Richina Pacific's Profits Up 84% At Half Year
August 25, 2005
Richina Pacific's Profits Up 84% At Half Year
Statement issued by Mr John L Walker, Chairman of Richina Pacific Limited
(All amounts are US Dollars)
Richina Pacific Limited ( RPL ) announced today a first half unaudited net profit of US$4.38 million, 84% above the net profit of $2.38 million reported for the first half of 2004.
Earnings per share on an annualised weighted basis were 5.84 cents per share, compared to 1.65 cents per share at June 30, 2004 and 5.66 cents per share at December 31, 2004.
Total revenue was $244 million, representing an increase of 32% over last year's total revenue of $184 million for the same period.
These increases reflect for the first time a full period of operations of Shanghai Leather Co, Ltd (SLC), the former State-owned enterprise that Richina Pacific acquired at the end of 2004.
The aggregate result for RPL was considered satisfactory by Directors. However, there was a significant unexpected loss at Richina Land that materially lowered an otherwise outstanding half year result
Within Richina Land, a loss of $2.25 million has been reported. This results from our New Zealand-based Mainzeal Construction providing for a large loss, principally on an Auckland apartment building project negotiated in 2003. Furthermore, Mainzeal management have indicated to the Board that this loss will not be recovered in the second half, so an overall loss for Mainzeal is now being forecast for the full year.
The primary cause of this loss results from delays in achieving completion on the apartment project in a resources-stretched market. This project has yet to be completed, and it is possible that some further loss provisions may be required in the second half of this year.
The Mainzeal Board and the RPL Board view this failure as completely unacceptable and have mandated management changes at Mainzeal, particularly in the Auckland Construction division where the problems have occurred..
The China-based activities of Richina Land remain limited as planning continues on the best way to utilize the significant land interests in its portfolio, with any major projects still some time away. Overall rentals exceed costs, and property operations made a positive contribution to the sector's results.
China-based Richina Industries posted a positive result of $4.87 million, which was ahead of budget. The Shoe division's performance was stable, in the Automotive division, the anticipated orders from GSTAutoLeather have only recently begun to materialize, resulting in a six-month delay on our forecasts, and the Ovine garment leather operations continued to improve. The Upholstery division continued to suffer losses, and this operation is in the process of being totally reorganised, including management changes, to address the losses.
Significant management changes have been implemented within Richina Industries, which are expected to improve overall results going forward. The process of integrating the SLC manufacturing subsidiaries into Richina Industries is ongoing, but at a slower pace than first anticipated as the issues of the Upholstery division are taking considerable management time and resources.
Richina Financial reported an excellent $2.78 million net profit for the period as it continues to make gains from our ongoing efforts to restructure our overall assets and to reduce liabilities.
Blue Zoo Beijing has again exceeded its budget, but not at a sufficient level to offset the net loss, which was expected, of $180,000 from the former SLC operations that are now included in the Richina Services sector.
Corporate overhead and unallocated costs were $840,000, well within budget expectations.
Taxation of $0.02 million was provided (compared to nil previously), and Minority Interests were provided for at $0.79 million (compared to $0.17 million previously). No dividend is proposed for the half year.
Mr Walker said the Mainzeal loss has been the subject of extensive internal and independent reviews, and Mainzeal, with the full support of its own Board, has:
* Determined that for the foreseeable future it will no longer undertake apartment projects in New Zealand on a similar basis to recent developments.
* Undertaken an independent company-wide review of a range of key operating procedures, including that of improved risk assessment. Decisions taken by the board are now being enacted.
* Made organisational/management changes, and is seeking in the market to make new appointments for key positions within the Auckland Construction division.
Prior to this setback, and at the time of the last Annual General Meeting, Mainzeal had reported three years of improving performances. It has a sound backlog of work throughout New Zealand, continues to grow, and performs to expectations in other regions and with other contracts.
Looking forward, Mr Walker reconfirmed the Board's view that despite the unexpected set-back at Mainzeal, Richina Pacific overall should still comfortably exceed last year's profit. While we continue to face a number of near- term management challenges in Mainzeal and Richina Industries' Upholstery division, the Board is confident that with the management changes that have been taken to date and are being taken, the Company is better positioned than at any time in the past to perform well.
Senior management's immediate focus is firmly on improving profitability. The Company is committed to continuing to invest in additional management and systems resources so that it is positioned to move into a number of the more exciting and rewarding growth opportunities that the SLC acquisition provides.