Transcript Management Presentation June 2006 - China-Biotics-Home

Investor Presentation
May 2008
Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any
statements set forth above that are not historical facts are forward-looking statements
that involve risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Such factors include, but are not limited
to, the company’s ability to market existing and new products, ability to access to
capital for expansion, and changes from anticipated levels of sales, future national or
regional economic and competitive conditions, changes in relationships with customers,
dependence on our flagship product profits and other factors detailed from time to time
in the Company's filings with the United States Securities and Exchange Commission
and other regulatory authorities. The company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. This presentation was developed by the Company, is
intended solely for informational purposes and is not to be construed as an offer to sell
or the solicitation of an offer to buy the Company’s stock. This presentation is based
upon information available to the public, as well as other information from sources
which management believes to be reliable, but is not guaranteed by CHBT as being
accurate nor does it purport to be complete. Opinions expressed herein are those of
management as of the date of publication and are subject to change without notice.
2
Equity Snapshot
Listed on the OTC Bulletin Board
Symbol:
CHBT
Price (05/05/08):
$10.50
Market Cap:
$179.3 mil
Shares Outstanding:
17.1 mil
Revenue (ttm):
$38.0 mil
Net Income (ttm):
$12.4 mil
EPS (ttm):
$0.72
P/E (ttm):
14.6
P/S (ttm):
4.7
P/B (ttm):
5.1
EV/EBITDA (ttm):
9.4
Insider / Institutional Ownership: 60.2% / 35.9%
Auditor: BDO McCabe Co. Ltd.
Fiscal Year End: March 31
3
Investment Highlights

Strong revenue and profit growth with high
margins

Proprietary technology creates sustainable,
decisive competitive advantages

Strong brand with significant franchise value

Rising demand for China’s probiotics driven
by increasing wealth and consumption of
dairy products

Entry into bulk additives market further
propels growth

Attractive valuation
4
Corporate Overview
Revenues
Net Income
($ in Millions)
30.6
29.3
22.2
21.9
8.4
FY2006
10.9
FY2007
8.1
9.6
9 Mos 2007 9 Mos 2008


One of the largest probiotics suppliers in China
Shining is one of the most recognized brands in Shanghai

Proprietary technology offers significant cost and product quality
advantages
307 employees (03/31/2008)
60 retail centers in China – 46 in Shanghai (03/31/2008)
Operates in retail and bulk additive spaces



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What are Probiotics?
“Live microorganisms which, when administered in
adequate amounts, confer a health benefit on the host”
– World Health Organization

Benefits of probiotics
–
–
–
–
–
–
–

Improves health of G.I. tract
* Sample: Bifido
Stimulates immune system
Bacteria, one kind of
Helps break down nutrients properly
probiotic
Reduces creation of toxins
Reduces symptoms of lactose intolerance
Decreases prevalence of allergy in susceptible individuals
Reduces some risks associated with certain cancers
3 basic methods of delivery
– Dairy products
– Dietary supplements (capsules, tablets, or powders)
– Other food and beverages
Source: ww.usprobiotics.org
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Projected Rapid Growth

Chinese Probiotic Usage and Growth (Metric Tons)
7000
6000
5000
4000
CY 2006
CY 2010
3000
2000
1000
0
Milk
Animal Feed Capsules
Products
Other
Year
Milk
Products
Animal
Feed
Capsule
Form
Other
Totals
(mt)
2006
2,000
1,000
100
300
3,400
2010
6,500
2,500
600
1,000
10,600
Source: Domestic Probiotics Market Analysis and Forecast Report by Beijing Leadership
Management Consulting Co. Limited
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Market Snapshot
 Chinese affluence drives demand for health food
– Demand for health food in China expected to reach $9.7B by 2010
(Source: Pacific Bridge Medical)
 Demand for milk/yogurt increasing significantly
– Sales of yogurt drinks rose by 25% per year in 2005 and 2006
– Chinese Bureau of Statistics forecasts tenfold increase in domestic
dairy consumption, 2007-2015
– U.S. banks investing in Chinese dairy industry
 Restricted use of antibiotics stimulates probiotic demand
– Over-prescription of antibiotics in China
– Chinese government is encouraging probiotics supplements to combat
antibiotics abuse
 China has limited probiotics production capacity
– Current demand relies on imports from European manufacturers
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Current Key Products
Product
Key Components
Uses
Shining Essence (48% of sales)
L. acidophilus & B. bifidium
Calms digestive system, enhances
G.I. health and protects /
strengthens liver function
Shining Signal (13% of sales)
Monascus rice and
L. acidophilus
Reduces high blood pressure,
high blood sugar levels and
hyperlipidemia
Shining Golden Shield
(13% of sales)
B. adolescentis
& lentinusedodes
Enhances the body’s immune
system
Shining Energy (11% of sales)
Vitamin C, L. Arginine, and
other amino acids
Facilitates brain cell development
and increases alertness
* As of Third Quarter ended December 31, 2007
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New Product Development



Additives for Yogurt

Essential to yogurt-based drinks

One of the fastest-growing food product segments
in China in 2005 and 2006
Additives for Milk Powder

Commonly added to infant formula

Improve digestion in babies
Additives for Other Products

Ice creams

Buns and bakery products
10
Distribution – Current and Planned
New Manufacturing Facility
Supermarkets
Retailers /
Pharmacies
Milk/Yogurt Products via
Bulk Additives
Company-Owned
Retail Centers
11
Strategies for Growth
 2 Pronged Strategy

Health food business: geographical expansion - 300
Shining retail centers

Launch food additive business
 Leveraging on
Shining Retail Center

Highly recognized Shining brand

Our cost and quality advantage

Strong R&D capability: introduce new and
complementary products

Growing demands for probiotics: establish 150 mt / year
production facility to capitalize on the market opportunity
mt = metric tons
12
Retail Expansion Strategy

300 retail centers by March 31, 2009

550 square feet / center

Initial investment about $40,000 per
center

Financed through operating cash flow

Payback period < 1 year
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Bulk Additive Strategy
CY = Calendar Year; mt = metric tons

Launch “Shining Probiotics” for bulk
additives line

Produce bulk food additives for dairy and
animal feed industries

Commenced construction of 150 mt / year
production facility in December 2007, to be
completed in 2008 CY

Products sold directly to major international
and domestic dairy and food manufacturers

Revenue potential of new
plant = $90 MM per year
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New Industry-Leading Facility

The only probiotics plant currently in
development in China that will be able to meet
the domestic demand for bulk additives Initial
revenue opportunity at Phase I capacity =
$90MM / year

Phase 1 = 150 mt / year of production capacity

Phase 2 = scalable to 300 mt / year


Production yield allows company to sell for as
little as one-sixth competitors’ price while
maintaining 70%+ gross margin
Projected to be online in late 2008 CY
CY = Calendar Year; mt = metric tons
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Proprietary Production Process
Bacteria-Based Activation
Bacteria-Based Cultivation
Multistage Fermentation
Bacteria Extraction
Granule Emulsification
Leading edge production
technology

Fermentation: Very high production yield
= low production cost and high margins

Superior probiotic strands: Better
functionality and product quality

Micro-encapsulation: Very long shelf life
Freeze-Drying
Micro-Encapsulation
Double-Aluminum Packaging
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Management and Director Team
Mr. Jinan Song, Founder, Chairman and CEO
Founder and CEO since 1999; Masters degree in politics and economics from Harbin Industrial University
Mr. Raymond Li, CFO
20 years of finance experience in financial reporting, due diligence, M&A activity, staff management and tax
issues
Mr. Henry Tai, VP of Corporate Development
20 years of experience in direct investments, corporate finance and auditing in Australia, China, Hong Kong
and the United Kingdom
Mr. Simon Yick, Independent Director
20 years in corporate finance, direct investment and auditing
Dr. Chin Ji Wei, Independent Director
20 years of academic experience in horticulture; authored 50+ papers; awarded five patents, Science and
Progressive Award
Dr. Du Wen Min, Independent Director
Specialist in Study of Liver Disease; Deputy Director in charge of the Centre for Adverse Drug Reactions in
Shanghai
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Strong Financial Performance
Net Sales ($ in Million)
CAGR = 45.7%
30.6
31.7%
Gross Profit ($ in Millions)
29.3
22.2
21.9
14.4
25.0
20.0
15.0
74.0%
72.0%
70.0%
10.0
5.0
0.0
FY 2005 FY 2006 FY 2007
9 Mos
2007
9 Mos
2008
68.0%
66.0%
FY '05 FY '06 FY '07 9M '08
Gross Profit
Gross Margin
Net Income ($ in Million)
CAGR = 41.3%
8.4
10.9
18.5%
8.1
9.6
5.5
* For Fiscal Years Ended March 31
FY 2005 FY 2006 FY 2007
9 Mos
2007
9 Mos
2008
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Income Statement, 2006-2008
($ in thousands)
FY2007
06-07%
FY2006
Change
40.0%
21,862
05-06%
9M
9M
Change
2008
2007
29,267
22,233
72.5%
70.7%
Net sales
30,610
51.6%
Gross profit%
70.9%
Operating income
14,931
22.5%
12,186
52.7%
13,441
11,073
Net income
10,905
30.5%
8,354
53.0%
9,554
8,059
Diluted EPS*
$ 0.64
$ 0.55
$ 0.47
70.5%
$4.90
*The earnings per share figures reflect an increase in weighted-average shares related
to the share exchange transaction in March 2006.
For Fiscal Years Ended March 31
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Balance Sheet
2007
2006
December 31
2007
Cash and cash equivalents
26,992
19,841
59,082
Current assets
41,897
31,833
74,499
Total assets
44,580
33,427
85,321
Current ratio
2.0
1.5
3.0
Current liabilities
20,670
21,090
24,889
Total liabilities
20,670
21,090
49,889
Stockholder’s equity
23,910
12,337
35,432
($ in thousands)
March 31
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Attractive Valuation
Company
Ticker
Market
Cap
Trailing
P/E
PEG
(ttm)
0.47
China-Biotics, Inc.
CHBT
$ 179.3M
14.58
Martek Biosciences
MATK
1.2B
30.72
Perrigo Co.
PRGO
3.9B
Shanghai Jiaoda Onlly Co., Ltd 600530.SS
P/S
(ttm)
EV /
EBITDA
4.72
9.35
1.54
3.67
16.41
38.43
1.29
2.54
21.21
314.3M
49.32
N/A
4.69
N/A
Nu Skin Enterprises Inc.
NUS
1.1B
26.59
1.13
0.98
10.06
Herbalife Ltd.
HLF
2.8B
16.62
0.92
1.25
8.08
1.9B
32.34
1.22
2.63
13.94
AVERAGE
(Excluding CHBT)
Data as of May 5, 2008, Yahoo! Finance. and www.jrj.com.cn
21
Investment Highlights






Strong revenue and profit growth with high
margins
Proprietary technology creates sustainable,
decisive competitive advantages
Strong brand with significant franchise value
Rising demand for China’s probiotics driven
by increasing wealth and consumption of
dairy products
Entry into bulk additives market further
propels growth
Attractive valuation
22
Contact Information
China-Biotics Inc.
CCG Elite Investor Relations
Raymond Li, Chief Financial Officer
Crocker Coulson, President
No. 999 Ningqiao Road,
1325 Avenue of the Americas, Suite 2800
Jinqiao Export Processing Zone,
New York, NY 10019
Pudong, Shanghai 201206, China
Phone: (212) 245-1010
Phone: (86) 21-58349748
E-mail：[email protected]
Web Site: www.chn-biotics.com
Web Site: www.ccgelite.com
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Thank you.
May 2008