Tuesday May 20 6:30 AM EDT
Company Press Release
China Resources reports 1997 first quarter earnings
HONG KONG--(BUSINESS WIRE)--May 20, 1997--
Net Income Increases 35%
China Resources Development, Inc. (Nasdaq:CHRB), a leading natural rubber distributor based in
the People's Republic of China (PRC), today announced operating results for the first quarter ended
March 31, 1997.
Results have been converted from Renminbi (the lawful currency of the PRC) to U.S. dollars (for
information purposes), at the prevailing exchange rate as quoted by the People's Bank of China on
March 31, 1997 (U.S. $1.00=Rmb8.30).
For the three-month period ended March 31, 1997, net sales were $13.2 million, compared to net
sales of $30.7 million in the year-earlier period. The first quarter decline in sales was mainly due to a
strategic agency arrangement undertaken at the beginning of 1997 to assign a portion of the
Company's sales to the Hainan Farming Bureau (HFB) in order to reduce the Company's exposure
to a drop in natural rubber prices. The domestic natural rubber market has been weak in 1997 due
to an excess supply resulting from an inventory backlog, an increase in imported rubber and a
worldwide decrease in rubber prices.
Despite the decrease in sales, for the quarter ended March 31, 1997, net income increased
approximately 35% to $407,000 or $0.07 per share, compared with net income of $300,723, or
$0.21 per share, in the 1996 period. Per share results are based on 5,673,186 and 1,439,683
weighted average shares and common stock equivalents outstanding for the 1997 and 1996 periods,
respectively. The weighted average share count increase reflects the impact of conversions into
common stock of the Company's Series B Convertible Preferred Stock, which were sold in the
Company's 1996 private placements and of which no shares remain unconverted or outstanding. Per
share results and weighted average shares are adjusted for a one-for-ten reverse stock split of the
Company's outstanding common stock that was effective on December 31, 1996.
Gross profit margins increased during the 1997 first quarter to 7.6%, compared to 5.5% in the
year-earlier quarter. The profit margin improvement was primarily a result of the Company's decision
to emphasize procurement of products with higher gross margin contributions, such as fuels,
chemicals, fertilizers and pesticides, and to reduce its procurement of those items providing a lower
gross margin such as construction and building materials. Margins were also enhanced by gains from
the Company's rubber futures hedges designed to reduce the carrying cost of natural rubber.
China Resources Development, Inc. President Li Shunxing, commented on the results,
``Across-the-board margin improvements due to our ongoing focus on procurement of higher margin
agricultural products, a significant drop in net financial expenses (in which all of the Company's
outstanding bank loans and certain accounts receivable from the farms and certain HFB affiliates
were re-assigned to the HFB) pursuant to our 1996 fourth quarter restructuring efforts, a 25 percent
reduction in sales, general and administrative expenses also stemming from the restructuring, as well
as our HFB agency agreement and successful rubber hedging, all contributed to a 35% net income
improvement for the period, traditionally our slowest quarter of the year.''
Mr. Li concluded, ``We are particularly pleased with our ability to react quickly to a challenging
rubber market, by taking advantage of our HFB agency arrangement. Despite a period in which
natural rubber prices fell approximately 10 percent, and were about 25 percent lower than the
comparable 1996 period, under our HFB agency arrangement, we were successful in mitigating the
price risk and holding costs generally associated with maintaining a large rubber inventory. The
Company received a fixed commission on natural rubber sales arranged through its extensive sales
network, and recorded the commissions earned from these agency sales under other income, the
main reason for our lower year-over-year sales results.''
China Resources Development, Inc., with offices in Hong Kong and the Hainan Province in the
PRC, through a subsidiary, owns a 56% interest in Hainan Zhongwei Agricultural Resources Co.
Ltd. (HARC). HARC markets and distributes dry, natural rubber, liquid latex and other agricultural
products, and procures production materials and supplies for major customers. The Hainan Province
supplies over 60% of the PRC's natural rubber production. Additional corporate information is
available at the Company's web site - www.chrb.com
Except for the historical information in this press release, it includes forward-looking statements that
involve risks and uncertainties, including, but not limited to the impact of weather, competitive
pressures from within the natural rubber industry, quarterly fluctuations in results, the management of
growth, market dynamics and other risks detailed from time to time in the Company's Securities and
Exchange Commission filings. Actual results may differ materially from management expectations.
REMINDER: China Resources Development management will conduct a conference call to discuss
1997 first quarter earnings results on Tuesday, May 20, 1997 at 11:00 a.m. (EST). The dial-in
numbers are 212/346-0127 or 415/904-7303.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
Condensed Consolidated Income Statement
(Amounts in thousands, except share and per share data)
Three Months Ended
March 31,
1997 1996 1997
RMB RMB US$(a)
(unaudited)
Sales 109,398 255,120 13,181
Cost of sales (101,118) (241,021) (12,183)
Gross profit 8,280 14,099 998
Depreciation of fixed assets (334) (595) (40)
Selling and administrative expenses (7,459) (9,986) (899)
Operating income 487 3,518 59
Financial income (expenses), net 647 (5,189) 78
Other income 8,810 9,338 1,061
Income before income taxes 9,944 7,667 1,198
Income taxes (2,126) (1,991) (256)
Net income before minority interests 7,818 5,676 942
Minority interests (4,437) (3,180) (535)
Net income 3,381 2,496 407
Earnings per share(b) 0.60 1.73 0.07
Weighted average number of
common and common stock
equivalent shares outstanding(b) 5,673,186 1,439,683 5,673,186
(a) Based on an exchange rate of U.S. $1.00=Rmb8.30 on March 31,
1997. Amounts have been converted from Renminbi to U.S.
dollars for convenience, and no representation is made that Rmb
amounts could have been, or could be, converted into U.S.
dollars at the stated rate or any other rate.
(b) Adjusted for a one-for-ten reverse stock split of the
Company's outstanding common stock that was effective on
December 31, 1996. |
