China Essence Group announces results FY2011

May 25, 2011
China Essence Group Ltd. (“China Essence” or the “Group”), one of the largest, leading integrated producers of potato products in the People’s Republic of China (“PRC”), announced results for  the fourth quarter (“4Q FY2011”) and financial year ended 31 March 2011 (“FY2011”).

For 4Q FY2011, China Essence registered revenue of RMB282.0 million, a 38% increase from RMB204.3 million in the previous corresponding period (“4Q FY2010”). During the same period, net profit increased by 17% from RMB30.1 million to RMB35.2 million.

For the full financial year FY2011, China Essence saw a 20% increase in revenue to RMB998.9 million and 22% growth in net profit to RMB166.7 million.

Commenting on the latest results, Mr Zhao Libin, Chairman and CEO of the Group said, “We are very pleased with our performance in FY2011. Despite rising costs, we  have managed to achieve improved margins and higher earnings as we were able to leverage on our market leading position and pass on some costs to our customers. We are particularly encouraged by growth in demand for our animal feed product which has been very well-received by the farmers.

Already, animal feed has made significant contributions to the Group’s results in FY2011, accounting for approximately 11% of the Group’s revenue and profit. We believe animal feed will continue to play an integral part in diversifying and strengthening the Group’s earnings base in many years to come.”

Overall, the Group saw average selling price increased across all product segments, in line with higher food and commodity prices globally. Gross profit increased 30.9% from RMB287.7 million for FY2010 to RMB376.7 million for FY2011. Accordingly, the Group’s overall gross margin increased from 34.5% for FY2010 to 37.7% for FY2011.

Revenue from potato starch, which accounted for 60.7% of the Group’s revenue, increased 17.3% from RMB516.6 million in FY2010 to RMB606.1 million for FY2011. Despite a shrinkage of 16% in sales volumes of potato starch, an increase of close to 40% in average selling price from RMB5,489 per tonne in FY2010 to RMB7,669 per tonne in FY2011, offset that fall. In turn, gross margin for potato starch increased from 36.0% to 39.9% during FY2011.

While average selling price increased by 9.6% for potato starch-based products (including vermicelli, potato starch strips and five-grain noodles), this product segment posted a 5.9% drop in revenue, due to a 14.1% decrease in sales volume. Modified starch showed increases in both sales volume and average selling price, which gave rise to a strong 26.3% growth in revenue. Animal feed  was the “star performer” for the year, with 54.6% surge in sales volume and  a 286.4% hike in average selling price. Animal feed delivered a strong margin of 38% in FY2011, in contrast to its loss position in FY2010.

Selling and distribution expenses increased 13.7% from RMB59.2 million for FY2010 to RMB67.4 million for FY2011. The increase was due to aggressive advertising and promotional activities for the new products, animal feed, as well as the increase in logistics and transportation costs.

Administrative expenses, which mainly consist of depreciation, insurance and staff related expenses rose by 96.7% from RMB37.3 million for FY2010 to RMB73.3 million for FY2011. This was mainly due to research and development costs of RMB13.0 million incurred in FY2011, higher cost incurred to support the two new production plants in Nenjiang and Zhalantun and the depreciation charges related to the new production plants and machineries.
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