Harbin, China, Aug. 15 - China Yingxia International, Inc., a leading provider in the nutraceutical industry engaged in the development, manufacture and distribution of nutritional food products, dietary supplements, and personal care products in the People's Republic of China (PRC), reported yesterday its financial results for the second quarter ended June 30, 2008.
Second Quarter 2008 Highlights
-- Revenue increased 22.7% year-over-year to a record high of
$6.4 million
-- Gross profit increased 22.6% year-over-year to $3.6 million;
gross margin was 55.6%
-- Operating income increased 27.7% year-over-year to $3.1 million
-- Net income increased 23.4% year-over-year to $3.0 million, or
$0.06 per fully diluted share
-- Added 230 new franchise stores
-- Acquired acquisition of Guangzhou Chichi Network Technology
Development Co., Ltd. and Guangzhou Chichi Network Supermarket Chain
Co., Ltd. ("Chichi Network")
-- Completed acquisition of soybean manufacturing facility
-- Appointed new CFO, Mr. Ren Hu
-- Elected Alice Lee Rogers as independent director to the Company's
Board of Directors; she is also the Chairwoman of the company's audit
committee
"The second quarter of the year is usually our seasonally second strongest quarter, due to the larger harvest of cactus crops at this time of year. During this past quarter, we continued to shift our product mix towards nutritional food products and dietary supplements, and were pleased to see year-over-year growth in these product lines of 62% and 232%, respectively," said Ms. Yingxia Jiao, CEO of China Yingxia. "The acquisition of Jin Ao, a soy milk manufacturing facility, will further help us expand our presence in the nutritional food market."
Second Quarter Fiscal Year 2008 Results
Sales for the three months ended June 30, 2008, was $6.4 million, an increase of 22.7% from $5.2 million in the same period in 2007. Growth in sales mainly reflected the ongoing effort to increase China Yingxia's sales in cactus products and nutritional food products. As the second quarter is harvest season for cactus plants, sales from raw cactus plants equaled 65% of total sales, compared to 67% a year ago and only 1% in the first quarter of 2008. Nutritional food products and dietary supplements contributed to 22% and 9% of total sales, respectively, in the second quarter of 2008.
The remaining 4% of sales was from personal care products, cosmetics and the newly acquired Chichi Network companies. Sales of nutritional food products increased 62% from the corresponding quarter previous year, while sales of cactus products increased 21% for the same period. Sales of dietary supplements increased 232% from the second quarter of 2007.
During the second quarter of 2008, China Yingxia added 230 new franchise stores, including 48 provincial level stores and 182 county level stores across China, which contributed to nearly $1 million, or 15% of sales, in the second quarter. The new stores in Northeast China accounted for over half of the sales contribution from the new stores added during
the second quarter.
Gross profit increased to $3.6 million, up 22.6% from the same period previous year. Gross profit margin remained stable at 56%. Gross margin for cactus products was 56%, while gross margin for nutritional food products and dietary supplements were 49% and 69%, respectively. Despite an environment of rising raw materials prices, China Yingxia was successful in maintaining profit margin during the quarter.
"We have been able to retain our gross profit margin above 50% by improving production efficiencies and reducing production by third party manufacturers. We will continue to cooperate with farmers to ensure smooth raw material supplies," said Ms. Jiao. "We believe our gross profit margin will continue to stay above this level as we are able to obtain premium prices for our products due to the high demand for health promoting food and our unique product offerings."
Operating expenses totaled $0.4 million, or 6.6% of total revenue, in the second quarter of 2008, down 5.5% from $0.5 million, or 8.6% of revenue, in the same period of the prior year. The decrease was due to significantly lower spending on research and development compared to the second quarter of 2007.
Operating income in the second quarter of 2008 was $3.1 million, up 27.6% from $2.5 million in the same period a year ago. Operating margin was 49.0% compared to 47.1% in the second quarter of 2007.
Provision for income tax in the second quarter of 2008 was $0.1 million as oppose to no income taxes or the same period in 2007. The corporate income tax was 12.5% and is expected to remain at this level throughout 2008. Sales of raw cactus plants are exempt from income tax.
For the second quarter of 2008, net income was $3.0 million or $0.06 per fully diluted share, an increase of 23.4% from $2.5 million or $0.07 during the corresponding period prior year. Net profit margin was 47.4% compared to 47.1% in the previous year.
Six Months Results
For the first six months of 2008, total sales were $8.5 million, up 24.2% from the first six months of 2007. Gross profit for the first six months of 2008 was $4.9 million, up 28.8% from gross profit of $3.8 million in the comparable period a year ago. Gross margin was 56.9% compared to 54.9% for the first six months of 2008 and 2007, respectively. Income from operations for the period was $4.0 million, up 31.2% from $3.0 million in the first six months of 2007. Net income for the first six months of 2008 was $3.7 million, up 24.9% from $3.0 million in the first six months of 2007. Fully diluted earnings per share were $0.08 for the first six months of 2008 compared to $0.09 in the first six months of 2007.
Financial Condition
As of June 30, 2008, the Company had $2.5 million in cash and cash equivalents and no long-term debt outstanding. Working capital was $18.4 million as of June 30, 2008, compared to $14.8 million as of December 2007. As of June 30, the current ratio was 28. Total shareholder's equity amounted to $43.0 million as of June, 30 2008, compared to $36.8 million as of December 31, 2007.
For the six months ended June 30, China Yingxia's net cash flow used in operating activities totaled $1.7 million, up $1.4 million from the three months ended March 31, 2008. Operating cash flow was driven by an increase in accounts receivable and inventories. Inventories are usually higher during the first half of the year, due to the accumulation of agricultural products.
Recent Events
In June, the Company completed the acquisition of Shanghai Jin Ao Food Co., Ltd ("Jin Ao") a soybean milk manufacturer and distributor based in Shanghai, China. The facilities were acquired from King International Food Corporation Ltd. ("King"), a Sino-Australian joint venture. Upon completion of the acquisition, China Yingxia owns 100% of all equity of Jin Ao together with the right to utilize Jin Ao's production equipment for the production of soybean milk and related products under the associated brand Kingland, the production technology and know-how, and marketing and distribution resources.
The Company appointed Alice Lee Rogers as an independent director to the Company's Board of Directors; in addition, Ms. Rogers was appointed to be the Chairwoman of the company's audit committee, effective July 2008.
Business Outlook
During the second quarter of 2008, China Yingxia has continued focusing on sales of nutritional products. Compared with the first six months of 2007, sales of nutritional products and dietary supplies have increased over 120% during the first half of 2008. Consequently, China Yingxia is continuously developing its product portfolio within these product segments.
The main growth driver for China Yingxia is the rapid development of new franchise stores. This business model helps the company reach dispersed markets in China, while simultaneously strengthening its brand identity. Having reached a total of 273 franchise stores during the first and second quarter of 2008, the company expects to open 114 new outlets throughout China during the second half of 2008.
The Company's acquisition of six production lines for the production of soybean milk was completed in the end of June. The new facilities are expected to become operable during the third quarter and are estimated to generate $1.6 million in revenue and gross profit of $0.5 million during the second half of 2008.
"In the second half of the year, we will continue to focus on increasing sales of our nutritional products and developing new products. We plan to expand our footprint throughout China by opening additional franchise stores and increasing sales at existing stores," said Ms. Jiao.
"We are particularly excited about the acquisition of Jin Ao, as it highlights the shift in our sales mix towards products that appeal to a larger market. We firmly believe that soy milk will become a significant source of revenue, given the enormous growth potential in China for convenient and urban products tailored to the local palette," she concluded.
China Yingxia also plans to continue expand its international operations. The main focus is currently on India. In this region, the Company focuses on dietary supplement sales and anticipates sales to start by the end of the third quarter as soon as the Company has received its business license from the Indian authorities.
For the full year of 2008, China Yingxia expects revenue to reach $25.9 million, with net income of $12.9 million, or $0.26 per fully diluted share.