China Yurun Food Group Limited Financial Results of the First Half of 2007.
HONG KONG -- China Yurun Food Group Limited (HKEX: 1068):
China Yurun Food Group Limited ("Yurun Food" or "the Company", together with its subsidiaries, collectively "the Group"; HKEX: 1068), a leading meat products provider in China, announced its interim results today for the six months ended June 30, 2007 (the "Period" or the "Review Period").
During the Review Period, the turnover of Yurun Food reached RMB 3.407 billion, a substantial increase of 63.7% over the same period of last year. Gross profit was RMB 506 million, an increase of 42.9%. Gross profit margin decreased to 14.8% from 17.0% in the same period of last year, but rebounded from 14.1% in the second half of last year. Operating profit was RMB 403 million, an increase of 58.9% over the same period of last year, an increase of 65.7% over the same period last year has been recorded after taking into account the operating profit of negative goodwill of RMB 353 million.
During the Review Period, the Company posted a net profit of RMB 380 million, an increase of 49.5% over the same period of last year after deducting the negative goodwill of RMB 330 million, an increase of 54.2% has been recorded over the same period last year. Diluted earnings per share were RMB 0.261 compared to RMB 0.175 in the first half of 2006. The Board of Directors has resolved to pay an interim dividend of HK$ 0.070 per share. The payout ratio is 26.7%.
Commenting on the first half results, Mr. Zhu Yicai, Chairman of Yurun Food, said, "In the first half of 2007, we faced a short-term imbalance between domestic hog supply and demand. As a result, the national average domestic hog price jumped by 46% over the same period of last year. Despite these challenging conditions, the Group still achieved solid growth in its business by taking advantage of the strength of its brand and leading market position, its successful marketing strategy in the medium and high-end market segments, its extensive experience in management and operations, as well as flexible and solid capacity expansion strategies. Low temperature meat products (LTMP) and chilled pork became the key drivers of this business expansion."
"The Group pursued its highly effective branding strategy in the first half of the year, in particular in the LTMP and chilled pork market. We experienced rapid growth in our core product lines, thanks to our nationwide network of production facilities, highly efficient supply chain management as well as sound and flexible marketing strategy. All these, ensured that the Group had the necessary pricing power to deal with the increasing hog prices and hence further enhance its profitability," added Mr. Zhu.
In the first half of 2007, the Group persisted in its market-oriented pricing strategy by adjusting upstream product prices accordingly when hog prices rose significantly. As a result, its upstream sales increased by 80.7% over the same period of last year to RMB 2.772 billion. Sales of chilled pork were RMB 1.682 billion, an increase of 85.7% over the same period of last year and accounting for 60.7% of upstream sales. Sales of frozen pork were RMB 1.09 billion, an increase of 73.5% over the same period of last year and accounting for 39.3% of upstream sales.
During the Period, the Group maintained a stable gross margin for its upstream businesses by strengthening sales efforts and implementing flexible sales strategy for chilled and frozen pork. The overall gross margin of the upstream business was 10.1%, a decrease of 1.4 percentage points from the same period of last year. The gross margin of the frozen pork business was 8.1%, an increase of 0.2 percentage points over the same period of last year. The gross margin of the chilled pork business was 11.5%, a decrease of 2.5 percentage points from the same period of last year.
In the downstream business, the Group stepped up its brand promotional efforts through China Central Television and various mobile media to increase the brand awareness of Yurun. At the same time, it launched high value-added new products, optimized its product mix and adjusted product prices to optimum levels. As a result, sales of the processed meat business experienced strong growth.
Downstream sales in the first half of 2007 were RMB 870 million, an increase of 31.8% over the corresponding period of last year. Sales from LTMP business generated RMB 761 million, up 36.8% over the corresponding period of last year and accounting for 87.5% of the Group's total downstream sales. Sales from HTMP business were RMB 109 million, up 4.9% over the corresponding period of last year and accounting for 12.5% of the Group's total downstream sales.
Despite the surge in hog price during the period, the gross profit margin of LTMP remained stable, mainly due to the Group's effective cost control on raw pork, increased selling prices of LTMP and enhanced sales of high margin and high value-added products. In the first half of 2007, overall gross profit margin for the downstream business was 25.9%, a decrease of 0.3 percentage points over the same period of the year. The gross profit margin of LTMP was 27.0% and the gross profit margin of high temperature meat products (HTMP) was 18.3%.
Other Operating Income
Other operating income totaled RMB 118 million, an increase of 148.1% over the same period of last year. It mainly came from government subsidies and negative goodwill including RMB 58.48 million of government grants (first half of 2006: RMB 600,000) as an incentive to the Group's business development.
Upgrading of Production Facilities
In the upstream business, the Group spent RMB 228 million in the first half of the year on the acquisition of three hog slaughtering companies in Jiangxi Province, Hunan Province and Sichuan Province to increase the annual aggregate slaughtering capacity by 1.5 million heads. As a result, the Group's market position in central and south-western China was further strengthened. In addition, the Group's new slaughtering facility in Harbin commenced operation during the Period, further expanding the Group's production capacity in north-eastern China. As at June 30, 2007, the Group's annual hog slaughtering capacity reached 12.05 million heads, an increase of 36% over the last corresponding period.
In the downstream business, as production capacity in Nanjing and Xinjiang Province continued to expand and the new plant in Harbin commenced operation, the Group's downstream production capacity grew significantly in the Period. As at June 30, 2007, the Group's downstream production capacity reached 187,000 tonnes, up by 11.3% over the last corresponding period. Furthermore, the processing plants in Maanshan and Shenyang are under construction and are expected to be completed by the end of this year, adding an additional production capacity of 30,000 tonnes. This downstream capacity expansion not only further improved the Group's market coverage in eastern, north-eastern and northern China, but also established a stronger infrastructure for the launch of new products and the sustainable development of the downstream business of the Group.
Sales and Distribution
During the Period, the Group continued to leverage its sales model of direct sales supplemented with third-party distribution. By reinforcing its cooperation with supermarkets and chain stores, the Group enhanced its sales through these supermarkets. Meanwhile, the Group further strengthened the cooperation with high-end hotels and catering chains so as to enhance its profitability by increasing the sales of products with high margin and high added-value.
In the first half of the year, supermarkets accounted for 39.1% and 54.5% of the Group's upstream and downstream sales respectively, up by 3.1 and 8.3 percentage points over the same period of last year. Sales to high-end hotels increased by 44.3% over the corresponding period of last year, representing 10.1% of the Group's downstream sales (the corresponding period in 2006: 9.1%). Sales of upstream products to catering chains accounted for 9% of the Group's upstream business sales (the corresponding period in 2006: 7.9%).
During the Review Period, the operating expenses of the Group were RMB 221 million, an increase of 49.2% over the same period of last year. It was primarily attributable to the Group's increased advertising expenses spent on mainstream and mobile media channels, increased administrative expenses caused by higher transportation cost driven by sales volume growth and increased management expenses due to the start of an employees' option scheme at the end of last year. Operating expenses represented 6.5% of the Company's turnover, down by 0.6 percentage points over the same period of last year.
The Company had a net financing income of RMB 2.73 million in the Period. As at June 30, 2007, the cash balance of the Company was RMB 778 million, a decrease of RMB 66 million over the end of last year, as the Group paid for strategic acquisitions and investments in production facilities.
As at June 30, 2007, the Company's total assets were RMB 3.584 billion, an increase of 13.7% over the end of last year. The Company's gearing ratio was 10.1%, an increase of 1.5 percentage points from 8.6% at the end of last year.
Looking into the future, Mr. Zhu Yicai, Chairman of Yurun Food, said, "We will leverage the market opportunities from the upgrading of consumer mix in large and medium cities in China to strengthen our market position. We will take advantage of Yurun's established brand image as a 'healthy, quality, tasty and high-end' through advertising in mainstream media to achieve rapid sales growth of LTMP and chilled pork products over the next 3-5 years.
The Group will further increase its upstream and downstream capacity through acquisitions, and green field and brown field projects, building a solid foundation to meet the increasing market demand for its products. It will further strengthen its research and development in high value-added products. Finally, it will strengthen its marketing efforts in the middle-end and high-end markets and leverage its market-oriented pricing mechanism to ensure generally stable gross margins."
About Yurun Food
China Yurun Food Group Limited is one of the leading meat product suppliers in China. The Company offers a wide range of raw pork and processed meat products. By combining advanced production equipment and processing technologies with proprietary recipes, the Company has grown rapidly by successfully developing an array of processed meat products under the flagship brands of "Yurun", "Furun", "Wangrun" and "Popular Meat Packing" that specifically cater to Chinese consumer tastes. The Company was listed on the Hong Kong Stock Exchange on October 3, 2005.
This press release includes "forward-looking statements". All statements, other than statements of historical facts, that address activities, events or developments that Yurun Food expects or anticipates will or may occur in the future (including but not limited to projections, targets, estimates and business plans) are forward-looking statements. Yurun Food's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to the level of demand for the products, competitiveness, changes in the regulatory policies and other risks and factors beyond Yurun Food's control. In addition, Yurun Food makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.
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|Date:||Aug 29, 2007|
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