6 Jan, 2009 - Xiwang Sugar Holdings has estimated its 2008 net profit will by as much as 50% compared to the previous year and has pulled out of a planned deal for the acquisition of Xiwang Food Company.
As the Chinese company issued the profit warning, it cited the global economic downturn in the second half of last year as a major cause. The financial turmoil, said the group, lead to a significant cut in its exports.
Xiwang also revealed its returns will also be hit by the melamine contamination scandal that engulfed China in the last quarter of 2008. The situation, which had global repercussions, hit the company's sales of crystallised glucose and animal feed products.
A Xiwang statement said: “The Board anticipates a decline in net profit due to various reasons, among them the deterioration of operating environment during the second half of 2008 in particular.
“The detection of melamine in various dairy products and eggs in China has caused a reduction of both the demand and the selling prices of such products as well as related products in China and it adversely affected the sales of the Group’s crystallised glucose and animal feed products.
“In addition, the current global financial crisis led to a significant drop in the export business of the Group and further dampened the performance of the Group.”
According to the company, it is the largest producer of crystallise glucose in China, with an annual output of 800,000 tonnes. It also said it has a corn processing capacity of 1.5 million tonnes a year.
Xiwang said that the possible benefits it envisages to its operating profits from the recent fall in the price of corn will not be felt until 2009.
Corn is the company’s major raw material and as well as producing crystallise glucose at its facility in the Shandong Province, it also counts crystallised fructose, corn gluten meal, corn germ, animal feed and corn starch paste among its outputs.
Xiwang Sugar Holdings also announced it has cancelled plans to takeover Xiwang Foods, an outfit principally engaged in the production of edible oils.
Xiwang Sugar signed a Memorandum of Understanding with the food company in July 2008, giving it a six month exclusive right of negotiation to complete the deal. When this deadline expired on 3 January 2009, Xiwang Sugar decided not to go ahead with the acquisition in light of what it said were “the uncertainties of the operating environment and also the volatility of the global financial market”.