China Huiyuan Juice Group, the nation's largest fruit juice maker, posted a 106 per cent jump in net profit last year after tax breaks and cost cutting offset a decline in gross margin.

Net profit for the company, which raised HK$3.7 billion in an initial public offering in February, rose to 221.61 million yuan from 107.5 million yuan in 2005, beating the 200 million yuan forecast in its prospectus. Sales rose 48.4 per cent to 2.06 billion yuan.

The profit growth was helped by a 19 million yuan reduction in tax, granted for building additional production facilities including the factories in Huanggang, Chengdu and Xianyang. Its effective tax rate fell to 4.2 per cent last year from 20.4 per cent in 2005.

Sweetening its profit was a 15 million yuan reduction in administrative expense to 114.2 million yuan due to drop in rental expenses and recovery of unspecified doubtful debt, the company said.

Gross margin last year declined 1.4 percentage points to 32.7 per cent as a result of rising raw material costs, according to Ng Yuk-keung, Huiyuan's chief financial officer. Prices for sugar rose 30 per cent and for orange juice concentrate 50 per cent.

Mr Ng expects the company's gross margin to rebound this year on higher utilisation of production facilities and lower raw materials prices.

The price for sugar had dropped 13 per cent in the first quarter this year while those for orange juice concentrate had gained only 5 per cent, he said.

Huiyuan last year had 40.8 per cent share of China's pure fruit juice market and 38.8 per cent of the country's nectar market, according to a survey by researcher AC Nielsen.

Juice production rose 52 per cent to 668,180 tonnes last year.

Sales were also boosted by a 3.8 per cent increase in average selling price of fruit juice last year and an increase in sales volume in family-sized products.

The average selling price of nectar, which accounted for 43.4 per cent of the company's juice sales, rose 4.4 per cent during the period.

Fruit juice contributed about 95 per cent of the company's total revenue.

Capital expenditure this year will be increased to 750 million yuan from 296 million yuan last year, mainly on construction of new factories in southern and eastern China.

Huiyuan, which counts French food giant Danone and private equity firm Warburg Pincus as its strategic investors, said it wanted to leverage on these two shareholders to "improve our transparency".

Chairman Zhu Xinli said the company had no plans to introduce new strategic shareholders.

Shares of Huiyuan, which have surged 56 per cent from their issue price, edged up 0.21 per cent yesterday to HK$9.38 after the release of the earnings announcement.