Hong Kong: Kingway beer for the first half of the year increased by 36.6% year-on-year
The Board of Directors of Kingway Brewery Holdings Limited reported on September 14th the unaudited consolidated results of the Company and its subsidiaries for the six months ended 30 June 2006 together with comparative figures are as follows. These interim financial statements have not been audited, but have been reviewed by the Company’s audit committee and the Company’s auditors, Ernst & Young.
The Board of Directors reported that the sales volume of Kingway beer for the first half of the year was 295,000 tonnes (2005: 216,000 tonnes), representing an increase of 36.6% over the same period of 2005. The consolidated revenue was HK$660 million (2005: HK$516 million), representing an increase of 27.9% as compared to the same period of 2005. The gross profit for the first half of the year was HK$277 million (2005: HK$237 million), representing an increase of 16.9% as compared to the same period last year. The unaudited consolidated profit for the period was HK$70.76 million (2005: HK$81.37 million), representing a decrease of 13.0% over the same period of 2005. Basic earnings per share was 5.1 HK cents (2005: 5.8 HK cents), representing a decrease of 12.1% over the same period of 2005. EBITDA was HK$140 million (2005: HK$136 million), representing an increase of 2.8% over the same period of 2005.
The sales volume of Kingway beer was satisfactory and reported to have an increase of over 36% during the first half of the year. Profit for the period was low year-on-year, which could be attributed to the decrease in unit-selling price resulted from an aggressive expansion in the new market, the increase in depreciation expenses due to the commencement of operations of the new plants, financial costs and the payment of Corporate Income Tax after the expiry of full tax exemption for Shenzhen Kingway Plant 2.
Business Review
The production and sale of Kingway beer continued to be the principal business of the Group during the first half of the year. The sales were mainly conducted in Guangdong Province, the PRC. In particular, the sales volume in Shantou, Dongguan, Guangzhou and Pearl River Delta areas has delivered satisfactory growth.
The Kingway plant in Dongguan commenced operation in January 2006 with smooth progress. The Kingway Shantou plant, which has commenced operations last year, and the Kingway Dongguan plant have contributed profits to the Group in the first half of the year. Following the Kingway Tianjin plant commenced operation in May 2006, the sales volume of Kingway beer began to grab the momentum in the Tianjin region.
In February 2006, the Group announced the construction of a new brewery plant with an annual production capacity of 200,000 tonnes in Chengdu, Sichuan Province. It is expected to commence operation in mid 2007, paved the way for Kingway beer to mark a step forward towards the South West region in the PRC.
Financial Review
Average energy and utility prices in the first half of the year recorded a year-on-year increase. Nevertheless, the Company managed to alleviate the pressure of rise in costs by implementation of “Sunshine Programme”, which involves the sourcing of packaging materials by way of public tender. The resulted average costs per tonne of beer sold was HK$1,298 (2005: HK$1,293), approximately the same as compared to the first half of 2005.
During the first half of 2006, the Group stepped up its marketing efforts in various markets. In particular, the Group was committed to developing the Tianjin, Xian, and Chengdu new markets through the establishment of a distribution network. Selling and distribution expenses recorded a year-on-year increase of 29.8% to HK$170 million (2005: HK$131 million), while average selling and distribution expenses per tonne of beer sold decreased by 4.8% year on year to HK$576 (2005: HK$605).
Administrative expenses for the first half of the year was HK$38.96 million (2005: HK$30.32 million), representing an increase of 28.5% from the corresponding period last year. This was primarily attributable to the increase in administrative expenses of Kingway Dongguan and Tianjin Plant and the pre-operating expenses of brewery plants in Xian and Chengdu during the construction period.
The Group borrowed a bank loan of US$38 million at the end of 2005. The net finance costs for the first half of 2006 were HK$1.44 million. (2005: nil).
Financial Resources and Liquidity
As at 30 June 2006, the Group had cash and bank balances of HK$243 million (including pledged and restricted bank balances of HK$17 million), of which 4.2% was in USD, 8.0% was in EUR, 5.1% was in HKD and 82.7% was in RMB. Cash generated from operations for the period was HK$143 million.
Cash generated from operating activities for the first half of the year was satisfactory. Liquidity ratio decreased since the progress of construction of new plants was faster than it was expected that requires fund to support. In line with the construction of new plants and future development, the Company is currently engaged in negotiation with banks regarding a long-term loan arrangement. It is expected that a loan agreement will be reached within this year.
As at 30 June 2006, the Group had not recorded any contingent liability. Debt-to-equity ratio was 3.7%, reflecting a sound financial structure of the Group.
Capital Expenditure
For the first half of 2006, the Group has cashflow in relation to capital expenditures of HK$282 million (2005: HK$301 million), mainly comprising construction costs of new brewery plants in Tianjin, Xian and Chengdu. It is expected that capital expenditures on construction projects for the second half of the year will increase when comparing to that of the first half of the year.
Human Resources
As at 30 June 2006, the Group had 1,915 employees (2005: 1,347). Competitive remuneration packages that take into account business performance, market practices and competitive market conditions are offered to employees in compensation for their contribution. In addition, discretionary bonuses are also granted based on the Group’s and individual’s performances.
Outlook
As the construction progress of the new brewery plants in Xian and Chengdu was satisfactory, it is expected to commence operation by the end of 2006 and in the middle of 2007 respectively. After the commencement of operation of the two brewery plants, the Group would have an annual production capacity of 1,500,000 tonnes. The Group will commit resources in new markets including the region of Xian and Chengdu, as well as accelerate the establishment of distribution network of Kingway beer to prepare for the operations of the new brewery plants.
Despite the temporary effect on the results of the Group caused by the operations of the new brewery plants, Kingway has been securing its reputation through the strenuous effort made by staff and a well-equipped market strategy prepared by the management. In view of the robust growing momentum of Kingway beer, the management of the Group is optimistic in respect of the market expansion, sales volume and results of the Company in the future and confident to the development of Kingway.
Interim Dividend
The board of directors has declared an interim dividend of 1.5 HK cents (2005: 1.5 HK cents) per share for the six months ended 30 June 2006. The interim dividend will be payable on Tuesday, 28 November 2006 to the shareholders whose names appear on the Register of Members of the Company at the close of business on Friday, 27 October 2006.
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