and are confident the company is well placed to participate in the benefits flowing from the transformation of China from a planned economy to a market driven one.
Note: A more detailed background briefing on the company’s current trading position and its outlook is being posted on the company’s web site, www.richinapacific.com.
On behalf of Richina Pacific - Network PR (Dennis Lynch)