China Tire Holdings Limited Consolidated Results for the Year Ended December 31, 1998
19 May 1999
China Tire Holdings Limited Consolidated Results for the Year Ended December 31, 1998
NEW YORK, May 18 -- China Tire Holdings Limited ("China Tire"
or the "Company") announced today, its audited consolidated
earnings for the year ended December 31, 1998:
Financial Highlights
Year ended Year ended Change %
December 31, December 31,
1997 1998
Turnover Rmb2,710.5M Rmb2,660.3M -1.9%
Net income Rmb19.5M Rmb279.1K -98.6%
Earnings/share Rmb2.14 Rmb0.03 -98.6%
For the year ended December 31, 1998, China Tire reported consolidated
sales of Renminbi ("Rmb") Rmb2,660.3 million (US$321.3 million). In 1998 the
operating subsidiaries under China Tire included six Sino-foreign equity joint
ventures in the People's Republic of China ("PRC Operating Subsidiaries"):
Double Happiness, Hangzhou Zhongce, Yinchuan CSI, Yantai CSI, Shandong
Synthetic, Dalian CSI and three international corporations; Orion Tire, Orion
B.V.I. and Container Limited.
The operating environment of tire manufacturers in the past year was still
bleak amidst speculation about devaluation of Renminbi and the outbreak of
financial crisis in Asian countries. Due to intensified competition, export
and domestic selling prices have become marginally profitable. China Tire's
PRC Operating Subsidiaries have put in great effort to maintain their market
share by reinforcing marketing and distribution strategies, upgrading
production technology and product quality, and improving the quality of
management as well as the staff force.
China Tire manufactured and sold a total of approximately 6.5 million sets
of a large variety of tires in 1998 and remains the second largest tire
manufacturer in China and the nineteenth internationally. In 1998, China
Tire's sales decreased by approximately 1.9% when compared with
Rmb2,710.5 million (US$327.4 million) for 1997. The decrease was attributable
to the price cut competition in the tire industry.
China Tire's consolidated net income of Rmb279.1 thousand
(US$33.7 thousand) for the year ended December 31, 1998 represents a 98.6%
decrease over the 1997 net income of Rmbl9.5 million (US$2.4 million). The
decrease in net income is mainly attributable to a provision for impairment in
value of long-term investments in listed securities amounting to
Rmb25.5 million. Besides, China Tire's income before income taxes and
minority interests is Rmb62.9 million as compared to Rmb78.1 million for 1997.
This represents a decrease of 19.5%. However, the operating income of China
Tire (i.e. income before net interest expenses, other losses and income taxes)
increased 1.2% to Rmbl54.5 million (US$18.7 million) in 1998 as compared to
Rmbl52.7 million (US$18.4 million) in 1997.
During 1995, the Company began to renegotiate the terms of its joint
venture agreement for Chongqing CSI Tyre Co. Limited ("Chongqing CSI") with
its joint venture partner, Chongqing Tyre Chief Factory ("Chongqing Factory").
In 1997, the Company proposed a termination of 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 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 application for the arbitration was accepted by the China
International Economic and Trade Arbitration Commission, Shenzhen Commission
and two hearings were held on May 27, 1998 and November 3, 1998 but no
judgments have been obtained yet. The next hearing was scheduled to be held
on July 31, 1999. The Company is in on-going negotiations with Chongqing
Factory and the Chongqing City Government to explore alternative means to
settle the loan. The Company's PRC legal counsel's opinion that the outcome
of the Proceedings will be favorable to the Company. The Board of Directors
believes that the matter will be resolved with no adverse impact on the
financial position of the Company.
On May 8, 1997, the Company announced that the Dalian branch of the
Ministry of Foreign Trade and Economic Co-operation approved the liquidation
of Dalian CSI, formerly a 70% owned operating subsidiary of China Tire. The
Company formed a special committee ("the Committee") to formulate the
liquidation plan and execute the procedures of the liquidation. The
liquidation plan was approved by the Committee and the board of directors
of Dalian CSI on July 2, 1998. Under the liquidation plan, the Company
received certain assets and liabilities of Dalian CSI as of June 30, 1998 but
this resulted in no significant gain or loss. The formal completion of the
liquidation is subject to the approval of relevant PRC authorities.
The production of Shandong Synthetic was suspended in October 1996.
Management of Shandong Synthetic together with the Laizhou City Government and
the Company are in the process of formulating a plan to facilitate the
resumption of production. Production is expected to resume after finalization
of such negotiations.
China Tire's emphasis in 1999 is on the development of a more advanced
product line. Along with a study on the production of radial truck tires,
development opportunities for small size tires and engineering tires will be
explored for the PRC market. For overseas market, demand for bias tires
remains vibrant and China Tire is applying new technology to enhance its
production. It is encouraging to report that the Yantai factory achieved a
remarkable performance in 1998. After years of restructuring and planning,
the sales of its solid industrial tires more than doubled to reach
approximately 160,000 units per annum and approximately 90% of its products
were exported. This clearly demonstrated that Yantai CSI's products are of
international standard and are well received by the western countries.
Hangzhou Rubber has expanded its business through a 49.2% owned newly
formed joint venture company -- Hangzhou Sunrise Rubber Co., Ltd. for the
purpose of speeding up the construction of the Xiasha radial tire project. In
addition, the establishment of Hangzhou Sunrise Rubber Co., Ltd. can
facilitate the exchange of advanced technology and scientific management
methodology between the entities in order to produce high quality and
marketable rubber products. New radial tire products from this new joint
venture company are scheduled to be launched commercially in year 2000.
During 1998, China Tire paid total dividends of US$728,000. In 1999, the
Board of Directors also declared and paid a quarterly dividend of US$O.02 per
share of Supervoting Common Stock and Common Stock for the first quarter of
1999. On May 18, 1999, another quarterly dividend of US$0.02 per share of
Common Stock was declared, and will be paid on June 30, 1999. The record date
for the second quarterly dividend is June 16, 1999.
The Annual General Meeting for China Tire will be hold in Hong Kong on
June 25, 1999. Based on the record date on May 3, 1999, the Company will send
notice of the meeting and proxy statement to shareholders on June 1, 1999.
** For the convenience of readers, the translation of amounts from
Renminbi (Rmb) into United States Dollar (US$) has been made at the unified
exchange rate quoted by the People's Bank of China an December 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
December 31, 1998 or at any other date.
China Tire Holdings Limited - Financial Highlights
Consolidated Statements of Income:
For the year ended December 31
1997 1998
Note (1)(2) (1)(2)
Rmb'000 Rmb'000 US$'000 (4)
(except for earnings per common share)
Sales 2,710,490 2,660,325 321,295
Cost of goods sold (2,298,000) (2,226,443) (268,894)
Selling and administrative
expenses (259,813) (279,398) (33,744)
Operating income 152,677 154,484 18,657
Interest expenses, net (66,009) (64,389) (7,766)
Other losses (3)-- (25,500) (3,080)
Share of losses of an
unconsolidated subsidiary(2) (8,552) (1,773) (214)
Income before minority
interests 78,116 62,902 7,597
Provision for income taxes (17,851) (19,767) (2,387)
Income before minority
interests 60,265 43,135 5,210
Minority interests (40,799) (42,856) (5,176)
Net income 19,466 279 34
Earnings per common share (5) 2.14 0.03 0.004
Consolidated Balance Sheet Data:
As of December 3l
1997 1998
Notes (1)(2) (1) (2)
Rmb'000 Rmb'000 US$'000(4)
Working Capital 431,837 611,680 73,875
Property, plant and equipment,
net 1,467,028 1,220,496 147,403
Total assets 3,478,914 3,497,035 422,347
Current Liabilities 1,378,610 1,410,756 170,381
Non-current portion of
long-term bank loans 62,154 65,000 7,850
Due to Chinese joint venture
partners 70,386 72,783 6,790
Minority interests 701,481 744,337 89,896
Shareholders' equity 1,206,635 1,200,885 145,034
Consolidated Statements of Cash Flow Data:
For the year ended December 31
1997 1998
Note (1)(2) (1)(2)
Rmb'000 Rmb'000 US$'000(4)
Depreciation and
amortization 81,960 103,029 12,443
Proceeds from transfer of
certain property, plant
and equipment to an
associated company -- 68,053 8,219
Capital expenditures on
property, plant and
equipment (100,279) (62,450) (7,542)
Acquisition of long-term
investment in listed
securities -- (41,061) (4,959)
Hangzhou Zhongce - Summary Financial Information
Year ended Year ended
Note December 31, 1997 December 31, 1998
Rmb'OOO
Sales 1,174,160 1,256,656
Gross Profit 132,329 168,883
Operating Income (6) 72,636 91,603
Net income 22,999 39,380
Double Happiness - Summary Financial Information
Year ended Year ended
Note December 31, 1997 December 31, 1998
Rmb'000
Sales 423,602 446,310
Gross profit 85,448 82,388
Operating income (6) 27,257 18,659
Net income (loss) 8,235 (2,431)
Yinchuan CSI - Summary Financial Information
Year ended Year ended
Note December 31, 1997 December 31, 1998
Rmb'000
Sales 993,415 845,688
Gross profit 182,411 166,844
Operating income (6) 95,504 77,660
Net income 79,750 63,451
Notes:
1. 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
born April 1, 1994. Container Limited, a British Virgin Islands
company, is a wholly owned subsidiary of the Company set up in 1998.
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 contribution
of Rmb57 million (US$6.6 million) was accounted for as a loan
receivable from Chongqing Factory as of December 31, 1995 to 1998 and
the financial position and results of operations of Chongqing CSI have
not been included in 1995 to 1998 consolidated financial statements.
The Company has also made full provision against recorded interest
income on the loan of approximately Rmbl0.9 million and
Rmb12.4 million for the years ended December 31, 1997 and 1998,
respectively.
In 1997, the Company proposed to formally 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.
Since the Company was unable to identify a suitable project in
Chongqing in which it could reinvest, the Company initiated
arbitration proceedings in early 1998 ("the Proceedings") in the PRC
against Chongqing Factory to enforce the Termination, and to recover
the loan and accrued interest up to December 31, 1997 in total
approximately Rmb94 million as well as the related legal expenses for
the Proceedings (estimated in the amount of Rmb3 million). The
application for the arbitration was accepted by the China
International Economic and Trade Arbitration Commission, Shenzhen
Commission. The first hearing and second hearing were held on May 27,
1998 and November 3, 1998 but no judgments have been obtained yet.
The next hearing was scheduled to be held on July 31, 1999. The
Company is in on-going negotiations with Chongqing Factory and the
Chongqing City Government to explore alternative means to settle the
loan. The Company's PRC legal counsel's opinion that the outcome of
the Proceedings will be favorable to the Company. The Board of
Directors believes the matter will be resolved with no adverse
impact on the financial position of the Company.
2. Dalian CSI was officially approved by the Dalian branch of the
Ministry of Foreign Trade and Economic Co-operation for liquidation.
The Company formed a committee at Dalian CSI to formulate the
liquidation plan and execute the procedures of the liquidation. The
liquidation plan was approved by the committee and the board of
directors of Dalian CSI on July 2, 1998. Under the liquidation plan,
the Company received certain assets and liabilities of Dalian CSI as
of June 30, 1998 and resulted in no significant gain or loss. The
formal completion of the liquidation is subject to the approval of the
relevant PRC authorities.
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, 1997 and 1998.
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, 1997 and 30 June 1998 less dividends
and returns of capital received.
3. Other losses represent a provision for impairment in value of
long-term investments in listed securities.
4. 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, 1998 of US$1.00 = Rmb8.28. No
representation is made that the Renminbi amounts could have been, or
could be, converted in U.S. Dollars at that rate on December 31, 1998
or at any other certain rate.
5. The calculation of earnings per common share for the year ended
December 31, 1997 and 1998 respectively is based on the weighted
average number of common shares outstanding during the years ended
December 31, 1997 and 1998 which was 9,100,000.
6. Operating income means income before income taxes, net interest
expenses and other losses.