March 12 - Asian Citrus, the largest orange plantation owner and operator in China, announces the following Trading Update for the current year to 30 June 2008. The interim results to 31 December 2007 are due to be published on Tuesday 18 March 2008, but the Board believes a number of factors since January 2008 will mean that pre-tax profits for the full year is likely to be below the level achieved for the year ended June 2007. The impact of this will be mitigated at the earnings level by government changes to tax law which, the Board believes, will mean that from 1 January 2008, Asian Citrus will be exempt from enterprise income tax.
The most significant factor behind the reduced expectations is that management has accelerated the replanting programme at the established Hepu Plantation. Following successful trial replanting of around 55,000 winter orange trees (4% of the Hepu plantation) in the year to June 2007, the Group initiated a wider replanting programme in the current year. Since January 2008, around 76,000 summer orange trees (6% of the Hepu plantation) were removed and the land replanted with a similar number of new species. The ongoing replanting strategy is currently under review but is expected to equate to approximately 5% of total trees in the Hepu plantation per annum and it will be principally focused around replanting the winter orange trees. The replanting programme will bring long term benefits as the new trees will have stronger resistance to disease and will produce a higher yield, but in the short term the replanting will produce lower
yields and thus reduce output in the current year.
In addition, the exceptional cold weather in China during January and February 2008 has affected the Group's current sales by slightly impacting the quality of the Group's harvest and causing short term oversupply as local farmers, who could not get their produce to customers, stored crops which have now been released to the market. As a result the Group has not been able to increase the proportion of sales to supermarkets, or increase prices, as much as originally expected.
At the Xinfeng plantation, costs have been above expectations due to higher fertiliser usage and earlier than expected completion of the plantation.
Finally, Phase 1 of the agricultural wholesalers' market and orange processing centre at the Xinfeng Development has been substantially completed and a significant number of units have already been sold. However, tighter credit conditions in China and the exceptional cold weather have slowed completion rates and sales. This is likely to impact and delay the remaining sales from and the profitability of this development.
While pre-tax profits for the full year will be adversely affected by the factors outlined above, changes to the Enterprise Income Tax ("EIT") Law of the People's Republic of China will, with effect from 1 January 2008, mean that income derived by an enterprise engaging in the growing of fruits shall be exempt from EIT. As the Group's core business is the growing of oranges, it is expected that the Group's income from growing and selling oranges will be exempt from EIT from 1 January 2008 onwards subject to confirmation with the local tax bureau. This will have a positive impact on the Group's overall earnings performance for the current year and future years.
About Asian Citrus
Asian Citrus is the largest orange plantation owner and operator in China and has two plantations in the Hepu county of the Guangxi Zhuang Autonomous Region and the Xinfeng county of the Jiangxi province of China. Its primary goal is to sell quality oranges at an affordable price and in so doing, strengthen its position as a leading, mechanised and industrialised orange grower and distributor in China.