By Phil Boeyen, ShareChat Business News Editor
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Monday 17th December 2001 |
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The company has written to shareholders to tell them that while it has come through the post-September 11 period in surprisingly good shape, it has concerns in a number of areas.
One of those is its leather processing business in China, Shanghai Richina Leather, which has been faced with seriously depressed trading margins as the international price of hides and skins has plummeted, leaving it holding high priced raw material and stock.
Richina says international shoe and garment companies have also decided to either delay or cancel orders, leading to significant short term volume reductions that have further eroded profits.
"For Shanghai Richina Leather, the result was that for the past few months it traded at a deficit," says chairman Alastair MacCormick.
"While this situation has largely reversed itself and is rapidly improving, the fact remains that we will have a much poorer third and fourth quarter than had been expected when we announced our half year result."
Although earnings before interest and tax are still expected to be ahead of last year, the company says any profit will be far short of earlier expectations.
Mr MacCormick says other factors are also likely to make the second six months a difficult one for the company, including a modest loss from its New Zealand construction business, Mainzeal.
"This reversal is the result of directors prudently approving provisions to cover the uncertain outcome from one project and a potential bad debt on another. Going forward, Mainzeal has a sound forward workload and expects to be profitable next year.
"Directors also have before them a recommendation to reassess the value of our Beijing Blue Zoo assets. While this business remains cash flow positive, the non-commercial actions of two key competitors continue to see the operation run at a loss."
The Richina chairman says that, under these circumstances, directors are considering reducing the holding value of the investment.
"The potential write down of our net tangible asset value could be in the order of 30 cents a share, and while this will be a non-cash adjustment it will negatively impact on the bottom line result," Mr MacCormick says.
Richina is predicting it is still likely to report a modest operating profit for the year but that is before taking into account any write down in relation to Blue Zoo Beijing.
"Directors are fully aware that shareholders will be disappointed that after two years of substantive progress in terms of financial reporting, our forward momentum has been temporarily stalled by international events.
"In terms of the future prospects of Richina Pacific, obviously much depends on the world's economy regaining its forward momentum," says Mr MacCormick.
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