Bloomberg News

China Yurun Replaces CEO as 2011 Profit Falls 34%, Misses Estimates

March 09, 2012

China Yurun Food Group Ltd. (1068), the country’s second-largest meat-product supplier, replaced its chief executive and said its first-quarter earnings are still suffering from last year’s news report about illegal additives in some of its meat.

The company’s first-quarter profit will be “far from reaching normal levels” even as it has improved from the fourth quarter, Chairman Zhu Yicai told reporters in Hong Kong yesterday. Yurun posted a 34 percent decline in 2011 profit that lagged analyst estimates.

“We believe our business has reached the light at the end of the tunnel and we are confident that our business will gradually return to normal,” Zhu said, without giving a timeframe.

To “enhance business management” the company said yesterday it appointed Executive Director Yu Zhangli as the new chief executive officer, replacing Zhu Yiliang. It takes effect on March 9.

Yurun said it was under “enormous pressure” after the National Business Daily reported in September that meat sold by one of the company’s units contained clenbuterol, an illegal additive. Weakened consumer confidence and continuous increase in labor and raw material, especially hog prices, dented earnings, it said a statement to Hong Kong’s stock exchange.

The Nanjing-based meat processor said its 2011 profit dropped to HK$1.8 billion ($233 million), lagging the median estimate of HK$1.94 billion from 20 analysts surveyed by Bloomberg News.

Hog Price Drop

Average hog prices are expected to drop 15-20 percent in 2012 from a year earlier and this may boost profit margin this year, Vice President Rosa Lee said. Gross profit margin fell 5.8 percentage points to 8.6 percent in 2011, according to the company’s statement.

Yurun’s sales increased 50 percent to HK$32.3 billion last year, driven by chilled pork products and low temperature meat products, the key source of the company’s revenue, it said.

China has pledged to step up food protection after baby formula tainted with the chemical melamine killed at least six infants and sickened about 300,000 others in 2008. The government said in March last year it would ban the use of clenbuterol as an additive to induce the growth of lean meat when fed to pigs.

Yurun rose 3 percent to HK$11.94 at the close in Hong Kong yesterday, before the earnings announcement. The stock has dropped 53 percent in the past year, compared with the 11 percent decline in the benchmark Hang Seng Index.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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