Moreover, the rise in raw material costs also dragged down Shuanghui's performance. Shuanghui Development stated that due to a shortage of live hog supply and increased breeding costs, the average price of live hogs for the whole year rose by 50% compared to 2010. The prices of raw materials, auxiliary materials, packaging materials, and other bulk commodities for meat products also surged significantly, keeping the company’s production costs high. Against the backdrop of delaying product price increases to restore market sales, profit levels dropped significantly, increasing the difficulty of business operations, leaving the company struggling. It wasn't just Shuanghui; its main competitor also experienced a significant decline in performance in 2011 due to the "lean meat powder" issue. On the evening of February 10, Yurun Food announced that negative media reports had affected the company's reputation and market confidence in its products, along with a substantial increase in raw material costs, leading to a net profit drop of approximately 38% last year.
Analysis institutions predict that the overall capacity utilization situation has already returned to normal levels before the March 15 incident. In 2012, with the commissioning of three new plants in Kunming Shuanghui, Nanchang Shuanghui, and Zhengzhou Shuanghui, as well as new production lines in Mianyang Shuanghui and Dezhou Shuanghui, it is estimated that the production and sales volume in 2012 will see a significant increase compared to 2011.
After a year, Shuanghui Development has gradually emerged from its difficulties. According to the company's designated new annual operating plan, the company will adopt an operational guideline of "adjusting structure to scale up and breaking through at the terminal to expand the market," focusing on goals, improving management, and achieving an annual operating plan of slaughtering 14.35 million pigs, producing and selling 1.76 million tons of meat products, and producing and selling 320,000 heads of live hogs.
NetEase Finance reported on March 1: "2011 was a year that left a deep impression and was unforgettable in the history of our company's development," Shuanghui Development summarized its operating conditions for 2011. That year, the company's net profit fell by half compared to the previous year.
In 2011, the comprehensive gross margin of the company's main business was 7.30%, down 2.20 percentage points from 9.50% in 2010. The primary reason for the decrease in gross margin was the rise in raw material prices and the decline in product sales leading to higher costs.
Shuanghui Development's stock price faced consecutive trading halts. On March 26, Chairman Wan Long of Shuanghui expressed that on March 15, Shuanghui Development's stock price fell to a halt, erasing a market value of 10.3 billion yuan; ten days after the report, sales were impacted by 1.5 billion yuan; direct losses from processed meat and fresh frozen products at Jiyuan Shuanghui were expected to exceed 30 million yuan; due to "lean meat powder," each pig head had to be inspected, resulting in an estimated additional testing cost of over 300 million yuan for the entire year; the brand's reputation suffered greatly. According to the figures published by Wan Long, Shuanghui's calculable losses exceeded 12.1 billion yuan.
Yurun Food's net profit in 2010 was 2.728 billion Hong Kong dollars, estimating its net profit in 2011 to be around 1.69 billion Hong Kong dollars, which compares with a net profit of 1.609 billion Hong Kong dollars in the first half of last year. Yurun Food's net profit in the second half of last year may have been less than 100 million Hong Kong dollars.
Shuanghui Development particularly pointed out that the company was heavily impacted by the "March 15 Incident," suffering enormous losses. On March 15, 2011, CCTV's Weekly Quality Report aired a special program titled "The Truth About 'Muscle-Building Pigs,'" reporting on how pork containing "lean meat powder" from some pig farms in Mengzhou, Henan Province, entered Jiyuan Shuanghui Food Co., Ltd. This report triggered consumer concerns about food safety, leading to questions about Shuanghui products, a decline in market sales, and unprecedented credibility crisis for the Shuanghui brand.
UBS Securities analyst Zhao Lin pointed out that 2012 is a crucial year for Shuanghui Development. With the conclusion of asset injections, the one-year anniversary of the March 15 incident, and the emphasis on boosting domestic consumption in the "12th Five-Year Plan," the company has the motivation to improve performance. It is expected that Shuanghui's revenue and net profit will reach 52.1 billion yuan and 3.86 billion yuan respectively in 2012, representing year-over-year growth of 43% and 129%. It is also projected that by the end of the "12th Five-Year Plan," revenue and net profit will reach 93.1 billion yuan and 7.9 billion yuan.
Public data shows that Yurun Food was unable to extricate itself from the "lean meat powder" scandal in the second half of last year. Last July, Shaanxi Weinan's Qin Meat Processing Plant had to halt production for self-inspection. Last September, a batch of products from Henan Yurun Beixu Meat Food Co., Ltd. was found to contain lean meat powder residues. Affected by these "lean meat powder" reports, the company's stock price fell by 16.125% in one day, erasing nearly 10 billion Hong Kong dollars in market value.
Coinciding with the one-year anniversary of the outbreak of the "lean meat powder" incident, Shuanghui Development released its 2011 operating results. As previously forecasted, in 2011, the company achieved operating revenue of 37.615 billion yuan, an increase of 3.59% year-on-year; chain sales; realized operating profit of 699.73 million yuan, a decrease of 60.85% year-on-year; realized net profit attributable to shareholders of the parent company of 564.89 million yuan, a significant decrease of 51.27% year-on-year.