China Food's earnings take a dip

China Food Company (CFC), the Chinese manufacturer of cooking and dipping sauces listed on AIM, says the launch cost of its new Xaka brand has eaten into profitability.

The company's latest update suggests an increase in turnover in 2011 to £40m, a rise of 12% on 2010, but well below the £49.5m the market had been expecting.

The board anticipates that 2011 profit before interest and tax will be as previously announced at around £1m. Earnings before interest, tax, depreciation and amortisation are seen easing to £1.9m, but would have been £4.5m but for exceptional costs relating to the launch of its Xaka premium sauce brand.

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Net cash is at £6.58m, while trading since the beginning of the year has been in line with expectations.

The company's main focus remains the launch of the Xaka product line, which has already cost £2.6m. So far CFC has signed up 118 "tier-one" distributors and has rolled out Xaka across over 2500 retail outlets in northern China with a strong emphasis in Shandong.

The advertising spend on the Xaka launch has dented profits and CFC says this will continue through 2012 as it seeks to build brand awareness.

It also says it is looking to partner with an international food brand to speed up market penetration and claims to have received a number of approaches.

The proposed disposal of the non-core Fuss Feed business continues to progress as planned with due diligence in progress.

Shares in CFC were down 7.6% at 11:42 although since the beginning of the year the stock is still up 20%.

BS