Expansion drive sends China Food into the red

Aim listed manufacturer of cooking and dipping sauces China Food Company made an annual pre-tax loss following costs related to the launch of its new Xaka soya sauce and marketing costs related to its expansion drive.

The group served up a pre-tax loss of £338,000 in the year ended 31 December 2011 compared to a profit of £3.8m the year earlier. Revenue increased by 12.1% to £40.2m while gross margin increased by 9.4% to £8.6m.

Chairman John McLean said: "2011 was a period of further sales growth for China Food, as the group increased its penetration into the condiments market in Northern China."

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Xaka, which has been selected by National Sports Training Institute of China as the preferred soya sauce supplier for the Chinese Olympic team, said the market for its products in Northern China is vast as it looks to increase its market share and broaden our distribution channels through new partnerships.

McLean added that the Chinese consumer market continues to grow at a rapid rate, with branding and food safety being key concerns. China Food enjoyed a strong start to 2012 with trading of condiments in the first quarter up 10% from the same period in 2011.

"We have identified an opportunity to become a major player in the Northern China condiments market and are committed to investing in the growth of the group."

"Whilst the marketing expenditure will suppress profitability temporarily, the board is confident that the investment for the future will pay off.

As at March 2012, the group has a cash balance of £6.7m which it believes, along with the anticipated disposal proceeds, is sufficient to execute its growth strategy.

"Since the period end we have announced the proposed disposal of the animal feed business, which will enable the group to focus on growing the condiments business further, particularly focusing on Xaka".

CJ