China Tire Holdings Results for the 1997 Year
24 May 1998
China Tire Holdings Consolidated Results for the Year Ended December 31, 1997
NEW YORK, May 24 -- China Tire Holdings limited ("China Tire"
or the "Company") announced today, its audited consolidated
earnings for the year ended December 31, 1997:
Financial Highlights
Year ended Year ended Change %
Dec. 31, 1996 Dec. 31, 1997
Turnover Rmb 2,650.5 M Rmb 2,710.5 M +2.3%
Net income Rmb 15.3 M Rmb 19.5 M +27.5%
Earnings/share Rmb 1.68 Rmb 2.14 +27.4%
For the year ended December 31, 1997, China Tire reported consolidated
sales of Renminbi ("Rmb")2,7l0.5 million (US$327.4 million). In 1997, the
operating subsidiaries under China Tire included six Sino-foreign equity joint
ventures in the People's Republic of China ("FRC Operating Subsidiaries"):
Double Happiness, Hangzhou Zhongce, Yinchuan CSI, Yantai CSI, Dalian CSI,
Shandong Synthetic and two international corporations: Orion Tire and Orion
B.V.I.
Despite the competitive market environment of tire sales in China, China
Tire managed to control the production cost and captured more domestic market
share and export sales in 1997. With remarkable sales achievement in the
industry, China Tire ranked nineteenth in the world and was the second largest
manufacturer in the tire industry in China in 1997. China Tire's sales for
1997 increased by approximately 2.3% when compared with Rmb2,650.5 million
(US$319.7 million) for 1996. The increase was attributable to increased unit
sales by certain operating subsidiaries such as Hangzhou Zhongce and Double
Happiness.
China Tire's consolidated net income of Rmb19.5 million (US$2.4 million)
for the year ended December 31, 1997 represents a 27.5% increase over the
1996 net income of Rmb15.3 million (US$1.8 million). Besides, China Tire was
able to achieve a level of income before income taxes and minority interests
at Rmb78.l million as compared to Rmb56.8 million for 1996. This represents a
sharp increase of 37.5%, in fact, the operating income of China Tire (i.e.
income before net interest expenses) has also increased 23.7% to Rmb144.1
million (US$17.4 million) in 1997 as compared to Rmb116.5 million
(US$14.1 million) in 1996.
During 1995, the Company began to renegotiate the terms of its joint
venture agreement of Chongqing CSI Tyre Co. Limited ("Chongqing CSI") with its
joint venture partner, Chonqing Tyre Chief Factory ("Chongqing Factory"). In
1997, the Company proposed to terminate the joint venture agreement of
Chongqing CSI (the "Termination") with Chongqing Factory. Pursuant to an
approval document issued by the supervisory authority (the "Supervisor") of
Chongqing Factory on April 10, 1997, the Supervisor has agreed to the
Termination as well as the transfer of the original investment by the Company
in Chongqing CSI to other projects in the Chongqing region. However, as no
potential project was identified for reinvestment, the Company has initiated
arbitration proceedings ("the Proceedings") in the PRC against Chongqing
Factory to enforce the Termination, and to recover the loan and the related
interest up to December 31, 1997 in the amount of Rmb94 million as well as the
related legal expenses for the Proceedings (estimated in the amount of
Rmb3 million). The hearing of the Proceedings has not commenced, however, the
opinion of the Company's PRC legal counsel indicated that the outcome of the
Proceedings would be favorable to the Company. Accordingly, the Board of
Directors considered no provision was required to be made to write down the
loan balance as of December 31, 1991.
On May 8, 1997, the Company announced that the Dalian branch of the
Ministry of Foreign Trade and Economic Co-operation has approved the
dissolution of Dalian CSI, a 70% operating subsidiary of China Tire. The
Company has formed a committee at Dalian CSI to oversee the liquidation and it
expected to recover its entire investment upon the completion of the
liquidation process. Accordingly, the Board of Directors considered no
provision was required for loss on liquidation. The liquidation of Dalian CSI
was in progress and major issues have been resolved for finalizing the
liquidation procedures. The liquidation is expected to be completed in 1998.
In 1997, Dalian CSI reported a loss of Rmbl2.2 million as compared to a net
income of Rmb1.5 million in 1996.
The production of Shandong Synthetic was suspended since October 1996.
Management of Shandong Synthetic and the Company is in the process of
formulating a plan to facilitate the resumption of production.
1997 marked a year of economic triumph for China given its success in
inflation control and comparatively stable growth despite financial turmoil in
the Asian region. The business of our operating subsidiaries grew steadily
and anticipating the increasing use of radial tires with improved highway
systems in China, we are confident in securing a larger share of the PRC
market before the turn of the century.
China Tire's emphasis in 1998 is on the development of a more advanced
product line. Along with a study in the production of radial truck tires, the
development of small size tires and engineering tires will be explored for the
PRC market. For overseas market, the growth in demand for bias tires remains
vibrant and China Tire is applying new technology to enhance its production.
Furthermore, with a progressive production and overseas sales results in solid
tires last year, Yantai CSI is underway to diversify its product line and
focus on the manufacturing of pneumatic industrial tires by mid 1998.
During 1997, China Tire paid total dividends of US$728,000. In 1998, the
Board of Directors also declared and paid a quarterly dividend of US$O.02 per
share of Common Stock and Supervoting Common Stock for the first quarter of
1998. On May 23, 1998, another quarterly dividend of US$O.02 per share of
Common Stock was declared, and will be paid on June 30, 1998. The record date
for the second quarterly dividend is June 16, 1998.
The Annual General Meeting for China Tire will be held in Hong Kong on
June 29, 1998. Based on the record date on May 1, 1998, the Company will send
notice of the meeting and proxy statement to shareholders on June 2, 1998.
** For the convenience of readers the translation amounts from Renminbi
(Rmb) into United States Dollar (US$) has been made at the unified exchange
rate quoted by the People's Bank of China on December 31, 1997 of US$1.0O =
Rmb8.28. No representation is made that the Renminbi amountes could have
been, or could be, converted into United States Dollar at that rate on
December 31, 1997 or at any other rate.
China Tire Holdings Limited -- Financial highlights
Consolidated Statements of Income
For the year ended December 31
1996 1997
Note (a)(b)(f) (a)(b)
Rmb'000 Rmb'000 US$'000(c)
(except for earnings per common share)
Sales 2,650,522 2,710,490 327,354
Cost of goods sold 2,325,180 2,298,000 277,536
Selling and administrative
expenses 209,958 259,813 31,379
Interest expenses, net 59,626 66,009 7,972
Share of losses (profits) of
an unconsolidated
subsidiary (b) (1,082) 8,552 1,032
Total costs and expenses 2,593,682 2,632,374 317,919
Income before income taxes
and minority interests 56,840 78,116 9,435
Provision for income taxes 16,292 17,851 2,156
Income before minority interests 40,548 60,265 7,279
Minority interests in
consolidated subsidiaries 25,284 40,799 4,928
Net income 15,264 19,466 2,351
Earnings per common share (d) 1.68 2.14 0.26
Consolidated Balance Sheet Data:
As at
Dec. 31, 1996 Dec. 31, 1997
(a)(b)(f) (a)(b)
Rmb'000 Rmb'000 US$'000 (c)
Working capital 392,556 431,837 52,154
Total assets 3,310,688 3,478,914 420,159
Current liabilities 1,254,301 1,378,610 166,499
Long term bank loans 62,109 62,154 7,506
Due to Chinese joint
venture partners 115,793 70,386 8,501
Minority interests 660,681 701,481 84,720
Shareholder's equity 1,193,203 1,206,635 145,729
For the year ended Dec. 31
Consolidated Cash Flow Statement Data
1996 1997 1997
Note (a)(b)(f) (a)(b)
Rmb'000 Rmb'000 US$'00O(c)
Depreciation and amortization 67,820 81,960 9,899
Capital expenditures on plant
and equipment (199,457) (100,279) (12,111)
Hangzhou Zhongce - Summary Financial Information
Year ended Year ended
Note December 31, 1996 December 31, 1997
Rmb'000
Sales 1,086,209 1,174,160
Gross Profit 106,257 132,329
Operating income (E) 69,335 72,636
Net income 21,633 22,999
Double Happiness - Summary Financial Information
Year ended Year ended
Note December 31, 1996 December 31, 1997
Rmb'000
Sales 353,654 423,602
Gross Profit 52,323 85,448
Operating income (E) 1,261 27,257
Net income (loss) (11,341) 8,235
Yinchuan CSI - Summary Financial Information
Year ended Year ended
Note December 31, 1996 December 31, 1997
Rmb'000
Sales 1,082,241 993,415
Gross Profit 158,162 182,411
Operating income (E) 80,574 95,504
Net income 57,874 79,750
Notes
A - The Company was incorporated on January 28, 1993 and acquired from
China Strategic Holdings Limited ("CSH"), formerly known as China Strategic
Investment Limited, its interest in Hangzhou Zhongce on April 25, 1993 and in
Double Happiness on April 16, 1993. CSH held its interests in Hangzhou Zhongce
and Double Happiness from the time of their establishment on June 12, 1992 and
April 16, 1992 respectively. The Company later entered into agreements to form
new Sino-foreign equity joint ventures, Yantai CSI on October 29, 1993;
Yinchuan CSI on December 6, 1993, Shandong Synthetic on May 28, 1994. The two
joint ventures, Yantai CSI, and Yinchuan CSI commenced operations effective
from January 1, 1994. Shandong Synthetic commenced operation effective from
January 1, 1995. The Company also acquired its 60% interests in Orion Tire and
Orion BVI in March 1994 and accounted for these investments from May 1 and
August 1, 1994 respectively. Dalian CSI is 70% owned by CSI Rubber Industries
Limited, Hong Kong incorporated company which was acquired by the Company from
CSH on April 18, 1994, and was accounted for with effect from April 1, 1994.
These enterprises are collectively known as the "Operating Subsidiaries".
The Company acquired its interest in Chongqing CSI during the fourth
quarter of 1993, Chongqing CSI commenced operations on January 1, 1994.
During 1995, the Company began renegotiating the terms of the joint
venture agreement of Chongqing CSI. Pending the outcome of the negotiations,
the parties agreed that the capital injected by the Company of Rmb57 Million
(US$6.6 million) was treated as an interest-bearing loan to Chongqing Tyre
Chief Factory ("Chongqing Factory"), the Chinese joint venture partner, with
effect from the date of contribution. Accordingly, the original capital
contributed of Rmb57 million (US$6.6 million) was accounted for as a loan
receivable from Chongqing Factory as of December 31, 1995, 1996 and 1997 and
the financial position and results of operation of Chongqing CSI have not been
included in 1995, 1996 and 1997 consolidated financial statements. The Company
has also made full Provision against recorded interest income on the loan of
approximately Rmbl5.3 and Rmb10.8 million and Rmb10.9 million for the years
ended December 31, 1995, 1996 and 1997.
In 1997, the Company proposed to finally terminate the joint venture
agreement of Chongqing CSI ("the Termination") with Chongqing Factory.
Pursuant to an approval document issued by the supervisory authority ("the
Supervisor") of Chongqing Factory on April 10, 1997, the Supervisor has agreed
to the Termination as well as the transfer of the original investment by the
Company in Chongqing CSI to other projects in Chongqing region.
Since the Company was unable to identify a suitable project in Chongqing
in which it could reinvest, the Company initiated arbitration proceedings in
early l998 ("the Proceeding") in the PRC against Chongqing Factory to enforce
the Termination, and to recover the loan and accrued interest up to December
31, 1997 totally approximately of Rmb94 million as well as the related legal
expenses for the Proceedings (estimated in the amount of Rmb 3 million). The
application for the arbitration has been accepted by the China International
Economic and Trade Arbitration Commission, Shenzhen Commission. The hearings,
of the Proceedings had not commenced, however, the opinion of the legal
counsel indicated that the outcome of the Proceedings will be favorable to the
Company. Accordingly, the Board of Directors considered no provision was
required as of December 31, 1997.
According to arrangements made between the Company and Chongqing Factory
detailed above, the financial position and results of Chongqing CSI have been
excluded from the consolidated financial statements as of and for the years
ended December 31, 1995, 1996 and 1997. The results of Chongqing CSI were also
excluded from consolidation in the consolidated statement of income for the
years ended December 31, 1995, 1996 and 1997.
B - Dalian CSI has been officially approved by the Dalian branch of the
Ministry of Foreign Trade and Economic Co-operation for dissolution. The
Company has formed a committee at Dalian CSI to oversee the liquidation of the
joint venture and expected to recover its entire investment upon the
completion of the liquidation process. Accordingly, the Board of Directors
considered no provision was required for loss on liquidation. The liquidation
is expected to be completed in 1998.
As a result of the approved liquidation of Dalian CSI, the financial
position as well as their results of the joint venture has been excluded from
consolidation in the audited consolidated financial statements as of and for
the year ended December 31, 1996 and 1997. The investment in Dalian CSI has
been accounted for using the equity method of accounting. Under this method,
the investment in Dalian CSI is stated at the cost of acquisition to the
Company, plus its share of the cumulative profits and losses of the joint
venture since its acquisition up to December 31, 1996 and 1997. As a result,
the 1996 comparative figures have been restated to conform with the 1997's
presentations.
C - For the purpose of convenience, the U.S. dollar translation amounts
have been translated using the unified exchange rate quoted by the People's
Bank of China on December 31, 1997 of US$1.00 = Rmb 8.28. No representation is
made that the Renminbi amounts could have been, or could be converted into
U.S. Dollars at that rate on December 31, 1997 or at any other certain rate.
D - The calculation of earnings per common share for year ended
December 31, 1996 and 1997 respectively is based on the weighted average
number of common shares outstanding during the years ended December 31, 1996
and 1997 in the amount of 9,100,000.
E - Operating income means income before income taxes, interest expenses
and other income.
F - Certain figures in the 1996 financial statements have been
reclassified to conform with the 1997's presentation.