The Apple Juice Industry in China

The Apple Juice Concentrate export has risen from 40,000 tons in 1997 to 650,000 tons in 2005. In 2006/2007, China exported 635,000 MT of AJC, a jump from 1999/2000. Since 2002/2003, Global Juice production has hit a new record each year. China continues to be the world's top producer. According to statistics from The USDA Foreign Agricultural Service, China share of the Global AJC export market increased from 12.4% in 1999/2000 to 48.8% in 2006/2007, the largest AJC exporting country in the world. New Lakeside Holdings Limited's holding company is believed to be the largest Apple Juice Concentrate (AJC) producer in Shanxi & Jiangsu province.

Within a period of 7 to 8 year Apple Juice production has grown by leaps and bounds and China is contributing to about 50% of the world supply. With Chinese Government's encouragement, China will be able to contribute up-to 60% to 70% of the world requirement. China is the number one producer of Apples in the world. Due to lucrative income from growing of Apples, more Apples will be grown giving rise to cheap raw materials and a competitive edge over other overseas producers.

Thus China can produce up to 70% of the world's consumption requirement and will be the leader in determining the price of the Apple Juice Concentrate (AJC), as such the revamping and consolidation of the Apple industry in China will be imminent.

Risk factors and risk management

Business Risk
Apples are the main raw materials in the production of apple juice concentrate. The production volume is highly dependent on the supply of apples. A disruption on the apples supply will have an adverse impact on the production. While we have not experienced any drastic shortage of supply of apples in the past, there is no assurance that this will continue in the future.

Operational risk
The Group currently operates in 3 different locations with assets and activities spreading across the central part of PRC. The potential loss caused by a breakdown in the internal process, deficiencies in people and management or operational failure arising from external events at a single operation will be minimised.

Product risk
The Group is depended mainly on one major product – apple juice concentrate (“AJC”). If the market demand for our AJC cannot be sustained or decreased in the future, our performance will be adversely affected. In this aspect, the Group is studying the possibilities of diversification in manufacturing other fruits products like pear juice concentrate, etc.

Foreign exchange risk
The foreign exchange risk of the Group arises from the sales that are denominated in foreign currencies. The currencies giving rise to the exchange exposure is the US dollar. Currently, the Group does not have a former foreign currency hedging policy. However, the Group will monitor closely and will consider hedging any material foreign exchange exposure should the need arises.

Credit risk
Credit risk is managed through the application of credit approvals, credit limit setting and monitoring procedures. Cash term, advance payment, letter of credit or documents against payment are required for customers with lower credit standing.

Interest rates risk
The Group’s exposure to interest rate risk is the risk related to interest bearing financial assets and liabilities that will fluctuate as a result of changes in market interest rates. The Group’s interest rate risk arises from borrowing and is monitored closely to ensure that the rates are favourable.

Liquidity risk
The Group’s policy on liquidity management is to maintain sufficient fund to meet its contractual and financial obligations. The adequate level of cash and cash equivalents will be maintained and closely monitored.