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with its subsidiaries, the "Group" (SEHK: 1068), a leading vertically-integrated meat-product processor and supplier in China, would like to issue a statement in response to certain reports published by some media recently. The Group is alarmed at the remarks made of its business, which are completely inconsistent with objective facts. Regarding the ungrounded and negative report, the Company reserves its right to pursue appropriate legal recourse. Yurun Food would like to issue the following public statement: 1) About Hog Farming China Yurun Food Group Limited, a company listed on the Main Board of the Hong Kong Exchanges and Clearing Limited, is mainly involved in the business of hog slaughtering and production of processed meat products. The Group has never participated in any hog farming or hog breeding businesses. The Company understands that Mr. Zhu Yicai, Chairman of Yurun Food ("Chairman Zhu"), has several personal investment projects, which includes the hog breeding business. However, the hog breeding business concerned is Chairman Zhu¡¯s personal investment, and the Company would like to reiterate that it has no relationship with the listed group (i.e. Yurun Food). 2) About Government Subsidies The reason that the Company obtains government subsidies is that it operates upstream hog slaughtering business, which is classified as being primary processing of agricultural products, a sector that has been supported by favourable agricultural policies by the central government and local governments. With a long-established reputation, Yurun Food has expanded its nationwide production capacity in recent years, successfully promoting local agricultural production and revenue enhancement, and has therefore obtained support from central and local governments. The Company believes that, under the favourable agricultural policies, the policy environment will remain positive in the future. With the continuous expansion of the Company, government subsidies are expected to be sustainable. 3) About Delays in Project Development Production capacity expansion has been one of the core development strategies of Yurun Food. Since the central government launched the "Guideline for National Hog Slaughtering Industry Development (2010-2015)" in late 2009 with an aim to accelerate industry consolidation, the Company considers that the trend of industry consolidation will benefit its long-term stable development, and hence has established a production capacity expansion plan pursuant to its business needs and strategies. Production capacity expansion projects in different regions are under development in accordance with the Company's overall development strategy and construction timetable. The Company will adjust the pace of expansion in accordance with the prevailing conditions, ensuring the best interests of the Group. 4) About Negative Goodwill As disclosed in annual reports of the Company, negative goodwill of an acquisition is one-off, mainly from the difference between the fair value of assets acquired and the acquisition price. In the past few years, when growing its upstream business, the Company acquired a number of loss-making facilities at relatively low prices through successful price negotiation, thus generating negative goodwill. The negative goodwill concerned has been recognised by the Group pursuant to applicable accounting standards. Acquisitions concerned include the acquisition of the loss-making company, Fugou Yurun Food Co., Ltd., in accordance with an asset transfer agreement in January 2009. Under general circumstances, the Company will make arrangements and work out a timetable for redevelopment subsequent to the acquisition, taking into consideration of actual circumstances of the assets as well as other business factors. In addition, the Company will require time to integrate relevant operations and to enhance production capacity and utilization in order to turn around the financial position of the acquiree. 5) About Production Capacity Utilisation Rate and Overcapacity The Company has always thoroughly implemented its production capacity expansion policies in the past years, and has continuously optimised its nationwide production network. As of 31 December 2010, the weighted average production capacity utilisation rate of upstream and downstream businesses of the Company reached a relatively optimal level of close to 70%. Specifically, slaughtering volumes of mature plants (those in operation for more than two years) and newly-built plants of the upstream business both realized significant growth, fueling overall slaughtering volume to increase by 54.2% year-on-year. This reflects the rapid growth of the Group¡¯s upstream business, and that both mature and new production capacities seized development opportunities in the meat product market, which strengthened the overall profitability. 6) About Gross Profit Margin Certain reports mentioned the differences of gross profit margin and product price between the Company and industry peers. This is mainly due to different development strategies of each company, including, but not limited to business focus, distribution channel, sales target and product mix. There are different advantages to each strategy and therefore cannot be generalized. 7) About Share Placements Certain reports mentioned that the Company had raised funds from the market through several share placements in the past few years. As disclosed in the share placing announcements of the Company, the share placements were to satisfy business development needs, so as to capture the rare opportunities from industry consolidation and enhance returns to shareholders. The sustained rapid growth of the Company in the past few years indicates the success of the Company¡¯s business development strategy. 8) About Lack of Response to Media Enquiries Certain reports accused the Company of not replying to its enquiries. The fact is that the Company proactively prepared a written reply within only several hours of the enquiries being raised. The Company finds the ungrounded report to be deeply deplorable, and as such has issued the above statement for clarification. Looking ahead, Yurun Food will continue to steadily realize its capacity expansion strategies in both upstream and downstream businesses, to thoroughly implement stringent quality control procedures, and to further exploit its advantages of brand name and product structure in the meat products market, so as to increase its market share, to enhance its brand competitiveness, as well as to capture business opportunities from the rising demand for quality meat products, thus fuelling business development and maximizing returns for shareholders. --- End ---
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