Friday August 15 6:31 AM EDT
Company Press Release
China Resources Reports Second Quarter Earnings
Conducting Due Diligence Review on Strategic Investment
HONG KONG--(BUSINESS WIRE)--Aug. 15, 1997--China Resources Development, Inc.
(Nasdaq: CHRB, www.chrb.com), a leading natural rubber distributor based in the People's
Republic of China (PRC), today announced operating results for the second quarter and six months
ended June 30, 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 June 30, 1997 (U.S.$1.00=Rmb8.30).
The Company also reported that it is in the final stages of a comprehensive due diligence review of a
potential strategic investment. Since the Company is proceeding with the proposed strategic
investment, China Resources' Board of Directors has elected against proceeding with a previously
announced letter of intent to form a wood processing joint venture with the Hainan, PRC-based
Sanya Timber Factory. After a lengthy due diligence review conducted by Ernst & Young, it was
determined that the factory's profitability and future prospects did not meet the Company's criteria
for a net profit contribution.
For the three month period ended June 30, 1997, sales were $44.0 million, compared to $65.0
million in the year-earlier period. The second quarter sales decline was primarily due to the reduction
in the trading of other agricultural products. The Company recorded sales from its core natural
rubber distribution business during the quarter of $42.5 million, approximately equal to the sales in
the year-ago three-month period. Net income during the 1997 second quarter was $811,000, or
$0.13 per share, versus net income of $1.3 million, or $0.58 per share, due primarily to significantly
lower margin contributions from the trading of agricultural products, than in the comparable 1996
period. The lower margins were partially offset by a 46% year-over-year reduction in selling, general
and administrative expenses following the 1996 fourth quarter Company- wide restructuring, and
approximately $1.2 million of other income derived from the Company's efforts to hedge the
weakness in domestic natural rubber prices. Per share results are based on 6,029,004 and
2,219,300 weighted average shares outstanding for the 1997 and 1996 three month periods,
respectively.
The weighted average share count increase for both the three and six month periods ended June 30,
1997 reflects the 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.
For the first six months of 1997, sales were $57.1 million, compared to $95.9 million in the 1996
period. The first half sales decline is primarily a result of the first quarter sales decline due to the
strategic agency arrangement with the Hainan Farming Bureau in order to reduce the Company's
exposure to lower natural rubber prices (the price declined a further 13% on average during the
second quarter), as well as the aforementioned reduction in the trading of other agricultural products
during the second quarter because of unfavorable market conditions. Net income for the first half of
1997 was $1.2 million, or $0.20 per share, versus net income of $1.6 million, or $0.71 per share, in
the comparable 1996 period. Per share results are based on 5,945,671 and 2,219,300 weighted
average shares outstanding for the 1997 and 1996 six month periods, respectively.
China Resources Development, Inc. President Li Shunxing, commented on the results, ``In
comparison to last year's first half sales and profitability, our results have declined as a direct result
of the unfavorable market conditions and the downward pressure on margins that we have been
facing in our core natural rubber business and our materials and supply procurement operations. The
1996 second quarter was a period in which we were able to command unusually high margins for
certain tropical products, such as coffee beans. Our 1997 second quarter procurement sales are
more typical of our historical normalized results, and are similar to our 1995 second quarter
numbers.
``The second quarter reflects the cost reductions and benefits of last year's restructuring and
streamlining. Specifically, we have been experiencing dramatic S,G & A reductions and have
lowered our bank interest expenses following our agreement to assign outstanding bank loans to our
joint venture partner, the Hainan Farming Bureau.''
Mr. Li continued, ``We look forward to the expeditious completion of our due diligence review, as
we believe this proposed investment meets the stringent criteria for return on investment that we have
set for all transactions under consideration. We have been actively searching for an investment in a
profitable going concern, and given the strategic fit with our Company and its core operations, we
believe this investment, if consummated, would be accretive to our future earnings.''
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 outcome of the Company's due
diligence process on its proposed strategic investment, 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.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
Condensed Consolidated Income Statements
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1997 1996 1997
RMB RMB US$(a) RMB RMB US$(a)
Sales 365,069 540,599 43,984 474,467 795,719 57,165
Cost of Sales (348,557)(478,773)(41,995)(449,675)(719,794)(54,178)
Gross Profit 16,512 61,826 1,989 24,792 75,925 2,987
Depreciation of
fixed assets (510) (613) (61) (844) (1,208) (102)
Selling and
administrative
expenses (8,258) (15,187) (995) (15,717) (25,173) (1,893)
Operating income 7,744 46,026 933 8,231 49,544 992
Financial expenses,
net 243 (16,487) 29 890 (21,676) 107
Other income 9,936 (5,095) 1,197 18,745 4,243 2,258
Income before
income taxes 17,923 24,444 2,159 27,866 32,111 3,357
Income taxes (4,027) (3,586) (485) (6,153) (5,577) (741)
Net income before
minority
interests 13,896 20,858 1,674 21,713 26,534 2,616
Minority interests (7,161) (10,221) (863) (11,598) (13,401) (1,397)
Net income for the
period 6,735 10,637 811 10,115 13,133 1,219
Earnings per share(b) 1.12 4.79 0.13 1.70 5.92 0.20
Weighted average
number of common and
common equivalent
shares
outstanding(b) 6,029,004 2,219,300 6,029,004 5,945,671 2,219,300 5,945,671
(a) Based on an exchange rate of U.S. $1.00=Rmb8.30 on June 30,
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.
Contact:
Edward Wong
Financial Controller
011/852/28107205 or fc@chrb.com
or
Joseph N. Jaffoni, Robert L. Rinderman
Jaffoni & Collins Incorporated
212/505-3015 or jci ir@aol.com |
