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200-2004 In 2003/2004, the Group’s production plants in Massachusetts and California generated HK$442 million in revenue, a drop of 5. 2%. The segment result for the year was an operating loss of HK$44 million, compared to HK$35 million a year ago. This was partly due to the increased spending of HK$12 million in marketing and promotional activities to support the launching of new products, and partly due to intensifying competition in the Tofu and Soymilk markets. The operating loss was partially offset by improved production efficiency and cost reduction.
In New Zealand, we recorded little growth in sales and our market share dropped as a result of a change in retailers and the need to re-focus our marketing and promotion strategy. Regaining market share will be a major focus for us in the coming year. 2004-2005 The Group’s share in these markets also continued to rise, reaching nearly 19% in Australia and 36% in New Zealand. The encouraging performance of the Group in these markets reflected the success of a product innovation programme implemented since last year and our effective marketing and promotion campaigns. 005-2006 Profiting from the relatively positive market environment and continuing with our proactive and innovative approach in product development, marketing and brand building as well as process improvement, we were rewarded with higher sales. In terms of growth, the Group’s operation in Australia and New Zealand was the star performer of fiscal 2005/2006. Riding on its growth momentum since the previous year and driven by intense marketing efforts, our revenue and profit derived from these two markets soared by 37. 2% and 160. 0% respectively.
We remain committed to maximising shareholder value and being customers’ preferred choice. To ensure higher value for our shareholders and consumers, we will continue to pursue a market-driven and customer-oriented strategy by focusing on brand building, product innovation, aggressive marketing and promotion as well as the exploration of new business opportunities as a means for generating higher revenue and profit. We will also maintain disciplined cost control by achieving higher cost- efficiency across the board, not least in production and distribution.
In the coming year, our focus in Hong Kong is on achieving steady growth in both sales and profit by capitalising on our brand portfolio and investing in further strengthening of our brands in order to capture a bigger market share. Our attention will be devoted to product and packaging innovation as well as marketing and promotion. We will continue to invest in innovative and effective advertising campaigns to drive sales and support the launching of new products. At the same time, in view of looming inflationary pressure, we will exercise prudent cost management on a continuous basis.
The soymilk market in Mainland China is likely to remain soft due to the fierce challenge from the dairy milk segment that has been engaging in a nationwide price war in recent years. The Chinese Government’s policy of supporting rural development would, however, imply more opportunities for penetrating into the smaller cities and big towns. Our focus will be on capturing these new business opportunities by capitalising on our existing sales and marketing capabilities. On the other hand, we will continue to profit from our success in the co-packing business to ensure better utilisation of our two production plants in Mainland China.
We have already taken the first step forward to make use of the opportunities arising from CEPA (Closer Economic Partnership Arrangements) by starting to import some products from Hong Kong in the past few months. We will keep exploring such opportunities in the coming years. Given our successful marketing and pricing strategy as well as the encouraging results achieved last year, we are confident that Vitasoy Australia will sustain healthy growth in sales, profitability and market share in the coming year.
In order to sustain the advantageous position we have built up in Australia and New Zealand, we will devote ourselves to reinforce the VITASOY’s position as “the soy expert” by developing and launching new products in the “value soy beverage” area and also by introducing new flavours. As mentioned earlier, we have already started implementing an expansion plan in the Wodonga plant so as to equip ourselves properly for future growth. Following a relatively modest growth of 2. 3% in the first half of the year, sales soared in the second half by 9. %, which was in line with the market growth trend and was also the result of our strong marketing and promotion effort. The performances of the Group’s Australian and New Zealand operation and Mainland China operation were particularly impressive. Positioned as “the soy expert”, Vitasoy Australia continued to deliver remarkable sales performance, which rose 37. 2% to HK$214 million. The Mainland also saw double-digit sales growth under our focused strategy of “core business, core brand and core competency”.
After a relatively slow first half, Hong Kong regained its growth momentum and achieved a sales growth of 10. 0% in the second half. Sales in North America declined by 6. 0% due mainly to a major restructuring project involving the exit of Refrigerated Soymilk as well as the weaker demand for Aseptic Soymilk in the US market. Should the exited products be excluded, sales in this market would have registered a positive growth of nearly 2. 0%. EBITDA for the year amounted to HK$333 million, up 18. 5% from HK$281 million a year earlier.
With stringent cost management measures and a programme for continuous productivity improvement, we were able to sustain high productivity by lifting our gross margin to 58. 8% of sales. Despite higher marketing and promotional expenses for expanding market share and reinforcing market leadership, we managed to grow our EBITDA margin to 13. 2% of sales (2004/2005: 11. 8%). All these numbers speak for the success of our focused business development strategy. Our focus will be on capturing the new business opportunities by capitalizing on our existing sales and marketing capabilities.
Product innovation was also a crucial factor for the Group’s incremental growth. Targeting the kids and teens segment, VITA SUPERICY Lemon Tea appeals to them with its long-lasting icy sensation. The launch of the new 125ml single pack has been welcomed by the pre-teen sector. Developed and marketed as healthy beverages, CALCI-PLUS Soya Bean Oat Drink and VITA Hi-Calcium Low Fat Milk Beverage have proved to be popular amongst the health-conscious. New variants of VITA TSING SUM ZHAN and VITA CHA T DIN have boosted sales by meeting the taste preference of mass consumers.
This, together with our efforts in marketing and distribution, has enabled us to reinforce our market leadership in various beverage categories. During the year, our tuck shop business and catering business faced keen competition in the industry. Although it was tougher than before to win tenders, Vitaland Services Limited and Hong Kong Gourmet Limited have still maintained high market shares. Supported by marketing activities and new products, Vitaland achieved 9% sales growth. With the expansion of new central kitchen facilities, Hong Kong Gourmet achieved 25% n volume growth. 2006-2007 Our core strategy focused primarily on the development and introduction of value added new products that would appeal to a wider spectrum of consumers. To ensure its success, we matched it with aggressive marketing and brand building in markets worldwide. As a result, we saw remarkably strong growth in the burgeoning markets of Mainland China, Australia and New Zealand. In Hong Kong, we were able to benefit from the prevailing economic upturn to maintain our market leadership in core businesses while achieving steady sales growth.
In North America, however, because of adverse market conditions which naturally hindered business growth and product diversification, a slight drop in overall sales was recorded together with the widening of the operating loss. 2007-2008 In accordance with our strategies announced at this time last year, we forged ahead with product innovation by developing and launching a wide variety of new and trendy products with higher added value, growing our market presence through brand building, deepening our market penetration through channel development, and re-focusing on core competencies where necessary to maximise gain.
Naturally all these efforts have been supported by our innovative marketing and sales effort that unfailingly delivers superior results and breaks new ground for us. As a result, we achieved strong sales growth and expanded our market presence in Mainland China, Australia and New Zealand and Hong Kong. In June 2008, we have revamped the VITASOY logo and product package in Hong Kong and Macau to refresh and rejuvenate the VITASOY brand. The new package gives a more modern look by combining the brand’s Chinese and English trademarks and embracing the bilingual culture of Hong Kong.
The colours and graphics are meant to appeal to the consuming public at large, particularly the younger generation. In the months ahead, we are launching a series of marketing and advertising activities to support the revamping programme and to reinforce the market position of the VITASOY brand. I will elaborate on this programme in the extended part of this Statement. 2008-2009 The operating environment in Mainland China remained conducive to the execution of our “Core Business, Core Brand and Core City” strategy.
We maintained our leading position particularly in Southern China. Net sales surged strongly by 56% to HK$564 million, which was attributable to our aggressive marketing campaign, appropriate pricing strategy and expansion of distribution channels. We also continued with proactive consumer education to promote soy benefits and drive sales. On the product development front, we pursued a strategy catering to local needs by launching locally developed and produced products during the year. These innovative efforts have proven to be very rewarding in the past year.
The Group’s success in brand building, quality assurance and marketing is reflected by the various awards we received in the past year. To name just a few, in Mainland China VITASOY won the “Gold Brand” in the “2009 PRC Consumer’s Most Favourable Hong Kong Brands” for the second consecutive year and the top brand in the “Beverage Category” of the award’s online-poll segment conducted at sina. com and sohu. com. VITASOY was also named one of the “Top 10 Soymilk and Soy Drink Brands in Mainland China” by maigoo. com, a top branding website in Mainland China.
The advertisement series “Let’s Get Real” of VITA Lemon Tea, launched in Mainland China, was awarded “China Advertising Great Wall Gold Award” and “Series Print Advertising Campaign Silver Award” in the 15th China International Advertising Festival. In Hong Kong, VITASOY received the “Yahoo! Emotive Brand Awards” in the beverage category for the sixth consecutive year, the Capital CEO’s “Supreme Brand Awards 2008” in the beverage category and the “AmCham Hong Kong Brands Awards 2008” in the Food and Beverage Category organised by the American Chamber of Commerce in Hong Kong.
VITASOY and VITA were voted among the three most favoured brands in the beverage category in a survey conducted by the Hong Kong Polytechnic University commissioned by the Hong Kong Design Centre and Hong Kong Ambassadors of Design. The Group was awarded the “Hong Kong Proud Corporate Brand ??? Panel Judge Award” and “Hong Kong Proud Corporate Brand ??? Consumer Award” in the Drinks and Snacks Category and the “Hong Kong Proud Corporate Brand Grand Award ??? Bronze” by Ming Pao Daily News as well as the “Best Performance Company Award 2008” in the Beverage Category by Capital Weekly.
In Singapore, Unicurd received the Certificate of Commendation from the Agri-Food ; Veterinary Authority for achieving Grade “A” status for excellence in food hygiene, sanitation and processing. We continued to pursue the “Core Business, Core Brand and Core City” business strategy in Mainland China. Persistent effort and investment in brand building as well as effective marketing allowed the Group to maintain its leading position particularly in the Southern China soymilk market.
Our aggressive marketing campaign, appropriate pricing strategy and expansion of distribution channels were key factors contributing to the Group’s strong sales growth in Mainland China. We also continued with proactive consumer education to promote the health benefits of soy. During the year, VITASOY was named by a Mainland China website as one of the top ten soymilk brands in Mainland China. 2009-2010 The Mainland China retail market is forecast to see another strong year but perhaps at a slower pace due to the consolidation in the property and stock markets.
While the soymilk market should maintain its growth momentum, we are also aware that the costs of raw materials and labour are dramatically increasing. The market is becoming more sophisticated and the emergence of new players would lead to more intense competition. We will carry on our aggressive marketing effort initiated last year in Eastern China to reach critical mass. As the market leader, we will continue to play a prominent role in consumer education as regards the health benefits of soy.
From an operational point of view, the local management will strive to maximise production output from their existing plants in Shenzhen and Shanghai to meet market demand before the new plant in Nanhai could come into production in fiscal year of 2011/2012. As regards packaging, that of the entire VITA Lemon Tea range was revamped with a new look and its Lime Lemon variant was successfully launched in the PET (plastic bottle packed) format.
To support the launching of new products and packaging formats, the Group stepped up its marketing and brand reinforcement. The new “Stand by Me” TV commercial to promote VITASOY as well those on VITA Lemon Tea, VITA Pure Distilled Water and SAN SUI Tofu were highly successful. Our persistent effort in brand building and marketing enabled us to maintain its leading position in the soymilk market particularly in Southern China. 2010-2011 During the year, we continued to invest in marketing with a strong focus on our flagship brands of products