Huiyuan Juice may sell loss-making factories

PUBLISHED : Friday, 05 July, 2013, 12:00am
UPDATED : Friday, 05 July, 2013, 5:16am

China Huiyuan Juice plans to sell some loss-making factories to raise its profitability to the industry average, though it expects double-digit percentage growth in revenue for the next few years.

The Hong Kong-listed company is the largest producer of 100 per cent juice and of nectar in China, commanding 54.2 per cent of the mainland's juice market and 44.1 per cent of its nectar market.

"We have 40 factories in China, but some are loss-making. So we will look at how we deal with them in future," vice-president Wang Xunyoung said yesterday. "In the past, we built lots of factories. In future, we want to improve efficiency."

Zhou Hongwei, another Huiyuan vice-president, said: "If necessary, we will dispose of loss-making factories."

The firm hopes to raise its gross profit margin from 28 per cent to between 30 per cent and 35 per cent within three years, Wang said.

The average gross margin in the mainland beverage industry is 35 per cent, which is roughly the gross margin of two other Hong Kong-listed firms that sell beverages, Tingyi and Uni-President China, a Standard Chartered report said.

Last year, Huiyuan's net profit plunged 94.8 per cent to 16.16 million yuan (HK$20.3 million), mainly because of high finance costs arising from a near doubling of its borrowings.

On June 24, Huiyuan announced it sold its loss-making Shanghai factory, Shanghai Huiyuan Food & Beverage, to Uni-President for 300 million yuan. The sale of the factory is part of the trend to dispose of loss-making plants, Wang said. Huiyuan enjoyed "strong double-digit growth" in sales revenue in the first quarter, he said.

"We are confident that our sales revenue will grow in double digits every year for the next few years," Zhou said.

Standard Chartered forecast Huiyuan's revenue will grow 11.1 per cent to 4.42 billion yuan this year. Last year, revenue increased only 4.1 per cent to 3.98 billion yuan.

Huiyuan's profitability and sales will be boosted by its planned acquisition of China Huiyuan Industry, a fruit planter and juice concentrate maker owned by Huiyuan's founding chairman, Zhu Xinli, Wang said.

The HK$4.9 billion acquisition is pending approval from shareholders at an extraordinary general meeting on July 27, the Ministry of Commerce and the China Securities Regulatory Commission said.

Huiyuan's profitability will be enhanced by integrating the raw material supply from Huiyuan Industry, which will avoid price fluctuations, Zhou said.

In addition, Huiyuan Industry's sales of juice concentrate will be an extra revenue stream for Huiyuan, Wang said.