China's food giant says it's streamlining operations

2016-06-17 08:44Global Times Editor: Li Yan

COFCO still needs time to transform its size into profitability: analyst

Experts said Thursday plans by China's top food processor and grains trader to shed off its less valuable assets would benefit the company, but that the effects remain to be seen, after China National Cereals, Oils and Foodstuffs Corporation (COFCO) posted a plan on Monday to streamline management to be more competitive.

The company said it will spend three years making itself leaner and tougher, including plans to reduce the number of legal entities by 20 percent and reduce losses by more than 50 percent, according to a statement posted on the website of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council on Monday.

The company said it has identified 65 subsidiaries for improvement and 91 subsidiaries for fostered management, and that it will restructure 102 subsidiaries through mergers and acquisitions.

"It's surprising that COFCO made the announcement, but it may have realized the problems it faces," said Feng Liguo, an expert at the Beijing-based China Enterprise Confederation, noting that COFCO has expanded too fast in the past few years.

However, it will take time to see the results of its streamlining because it involves various factors, according to Feng.

From 2005 to 2013, COFCO spent 14.6 billion yuan ($2.2 billion) for 50 mergers, according to the Guangzhou-based 21st Century Business Herald newspaper on Thursday.

These acquisitions has greatly increased COFCO's assets and payroll, the report said.

But it also created problems.

For example, the merger of State-owned sugar and meat giant China Huafu Trade & Development Group in 2015 added over 70 subsidiaries to COFCO, according to the report.

In 2015, COFCO announced a revenue of 405.44 billion yuan, surpassing Bunge and Louis Dreyfus to become the world's third largest food company after Cargill and Archer Daniels Midland Co (ADM). The four are the world's top agricultural and commodities companies.

However, the company still needs time to transform its size into profitability. In 2015, the company only posted a net profit of $200 million.

By comparison, ADM, Cargill, Bunge, and Louis Dreyfus enjoyed profits of $1.85 billion, $1.58 billion, $790 million and $210 million, respectively, according to the 21st Century Business Herald.

The company also received 4.7 billion yuan in government subsidies, without which the company would be in the red.

The company did not respond to a request from the Global Times for details of its plan.

And it is not known how many employees would be laid off.

It's good for State-owned enterprises (SOEs) to shed off assets that generate less income as the Chinese economy transforms, said Xu Baoli, an expert at the SASAC research center.

However, SOEs often find it hard to balance their profit-earning ability and social responsibilities when they decide to exit the market, experts noted.

If these companies cannot pay their employees, it should keep fewer workers, Xu told the Global Times on Thursday.

These companies should also impose a strict assessment system and provide an incentive system to promote initiative, Feng said.

In a statement detailing some of the company's objectives during the 13th Five-Year Plan (2016-20), which was posted on SASAC's website in March, COFCO said it's targeting 750 billion yuan in revenue and 15 billion yuan in profit by 2020. It also said its food and oil business comprise 80 percent of its business.

China's SOEs have become less profitable, with corporate debt rising, according to media reports.

Data from the Finance Ministry released in May show that the country's SOEs posted revenues of 13.5 trillion yuan in the first four months of the year, down 1.7 percent from the same period last year. SOEs posted profits of 652.2 billion yuan, down 8.4 percent year-on-year.

Streamlining operations and improving the bottom line is the trend for most SOEs, Feng noted, adding that SOEs should be judged separately as the situation varies greatly from industry to industry and from firm to firm.

For example, Sinopec Shengli Oilfield has closed four oil fields whose exploitation efficiency ranks at the bottom of its 70 oil fields, reported in February.


Related news


Most popular in 24h

MoreTop news


Travel News
Travel Types
Bar & Club
CNS Photo
Learning Chinese
Learn About China
Social Chinese
Business Chinese
Buzz Words
Special Coverage
Back to top Links | About Us | Jobs | Contact Us | Privacy Policy
Copyright ©1999-2018 All rights reserved.
Reproduction in whole or in part without permission is prohibited.