SHENZHEN, China, Aug. 13 /Xinhua-PRNewswire-FirstCall/ -- China
GrenTech Corporation Limited (Nasdaq: GRRF, "the Company", or
"GrenTech"), a leading China-based radio frequency ("RF")
technology and product developer and a leading wireless coverage
products and services provider, today announced its unaudited
financial results for the second quarter ended June 30, 2008.
Second Quarter 2008 Financial Highlights -- Total revenue decreased
by 8.2% over the second quarter 2007 to RMB186.3 million (US$27.2
million)(1) Revenue from wireless coverage products and services
was RMB157.0 million (US$22.9 million), an increase of 6.1% over
the second quarter 2007 Revenue from base station RF products
decreased 46.7% from the second quarter 2007 to RMB29.3 million
(US$4.3 million) -- Gross profit was RMB62.1 million (US$9.1
million), a decrease of 24.8% from the second quarter 2007 --
Operating loss was RMB4.9 million (US$0.7 million), compared with
operating income of RMB20.8 million in the second quarter 2007 --
Net loss was RMB17.0 million (US$2.5 million), compared with net
income of RMB16.2 million in the second quarter 2007 -- Net loss
per ADS(2) was RMB0.69 (US$0.10) (1) The Company's reporting
currency is Renminbi ("RMB"). The translation of amounts from RMB
to United States dollars is solely for the convenience of the
reader. RMB numbers included in this press release have been
translated into U.S. dollars at the noon buying rate for U.S.
Dollars in effect on June 30, 2008 in the City of New York for
cable transfers in RMB per U.S. dollar as certified for customs
purposes by the Federal Reserve Bank of New York, which was
US$1.00=RMB6.8591. No representation is made that RMB amounts could
have been, or could be, converted into U.S. Dollars at that rate or
at any other rate on June 30, 2008. (2) Each ADS represents 25 of
our ordinary shares. Mr. Yingjie Gao, Chairman and Chief Executive
Officer of GrenTech, commented, "In the second quarter, the Chinese
government announced the restructuring plan for Chinese
telecommunication operators, whereby China Mobile will merge with
China Tietong Telecommunication and China Telecom will merge with
China Satcom and purchase China Unicom's CDMA network, while China
Unicom will merge with China Netcom. Upon completion of the
restructuring, all three operators will be able to provide a full
range of services, covering both fixed-line and wireless
operations. We believe that this will intensify competition in
wireless operation and thus enhance demand for wireless coverage.
In addition, the Chinese government has announced that 3G licenses
will be released after the completion of such restructuring, which
we expect will further increase product demand both in the wireless
coverage market and base station RF modules market." "Currently,
the restructuring plan is being carried out step by step. On July
28, 2008, China Telecom signed a final agreement with China Unicom
to purchase the CDMA network from China Unicom, and China Telecom
subsequently disclosed that it would invest RMB27.9 billion in the
first phase of CDMA network construction. At the same time, China
Unicom announced that it will make a significant investment with
the proceeds from the sale of its CDMA network to build a
high-quality GPRS network. Recently, there have also been reports
that China Mobile is preparing for phase II construction of its TD-
SCDMA network in 28 cities. We expect that these changes in the
competitive landscape and the 3G rollout will bring us
unprecedented opportunities in the coming period." "Furthermore, we
anticipate that the restructuring and 3G network development will
drive additional growth in our RF business, through increased
demand from domestic base station manufacturers and additional
growth potential brought by TD phase II construction. Building on
our position as the major supplier of passive RF modules for Huawei
and ZTE, we believe China Telecom's CDMA network construction and
China Mobile's TD phase II network construction will become the
growth drivers for our RF business. Internationally, we believe the
overseas market will present new opportunities for us, as we took a
big step forward by commencing to supply small quantities of RF
modules to one of the world's largest base station manufacturers in
the second quarter and became a qualified supplier of another large
global base station manufacturer, with whom we have now entered the
product development stage. All these will provide growth
opportunities for our RF business going forward," concluded Mr.
Gao. Second Quarter 2008 Unaudited Financial Results Revenue
Revenue for the second quarter 2008 decreased by RMB16.7 million
(US$2.4 million), or 8.2%, year-over-year to RMB186.3 million
(US$27.2 million), primarily due to temporary demand disruption
caused by the restructuring of the telecommunications operators.
China Unicom and China Telecom both postponed their investment
expenditures, impacting revenue growth from the wireless coverage
business, while revenue from the RF business decreased compared to
the second quarter 2007. Revenue from wireless coverage products
and services increased 6.1% to RMB157.0 million (US$22.9 million)
from RMB148.0 million in the second quarter 2007, mainly due to an
expanded business relationship with China Mobile and the
recognition of integration service fees from China Mobile. Revenue
from China Mobile in the second quarter 2008 increased by 150.7%
over the second quarter 2007. In contrast, revenues from China
Unicom and China Telecom declined 37.5% and 84.3%, respectively,
negatively impacting wireless coverage revenue growth in the second
quarter 2008, mainly due to the aforementioned delays in spending
due to the Chinese telecommunication operators' restructuring.
Revenue from RF products decreased 46.7%, to RMB29.3 million
(US$4.3 million) from RMB55.0 million in the second quarter 2007,
primarily due to the fact that China Unicom halted investment in
its CDMA network, which negatively impacted revenue from CDMA RF
modules. Three Months Ended June 30, 2007 2008 % of Revenues
Revenues Revenues Total (RMB'000)(RMB'000)(US$'000) Revenues
Wireless Coverage Products & Services China Mobile 37,672
94,443 13,769 50.70% China Unicom 63,859 39,913 5,819 21.40% China
Telecom 29,371 4,601 671 2.50% China Netcom 9,592 3,165 461 1.70%
Overseas 5,028 2,253 329 1.20% Non-operators 2,518 12,672 1,847
6.80% Subtotal 148,040 157,047 22,896 84.30% RF Products OEMs
54,984 29,294 4,271 15.70% Total 203,024 186,341 27,167 100.00%
Cost of Revenue Cost of revenue in the second quarter 2008
increased by RMB3.8 million (US$0.6 million), or 3.2%, over the
second quarter 2007. This was driven primarily by a higher volume
of wireless coverage product sales during the second quarter of
2008 versus the same period in 2007. Operating Expenses Total
operating expenses increased by RMB5.3 million (US$0.8 million), or
8.4%, from RMB61.8 million in the second quarter 2007 to RMB67.1
million (US$9.8 million) in the second quarter 2008. During the
quarter, increased research and development expenses were offset in
part by a reduction in the level of sales and distribution
expenses. Research and development expenses increased by RMB3.5
million (US$0.5 million), or 24.4%, to RMB17.8 million (US$2.6
million) over the second quarter 2007. This is due to increased
research material costs of RMB2.2 million (US$0.3 million) and a
technology transfer contract fee of RMB3.2 million (US$0.5 million)
incurred in the second quarter 2008. Sales and distribution
expenses decreased by RMB0.9 million (US$0.1 million), or 2.6%, to
RMB31.0 (US$4.5 million) from RMB31.9 million in the same period
last year, due to increased Company controls of sales and related
expenses, as well as operational expenses. General and
administrative expenses increased by RMB2.5 million (US$0.4
million), or 16.4%, to RMB18.2 million (US$2.7 million) from
RMB15.7 million in the same period last year. The year-over-year
increase was primarily driven by an increase in depreciation
expenses of RMB1.7 million (US$0.2 million) due to the Company's
transfer of a production building from a construction in progress
to a fixed asset, as well as the share-based compensation of RMB1.2
million (US$0.2 million) related to granting of the Company's share
options to the Group's employees and directors in March 14, 2008.
This increase was offset in part by a reduction in rental fees
during the quarter. Other Expenses/Income Total other expenses were
RMB12.0 million (US$1.8 million), an increase of RMB7.9 million
(US$1.2 million), or 196.4%, compared with RMB4.1 million in the
second quarter 2007. This was mainly due to increased interest
expenses. Interest income increased by RMB3.0 million (US$0.4
million) in the second quarter of 2008 compared with the same
period last year, primarily due to an increase in effective
interest income related to long-term accounts receivable. Interest
expense increased by RMB7.5 million (US$1.1 million) in the second
quarter of 2008, or 114.4% year-over-year, due to higher interest
rates and increased interest expenses related to accounts
receivable financing. The foreign currency exchange loss was RMB2.9
million (US$0.4 million) in the second quarter of 2008, which was
in-line with the same period of 2007. The Company has kept a
portion of its foreign currency in offshore accounts, causing
increased exchange losses as the RMB appreciated. The Company is in
the process of obtaining approval from the Chinese government to
exchange its foreign currency to RMB. Earnings Gross profit of
RMB62.1 million (US$9.1 million) in the second quarter 2008
represented a decrease of RMB20.5 million, or 24.8%, compared to
the same period one year ago. The decrease in gross profit was
mainly due to the total revenue decrease and the slight increase in
cost of revenue. Operating profit/loss decreased from an operating
profit of RMB20.8 million in the second quarter 2007 to an
operating loss of RMB4.9 million (US$0.7 million) in the second
quarter 2008, mainly due to the decreased gross profit and
increased research and development expenses. Net loss was RMB17.0
million (US$2.5 million) in the second quarter 2008, compared with
net income of RMB16.2 million in the second quarter 2007. Net loss
per ADS was RMB0.69 (US$0.10) in the second quarter 2008. Balance
Sheet Cash, cash equivalents and pledged time deposits decreased
from RMB576.6 million as of December 31, 2007 to RMB231.9 million
(US$33.8 million) as of June 30, 2008, a decrease of RMB344.7
million (US$50.3 million), or 59.8%. This decrease was mainly
attributable to the use of cash for working capital outlays for raw
materials and operating overhead, as well as capital expenditures
for plant and equipment purchases. Total accounts receivable
decreased by 1.0%, from RMB1,315.3 million as of December 31, 2007
to RMB1,301.7 million (US$189.8 million) as of June 30, 2008.
Inventories increased from RMB542.1 million as of December 31, 2007
to RMB672.1 million (US$98.0 million) as of June 30, 2008, an
increase of 24.0%. The increase was mainly due to increased
purchase of raw materials for expected production needs in the
second half of the year. In addition, the level of finished goods
increased because the Company has finished the installation of a
portion of its wireless coverage products at customers' sites
during the second quarter 2008, but these installations were not
inspected by the customers. Accordingly, no revenue could be
recognized with respect to these installed products, pending the
inspection. Total assets decreased by RMB159.3 million, or 5.3%,
from RMB2,997.3 million as of December 31, 2007 to RMB2,838.0
million (US$413.8 million) as of June 30, 2008, mainly due to
decreases in total cash. Total liabilities decreased by RMB96.2
million (US$14.0 million), or 6.8%, from RMB1,405.0 million as of
December 31, 2007 to RMB1,308.8 million (US$190.8 million) as of
June 30, 2008. Current liabilities decreased by 6.1% to RMB1,172.9
million (US$171.0 million) as of June 30, 2008. The decrease in
liabilities was primarily due to the Company's re-payment of
short-term bank loans. Business Outlook and Guidance for the Third
Quarter 2008 Wireless Coverage Products and Services Due to the
2008 Beijing Olympics, the Chinese telecommunication operators will
stop all network construction from July 20 to September 20 in
cities hosting Olympic competitions and from August 1 to August 25
in non-Olympics cities, and will only work on wireless coverage
planning and preparations for bidding procedures. Investment
expenditures on wireless coverage products are expected to remain
flat due to such work stoppages and the industry restructuring
which will continue through the third quarter. The Company expects
revenue from the wireless coverage business in the third quarter
2008 will be in-line with the same period in 2007. After the
restructuring and 2008 Beijing Olympics, China Mobile is expected
to expand its GSM network and commence its phase II TD-SCDMA
network construction. China Unicom is also expected to develop its
GPRS network, and China Telecom will significantly invest in its
CDMA network construction. GrenTech has won bids for GSM wireless
coverage products from China Mobile and China Unicom's centralized
bidding system, and has achieved the largest market share for such
products compared to its competitors in the second quarter 2008. In
addition, the Company also received integrated services
qualifications from 19 of China Mobile's provincial operators and
entered 26 of China Unicom's provincial integrated services
markets. All of these factors are expected to enhance the Company's
revenue from wireless coverage business going forward. In addition,
the new payment terms under the centralized bidding policy will
take effect from the third quarter 2008. Under the new terms, the
first payment installment will be 70-80% of the total contract
amount, which is to be paid within 15-60 days of the product
delivery. The current payment terms only allow the Company to
collect approximately 43% on a weighted average basis of the total
contract amount as the first payment installment upon the signing
of the contract and the issuance of the completion certificate.
GrenTech believes the new payment terms will improve the Company's
accounts receivables in the long run. Base Station RF Products The
CDMA network construction and phase II TD-SCDMA network
construction, which is expected to start after the completion of
the telecommunication operators' restructuring, will trigger demand
for the production of additional base station RF modules. The
Company has already received a number of orders from domestic base
station manufacturers. The Company expects that revenue from the RF
business in the third quarter 2008 will increase sequentially over
the second quarter 2008 but will not exceed that of the third
quarter 2007. Conference Call and Webcast The Company's management
team will conduct a conference call on Thursday, August 14, 2008 at
5:00 am (Pacific) / 8:00 am (Eastern) / 8:00 pm (Beijing/Hong
Kong). A webcast of the conference call will be available on the
Company's website at: http://www.grentech.com.cn/ . About China
GrenTech China GrenTech is a leading developer of radio frequency
("RF") technology in China and a leading provider of wireless
coverage products and services in China. The Company uses RF
technology to design and manufacture wireless coverage products,
which enable telecommunication operators to expand the reach of
their wireless communication networks to indoor and outdoor areas,
such as buildings, highways, railways, tunnels and remote regions.
China GrenTech's wireless coverage services include design,
installation and project warranty services. The Company also
tailors the design and configuration of its wireless coverage
products to the specific requirements of its customers. Based on
its in-house RF technology platform, the Company also develops and
produces base station RF parts and components sold to base station
manufacturers. China GrenTech is a qualified supplier of RF parts
and components to six major base station manufacturers including
Huawei Technologies and ZTE Corporation. For more information,
please visit http://www.grentech.com.cn/ . "Safe Harbor" Statement
under the Private Securities Litigation Reform Act of 1995
Statements contained in this press release that are not historical
facts are forward-looking statements, as that term is defined in
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, including financial projections and
forecasts, involve risks and uncertainties that could cause the
Company's actual results to differ materially from its current
expectations. Factors that could cause the Company's results to
differ materially from those set forth in these forward-looking
statements include the Company's reliance on business relationships
with the Chinese telecom operators and base station manufacturers;
the risk that the Company will continue to experience downward
pressure on the pricing of its products and services due to the
telecom operators` bidding policies or other factors; the risk that
the telecom operators in China will not expand or maintain their
spending on 2G, 3G, WLAN or other network projects; uncertainty as
to the future demand for base station RF products by domestic or
international base station manufacturers, including the risk that
demand in China or elsewhere for base stations may not grow as the
Company's management anticipates; risks associated with large
accounts receivable, long collection periods and accounts
receivable cycles and uncertainty as to whether new operator
policies will improve such cycles in the long-term; fierce
competition in the wireless communication industry; growth of, and
risks inherent in, the wireless communication industry in China,
including uncertainties regarding the timing and nature of any
future restructuring of the telecom operators in China and the
risks that such restructuring will not result in expanded
investments to expand network coverage or quality; uncertainty as
to future profitability and the Company's ability to obtain
adequate financing for its planned capital expenditure
requirements; its reliance on third parties to carry out the
installation of its wireless coverage products; uncertainty as to
its ability to continuously develop and manufacture new RF
technologies and keep up with changes in RF technologies; risks
associated with possible defects and errors in its wireless
coverage products or RF products; uncertainty as to the Company's
ability to protect and enforce its intellectual property rights;
and uncertainty as to the Company's ability to attract and retain
qualified executives and personnel, particularly in its research
and development department. Other factors that may causes the
Company's actual results to differ from those set forth in the
forward-looking statements contained in this press release and that
may affect its prospects in general are described in the Company's
filings with the Securities and Exchange Commission, including its
Registration Statement on Form F-1 related to its initial public
offering and its annual reports on Form 20-F. The Company
undertakes no obligation to update or revise forward-looking
statements to reflect subsequent events or changed assumptions or
circumstances. For more information, please contact: Investor
Contact: Kent Lo, Investor Relations Manager China GrenTech Corp
Ltd. Tel: +86-755-2650-3007 Email: Investor Relations (US): Delia
Cannan Taylor Rafferty Tel: +1-212-889-4350 Email: Investor
Relations (HK): Ruby Yim Taylor Rafferty Tel: +852-3196-3712 Email:
Media Contact: Jason Marshall Taylor Rafferty Tel: +1-212-889-4350
Email: China GrenTech Corporation Limited and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets As of December 31,
2007 and June 30, 2008 (RMB and US$ expressed in thousands)
December June June 31, 2007 30,2008 30, 2008 RMB RMB US$ Assets
Current assets Cash and cash equivalents 316,778 43,089 6,282
Pledged time deposits 259,786 188,817 27,528 Accounts receivable,
net 925,838 960,019 139,963 Inventories 542,094 672,100 97,987
Other current assets 63,195 85,063 12,401 Total current assets
2,107,691 1,949,088 284,161 Long-term accounts receivable 389,505
341,675 49,813 Other non-current assets 500,103 547,233 79,782
Total assets 2,997,299 2,837,996 413,756 Liabilities Short-term
bank loans 456,050 449,925 65,596 Other current liabilities 793,031
723,014 105,409 Total current liabilities 1,249,081 1,172,939
171,005 Long-term debt 150,000 130,000 18,953 Other non-current
liabilities 5,938 5,823 849 Total liabilities 1,405,019 1,308,762
190,807 Minority interests 5,763 5,335 777 Total shareholders'
equity 1,586,517 1,523,899 222,172 Total liabilities and
shareholders' equity 2,997,299 2,837,996 413,756 China GrenTech
Corporation Limited and Subsidiaries Unaudited Condensed
Consolidated Statements of Income (RMB and US$ expressed in
thousands, except share and per share data) For Three Months Ended
June 30, 2007 2008 2008 RMB RMB US$ Revenues 203,024 186,341 27,167
Cost of revenues (120,378) (124,216) (18,110) Gross profit 82,646
62,125 9,057 Operating expenses: Research and development costs
(14,326) (17,815) (2,597) Sales and distribution expenses (31,854)
(31,014) (4,522) General and administrative expenses (15,655)
(18,225) (2,657) Total operating expenses (61,835) (67,054) (9,776)
Operating income/(loss) 20,811 (4,929) (719) Other
(expense)/income: Interest income 1,776 4,764 695 Interest expense
(6,525) (13,990) (2,040) Investment income 318 -- -- Foreign
currency exchange loss (2,941) (2,904) (423) Grant income 3,310 91
13 Total other expense (4,062) (12,039) (1,755) Income/(loss)
before income tax (expense)/benefit and minority interests 16,749
(16,968) (2,474) Income tax (expense)/benefit (1,360) (277) (40)
Income/(loss) before minority interests 15,389 (17,245) (2,514)
Minority interests, net of tax 784 202 29 Net income/(loss) 16,173
(17,043) (2,485) Net income/(loss) available to ordinary
shareholders 16,173 (17,043) (2,485) Net income/(loss) per share
available to ordinary shareholders: - Basic 0.03 (0.03) (0.004)
Weighted average number of ordinary shares: - Basic 625,000,000
613,898,342 613,898,342 China GrenTech Corporation Limited and
Subsidiaries Unaudited Condensed Consolidated Statements of Income
(RMB and US$ expressed in thousands, except share and per share
data) For Six Months Ended June 30, 2007 2008 2008 RMB RMB US$
Revenues 234,310 257,730 37,575 Cost of revenues (138,678)
(173,636) (25,315) Gross profit 95,632 84,094 12,260 Operating
expenses: Research and development costs (27,527) (33,143) (4,832)
Sales and distribution expenses (60,453) (59,824) (8,722) General
and administrative expenses (29,060) (32,383) (4,720) Total
operating expenses (117,040) (125,350) (18,274) Operating
income/(loss) (21,408) (41,256) (6,014) Other (expense)/income:
Interest income 4,232 10,236 1,492 Interest expense (12,587)
(27,232) (3,970) Investment income 318 296 43 Foreign currency
exchange loss (5,729) (9,933) (1,448) Grant income 3,430 2,121 309
Total other expense (10,336) (24,512) (3,574) Income/(loss) before
income tax (expense)/benefit and minority (31,744) (65,768) (9,588)
interests Income tax (expense)/benefit 2,081 6,769 987
Income/(loss) before minority interests (29,663) (58,999) (8,601)
Minority interests, net of tax 1,025 428 62 Net income/(loss)
(28,638) (58,571) (8,539) Net income/(loss) available to ordinary
shareholders (28,638) (58,571) (8,539) Net income/(loss) per share
available to ordinary shareholders: - Basic (0.05) (0.1) (0.014)
Weighted average number of ordinary shares: - Basic 625,000,000
613,981,171 613,981,171 China GrenTech Corporation Limited and
Subsidiaries Unaudited Condensed Consolidated Statements of Cash
Flows For Six-month Periods ended June 30, 2007 and 2008 (RMB and
US$ expressed in thousands) For Six Months Ended June 30, 2007 2008
2008 RMB RMB US$ Net cash used in operating activities (198,654)
(197,803) (28,838) Net cash used in investing activities (180,792)
(2,613) (381) Net cash provided by/ (used in) financing activities
217,628 (71,344) (10,401) Effect of exchange rate changes on cash
(1,963) (1,929) (281) Net decrease in cash and cash equivalents
(163,781) (273,689) (39,901) DATASOURCE: China GrenTech Corporation
Limited CONTACT: Kent Lo, Investor Relations Manager, China
GrenTech Corp Ltd. at +86-755-2650-3007 or ; Delia Cannan at
+1-212-889-4350 or ; Ruby Yim at +852-3196-3712 or ; Jason Marshall
at +1-212-889-4350 or all three for Taylor Rafferty Web site:
http://www.grentech.com.cn/
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