Impacted by the decreased sales volumes of liquorice products, Xinjiang Talimu
Agriculture Development Co., Ltd. (XTAD) recorded a fall of 33.94% in full-year
2015 sales. By contrast, Jiangsu Tiansheng Pharmaceutical Co., Ltd. (Jiangsu
Tiansheng), reliant on its knockout glycyrrhizic acid ammonium salt and
glycyrrhizic acid ammonium salt S of which the combined sales went up by 4+
tonnes, achieved a rise of 13.08% in sales mix.
Source: Baidu
Comparison on XTAD and Jiangsu Tiansheng’s financial figures, 2015
Company
|
Sales (liquorice
products only), million USD
|
Cost (liquorice
products only), million USD
|
Sales in total,
million USD
|
Proportion in total
|
Xinjiang Talimu
Agriculture Development Co., Ltd.
|
8.75
|
7.97
|
97.77
|
8.95%
|
Jiangsu Tiansheng
Pharmaceutical Co., Ltd.
|
8.53
|
5.20
|
8.80
|
96.90%
|
Note: Financial figures of Jiangsu Tiansheng were only from Jan. to July,
sourced from its prospectus. Its full-year report did not specify the
performance of its liquorice products business.
Source: Company reports
The fall in XTAD’s sales of liquorice products can be mainly attributed to its
lack of competitiveness, according to analyst CCM. This is also the reason why
it showed completely different performance compared to Jiangsu Tiansheng.
Accordingly, XTAD is developing varied but scattered products, ranging from
liquorice products to cotton, dairy products, chemical fibre products and
seedlings, all of which are simply processed, having low added value. According
to its financial report, XTAD is mainly selling liquorice extract, liquorice
extract powder, glycyrrhizic acid ammonium salt, liquorice extract spray dried
powder and glycyrrhizic acid, of which liquorice extract and liquorice extract
powder (both crude extracts) play a key role.
Specifically, the output of
liquorice extract and liquorice extract powder respectively reached 730.39
tonnes and 601.16 tonnes respectively in 2015, and the sales volume hit 183.78
tonnes and 595.49 tonnes. The overall gross profit margin of liquorice products
was 8.90%.
Such a development pattern indicates that if XTAD intends to make profit, 2
conditions should be provided externally: one is the stably increasing demands
for such liquorice products, the other is a small quantity of competitors.
However, more and more enterprises, positive about the industry development,
have stepped into this segment – the 2nd requirement cannot be met.
In recent years, many state-owned enterprises have extended their supply chains
to the upstream through M&A. However most of them are unable to produce
high added value products, leading to rare product differentiations in the
market.
For instance, in the field of glycyrrhizic acid ammonium salt,
producers commonly are not qualified for GMP (= good manufacturing practice,
certification for producing drugs), and instead, are focusing on the food
additive business. In this context, their products are not allowed to sell to
the domestic regular pharmaceutical enterprises or the foreign largescale food
enterprises.
Comparatively, Jiangsu Tiansheng’s liquorice products are boasting high
refinement and high added value. It is mainly offering active pharmaceutical
ingredients (API) and raw materials for APIs to the pharmaceutical enterprises
involved in liver disease treatment, and is partially doing business with
enterprises not involved in pharmaceuticals, such as healthcare products for
live protection, food additives and cosmetics.
In 2015, the company realised a
growth of USD1.42 million (RMB9.40 million) in gross profit and 9 percentage
points in overall gross profit margin, thanks to its increased sales volumes of
liquorice products. According to its prospectus unveiled in 2015 for listing on
the New Third Board (= National Equity Exchange and Quotations), in Jan.-July,
its gross profit margin of liquorice products was 38.61%.
Jiangsu Tiansheng’s portfolio spans:
-
APIs: potassium glycyrrhefate M,
glycyrrhizic acid ammonium salt S and diammonium glycyrrhizinate
-
Plant extracts: glycyrrhizic acid A,
glycyrrhizic acid ammonium salt, dipotassium glycyrrhizinate and glycyrrhizic
flavone
XTAD’s development pattern based on simple raw material processing also brings
another abuse. That is, the fluctuations of the raw material prices which make
up the largest proportions in the production costs, will greatly impact the
gross profit margins of products, especially when the competition gets fierce,
and the product prices are forced to go down. XTAD’s financial figures about
producing liquorice products in 2015 are as follows:
-
Total costs: USD7.97 million (RMB51.45
million)
-
Costs for raw materials (direct): USD7.02
million (RMB45.31million), 88.06% of the total
-
Labour costs (direct): USD0.42 million
(RMB2.70 million), 5.26% of the total
-
Manufacturing expenses: USD0.53 million
(RMB3.44 million), 6.68% of the total
Since the liquorice in China is mainly imported and is settled based on USD,
the exchange rate fluctuations will also bring uncertainty to the prices of raw
materials.
Though the high profits of liquorice products mainly come from pharmaceutical
and healthcare industries, CCM expects glycyrrhizin, as a natural sweetener highly praised at home and abroad now, to have a more promising prospect in
fields such as food, given that the development and utilisation of liquorice
are being deepened.
Hence, Jiangsu Tiansheng, which has already engaged in the liquorice deep
processing business, is certainly to gain profits if it enlarges the input in
expanding the sales channels and exploiting the end use markets. Meanwhile,
XATD is expected to improve the comprehensive utilisation of liquorice and to
strengthen the product competitiveness; otherwise, it will be trapped in
vicious cycle, to price lowly and compete with many similar enterprises.
This article comes from Sweeteners China News 1605, CCM
About CCM:
CCM is the
leading market intelligence provider for China’s agriculture, chemicals, food
& ingredients and life science markets. Founded in 2001, CCM offers a
range of data and content solutions, from price and trade data to industry
newsletters and customized market research reports. Our clients include Monsanto,
DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.
For more information about CCM, please visit www.cnchemicals.com or get in touch with us
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Tag: sweetener pharmaceutical