Transcript Investor Presentation July 2008
Investor Presentation
July 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: Price (07/11/08): Market Cap: Shares Outstanding: Revenue (ttm): Net Income* (ttm): Diluted EPS (ttm): P/E (ttm): P/S (ttm): P/B (ttm): EV/EBITDA (ttm): Insider / Institutional Ownership: 60.2% / 35.9% Auditor: BDO McCabe Co. Ltd.
Fiscal Year End: March 31 *Excluding a $3.4 million gain related to the change in fair value of convertible notes CHBT $11.90
$203.3 mil 17.1 mil $42.3 mil $14.2 mil $0.80
14.9
4.8
4.6
6.9
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Investment Highlights
Strong revenue and profit growth with high margins
Proprietary technology creates sustainable, decisive competitive advantages
Strong brand with significant franchise value Rising demand for China’s probiotics driven by increasing wealth and consumption of dairy products
Entry into bulk additives market further propels growth
Attractive valuation 4
Corporate Overview
($ in Millions)
21.9
10.9
8.4
30.6
14.2* 42.3
Revenues Net Income
FY2006 FY2007 FY 2008 *Excluding a $3.4 million gain related to the change in fair value of convertible notes 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 5
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
– – – –
Stimulates immune system Helps break down nutrients properly Reduces creation of toxins Reduces symptoms of lactose intolerance
– –
Reduces some risks associated with certain cancers * Sample: Bifido Bacteria, one kind of probiotic Decreases prevalence of allergy in susceptible individuals
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 3000 2000 1000 0 Milk Products Animal Feed Capsules Other CY 2006 CY 2010 Year 2006 2010 Milk Products 2,000 6,500 Animal Feed 1,000 2,500 Capsule Form 100 600 Other 300 1,000 Totals (mt) 3,400 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 8
Current Key Products
Product Shining Signal (13% of sales) Shining Golden Shield (13% of sales) Key Components Shining Essence (49% of sales) L. acidophilus & B. bifidium Monascus rice and L. acidophilus B. adolescentis & lentinusedodes Uses Calms digestive system, enhances G.I. health and protects / strengthens liver function Reduces high blood pressure, high blood sugar levels and hyperlipidemia 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 fiscal year ended March 31, 2008
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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 Company-Owned Retail Centers Retailers / Pharmacies Milk/Yogurt Products via Bulk Additives 11
Strategies for Growth
Shining Retail Center
mt = metric tons
2 Pronged Strategy
Health food business: geographical expansion - 300 Shining retail centers Launch food additive business
Leveraging on
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 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 13
Bulk Additive Strategy
CY = Calendar Year; mt = metric tons
Produce bulk food additives for dairy and animal feed industries
Launch “Shining Probiotics” for bulk additives line 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 = $110 MM per year 14
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 = $110MM / 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-six th 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 Freeze-Drying Micro-Encapsulation Double-Aluminum Packaging
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 16
Management
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
Ms. Eva Yan, Executive Vice President
Participation in formulating corporate development plans, implementing internal control procedures, and presentations in business negotiations.
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
Dr. Shuguang Fang, Chief Technology Officer
10 years of experience in bio-engineering; team member of 863 strategic projects and national 9 th -5 year and 10 th - 5 year projects in China; Ph.D. in Chemical Bio-engineering from East China University of Science and Technology
Dr. Kai Ma, Director of Research and Development
10 years of experience in microbiology; team member of the national 863 and 973 strategic projects; Ph.D. in Microbiology from Institute of Microbiology of Chinese Academy of Sciences
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Strong Financial Performance
Net Sales ($ in Million) 42.3
CAGR = 43.2% 30.6
21.9
14.4
FY 2005 FY 2006 FY 2007 FY 2008 Net Income ($ in Million) 14.2
CAGR = 37.5% 10.9
8.4
5.5
Gross Profit ($ in Million) 40.0
30.0
20.0
10.0
0.0
72.0% 70.0% FY '05 FY '06 FY '07
Gross Profit
FY'08
Gross Margin
68.0% *Excluding a $3.4 million gain related to the change in fair value of convertible notes FY 2005 FY 2006 FY 2007 FY 2008* 18
Income Statement, 2006-2008
($ in thousands) Net sales Gross profit% FY2008 07-08% Change 42,321 70.9% Operating income 18,315 38.3% 22.7% Net income Diluted EPS 14,176* $ 0.80** 30.0% FY2007 06-07% Change 40.0% 30,610 70.9% 14,931 10,905 $ 0.64
22.5% 30.5% FY2006 05-06% Change 51.6% 21,862 70.5% 12,186 52.7% 8,354 $4.90*** 53.0% * Excluding a $3.4 million gain related to the change in fair value of convertible notes ** The earnings per share figures reflect an increase in weighted-average shares related to the issuance of convertible notes in December 2007.
***The earnings per share figures reflect an increase in weighted-average shares related to the share exchange transaction in March 2006.
For Fiscal Years Ended March 31 19
Balance Sheet
($ in thousands) Cash and cash equivalents Current assets Total assets Current ratio Current liabilities Total liabilities Stockholder’s equity
March 31
2008 2007 2006 64,310 26,992 19,841 79,979 41,897 31,833 93,792 44,580 33,427 3.0 2.0 1.5
26,896 20,670 21,090 49,396 20,670 21,090 44,395 23,910 12,337 20
Attractive Valuation
Company Ticker Market Trailing Cap P/E PEG P/S EV / (ttm) (ttm) EBITDA China-Biotics, Inc. CHBT $ 203.3M 14.88 0.50 4.80 6.87
Martek Biosciences MATK 1.2B 27.76 2.16 3.55 14.78
Perrigo Co.
PRGO 3.3B 26.24 1.07 1.92 15.57
Nu Skin Enterprises Inc. NUS 982.3M 21.40 1.07 0.83 8.14
Herbalife Ltd. HLF 2.5B 12.58 0.73 1.10 AVERAGE (Excluding CHBT) 6.96
1.6B 26.64 1.26 1.80 11.36
Data as of July 11, 2008, Yahoo! Finance. and www.jrj.com.cn
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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.
Raymond Li, Chief Financial Officer No. 999 Ningqiao Road, Jinqiao Export Processing Zone, Pudong, Shanghai 201206, China Phone: (86) 21-58349748 Web Site: www.chn-biotics.com
CCG Investor Relations
Crocker Coulson, President 1325 Avenue of the Americas, Suite 2800 New York, NY 10019 Phone: (212) 245-1010 E-mail
：
Web Site: www.ccgir.com
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Appendix: Reconciliation of Non-GAAP Financial Data
Non-GAAP Net income
Net Income (Loss) Adjusted Amount Adjustments Non-cash gains from change in fair value of convertible bonds Amount per consolidated statement of operations
Q4 2008
Net Income 4,622,129
Q4 2007
Net Income $2,845,734 $3,366,000 $7,988,129 $2,845,734
Non-GAAP Net income
Net Income (Loss) Adjusted Amount Adjustments Non-cash gains from change in fair value of convertible bonds Amount per consolidated statement of operations
FY 2008
Net Income $14,176,244
FY 2007
Net Income $10,904,986 $3,366,000 $17,542,244 $10,904,986
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