Treaty of Nanking

Safety scandals cut into Yurun profits

PUBLISHED : Saturday, 10 March, 2012, 12:00am
UPDATED : Saturday, 10 March, 2012, 12:00am


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A series of food-safety-related scandals in the second half of 2011 took the shine off profits at China Yurun Food, which said full-year net profit fell 34 per cent to HK$1.8 billion last year, from HK$2.73 billion in 2010.

The fall in profit came despite a 50.5 per cent rise in turnover last year to HK$32.3 billion, and Yurun, the mainland's second-largest meat processor, said its gross profit margin narrowed to 8.6 per cent during the year, from 14.4 per cent in 2010.

'We saw the worst operational situation in the fourth quarter and I think we can see the light at the end of the tunnel,' chairman Zhu Yicai said.

He said hog procurement costs reached a historic high in the fourth quarter, at about 19 yuan (HK$23) per kg, which fell to an average of 17.2 yuan in the first two months of this year.

Yurun faced a crisis last year with several food-safety issues involving bacteria exceeding government standards and illegal additives.

It blamed the fall in its gross profit margin on a significant rise in hog prices and other raw-material costs, and on a fall in consumer confidence in its products.

Hog prices rose 48.7 per cent last year, reaching an average of 15.88 yuan per kg.

Zhu expected prices to fall further this month. 'Compared with the same period last year, hog prices are still high, but we expect them to fall 15 per cent to 20 per cent this year.'

He said Yurun's gross profit margin would return to normal, but it was hard to give a time frame. 'In the past five to six years, our gross profit margin has been between 13 per cent and 16 per cent.'

The company separately said chief executive Zhu Yiliang was being replaced by Yu Zhangli, an executive director on the board. Zhu would stay on the board as an executive director.

The Nanjing, Jiangsu-based company has 14 production bases, and by the end of last year, its slaughtering capacity was 46 million heads per year, an increase of 10.45 million from 2010. The firm aims to lift slaughtering capacity to 70 million per year by 2015.

Yurun's annual meat processing capacity was 304,000 tons last year, which it plans to double to 600,000 tons per year by 2015.

'Our target for 2015 remains unchanged,' said chairman Zhu. He said capital expenditure for this year was 1.5 billion yuan.

Shares in Yurun jumped 2.93 per cent yesterday to close at HK$11.94 yuan, outpacing the Hang Seng Index, which rose 0.9 per cent.