Monday, March 06, 2006

Christopher Niesche: Being all over the place is normal for Richina Pacific

Richina Pacific is all over the place, both literally and figuratively.

It's based in Singapore, registered in Bermuda and listed on the New Zealand Exchange. Its main assets are a construction company in New Zealand, an aquarium in Beijing and a leatherworks in Shanghai.

Unfortunately, the lack of cohesion shows.

Last week it reported a record US$10.3 million ($15.5 million) full-year profit, but said it wasn't really a profit.

"The company's profits were non-cash gains and do not reflect positive results from the company's operating businesses," Richina Pacific said in statement accompanying its financials.

This confused brokers. Does it mean that it's making profits in China - where its major focus is - but can't get them out of the country?

Does it mean that the profits were from revaluations of assets? Who knows?

The company certainly didn't say.

The profit was "based on the outstanding contributions made by the Richina Financial division".

On its website, the company says Richina Financial provides "a wide range of financial and commercial services to its many subsidiaries and affiliates, as well as strategic and financial partners". Does this mean the company made a profit lending money to itself?

The picture only becomes more confusing with a closer look at the division's results. Richina Financial made a tax-paid profit of US$17.5 million from revenue of just US$3.5 million. The figures certainly seem to bear out Richina's contention that its profits were "non-cash gains".

What dragged the company down in 2005 - and prompted it to cancel its dividend - was the poor performance of its New Zealand construction arm Mainzeal, which made "significant and unexpected" losses on the building of Auckland's Arena indoor events centre and an apartment development in the Auckland CBD.

Once again, Richina failed to divulge how much Mainzeal had lost, but didn't dispute a figure of a $15 million loss on the Arena job alone.

The fact that Mainzeal failed to make a profit during one of the country's largest construction booms should be a major concern to investors. True, labour and materials costs have been high, but the huge demand for construction should have more than offset that.

This isn't the first time the company has failed to live up to its promise.

Richina Pacific started life as construction company Mainzeal. After acquiring a New Zealand leather business (since sold) in 1996 it changed its name to Richina Pacific and started investing in China.

Chief executive Richard Yan, a Chinese-born New Zealand-educated businessman, was convinced China was about to boom.

Yan was right about the China boom, but Richina hasn't been able to benefit from his foresight.

Both its Blue Zoo Beijing aquarium and its Shanghai leather business (which also has ambitions in property development) have performed poorly in the past.

As for how they performed in 2005, that's a mystery because neither rates a mention in the profit announcement.

New Zealand investors largely shun Richina now.

The company has suffered from the same problem that many other New Zealand companies that move offshore do: being ignored in both their old and new homes.

This may not concern the company overly as the billionaire American families Yan brought into the company in 1996 remain on the share register.

Certainly Richina Pacific can't have been a happy investment for them. The stock peaked at $2.33 in 1997 (after adjusting for a share consolidation), but since 1998 has averaged just 50 cents. It closed at 42 cents on Friday.

If Richina is to improve its financial performance, it would do well to decide what sort of company it is: a New Zealand construction company, a Beijing amusements company or Shanghai property developer.

And if Richina wants investors in New Zealand to take notice of it - and it's by no means apparent that it does - then it needs to tell them what it's doing and why.


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