Richina Puts Tough Result Behind It

March 14, 2002

RICHINA PUTS TOUGH RESULT BEHIND IT
AND BUILDS FUTURE AROUND CHINA LEATHER OPERATIONS

Statement made by Alastair MacCormick, Chairman, Richina Pacific Limited

Tough trading conditions for the international leather industry in the second half of the year curtailed Richina Pacific’s audited operating surplus before asset write downs to $2.9 million for the year ending 31 December, 2001, 34% lower than the surplus for the previous year.

As foreshadowed in its letter to shareholders in December, the Company wrote down the book value of its Beijing Blue Zoo operations by $18.6 million (nil in 2000), leading to it recording a deficit attributable to shareholders of $15.3 million for the year, compared to last year’s surplus of $4.7 million.

After two years of substantive progress, the operating result confirms our prediction in December. While the American economy had been slowing, it was totally disrupted by the September 11 terrorist attacks. The severity of the slowdown as it impacted on international leather sales has not been rivalled in modern times.

The damage it caused can be judged from the fact that in the first half of our year, revenues for Shanghai Richina Leather were $108 million, while for the second half they were $77 million. The first half surplus for our leather operation was $5.5 million, and for the second half it was a deficit of $2.8 million.

Trading is now returning to levels above that experienced in the first half of 2001. It is only the size, strength and international standing of our leather operations which has enabled us to absorb and then recover quickly from such a severe downturn.

In keeping with our policy of ensuring the book value of our assets reflects a realistic market price, the decision was made to write down the value of our Beijing Blue Zoo assets to $25.6 million.

The aquarium’s deficit for the year was $1.4 million ($37,000 deficit last year and $934,000 surplus in 1999). During 2001 the trading situation deteriorated as two competitors attempted to achieve increased patronage by charging entrance fees that were guaranteed to see them operate at a loss.

With little prospect for an early improvement in this situation, directors decided it was prudent to revalue the aquarium assets.

Mainzeal recorded an operating deficit of $2.3 million (surplus $2.9 million) after making a provision of $4 million to cover a potential doubtful debt and to stand behind its reputation for excellence by undertaking remedial work on a previously completed project. The company is pursuing a number of options to recover all or part of the provision.

Mainzeal’s turnover at $297 million remained healthy ($407 million) and during the year it completed a number of high profile projects. Its forward order book remains strong with in excess of $150 million of secured work.

Two New Zealand businesses were sold during the year, Mair Venison and Colyer Mair. The timing of both sales was fortuitous, with the prices received being at the top end of the market. Proceeds from the sales were applied to reducing debt.

Their sale effectively completes a substantial phase of restructuring, with the only remaining debt in New Zealand being the mortgage on the Mobil-on-the-Park building in Wellington.

This year Richina Pacific will be focusing on its China operations, particularly the Shanghai leather tannery.

In spite of the severe knock back our leather operations received during the year, it was encouraging to see this business achieved a sales increase of 43% to $185 million. The operating surplus at $2.7 million was only 10% down, and assets increased by 15% to $83 million.

International leather manufacturing and marketing is the main source of future growth for Richina Pacific. As the US economy picks up, our world-class facilities provide the basis for the Company’s recovery in the current financial year.

Total revenue for the Company was $647 million, down 11%, but the comparison has to take into consideration that trading for 2000 included a full year of Colyer Mair and Mair Venison’s operations. Trading for 2001 included only nine months for Colyer Mair and four months for Mair Venison.

After allowing for the sale of Mair Venison and Colyer Mair, and the write down of Beijing Blue Zoo, total assets at year-end were $201 million, compared to the previous year’s figure of $277 million.

Net tangible assets a share at year-end were 97 cents ($1.19 in 2000).

No provision was made for taxation.

With the world’s economy on the improve, there is every reason to position last year’s result as a setback caused by a one-off combination of circumstances, and Richina can return with confidence to shaping its future around its expanding international leather operations based in Shanghai. By the time of the annual meeting on Wednesday, June 19, 2002 the Company will be able to assess more accurately the potential full year’s performance of Shanghai Richina Leather, and the implications this will have on future development options for the company as a whole.

ENDS

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