China-Biotics (PINK:CHBT)

Third Quarter FY2011 Highlights

 

• Net sales increased 39.0% y-o-y to $32.4 million;
• Bulk products sales increased 142% y-o-y to $14.3 million;  
• GAAP net income was $13.3 million, or $0.59 per diluted share;
• Excluding the non-cash changes in the fair value of convertible notes, non-GAAP net income was $10.4 million, or non-GAAP diluted EPS of $0.47;
• Cash and cash equivalents were $132.3 million.

Mr. Jinan Song, China-Biotics' Chairman and CEO commented, "We are pleased to report a solid third quarter as our successful strategic shift from retail to bulk products continues to show positive results. As dairy producers introduce greater quantities and varieties of value-added products to the market, our core probiotic cultures are gaining greater acceptance due to reliable product safety, good technical service, and competitive pricing. Furthermore, additive probiotics for the animal feed market are also expanding due to tighter government regulations on the overuse of antibiotics."

"We are also seeing more yogurt producers embracing functional probiotic additives in their products as dairy consumers in major cities are looking for better nutritional benefits. Chinese consumers are increasingly using probiotics due to their rising health consciousness."

"Our successful transition from business-to-consumer model to business-to-business model enables us to increase operating leverage and lower overall operating expenses. With strong free cash-flow generation and a healthy sales growth record, we successfully redeemed our only interest-bearing convertible debt and substantially reduced total share counts as well as enhanced our long-term shareholders' value," Mr. Song added.

Outlook for the Fiscal Year 2011

For fiscal year 2011, management maintains the expectation for net sales to achieve at least 50% year-over-year growth. This target is based on the Company's current views on the operating and market conditions, which are subject to change.

Mr. Jinan Song, Chairman and CEO of China-Biotics, concluded, "Entering into the fiscal fourth quarter of 2011, we are making greater efforts to ramp up the production of bulk products to meet the rising demand from the domestic dairy and animal feed markets. With the ongoing holiday seasons, we also expect strong retail products sales for the quarter. We continue to expand the presence of our retail probiotic products into other key regions in China.  We believe that, with the right distributors and sales channels, the market potential for our retail products is much larger in China. With our efforts and market prospects, we are confident to achieve our full year sales target."

SHANGHAI, Dec. 17, 2010 /PRNewswire-Asia-FirstCall/ -- China-Biotics, Inc.  today announced that it has expanded its distribution network into the Pan-Beijing area with the selection of four new distributors to sell the Company's retail products.

These local distributors will sell the Company's retail probiotics products through established distribution networks including malls, supermarkets and functional food stores adding approximately 30 new points of sale. These agreements represent the Company's first market entry into the pan-Beijing area.

Mr. Jinan Song, Chairman and CEO of China-Biotics, commented, "We are very excited about our new alliances with these distributors as they enable us to enter the highly desirable pan-Beijing area, which together with the Hebei and Shandong provinces and the municipalities of Beijing and Tianjin, command among the highest disposable income levels in China with rising nutritional food consumption. Although the signing of these distribution agreements signals the beginning of our expansion into this new geographic region, we have already started conducting studies on market potential for other regions within China."

"Rapidly growing sales of probiotics cultured yogurt products by dairy companies throughout China are paving the way for increased awareness of the benefit of probiotics. We are confident that our retail products will be well received by the health conscious middleclass consumers in this region. Our goal remains consistent: building a broader retail and bulk customer base with regular consumption and recurring revenues to maximize our long-term shareholder value," Mr. Song concluded.

• Net sales increased 37.6% yoy to $23.6 million;

• Gross bulk products sales increased 69% yoy to $9.9 million;  

• Gross profit increased 25.6% yoy to $15.3 million, with a gross margin of 64.8%;

• GAAP net income was $10.8 million, or $0.33 per diluted share;

• Excluding the non-cash gains from change in fair value of convertible bonds, non-GAAP net income was $8.1 million compared with $5.9 million.

• Non-GAAP diluted EPS $0.33 compared to $0.31.

Mr. Jinan Song, China-Biotics' Chairman and CEO, said, "We are encouraged by our consolidated bulk business despite an unusually hot summer with record temperatures in Shanghai. In response to the market dynamics and inflation trend, we have made the necessary adjustments to reduce the number of our retail outlets even with continuing growth in our retail product sales despite the seasonality factor. Our successful selling expense reduction attests to our ongoing efforts in cost control and efficiency improvement. As the first group of bulk customer base starts to stabilize, volumes are better distributed among these customers. We believe that these changes are strategically favorable to maintaining our profitability and building long-term shareholder value."

Outlook for the Fiscal Year 2011

For fiscal year 2011, the management maintains the expectation that net sales will achieve at least 50% year-over-year growth. This target is based on the Company's current views on operating and market conditions, which are subject to change.

Mr. Jinan Song, Chairman and CEO of China-Biotics, said, "We remain confident with our full-year outlook. Entering into the third quarter of fiscal year 2011, we expect that our retail product sales will accelerate as the months from October through March typically generate high demand for nutritional product sales. With our new retail operation model mainly focusing on sales through large trusted distributors, we are now rapidly expanding the points of sales of our branded Shining products and also dramatically reducing selling expenses by closing retail outlets, as retail outlets are carrying substantially higher maintenance costs due to a nationwide increase in wages and higher commercial rent in major cities. Our transition to the bulk business will continue and accelerate in the second half of our fiscal year as well. As more diary companies benefit from the stability and vitality of our probiotics cultures, our bulk products are gaining traction with these diary companies' increased yogurt production. Our plan is to increase penetration into other diary producers. With the completion of our retail operation changes and expected utilization expansion in our bulk business, we look forward to a strong operating margin in the coming quarters."

China-Biotics reported strong fiscal 2010 first quarter results this morning. 

Net sales in the first quarter of fiscal year 2011 increased by 61.8% to $24.9 million from $15.4 million in the first quarter of fiscal year 2010. The increase was primarily due to increased sales volume in retail and bulk additive products, and bulk additive products accounted for 40% of total quarterly net sales. Bulk sales increased by 170% year-over-year and 46% quarter-over-quarter from the fourth quarter of fiscal year 2010.

Excluding the non-cash gains from the change in value of convertible bonds, non-GAAP net income was a quarterly record of $9.7 million, compared with $5.3 million in the first quarter of fiscal year 2010, a robust 83.5% year-over- year increase. Non-GAAP diluted EPS was $0.39, increased from $0.27 in the same quarter of fiscal year 2010, on a substantially greater number of shares outstanding.

"For fiscal year 2011, the management maintains the expectation that net sales to be at least 50% year-over-year growth. This target is based on the Company's current views on the operating and market conditions, which are subject to change. Mr. Jinan Song, Chairman and CEO of China-Biotics, concluded, "We remain bullish on the outlook of fiscal year 2011. We will continue to invest in R&D in probiotics studies and applications, strengthen our product portfolio. The Qingpu facility's strong utilization rate growth demonstrated not only the depth of the probiotics demand in China, but our competitiveness of our products in the marketplace as well. As Chinese government is stepping up on the food safety measures and Chinese consumers are increasing their healthcare expenditures, we expect that more and more dairy and animal feed companies will embrace and increase the use of our probiotics products."

One of the short-term road blocks that CHBT had faced was the possibility of weak EPS comparisons for its 2010 first and second quarters. With the first quarter results strong showing, beating analyst EPS expectations of $0.33, this roadblock becomes less of a concern. We will eagerly await analyst revisions of second quarter estimates, which currently stand at $0.34 vs. $0.31 for the comparable period

China-Biotics, Inc. announced that China-Biotics' Board of Directors approved a new share repurchase program of up to US$ 20 million of worth of its issued and outstanding common shares from time to time over the next 12 months. The repurchases will be made on the open market at prevailing market prices or in block trades and subject to restrictions relating to volume, price and timing. China-Biotics plans to fund repurchases from its available cash balance.

Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics, commented, "Given our proven track records of business expansion and strong balance sheet, we believe that our stock is deeply undervalued. This share repurchase demonstrates our long-term commitment to sustainable growth and enhancing shareholder value. Recognizing our future growth opportunities in such a favorable macro environment for probiotics market, we think now is a great time for us to use our strong financial position to invest in China-Biotics."

"Our robust fiscal third quarter revenue and earnings growth reflect the Company's continued expansion of our bulk and retail customer bases," said Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics. "Commercial production at our Qingpu production plant is scheduled to begin by the end of February and we continue to expect to reach approximately 50% capacity utilization by the end of calendar year 2010. With rising demand from the dairy and animal feed manufacturers, and movement by the government to encourage the use of probiotics, China continues to be a very favorable environment to grow our bulk and retail probiotics business in 2010 and beyond."

The Company is reiterating its fiscal year 2010 revenue growth guidance of at least 50% and expects overall gross margin to remain approximately 70%.

Source: Source: PR Newswire (February 10, 2010)

"We look forward with anticipation to the remainder of fiscal 2010 and are excited about the traction we are gaining in our bulk additives business. Our new manufacturing facility is expected to begin commercial production in the first quarter of calendar year 2010, and our pipeline of potential new bulk additives customers continues to be strong," Mr. Song said. "As the new capacity comes online, we will be able to resume our Shining retail outlet expansion later in the fiscal year. We are already directing our attention to the second phase of the capacity expansion, which we expect to begin by December 31, 2009. Demand for our bulk additive products has been significant, which should result in revenue growth of at least 50% during the 2010 fiscal year."

Source: PR Newswire (November 17, 2009)

'With the ramp-up of our new facility this year, we will be able to accept larger purchase orders from major dairy producers and animal feed manufacturers, which remain the most prominent sources of demand for bulk additives,' Mr. Song said. 'Same-store sales for Shining retail stores that have been in operation at least one year are expected to grow significantly year-over-year, and we hope to continue to expand the number of Shining retail outlets during the year. Although global economic growth remains suppressed, we believe there is pent-up demand for our bulk additive products, which should generate substantial growth in revenues and net income during the 2010 fiscal year.'

Source: PR Newswire (July 15, 2009)