Hong Kong, 30 August 2011 - China Agri-Industries Holdings Limited (“China Agri” or the “Company”; stock code: 606), a leading agribusiness and food processing company in China, today announced its interim results for the first six months ended 30 June 2011.
For the first half of 2011, the Company’s revenue increased by 48% year-on-year to HK$33,602 million. Profit attributable to the owners of the Company rose by 21% year-on-year to HK$1,602 million. Basic earnings per share was HK39.7 cents (2010 interim: HK34.3 cents). During the period under review, the feedstock prices remained high, leading to mounting cost pressure. To cope with the challenges, the Company continued with its prudent operation strategy by ensuring smooth and steady business operation with enhanced procurement management and effective cost control measures. As a result, the Company achieved satisfactory growth in its businesses.
The Board of Directors recommended an interim dividend of HK7.9 cents per share (2010 interim: HK6.6 cents per share).
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BUSINESS REVIEW(1) Oilseeds processing business outperformed the industry average
The oilseeds processing business is the largest revenue contributor of the Company, accounting for 65% of the total revenue for the first half of 2011. Newly added production capacity boosted sales volume significantly. Thanks to increases in both sales volume and product prices, the business achieved a 70% year-on-year growth in revenue to HK$21,805 million. In the first half of 2011, prices of raw material imports remained high. With measures to combat the faster-than-expected rise in consumer prices in China, oilseeds product prices were unable to keep pace with the growth in feedstock prices, resulting in losses across the domestic oilseeds processing industry. To cope with a difficult operating environment, the Company made advance purchases of raw materials at opportune time to build up stockpiles at a lower cost and adopted various cost control measures to alleviate the pressure of rising costs. Meanwhile, it also judiciously used hedging arrangements to effectively manage the volatility risks. In the period under review, the business achieved an 8.8% gross profit margin, outperforming the industry average. The domestic market is expected to enter a busy season with strong demand in the second half of the year. The demand for oilseeds products is expected to recover. The Company will enhance its operation management capability and actively boost sales in order to strengthen its industry leadership.
(2) Biofuel and biochemical business extended to downstream processing businesses
Biofuel and biochemical businesses recorded a 24% year-on-year increase in total revenues to HK$6,168 million. In response to rising corn prices in the domestic market, the Company made opportune and anticipatory purchases of raw materials by using a combination of various procurement methods to secure a stable supply of raw materials and to build up its inventories at a lower cost. The move enabled it to maintain the business segment’s gross profit margin at 15.1%. The biofuel business’s revenue rose by 38% year-on-year to HK$2,867 million on price increases. On the other hand, the biochemical business’s revenue increased by 14% year-on-year to HK$3,301 million for the first half of 2011 as the corn price hike boosted the products’ selling prices. During the period under review, the Company developed and commercialised a few high value-added new products, including a kind of specialty starch for producing corrugated paper. Meanwhile, it stepped up its efforts to market a new corn starch specifically developed for brewing beer according to the specifications of the breweries. The Company will further diversify into downstream processing businesses by enhancing its capability for developing and producing sweeteners and MSG.
(3) Rice trading and processing business’s domestic sales continued to grow
The rice trading and processing business generated a revenue of HK$2,344 million, up 10% year-on-year. Revenue growth was due to an increase in domestic sales, which accounted for more than 70% of the total sales volume of the business segment. In the first half of 2011, the domestic rice sales grew by 37% year-on-year to 318,000 metric tons. According to the market survey conducted by AC Nielsen in June of 2011 on consumer packaged rice sold in hypermarkets in 16 major cities in China, the Company maintained its competitive edge as the country’s No.1 rice brand with an aggregate market share of 14%. Gross profit margin of the domestic sales increased with a broader sales channel, a wider product variety, and timely import of quality rice from Thailand and Vietnam at a lower cost. Nevertheless, rapid expansion into the domestic consumer market required major upfront investments, while volume and profit margins in the export sales were affected by weaker selling prices in international markets and rising domestic raw grain prices. These factors adversely affected the segment’s profitability. Going forward, it is expected that the Company’s leading position in the consumer packaged rice market will be strengthened with expanded capacity, increased operating scale and rising sales volume.
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(4) Wheat processing business focused on developing high-end market and serving high-growth customers
The wheat processing business registered a 24% year-on-year increase in revenue to HK$2,445 million for the first half of 2011 as both sales volume and selling price of the product increased. During the period under review, the climate was favourable for winter wheat, and thus crop output had been growing consistently for the last eight years. Nevertheless, wheat price in China rose steadily on the back of the country’s inflation and price hikes of major commodities in the global markets. Amid the wheat price hike, the Company stepped up effort to integrate its operation and strengthen its management system, adopted a range of stringent cost control measures, and raised the proportion of mid-range and high-end products in its product mix to pass on cost increases to customers. As a result, the business segment maintained its gross profit margin at 8.6%. The Company focused on development of high value-added products, served high-growth food manufacturers and chain restaurants, and strengthened its strategic partnership with sizeable food processing enterprises. These moves enabled the Company to leverage its customers’ huge sales channels to expand market share.
(5) Brewing materials business developed new procurement channel
The brewing materials business posted a 3% year-on-year growth in revenue to HK$840 million due primarily to an increase in selling prices. Malting barley prices had been rising since the fourth quarter of 2010 as inclement weather during crop harvest reduced the output in major barley growing regions. In response to these adverse market conditions, the Company adjusted its production plan and diversified its raw material source by importing quality malting barley from Argentina to ensure raw material supply at a lower cost. As a result, the gross profit margin maintained at a high level, outperforming the industry average. It is expected that breweries’ demand for malt will grow again in the second half of the year as the breweries’ low-cost inventories deplete. This should help boost sales at the Company’s brewing materials business.
PROSPECTS
Looking ahead, the Company will continue to optimise its regional layout. The completion of the construction of a number of new plants by the end of this year and next year will enhance the company’s competitive advantage of economies of scale. In addition, the Company will strengthen the professional management and enhance its capability for organic growth. It will also further extend its production chain and focus on developing high value- added products to satisfy market demand with an aim of enhancing profitability and creating more value for shareholders.
About China Agri-Industries Holdings Limited
China Agri-Industries Holdings Limited (stock code: 606) is a member of the COFCO Group and takes industry- leading position in each of its business segments in China, namely oilseeds processing, biofuel and biochemical, rice trading and processing, wheat processing as well as brewing materials. Website: www.chinaagri.com