Asian Citrus Responses to Media Enquiry on Its Plantations and Products

HONG KONG, Feb. 21, 2012 /PRNewswire-Asia/ -- In response to investors and media usual enquiries regarding its plantations and products and in order to enhance investors' and public knowledge of Asian Citrus Holdings Limited (HKEx stock code: 73, the "Group" or "Asian Citrus"), Asian Citrus has uploaded a factsheet of frequently asked questions and answers to its website, listing out information on its business, plantations, products and corporate governance. A transcript is as follows:

1. What are Asian Citrus' business and its main products?

Asian Citrus has two major business segments. The Group plants, cultivates and sells oranges, which is our upstream agricultural business. The Group also manufactures and sells fruit juice concentrates, fruit purees, frozen fruits and vegetables, which is what we call our midstream fruit processing business.

With the acquisition of the fruit processing business, Beihai Perfuming Garden Juice Co., Ltd. ("BPG"), the largest tropical fruit juice concentrates producer in China, we are now an integrated agricultural company.

2. Where is the Group's main plantation business? Are you vertically integrated?

The Group has three plantations in China, two are operational and in production. The third is under plantation and in development stage.

The plantation business is gradually being integrated with BPG, which was only acquired by the Group in November 2010. The Group has also started to increase the production of orange juice concentrates by sourcing certain subprime-graded oranges from third parties in December 2010 post the acquisition of BPG.

3. Which type of oranges do you cultivate in the plantations and how often do they harvest?

The information about number of trees, production volume and types of oranges has been disclosed in the Company's annual and interim reports. For each orange tree, there is only one crop each year and the harvesting time of an orange tree depends on the species of the orange tree. Asian Citrus cultivates both Winter oranges and Summer oranges in its plantations. Winter oranges are usually harvested from October to December while summer oranges are usually harvested from March to May.

4. What is the size of your plantation? How do you measure and audit the plantation output?

Our three plantations occupy approximately 158,000 mu (103.3 sq.km) of land in total. Hepu Plantation, Xinfeng Plantation and Hunan Plantation have approximately 46,000 mu (30.7 sq.km), 56,000 mu (37.3 sq.km) and 53,000 mu (35.3 sq.km) of land respectively. 

In addition, the Group has registered all the leases of Hepu Plantation and Xinfeng Plantation with the corresponding Land Bureau. The corresponding Land Bureau has issued the Group with registration documents "Certificate of Other Rights on the Land Use Rights" to evidence the legality and validity of the leases. The Group is in the process of applying and obtaining the registration documents of the land leases of the Hunan Plantation and hopeful that the registration documents will be ready around mid-2012.

The Group records details from when the oranges are harvested to delivery. The Hong Kong finance team checks the monthly sale and account receivables against the bank statements to confirm the accuracy and completeness of the sale transactions.

5. What are the major sales channels for the oranges? Why did the Group start marketing its oranges under the "Royal Star" brand?

All of the Group's oranges are sold domestically. For the year ended 30 June 2011, the revenue from supermarket chains, corporate customers and wholesale customers accounted for approximately 39%, 31% and 30% respectively. The Group started our sale of oranges under the "Royal Star" brand to supermarket chains in 2005 with only two supermarket customers in Guangxi region. For the year ended 30 June 2011, the Group has expanded its sales network to 20 supermarket customers in many major cities and coastal provinces in China. However, the brand is relatively new to the market, and the Group is in the progress to build up the own brand by expanding the sales network to supermarkets in other cities in the PRC. Through direct sales to supermarket chains, the Group enjoys a better margin by cutting out third party distribution costs. Furthermore, the use of our own brand of Royal Star helps to build up the customer's awareness of our oranges. By gradually expanding the sales networks, the Group will be able to widen the exposure and recognition of the brand to customers across the PRC. The Group believes that a recognized brand is likely to enhance the ability to compete in the nationwide market and build a national reputation for quality.

6. The Company issued a profit alert in January 2012, is it related to the valuation of the agricultural assets?

If you refer to our annual report 2011, you can find out that biological assets are subdivided into three categories, which are self-bred saplings, infant trees and orange trees. Self-bred saplings are immature and not yet ready to be planted. They are kept in greenhouses and stated at cost in the accounts. Infant trees are small trees which have been planted in the plantation but not yet fruit producing because orange trees will start its first production at age 4. Infant trees are stated at cost.  When the infant trees become fruit producing at age 4, they will be transferred to the category of orange trees where their fair values are based on the present value of expected net cash flows from the orange trees discounted at a current market-determined pre-tax rate.

For illustration purposes only, with reference to the annual accounts as at 30 June 2011, there were 712,000 infant trees with carrying value of RMB4.8 million, i.e. the average value of each infant tree is about RMB7. For illustration purposes only, with reference to the annual accounts as at 30 June 2011, there were approx. 2.6 million orange trees with carrying value of RMB2.1 billion, i.e. the average value of each orange tree is over RMB780. When infant trees become fruit bearing, the fair value gain is substantial. For example, during the six months ended 31 December 2010, 400,000 winter oranges trees, being the final batch of trees planted in Xinfeng Plantation, became fruit bearing. As shown in our annual report for 2010/11, there was no winter orange trees at age 3 as at 30 June 2011. So, there was no transfer of infant trees to orange trees in the current period, thus the fair value gain is substantially lower. The net gain on change in fair value of biological assets does not have any effect on the cash flow of the Group. All the oranges in our sales are produced from our own plantations.

7. There was a recent internet articles accusing Litain Xinfeng's filings with State Administration of Industry and Commerce ("SAIC") to be inconsistent with its management accounts. Does the Company have any comment on this?

The Company has obtained the true copy of SAIC Filings of Litian Xinfeng, a Company's subsidiary in PRC, for the year ended 31 December 2008, 2009 and 2010 directly from Ganzhou SAIC and the financial information obtained in the SAIC Filings is in agreement with the management accounts. To the best knowledge of the Company, only persons authorized by the relevant company are entitled to obtain copies of information filed with SAIC ("SAIC Filings") under normal circumstances. The Company confirms that our subsidiaries in PRC have never provided any authorization to any person outside the Company for the purposes of obtaining the SAIC Filings.

For details, please visit: http://www.asian-citrus.com/

About Asian Citrus

Asian Citrus Holdings Limited was founded in 2000 and has been trading on the AIM market of London Stock Exchange since 2005. The Group was dual-listed on the Main Board of the Stock Exchange of Hong Kong in November 2009. As the single largest orange producer and plantation owner in the PRC, the Group owns and operates three orange plantations with a total area of approximately 103 sq.km, including Hepu, Xinfeng and Hunan Plantations located in the Guangxi Zhuang Autonomous Region, and Jiangxi and Hunan Provinces respectively. The Group cultivates two types of high quality organic oranges, namely Winter Oranges and Summer Oranges, the species of which mostly originated from the US and the Group sells to supermarket chains, corporate customers, wholesalers and sole proprietors covering more than 11 cities and provinces within the PRC. The Group use premium brand "Royal Star" for its products which has been accredited as an Organic Products by China Organic Food Certification Centre. The Group has completed acquisition of 92.94% equity interest in Beihai Perfuming Garden Juice Company Limited, a leading producer and wholesaler of tropical fruit juice concentrates in the PRC.