Saturday, August 27, 2011
Beverage Business
In the first half of 2011, the sharp increase in raw material costs in the food and beverage industry together with the plasticizer incident, caused the beverage market to go through a confidence crisis before entering the peak selling season this summer. The cooler weather in various regions across the nation compared to previous years resulted in more rainy days, affecting the total beverage sales in China’s domestic market, presenting a declining trend.
In the first half in 2011, benefited from new products’ active promotion and the “One More Bottle” lucky draw campaign launched since March, turnover for the beverage business grew by 31.58% year-on-year to US$2,392.423 million, representing 58% of the Group’s total turnover. However, rising costs of raw materials, transportation and labour, along with the unfavourable weather factor impeded the profitability potential of Group’s beverage business. During the period, the gross profit margin of the Group decreased by 6.42ppt. year-on-year to 26.71% compared with the same time last year. Profit attributable to equity holders of the Company decreased slightly by 1.99%, to US$79.765 million.
RTD tea series: Master Kong’s tea drinks continued to maintain its position as market leader. Following a new packaging tea drinks were widely welcomed by consumers, with product lines ranging from green tea, iced red tea, iced green tea, jasmine tea series to Tie Guan Yin and oolong tea; and the diverse range of product varieties and categories, the best quality products, were provided to consumers, while the message on leisure and healthy lifestyle was also passed on to them.
Fruit juice series: In order to satisfy the consumers’ needs of a healthy, diversified and quality lifestyle, Master Kong continued to develop and introduce new products and new flavours, while at the same time promoting new flavors of fresh orange lemon juice, grapefruit and mango juice launched in the previous quarter, allowing more consumers to enjoy the natural and healthy drinks of Master Kong. Master Kong’s “new taste for traditional drink”, Sour Plum Juice and Wild Jujube Juice, were well received by consumers since their launch into the market and occupied a share of the highly competitive juice market. In the second half of the year, Master Kong will continue to develop and further introduce more tradional Chinese beverages.
Bottled water: Master Kong has taken an interest and has been an active participant in the social community. Its mineral water, which was hugely popular amongst consumers, had launched an innovative light green bottle to raise the awareness of energy saving and carbon reduction and foster a healthy lifestyle attitude on “Contributing efforts for Environmental Protection” together.
During the reporting period, brand new product concept was introduced. “U-Joymore” lactic acid drink, was launched into the market to satisfy the changing tastes of the city consumers. In line with the quality, healthy and trendy characteristics of Master Kong’s drinks and not least the focus on texture, various flavours were available for selection by consumers. Products focusing on health qualities had received overwhelming responses from consumers.
According to ACNielsen’s latest survey in June 2011, in terms of sales volume, Master Kong’s RTD tea and bottled water’s market share in the overall PRC market increased to 54.2% and 24.6% respectively, ranking it No.1 in the market. By using duo brands Fresh Daily C and Master Kong, the Group’s fruit juice drinks have gained 21.1% market share, ranking it No.2 in the diluted juice market.
Under the more competitive environment and the harsh conditions of raw material prices, Master Kong will adjust the product mix in the second half of the year, continue to expand the production base for increasing production capacities, upgrade production equipment, improve production techniques and enhance the sales network, in order to increase sales volume and size for more profits.
PROSPECTS
The global economy continues to recover in 2011 and the overall conditions are in line with expectations. However, the recovery progress is not smooth, uncertainties in economic growth and instability in the financial markets have increased significantly. It is expected that the full-year economic growth of 2011 will continue to be in the pattern of beginning at the higher end and reaching the lower towards the end of the year. The economy of China is affected by the withdrawal of the consumption stimulation policy and the macroeconomic controls of the real estate market. The GDP growth rate has slowed down for two consecutive quarters.
But the slower economic growth is mainly attributable to the active policy controls, performance of investments and imports remain strong according to statistical data, this shows the domestic driving force for domestic economic growth remain strong. And the risk for a “hard landing” for the economy in the second half of the year is small. Under the backdrop of “structural adjustment, promoting consumption”, and with the new consumer demand and maturity in consumption brought by urbanization, the instant food product and beverage industry in China still have enormous room for growth and development opportunities. The Group will continue its active development strategies, deepen market penetration, increase product innovation , research and development, and develop new profit growth spots, in order to promote sales growth and increase market shares.
Currently, there are various factors leading to the rising prices of raw materials, and a general increasing trend is anticipated in future. With the additional effects from higher labour costs and excessing money supply, it may take a longer period of time for prices to return to a lower level, the pressure of rising cost will continue in the second half of the year. Facing such circumstances, the Group will continue to strengthen cost controls, optimize production plans, enhance production technologies and impose stricter management measures in order to alleviate the cost pressure. Meanwhile, product specifications will be enhanced through the optimization of product mix, improving the product items and accelerating the frequency of product swaps, as well as increasing the unit profit margin of products. Moreover, by full utilization of our own advantages in production, channels and branding to further strengthen our market leading position in the vast consumer product market in China, Tingyi will continue to maintain stable growth for creating better returns for shareholders.