Food and beverage firm Tingyi (Cayman Islands) Holding will rely on drinks this year to sustain its margins as production costs rise. Excluding an exceptional gain in 2004, the group last year earned US$123.52 million on turnover of US$1.84 billion, up 816.8 per cent and 25.8 per cent, respectively. Including exceptional income from the sale of a 49 per cent stake in one of its subsidiaries to Japanese brewer Asahi, Tingyi's group net profit last year was down 56.9 per cent from 2004. Tingyi, which is based in Tianjin, makes instant noodles, beverage and bakery products under the Master Kong brand, achieving a 31.33 per cent overall profit margin last year, compared with 27.58 per cent in 2004. The group said it would increase its capital expenditure to US$210 million this year from US$100 million last year. Of this year's spending, US$120 million will be used to boost beverage production. 'Raw material costs of flour and barley over the past few years have risen 20 per cent to 40 per cent, and the cost of sugar has gone up 70 per cent,' chief financial officer Frank Lin said. 'We can't control the cost of raw materials, but we can rely on products with high profit margin to sustain profitability.' Tingyi said its beverage products had a 52.2 per cent mainland market share last year, while its instant noodles had 25.7 per cent and bakery products 19.1 per cent. 'When products have taken up at least a 70 per cent market share, it will be hard for competitors to come in,' Mr Lin added. 'However, it is not easy to lift market share in China against a highly competitive landscape. A market-share increase of 3 per cent to 5 per cent a year is already considered high growth,' he said. In the long run, Tingyi hopes to develop its business on 'three legs' - beverage, instant noodles and bakery products - with each division accounting for at least 33 per cent of the overall business in terms of turnover. 'The bakery business is not yet well established, so our priority is the beverage business, followed by instant noodles,' Mr Lin said, without setting a timetable for reaching a balance for the three businesses. The group, which has net cash of US$153 million, declared a final dividend of 1.25 US cents a share.