17 Sept - China Food, the established manufacturer of branded consumer condiment products (namely, soya sauce, vinegar and other condiments) and animal feeds based in the Shandong province of the People's Republic of China , is today pleased to announce its unaudited Interim Results for the six months
ended 30 June 2008.
Highlights
· Strong first half revenue growth of 49.0% year-on-year to GBP16.2 million (2007: GBP10.9 million) and gross profit growth of 15.0% in a business climate of rising raw materials and distribution costs.
· Our condiments business remains strong despite the inflationary environment and our production facilities operating at full capacity, being affected only marginally in gross margin terms while maintaining a revenue growth of 18.8% to
GBP6.8 million (2007: GBP5.7 million).
· The Group's animal feeds business also performed strongly growing revenues by 82.4% to GBP9.4 million (2007: GBP5.2 million) although the backdrop of increased input costs adversely affected gross margins by 9.0%.
· Despite margin erosion due to inflationary pressures, both globally and locally, our existing business units achieved an aggregate increase in net profits of 12.0% compared to the equivalent prior year period.
· Overall, the group's net profits dropped marginally by 4.4% (approximately GBP115,000) compared to the same period in the prior year, largely attributable to higher corporate overheads following the AIM listing which increased by 377.4% (approximately GBP307,000) and increased administration costs and amortisation of land use rights of 208.2% (approximately GBP139,000) due to our new facility.
· New facility now nearing completion at a total cost of approximately GBP25m, with production set to commence on schedule in 2009.
· The Group's investment in the expansion of its distribution network and the range of brands has been very successful, particularly in respect of its premium brands. As a result, the Group's "Fushi" soya sauce brand has risen in the national rankings from 47th place last year to 9th place this year.
· Substantial growth potential over the next 2 years as the group seeks national distribution of its branded products.
John McLean, Non-executive Chairman of China Food Company Plc, commented: "The opportunities over the next few years for China Food's business are considerable. We are currently in the process of completing our new 16,260 sq. m. production facility and when this is fully operational, it should add another 50,000 tonnes of soya sauce production annually to our existing condiments production capacity of 100,000 tonnes.
We are also investing in branding and improving our distribution and marketing channels, as it is our intention over
the next few years to become one of the leading condiments brands in China compared to our current market in Shandong which has a population of 94 million.
The cost of this expansion programme to date has been approximately GBP19.3m, which has been funded out of internal resources and borrowings. Whilst our total spend on the project will be approximately GBP25m as planned, we estimate that in the current inflationary environment the cost of such a project would be substantially higher and a significant barrier to entry to other players. We now find ourselves in a very strong position and I view the future growth of the Company with confidence."
Operational Overview
During the period under review, revenue increased by 49.0% to GBP16.17m (2007: GBP10.85m) while pre-tax profit dropped marginally by 4.4% to GBP3.54m. The main reasons were threefold; (i) the increased administration and compliance costs associated with the Company's public listing (approximately GBP307,000), (ii) amortisation of our 266,667 sq. m. land use rights and (iii) the margin erosion in our animal feeds business. The growth in turnover reported is in part attributable to the appreciation of the RMB against sterling (average rate 2008
of 13.94 versus 2007 of 15.21), however the underlying real growth of the business for the period was 36.6%.
Inflation in China has now steadied and is expected to reduce further in coming months. With the easing of prices, we expect improved margins for the remaining months of the year and are optimistic regarding our performance for the second half. Notwithstanding this, production in August slowed due to mandatory power shut-downs as the Chinese government imposed power restrictions as a result of the Olympic Games in Beijing.
The new 16,260 sq. m. production facility is nearing completion and production is scheduled to commence in 2009. We are very pleased with progress to date and when this plant is fully operational, it will add another 50,000 tonnes of soya sauce production annually to our existing condiments production capacity of 100,000 tonnes. We believe that the cost of replicating this facility today would be substantially higher than the amount paid by the group to date.
Historically, the Company's primary market for its condiment products is Weifang, however we are now selling to other cities and improving our distribution and marketing channels. This investment in the expansion of our distribution network and in our range of brands has been very successful, particularly in respect of our premium brands. As a result, our "Fushi" soya sauce brand has risen in the national rankings from 47th place last year to 9th place this year and we aim to be one of the leading soya sauce brands in China over the next few years. To achieve this objective it is our intention to recruit additional senior staff with substantial branding and marketing experience in order to build on the excellent progress that has been achieved to date.
Outlook
The opportunities over the next few years for China Food's business are considerable. We are currently in the process of completing our new 16,260 sq. m. production facility and when this is fully operational, it should add another 50,000 tonnes of soya sauce production annually to our existing condiments production capacity of 100,000 tonnes. We are also investing in branding and improving our distribution and marketing channels, as it is our intention over the next few years to become one of the leading condiments brands in China compared to our current market in Shandong which has a population of 94 million.
The cost of this expansion programme to date has been approximately GBP19.3m, which has been funded out of internal resources and borrowings. Whilst our total spend on the project will be approximately GBP25m as planned, we estimate that in the current inflationary environment the cost of such a project would be substantially higher and a significant barrier to entry to other players. We now find ourselves in a very strong position and I view the future growth of the Company with confidence.
China Food is now in a very strong position to grow in its domestic markets and I am delighted with its performance in the year to date, despite the inflationary backdrop. In the course of the coming years the benefits of our controlled expansion, increasing market penetration, development of a nationally recognised premium brand and the expanding Chinese economy, should all bode very positively for the Company's performance. We view the future of the Company with confidence.