ACHL.L Regulatory News (ACHL)

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 ASIAN CITRUS HOLDINGS LIMITED

亞洲果業控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: HKSE: 73; AIM:ACHL)

ANNOUNCEMENT of the interim resultS 

for the six months ended 31 December 2012

The board of directors (the "Board") of Asian Citrus Holdings Limited (the "Company" or "Asian Citrus") is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively, the "Group") for the six months ended 31 December 2012.

Key Highlights

# Core net profits refers to profit for the period excluding net gain/loss on change in fair value of biological assets and share-based payment.

** Conversion at £1 = RMB10.05 and RMB10.25 for the six months ended 31December 2012 and 2011 respectively for reference only

*For identification purposes only 

 Key Highlights

·; Total production 161,233 tonnes down 6.0% from 171,607 tonnes in 2011/2012, primarily reflecting the planned replanting programme to increase yields

·; Revenue down 14.5% to RMB892.0m (12/2011:RMB1,043.4m)

·; Core net profits down 22.7% to RMB249.5m (12/2011:RMB322.7m) reflecting higher direct production costs as a results of unstable weather conditions in 2012 and general wage inflation in the PRC

·; Strong free cash flow of RMB144.9 million (12/2011: RMB219.3 million) and cash and cash equivalent of RMB2,374.4 million as at 31 December 2012

·; Declared an interim dividend of RMB0.03 (12/2011: RMB0.03) and a special dividend of RMB0.02 (12/2011:RMB0.02) per share

·; Substantially completed the construction of the new production facility of Beihai Perfuming Juice Company Limited ("Beihai BPG") in Baise city of the Guangxi Region with an annual capacity of approximately 40,000 tonnes; the formal production will be started by April 2013

·; Continued the construction of third plantation at Hunan. 129,000 summer orange trees planted during the current period and another 600,000 summer orange trees to be planted before December 2013

·; Production volume at the Xinfeng Plantation up 1.3% to 128,395 tonnes. Further volume increase expected as trees approach maturity

·; Second half performance anticipated to benefit from increased orange and juice concentrate prices and reduced cost impact from expected normal weather conditions in 2013

·; The Group is well placed for the longer term to deliver improved results

Tony Tong, Chairman, commented:

"Our performance during the six month period was disappointing, primarily due to the higher costs incurred as a result of unstable weather in 2012 and general wage inflation in the PRC.

The Group's second half performance will reflect the price achieved for the Group's summer orange crop, the selling price of pineapple juice concentrates and the impact of weather on the volume of fertilisers and pesticides used by the Group. In this respect we expect that orange prices will rise, albeit slightly, responding to the inflationary environment and the forecasts for China's economy, which the World Bank has predicted will expand by 8.4% in 2013 and we are also optimistic that juice prices will continue to increase throughout the balance of the year. While we cannot predict the weather, a repeat of the unhelpful conditions in 2012 would be both highly unusual and unexpected.

For the longer term, we are well positioned to deliver much improved results."

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Chairman's Statement

In my Chairman's Statement of last year's annual report, I indicated that our prospects for the remainder of calendar 2012 would continue to be challenging. As expected, our financial results for the period ended 31 December 2012 were indeed disappointing.

I am confident, however, that this is a temporary setback. Our fundamentals remain strong, our oranges continue to be well received by customers, and our plans for a third juice processing plant in Guangxi and a third plantation in Hunan are still on track to commence operation in 2013 and 2014 respectively.

Financial Highlights

For the six-month period ended 31 December 2012, the Group's total revenues decreased by 14.5% to RMB892.0 million from RMB1,043.4 million during the same period last year. Core net profit during the period, before net gains on change in fair value of biological assets and share based payments, fell by 22.7% to RMB249.5 million from RMB322.7 million, primarily reflecting higher direct production costs, which were partially offset by a slight increase in the market price of winter oranges.

The Group recorded a loss of RMB23.0 million from a net loss on change in fair value of biological assets for the six months ended 31 December 2012, compared with a gain of RMB100.6 million for the last six months of 2011. The Board of Directors would like to emphasise that the loss on change in fair value of biological assets does not reflect the quality of our biological assets and has no any effect on the cash flow of the Group for the six months ended 31 December 2012.

After net change in fair value of biological assets and share based payments, net profit was 46.6% lower at RMB212.4 million against RMB397.5 million for the corresponding period last year.

Operations Review

Plantation Business

Our two operating plantations - Hepu Plantation in Guangxi Zhuang Autonomous Region and Xinfeng Plantation in Jiangxi Province - experienced a decrease in total production volume of approximately 6.0% to 161,233 tonnes during the review period. Turnover from the sale of oranges also decreased, by 6.8% to RMB600.2 million.

The decline in production volume was most pronounced at Hepu Plantation where as expected production dropped by 26.9% to 32,838 tonnes for the six months ended 31 December 2012 as compared with 44,906 tonnes for the same period in the previous year. This was due to the on-going replanting programme with the removal and replacement of 66,449 winter orange trees with the same number of summer orange trees in the last year. There are currently approximately 48,000 winter trees at the Hepu Plantation which are due to be replaced by June 2013. By that time, the replanting programme which started in 2007 will be completed. The first and second batch of 55,185 and 76,135 orange trees replanted in 2007 and 2008 respectively have begun to produce oranges already. The third batch of 81,261 orange trees replanted in 2009 is expected to commence its first crop in the summer of 2013. We expect the later batches of replanted trees to commence their production in the coming few years. As a result, the Hepu Plantation will soon be producing increasing tonnage of summer oranges benefiting from both the commencement of production from the replanting programme and increasing maturity of the replanted summer orange trees.

The drop in production volume at the Hepu Plantation was offset slightly by the rise in production volume of winter oranges at the Xinfeng Plantation, where the orange trees continue to mature. During the review period, the Xinfeng Plantation recorded an increase in production volume of 1.3% to approximately 128,395 tonnes from 126,702 tonnes. Given that the 1.2 million winter orange trees in Xinfeng Plantation have not reached full maturity, we anticipate that the production volume from the Xinfeng Plantation will further increase as these trees approach their full yield potential.

The gross margin from the sales of oranges was 35.1% at the end of December 2012, down from 44.8% at the end of December 2011, as a result of the higher unit cost of production at both the Hepu and Xinfeng plantations. The unit cost of production was RMB2.31 per kilogramme at the Hepu Plantation and RMB2.44 per kilogramme at the Xinfeng Plantation for the six months ended 31 December 2012, as compared with RMB1.76 per kilogramme and RMB2.18 per kilogramme for the same period last year.

There were a number of factors contributing to the higher production costs, most notably the unstable weather and persistent heavy rainfall from April to August in 2012. During periods of heavy rain, fertilisers and pesticides - the two main costs associated with orange production - are washed away and must therefore be applied in greater quantities to ensure healthy growth.

Another major factor was the trend of general wage inflation in China. At both plantations, labour costs rose from RMB32.5 million to RMB41.9 million for the review period, a rise of 28.9%.

Development of our third plantation in Hunan province, which was developed in 2007, continued with the planting of more than 129,000 summer orange trees during the period. A total of nearly 1.2 million trees have now been planted at this new location and a further 600,000 summer orange trees will be planted in 2013. It is expected that the first harvest from this plantation will take place in 2014.

Juice processing business

Turnover from the sale of processed fruit by Beihai Perfuming Garden Juice Company Limited decreased by 26.9% to RMB290.2 million for the six months ended 31 December 2012. This decline was due mainly to the lower average selling price of pineapple juice concentrates, the Group's main juice product. Also, the unstable weather and persistent heavy rainfall in 2012 limited the supply of several types of fruit for juice processing during the period.

As highlighted in our last annual report, the price of pineapple juice concentrate started to decrease in January 2012 driven by destocking among producers in Thailand and the Philippines, the world's two largest producers of pineapple concentrate. As I predicted then, the destocking ended in August and prices began to rise slightly from September 2012. While the overall average selling price for 2012 was therefore lower than the corresponding period in 2011, we have seen the price recovery continue into 2013.

I also mentioned in our annual report that we were building a third plant in Baise City, Guangxi, to increase our total annual output capacity by approximately 40,000 tonnes. This facility has now been substantially completed, and trial production began in December 2012 as expected. We are still on schedule to commence formal production by April 2013. The Board intends to increase utilisation at this new plant prudently and expects it to be fully utilised in the medium term.

We are also considering diversification into processing other agriculture products such as corn and red beans to maximise the utilisation of our plants at times when fruit supply is limited or adversely affected by weather.

Sales to supermarkets

Our sales to supermarkets in China dropped from 48,447 tonnes to 37,425 tonnes during the review period. This was as expected as we had renewed our supermarket contracts earlier in the year when the economic outlook was less optimistic. Sales of graded premium oranges under our Royal Star brand also fell for the period ended 31 December 2012.

Our contract with an international supermarket chain and a national supermarket chain has been proceeding as anticipated. We started by selling our summer oranges to these chains in Guangxi only, and we are now also selling our branded winter oranges to its outlets in Guangdong, Zhejiang and Shanghai. This is a tremendous vote of confidence for our Royal Star brand, and we look forward to selling our graded oranges in more markets across China in the future.

Dividend

The Board declared the payment of an interim dividend of RMB0.03 and a special dividend of RMB0.02 per share for the six months ended 31 December 2012.

The interim and special dividend will be paid in sterling or HK Dollars on or before 12 April 2013, to shareholders on the register at the close of business on the record date of 15 March 2013, with an ex-dividend date of 14 March 2013 and 13 March 2013 on The Stock Exchange of Hong Kong Limited and London Stock Exchange PLC, respectively. The actual translation rate for the purpose of dividend payment in sterling or HK Dollars will be determined by reference to the exchange rate on 15 March 2013.

Enhancing Shareholder Value

During the six months ended 31 December 2012, the Company repurchased and cancelled 10,649,000 ordinary shares of HK$0.01 at an aggregate consideration of HK$38,387,280 before expenses. The repurchases were effected by the Board for the enhancement of shareholder value in the long term.

Outlook for 2013

Our performance during the six month period was disappointing, primarily due to the higher costs incurred as a result of unstable weather in 2012 and general wage inflation in the PRC.

The Group's second half performance will reflect the price achieved for the Group's summer orange crop, the selling price of pineapple juice concentrates and the impact of weather on the volume of fertilisers and pesticides used by the Group. In this respect we expect that orange prices will rise, albeit slightly, responding to the inflationary environment and the forecasts for China's economy, which the World Bank has predicted will expand by 8.4% in 2013 and we are also optimistic that juice prices will continue to increase throughout the balance of the year. While we cannot predict the weather, a repeat of the unhelpful conditions in 2012 would be both highly unusual and unexpected.

For the longer term, we are well positioned to deliver much improved results. We are exploring markets outside of China and have been selling oranges to Vietnam from our Hepu Plantation in neighbouring Guangxi; if successful, we will also consider entering other ASEAN markets. The volume of oranges we produce will increase as our trees continue to mature to fruit bearing age, the benefits of our planting programme come through and as our third plantation in Hunan province, begins its first harvest in 2014; in addition to the nearly 1.2 million summer orange trees already there, this plantation will be planted with another 600,000 summer orange trees in 2013. Our juicing business is also making good progress with its third plant and its markets are very attractive.

I would like to thank all the members of our management team and staff on behalf of the Board. They have demonstrated great commitment to our Company during this challenging period, and I remain confident in their ability to enhance our performance in the months and years ahead.

I would also like to take this opportunity to thank our shareholders, business partners and investors for their patience and on-going support.

Tony Tong Wang Chow

Chairman

26 February 2013

Management Discussion and Analysis

OPERATING PERFORMANCE

Turnover

The breakdown of turnover by types is as follows:

The Group's turnover decreased by approximately 14.5% from RMB1,043.4 million to RMB892.0 million for the six months ended 31 December 2012.

Sale of oranges

Turnover from sale of oranges decreased by 6.8% to RMB600.2 million for the six months ended 31 December 2012. This was mainly due to a decrease of approximately 6.0% in the Group's production to 161,233 tonnes.

As anticipated, the production yield from Hepu Plantation decreased by 26.9% from 44,906 tonnes to 32,838 tonnes for the six months ended 31 December 2012 due to the ongoing replanting programme. In the previous year, 66,449 winter orange trees were removed and replanted with the same number of the summer orange trees. As the orange trees continue to mature, the production yield from the Xinfeng Plantation increased by 1.3% to 128,395 tonnes for the six months ended 31 December 2012 from 126,701 tonnes in the comparable period last year. The unstable weather and persistent heavy rainfall in 2012 limited the growth of this year's winter orange crop in the Xinfeng Plantation.

The following table set out the average selling prices of winter oranges in different plantations.

The average selling prices of winter oranges were relatively stable for the six months ended 31 December 2012.

All of the Group's oranges were sold domestically. The Group's customers from the sales of oranges can be divided into three categories, namely corporate customers, wholesale customers, and supermarket chains. The breakdown of types of customers is as follows:

For the six months ended 31 December 2012, the production volume and turnover to supermarket chains represented approximately 23.2% and 26.1% respectively of the Group, compared to approximately 28.2% and 32.0% for the six months ended 31 December 2011. As the Xinfeng Plantation has not yet achieved full maturity, the oranges were mainly sold to corporate and wholesale customers, thereby reducing the percentage of sales to supermarket chains.

For the Hepu Plantation and Xinfeng Plantation, the production volume sold to supermarkets was 10,524 tonnes and 26,901 tonnes for the six months ended 31 December 2012, compared to 16,100 tonnes and 32,347 tonnes for the six months ended 31 December 2011 respectively. The decrease in Hepu Plantation was mainly due to the lower production yield of winter oranges for the six months ended 31 December 2012. Also, starting from this year, the Group has supplied several major domestic and international supermarket chains with graded oranges through sizeable distributors instead of through direct sales.

The Company is selling two types of oranges to customers, namely ungraded oranges and graded oranges. Ungraded oranges are neither packaged nor branded and the customers arrange for the transportation of the oranges at their own cost. Usually, the ungraded oranges are sold to wholesale and corporate customers. Graded oranges are oranges that the Company grades, packages and delivers to the customers at its cost, usually to supermarket customers. The graded oranges are sold under the "Royal Star" brand at a premium price compared to the selling price of ungraded oranges without brand. The breakdown of types of oranges is as follows:

As the Xinfeng Plantation was still at the early stage, the oranges were mainly sold to corporate and wholesale customers without grading, thereby reducing the percentage of sales of graded oranges.

Sale of processed fruits

The table sets out the volume and turnover from the sale of processed fruits:

BPG processes over 22 different types of tropical fruits, including pineapples, passion fruit, lychees, mangoes and papayas. Only single product accounting for over 10% of the turnover from the sale of processed fruits is shown separately in the table above.

Turnover from the sale of processed fruit decreased by 26.9% to RMB290.2 million for the six months ended 31 December 2012. This is mainly due to the lower average selling price of pineapple juice concentrates, the Group's main juice concentrates product, for the six months ended 31 December 2012 compared to the corresponding period in 2011 as a result of the previously highlighted destocking by Thai and Philippine producers. The price of pineapple juice concentrates started to decrease in January 2012, reached a low in August 2012 and has since improved. Also, the unstable weather and persistent heavy rainfall in 2012 limited the supply of several types of fruit for juice processing during the period.

The utilisation rate of two existing processing plants in Beihai and Hepu is approximately 80.9% and 90.1% for the six months ended 31 December 2012.

BPG currently generates most of its sales from the PRC market, with key customers being beverage mixers supplying major beverage groups.

Sale of self-bred saplings

For the six months ended 31 December 2012, RMB1.6 million was recognised from the sales of the approximately 134,000 self-bred saplings developed from the nursery centre at the Hepu Plantation to local farmers.

Cost of sales

The breakdown of cost of sales is as follows:

Cost of sales of oranges principally consists of the costs of raw materials such as fertilisers, packaging materials, pesticides, and other direct costs such as direct labour, depreciation and production overheads. The production cost of sales of oranges increased 9.6% to RMB389.4 million (12/2011: RMB355.4 million). The increase in production costs was principally due to the increase in fertilisers and pesticides consumed as a result of the unstable weather and persistent heavy rainfall in 2012 and higher labour costs incurred due to general wage inflation in the PRC during the period. As a results, the unit cost of production in the Hepu Plantation and Xinfeng Plantation increased to approximately RMB2.31 per kg and RMB2.44 per kg respectively for the six months ended 31 December 2012 (12/2011: RMB1.76 per kg and RMB2.18 per kg respectively).

The combined unit cost of production increased by 16.9% to RMB2.42 per kg from RMB2.07 per kg in the comparable period due to higher contribution from Xinfeng Plantation with relatively higher unit cost.

Cost of sale of processed fruit mainly includes the costs of fruit and packaging materials and other direct costs such as direct labour, depreciation and production overheads. For the six months ended 31 December 2012, the cost of processed fruit decreased by 24.5% from RMB280.9 million to RMB212.1million. The decrease was mainly due to decrease in the fruit cost by 35.0% from RMB217.6 million toRMB141.4 million.

Gross profit

The Group's overall gross profit decreased by 28.7% to approximately RMB289.5 million for the six months ended 31 December 2012 (12/2011: RMB406.3 million). The overall gross profit margin decreased from to 38.9% to 32.5% for the six months ended 31 December 2012.

The following table sets forth a breakdown of the Group's gross profit margin by plantation:

The gross profit margin of the Hepu Plantation and Xinfeng Plantation decreased to 41.5% and 33.4%respectively for the six months ended 31 December 2012 (12/2011: 56.2% and 40.4% respectively). The decrease was mainly due to the higher volume of fertilisers and pesticides consumed as a result of the unstable weather and persistent heavy rainfall in 2012 and higher labour costs incurred as a result of the general wage inflation in the PRC.

The following table sets out a breakdown of the Group's gross profit margin by business:

Due to higher contribution from Xinfeng Plantation with lower gross profit margin and the decrease of the gross profit margin in both Hepu Plantation and Xinfeng Plantation, the overall gross profit margin from sales of oranges dropped to approximately 35.1% (12/2011: 44.8%) for the six months ended 31 December 2012.

BPG processes over 22 different types of fruit with different gross profit margin. The normalised gross profit margin of BPG for the six months ended 31 December 2012 decreased to 26.9% (12/2011:29.2%). It was mainly due to the higher direct labour cost and other production overheads resulted from the general inflation in the PRC.

Loss on change in fair value of biological assets

The Group recorded a loss of RMB23.0 million from the change in fair value of biological assets for the six months ended 31 December 2012, compared to a gain of RMB100.6 million for the last corresponding period in 2011. There is no movement of the orange trees during the period. The Board wishes to emphasise that the loss on change in fair value of biological assets is non-operational and does not have any effect on the cash flow of the Group for the six months ended 31 December 2012.

Other income

The increase in other income was mainly due to the higher interest income arising from the bank balance during the period as more money has been placed in the fixed deposits with higher interest rate. The effective interest rate for bank deposits during the six months ended 31 December 2012 is approximately2.53% (12/2011: 0.56%) per annum.

Selling and distribution expenses

Selling and distribution expenses mainly comprise sales commissions, advertising, salaries and welfare of sales personnel, traveling and transportation expenses. The selling and distribution expenses of the Group decreased from approximately RMB29.0 million for the six months ended 31 December 2011 to approximately RMB20.8 million for the six months ended 31 December 2012, representing a decrease of 28.3%, mainly due to there duction of the transportation costs in Hepu Plantation resulting from less graded oranges sold during the period.

Selling and distribution expenses represented 2.3% of the Group's turnover, a decrease of 0.5 percentage points as compared to 2.8% in last corresponding period, demonstrating the Group's ability to control costs effectively.

General and administrative expenses

General and administrative expenses comprise mainly salary, office administration expenses, depreciation, amortization and research costs. The general and administrative expenses of the Group were approximately RMB59.0 million for the six months ended 31 December 2012 (12/2011: RMB80.4 million). The decrease was mainly due to lower share based payment in relation to the employee share options.

General and administrative expenses represented 6.6% of the Group's turnover, a decrease of 1.1 percentage points as compared to 7.7% in last corresponding period, demonstrating the Group was able to control the cost effectively.

Profit

The profit attributable to shareholders for the six months ended 31 December 2012 decreased to approximately RMB212.4 million, compared to approximately RMB397.5 million for last corresponding period, representing a decrease of approximately 46.6%.

The core net profit excluding net change in fair value of biological assets and share-based payments for the six months ended 31 December 2012 was approximately RMB249.5 million, compared to approximately RMB322.7 million for last corresponding period, representing a decrease of approximately 22.7%.

INTERIM AND SPECIAL DIVIDEND

The Directors are pleased to declare an interim dividend of RMB0.03 (12/2011: RMB0.03) and a special dividend of RMB0.02 (12/2011: RMB0.02) per share.

PRODUCTIVITY

The production volume of winter oranges decreased to 161,233 tonnes for the six months ended 31 December 2012, representing a decrease of 6.0%.

The production volume of winter oranges in Hepu Plantation dropped from approximately 44,906 tonnes last year to approximately 32,838 tonnes in the current year, representing a decrease of approximately 26.9%, which was due to the ongoing replanting programme. In the year to 30 June 2012, 66,449 winter orange trees were removed and replanted with the same number of the summer orange trees.

In addition, the production volume of winter oranges from the Xinfeng Plantation increased from approximately 126,701 tonnes last year to approximately 128,395 tonnes in the current year, representing an increase of approximately 1.3% due to increased maturity during the period. The unstable weather and persistent heavy rainfall in 2012 limited the growth of this year's winter orange crop in the Xinfeng Plantation.

CAPITAL STRUCTURE

As at 31 December 2012, there were 1,227,721,555 shares in issue. Based on the closing price of HKD3.68, the market capitalisation of the Company was approximately HKD4,518 million as at 31 December 2012 (GBP361.4 million).

HUMAN RESOURCES

There were a total of 1,748 employees of the Group as at 31 December 2012. The Group aims to attract, retain and motivate high calibre individuals with a competitive remuneration package. Remuneration packages are performance-linked and business performance, market practices and competitive market conditions are all taken into consideration. The Group reviews the employees' remuneration packages on an annual basis. The Group also places heavy emphasis on staff training and development so that employees can reach their maximum potential.

FINANCIAL PERFORMANCE

Liquidity

The current ratio and quick ratio was 30.27 and 29.00 respectively. The liquidity of the Group is healthy with sufficient reserves for both operation and development.

Profitability

The asset turnover of the Group dropped to 0.11 (12/2011: 0.13) for the six months ended 31 December 2012. The lower of the ratio was mainly due to decrease of the turnover for the period as mentioned above.

The basic earnings per share for the six months ended 31 December 2012 was RMB0.17 (12/2011: RMB0.33). This was driven by the 48.5% decrease in profit attributable to shareholders for the period.

The core net profit per share for the six months ended 31 December 2012 decreased to RMB0.20 (12/2011: RMB0.27), representing a decrease of 25.9%.

Debt ratio

The net cash positions of the Group were RMB2,374.4 million and RMB2,388.1 million at 31 December 2012 and 30 June 2012 respectively.

Internal cash resource

The Group's major internal cash resource is its cash and bank balances. The Group did not have any outstanding bank borrowings as at 31 December 2012.

Charge on assets and contingent liabilities

None of the Group's assets were pledged and the Group did not have any material contingent liabilities as at 31 December 2012.

Capital commitment

As at 31 December 2012, the Group had a capital commitment of approximately RMB141.4 million mainly in relation to the construction of the farmland infrastructure in the Hunan Plantation and the new juicing plant in Basie city.

Foreign exchange risk

The Group is exposed to currency risk primarily through its cash and cash equivalents that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily Hong Kong dollars, United States dollars and British pounds.

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuation arise. The Group currently does not use any derivative contracts to hedge against its exposure to currency risk. Management manages its currency risk by closely monitoring the movement of the foreign currency rate and considers hedging significant foreign currency exposure should the need arise.

PLANTATIONS

The Group has three orange plantations in the PRC occupying in total approximately 155,000 mu (equivalent to approximately 103.3 sq.km.) of land, with approximately 46,000 mu (equivalent to approximately 30.7 sq.km.) located in the Hepu county of the Guangxi Zhuang Autonomous Region, the Hepu Plantation, approximately 56,000 mu (equivalent to approximately 37.3 sq.km.) in the Xinfeng county of the Jiangxi province, the Xinfeng Plantation and approximately 53,000mu (equivalent to approximately 35.3 sq.km) in the Dao county of the Hunan province, the Hunan Plantation.

Hepu Plantation

The Hepu Plantation is fully planted and comprises approximately 1.3 million orange trees of which approximately 1.0 million trees were producing oranges.

Xinfeng Plantation

The Xinfeng Plantation is fully planted and comprises 1.6 million winter orange trees, all of which are now producing oranges.

Hunan Plantation

The Hunan Plantation is still under development and comprises approximately 1.2 million summer orange trees as at 31 December 2012. During the period, 129,177 summer orange trees were planted with a further approximately 600,000 summer orange trees to be planted in 2013. The construction of Hunan Plantation is expected to be completed in 2013.

The below table sets out the age profile as at 31 December 2012 and the production volume of the plantations for the six months ended 31 December 2012:

Summer orange trees

Winter orange trees

The below table sets out the age profile as at 31 December 2011 and the production volume of the plantations for the six months ended 31 December 2011:

Summer orange trees

Winter orange trees

VALUATION OF BIOLOGICAL ASSETS

The Group has engaged an independent valuer to perform desktop valuation on the fair value of the orange trees less costs to sell as at 31 December 2012.

The valuations of the Group's orange trees were conducted on the basis of discounted cash flow. The discount rate being applied to the discounted cash flow model is based on Capital Asset Pricing Model. The independent valuer begins with the appraised value of the Group's orange trees by discounting the future income streams attributable to the Group's orange trees to arrive at a present value and deducts the tangible assets (including plantation related machinery and equipment and land improvements) from the appraised value which are employed in the operation of the Group's plantations.

Major assumptions

The discounted cash flow method adopted a number of key assumptions, which include the discount rate, market prices of oranges, production yield per tree, related production costs, etc. The values of such variables are determined by the independent valuer using information supplied by the Group, as well as proprietary and third-party data, as follows:

1) The discount rate applied for the six months ended 31 December 2012 was 18.0% (12/2011: 20.0%). The discount rate reflected the expected market return on the asset and can be affected by the interest rate, market sentiments and risk of the asset versus the general market risk.

2) The yield per tree variables represent the harvest level of the orange trees. The yield of orange trees is affected by the age, species and health of the orange trees, the climate, location, soil conditions, topography and infrastructure. In general, yield per tree increases from age 3 to 10, remains stable for about 22 years, and then decreases until age 35.

3) The market prices variables represent the assumed market price for the summer oranges and winter oranges produced by the Group. The independent valuer adopted the market sales prices prevailing as of the relevant balance sheet date for each type of orange produced by the Group as the sales price estimate. The selling prices of winter oranges and summer oranges from the Hepu Plantation and winter oranges from the Xinfeng Plantation adopted were RMB3,320 per tonne, RMB5,200 per tonne and RMB3,740 per tonne, respectively, for the six months ended 31 December 2012 and RMB3,310 per tonne, RMB5,300 per tonne and RMB3,730 per tonne, respectively, for the six months ended 31 December 2011.

4) The direct production cost variables represent the direct costs necessary to bring the oranges to their sales form, which mainly include raw material costs and direct labour costs. The direct production cost variables are determined by reference to actual costs incurred for areas that have been previously harvested and cost information for comparable areas with regards to areas that have not been harvested previously.

Sensitive analysis

1) Changes in the discount rate applied result in significant fluctuations in the Group's loss from changes in fair value of orange trees less costs to sell. The following table illustrates the sensitivity of the Group's loss from changes in fair value of orange tree less costs to sell to increases or decreases by 100 basis points in the discount rate of 18.0% applied for the six months ended 31 December 2012:

2) Changes in the yield per orange tree can also result in significant fluctuations in loss from changes in fair value of orange trees less costs to sell. The following table illustrates that sensitivity of the Group's loss from changes in fair value of orange trees less costs to sell to a 5.0% increase or decrease in the yield per tree applied for the six months ended 31 December 2012:

3) Changes in assumed market prices of the oranges can also result in significant fluctuations in loss from changes in fair value of orange trees less costs to sell. The following table illustrates the sensitivity of the Group's loss from changes in fair value of orange trees less costs to sell to a 5.0% increase or decrease in the assumed market prices of oranges as at 31 December 2012 used to calculate gain from changes in fair value of orange trees less costs to sell for the six months ended 31 December 2012:

4) Changes in the assumed direct production costs can also result in significant fluctuations in loss from changes in fair value of orange trees less costs to sell. The following table illustrates the sensitivity of the Group's loss from changes in fair value of orange trees less costs to sell to 5.0% increase or decrease in the Group's assumed direct production costs used to calculate gain from changes in fair value of orange trees less costs to sell for the six months ended 31 December 2012:

The above sensitivity analyses are intended for illustrative purposes only, and any variation could exceed the amounts shown above.

Valuation

According to the valuation report of the independent valuer, the aggregate value of the orange trees in the Hepu Plantation and Xinfeng Plantation as at 31 December 2012 was estimated to be approximately RMB2,203 million.

Condensed Consolidated Income Statement

For the six months ended 31 December 2012