by winston » Mon Jul 21, 2008 9:12 am
Squeezing the competition
Chen Liyi; Monday, July 21, 2008
When Gao Liang went to North America as a member of a Shaanxi provincial government delegation, he was impressed by the size of the apple juice industry. If the United States can do it, then why not Shaanxi, he pondered, during that visit in 1995.
The following year, China Haisheng Juice Holdings (0359) was launched by Gao, and today, Shaanxi province alone has a bigger annual apple harvest than the United States.
China has become the biggest exporter of apple juice concentrate in the world.
"Annual harvest of apples in the United States is 2.5 million tonnes, and Shaanxi's is 4 million tonnes," said You Yong, vice-general manager and executive director of China Haisheng.
"Even though the United States is a big apple supplier, it cannot match up to the one province of Shaanxi alone."
Haisheng's nine factories are located in the biggest apple-producing regions of mainland China, the Loess Plateau, the Bohai Gulf and the Yellow River.
"Being close to our supplies helps us avoid the risks of disrupted supplies due to natural disasters," You explained.
In 2007, Haisheng built two facilities in Hennan and Anhui. Its newest factory is in Qixia, in the Yantai region of Shandong Province, one of China's top apple-growing regions. It was acquired just last month for 46 million yuan (HK$52.44 million).
You said the company is looking for acquisitions.
"Acquisitions can greatly reduce our capital expenditure and reduce competition in the industry," he said.
>Haisheng wants to increase its export of apple juice concentrate from around 12 percent of China's total at present to more than 30 percent.
To do so, Haisheng needs to increase annual production capacity from the current 350,000 tonnes to 600,000 tonnes in five years, as well as expand its product range.
"As of 2007, all products excluding our apple juice made up 4 percent of our output," said You.
"In 2008 to the first half of 2009, new products will make up about 10 percent of our total sales."
Technically, Haisheng has three products, including pear juice concentrate and apple aroma, but an overwhelming proportion of its output is clear apple juice concentrate.
That is set to change, as Haisheng has set its sights on expanding into the production of strawberry, peach and carrot juice concentrate and cloudy apple juice concentrate, under a joint venture with Japanese beverage-maker Katoaka.
According to You, 80 percent of world demand for apple juice is in Europe and the United States. In the last financial year, 51.2 percent of total sales revenue was from the United States, while Europe and Russia combined made up 28.3 percent.
You said the company is well aware of the potential that lies in emerging markets on China's doorstep.
He said the market in China has the potential top grow tenfold.
More than 90 percent of Haisheng's production is exported to more than 30 countries and clientele includes major food and beverage brands such as Coca- Cola, Pepsi, Nestle and Kraft.
The high profile list of customers gave Haisheng the impetus to list on the Hong Kong Stock Exchange in 2005, said You.
"For Haisheng to grow further, we really needed to go through the process of listing, to open ourselves to scrutiny from society and investors," said You. "Then we can learn to be more meticulous, transparent and stable."
You said the management has grown more aware of its responsibility to its investors, society, the environment and its own workers' well-being since the listing.
And listing allowed the company to raise funds for expansion.
In the last financial year, turnover and profit attributable to equity holders increased 117.9 percent to 1.88 billion yuan and 146.2 percent to 161.9 million yuan respectively.
But the company's stock has fared poorly this year, having declined 43 percent versus a 20 percent slide in the benchmark Hang Seng Index.
On Friday, the stock had its sharpest fall since starting trade on the main board in November, 2005, plunging 12 percent.
The company said it was not aware of any reasons for such movements in its share price.
"We also confirm that there are no negotiations or agreements relating to intended acquisitions or realizations dicloseable" under stock exchange rules, it said in a statement to the authorities.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"