Interim Results

18th Mar 2009 07:00



Under embargo 7.00am

Wednesday 18 March 2009

Asian Citrus Holdings Limited

Interim Results for the six months ended 31 December 2008

Asian Citrus Holdings Limited ("Asian Citrus"), the largest orange plantation owner and operator in China, announces interim results for the six months ended 31 December 2008.

Key Highlights

				For illustration only
	Six months ended 31 December			Six months ended 31 December
	2008 (RMBm)	2007 (RMBm)	% change  (RMB)	2008  (£m*)	2007  (£m*)
Reported financial information
Revenue	293.3	181.2	+61.9	29.7	12.5
EBITDA	184.9	151.6	+22.0	18.7	10.5
Profit before tax	150.8	131.7	+14.5	15.2	9.1
Net profit	149.3	163.7	-8.8	15.1	11.3
Basic EPS	RMB2.01	RMB2.21	-9.0	20.3p	15.3p
Reported financial information adjusted to exclude biological gain
EBITDA	97.6	63.6	+53.5	9.9	4.4
Profit before tax	63.4	43.7	+45.1	6.4	3.0
Net profit	62.0	75.7	-18.1	6.3	5.2
Basic EPS	RMB0.83	RMB1.02	-18.6	8.4p	7.1p

* Conversion at £1 = RMB9.89 and RMB14.45 for the six months ended 31 December 2008 and 2007 respectively for reference only

Operational Highlights

Revenues from the sales of oranges up 51.5% to RMB274.6m, achieved by an increase of 36.3% in production and a 11.2% increase in average selling price

Revenues from the sales of Xinfeng Development was RMB18.7m (2007: Nil) with gross margin of 24.0% (2007: Nil)

Gross profit increased by 40.0% to RMB146.0 million with overall profit margin of 49.8% (2007: 57.5%) 

Profit before tax (ex-biological gain) increased by 45.1% to RMB 63.4m

Excluding the one-off tax credit in last year, net profit would have been up 23.6%

Continued increase in higher margin supermarket business during the period:

31.6% of Group revenue (2007: 29.3%)

23.6% of production sold directly to supermarkets (2007: 21.1%)

Signed new contracts with two more supermarket customers in Beijing and Guizhou province, increased our brand awareness 

Benefited from the 'Organic Product' accreditation with 11.2% increase in the average price of our winter crops 

Concluded the negotiations on the pricing of upcoming summer crops with an average price increase of approximately 3.7% 

Took a prudent view and delayed the launch of the freshly-squeezed juice operation

Hepu Plantation

Fully developed with approximately 1.1m fruit-bearing trees

Production increased by 8.1% to 53,142 tonnes (2007: 49,162 tonnes) 

Gross margin slightly increased to 62.5% (2007: 62.1%)

Replanting underway with approximately 80, 000 new summer orange trees to be planted before end of March 2009

Xinfeng Plantation

Fully planted with 1.6m winter orange trees 

Production increased by 173% to 27,665 tonnes from the first 800,000 (2 batches of 400,000) winter orange trees (2007: 10,119 tonnes) 

Gross margin decreased to 29.1% (2007: 33.8%) as a result of the trial production of second batch of 400,000 trees 

Third batch of 400,000 winter oranges will start its trial crops in the winter of 2009

Final batch of 400,000 orange trees will continue to reach their fruit-bearing age in the winter of 2010 

Hunan Plantation

Commenced the basic infrastructure with total of RMB5.2 million invested during the period 

Started the construction work of a new nursery at Hunan Plantation which occupies approximately 7,000 square metres

Lengthened the investment period of Hunan Plantation from 3 years to 5 years as a result of a more prudent policy adopted in response to the anticipated slower growth of PRC's economy due to global financial crisis

Xinfeng Development (Agricultural wholesale market and processing centre)

Phase 1 completed in 2007-2008 financial year with approximately 99% of the units sold for a total consideration of RMB 90.0 million

Postponed the starting Phase II of the development until conditions in the real estate sector are more stable

Tony Tong, Chairman, commented:

"Since the second half of 2008, the growth of the Chinese economy started to slow down in wake of the global financial crisis. Despite this, we believe the Group was able to achieve higher selling prices for both its winter and summer crops because of the outstanding species and quality of its oranges. "

"Furthermore, the Group was able to expand its sales coverage to both the Beijing and Guizhou province, further extending our coverage of the population."

"Looking to the future, given the more challenging global and Chinese business environment, we intend to adopt a more conservative strategy by lengthening the investment period of the Hunan Plantation, delaying the launch of the freshly-squeezed juice business and postponing the start of Phase 2 of the Xinfeng Development."

"Notwithstanding this, our business and cash resources have remained strong and we are optimistic that the Group will be able to achieve better profitability and diversification by securing supplier contracts with more supermarket customers and expanding its exposure to more areas across China in the near future. "

"We are very confident in the development of Asian Citrus and we will continue to focus on delivering value to our shareholders."

- ends -

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

Asian Citrus Holdings Limited

Chairman's Statement

I am very pleased to report the results of Asian Citrus Holdings Limited (the "Company" or "Asian Citrus") and its subsidiaries (collectively referred to as the "Group") for the six months ended 31 December 2008.

STRATEGIC OVERVIEW

During the last six months, the Group has continued to expand its direct sales to supermarkets with both increased volume and geographical coverage. In addition to the renewal of the supply contracts with all the existing supermarket customers, the Group entered into new contracts with two more supermarket customers; one in Beijing and the other in Guizhou province. We believe that expanding the geographical coverage of our products will help increase brand awareness and build our product image amongst consumers.

During the six months ended 31 December 2008, we sold approximately 19,031 tonnes (2007: 12,516 tonnes) of oranges directly to supermarkets accounting for approximately 24% (2007: 21%) of the total volume of winter orange crop. The higher proportion of direct sales to supermarkets enhances Group profitability.

Benefiting from the accreditation of our oranges as "Organic Products", we were able to increase the average price of our winter crops by 11.2% even though the growth of the Chinese economy started to slow in the second half of 2008. Despite this year's continued slow down in the Chinese economy, which created a more challenging environment, we have negotiated an average price increase for the coming summer crops of approximately 3.7%.

As a result of the more challenging environment ahead, the Board has reviewed its strategy and adopted a more prudent view in order to ensure continuing attractive returns and to maintain a strong financial position; while maintaining the long term growth potential and leading market position of the Company.

The Group commenced the basic infrastructure work on the Hunan plantation during the third quarter of 2008 and approximately RMB5.2 million was invested during the six months ended 31 December 2008. The original plan was to complete the Hunan Plantation within three years. However, in view of the anticipated slower growth of the economy in the People's Republic of China ("PRC") as a result of the global financial crisis, management has decided to lengthen the investment period of the Hunan Plantation from 3 years to 5 years in order to optimise the Group's annual capital expenditures during this challenging period.

As disclosed in the previous annual report, Phase 1 of the agricultural wholesalers' market and orange processing centre located in the Xinfeng County Zhongduan Industrial Park ("Xinfeng Development") was completed in the 2007-2008 financial year with approximately 99% of the units sold for a total consideration of RMB90.9 million. Although Phase 1 was very successful, the mainland real estate sector has weakened and management has decided to postpone starting Phase 2 of the development until conditions improve.

Management has taken a prudent view in light of the economic situation and has decided to delay the launch of the freshly-squeezed juice operation. Freshly-squeezed juice is regarded as a premium product by most Chinese people and therefore management considers it appropriate to adopt a conservative stance and keep this new development under review pending an assessment of the economic impact on consumer demand. Nevertheless, we still believe that there is considerable potential to develop a significant own-brand juice operation once the general economic environment improves and the Group remains committed to launching this product in the future.

Approximately 300,000 self-bred saplings of two different species are currently being grown in the nursery at the Hepu Plantation which are ready for planting. Originally, we planned to use these saplings in our new Hunan Plantation. However, in order to minimise the corresponding transportation costs and potential wastage during the transportation process, we intend to retain these saplings for the replanting programme in the Hepu Plantation and for sales to local farmers.

Meanwhile, construction work on a new nursery at the Hunan Plantation has commenced in March 2009 and is expected to be completed by May 2009. This new nursery occupies approximately 7,000 square metres and will provide the Hunan Plantation with new species of saplings for planting in the future. The first batch of saplings from this nursery will be available in 2010.

OPERATING REVIEW

The Hepu Plantation is fully developed with approximately 1.2 million orange trees. Output from Hepu was approximately 53,142 tonnes for the six months ended 31 December 2008 which represents an increase of approximately 8% over the previous year's production of 49,162 tonnes. Growth was mainly due to increased production from certain winter orange trees which are yet to achieve their full maturity.

The Xinfeng Plantation is now fully planted with 1.6 million winter orange trees. During the six months ended 31 December 2008, there were only 800,000 trees producing oranges (2007: 400,000), yielding approximately 27,665 tonnes of oranges, which represents an increase of approximately 173% over the previous year's production of 10,119 tonnes. The growth was mainly due to the increased production from the initial planting of 400,000 winter oranges trees, which are still yet to achieve their full maturity, together with trial production from the next 400,000 trees. It is expected that a further 400,000 orange trees will start their trial production in the winter of 2009.

The Group's replanting programme in the Hepu Plantation is continuing. Since the half year, 81,261 winter orange trees have been removed and the corresponding land area has been replanted with the same number of the new species of summer orange trees. The ongoing replanting strategy is expected to equate to 5% of Hepu's trees per annum and it will be principally focused around replacing the existing winter orange trees with a new species of summer orange trees. It is expected that this ongoing replanting will take another three to four years to complete. We believe this will deliver long term economic benefits by increasing average yields and the achievable revenue per tonne from the improved species of trees being planted.

TRADING RESULTS

Group revenue was RMB274.6 million (2007: RMB181.2 million) for the six months ended 31 December 2008 which represents growth of 51.5%. This was achieved by an increase of approximately 36.3% in the Group's production combined with a 11.2% increase in average selling prices to both wholesalers and supermarkets. For the six months ended 31 December 2008, sales to supermarkets accounted for approximately 23.6% and 31.6% of the Group's production volume and revenue respectively (against 21.1% and 29.3% in 2007). We expect that this proportion will continue to increase and the Group's products will achieve wider geographical exposure as more supermarket contracts in the PRC are secured.

The gross profit of the Hepu Plantation increased from RMB94.3 million for the six months ended 31 December 2007 to RMB115.2 million for the six months ended 31 December 2008, representing growth of 22.2%. The gross margin of the Hepu Plantation increased slightly to approximately 62.5% for the six months ended 31 December 2008 (2007: 62.1%) reflecting higher average selling prices to supermarkets offsetting higher production costs related to organic farming and an increase in staff costs due to wage inflation.

The gross profit of the Xinfeng Plantation increased from RMB9.9 million for the six months ended 31 December 2007 to RMB26.3 million for the six months ended 31 December 2008, representing growth of 165.7%. However, as the Xinfeng Plantation is still in its early stage of production, with a trial crop from the 400,000 trees which have started to bear oranges in the period, the gross margins decreased to approximately 29.1% for the six months ended 31 December 2008 (2007: 33.8%). However, over the medium term, as production volume increases and economies of scale are achieved, the Xinfeng Plantation will demonstrate its potential for profitable growth.

The cost of production increased from approximately RMB77.0 million for the six months ended 31 December 2007 to RMB133.1 million for the six months ended 31 December 2008 reflecting the growth of production volume. The average unit cost of production increased by 26.9% to approximately RMB1.65 per Kg for the six months ended 31 December 2008 (2007: approximately RMB1.30 per Kg) principally as a result of the trial production of the 400,000 trees in the Xinfeng Plantation which was not profitable. In addition, there were the effects of higher costs relating to organic farming and wage inflation.

HK LISTING

At the interims in 2008, the Board stated that it believed a Hong Kong listing was still desirable when the timing was appropriate. Whilst market conditions remain challenging, the Board is currently considering the initiation of work to investigate a dual primary Hong Kong listing by way of an introduction during the next twelve months.

INVESTOR RELATIONS

The Board is committed to maintaining good communications with shareholders and potential investors. The Group's management visited certain institutional and private client investment advisers during October and November 2008 to update existing shareholders on the Group's latest developments and introduce the Group to potential

new investors.

OUTLOOK

Since the second half of 2008, the growth of the Chinese economy started to slow down in wake of the global financial crisis. Despite this, we believe the Group was able to achieve higher selling prices for both its winter and summer crops because of the outstanding species and quality of its oranges. Furthermore, the Group was able to expand its sales coverage to both the Beijing and  Guizhou province, further extending our coverage of the population.

Looking to the future, given the more challenging global and Chinese business environment, we intend to adopt a more conservative strategy by lengthening investment period of the Hunan Plantation, delaying the launch of the freshly-squeezed juice business and postponing the start of Phase 2 of the Xinfeng Development.

Notwithstanding this, our business and cash resources have remained strong and we are optimistic that the Group will be able to achieve better profitability and diversification by securing supplier contracts with more supermarket customers and expanding its exposure to more areas across China in the near future. We are very confident in the development of Asian Citrus and we will continue to focus on delivering value to our shareholders.

Tony Tong

Chairman

18 March 2009

  Asian Citrus Holdings Limited

Condensed consolidated income statement

For the six months ended 31 December 2008

	Six months ended 31 December				Year ended 30 June
	2008 RMB'000		2007 RMB'000		2008 RMB'000
	(Unaudited)		(Unaudited)		(Audited)
Revenue	293,296		181,227		533,775
Net gain on change in fair value of  biological assets	87,360		88,000		165,000
Inventories used	(118,248)		(62,778)		(160,229)
Staff costs	(25,521)		(19,922)		(37,612)
Amortisation	(2,740)		(1,372)		(3,450)
Depreciation	(32,967)		(23,495)		(48,415)
Other operating expenses	(51,771)		(33,254)		(85,938)
Profit from operations	149,409		128,406		363,131
Interest income	1,528		4,904		5,982
Finance costs	(5)		(8)		(13)
Net finance income	1,523		4,896		5,969
Share of loss of associates	(181)		(1,650)		(1,359)
Profit before income tax	150,751		131,652		367,741
Income tax (expense)/credit	(1,430)		32,063		31,552
Profit for the period/year and attributable to shareholders	149,321		163,715		399,293
Proposed dividend	-		-		59,486
Earnings per share
- Basic	RMB2.01		RMB2.21		RMB5.38
- Diluted	RMB2.01		RMB2.20		RMB5.37

Asian Citrus Holdings Limited

Condensed consolidated balance sheet

As at 31 December 2008

	Six months ended 31 December				Year ended 30 June
	2008 RMB'000		2007 RMB'000		2008 RMB'000
	(Unaudited)		(Unaudited)		(Audited)
ASSETS
Non-current assets
Property, plant and equipment	1,105,401		1,009,670		999,155
Land use rights	56,702		34,478		48,101
Construction-in-progress	57,262		23,674		120,468
Biological assets	1,018,696		854,141		931,209
Deferred development costs	24,400		24,000		22,600
Interests in associates	2,059		3,424		2,216
	2,264,520		1,949,387		2,123,749
Current assets
Biological assets	-		-		16,787
Properties for sale	41,635		61,813		54,305
Inventories	586		920		1,487
Trade and other receivable	32,954		34,708		19,897
Income tax recoverable	102		-		1,073
Cash and cash equivalents	323,613		227,907		309,952
	398,890		325,348		403,501
Total assets	2,663,410		2,274,735		2,527,250
EQUITY AND LIABILITIES
Equity
Share capital	8,028		7,769		7,785
Reserves	2,601,209		2,219,949		2,461,499
	2,609,237		2,227,718		2,469,284
Current liabilities
Trade and other payables	54,173		36,193		56,166
Due to a related party	-		-		1,800
Income tax payables	-		10,824		-
Total liabilities	54,173		47,017		57,966
Total equity and liabilities	2,663,410		2,274,735		2,527,250

Asian Citrus Holdings Limited

Condensed consolidated cash flow statement

For the six months ended 31 December 2008

	Six months ended 31 December				Year ended 30 June
	2008 RMB'000		2007 RMB'000		2008 RMB'000
	(Unaudited)		(Unaudited)		(Audited)
Cash flows from operating activities
Profit before income tax	150,751		131,652		367,741
Adjustments for:
Unrealised exchange gain	-		-		518
Interest income	(1,528)		(4,904)		(5,982)
Finance costs	5		8		13
Depreciation	29,494		21,564		50,240
Share-based payments	3,608		3,751		6,906
Amortisation of land use rights	540		372		1,050
Amortisation of deferred development costs	2,200		1,000		2,400
Net gain on change in fair value of biological assets	(87,360)		(88,000)		(165,000)
Write off of biological assets	42		-		-
Share of loss of associates	181		1,650		1,359
Operating profit before working capital changes	97,933		67,093		259,245
Movements in working capital elements
Properties for sales	12,670		(7,733)		(10,215)
Inventories	901		8,341		86
Biological assets	16,787		-		(9,099)
Trade and other receivables	(22,198)		(20,384)		(5,573)
Trade and other payables	(1,993)		17,448		37,421
Due to a related party	(1,800)		(2,610)		(810)
Cash generated from operations	102,300		62,155		271,055
Income tax paid	(459)		(30,306)		(42,714)
Net cash generated from operating activities	101,841		31,849		228,341
Cash flows from investing activities
Purchases of property, plant and equipment	(5,755)		(1,850)		(3,775)
Additions to construction-in-progress	(66,779)		(89,640)		(206,981)
Additions to biological assets	(169)		(630)		(698)
Additions to deferred development costs	(4,000)		(13,000)		(13,000)
Interest received	1,528		4,904		5,982
Net cash used in investing activities	(75,175)		(100,216)		(218,472)
Cash flows from financing activities
(Advance to)/repayment from an associate	(24)		-		981
Proceeds from issue of new shares upon exercise of share options	-		2,223		5,056
Dividend paid	(12,976)		(50,454)		(50,454)
Finance costs paid	(5)		(8)		(13)
Net cash used in financing activities	(13,005)		(48,239)		(44,430)
Net increase/(decrease) in cash and cash equivalents	13,661		(116,606)		(34,561)
Cash and cash equivalents at beginning of period/year	309,952		344,513		344,513
Cash and cash equivalents at end of period/year	323,613		227,907		309,952

Asian Citrus Holdings Limited

Notes to the interim announcement

For the six months ended 31 December 2008

1. Taxation

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

 

2. Earnings per share

	Six months ended 31 December				Year ended 30 June
	2008 RMB'000		2007 RMB'000		2008 RMB'000
	(Unaudited)		(Unaudited)		(Audited)
Earnings
Profit attributable to shareholders used in diluted earnings per share calculation	149,321		163,715		399,293
Weighted average number of shares	'000		'000		'000
Issued ordinary shares at beginning of period/year	74,357		74,084		74,084
Effect of new shares issued to shareholders participating in the scrip dividend	14		-		-
Effect of new shares issued upon exercise of share options	-		89		110
Weighted average number of ordinary shares used in basic earnings per share calculation	74,371		74,173		74,194
Effect of dilutive potential shares in respect of share options	85		220		209
Weighted average number of ordinary shares used in diluted earnings per share calculation	74,456		74,393		74,403

3. Dividends

No dividend has been declared during the six months ended 31 December 2008 (2007: Nil). 

A final dividend of RMB0.80 (2007: RMB0.68) per ordinary share for the year ended 30 June 2008 was paid on 31 December 2008.

4. Financial Information

The preliminary announcement was approved by the board on 18 March 2009. 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 consolidated financial statements for the year ended 30 June 2008.

5. Interim Report

Copies of the interim report will be dispatched to shareholders in due course. Copies will also be available from the head office of the Company: Rm 1109-1111, Wayson Comm. Building, 28 Connaught Road West, Hong Kong.

ENDIR SFSFUWSUSEFD

---

Related Shares:

ACHL.L