China Yurun Food Group: Interim Results, significant turnover

During the Period (six months ended 30 June 2011), the Group recorded turnover of HK$16,456 million (1H2010: HK$8,693 million), representing a significant increase of 89.3% over the same period last year. The increase in turnover was mainly attributable to the Group’s leading production capacity allocation and branding, success in capturing the market demand for quality meat products, as well as the market-oriented sales strategy in its upstream business, which allowed its product prices to rise correspondingly amid increase in hog price during the Period, leading to strong growth in the Group’s overall business during the Period.

 

 

Gross profit
The Group’s gross profit and net profit reached HK$2,066 million (1H2010: HK$1,345 million) and HK$1,609 million (1H2010: HK$1,309 million) respectively during the Period, representing an increase of 53.6% and 22.9% respectively. The Group’s gross profit margin decreased by 2.9 percentage points to 12.6%, as compared to 15.5% in the same period last year, and net profit margin decreased by 5.3 percentage points to 9.8% as compared to 15.1% in the same period last year. The decrease in gross margin was mainly attributable to the increase in the proportion of sales of upstream products, which have a lower gross margin. After deduction of negative goodwill, government subsidies and foreign exchange gains, the Group’s core net profit reached HK$1,213 million (1H2010: HK$710 million), representing a significant increase of 70.8% over same period last year.

 

The board of directors of the company has resolved to declare an interim dividend of HK$0.22 per share for the Period (1H2010: HK$0.20).

 

Mr. Zhu Yicai, chairman of Yurun Food, said, “In the first half of 2011, domestic consumption in China continued to be promising, which provided a favourable business environment for the Chinese meat product market. However, the significant increase in raw material, labour and transportation costs during the Period brought tremendous challenges to the industry. Leveraging on the continuous optimization in its nation-wide hog slaughtering production capacity, the flexible combination of its upstream and downstream business segments and its long-term market expansion strategy, coupled with support from the favourable agricultural policies by both the central and local governments, the Group believes it successfully overcame a series of challenges and maintained a steady and remarkable growth in its business. Meanwhile, the central government has implemented a series of policies, which provides favourable conditions for the long-term steady development of the hog slaughtering and production industry to ensure the orderly development of the Chinese hog slaughtering industry and to give support to hog production.

 

The growing concerns of the government and consumers on food safety has lead to a favourable policy and business environment for the steady development of the Group and brings business opportunities from industry consolidation, which we believe will facilitate sales and profit growth in the Group’s upstream chilled pork products and downstream LTMP business segments. Looking forward, the Group will continue to implement its selective production capacity expansion strategy and proactively extend its distribution channels so as to capture business opportunities from industry consolidation and steadily expand its market share, target to create satisfactory returns for its shareholders.”

 

Business review
The Group’s business is divided into downstream processed meat products and upstream chilled and frozen meat segments.

 

 

Production capacity
As at 30 June 2011, the upstream slaughtering capacity of the Group was 41.0 million heads per year, representing an increase of 5.4 million heads as compared to 35.60 million heads as at the end of 2010, while the Group’s annual capacity of downstream meat processing was 304,000 tons. The Group will continue to orderly expand its capacity in the coming years, targeting to increase market coverage, reduce bottlenecks and upgrade key production facilities.

 

Yurun Food has always upheld food safety as its key operational philosophy and constantly reviewed its quality control system. The Group continued to strengthen the existing quality control system so as to conform to the highest international food hygiene and safety standards, as well as further enhance the level of management in its system, mechanical maintenance, internal staff and external service providers, so as to provide quality meat products for consumers.

In addition, the Group will continue to expand its research and development team, focusing on the R&D of mid-to-high end products, developing competitive products so as to maintain its advantage and reinforce its leading position in the industry.