China Yurun Food, the mainland's second-biggest meat processor, will spend HK$1.7 billion on acquisitions and expanding its production lines this year.

The move will help expand its capacity in both upstream and downstream businesses.

Its annual slaughtering capacity is expected to reach 18 million heads by the end of 2008, compared with 14 million, while annual meat processing capacity will reach 268,000 tons, compared with 218,000 tons in 2007.

"As new regulations on food safety are expected to be released this year, the years of 2008 and 2009 offer great opportunities for us to acquire smaller meat processors, as only 20 percent of them are up to scale and standard," Chairman Zhu Yicai said yesterday. "But investment return will be the most important criteria."

Yurun Food's turnover jumped 86.9 percent to HK$8.64 billion and net profits increased 78.7 percent to HK$859 million in 2007, driven by strong sales growth and improving margin for Low temperature meat products (LTMP).

The company acquired six plants, especially in Northeast China for upstream production in 2007, but the utilization rate dropped to 57 percent from 66 percent in 2006. For downstream production, it established new plants and add production lines to existing plants across the nation with a utilization rate increasing from 57 percent to 62 percent.

Turnover of LTMP, which accounts for 86.4 percent of its total revenue from processed meat products, increased 51.2 percent to HK$1.75 billion last year.

Revenue from chilled pork, which accounts for 63.1 percent of the total revenue from upstream products, grew 124.6 percent to HK$4.68 billion driven by both the pork prices and volume during the period.

The two types of products make up over 70 percent of Yurun Food's total revenue.

The company's gross profits margin dropped slightly from 15.4 percent to 14.1 percent due to the squeezing margin for chilled meat, which dropped from 12.4 percent to 10.7 percent and frozen meat, which dropped from 7.5 percent to 6.6 percent.

However, gross profits margin of LTMP improved from 26.1 percent to 28.4 percent.

"I am very confident that the gross profits margin will have stable growth this year as we continue to focus on LTMP and chilled meat," said Zhu. "I expect pork prices will remain high until June, when the supply of hog will gradually increase to meet demand."

Last year, pork prices rose more than 60 percent on the mainland due to a supply shortage.

The central government has implemented a series of measures to increase the supply.

Zhu said the company will transfer the cost of hogs directly to consumers while it has pricing power for its new downstream products.

(HK Edition 04/10/2008 page2)