Full Year Results Financial Statement And Related Announcement
Financials Archive
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FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009
Balance Sheet
Review of the Performance
Financial Results
Revenue of the Group for the financial year ended 31 December 2009 ("FY2009") had decreased 27.6% to RMB 1,665.6 million from RMB 2,301.5 million for the financial year ended 31 December 2008 ("FY2008") despite additional revenue of RMB 152.5 million contributed by the new bio-fuel segment in FY2009. This decrease in revenue from the existing product segments is largely attributable to the following reasons:-
- Deteriorated economic conditions in the PRC;
- Decline in average selling prices for most product segments; and
- Decrease in sales volume across all product segments.
The percentage increase/(decrease) in sales volume and average selling price of each product type (excluding bio-fuel segment which only commenced commercial production in FY2009) for FY2009 as compared to FY2008 are as follows:-
The global economic crisis has curtailed consumer spending in the PRC and this has directly impacted the performance of the health food and beverages segment in FY2009. During the current financial year, the Group has reduced selling prices for this segment due to lower raw material costs. Falling consumer demand resulting from the difficult economic times also gave rise to a decline in sales volume and further contributed to the 39.2% decrease in revenue for this segment.
Revenue from industrial proteins, comprising soy protein isolate ("SPI") and soy functional protein ("SFP") products, has registered significant decline as such products are mainly used in the processing of food and beverage goods. The sales volumes and average selling prices of SPI and SFP for FY2009 were all lower as compared to the last financial year.
Soybean oil revenue recorded the sharpest percentage fall due to the following factors:-
- Continuing retreat in food and commodity prices which were at record levels in FY2008; and
- Lower quantities of soybean oil produced. Soybean oil is a by-product of the Group's production process for soybean-based products and the quantities of most of these soybean-based products manufactured have been affected by falling demand.
While the average selling prices of biochemical feedstuff and lecithin have improved over the previous year, revenue from these two segments for FY2009 fell by 6.1% and 18.6% respectively due to lower sales volume as a result of weaker demand.
Commercial production of bio-fuel products began during the year adding revenue of RMB 152.5 million to the Group's total turnover. As this segment is in the start-up phase, gross margin achieved was only 7.1% given the low average utilisation rate of 63.3%.
The Group's total gross profit had decreased by 45.5% from RMB 806.4 million in FY2008 to RMB 439.2 million in FY2009 as a result of the 27.6% fall in revenue and the decline in overall gross profit margin of the Group. In line with the decline in average selling prices of the major product segments, average soybean consumption costs had also decreased by 20.7% from RMB 4,194 per ton in FY2008 to RMB 3,327 per ton in FY2009. Due to the significant change in sales mix and the low gross margin of the new bio-fuel segment, overall gross profit margin in FY2009 had decreased to 26.4% as compared to 35.0% FY2008.
The Group had decreased the selling prices for most product segments due to weak consumer demand. The magnitude of price reduction was more pronounced for industrial proteins and soybean oil as the selling prices of these products are largely determined by market forces. Cuts to selling prices of health food and beverages were also significant due to the decrease in average soybean consumption costs in FY2009.
Health Food and Beverages Business
Consumer spending was hit by the deteriorated economic condition resulting from the global financial crisis. This was further exacerbated by the negative publicity surrounding the early redemption of the convertible bonds which had, to some extent, shaken the confidence of certain customers of the Group. As a result, there were substantial returns of health food and beverages products from distributors which amounted to RMB 198.6 million in FY2009. Given the perishable nature of these products, such goods returned were subsequently written down as they were nearing the end of their shelf lives. Due to the historically high gross margin and revenue composition of health food and beverages, the substantial fall in revenue of this product segment had adversely affected the overall gross profit and margin of the Group more significantly than any other segments.
As a percentage of total revenue, the contribution by health food and beverages (the key product segment of the Group) decreased from 50.4% in FY2008 to 42.4% in FY2009 partly due to the effects of the launch of bio-fuel products on sales mix composition. Lower average selling price and sales volume achieved by this segment contributed to the 39.2% fall in revenue for the current year. Gross margin of this segment slipped to 43.3% in FY2009 (FY2008: 45.7%) mainly as a result of the lower utilisation rates of newly launched products included in this segment.
Industrial Proteins Business
Compared to FY2008, the average selling prices of SPI and SFP in FY2009 had retreated by 16.8% and 24.2% respectively. Due to the significant falls in average selling prices of industrial proteins, the gross margins of SPI and SFP slipped to 10.9% (FY2008: 16.0%) and 11.2% (FY2008: 24.5%) in spite of savings from lower average soybean consumption costs in FY2009.
Other Businesses
The average sales volume of these products had fallen by 13.2% when compared to FY2008. These two businesses accounted for about 14.3% of total revenue in FY2009 (FY2008: 11.5%). The increase in total percentage revenue contribution in FY2009 from these two segments when compared to FY2008 was largely attributable to the improvements registered in the average selling prices in FY2009 and the relative contraction of the other matured product segments.
Soybean oil is a by-product of the Group's production process for soybean-based food and food ingredients. Depending on market requirements, the Group further processes this by-product into soybean oil of different grades and sells them at prevailing local market prices. During the year under review, the gross margin declined from 25.9% to 2.8%, as a result of the fall in the market price of soybean oil and lower utilisation rate. While the consumption cost of the key raw material, soybeans, had decreased by 20.7% from FY2008 to FY2009, the average selling price of soybean oil declined by a higher 33.4%. The utilisation rate achieved by the soybean oil segment in FY2009 was only 77.9% as compared to the utilisation rate of 99.3% achieved in FY2008.
Other Financial Results
Other income had fallen by 61.1% from RMB 16.8 million in FY2008 to RMB 6.5 million in FY2009, mainly attributable to the RMB 9.0 million decrease in interest income as a result of the lower bank balances of the Group. Other income for FY2008 also included dividend income from money market investments of RMB 1.7 million (FY2009: Nil).
Other gains - net for FY2008 included the gain on revaluation of derivative financial instrument of RMB 13.4 million (FY2009: derecognition gain of RMB 3.4 million), loss on disposal of property, plant and equipment of RMB 0.5 million (FY2009: less than RMB 0.1 million) and net operating exchange loss of RMB 9.5 million (FY2009: exchange gain of RMB 1.0 million). As a result of the derecognition of the convertible bonds in June 2009, the Group ceased to be exposed to the revaluation of derivative financial instrument embedded in the convertible bonds in the second half of FY2009.
Distribution expenses, comprising mainly advertising and promotion expenses, freight and other distribution-related expenses, decreased 5.9% from RMB 149.5 million in FY2008 to RMB 140.7 million in FY2009. This decrease was mainly attributable to lower freight in line with the fall in revenue of the Group for the current year and the cut back in advertising expenditure.
Similarly, the effective cost management controls implemented by the Group had resulted in administrative expenses falling by 53.6% in the current year, with the most significant reductions achieved in the area of employee benefits expenses which also included directors' remuneration.
Other expenses in FY2009 comprise debt restructuring expenses of RMB 1.5 million and write-down of inventories amounting to RMB 112.0 million.
Finance expenses for FY2009 represent the amortisation of interest and bonds issue expenses relating to the zero coupon convertible bonds of RMB 36.0 million (FY2008: RMB 82.1 million), loss of RMB 39.3 million (FY2008: Nil) on the derecognition of the convertible bonds, default interest expense of RMB 46.0 million (FY2008: Nil) on the liabilities owing to convertible bond holders and unrealised translation loss arising from the convertible bonds of RMB 33.1 million (FY2008: unrealised translation gain of RMB 77.3 million). With new short-terms bank loans taken by the Group in FY2009, interest expense on these loans amounting to RMB 4.0 million was also recognised and included in finance costs in the current year.
For the current year under review, the Group's key operating subsidiaries are subject to income tax at a concessionary rate of 12.5% (FY2008: 12.5%), which represents a 50% exemption on the prevailing corporate income tax rate of 25% (FY2008: 25%).
The Group recorded a loss of RMB 3.2 million in FY2009 as compared to a profit of RMB 499.2 million in FY2008. This deterioration in the results is attributable in part to the lower gross profit for the current year as sales volumes and average selling prices for most product segments declined more sharply that the fall in average soybean consumption costs. Certain non-operating and non-recurring items such as the loss on derecognition of convertible bonds and write down of inventories further contributed to the loss in FY2009.
Financial Position and Cash Flows
The Group recorded cash outflows from both operating and investing activities. The deterioration in gross profit and the increase in trade receivables were largely responsible for the net cash outflows from operating activities. Due to the Group's investments in production facilities and technology for its new products, net cash of RMB 593.9 million was used in investing activities in the current year. Net cash of RMB 200.0 million was provided by financial activities relating to new short-term bank loans. On the whole, cash and cash equivalents decreased by RMB 450.1 million during the financial year ended 31 December 2009.
Following the completion of the bio-fuel production facilities in FY2009, intangible assets in the form of technical know-how acquired at the cost of RMB 70.0 million from external parties were also recognised during the year. The Group continued to make substantial investments in production facilities for new products resulting in the increase in property, plant and equipment in FY 2009.
Trade and other receivables had increased from RMB 446.9 million as at 31 December 2008 to RMB 689.6 million as at 31 December 2009 due to longer credit period extended to its customers and slower repayment by some customers affected by the ongoing difficult economic conditions. The average trade receivable turnover for the current year was 110 days (FY2008: 68 days). Generally trade credit terms offered to customers are between 60 to 90 days.
Inventories had increased from RMB 81.9 million as at 31 December 2008 to RMB 103.0 million as at 31 December 2009. As explained in the announcement for the quarter ended 30 June 2009, the Group had accumulated significant amounts of soybeans in 2Q2009 and total inventory level as at the end of that quarter stood at RMB 340.6 million. In the second half of FY2009, the Group had reduced its inventory level of soybeans through utilisation.
Other current assets had increased from RMB 2.2 million as at 31 December 2008 to RMB 48.9 million as at 31 December 2009 due to increases in prepayments and corporate income tax recoverable.
Trade and other payables decreased from RMB 155.6 million as at 31 December 2008 to RMB 67.0 million as at 31 December 2009 due mainly to the repayment of expenses accrued as at the end of FY2008.
Commentary
The Group will complete the installation of the invested production facilities for its new products in the current financial year ending 31 December 2010. However, due to the weak consumer market, management will moderate the pace in scaling its commercial production of its new products in order to minimise its risks.
The Directors believe that the PRC's retail sentiment will continue to be challenging as a result of the uncertain economy. Sales growth in the short term is expected to be hesitant given the uncertainties ahead.
The majority of the convertible bond holders had exercised their early redemption rights. The Company is currently attempting to settle its obligations to the bondholders. As at this stage of the negotiations, the Company is attempting to restructure its obligations under the convertible bonds. As at this stage of the progress, the Directors are unable to realistically ascertain the likely outcome and when a settlement can be reached with the bondholders.