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Wilson Lau

Because the challenging global economic conditions put pressure on the prices of major commodities in the first half of this year, leading agricultural produce processor and trader China Agri recorded a decline in its overall revenue in its 2009 interim results.
The company's overall revenue for the  first half of this year decreased by 3 per cent to HK$19.62 billion. It attributed the fall to the significant decrease in revenue from its processing of oilseed and brewing materials.
Revenue from oilseed processing, its largest business segment, fell 10 per cent to HK$11.84 billion and accounted for 61 per cent of  overall revenue. 
Revenue from processing brewing materials decreased 18 per cent to HK$743 million and accounted for 4 per cent of  total revenue.
Fluctuating commodities prices, coupled with the decreased revenue, had a major impact on the company's profits. 
Net profit fell by 39 per cent to HK$1.03 billion. Gross profit was HK$1.68 billion and it represented a 32 per cent decline. Operating profit dropped 44.2 per cent to HK$1.2 billion. 
The operating profit margin was high at 10.6 per cent in the first half of 2008 due to currency gains in oilseed business on the back of a strong Chinese yuan. It returned to a normal level of 6.1 per cent  this year, according to Andy Li Wai-kwan, vice-president of China Agri.
Basic earnings per share were 28 cents, compared with 46.9 cents in 2008. 
Despite its lacklustre performance in the first half of this year, the company's board  proposed  paying an interim dividend of 6.7  cents (2008 interim: nil) to shareholders, Li said. The dividend payment was based on the initial payout ratio of 25 per cent.
Apart from its processing of oilseed and brewing materials, China Agri has three other major business segments: rice trading and processing, which accounted for 11 per cent of  total revenue; wheat processing, which accounted for 8 per cent; and biofuels and biochemicals, which accounted for 16 per cent.
The company's overall gross profit margin  was 8.6 per cent, down from 12.3 per cent  in the same period last year. 'It matched the expectation of management,' Li said.
Buoyed by high commodity prices, the gross profit margin in the agricultural processing sector in the mainland reached an extremely high level in the first six months of last year, he continued. 
For instance,  gross profit margin for the oilseed-processing business of China Agri was 11.5 per cent (5.9 per cent in 2009) and  gross profit margin for the processing of brewing materials, such as malting barley, was 26.4 per cent (5.3 per cent in 2009).
'The gross profit margin in the oilseed-processing business just returned to a normal level,' Li said. 
The brewing materials business suffered a decrease in gross profit margin because the  average selling price dropped rapidly during the first half, far outpacing adjustments made to high-priced inventories.  
Prices of agricultural commodities were under enormous pressure in the first six months of this year because of the global economic downturn. 
The unit procurement cost of soybean for oilseed processing, for instance, went down by 28 per cent, from US$587 to US$422 per metric tonne.  Corn dropped 19 per cent to HK$1,398 per metric tonne from HK$1,720. 
'This depressed prices of our major products,' Li said.
Revenue from China Agri's biofuel and biochemical business increased 16 per cent to HK$3.19 billion. The company increased the efficiency of its two fuel-ethanol factories, Guangxi Cofco Bio-Energy  and Zhaodong Bio-Energy,  through the implementation of upgraded technology and raising management standards, Li said.
The company also adopted a series of  measures, including stringent controls of production costs, improvement of quality control, adjustments in raw material sourcing and enhanced customer service, in response to the challenging business environment of the biochemical industry. 
China Agri has become an official fructose syrup supplier for all seven Coca-Cola and Pepsi  bottlers in northeast China and the exclusive supplier for six of them, Li said.
Revenue from rice trading and processing  increased 12 per cent to HK$2.17 billion and gross profit margin improved to 21.7 per cent from 14.6 per cent, thanks to rapid growth in domestic sales, an expanded sales distribution network and enhanced brand recognition.
 Because of the much higher profit margin, the company recorded an increase in sales revenue from rice exports even though the volume went down. 
Sales of rice in the domestic market more than tripled over the corresponding period in 2008 to reach 149,000 metric tonnes. 
Managing director Patrick Yu  said China Agri focused on downstream marketing to drive the profit margin. 
Its own-brand packaged rice is now sold at 3,750 supermarkets in more than 500 cities in the mainland, Yu added.
An 8 per cent increase in the revenue of wheat processing  took it to HK$1.66 billion.
 To increase its supply of customised flour, the company forged co-operation with well-known international and domestic food manufacturers and restaurant chains, including Ting Hsin Group and Yum Restaurants.



Falling commodity prices hit processor

Business

Commodities