China Nutrifruit Group Limited Increases Focus on Core High Margin Products, Upgrades Production Lines
The upgrade will include purchase of additional equipment and implementation of advanced production techniques, resulting in efficient use of raw materials and a favorable impact on gross margins.
24 Mar 2010 --- China Nutrifruit Group Limited, a leading producer of premium specialty fruit based products in China, announced the Company's decision to cease production of its beverage products, effective immediately, and plans to utilize the additional space at its Daqing facility for production of its core high-margin products.
China Nutrifruit has a beverage production line with a total annual production capacity of 10,800 tons at its headquarters in Daqing, Heilongjiang Province. The Company's beverage products contributed approximately 6.0% of the most recent nine months revenue, generating a gross margin of approximately 29.0%. After careful evaluation and long-term analysis of the product mix, the Company's management team and Board concluded that the added pressure from high production costs, space constraints, and increasing market competition have significantly reduced the attractiveness and margins in the beverage segment. Therefore, it was determined that terminating production of beverages would be in the best interest of the Company and its shareholders. The Company plans to sell all equipment used for production of beverages to unrelated third parties, resulting in availability of free space at the Daqing facility to improve the production efficiency of its new glazed fruit production line. The Company timeline for adding new production lines will depend upon market demand and availability of raw materials.
In addition, China Nutrifruit is currently upgrading all of its fruit concentrate production lines at the Company's facilities in Daqing and Mu Dan Jiang, which have a total fruit concentrate annual production capacity of 9,960 tons. The upgrade will include purchase of additional equipment and implementation of advanced production techniques, resulting in efficient use of raw materials and a favorable impact on gross margins. As the upgrades will be completed before the production season begins in July 2010, any improvements will be reflected in financial results in fiscal 2011. China Nutrifruit estimates the total capital expenditure for the upgrade to be approximately $1.5 million to $1.8 million (RMB10.0 million to RMB12.0 million).
"By exiting the beverage production business, we can now turn our full attention to producing our more profitable and high growth products. We will utilize the free space from the beverage lines to improve the efficiency of production lines for our high-margin glazed fruit products, positively impacting our overall gross margins," commented Mr. Changjun Yu, Chairman of China Nutrifruit.
