hong kong drink maker vitasoy’s profits sink after mainland china boycott sparked by leaked memo controversy

Hong Kong beverage company Vitasoy saw its profits tank in the six months to the end of September as business took a huge hit from boycotts in mainland China that at one point saw the iconic soy drink being pulled from shelves.

Revenue slid 18 per cent to HK$3.6 billion (US$460 million) in the period, according to a filing to the stock exchange on Thursday. Net income plummeted 95 per cent to HK$32.8 million, dented by a fall in sales in mainland China, even as its operations in other markets including Hong Kong grew steadily.

In the same period of 2020, mainland China accounted for about three quarters of Vitasoy’s revenue. Its mainland unit recorded a net loss of 27 million yuan (US$4.23 million) in the first half of the financial year, an enormous decline from profit of 670 million yuan a year earlier. Lower sales volumes and fewer government subsidies were to blame for the weak earnings, the company said.

The iconic drink company found itself embroiled in a political storm in July, when mainland users called for a boycott after a leaked memo surfaced on social media. The memo expressed condolences to the family of an employee, who had stabbed a Hong Kong policeman before killing himself.

Vitasoy later said the memo had been written without official approval. More than US$475 million of its market value was erased during the ensuing public backlash.

“During the months of July and August, we were off shelves and also we did not advertise. This is quite a unique situation to be in as it is the big season in the summer. As of September, our sales team was able to gradually restore our presence on shelves in mainland China,” said Roberto Guidetti, Vitasoy’s group chief executive officer, via a video conference on Thursday.

Promotions during holidays such as the Mid-Autumn Festival, National Day and the start of the school year also boosted the recent recovery, said Guidetti.

Shares of Vitasoy gained 2.2 per cent to HK$18.40 on Thursday. Its stock price is still down about 29 per cent since the controversy first hit the beverage maker on July 5.

Operations in Hong Kong, Singapore, Australia and New Zealand saw growth in revenue. While revenue in Hong Kong increased 3 per cent, its profits declined 42 per cent, mainly because of significantly lower government subsidies and higher spending to support anticipated peak-season demand.

The drinks company declared no interim dividend, citing its disappointing results and the need to restore its performance in the mainland. A year ago, Vitasoy issued a dividend of HK$3.8 per share.

Vitasoy expects to see a pick-up in its performance as its products gradually return to shelves in the mainland, and as it releases new product offerings.

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