Baijiu producer Dukang in the red on impairment losses

Dukang Distillers Holdings swung into a net loss of 561.39 million yuan (S$123.73 million) for the fiscal year ended June 30, from a net profit of 44.08 million yuan a year ago.

The Henan-based baijiu (white liquor) producer attributed the poor performance to a decline in overall sales as a result of the clampdown on luxury gifts spending in China and impairment losses.

Sales slumped 40.5 per cent during the year to 863.41 million yuan. Excluding the impairment losses of 547.4 million yuan, the group would have registered a smaller net loss of 14 million yuan for the fiscal year.

Dukang explained that "in view of the continuous weakening of the baijiu industry" amid austerity measures against luxury spending, the management performed an impairment assessment on its non-current assets, including prepaid land lease payments, property, plant and equipment, intangible assets, interest in an associate and non-current deposits.

As the recoverable amounts of the assets assessed by an independent and professionally qualified valuer were significantly lower than their carrying value, impairment losses of 547.4 million yuan on property, plant and equipment, intangible assets and interest in an associate were recognised in the financial year, it said.

"It is expected that the situation will continue in the near future in the baijiu market and the economic performance of the dedicated assets will be worse," Dukang said on Friday.

But it stressed that these impairment losses were non-cash in nature and they did not affect its cash flow condition.

Due to a decrease in the overall gross profit margin for Dukang products, the group's gross profit margin slipped 11.4 percentage points to 24.7 per cent.

"The group has put in place several strategies to boost the sales of baijiu products," Dukang said "The group will remain committed to its advertising and promotional activities in its home market, Henan province and penetration plans into mass market by promoting its Jiuzu Dukang series and Mianrou Dukang series."