Final Results

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ASIAN CITRUS HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: HKSE: 73; AIM: ACHL)

ANNOUNCEMENT OF THE ANNUAL RESULTS

FoR THE YEAR ENDED 30 JUNE 2013

The board of directors (the "Board") of Asian Citrus Holdings Limited (the "Company" or "Asian Citrus") is pleased to announce the consolidated results of the Company and its subsidiaries (collectively, the "Group¨) for the year ended 30 June 2013.

Results Highlights

** Conversion at £1 = RMB9.36 and RMB9.94 for the years ended 30 June 2013 and 2012 respectively for reference only.

# Core net profits refers to profit for the year excluding net gain on change in fair value of biological assets and share-based payment.

- Total orange production decreased by 10.2% to 218,600 tonnes due to the replanting programme and outbreak of citrus canker in Hepu Plantation.

- Taken measures to combat the citrus canker such as trimming, additional application of fertilisers, pesticides and bactericides and strengthening the inspection.

- Core net profit was RMB399.6 million (2012: RMB629.1 million).

- Strong operating cash inflow of RMB560.3 million (2012: RMB754.7 million) and cash and cash equivalent of RMB2,141.2 million as at 30 June 2013 (2012:RMB2,388.1 million).

- Planted approximately 1.4 million summer orange and grapefruit trees in Hunan Plantation with an additional 400,000 grapefruit trees scheduled for planting before end of 2013.

- Commenced trial production at the 40,000 tonnes fruit processing plant in Basie City Guangxi, which is expected to start normal operation in the 2013/2014 financial year. This is the Group's third processing plant.

- Diversified our product mix to plant banana trees and grapefruit trees in Hepu Planation and Hunan Plantation respectively.

- Recommended final dividend of RMB0.05 (2012: RMB0.13) per share which together with the interim and special dividends of RMB0.05 per share, will represent a total dividend of RMB0.10 (2012: RMB0.18) per share for the full year ended 30 June 2013. This equates to approximately 30.7% of the core net profit.

- Confident of more encouraging results in the year ahead. 

For further enquiries please contact:

Chairman's Statement

For the year ended 30 June 2013, we again faced a number of challenges. These for the most part proved

to be of a temporary nature and are currently being resolved. 

The most serious challenge we experienced was the decline in production of winter and summer oranges at our Hepu Plantation in Guangxi, which led to a drop in revenue for the year. There were two reasons for the decrease in our crop yield. First was the ongoing replanting programme for replacing our existing winter orange trees at the Hepu Plantation. The second, also at Hepu, was an outbreak of citrus canker caused by the severe weather conditions of last year.

In addition, our fruit processing business continued to suffer from the lower average selling price of pineapple juice concentrates, our main product, over the whole year as compared with the previous year.

Nevertheless, we are confident in the prospects for our business and have taken proactive measures to ensure 2013/14 will be a more productive year for Asian Citrus.

Financial Highlights

The Group's total revenues for the year under review decreased by approximately 16.3% from RMB1,776.6 million to RMB1,485.9 million, whilst core net profit for the year declined by approximately 36.5% from RMB629.1 million to RMB399.6 million.

Revenue from the sale of oranges at our two operating plantations (Hepu and Xinfeng) decreased by 13.0% to RMB920 million for the year ended 30 June 2013. This was mainly due to a decrease of approximately 10.2% in the Group's production to 218,600 tonnes, combined with a 2.9% decrease in the average selling price of oranges.

Revenue from the sale of processed fruits fell by 20.8% to RMB564.1 million for the year as compared with the same year in 2012, due primarily to the lower average selling price of pineapple juice concentrates. The price for pineapple juice concentrates reached a low in August 2012, recovered slightly through to and during the first quarter of 2013 and remained flat thereafter.

Our fruit processing business, Beihai BPG, processes over 22 different types of fruit with differing gross profit margins. The normalised gross profit margin of Beihai BPG for the year ended 30 June 2013 decreased to 26.0% compared with 30.8% last year.

Operational Review

Our three plantations in mainland China occupy a total area of around 103 square kilometres with two currently in operation: Hepu Plantation in Guangxi Zhuang Autonomous Region ("Guangxi") and Xinfeng Plantation in Jiangxi Province. Our third plantation in Hunan province remains on track to begin production in 2014.

For the year to 30 June 2013, the production at Hepu Plantation decreased by 22.7% from 116,720 tonnes to 90,205 tonnes. This was mainly due to the ongoing replanting programme started last year to replace the existing winter orange trees. Another contributing factor in the decline at the Hepu Plantation was the unstable weather in 2012 that led to an extensive infection of citrus canker, a latent infection amongst oranges and other citrus crops that affects the leaf and the fruit, and causes premature fruit drop. To combat this outbreak, we have been trimming trees to reduce the disease's impact and have applied additional fertilisers, pesticides and bactericide from May to August 2013. We have also doubled our inspections of the trees from twice a month to once a week during the typhoon period from June to September. Although we believe the effect of the citrus canker infection will be limited to the current year's summer crop, as of the time of writing there are still two months left in the typhoon season so the ultimate effectiveness of our treatment programme is yet to be determined.

The production from the Xinfeng Plantation, on the other hand, increased by 1.3% to 128,395 tonnes for the year ended 30 June 2013 compared with 126,701 tonnes last year as the orange trees continued to mature.

Our third plantation in Hunan province, which was developed in 2007, is on schedule to begin first harvesting from the first batch of the summer orange trees in 2014. By June 2013, our fourth phase of planting, we had planted 1.4 million trees and will plant another 400,000 trees by the end of 2013 to reach a total of 1.8 million trees.

Through our 92.94% equity interest in Behai BPG we operate two fruit processing plants: one in Beihai city and the other in Hepu county in Guangxi. Covering a total site area of nearly 110,000 square metres, these plants have an annual production capacity of over 60,000 tonnes with an average utilisation rate of 87.7% for the year ended 30 June 2013.

We will be increasing our overall production capacity with a third plant in BaFise City, Guangxi, which has successfully commenced trial production and is scheduled to start normal operation in the 2013/2014 financial year. It is expected that in the first year of full operation, the utilisation rate of the new plant will not be as high as the two existing plants as it typically take three to five years for a new plant to achieve full capacity.

Diversifying Our Product Mix

In order to diversify our product portfolio and minimise the seasonal impact of relying on one crop, we are replacing some of our winter orange trees at the Hepu Plantation with banana trees.

We believe that bananas are an excellent replacement crop. Unlike orange trees which require four years before first harvest, new banana trees can be harvested after only 12 months giving us a faster payback period. Following a trial planting of approximately 220,000 banana trees in August 2013, we expect that we can begin harvesting in September 2014.

Another advantage of bananas is that less land is needed for their cultivation, which provides us with greater flexibility to lease more land should the trial prove successful as anticipated. Bananas will be sold in the domestic market and processed as frozen fruit at our processing facilities.

We are also planting another new crop, grapefruit, in the Hunan Plantation using high quality seedlings from the United States. This is the first time grapefruits, a type of citrus fruit which until now have been imported from the US or Thailand, are being cultivated by a large plantation operation in China. Again, grapefruits will extend our harvesting period (from mid-August to Chinese New Year) and help us balance our revenue stream.

In future, we will consider other fruits, such as pineapples for processing into juice concentrates, and are investigating land suitable for growing this fruit.

Corporate Governance

During the year, there were a number of changes to our management and board. On behalf of the Board, I would like to express my appreciation to Mr. Ip Chi Ming, Mr. Nicholas Smith and Mr. Sung Chi Keung for the invaluable contributions to the Company. I would also like to thank and welcome Mr. Ng Hoi Yue to the Board.

With the changes to the Board's composition, five of the members (over half) are now Independent Non- Executive Directors, which more than fulfils the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Hong Kong Listing Rules") and reflects our commitment to good corporate governance.

Despite the changes in the Board and senior management, the transition has been smooth with no material impact on our operations. Further, a committee has been formed to select the replacement of the Chief Financial Officer of the Company by December 2013.

Dividend

We have decided to recommend a dividend to our shareholders, in line with our existing dividend policy of issuing dividends of at least 30% of our core net profit.

The Directors are pleased to recommend that a final dividend of RMB0.05(2012: RMB0.13) per share. The final dividend, together with the interim and special dividends of RMB0.03 (2012: RMB0.03) and RMB0.02 (2012: RMB0.02) per share, will make a total of RMB0.10 (2012: RMB0.18) per share for the whole year ended 30 June 2013.

The final dividend, if approved at the annual general meeting on 12 November 2013, will be paid in Sterling or HK Dollars on or before 31 December 2013, to shareholders on the register at the close of business on 15 November 2013, with an ex-dividend date of 14 November 2013 and 13 November 2013 on The Stock Exchange of Hong Kong Limited ("HKEx") and London Stock Exchange PLC, respectively. The actual translation rate for the purpose of dividend payment in Sterling or HK Dollars will be determined by reference to the exchange rate on 19 November 2013.

In addition to a cash dividend, the Directors have also decided to continue the Scrip Dividend Scheme, in which shareholders can choose to receive the final dividend for the year in the form of shares. This scheme offers an additional option to shareholders as well as the opportunity to buy more shares at a low price.

Share Repurchase Programme

We instituted a share repurchase programme in October 2011 under which the repurchased shares are forcancellation. To date, we have spent close to HK$90 million in share buybacks.

The Year Ahead

The year under review was challenging for Asian Citrus, but we are confident that the coming year offers much brighter prospects for our business.

As I mentioned earlier, the severe citrus canker outbreak may be temporary and we are taking preventive measures to minimize the risk to our future crops. We also anticipate that production volumes of summer oranges from the Hepu Plantation will return to previous levels in the financial year 2014, subject to normal weather conditions.

Over the medium term, we also expect the Hunan plantation to begin producing oranges and contribute to the overall production volume of oranges.

The diversification of our product portfolio with the addition of bananas, grapefruits and possibly other fruits will help shield us from the price fluctuations and biological threats that leave us vulnerable when specialising in a single crop.

We can also expect greater production capacity from our fruit processing business when the new plant at Baise City comes fully on stream. Together with our diversification strategy for our plantations, this will fuel the organic growth of the Company. The Group will also be seeking opportunities for flexible growth through suitable merger and acquisition activities.

On behalf of the Board, I would like to take this opportunity to thank our management team and employees for their unwavering commitment to the Company. I would also like to extend my gratitude to our shareholders, business partners and investors for their continuing support during this challenging period. Although we have faced challenges over the past year, our fundamentals are sound and I remain confident that we will begin to provide more encouraging results in the year ahead.

Tony Tong

Chairman

27 September 2013

Management Discussion and Analysis

OPERATING PERFORMANCE

Revenue

The breakdown of revenue by types is as follows:

The Group's revenue decreased by 16.3% from RMB1,776.1 million to RMB1,485.9 million for the year ended 30 June 2013.

Sale of oranges

Revenue from sale of oranges decreased by 13.0% to RMB920.0 million for the year ended 30 June 2013. This was mainly due to a decrease of approximately 10.2% in the Group's production to 218,600 tonnes combined with 2.9% decrease in average selling price of the Group.

The production yield from Hepu Plantation decreased by 22.7% from 116,720 tonnes to 90,205 tonnesfor the year ended 30 June 2013. This was mainly due to the ongoing replanting programme to replace the existing winter orange trees in the last year and the unstable weather conditions experienced during 2012 which led to an extensive infection of citrus canker, a latent infection amongst oranges and other citrus crops which is for the most part controllable in normal weather conditions but to which such crops are at much higher risk during periods of heavy rainfall and typhoons, such as those experienced in 2012. The infection resulted in a significant volume of premature fruit drop in the summer oranges. The Board considers the effect of this severe outbreak of citrus canker infection will probably be limited to the current year's summer crop and anticipates that production volumes of summer oranges from Hepu Plantation will return in the financial year 2014 to volumes akin to previously reported levels, subject to normal weather conditions. 

As the orange trees continue to mature, the production yield from the Xinfeng Plantation increased by 1.3% to 128,395 tonnes for the year ended 30 June 2013 from 126,701 tonnes in the comparable year. The unstable weather and persistent heavy rainfall in 2012 also limited the growth of this year's winter orange crop in the Xinfeng Plantation.

The following table sets out the average selling prices of oranges in different plantations:

The average selling prices of winter and summer oranges were relatively stable for the year ended 30 June 2013.

All of the Group's oranges were sold domestically. The Group's customers from the sale of oranges can be divided into three categories, namely corporate customers, wholesale customers, and supermarket chains. The breakdown of types of customers is as follows:

For the year ended 30 June 2013, the volume and revenue from supermarket chains represented approximately 23.7% and 27.9% respectively of the Group, compared to approximately 29.5% and 34.8% respectively for the year ended 30 June 2012. As the Xinfeng Plantation has not yet achieved full maturity, the oranges were mainly sold to corporate and wholesale customers, thereby reducing the percentage of sales to supermarket chains.

For the Hepu Plantation and Xinfeng Plantation, the volume sold to supermarkets was 24,907 tonnes and 26,901 tonnes for the year ended 30 June 2013, down from 39,423 tonnes and 32,347 tonnes for the year ended 30 June 2012 respectively. The decrease in Hepu Plantation was mainly due to the lower production yield of oranges for the year ended 30 June 2013. Also, starting from this year, the Group has supplied several major domestic and international supermarket chains with graded oranges through sizeable distributors instead of through direct sales.

The Company is selling two types of oranges to customers, namely ungraded oranges and graded oranges. Ungraded oranges are packaged and the customers have to arrange for the transportation of the oranges at their own cost. Usually, the ungraded oranges are sold to wholesale customers. Graded oranges are oranges that the Company grades, packages and delivers to the customers at our cost, usually to supermarket customers. The graded oranges are sold under the "Royal Star" brand to supermarket customers at a premium price compared to the selling price of ungraded oranges without brand. The breakdown of types of oranges is as follows:

As the Xinfeng Plantation was still at the early stage, the oranges were mainly sold to corporate and wholesale customers without grading, thereby negatively impacting the percentage of sale of graded oranges.

Sale of processed fruits

The table sets out the volume and revenue from the sale of processed fruits:

Beihai BPG processes over 22 different types of tropical fruits, including pineapples, passion fruit, lychees, mangoes and papayas. Only single products accounting for over 10% of the revenue from the sale of processed fruits are shown separately in the table above.

Revenue from the sale of processed fruits decreased by 21.2% to RMB564.1 million for the year ended 30 June 2013. This was mainly due to the lower average selling price of pineapple juice concentrates, the Group's main juice concentrate product, for the year ended 30 June 2013 compared to the corresponding period in 2012 as a result of the destocking by Thailand and Philippine producers. The price of pineapple juice concentrates started to decrease in January 2012, reached a low in August 2012 and has improved slightly through to and during the first quarter of 2013 and remained flat thereafter. Also, the unstable weather conditions limited the supply of several types of fruit available for juice processing.

The overall average selling price for the year ended 30 June 2013 was therefore lower than last year. The average utilisation rate of two existing processing plants in Beihai and Hepu is approximately 87.7% for the year ended 30 June 2013. 

Beihai BPG currently generates most of its sales from the People's Republic of China ("PRC"), with key customers being beverage mixers supplying major beverage groups.

Sale of self-bred saplings

For the year ended 30 June 2013, RMB1.8 million was recognised from the sale of approximately 153,000 self-bred saplings to local farmers.

Cost of sales

The breakdown of cost of sales of the Group is as follows:

Cost of sales of oranges principally consists of the costs of raw materials such as fertilisers, packaging materials, pesticides and other direct costs such as direct labour, depreciation and production overheads. The production cost of sales of oranges increased by 16.7% from RMB488.1 million to RMB569.8 million. The increase in production costs was mainly due to the increase in fertilisers and pesticides consumed as a result of the unstable weather and citrus canker during the year and higher labour costs incurred due to general wage inflation in the PRC during the year. As a result, the unit cost of production in the Hepu Plantation and Xinfeng Plantation increased to approximately RMB2.84 and RMB2.44 per kg respectively for the year ended 30 June 2013 (2012: RMB1.81 per kg and RMB2.18 per kg respectively).

Cost of sales of processed fruits mainly includes the costs of fruits and packaging materials and other direct costs such as direct labour and production overheads. For the year ended 30 June 2013, the cost of sales of processed fruits decreased by 15.7% from RMB494.8 million to RMB417.2 million. The decrease was mainly due to a decrease in the fruits cost by 16.3% from RMB308.8 million to RMB258.6 million.

Gross profit

The Group's overall gross profit decreased by 37.2% to approximately RMB497.6 million for the year ended 30 June 2013 (2012: RMB792.4 million).The overall gross profit margin decreased from 44.6% to 33.5% for the year ended 30 June 2013.

The following table sets out a breakdown of the Group's gross profit margin by plantation:

The gross profit margin of the Hepu Plantation and Xinfeng Planation decreased to approximately 43.0% and 33.4% respectively (2012: 64.3% and 40.4% respectively). The decrease was mainly due to the lower production volume, higher volume of fertilisers and pesticides consumed as a result of the unstable weather and citrus canker during the year and higher labour costs incurred as a result of the general wage inflation in the PRC.

The following table sets out a breakdown of the Group's gross profit margin by business:

Due to the higher contribution from Xinfeng Plantation with a relatively lower margin and the decrease in the gross profit margin in both Hepu Plantation and Xinfeng Planation, the overall gross profit margin from sales of oranges dropped to approximately 38.1% (2012: 53.8%) for the year ended 30 June 2013.

Beihai BPG processes over 22 different types of fruit with different gross profit margins. The normalised gross profit margin of Beihai BPG for the year ended 30 June 2013 decreased to 26.0% compared to 30.8% in last year. This was mainly due to the overall lower selling price for the year.

Loss on change in fair value of biological assets

The Group recorded a loss of RMB260.5 million from the change in fair value of biological assets for the year ended 30 June 2013, compared to a gain of RMB166.9 million last year. The loss was mainly due to the combined impact from the slight decrease in yield per tree, slight increase in orange price and the increase in direct production costs during the year. The Board wishes to emphasise that the loss on change on fair value of biological assets is non-operational and does not have any effect on the cash flow of the Group for the year ended 30 June 2013.

Other income

The increase in other income was mainly due to the higher interest income arising from the bank balance during the year as more money has been placed in the fixed deposits with higher interest rate. The effective interest rate for bank deposits for the year is approximately 2.23% (2012: 0.93%).

Selling and distribution expenses

Selling and distribution expenses mainly comprise sales commissions, advertising, salaries and welfare of sales personnel, traveling and transportation expenses. The selling and distribution expenses of the Group decreased from approximately RMB60.6 million for the year ended 30 June 2012 to approximately RMB45.6 million for the year ended 30 June 2013, mainly due to the reduction in transportation costs in the Hepu Plantation resulting from the reduction in graded oranges sold during the year.

Selling and distribution expenses represented 3.1% of the Group's revenue, a decrease of 0.3 percentage points as compared to 3.4% in last year, demonstrating the Group's ability to control costs effectively.

General and administrative expenses

General and administrative expenses comprise mainly salary, office administration expenses, depreciation, amortization, raw material and research costs. The general and administrative expenses of the Group were approximately RMB120.1 million for the year ended 30 June 2013 (2012: RMB157.6 million), representing a decrease of 23.8%. The decrease was mainly due to the lower share based payment in relation to the employee share options.

General and administrative expenses represented 8.1% of the Group's revenue, a decrease of 0.8 percentage points as compared to 8.9% in last year, demonstrating the Group's ability to control costs effectively.

Profit

The profit attributable to shareholders for the year ended 30 June 2013 decreased to approximately RMB114.4 million, compared to approximately RMB750.2 million in last year, representing a decrease of approximately 84.8%.

The core net profit, which refers to profit for the period excluding net change in fair value of biological assets and share-based payments, for the year ended 30 June 2013 was approximately RMB399.6 million, compared to approximately RMB629.1 million in last year, representing a decrease of approximately 36.5%.

FINAL DIVIDEND

The Directors are pleased to recommend a final dividend of RMB0.05 (2012: RMB0.13) per share. The final dividend, together with the interim and special dividends of RMB0.03 (2012: RMB0.03) and RMB0.02 (2012: RMB0.02) per share, will make a total of RMB0.10 (2012: RMB0.18) per share for the whole year ended 30 June 2013.

PRODUCTIVITY

The production volume of winter oranges decreased 6.0% to 161,233 tonnes during the year ended 30 June 2013. The production volume of winter oranges in Hepu Plantation decreased 26.9% from approximately 44,906 tonnes last year to approximately 32,838 tonnes in the current year due to the ongoing replanting programme. In the year to 30 June 2012, 66,449 winter orange trees were removed and replanted with the same number of the summer orange trees. The production volume of winter oranges from the Xinfeng Plantation increased by 1.3% from approximately 126,701 tonnes last year to approximately 128,395 tonnes in the current year due to increased maturity during the year. However, the unstable weather and persistent heavy rainfall in 2012 limited the growth of this year's winter orange crop in the Xinfeng Plantation.

The production volume of summer oranges decreased to 57,367 tonnes for the year ended 30 June 2013 (2012: 71,814 tonnes) due to the unstable weather conditions experienced during 2012 which led toan extensive infection of citrus canker, a latent infection amongst oranges and other citrus crops which is for the most part controllable in normal weather conditions but to which such crops are at much higher risk during periods of heavy rainfall and typhoons, such as those experienced in 2012. The infection resulted in a significant volume of premature fruit drop in the summer oranges. The Board considers the effect of this citrus canker infection may be limited to the current year's summer crop and anticipates that production volume of summer oranges from Hepu Plantation will return in the financial year 2014 to volumes akin to previously reported levels, subject to normal weather conditions.

CAPITAL STRUCTURE

As at 30 June 2013 there were 1,229,558,555 shares in issue. Based on the closing price of HK$2.76 as at 28 June 2013, the market capitalisation of the Company was approximately HK$3,393.6 million (GBP287.5 million).

HUMAN RESOURCES

There were a total of 1,697 employees of the Group as at 30 June 2013 (2012: 1,692 employees). The Group aims to attract, retain and motivate high calibre individuals with a competitive remuneration package. Remuneration packages are performance-linked and business performance, market practices and competitive market conditions are all taken into consideration. The Group reviews the employees' remuneration packages on an annual basis. The Group also places heavy emphasis on staff training and development so that employees can reach their maximum potential.

FINANCIAL PERFORMANCE

Liquidity

The current ratio and quick ratio was 23.62 and 21.14 respectively. The liquidity of the Group remained healthy with sufficient reserves for both current operation and future development.

Profitability

The asset turnover of the Group decreased to 0.18 (2012: 0.21) for the year ended 30 June 2013. The decline in the ratio was mainly due to the reduction in the revenue for the year as mentioned previously.

The basic earnings per share for the year ended 2013 was RMB0.09 (2012: RMB0.62). This was due tothe 84.8% decrease in profit attributable to shareholders for the year.

The core net profit per share for the year ended 30 June 2013 was RMB0.33 (2012: RMB0.52), representing a decrease of 36.5%.

Debt ratio

The net cash positions of the Group were RMB2,141.2 million and RMB2,388.1 million at 30 June 2013 and 2012 respectively.

Internal cash resource

The Group's major internal cash resource is its cash and cash equivalents. The Group did not have any outstanding bank borrowings as at 30 June 2013.

Charge on assets and contingent liabilities

None of the Group's assets were pledged and the Group did not have any material contingent liabilities as at 30 June 2013.

Capital commitments

As at 30 June 2013, the Group had capital commitments of approximately RMB74.7 million mainly in relation to the construction of the farmland infrastructure in the Hunan Plantation and the new juicing plant in Baise city.

Foreign exchange risk

The Group is exposed to currency risk primarily through its cash and cash equivalents that are denominated in a currency other than the functional currency of the operation to which they related. The currencies giving rise to this risk are primarily Hong Kong dollars, United States dollars and British pounds.

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuation arise. The Group currently does not use any derivative contracts to hedge against its exposure to currency risk. Management manages its currency risk by closely monitoring the movement of the foreign currency rate and considers hedging significant foreign currency exposure should the need arise.

PLANTATIONS

The Group has three orange plantations in the PRC occupying in total approximately 155,000 mu (equivalent to approximately 103.3 sq.km.) of land, with approximately 46,000 mu (equivalent to approximately 30.7 sq.km.) located in the Hepu county of the Guangxi Zhuang Autonomous Region, the Hepu Plantation, approximately 56,000 mu (equivalent to approximately 37.3 sq.km.) in the Xinfeng county of the Jiangxi province, the Xinfeng Plantation and approximately 53,000mu (equivalent to approximately 35.3 sq.km) in the Dao county of the Hunan province, the Hunan Plantation.

Hepu Plantation

The Hepu Plantation is fully planted and comprises approximately 1.2 million orange trees of which approximately 1.0 million trees were producing oranges. During the year, the last batch of 48,058 winter orange trees were removed according to the replanting programme and we commenced a trial planting of banana trees in the same area to diversify its range of produce so as to reduce the reliance on one agricultural product. A total of approximately 220,000 banana trees were planted in August 2013. The first harvest of banana is expected in August to September 2014.

Xinfeng Plantation

The Xinfeng Plantation is fully planted and comprises 1.6 million winter orange trees, all of which are now producing oranges.

Hunan Plantation

The Hunan Plantation is still under development and comprises approximately 1.4 million summer orange trees and grapefruit trees as at 30 June 2013. During the year ended 30 June 2013, approximately 300,000 grapefruit trees were planted with a further 450,000 grapefruit trees to be planted by end of 2013. By that time, the construction of Hunan Planation is expected to be completed.

The below table sets out the age profile as at 30 June 2013 and the production volume of the plantations for the year ended 30 June 2013:

Summer orange trees

Grapefruit trees

Note: Grapefruit is a type of citrus fruit and is harvested during the winter period in the PRC.

Winter orange trees

Note: 24,937 winter orange trees (age: 16), 10,133 winter orange trees (age: 17) and 12,988 winter orange trees (age:18) were removed during the year ended 30 June 2013.

The below table sets out the age profile as at 30 June 2012 and the production volume of the plantations for the year ended 30 June 2012:

Summer orange trees

Winter orange trees

Note: 66,449 winter orange trees (age: 15) were removed and replanted with the same number of summer orange

trees (age: 0) during the year ended 30 June 2012.

VALUATION OF BIOLOGICAL ASSETS

The Group has engaged an independent valuer to determine the fair value of the orange trees less costs to sell as at 30 June 2013.

The valuations of the Group's orange trees were conducted on the basis of discounted cash flow. The discount rate being applied to the discounted cash flow model is based on Capital Asset Pricing Model. The independent valuer begins with the appraised value of the Group's orange trees by discounting the future income streams attributable to the Group's orange trees to arrive at a present value and deducts the tangible assets (including plantation related machinery and equipment and land improvements) from the appraised value which are employed in the operation of the Group's plantations. The independent valuer conducted inspections of the plantations and performed sample counts on the oranges trees in connection with its valuation exercise of the Group's orange trees.

Major assumptions

The discounted cash flow method adopted a number of key assumptions, which include the discount rate, market prices of oranges, production yield per tree, related production costs, etc. The values of such variables are determined by the independent valuer using information supplied by the Group, as well as proprietary and third-party data, as follows:

1) The discount rate applied for the year ended 30 June 2013 was 18.0% (2012: 18.0%). The discount rate reflected the expected market return on the asset and can be affected by the interest rate, market sentiments and risk of the asset versus the general market risk.

2) The yield per tree variables represent the harvest level of the orange trees. The yield of orange trees is affected by the age, species and health of the orange trees, the climate, location, soil conditions, topography and infrastructure. In general, the yield per tree increases from age 3 to 10, remains stable for about 22 years, and then decreases until age 32. The agricultural consultant of the independent valuer estimates that the yield per tree based on field inspection of general growth conditions of orange trees and average yield data of typical orange plantations in the PRC.

3) The market prices variables represent the assumed market price for the summer oranges and winter oranges produced by the Group. The independent valuer adopted the market sales prices prevailing as of the relevant balance sheet date for each type of orange produced by the Group as the sales price estimate. The selling prices of winter oranges and summer oranges from the Hepu Plantation and winter oranges from the Xinfeng Plantation adopted were RMB3,320 per tonne, RMB5,220 per tonne and RMB3,740 per tonne, respectively, for the year ended 30 June 2013 and RMB3,310 per tonne, RMB5,200 per tonne and RMB3,730 per tonne, respectively, for the year ended 30 June 2012.

4) The direct production cost variables represent the direct costs necessary to bring the oranges to their sales form, which mainly include raw material costs and direct labour costs. The direct production cost variables are determined by reference to actual costs incurred for areas that have been previously harvested and cost information for comparable areas with regards to areas that have not been harvested previously.

Sensitive analysis

1) Changes in the discount rate applied result in significant fluctuations in the changes in fair value of orange trees less estimated point-of-sale costs. The following table illustrates the sensitivity of the Group's gain from changes in fair value of orange tree less estimated point-of-sale costs to increases or decreases by 100 basis points in the discount rate of 18.0% applied by the independent valuer for the year ended 30 June 2013: