China Tire Holdings Limited Press Release
29 September 1998
China Tire Holdings Limited Press Release; Unaudited Interim Results for the Six Months Ended June 30, 1998
HONG KONG, Sept. 28 -- China Tire Holdings Limited ("China
Tire" or "Company") announced today its unaudited consolidated
earnings for the six months ended June 30, 1998.
Financial Highlights
Six months ended Six months ended
June 30, 1997 June 30, 1998
Sales Rmb 1,329.1M up by 3.4% Rmb 1,373.9MUS$165.9M
Income before
taxes and other
losses Rmb 52.2M up by 4% Rmb 54.3M US$6.6M
Income before
income taxes and
minority interest Rmb 52.2M down by 28.5% Rmb 37.3M US$4.5M
Net income Rmb 17.2M down by 91% Rmb 1.5M US$0.2M
Earnings per share Rmb 1.89 down by 91% Rmb 0.17 US$0.02
For details of the unaudited consolidated results of the Company and its
subsidiaries for the six months ended June 30, 1998, please refer to the
following Financial Highlights.
After four and a half years of austerity measures, China finally claimed
victories on many fronts of the economy. Inflation fell sharply over the
years to 1.9% in the first half of 1998, which is well below the peak of 25.2%
at the end of 1994. The 1998 GDP growth rate is projected to be 8%. The
improvement in the economic figures has reduced fears of investor and brings
hope of an end to the continuous macro economic austerity programme.
For the tire business, despite the improvement in the government's
released economic figures, the major Chinese tire manufacturer's performances
were still somewhat mixed. According to the official figures for the period
of January to June 1998, 23 out of 63 national manufacturers surveyed are
making losses as compared to 20 out of 68 in 1997. In contrast, China Tire's
sales increased 3.4% to RMB 1,373.9 million in the first half of 1998 as
compared to RMB 1,329.1 million for the same period last year.
Despite the discouraging market environment, the Company managed to
control costs and improved its operating margin as compared to the same period
of 1997. Operating income remains constant at 3.9% of sales in the first half
of 1997 and 1998. However, income taxes payable by the Company increased
disproportionately as tax holidays and concessions previously available were
reduced. Provision for income taxes increased that for the corresponding
period in 1997 due to the fact that Hangzhou CSI Rubber is no longer partially
exempted from income taxes and is now subject to full state and local tax.
While overall sales by value increased, aggregate production increased by
9.8% to approximately 3 million units of tires for the first half of 1998 as
compared to 2.7 million units in the first half of 1997.
The marketing and technology co-operative joint venture of Yantai CSI
Rubber Company Limited with Canada's Industrial Tire Limited ("ITL"), one of
the leading solid tires manufacturers in the market, began production in 1996
on a pilot testing basis. During the first stage of co-operation, ITL will
provide all of the necessary software and technology in making solid tires
with current full production capacity at 100,000 units and up to 250,000 units
thereafter. Once China Tire has mastered the production technique, sales of
solid tires are expected to increase progressively in the coming months.
So far this year, the price of the major raw material, natural rubber,
dropped up to approximately 44%. This allows China Tire's operating
subsidiaries to plan a more accurate production schedule and hence a better
cash flow.
Due to the downturn of the economy in Asia and the adverse performance of
the Hong Kong stock market, the Company made a provision for impairment in
value of the long term investment in listed securities amounting to
RMB 17 million. This also contributed to the drop in net income this year.
** Translation amounts from Renminbi (RMB) to United States Dollar (US$)
for the convenience of readers has been made at the unified exchange rate
quoted by the Bank of China on August 31, 1998 of US$1.00 = RMB8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollar at that rate on August 31, 1998 or at any
other rate.
Background Information
China Tire Holdings Limited ("China Tire") is a a Bermuda-incorporated
holding company with controlling interests in five tire manufacturing concerns
and one synthetic nylon cord producer in the People's Republic of China ("the
PRC"). At the time of its Initial Public Offering ("the Offering") on the
New York Stock Exchange in July 1993, China Tire held a 55% equity interest in
Double Happiness Tyre Industries Corporation Limited located in Taiyuan,
Shanxi Province and a 51% equity interest in Hangzhou Zhongce Rubber Company
Limited in Hangzhou, Zhejiang Province.
The Company's combined production in 1997 was in excess of 5.8 million
units, representing approximately 10% of the total production volume of
China's 69 national targeted tire manufacturers in 1997. The Company is
amongst the largest tire manufacturing groups in the PRC.
China Tire was organised by China Strategic Holdings Limited ("China
Strategic"), a Hong Kong listed company, in 1993. After the initial public
offering, CSH owned 3,000,000 shares of the Supervoting Common Stock and
1,629,200 shares of Common Stock of the Company and held 87.62% of the voting
power of the Company as of June 30, 1998.
Since the Offering, China Tire has formed four additional Sino-foreign
equity joint ventures in China:
Yantai CST Rubber Co. Ltd. and its predecessor has been producing rubber
sheeting, rubber tubing and industrial, agricultural and forklift tires for
the past 28 years and has an annual production capacity of 100,000 tires
(excluding solid tires). The marketing and technology co-operative joint
venture of Yantai CST with Canada's Industrial Tire Limited ("ITL"), one of
the leading solid tire manufacturers in the market, was officially opened on
March 28, 1996. During the first stage of co-operation, ITL will provide all
the necessary software and technology in making solid tire with current full
production capacity at 100,000 units and up to 250,000 units thereafter.
Yinchuan CSI (Greatwall) Rubber Co. Ltd of Ningxia Province is one of only
three factories in China that produces aircraft tires in addition to truck,
passenger and agricultural tires. Total current production capacity is
1.8 million tires per year.
Shandong CSI Synthetic Fiber Company Ltd. is located in Laichou city,
Shandong Province. The factory produces nylon cord fabrics, an essential
component in the building of bias tires. The factory has a capacity of
6,000 tons per annum but is currently not in production. Recently, the
factory has undergone a management restructuring program and it is
management's intention to resume production in the future.
Dalian CSI Rubber Co. Ltd., a joint venture located in Liaoming Province,
has been officially approved for liquidation in April 1997 by the Dalian
branch of the Ministry of Foreign Trade and Economic Co-operation.
Liquidation is currently in progress. Owners of this joint venture are in the
final stage of agreeing on the terms of disclosure.
China Tire Holdings Limited -- Financial Highlights
Consolidated Statements of Income
For the six months ended June 30
Note 1997 1998
(2) Rmb000 Rmb000 US$000
(unaudited) (unaudited) (unaudited)
Sales 1,329,147 1,373,852 165,924
Costs of goods sold 1,150,894 1,144,147 138,182
Selling and
administrative expenses 85,821 136,091 16,436
Interest expenses, net 34,081 37,548 4,535
Share of less of unconsolidated
subsidiary 6,124 1,773 214
Total cost and expenses 1,276,920 1,319,559 159,367
Income before taxes
and other losses 52,227 54,293 6,557
Other losses (3) -- (17,037) (2,058)
Income before income taxes
and minority interests 52,227 37,256 4,499
Provision for
income taxes (10,525) (13,195) (1,593)
Income from minority
interests 41,702 24,061 2,906
Minority interests in
consolidated subsidiaries (24,522) (22,534) (2,722)
Net income 17,180 1,527 184
Earnings per common share (4) 1.89 0.17 0.02
Consolidated Balance Sheet Data: As at
December 31, 1997 June 30, 1998
(2) Rmb000 Rmb000 US$000
(unaudited) (unaudited)
Working capital 431,837 387,054 46,745
Total assets 3,478,914 3,592,571 438,586
Current liabilities 1,378,610 1,493,201 110,339
Long term bank loans 62,154 42,306 5,109
Due to joint venture partners 70,386 68,853 8,316
Minority interests 701,481 724,014 87,441
Shareholders' equity 1,206,635 1,205,148 145,549
For the six months ended June 30
Consolidated Cash Flow Statements Data:
1997 1998 1998
Rmb000 Rmb000 US$000
(unaudited) (unaudited) (unaudited)
Depreciation and amortization 37,467 47,915 5,787
Capital expenditures
on plant and equipment (157,133) (51,099) (6,171)
Non-cash transfer of
fixed asstes to other
long term investment (5) -- 121,768 14,706
Hangzhou Zhongce - Summary Financial Information
Six months ended Six months ended
note June 30, 1997 June 30, 1998
(amounts in thousands Rmb)
Sales 579,723 611,960
Gross profit 62,581 86,070
Operating income (6) 36,701 51,449
Net income 10,650 18,812
Double Happiness - Summary of Financial Information
Six months ended Six months ended
note June 30, 1997 June 30, 1998
(amounts in thousands Rmb)
Sales 172,853 223,287
Gross profit 20,458 83,995
Operating income (6) 12,353 21,268
Net income 2,468 7,268
Yinchuan CSI - Summary Financial Information
Six months ended Six months ended
note June 30, 1997 June 30, 1998
(amounts in thousands Rmb)
Sales 507,539 470,213
Gross profit 87,448 98,745
Operating income (6) 52,256 35,864
Net income 42,427 29,246
Notes
1. China Tire Holdings Limited ("China Tire" or "the Company") was
incorporated on January 28, 1993 and acquired from China Strategic Holdings
Limited ("CSH"), formerly known as China Strategic Investment Limited, its
interests 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,
1993 respectively. China Tire then entered into agreements to form three new
Sino-foreign equity joint ventures, Yantai CSI, Yinchuan CSI and Shandong
Synthetic. Yantai CSI and Yinchuan CSI were formed during the fourth quarter
of 1993 and commenced operations effective from January 1, 1994. Shandong
Synthetic was formed in May 1994 and commenced operations effective from
January 1, 1993. The Company also acquired its 60% interests in Orion Tire
and Orion BVT in March 1994 and has accounted for them from May 1 and
August 1, 1994, respectively. Dalian CSI is 70% owned by a Hong Kong
incorporated company, CSI Rubber Industries Limited ("CSI Rubber"), which was
acquired by the Company from CSH on April 18, 1994, and has accounted for with
effect from April 1, 1994. Container Limited, a British Virgin Island
company, is a newly set up wholly owned subsidiary of CTH in 1998. These
enterprises are collectively known as the "Operating Subsidiaries."
Dalian CSI has been 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 the Board of Directors aspects to recover the Company's entire
investment upon the completion of the liquidation process.
As a result of the approved liquidation of Dalian CSI, the financial
position as well as the results of operations of the joint venture has been
excluded from consolidation in the unaudited consolidated financial statements
as of and for the six months ended June 30, 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.
In late 1993, the Company acquired a majority interest in a formerly
state-owned enterprise located in Chongqing, the PRC, through the formation of
Chongqing C.S.I. Tyre Company Limited ("Chongqing CSI") with Chongqing Tyre
Chief Factory ("Chongqing Factory"). An amount of Rmb 56.9 million
(US$ 6.6 million) was contributed by the Company into Chongqing CSI on
December 15, 1993 ("the date of contribution") in accordance with the
provisions of the joint venture agreement. Chongqing CSI commenced effective
operations on January 1, 1994.
During 1995, the parties began renegotiating the terms of the joint
venture contract of Chongqing CSI. Pending the outcome of the negotiation,
the parties have agreed that the capital injected by the Company of
Rmb 56.9 million (US$ 6.6 million) was treated as an interest-bearing loan to
Chongqing Factory with effect from the date of contribution. Accordingly, the
original capital contribution of Rmb 56.9 million (US$ 6.6 million) was
accounted for as a loan receivable from Chongqing Factory as of December 31,
1995 to 1997 and June 30, 1998. The Company has also made full provisions
against the recorded interest income on the loan of approximately Rmb 5.5
million and Rmb 6.2 million for the six months ended June 30, 1997 and 1998.
During 1997, the supervisory authority of Chongqing Factory has approved
the termination of the joint venture and the exchange of the Company's
original investment in Chongqing CSI for other projects in the City of
Chongqing. However, as no suitable project was identified for reinvestment,
China Tire has initiated arbitration against Chongqing Factory. The first
hearing took place in early June 1998 and the second hearing is expected to
take place soon.
Accordingly, the original capital contribution of Rmb 56.9 million
(US$ 6.6 million) was accounted for as a loan receivable from Chongqing
Factory as of December 31, 1995, 1996 and 1997 and June 30, 1998, and the
financial position and results of operations of Chongqing CSI have not been
included in the unaudited consolidated financial statements as of end for the
six months ended June 30, 1998, 1997 and 1996.
2. The U.S. Dollar convenience translation amounts have been translated
using the unified exchange rate quoted by the Bank of China on August 31, 1998
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. Dollar at that rate on August
31, 1998 or at any other certain rate.
3. Other losses represent a provision for impairment in value of the long
term investment in listed securities.
4. The calculation of earnings per common share for six months ended
June 30, 1997 and 1998 respectively is based on the weighted average number of
common shares outstanding during the six months ended June 30, 1997 and 1998
which was 9,100,000.
5. Non cash transfer of fixed asset to other long term investment
represents a transfer of Hangzhou Zhongce's existing radial tire project to
Hangzhou Sunrise Rubber Co., Ltd., a newly established Sino-foreign equity
joint venture in satisfaction of Hangzhou Zhongce's investment commitment.
6. Operating income means income before income taxes and interest
expenses.