Future Plans

Chairman’s Message

I am pleased to announce that the cost and management control measures and operating strategy implemented by the new management team in 2005 has begun to yield results. In particular, I am sure Shareholders will be pleased to note the following :

  • Notwithstanding that prices of apples, a major component of raw material used in the production of apple juice concentrate, increased by 37% (2006: RMB 716/tonne 2005: RMB 524/tonne), the Group managed to post an improved gross profit margin of 6% in 2006 compared to only 2% in 2005; and
  • The Company reported a Profit After Tax of RMB 74.7 million for the financial year ended 31 December 2006, including a gain on disposal of the earlier mentioned two former subsidiaries amounting to RMB 87.0 million. This compares with the net loss of RMB 98.0 million in the preceding financial year.

I am also pleased to report that Shanxi Linyi Lakeside Fruit Juice Co., Ltd (the “JV Company”), the joint venture with SDIC Zhonglu Fruit Juice Co., Ltd. which had approved in April 2006 commenced operations in June 2006, and that in its first half year of operations, the Group’s share of profit from the JV Company is RMB 2.0 million. Barring unforeseen circumstances, the Directors believe that the JV Company will continue to contribute positively to the Group’s future financial and operational performance.

Industry Outlook and Moving Forward

In 2006, apple juice concentrate producers in the PRC exported around 670,000 tonnes of apple juice concentrate. This had allowed the PRC to achieve a bigger global apple juice concentrate market share in 2006. Analysts believe that the global demand for apple juice concentrate will remain strong this year, and as a result thereof, the average selling price for apple juice concentrate will remain in an upward cycle. However, upward cost pressures will cause gross margins to remain fairly constant. The Group believes that it can benefit from this industry trend and outlook.

The key action plans for the Group this coming year to capitalise on the abovementioned industry trend and outlook are as follows:

  1. to double the Group’s production capacity at New Lakeside Fruit Juice (Yuncheng) Co., Ltd from 10,000M/T to 20,000M/T. This will boost the Group’s total production capacity (including its half share of the JV Company’s production capacity) from 60,000M/T to 70,000M/T;
  2. to continue implementing the stringent cost and other management control measures to increase production efficiency and further improve gross margin; and
  3. to strengthen the Company’s capital base.

Investment for the future

The Group is working on measures to control costs and continue to generate new area of growth. The Group is planning to upgrade its existing factories in Yuncheng from the current 10,000 metric tonnes to 20,000 metric tonnes per annum so that the Group will be able to achieve its maximum capacity (with the JV Company) of 70,000 metric tonnes per annum.