Richina Pacific has downgraded its annual profit forecast by A$2.5 million ($1.9 million) to A$4 million ($3.1 million) due to the underperformance of its Shanghai Richina Leather (SRL) operation.

According to SRL’s CEO, Mr Dennis Thams, the biggest challenge facing the subsidiary this year was within the ovine garment business, where the bulk of the profit shortfall lies. 

He explained that the ovine business had suffered production quality problems partially resulting from the poorer than usual quality of the pelts it purchased this season. He also cited the fact that the global markets for leather garments is weaker than anticipated, resulting in lower volumes and margins.

The firm’s upholstery leather division had also taken longer than anticipated to make the successful transition from toll processing to being a direct supplier to brand customers internationally. SRL says the process was hindered by the SARS virus, which resulted in almost all potential customers deferring trips to China by up to four months during the most important part of the buying cycle.

On a more positive note, the firm said it expected its upholstery division to become a major growth engine in the years ahead. To ensure the successful execution of this business, SRL has appointed Mr Russell Bentley as its new general manager. (See leatherbiz story, 12.08.03 - Murgon's Bentley heads east to Richina).

Richina Pacific on the whole has made significant progress in almost all other areas of business in the past twelve months. “Legacy issues have been cleaned up, we have strengthened the balance sheet, improved liquidity, enhanced management processes, and are on target to complete the significant capacity expansion currently underway in Shanghai”, the company said in a statement.

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