SHENZHEN, China, Nov. 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 third quarter ended September 30, 2008.
Third Quarter 2008 Highlights -- Total revenue increased by 14.0%
sequentially and decreased by 22.2% year-over-year to RMB212.5
million (US$31.3 million)(1) - Revenue from wireless coverage
products was RMB156.3 million (US$23.0 million) - Revenue from base
station RF products was RMB56.2 million (US$8.3 million) -- Gross
profit was RMB62.8 million (US$9.3 million) -- Operating income was
RMB2.7 million (US$0.4 million) -- Net loss was RMB8.4
million(US$1.2 million) -- Telecommunications operator
restructuring has been initially completed in China, and network
construction has resumed -- Customer mix improved, with revenue
contribution from China Mobile increased by 30.8% year-over-year --
The Company now expects 2008 revenue to remain flat versus 2007 (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 September 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=RMB6.7899. 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 September 30, 2008.
Mr. Yingjie Gao, Chairman and Chief Executive Officer of GrenTech,
commented, "Our third quarter results were affected by the
temporary suspension of nearly all network construction activities
during the Beijing Olympic Games. This was the case for all
industry players, and we were not immune to this disruption. After
the Olympics, the completion of the CDMA network transfer between
China Unicom and China Telecom, and the integration of China Unicom
and China Netcom have concluded the initial phase of restructuring
China's telecommunication operators. China Telecom has commenced
CDMA network construction and China Mobile has finalized its main
equipment bidding process for the TD Phase II construction. It is
expected that all of the operators will invest heavily in order to
compensate for the period of suspended investments. "While we are
confident that upcoming large scale network construction will
present GrenTech with tremendous opportunities in both the wireless
coverage and base station RF businesses in China, we also prepared
for a potential impact from the global financial crisis. To this
end, we have committed to a few key business initiatives, such as
selecting quality orders, strengthening our balance sheet and
improving our operational efficiency. Some of these measures may
potentially slow down our revenue growth or profitability in the
short term; however, we believe that they are essential elements
for achieving profitable and sustainable long-term growth,"
concluded Mr. Gao. Third Quarter 2008 Unaudited Financial Results
Revenue Total revenue decreased by RMB60.7 million (US$8.9
million), or 22.2%, year-over-year to RMB212.5 million (US$31.3
million), with revenue from the wireless coverage and RF businesses
decreasing year-over-year by 19.6% and 28.6%, respectively.
Suspension of almost all wireless coverage construction projects
from operators in China during the Beijing Olympic Games was the
primary reason for the revenue decline. However, the Company has
improved its customer mix, with wireless coverage revenue from
China Mobile increasing by 30.8% compared to the third quarter of
2007. The revenue increase from China Mobile was a result of the
Company's contract win in China Mobile's centralized bidding this
year, and a sustained effort to further penetrate China Mobile's
integration services and WLAN markets. Revenue from the RF business
grew by 91.7% sequentially, as a result of increased demand from
base station manufacturers as they prepare for the anticipated CDMA
network construction roll out. Three Months Ended September 30,
2007 2008 Revenues Revenues Revenues % of Total
(RMB'000)(RMB'000)(US$'000)Revenues Wireless Coverage Products
& Services China Mobile 71,311 93,290 13,740 43.9% China Unicom
74,491 52,260 7,696 24.6% China Telecom 15,513 4,745 699 2.2% China
Netcom 8,374 1,165 172 0.6% Overseas 5,918 302 44 0.2%
Non-operators 18,888 4,546 670 2.1% Subtotal 194,495 156,308 23,021
73.6% RF Products OEMs 78,719 56,170 8,272 26.4% Total 273,214
212,478 31,293 100.0% Cost of Revenue Cost of revenue in the third
quarter 2008 decreased by RMB16.0 million (US$2.4 million), or
9.7%, year-over-year to RMB149.6 million (US$22.0 million), mainly
due to decreased revenue. Gross Profit Gross profit of RMB62.8
million (US$9.3 million) in the third quarter 2008 represented a
decrease of RMB44.7 million, or 41.6%, compared to the same period
last year. Gross margin was 29.6%, compared with 39.4% in the third
quarter of 2007. The decrease was a result of intensified market
competition and pricing pressure from telecommunication operators'
centralized bidding policies for wireless coverage equipment
procurement. Operating Expenses Total operating expenses decreased
by RMB1.3 million (US$0.2 million), or 2.1%, year-over-year to
RMB60.1 million (US$8.9 million) in the third quarter 2008. Sales
and distribution expenses decreased by RMB6.8 million (US$1.0
million), or 20.2%, to RMB26.8 (US$4.0 million) year-over-year, due
to tighter controls over sales-related, operational and rental
expenses. Research and development expenses increased by RMB2.2
million (US$0.3 million), or 16.5%, to RMB15.5 million (US$2.3
million) year-over-year, due to increased research materials costs
in the third quarter 2008. General and administrative expenses
increased by RMB3.3 million (US$0.5 million), or 23.1%, to RMB17.8
million (US$2.6 million) year-over-year, mainly due to i)
depreciation expenses increase of RMB1.3 million (US$0.2 million)
from the implementation of a new SAP AG system and the change in
accounting treatment for a new building, which was transferred from
a construction-in- progress item to a fixed asset; and ii) a
share-based compensation of RMB2.1 million (US$0.3 million) in the
form of share options to the Company's employees and directors.
Operating Income Operating income decreased by RMB43.5 million
(US$6.4 million), or 94.1%, to RMB2.7 million (US$0.4 million)
compared with the third quarter 2007, mainly due to decreases in
revenue and gross margin in the wireless coverage business. Other
Expenses Total other expenses were RMB11.7 million (US$1.7
million), an increase of RMB2.5 million (US$0.4 million), or 26.9%,
compared with the third quarter 2007. Interest expense was RMB15.3
million (US$2.3 million), an increase of RMB7.0 million (US$1.0
million), or 82.8%, year-over-year, due to increased bank
borrowings and higher handling charges and interest expenses
related to accounts receivable financing. Interest income was
RMB4.5 million (US$0.7 million), an increase of RMB2.0 million
(US$0.3 million), or 77.5%, compared with the same period last
year. This was primarily due to increases in the effective interest
income related to long-term accounts receivable. Foreign currency
exchange loss was RMB1.0 million (US$0.1 million), a decrease of
RMB3.4 million (US$0.5 million), or 77.7%, over the third quarter
2007. This was primarily due to the conversion of most of its
foreign currency savings to Renminbi during the third quarter 2008,
reducing losses from currency exchange rate fluctuations. Net Loss
Net loss was RMB8.4 million (US$1.2 million), and net loss per ADS
was RMB0.35 (US$0.05) in the third quarter 2008. Balance Sheet
Cash, cash equivalents and pledged time deposits decreased from
RMB576.6 million as of December 31, 2007 to RMB200.0 million
(US$29.4 million) as of September 30, 2008, a decrease of RMB376.6
million, or 65.3%. 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 increased by 2.4%, from
RMB1,315.3 million (US$198.5 million) as of December 31, 2007 to
RMB1,347.5 million (US$198.5 million) as of September 30, 2008.
This increase was mainly attributable to more recognized revenue
than receivables collections in the third quarter 2008. The Company
is not certain whether the restructuring of China's
telecommunications operators and the subsequent CDMA network
transfer from China Unicom to China Telecom will affect collections
for a portion of the receivables. The Company will carefully
reassess the collection risks involved according to restructuring
progress, and may write off any probable uncollectible bad debts if
necessary. Inventories increased from RMB542.1 million as of
December 31, 2007 to RMB678.2 million (US$99.9 million) as of
September 30, 2008, an increase of 25.1%. The increase was mainly
due to increases in RF product raw materials and increases in the
amount of wireless coverage product finished goods that have been
shipped to customers or installed at customer sites but not yet
recognized as revenue. Total assets decreased by RMB118.4 million,
or 3.9%, from RMB2,997.3 million as of December 31, 2007 to
RMB2,878.9 million (US$424.0 million) as of September 30, 2008,
mainly due to decreases in total cash, cash equivalents and pledged
time deposits. Total liabilities decreased by RMB44.0 million, or
3.1%, from RMB1,405.0 million as of December 31, 2007 to RMB1,361.1
million (US$200.5 million) as of September 30, 2008, primarily due
to a decrease in accounts payable and long- term debt. Business
Review In order to capture upcoming large-scale network
construction opportunities and be vigilant in preparations for
potential impacts from the global financial crisis and economic
downturn, GrenTech management has committed to the following key
business priorities: -- Select quality orders -- Reduce accounts
receivable - Offer discounts to customers that commit to shorter
collection schedules - Reassess the receivables which may be
affected by the operator restructuring and may write off probable
uncollectible bad debts - Implement stronger initiatives to speed
up collection time -- Improve inventory turnover - Reduce raw
materials inventory levels - Shorten raw materials delivery period
- Urge customers to speed up the contract conclusion and inspection
process in order to shorten the installed finished goods revenue
recognition cycle -- Reevaluate the production process and
implement more stringent measurement to rationalize cost of goods
sold. -- Enhance operating efficiency: - Optimize operating process
- Streamline business procedures - Manage operating expenses such
as sales and marketing, and general and administration costs
Although some of the above activities may slow down the Company's
revenue growth or profitability in the near term, management
believes these measures will effectively place the Company in a
stronger position to capture future market opportunities for mid-
to long-term business growth. Business Outlook and Guidance
Wireless Coverage Products and Services Well positioned for the
upcoming large-scale wireless coverage construction - In the fourth
quarter, China Mobile is expected to accelerate its GSM network
construction and to initiate its TD Phase II network construction
in 28 cities. It is also believed that China Telecom will commence
large-scale construction of its CDMA network, with indoor coverage
being one of the most heavily invested projects. China Unicom's
network construction may be postponed slightly, due to
uncertainties surrounding its personnel integration and
organizational restructuring. Following GrenTech's centralized
bidding wins for wireless coverage equipment from both China Mobile
and China Unicom, the Company has also won China Telecom's wireless
coverage equipment centralized bid. Furthermore, the Company won
bids to be a qualified integration services provider for China
Mobile, China Unicom and China Telecom's provincial subsidiaries in
the third quarter 2008. The Company is well positioned for the
upcoming coverage construction. Base Station RF Products Demand for
RF modules is expected to reach record levels, as TD Phase II
network construction and CDMA network expansion are expected to
launch shortly. The Company has already received large orders for
RF modules from base station manufacturers. Guidance for 2008
Overall, due to the suspension of network construction in the third
quarter and telecommunications operator restructuring, the Company
expects 2008 revenue to remain flat versus 2007. Conference Call
and Webcast The Company's management team will host a conference
call at 5:00 am (Pacific) / 8:00 am (Eastern) / 9:00 pm
(Beijing/Hong Kong) on Friday, November 14, 2008 to discuss its
2008 third quarter financial results and recent business activity.
To access the live teleconference, please dial 1 800 299 7635 (US),
800 96 3844 (Hong Kong) or 1 617 786 2901 (International), and
enter the passcode "GRENTECHCALL." A replay of the conference call
will be available through 11:00 pm (Eastern) on November 20, 2008
by calling 1 888 286 8010 (US) or 1 617 801 6888 (International)
and entering the passcode "73141965". 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; 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. 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: - FINANCIAL TABLES TO
FOLLOW - China GrenTech Corporation Limited and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets As of December 31,
2007 and September 30, 2008 (RMB and US$ expressed in thousands)
December September September 31, 2007 30, 2008 30, 2008 RMB RMB US$
Assets Current assets Cash and cash equivalents 316,778 67,954
10,008 Pledged time deposits 259,786 131,999 19,440 Accounts
receivable, net 925,838 959,887 141,370 Inventories 542,094 678,206
99,885 Other current assets 63,195 96,794 14,256 Total current
assets 2,107,691 1,934,840 284,959 Long-term accounts receivable
389,505 387,573 57,081 Other non-current assets 500,103 556,495
81,959 Total assets 2,997,299 2,878,908 423,999 Liabilities
Short-term bank loans 456,050 448,083 65,993 Other current
liabilities 793,031 777,218 114,466 Total current liabilities
1,249,081 1,225,301 180,459 Long-term debt 150,000 130,000 19,146
Other non-current liabilities 5,938 5,758 848 Total liabilities
1,405,019 1,361,059 200,453 Minority interests 5,763 5,108 753
Total shareholders' equity 1,586,517 1,512,741 222,793 Total
liabilities and shareholders' equity 2,997,299 2,878,908 423,999
Unaudited Condensed Consolidated Statements of Income for the Three
and Nine Month Periods Ended September 30, 2007 and 2008 (RMB and
US$ expressed in thousands, except share and per share data) For
Three Months Ended September 30, 2007 2008 2008 RMB RMB US$
Revenues 273,214 212,478 31,293 Cost of revenues (165,634)
(149,635) (22,038) Gross profit 107,580 62,843 9,255 Operating
expenses: Research and development costs (13,286) (15,477) (2,279)
Sales and distribution expenses (33,636) (26,841) (3,953) General
and administrative expenses (14,473) (17,816) (2,624) Total
operating expenses (61,395) (60,134) (8,856) Operating
income/(loss) 46,185 2,709 399 Other (expense)/income: Interest
income 2,525 4,482 660 Interest expense (8,398) (15,349) (2,261)
Investment income -- -- -- Foreign currency exchange loss (4,369)
(974) (143) Grant income 1,000 110 16 Total other expense (9,242)
(11,731) (1,728) Income/(loss) before income tax (expense)/benefit
and minority interests 36,943 (9,022) (1,329) Income tax
(expense)/benefit (3,816) 363 53 Income/(loss) before minority
interests 33,127 (8,659) (1,276) Minority interests, net of tax (5)
227 33 Net income/(loss) 33,122 (8,432) (1,243) Net income/(loss)
available to ordinary shareholders 33,122 (8,432) (1,243) Net
income/(loss) per share available to ordinary shareholders: - Basic
0.05 (0.01) (0.002) Weighted average number of ordinary shares: -
Basic 625,000,000 609,553,400 609,553,400 For Nine Months Ended
September 30, 2007 2008 2008 RMB RMB US$ Revenues 507,524 470,208
69,251 Cost of revenues (304,312) (323,271) (47,611) Gross profit
203,212 146,937 21,640 Operating expenses: Research and development
costs (40,813) (48,620) (7,161) Sales and distribution expenses
(94,089) (86,665) (12,764) General and administrative expenses
(43,533) (50,199) (7,393) Total operating expenses (178,435)
(185,484) (27,318) Operating income/(loss) 24,777 (38,547) (5,678)
Other (expense)/income: Interest income 6,757 14,718 2,169 Interest
expense (20,985) (42,581) (6,271) Investment income 318 296 43
Foreign currency exchange loss (10,098) (10,907) (1,606) Grant
income 4,430 2,231 328 Total other expense (19,578) (36,243)
(5,337) Income/(loss) before income tax (expense)/benefit and
minority interests 5,199 (74,790) (11,015) Income tax
(expense)/benefit (1,735) 7,132 1,050 Income/(loss) before minority
interests 3,464 (67,658) (9,965) Minority interests, net of tax
1,020 655 97 Net income/(loss) 4,484 (67,003) (9,868) Net
income/(loss) available to ordinary shareholders 4,484 (67,003)
(9,868) Net income/(loss) per share available to ordinary
shareholders: - Basic 0.01 (0.11) (0.016) Weighted average number
of ordinary shares: - Basic 625,000,000 612,551,636 612,551,636
China GrenTech Corporation Limited and Subsidiaries Unaudited
Condensed Consolidated Statements of Cash Flows For Nine months
ended September 30, 2007 and 2008 (RMB and US$ expressed in
thousands) For Nine Months Ended September 30, 2007 2008 2008 RMB
RMB US$ Net cash used in operating activities (295,591) (185,618)
(27,337) Net cash used in investing activities (196,495) 35,769
5,268 Net cash provided by/ (used in) financing activities 233,931
(95,506) (14,066) Effect of exchange rate changes on cash (3,949)
(3,469) (511) Net decrease in cash and cash equivalents (262,104)
(248,824) (36,646) 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 at Taylor Rafferty for China GrenTech Web site:
http://www.grentech.com.cn/
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