Reston, Va., April 13, - Emerald Dairy, Inc. a leading producer and distributor of infant and children's formula, milk powder and soybean products in China, today announced results for the fiscal year ended December 31, 2008.
Total sales revenues for the 2008 fiscal year rose to $44,325,179, an increase of $14,707,171 or 49.7% over $29,618,008 for the fiscal year ended December 31, 2007. The increase was due to the Company's market expansion into 20 provinces and over 5,800 retail outlets; the increasing popularity of the products due to sales and marketing efforts, and an increase in the average selling price of 34.9%. The total exceeded the Company's guidance in October 2008 that estimated revenues would increase 42% in 2008.
Gross Profit for 2008 was $17,778,888, an increase of $7,225,785 or 68.47% over the gross profit for 2007 of $10,553,103. For 2008, the gross profit represented 40.1% of sales, compared to 35.6% for fiscal year 2007. The gross margin on milk powder, the company's lead product, increased to 44.3% from 39.1% in 2007 due to increased production of the company's higher end product.
Cash and cash equivalents at December 31, 2008 increased by 11.9% to $7,343,588 from $6,560,931 at December 31, 2007. Management stated, "Based upon our short term liabilities, we believe our cash and cash equivalents are adequate to satisfy our working capital needs and sustain our ongoing operations for the next 12 months. We are expecting the cash flows to fluctuate in the future as we try to raise funds from the capital markets to implement our growth strategy."
Net income for fiscal year 2008 decreased by $1,235,631 or 34.8%, to approximately $2,314,507, down from $3,550,138 for fiscal year 2007. The decrease was due to a one-time charge of $986,699 in liquidated damages resulting from failure to satisfy certain registration requirements, combined with an increase in our operating expenses.
Shu Kaneko, Chief Financial Officer for Emerald Dairy, said, "We are extremely pleased with our results for 2008, which exceeded our initial expectations and which support our decision to expand our production capacity in the coming year. Due to our reputation for high quality and our continued sales and marketing efforts, we have experienced growth well above the industry average. Sales have increased by 461% in three years, from $7.9 million in 2005 to $44.3 million in 2008. Net income increased 238%, from approximately $0.8 million in 2005 to approximately $2.7 million in 2008. Following the same trend, working capital increased from approximately $1.4 million in 2005 to approximately $19.7 million in 2008, including cash generated from operations, as well as funds raised from private offerings of promissory notes and warrants we consummated in fiscal 2008."
Rapidly Growing Industry
The Chinese government has recognized that the dairy industry is not only crucial to reforming the structure of agriculture in the country and increasing the income of farmers; it is also essential to improve the diet, health, and overall welfare of the Chinese people. In recent years, milk and dairy products have gradually become an accepted daily necessity in the life of Chinese people. As a result, the dairy market is one of the fasted growing markets in China.
The dairy market today in China is over $13 billion and is expected to grow at a rate of 15% per year for the foreseeable future.
Emerald Dairy Growth Strategy
New Production Facility: For the next three years, Emerald Dairy plans to focus on rapidly expanding its production capacity to keep pace with the growing demand for its products.
In July 2008, the Company commenced construction of a new production facility. The first phase of this project is expected to cost an aggregate of approximately $20.0 million, including land use rights, construction expenses and equipment costs. Upon completion of the first phase, the new facility will have one production line, which will have the capacity to produce an additional 9,000 tons of milk power annually - doubling the Company's current capacity.
We anticipate that production at this new facility will commence in the third quarter of fiscal 2009, assuming we obtain the remaining $6.0 million we require to complete construction and fully equip the first production line. A second production line may be added at this new facility, which, when completed, would enable us to produce an additional 9,000 tons of milk powder per year, giving us a total annual production capacity of 27,000 tons of milk powder by 2011. The cost to add the second production line would be an additional $15.0 million.
Historically Emerald Dairy has relied on investments by its Chief Executive Officer and shareholders, and bank loans, to meet cash and capital expenditures. However, in order to meet production needs promptly, EMDT is reaching out to the capital markets to raise funds through private and public offerings of equity and/or debt. More details are presented in Form 10K for fiscal year 2008, filed with the SEC.
New Organic-label Product Line: Currently, there are no organic label milk powder products in the mainland China market. In February 2008, Emerald Dairy obtained organic label certification from Guangdong Zhongjian Certification Co., Ltd. The Company plans to create an organic label product line in fiscal 2009. Although sales of organic milk powder are initially expected to be minor, management believes that, over the long term, organic milk products will be very popular in China, similar to the growth of the organic milk market in the U.S., and will help increase revenues.