August 30, 2007

 

China's Yurun net profit up 49.5 percent in H1

 

 

China's Yurun Foods, a leading meat products provider, saw net profits climb 49.5 percent to RMB 380 million in the first half of the year as the country grappled with high pork prices amidst a general shortage caused by pig diseases.

 

Despite the sharply higher prices, the company said margins were largely stable, with increased profits largely attributable to expansion and increased brand awareness.

 

The company achieved a 63.7 perent increase in turnover of RMB 3.4 billion for the six months ended June 30, 2007

 

Zhu Yicai, Chairman of Yurun Food, said the company faced a short-term imbalance between hog supply and demand during the period but achieved solid growth nevertheless by capitalizing on the strength of its brand and leading market position, its successful marketing strategy in the medium and high-end market segments and its expansion strategies.

 

Low temperature meat products (LTMP) and chilled pork were the key drivers of this business expansion, he added. Low Temperature Meat Products refers to cooked meat products processed in about 100 deg C such as ham, western sausages and bacon.

 

The company's nationwide network of production facilities and efficient supply chain management ensured that the Group had the pricing power to deal with rising hog prices, Zhu said.

The overall gross margin of the upstream business (which includes chilled and frozen pork) was 10.1 percent, falling 1.4 percentage points from the same period of last year.

 

In the downstream business, the Group stepped up its brand promotional efforts and launched high value-added new products while improving product mix to achieve strong growth in its processed meat segment.

 

Despite the surge in hog prices 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 improved sales of high margin and high value-added products.

 

Other operating income totaled RMB 118 million, more than double the same period of last year, mainly in the form of government subsidies including RMB 58.48 million of government grants.

 

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, further consolidating its position in the central and south-western markets of China.

 

The period also saw the Group's new slaughtering facility in Harbin starting operations, 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 percent over the last corresponding period.

 

The Group's downstream production capacity grew 11.3 percent percent over the last corresponding period due to expansion in Nanjing, Xinjiang and Harbin, reaching 187,000 tonnes by June 30 this year.

 

Furthermore, the processing plants in Maanshan and Shenyang, expected to be completed by the end of this year, would further strengthen the company's position in the eastern and north-eastern regions.

 

The group also saw a higher proportion of their sales coming from supermarkets. They now account for 39.1 percent and 54.5 percent of the Group's upstream and downstream sales respectively.

 

Sales to high-end hotels rose 44.3 percent over the corresponding period of last year, representing 10.1 percent of the Group's downstream sales.

 

However, operating expenses rose 49.2 percent over last year, due to increased advertising, increased transportation costs driven by sales volume growth and increased management expenses due to the start of an employees' option scheme.

 

Still, operating expenses represented 6.5 percent of the Company's turnover, slightly lower than the same period of last year.

 

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 acquisitions and investments in production facilities.

 

The Company's total assets were RMB 3.584 billion, an increase of 13.7 percent  over the end of last year.

 

The Group will further increase its upstream and downstream capacity through acquisitions, and green field and brown field projects while further strengthening its research and development into high value-added products and marketing efforts in the middle-end and high-end markets, Zhu said. 

 

Margins of various pork items at Yurun Foods for H1 2006

Item	Gross Margin	Percentage change over H1 2006
Frozen pork	8.1 percent	0.2 percent
Chilled pork	11.5 percent	-2.5 percent
Overall upstream margins	10.1 percent	-1.4 percent
LTMP	27.0 percent
HTMP	18.3 percent
Overall downstream margins	25.9 percent	-0.3 percent

 

Sales of pork items at Yurun for H12006

Item	RMB	Percentage change over H1 2006
Upstream sales	2.772 billion	80.7 percent
Chilled pork (60.7 percent of upstream sales)	1.682 billion	85.7 percent
Frozen pork (39.3 percent  of upstream sales)	1.09 billion	73.5 percent
Downstream sales	870 million	31.8 percent
LTMP products (87.5 percent of downstream sales)	761 million	36.8 percent
HTMP products  (12.5 percent  of downstream sales)	109 million	4.9 percent

 

High temperature meat products (HTMP) refers to cooked meat products processed at 120 deg C such as Chinese wax sausages or canned pork.

 

Low Temperature Meat Products refers to cooked meat products processed at about 100 deg C such as ham, western sausages and bacon.