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Vinda international announces 2011 annual results

Revenue Increased 32.3% to HK$4.77 Billion

Gross Profit Climbed 22.1% to HK$1.30 Billion

Accelerated Pace of Production Capacity Expansion to

Achieve New Goal of 1 Million Tons Annually

Financial Highlights
For the year ended 31 December
2011
(HK$ million)
2010
(HK$ million)
Change
Revenue
4,765.3
3,602.2
+32.3%
Gross profit
1,296.5
1,062.0
+22.1%
Profit attributable to equity holders of the Company
405.7
368.9
+10.0%
Basic earnings per share (HK cent)
43.3
40.4
+7.2%
Full-year dividend per ordinary share (HK cent), incl.:
12.0
12.0
--
Final dividend (HK cent)
8.7
8.7
--
Interim dividend (HK cent)
3.3
3.3
--

(27 March 2012 – Hong Kong) Vinda International Holdings Limited (“Vinda International” or the “Company”, together with its subsidiaries collectively known as the “Group”; stock code: 3331), a leading manufacturer and branded seller of household paper products in the PRC, announced today, its annual results for the year ended 31 December 2011 (“the Year”).

During the Year, the Group’s revenue grew by 32.3% year-on-year to reach HK$4.77 billion while total sales volume increased by 18.9% year-on-year to 335,044 tons. Among various product categories, sales of toilet roll, box tissue, and softpack grew by 33.1%, 39.8% and 66.5%, respectively. The respective revenue split between traditional channels (distributors), modern channels (hypermarkets and supermarkets), as well as B2B channel were 45.8%, 35.6% and 18.6%.

Gross profit rose 22.1% to HK$1.30 billion. Profit attributable to equity holders of the Company posted 10.0% year-on-year increase and amounted to HK$406 million. Basic earnings per share were 43.3 HK cents (2010: 40.4 HK cents). The board has resolved to propose to declare a final dividend of 8.7 HK cents per share, total dividend payout for the year amounted to 12.0 HK cents per ordinary share (2010: 12.0 HK cents).

Gross profit margin and net profit margin recorded year-on-year decline of 2.3 percentage points and 1.7 percentage points, respectively, to 27.2% and 8.5%, respectively. The decrease is mainly due to the consistent soaring of wood pulp prices during the first half of 2011, which caused pressure to the Group’s profit margins at one point. However, when compared to the gross profit margin (27.7%) and net profit margin (8.7%) recorded for the first half of 2011, they only decreased 0.5 percentage points and 0.2 percentage points, respectively. Nevertheless, the influential Vinda brand allowed the Group to adjust its prices and successfully transfer part of the costs to the consumers. During the second half of the year, the Group capitalized on the gradual downward trend of wood pulp prices and proportionately increased procurement, expecting which could be stabilized the Group’s future profitability to a certain extent.

During the Year, the Group continued to optimize the “Vinda” brand, by proactively infusing fresh elements into the brand, and effectively rejuvenating the brand image. The outcome of these efforts speaks loudly in first- and second-tier cities in particular. Through reorganization of Vinda International’s branding strategy and focused nurturing of the Star Products, an assortment of key product series demonstrated a solid growth trend. The Group’s “Pleasant Goat and Big Big Wolf Series” maintains its popularity amongst families. The success of the Group’s animation series attracted the attention of DreamWorks Inc., which resulted in an international partnership that co-launched the new “Kung Fu Panda Series” together. This partnership added an international element to the “Vinda” brand, and heightened the brand premium. In recent years, demand for softpack products also grew rapidly; hence as the Group promoted sales of non-toilet roll products, greater efforts were particularly dedicated in cultivating the softpack products to widen the gross profit margin.

Furthermore, the Group actively strengthened its regional coverage and dedicated great efforts in establishing intimate partnerships with distributors, bolstering the regional development of second- and third-tier cities, and expanding the proportion of sales via modern channels. As at the end of 2011, the number of Vinda International’s sales offices reached 155 (2010: 141) while the number of distributors reached 1,174 (2010: 856), further broadening market coverage.

In 2011, the Group methodically added a total of 100,000 tons of production capacity, bringing the total to 470,000 tons. To satisfy China’s strong demand for quality household paper products, the Group will speed up production capacity expansion. The Group plans to add an aggregate of 150,000 tons in 2012, respectively in Xinhui District, Guangdong Province; Anshan, Liaoning Province and Xiaogan, Hubei Province, with an aim to reach the mid-term goal of 700,000 tons of production ahead of schedule, and setting the new target at 1,000,000 tons. Given the strong demand for household paper products in Southern China, the Group has decided to open a third plant in the Xinhui District, to accelerate production capacity expansion in Southern China and seize existing business opportunities. In phase one, the production capacity will reach approximately 80,000 tons and is expected to commence operations in the fourth quarter of 2012. Phase two will add approximately 50,000 tons per year, and is expected to begin operations in July of 2013.

The Group’s personal care products business has been developing satisfactorily, and the Group’s joint venture – V-Care Holdings Limited (“V-Care”), officially launched its first ever baby diaper brand “Babifit” during the Year. V-Care launched 24 baby diaper SKUs, separated as three product lines to distinctly target customers from the mid- to up-market, the mid-market and the low-end market. Currently, V-Care is proactively constructing three baby diaper production lines in the plant located in Hubei, with an expectation that the first production line will commence production in May 2012. By that time, V-Care can enrich its product offering with flexibility and increase the number of SKUs. Combined with dedicated sales channels for the distribution of baby diapers and a series of field marketing and promotional activities, “Babifit” is expected to show steady growth, and in time, the personal care products business will contribute greatly to the Group’s earnings.

As at 31 December 2011, the Group’s financial position remained healthy. Cash and cash equivalents were HK$715 million, and net gearing ratio was maintained at a healthy level of 39.4%.

Mr. Li Chao Wang, Chairman of the Group concluded, “China has the fastest growing personal care products market globally which creates huge potential for expansion for Vinda International, and is a catalyst to drive our future growth. Looking at 2012, wood pulp prices will stay volatile. China’s central government will strengthen its environmental protection regulations and will revoke production capacity limitations in the industry, causing competition to intensify. Thus, the Group must pragmatically accelerate the implementation of 6th five-year plan specifically for areas of business development including, brand enhancement, product innovation, sales channel and production capacity expansion, etc. Meanwhile, the Group will reorganize the marketing structure and management strategies for the northern and southern regions in order to serve the rapidly changing fast-moving consumer goods market of China. We will continue to adhere to developing high quality products, maintain our prudent fiscal policies and accelerate development for our personal care products business so as to lay a solid foundation for the long-term growth of Vinda International.”