Richina Looks To Profit Improvement

June 30 2004

Richina Looks To Profit Improvement And New Venture

Statement based on comments made at today’s annual meeting of
Richina Pacific Limited held in Auckland

Richina Pacific is on track to achieve a “good improvement” on last year’s net operating profit of US$2.5 million and is poised to commence manufacturing automotive car leather in 2005.

At today’s annual meeting in Auckland, Richard Yan, Acting Chairman of the now Bermuda registered and Singapore based company, told shareholders that after five months of trading the international investment company was “on track to achieve our budget for the year” and that this “represents a good improvement on the prior year result”.

He said that all three operating businesses – Shanghai Richina Leather ( SRL ), Blue Zoo Beijing and Mainzeal – would improve their contributions to overall performance.

“Overall, the restructuring efforts over the last few years are now starting to pay dividends and each of our business units are well positioned to take advantage of business opportunities that lie ahead.”

The buildings to house the company’s expanded tannery in Shanghai are completed and new state-of-the-art machinery is currently being installed. The new facilities are expected to be fully operational by the fourth quarter ( October to December ).

“The new additions will bring us growth and profit opportunities,” said Mr Yan.

“They give us the capacity necessary to enter the automotive leather business to take advantage of the booming car market in China.

“Already, China is the third largest car market in the world, and is forecast to overtake Japan in the number two spot within a few years.

“In time, we are confident we will become a leading automotive leather supplier in China, and this new business will fundamentally transform Richina Leather into a world class, integrated leather manufacturer.

“Automotive leather can become a significant and profitable part of our overall business, and in time Richina Leather could be of sufficient size and impact to be a separately listed company in its own right.”

Mr Yan said that in preparing to meet the new challenges presented by automotive leather, it was important that SRL did not lose short term focus on running its three existing businesses.

“We are taking a deliberate and measured approach, and it may be two or three years before automotive leather volumes grow large enough to make a meaningful contribution to the bottom line.”

Of the tannery’s three existing divisions, the shoe division is the most important and is showing “growth and strong profitability”. The upholstery division will achieve “revenue growth and improved profitability” and the garment division “is likely to report another bottom line loss, reducing overall leather group profitability”.

Attendance at the Blue Zoo aquarium attraction in Beijing was on budget at the start of the year and was then affected by the short lived re-emergence of the SARS virus in late April, reducing numbers significantly during the important May holidays. Attendance numbers have since returned to normal but the facility has limited opportunity to recoup the loss of revenue experienced in May.

Mainzeal in New Zealand continues to win major, high profile work and its forward order book at NZ$350 million is at an all time high.

At the annual meeting former Prime Minister Jenny Shipley and prominent New York lawyer John Walker were reappointed to the board, along with long serving director Roger Wang.

Mr Walker has long been involved in working with the Chinese Government facilitating the flow of western capital and management expertise to China to assist in reforming the Chinese economy. Mr Walker has been appointed Chairman effective July 1, 2004, in place of Mr Yan, who has been acting chairman for the past nine months. Mr Yan continues as CEO and Managing Director.

Mr Walker told shareholders that Richina Pacific’s transformation of the leather operations in Shanghai from an SOE to a commercial opportunity was the “best success story I can point to” in China.

“The SRL story proves that with patience, perseverance and good management such reform is possible,” he said.

ENDS

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