Expansion leads to surge in net profit

Howard Kwong

China Agri-Industries Holdings (China Agri), the mainland's leading processed agricultural products manufacturer and producer, saw a 138.6 per cent surge in net profit last year to HK$2.62billion from HK$1.10billion in 2007.

This came thanks to an expanded production capacity and enhanced product mix.

The group's business performance remains sound despite price fluctuations - which had a negative effect on the mainland's agricultural and food processing industry - in the first half of last year, and the world economy being hit hard by the financial crisis in the second half.

Andy Li, vice-president of China Agri, said 'the strength of our business model' reflected in the company showing a record operating profit.

Oilseed processing, rice trading and processing, biofuels and biochemicals, brewing materials and wheat processing are five of the group's core businesses.

Mr Li said the experienced oilseed management team and expanded economies of scale in its operation helped boost the gross profit margin to 11.5 per cent from 4per cent in 2007.

Prudent hedging returned realised and unrealised total gains of HK$2.8 billion.

The group's revenue last year reached HK$41.8 billion, up 44.8 per cent from HK$28.87 billion in 2007. As one of the mainland's largest edible oils and oilseed makers, the company sells and distributes primarily under the brands Sihai and Xiyingying.

The annual crushing and refining capacity reached about 4.9million and 1.2 million metric tonnes respectively.

The oilseed processing business was the largest contributor to the group's turnover, with a revenue of HK$27.54 billion, representing a 42.1 per cent growth and 65.9 per cent of the group's total revenue. This was mainly due to the increased prices of edible oils and oilseed.

Since the group imported raw materials, product prices were kept at manageable levels.

It also minimised the effects of higher raw material prices through hedging in response to the surge in global soft commodity prices last year.

Turnover of the rice trading and processing business rose 8.8 per cent to HK$3.38 billion as the production team took advantage of rising prices in the international rice market. The gross margin climbed 22.8 per cent last year.

As the owner of one of Asia's largest parboiled rice processing facilities, in terms of production capacity, the company is the mainland's largest parboiled rice exporter to the Middle East, Africa, Eastern Europe, Central Asia and the Americas.

Exports to these countries amounted to about 791,000 metric tonnes, representing 83.6 per cent of the country's total parboiled rice exports last year.

The rice business also includes selling white rice to traditional markets such as Japan, South Korea and Hong Kong and Central America. China Agri sells packaged rice, under its own brand name, in more than 2,543 supermarkets in 256 cities.

The group is also one of the mainland's largest ethanol manufacturers, selling 303,700 metric tonnes last year.

Revenue from biofuels and biochemicals products increased 124.8 per cent to HK$5.82 billion, corresponding with the 13.9 per cent rise in total turnover.

A 361million yuan (HK$410million) subsidy from the Ministry of Finance for the production of 126,000 tonnes of ethanol at the Guangxi plant helped the group maintain a stable profit margin of 10.4 per cent.

The tapioca-based line in Guangxi began production in March last year.

Annual production capacity reached 200,000 metric tonnes, and products are mainly sold to large enterprises such as Sinopec and PetroChina.

Production lines in Yushu and Gongzhuling, in Jilin province, have an annual corn manufacturing capacity of 1.2million metric tonnes. Key products include corn starch, sweeteners, feed ingredients and crude corn oil.

China Agri is also one of the largest wheat processors on the mainland, mainly distributing a wide range of flours and noodles. Its annual wheat processing volume is about 1.6 million metric tonnes, serving a variety of freshly baked goods to hypermarkets and chain retailers, such as Carrefour, Wal-Mart, and convenience stores such as 7-Eleven.

The margin in the wheat processing business was higher on entry to high-end flour products markets thanks to the company's joint venture between China National Cereals, Oils & Foodstuffs and Toyota Tsusho last year.

The group was responsible for providing all freshly baked bread for the opening and closing ceremonies during last year's Beijing Olympics, and for supplying bread during the competition.

The wheat processing business contributed 7.8 per cent, HK$3.25 billion, of the group's total revenue.