Huabao International Holdings, one of the biggest flavors and fragrance producers in China, maintains its sales growth target of 30 percent in the next three years and the high gross profits margin at 75 percent by seeking acquisition opportunities.

The company hopes to acquire a flavor and fragrance company in Guangdong held by its major shareholder Chu Lam Yiu by the end of this year, chief executive officer Bruce Lau told China Daily. Lau, however, said that no formal agreement has been signed as yet.

"We will see if the targeted company will create synergy with us and if there are other risks," said Lau. "We do not just look at the targeted company but also many others who may fit our growth strategy."

Huabao is expected to acquire the targeted company, located in Guangdong with total capacity of 1,900 tons.

With over HK$971.6 million in cash, Huabao is in a good position to acquire companies in both the mainland and overseas. Lau said that the company is looking for targets that fit the strategic development of any of its core businesses - tobacco flavors, food flavors and fragrance.

"In addition, it must have unique characteristics or brands that will create strong synergy to our existing businesses without great risks," said Lau. As one of the biggest players, Huabao has a market share of only 9 percent.

Speaking about overseas acquisition, Lau said that the main purpose is to serve the China market since overseas flavors and fragrance market have more products varieties that can be sold in domestic market.

"The key to maintain our leading position and gross profits margin is to keep researching and developing new flavors," said Lau. The company will keep launching about 250 new products in the coming year.

Chu said that the company, that has a R&D center in Germany, also hopes to distribute more products overseas.

Rapid development

Huabao's 2008 sales as on March 31 increased by 40 percent to HK$1.42 billion while net profits increased by 52 percent to HK$862.1 million. Profits after paying tax of the acquired company New Hope Group is HK$85.8 million while Amber, in which the company has 51 percent stakes, became the main platform for its fragrance business.

Revenue from tobacco flavors jumped 37 percent to HK$1.24 billion due to the consolidation of the tobacco industry, the development of high-end quality and healthier products. Meanwhile, revenue from food flavor business increased 69.5 percent to HK$171 million.

Gross profits margin increased to 74.9 percent from 2007's 69.5 percent. Tobacco business' gross profits margin stands at 80 percent, which is much higher than food business' 36 percent.

Executive director Edward Xiong said the company will maintain its gross profits margin at the current level while projecting the flavors and fragrance industry to grow 15 percent in the near future.

Meanwhile, Huabao is confident that the food flavors business will have strong growth as food producers focus on high-end products that require the use of more flavors.

The company's capital expenditure this year will be HK$30 million as it will upgrade its production facilities. Chief financial officer Xia Liqun said that it will keep revenue from tobacco business at over 85 percent.

The company distributed final dividend of HK$0.06 with dividend payout ratio of 30 percent.

(HK Edition 06/20/2008 page3)