United Food expects 'significant loss' in Q2

A man watching a board showing stock prices at a brokerage office in Beijing, China.
A man watching a board showing stock prices at a brokerage office in Beijing, China. PHOTO: REUTERS

United Food Holdings has raised the red flag on a "significant loss" it expects for the second quarter ended June 30, owing in part to a pollution crackdown in China.

The red ink could total about 550 million yuan (S$119.4 million) before tax, said the Chinese firm, a producer and supplier of soya bean products, in a filing to the Singapore Exchange.

The company said in a statement on Tuesday the expected loss is mainly due to "a change in the operating environment".

The local government in Linyi - where the group's business operations are based - in Shandong province had ordered over 50 companies in the region involved in heavy industries and power generation to stop production due to pollution.

"The group was not one of those companies directly affected," said United Food.

"However, the anti-pollution actions taken had indirectly affected the group in terms of higher operating expenses due to higher costs of utilities like electricity."

The group's operations "continued to be adversely impacted by the weak Chinese economy".

The firm is bracing itself for a loss of about 120 million yuan for its second-quarter business operations.

It also chalked up a 200 million yuan loss when it sold off five shipments of raw soya beans which had arrived in China but were yet to be processed. United Food said it will stop importing soya beans for processing in the mean time.

Once the firm's current inventory of soya beans is depleted around Saturday, it will also stop production of soya bean products temporarily, "pending a review of the business operating environment".

This could lead to significant implications, given that United Food's primary business is soya bean processing, which contributes to more than 90 per cent of the group's revenue. But the company added it will continue its animal-feed production business.

It will also aim to recover the pre-payments and deposits made to its soya bean suppliers, which add up to about 215 million yuan.

United Food said its Singapore independent directors intend to appoint external auditors to "verify and review" the circumstances which led to the losses.

It will disclose further details when it announces its results before Aug 14.

In May last year, United Food discontinued its pig-rearing business, citing "dim prospects". The stock has fallen about 70 per cent since the start of the year, closing 12.8 cents down at 18.7 cents yesterday.

A version of this article appeared in the print edition of The Straits Times on July 02, 2015, with the headline 'United Food expects 'significant loss' in Q2'. Print Edition | Subscribe