Asian Citrus Holdings Limited, the largest orange plantation owner and operator in China, is banking on higher orange prices this winter to restore profit margins as unstable weather has impacted the whole industry's production.
The company's gross profit margin for the year ended June 30, 2012, was 44.6 percent, 7.7 percentage points lower than it was a year ago.
The squeezed profit margin was mainly due to a 1.9 percent decrease of the oranges' average selling prices, as well as the additional fertilizer and pesticides cost for its summer oranges during the heavy rainy season this year, Eric Sung, finance director at Asian Citrus, told a press conference in Hong Kong on Friday.
Sung said that the company expects to increase its average selling price of oranges by the fourth quarter of this year, as the winter oranges supply is likely to decrease, resulting from this year's unstable weather. The move may help increase its gross profit margin in the second half of 2012.
"We wanted to increase our selling price as much as possible, but since the CPI on the mainland has slowed down to around 2 percent in recent months, we may only be able to have a small increase of the selling price," said Sung.
The company's executive director Tommy Tong Hung-wai said although China's economy is growing at a slower pace, the oranges market should remain generally stable.
"Oranges are considered as a healthy food for Chinese consumers, which is why people won't cut their spending (on oranges) despite the (uncertainty of) economic conditions," said Tong.
He also stressed that Asian Citrus has an unique competitive advantage in China as there are few large scale orange plantations in the country. The company is operating in a highly fragmented market dominated by small farms and the barriers to growth for these farms are extremely high.
Earlier this year, Asian Citrus reportedly found fewer orange trees at its plantations compared with the numbers the company had originally stated.In order to set out its biological assets accurately, the company hired a mapping firm, using GPS and digital photography to assess the land area of its plantations as well as the number of orange trees there. The results provided by the mapping firm are consistent with Asian Citrus' records, said Tong.
For the year ended June 30, 2012, the company recorded a net profit of 750.2 million yuan ($118.98 million), a 27.8 percent decrease from a year earlier. The profit fall was mainly due to a change in the fair value of its orange trees.
During the period, Asian Citrus's total orange production increased by 12.2 percent to 243,421 tonnes due to increasing maturity of its orange trees. Its revenue increased by 25.7 percent to 1.78 billion yuan in the year.
