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Chairman's
statement
I
am pleased to present the annual results of China Enterprises
Limited ("China Enterprises" or the "Company")
and its subsidiaries (the"Group") for the year ended
December 31, 2001.
Pursuant
to a special resolution passed at the annual general meeting
held on May 31, 2001, the name of the Company was changed from
China Tire e-commerce.com Limited to China Enterprises Limited.
This is the result of a strategic review of the Group's investments
in light of the impending structural changes occurring in China.
With a changing political and socio-economic landscape, it is
imperative that the Group expands its vision to encompass investments
in other high growth industries. Going forward the Group intends
to actively search for potential investments in the Greater
China region with emphasis on achieving a diversified portfolio
of assets consisting of industrial and consumer related investments.
For the existing
investments in tire manufacturing, I regret to report that persistent
competition and tough operating conditions depressed overall results
for the year under review. Tire prices in China declined by approximately
3-5% despite softer raw material prices. In addition, customer
claims for replacement tires, especially truck tires, dampened
the bottom lines of our tire subsidiaries.
Despite the
above, the Group managed to increase revenue by 20% to Rmb2.71
billion for the year (2000: Rmb2.26 billion). This was mainly
due to increased sales volume especially for domestic radial tires
and the abolishment of the 10% consumption tax effected January
1, 2001. Sales of radial tires made up approximately 19.5% of
the total revenues in 2001 while export sales constituted 23.0%
(2000: 28.8%). Volume wise, the Group sold a total of 6.2 million
units of vehicle tires, 34 million units of bicycle tires and
2.5 million units of wheelbarrow tires for the year.
However,
losses from continuing operations before taxation and minority
interest was Rmb97.9 million (2000: Rmb76.7 million) and net
losses from continuing operations after tax and minority interest
was Rmb50.3 million for the year (2000: Rmb58.2 million). During
the year, the Company decided to dispose of its entire interest
in Double Happiness Tyre Industries Company Limited, a 55% held
subsidiary of the Company which was deemed to be non-performing
and resulted in an aggregate disposition loss of Rmb28.6 million,
which together with its losses from operations of Rmb5.3 million,
was included in the consolidated statements of operations and
comprehensive loss under discontinued operations. As a result,
consolidated net losses of China Enterprises was Rmb135.4 million
for the year ended December 31, 2001 (2000: Rmb79.4 million).
As for
the various tire subsidiaries, the Hangzhou factory continued
to be the best performer and recorded a 29% increase in its
revenue to Rmb2.06 billion as a result of increased sales volume.
In view of stronger local brand and better margins achieved
in the domestic market, less effort was spent on export and
hence, export sales fell by 11% relative to last year. In particular,
radial tires sold well in the domestic market and contributed
to 24% of total revenue. Gross margin also improved due to more
efficient procurement efforts and the appointment of distribution
agents. The Hangzhou factory achieved net income of Rmb53.5
million for the year of 2001 compared to a net loss of Rmb1.6
million last year.
The Yinchuan
tire factory experienced a decline of 5% in turnover to Rmb619.4
million compared to the last year as a result of competitive pricing.
The factory incurred a net loss of Rmb162.2 million in the year
2001 compared to a net loss of Rmb47.8 million in 2000.
In the
fourth quarter of 2001, the Company received notification from
the New York Stock Exchange("NYSE") that the Company
failed to maintain a minimum total average market capitalization
of US$15 million over a consecutive 30 trading-day period. A
business plan was submitted to the NYSE in early 2002 that outlined
the Company's plan to comply with the NYSE's listing requirements.
The Company will be subject to an 18-month monitoring period
by the NYSE. There is no assurance that the NYSE will accept
the plan and decide to allow the Company to remain listed. In
the event that the Company's shares cease to be listed on the
NYSE, the Company will consider an alternative trading venue.
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In the next
few years, we see the greatest opportunities in China's services
sector, which to-date has not developed as fast as the industrial
sector, and which is now significantly open to foreign investment
in many areas that were heretofore barred or restricted. Examples
of this include tourism, especially domestic and outbound tourism,
and various consumer services. Many economists forecast China
real GNP growth of about 7% per annum over the next decade,
which would double the size of the PRC economy over that period.
We believe that the services sector may grow at a rate higher
than the overall economy and certain service sectors will register
outstanding growth in the coming years. The Company intends
to strategically focus on such very high growth areas in its
greater China investment strategy.
On February
1, 2002, Million Good Limited ("Million Good"), a
wholly owned subsidiary of China Enterprises, entered into a
conditional subscription agreement to subscribe for 4,800,000,000
new shares of HK$0.01 each representing 34.6% in the enlarged
issued share capital of Ananda Wing On Travel (Holdings) Limited
("AWT(Holdings)")("Shares") at a subscription
price of HK$0.027 per Share ("Subscription"). Total
consideration for the Subscription amounted to HK$129.6 million.
On the same
day, China Enterprises entered into a conditional convertible
note agreement pursuant to which AWT (Holdings) will issue a convertible
note to the Company or its nominee with a principal amount of
HK$120.0 million, which entitles the holder thereof to convert
into Shares at any time during the two years from the date of
issue of the convertible note at an initial conversion price of
HK$0.032 per Share, subject to adjustments.
Closing of
the subscription and the convertible note is expected to occur
on or before April 30, 2002.
AWT (Holdings)
is a leading travel operator based in Hong Kong whose major
business includes provision of package tours, travel, transportation
and other related services. The investment in AWT (Holdings)
is one of the Company's steps towards the goal of portfolio
diversification.
China's accession
to the World Trade Organization marks an important milestone signifying
the emergence of China as an economic and political powerhouse.
Not only will it open China's doors to foreign goods and services,
it will help eliminate domestic protectionism on fundamentally
weak companies. Despite a gradual upward trend in commodities
prices such as natural rubber and volatility in oil prices, the
Group is confident that the Company will be able to sustain and
strengthen its leading position in the China tire market. The
perpetual value-enhancing goal of increasing sales volume with
marginal increases in resources will be our prime objective of
all our tire subsidiaries.
In line with
the Group's strategic plans, the Board will continue to seek investment
opportunities that will increase shareholder's value with the
aim to diversify away from over dependence on a single vertical
business. With China's rapidly growing consumerism, in particular,
tourism, the Company's investment into travel and related businesses
will be the initial step in achieving greater value for our shareholders.
Dr. Chan Kwok Keung, Charles
Chairman
April
16, 2002
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