Final Results

14th Oct 2008 07:00



Under embargo 7.00am

Tuesday 14 October 2008

Asian Citrus Holdings Limited

("Asian Citrus", the "Group" or the "Company")

Preliminary Results for the year ended 30 June 2008

Asian Citrus Holdings Limited, the largest orange plantation owner and operator in China, announces preliminary results for the year ended 30 June 2008.

Key Highlights

				For illustration only
	Year ended  30 June			Year ended  30 June
	2008 (RMBm)	2007 (RMBm)	% change  (RMB)	2008  (£m*)	2007  (£m*)
Reported financial information
Revenue	533.8	479.7	+11.3	39.0	31.3
EBITDA	413.6	403.3	+2.6	30.2	26.3
Net profit	399.3	318.7	+25.3	29.1	20.8
Basic EPS	RMB5.38	RMB4.88	+10.2	39.3p	31.9p
Diluted EPS	RMB5.37	RMB4.87	+10.3	39.2p	31.8p
Dividend per share	RMB0.80	RMB0.68	+17.6	5.8p	4.4p
Reported financial information adjusted to exclude biological gain
EBITDA	248.6	270.1	-8.0	18.1	17.6
Net profit	234.3	205.5	+14.0	17.1	13.4
Basic EPS	RMB3.16	RMB3.15	+0.3	23.1p	20.6p
Diluted EPS	RMB3.15	RMB3.14	+0.3	23.0p	20.5p

* Conversion at £1 = RMB13.70 and RMB15.32 for the year ended 30 June 2008 and 2007 respectively for reference only

Operational Highlights

Revenues up 11.3% to RMB533.8m despite issues of exceptional cold weather

Group profit increased by 25.3% to RMB 399.3m

Dividends of RMB0.8 per share, up 17.6%

Significant increase in higher margin supermarket business in 2007/08:

36.3% of Group revenue (2007: 31.1%)

27.1% of production sold directly to supermarkets (2007: 23%)

Several supermarket supply contracts signed with a total of 15,400 tonnes from the Hepu Plantation (2007: 11,768 tonnes), increasing margins and expanding national exposure of the brand

'Organic Product' accreditation achieved, leading to potential for higher selling prices and increased consumer confidence

324,000 saplings currently being bred in nursery at Hepu Plantation, first 200,000 saplings expected to be ready for Hunan plantation by end of 2008

Entered a contract with Bosun Health Food R&D Center of Guangdong to manufacture and distribute the Group's own-branded freshly-squeezed juice products. Trial launch expected in 4th Quarter 2008

Hepu Plantation

Fully developed with approximately 1.1m fruit-bearing trees

Production increased by 2.3% to 120,189 tonnes (2007: 117,439 tonnes) 

Increased productivity from winter orange trees reaching maturity offsetting effects of replanting programme to improve quality and productivity

Replanting underway with over 131,000 new trees planted by end of June

Xingfeng Plantation

Fully planted with 1.6m winter orange trees 

Production increased by 177% to 10,119 tonnes from the first 400,000 winter orange trees (2007: 3,652 tonnes)

Second batch of 400,000 winter oranges will start its trial crops in the winter of 2008

Remaining 800,000 orange trees will continue to reach their fruit-bearing age in the next two years 

Total of RMB86m invested in infrastructure and irrigation systems

Future production will drive a step change in Group's supply

Hunan Plantation

Formal leasing agreement for 35sq km of land secured

Infrastructure work started in 3rd quarter 2008

2.4m trees to be planted before end of 2011

Xingfeng Development (Agricultural wholesale market and processing centre)

Phase 1 completed, creating 238 units for sale of which 235 have been sold for a consideration of RMB91m

Tony Tong, Chairman, commented:  

"The Board expects that Chinese Gross Domestic Product will continue to grow, albeit at a slower rate than in previous years. The Group remains confident that consumer demand for oranges in China will increase. 

"The Group is very proud of the quality of its oranges and their accreditation as 'Organic Products' during current year will give the Group a further edge in the market, greater customer demand and enhanced profitability.

"The Group is currently in a strong financial position, with no bank borrowings and sufficient internal funding for all planned developments. In addition, the Group is well-prepared and well-equipped to implement all necessary plans and developments and it is expected that Asian Citrus will benefit from an improving market position going forward.

"During the year, good progress was made in expanding sales to supermarkets in areas other than Guangxi, which was impacted by cold weather during the past winter. Despite this extreme cold weather in the first quarter of 2008, the Group continued to increase its sales to supermarkets. 

"Production from the Xinfeng Plantation increased as forecast and volumes will benefit from the trial harvest from the second batch of 400,000 trees in the winter of 2008. Phase 1 of the Xinfeng Development is complete and nearly all units have been sold. The basic infrastructure work in the Hunan Plantation has started and the plantation's development and is progressing as planned. 

"The trial production of orange juice is now scheduled for the fourth quarter of 2008 and the Group is still committed and keen to develop down-stream businesses. 

"The Board is confident that Asian Citrus will continue to progress and deliver good value to its shareholders but remains cognisant of the prevailing economic and financial conditions."

- ends -

For further information please contact:
Asian Citrus Holdings Limited	Tel: 852 2559 0323
Tony Tong, Chairman and Chief Executive Officer
Eric Sung, Finance Director
Weber Shandwick Financial	Tel: 020 7067 0700
Terry Garrett, Stephanie Badjonat, John Moriarty

Chairman's Statement

I am very pleased to present the annual results of Asian Citrus Holdings Limited and its subsidiaries for the year ended 30 June 2008.

STRATEGIC OVERVIEW

The snowstorm in the central part of China in January and February 2008 created certain challenges for the Group. The exceptional cold weather affected the Group's sales in two ways; first by slightly impacting the quality of the Group's harvest and second, once conditions had improved, by creating short term oversupply as local farmers, who could not get their produce to customers, released the stored crops onto the market and briefly undermined pricing. This made it difficult for the Group to increase its proportion of sales to supermarkets.

In spite of this, the Group managed to continue its expansion of sales into the supermarket sector and successfully secured several new supermarket customers. During the year ended 30 June 2008, approximately 27.1% of the Group's production volume was sold directly to regional supermarket chains, compared with 23.0% for the year ended 30 June 2007. The sales to supermarkets for the year ended 30 June 2008 accounted for approximately 36.3% of the Group's revenue, which was up from approximately 31.1% for the year ended 30 June 2007. 

In addition to the renewal of supply contracts with the Group's two largest supermarket customers, Guihai Highways Guangxi Xintong Services Company and Guangxi Yonghao Supermarket Company Limited, with a total purchase order of 9,500 tonnes for the winter oranges from the Hepu Plantation, the Group has entered into supply contracts with several other supermarket chains in Guangxi, Hunan Province and Guizhou Province. In the coming year, it is expected that a total of 15,400 tonnes (2007: 11,768 tonnes) of winter oranges from the Hepu Plantation will be sold to supermarkets directly, representing approximately 31% (31 December 2006: 24%) of the Hepu Plantation's winter crop for the six months ended 31 December 2007. The estimated value of these supply contracts is approximately RMB75 million (2007: RMB51 million), which is equivalent to approximately 49% (31 December 2006: 34%) of the Hepu Plantation's turnover for the six months ended 31 December 2007. 

The winter crop at the Xinfeng Plantation is usually anticipated to be harvested slightly later than the winter crop at the Hepu Plantation because of the different harvest timetable for the different species of winter orange trees we have in the two plantations. As a result, we are now in the process of finalising the supply contracts relating to the upcoming winter crop from the Xinfeng Plantation. In addition to the supply contract agreed with Shanghai Lotus Supermarket Chain Store Co., Ltd. last year, the Group is confident that it will continue to increase its sales to other major cities and provinces throughout China.

Approximately 324,000 saplings of 2 different species are currently being bred in the orange saplings nursery at the Hepu Plantation. The first batch of approximately 200,000 saplings is expected to be ready by the end of 2008 for planting in the Group's new Hunan province plantation during 2009. The Group will continue to expand its nursery business in order to ensure sufficient supply of good quality saplings. 

Phase 1 of the agricultural wholesalers' market and orange processing centre located in the Xinfeng County Zhongduan Industrial Park ("Xinfeng Development") was completed during the year ended 30 June 2008. Of the 238 units available for sale, 235 units (representing 98.7% of total units available for sale) with gross saleable area of 44,518sq. m. have been sold for a total consideration of RMB90.9 million. Even though the Group has been successful in developing and marketing Phase 1 of the Xinfeng Development, a more cautious strategy regarding the commencement of the following phases of the Xinfeng Development is being adopted in view of the recent volatility of the real estate sector in China. As a result, Phase 2 of the Xinfeng Development will not commence until the second half of 2009 and the Group will continue to monitor and assess the real estate sector in China before finalising the plan for the following phases of the Xinfeng Development.

Having secured all the formal leasing agreements for the 35 sq. km of land in the first half of 2008, the Group commenced the basic infrastructure work on the Hunan Plantation during the third quarter of 2008. It is expected that a substantial amount will be invested in the Hunan Plantation over the next three years and the Group has a target of planting 2.4 million trees at this plantation before the end of 2011.

As indicated in the Company's interim report, the Group has entered into a contract with Bosun Health Food R&D Center of Guangdong to manufacture and distribute the Group's own-brand, freshly-squeezed juice products. The trial launch of the Group's orange juice is now expected in the fourth quarter of 2008. This delay is not expected to have a material impact on the Group's overall planning and commitment to develop down-stream products.

The Group is fully committed to maintaining a strict quality control of its products. The Group has been committed to organic farming since commencing operations and has achieved considerable success in this area during the year ended 30 June 2008. The oranges produced by both the Xinfeng Plantation and the Hepu Plantation were awarded the 'Organic Products' accreditation by the China Organic Food Certification Center in February and July 2008 respectively. As food safety is currently a major health concern for the public, the Group believes that the accreditation of its oranges as 'Organic Products' will create additional customer confidence in the produce. This accreditation is also likely to carry an economic benefit to the Group, as it is anticipated that the produce will achieve a premium status in the market, which should be reflected in the prices that can be achieved during the coming year. It is too early to be accurate with respect to the effect on prices, but it is anticipated that increases of between 8% and 12% will be achievable in 2008/09 as compared with the 2 to 3% experienced in recent years. 

OPERATING REVIEW

The Hepu Plantation is fully developed and now comprises of approximately 1.2 million orange trees. Of these, 1.1 million trees were producing oranges during the year ended 30 June 2008. The output from the Hepu Plantation over this period was 120,189 tonnes, representing an increase of approximately 2.3% over the previous year's production of 117,439 tonnes. The growth in production was due mainly to increased production from certain winter orange trees that have not yet achieved their full maturity, offset by the 6.4% reduction in the number of mature trees due to the replanting programme.

In addition to the trial replanting of 55,185 winter trees at the Hepu Plantation during the year ended 30 June 2007, 76,135 summer orange trees were replanted in the year ended 30 June 2008. The replanting programme includes the replacement of the existing species with a more advanced and better quality species that has stronger resistance to disease and is expected to produce a higher yield. It is the Group's intention to implement this partial replanting programme on a step-by-step basis in order to optimise its positive impact on the Group's overall performance. The ongoing replanting strategy is expected to affect 5% of the Hepu Plantation's trees per annum and it will be principally focused around replanting the existing winter orange trees with a new species of summer orange trees. There are currently approximately 330,000 winter trees at the Hepu Plantation which are due to be replaced over the next five years. Based on the results of the research carried out by the Group, it is confident that the replanting programme will deliver long term economic benefits by increasing average yields and the achievable revenue per tonne.

The Xinfeng Plantation is now fully planted and comprises 1.6 million winter orange trees. During the year ended 30 June 2008, RMB85.9 million was invested in the infrastructure and irrigation systems at the Xinfeng Plantation. The output from the Xinfeng Plantation was approximately 10,119 tonnes during the year ended 30 June 2008 representing an increase of approximately 177% over the previous year's production of 3,652 tonnes. This growth was due mainly to the higher production yield resulting from the increasing maturity of the 400,000 winter orange trees that began bearing oranges during the year ended 30 June 2008. It is expected that the second batch of 400,000 winter orange trees that were planted in 2005 will start its trial crops in the winter of 2008. In the next two years, the remaining 800,000 orange trees at the Xinfeng Plantation will reach their orange-bearing age and will start to contribute to production volume as they reach fruit-bearing age and then full maturity. As a result, it is anticipated that the potential production capacity from the Xinfeng Plantation over the coming years will drive a step change in the Group's overall supply of oranges. 

As mentioned above, Phase 1 of the Xinfeng Development has now been completed, creating 238 units available for sale, of which, 235 units have been sold and RMB63.8 million has already been received by the Group. The total revenue and construction costs (excluding business tax and other relevant taxes and charges that may be levied) for Phase 1 are estimated to be approximately RMB92.3 million and RMB59.8 million respectively. 

TRADING RESULTS

The Group's revenue for sales of oranges for the year ended 30 June 2008 was RMB527.0 million (2007: RMB479.7 million), representing an increase of approximately 10%. This was achieved by an increase of 7.6% in the Group's production combined with a 2.1% increase in the average selling price of the oranges to both wholesalers and supermarkets. For the year ended 30 June 2008, sales to supermarkets accounted for 27.1% and 36.3% of the Group's production volume and revenue respectively. The Group expects that this proportion will continue to increase and that the Group's products will be able to achieve wider geographical exposure as more supermarket contracts in both Guangxi area and other provinces are secured. During the year ended 30 June 2008, sales to supermarkets in Shanghai and Hunan province have been increased.

The gross margin of the Hepu Plantation decreased slightly to 69.9% for the year ended 30 June 2008 (2006: 71.1%), mainly due to increased fertiliser costs. The first commercial crop from the Xinfeng Plantation during the winter of 2007 yielded a positive gross margin of 33.8%. Over the medium term, as production volume increases and economies of scale are achieved, the Xinfeng Plantation is anticipated to demonstrate its potential for growth and improved profitability. Looking at the two plantations together, the Group's gross margin of its core agricultural business was 67.3% for the year ended 30 June 2008 (2007: 69.0%).

The cost of production within the core agricultural business increased from approximately RMB148.6 million for the year ended 30 June 2007 to RMB169.3 million for the year ended 30 June 2008 principally due to increased consumption of raw materials accompanying the growth of the Group's production volume. During the year, the price of fertilisers, which is one of the Group's major raw materials, increased by approximately 10%-15%. Despite this, the Group managed its costs effectively by implementing tighter controls and benefiting from better economies of scale. As a result, the average unit cost of production only increased by 6% to approximately RMB1.30 per Kg for the year ended 30 June 2008 (2007: approximately RMB1.23 per Kg).

In addition to the core agricultural business, as Phase 1 of the Xinfeng Development has been completed and the transfer of ownership and titles of 23 units was completed before 30 June 2008, the Group realised revenue and corresponding construction costs (excluding business tax and other relevant taxes and charges that may be levied) of RMB6.8 million and RMB5.5 million respectively. 

HONG KONG LISTING

As announced in the interim report, the Board has decided to delay the potential Hong Kong listing process due to the current uncertain and difficult market conditions. The Board will continue to monitor and assess market conditions as it is believed that a Hong Kong listing is still desirable when the timing is appropriate.

INVESTOR RELATIONS

The Board recognises the importance of maintaining an interactive relationship with shareholders and potential investors through a comprehensive company website (www.asian-citrus.com) and an updated website was launched in June 2008. The most up to date information on the Group is provided regularly on the website, which is fully compliant with the requirements of Rule 26 of the AIM Rules.

DIVIDENDS

The Board recommends the payment of a final dividend of RMB0.8 per share for the financial year ended 30 June 2008. This equates to 15% of earnings per share for the year ended 30 June 2008 which the Board views as an appropriate payout ratio to provide shareholders with an attractive yield while leaving the Group with sufficient capital for further development. The shareholders will receive their cash dividends in sterling. The Company has decided to institute a Scrip Dividend Scheme in terms of which shareholders will be offered the opportunity to elect to receive the final dividend for the year ended 30 June 2008 in the form of shares. A document providing further details of this Scrip Dividend Scheme will be sent to shareholders in due course.

The final dividend, if approved at the Annual General Meeting on 12 December 2008, will be paid in sterling on or before 31 December 2008, to shareholders on the register on 7 November 2008, with an ex-dividend date of 5 November 2008. The translation of RMB into sterling is made at the exchange rate of 13.70 as at 30 June 2008 is for illustration purpose. The actual translation rate for the purpose of dividend payment in sterling will be referenced to the exchange rate on 7 November 2008. 

OUTLOOK

The Board expects that Chinese Gross Domestic Product will continue to grow, albeit at a slower rate than in previous years. The Group remains confident that consumer demand for oranges in China will increase. 

The Group is very proud of the quality of its oranges and their accreditation as 'Organic Products' during current year will give the Group a further edge in the market, greater customer demand and enhanced profitability.

The Group is currently in a strong financial position, with no bank borrowings and sufficient internal funding for all planned developments. In addition, the Group is well-prepared and well-equipped to implement all necessary plans and developments and it is expected that Asian Citrus will benefit from an improving market position going forward.

During the year, good progress was made in expanding sales to supermarkets in areas other than Guangxi, which was impacted by cold weather during the past winter. Despite this extreme cold weather in the first quarter of 2008, the Group continued to increase its sales to supermarkets. 

Production from the Xinfeng Plantation increased as forecast and volumes will benefit from the trial harvest from the second batch of 400,000 trees in the winter of 2008. Phase 1 of the Xinfeng Development is complete and nearly all units have been sold. The basic infrastructure work in the Hunan Plantation has started and the plantation's development is progressing as planned. 

The trial production of orange juice is now scheduled for the fourth quarter of 2008 and the Group is still committed and keen to develop down-stream businesses. 

The Board is confident that Asian Citrus will continue to progress and deliver good value to its shareholders but remains cognisant of the prevailing economic and financial conditions.

Tony Tong

Chairman

14 October 2008

 

Consolidated income statement for the year ended 30 June 2008

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
Revenue	533,775		479,728
Net gain on change in fair value of biological assets	165,000		133,172
Other income	-		3,294
Inventories used	(160,229)		(122,455)
Staff costs	(37,612)		(34,973)
Amortisation	(3,450)		(3,313)
Depreciation	(48,415)		(24,270)
Other operating expenses	(85,938)		(55,443)
Profit from operations	363,131		375,740
Interest income	5,982		2,649
Finance costs	(13)		(4,390)
Net finance income/(costs)	5,969		(1,741)
Share of loss of associates	(1,359)		(14)
Profit before income tax	367,741		373,985
Income tax credit/(expense)	31,552		(55,280)
Profit for the year and attributable to shareholders	399,293		318,705
Proposed final dividends	59,486		50,454
Basic earnings per share	RMB5.38		RMB4.88
Diluted earnings per share	RMB5.37		RMB4.87

Consolidated balance sheet as at 30 June 2008

 

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
ASSETS
Non-current assets
Property, plant and equipment	999,155		812,491
Land use rights	48,101		34,850
Construction-in-progress	120,468		150,927
Biological assets	931,209		765,511
Deferred development costs	22,600		12,000
Interests in associates	2,216		5,074
Deferred tax assets	-		4,672
	2,123,749		1,785,525
Current assets
Biological assets	16,787		7,688
Properties for sale	54,305		54,080
Inventories	1,487		1,573
Trade and other receivables	19,897		14,324
Income tax recoverable	1,073		-
Cash and cash equivalents	309,952		344,513
	403,501		422,178
Total assets	2,527,250		2,207,703
EQUITY AND LIABILITIES
Equity
Share capital	7,785		7,758
Reserves	2,461,499		2,100,725
	2,469,284		2,108,483
Non-current liabilities
Deferred tax liabilities	-		47,559
Current liabilities
Trade and other payables	56,166		18,745
Due to related parties	1,800		2,610
Income tax payables	-		30,306
	57,966		51,661
Total liabilities	57,966		99,220
Total equity and liabilities	2,527,250		2,207,703

 

Consolidated cash flow statement for the year ended 30 June 2008

 

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
Cash flows from operating activities
Profit before income tax	367,741		373,985
Adjustments for:
Unrealised exchange loss/(gain)	518		(1,581)
Interest income	(5,982)		(2,649)
Finance costs	13		4,390
Depreciation	50,240		26,201
Share-based payments	6,906		8,417
Amortisation of land use rights	1,050		1,313
Amortisation of deferred development costs	2,400		2,000
Net gain on change in fair value of biological assets	(165,000)		(133,172)
Write off of biological assets	-		9
Share of loss of associates	1,359		14
Operating profit before working capital change	259,245		278,927
Movements in working capital elements:
Properties for sale	(10,215)		(17,146)
Inventories	86		(405)
Biological assets	(9,099)		(7,688)
Trade and other receivables	(5,573)		1,023
Trade and other payables	37,421		(213)
Due to related parties	(810)		(1,650)
Cash generated from operations	271,055		252,848
Income tax paid	(42,714)		(38,573)
Net cash generated from operating activities	228,341		214,275
Cash flows from investing activities
Purchases of property, plant and equipment	(3,775)		(2,425)
Additions to Construction-in-progress paid	(206,981)		(191,140)
Additions to biological assets	(698)		(4,142)
Additions to deferred development costs	(13,000)		(3,500)
Interest received	5,982		2,649
Net cash used in investing activities	(218,472)		(198,558)

  

Cash flows from financing activities
Repayment from an associate	981		-
Proceeds from issue of new shares	-		300,000
Issuing costs paid	-		(37,618)
Proceeds from issue of new shares upon exercise of share options	5,056		1,884
Dividend paid	(50,454)		(38,637)
Finance costs paid	(13)		(7)
Net cash (used in)/generated from financing activities	(44,430)		225,622
Net (decrease)/increase in cash and cash equivalents	(34,561)		241,339
Cash and cash equivalents at beginning of year	344,513		103,174
Cash and cash equivalents at end of year	309,952		344,513

Notes to the preliminary announcement for the year ended 30 June 2008

 

1. Income tax (credit)/expense

 

The amount of income tax (credit)/expense (credit)/charged to the consolidated income statements represents:

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
PRC foreign enterprise income tax	11,164		38,376
Land appreciation tax	171		-
Deferred taxation	(42,887)		16,904
	(31,552)		55,280

2. Earnings per share

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
Earnings
Profit attributable to shareholders used in diluted earnings per share calculation	399,293		318,705
Number of shares (thousands)
Issued ordinary shares at beginning of year	74,084		62,202
Effect of new shares issued	-		2,123
Effect of conversion of convertible bonds	-		875
Effect of new shares issued upon exercise of share options	110		103
Weighted average number or ordinary shares used in basic earning per share calculation	74,194		65,303
Effect of dilutive optional shares in respect of share options	209		148
Weighted average number of ordinary shares used in diluted earnings per share calculation	74,403		65,451
Basic earnings per share (RMB)	5.38		4.88
Diluted earnings per share (RMB)	5.37		4.87

3. Dividends

	Year ended 30 June
	2008 RMB'000		2007 RMB'000
	(Audited)		(Audited)
Proposed final dividend of RMB0.8 per ordinary share (2007: RMB 0.68)	59,486		50,454

4. Financial Information

The preliminary announcement was approved by the board on 14 October 2008. The financial information has been prepared on a going concern basis in accordance with International Financial Reporting Standards. The accounting policies applied in preparing the financial information are consistent with those adopted and disclosed in the Group's statutory accounts for the year ended 30 June 2007.

The statutory accounts for the year ended 30 June 2008 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have reported on the accounts for the year ended 30 June 2008 and their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.

5. Annual General Meeting

The Annual General Meeting of the Company will be held at 20 Moorgate, London, EC 2R 6DA, United Kingdom on 12 December 2008 at 10:30 a.m..

6. Annual Report and Accounts

Copies of the annual report and accounts will be dispatched to shareholders in due course. Copies will also be available from the head office of the Company: Rm 1109-1112,  Wayson Comm. Building, 28 Connaught Road West, Hong Kong.

ENDFR UORWRWKRRAAA

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