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American Dairy Reports Fourth Quarter and Full Year 2005 Financial Results

Posted on: Thursday, 30 March 2006, 09:00 CST

American Dairy, Inc. (NYSE Arca:ADY), one of the leading producers and distributors of milk powder and soybean products in China, today announced fourth quarter and full year 2005 financial results.

Financial highlights from the fourth quarter and full year 2005 versus the fourth quarter and full year 2004, include:

-- 4Q05 net Income increased 68% to $4.0 million, or $0.25 per

diluted share

-- FY2005 net income increased 86% to $11.6 million, or $0.74 per

diluted share

-- Revenue increased 115% to $25.6 million in 4Q05 and 82% to

$68.0 million in FY2005

-- Gross profit grew 28% to $9.3 million in 4Q05 and 51% to $29.3

million in FY2005

Leng You Bin, Chief Executive Officer and President of American Dairy stated, "We experienced continued sales momentum in 2005 with a 28% increase in sales volume from the year before, driven by our leading Feihe brand infant formula. We remain committed to making Feihe the premier infant formula brand in China as more and more mothers realize the benefits and importance of infant health."

Quarter Ended December 31, 2005

Net income increased 68%, to $4.0 million in the fourth quarter of 2005 from $2.4 million in the fourth quarter of 2004. Earnings per diluted share were $0.25, up 55% from $0.16 in the fourth quarter of the previous year. During this period, diluted shares outstanding increased to 16.8 million from 15.0 million. Net income performance reflects continued revenue growth, as well as a 13% increase in operating expenses, particularly increased distribution and general and administrative expenses as the company invested in advertising and promotions and increased distribution salaries and transportation to expand to new market areas.

Revenue for the fourth quarter was $25.6 million, an increase of $13.6 million or 115% compared to $12.0 million in the fourth quarter of 2004. The increased popularity of the Feihe brand in mainland China, reflecting American Dairy's successful advertising campaigns and extensive network of direct sales personnel through the PRC, continued to drive revenue growth in the fourth quarter.

Gross profit increased $2.0 million, or 28%, to $9.3 million from $7.3 million in the fourth quarter of 2004. Gross margin of 36% compared to 61% in the prior year's period reflects the impact of higher commodity and supplement costs for premium products as well as increased labor and overhead related to the ramp up of new manufacturing facilities not yet utilized in the fourth quarter of 2005. Income from operations increased $1.2 million, or 128% to $2.1 million from $900,000 in the fourth quarter of 2004, despite a 13% increase in operating expenses which included greater distribution costs and expenses commensurate with revenue growth such as advertising efforts.

Leng You Bin continued, "In the fourth quarter we continued to reinvest back in the business in anticipation of future growth. Specifically, we increased promotional expenditure around the Feihe brand and we incurred additional transportation expense in order to bring our products to new geographic areas. We remain on track to build a new packaging and distribution center in Lang Fang, China, which we believe will lower transportation fees, enhance product quality and increase our sales capacity over time."

Year Ended December 31, 2005

Net income for 2005 increased $5.3 million, or 86%, to $11.6 million from $6.3 million in 2004. Earnings per share increased 57% to $0.74 from $0.47 during the previous year. The significant increase in net income for 2005 is a result of the revenue increase from 2004, offset by increased commodity costs, distribution expenses and general and administrative costs, as well as a 49% increase in other income due to VAT tax rebates.

Revenue increased $30.6 million, or 82%, to $68.0 million from $37.4 million in 2004, reflecting a 28% increase in overall sales quantity to 17.2 million kilograms. While the Feihe brand infant formula product drove the majority of this volume, sales quantities of the CPP series milk powder increased 88% to 4.5 million kilograms from 2004, and the milk powder with nucleotides product increased sales quantity by 400% to 1.1 million kilograms in 2005 from 2004.

Gross profit increased by $17.1 million or 51% to $29.3 million from $19.4 million in the prior year. Gross margin during 2005 was 43% versus 52% in the 2004, reflecting the impact of higher commodity and supplement costs for premium products, year over year increases in raw materials such as whey and sugar, and increased labor and overhead costs related to the ramp up of new manufacturing facilities which were not yet utilized in 2005. Income from operations increased 118% or $5.3 million to $9.9 million in 2005 compared to $4.6 million in 2004, resulting in operating margins of 15% compared to 12% last year.

American Dairy did not incur income tax during the fourth quarter of 2005, as the company is currently exempt from corporate income tax through 2009. Additionally, the Company receives economic incentives from certain Chinese provinces in the form of VAT tax rebates. These rebates positively impacted other income by $2.2 million in 2005.

Balance Sheet

As of December 31, 2005, the Company had $13.0 million of cash, up from $6.6 million at December 31, 2004 and $1.3 million at September 30, 2005. The Company had long term debt of $5.5 million compared to $0.6 million at December 31, 2004 and $5.8 million as of September 30, 2005.

The Company is currently exploring uses of cash, including share buybacks and other strategic uses of capital to enhance shareholder value.

Guidance

American Dairy previously provided financial expectations for 2006 and continues to expect revenue of $120.0 million, up 76% from $68.0 million in 2005, as well as net income of $20.0 million, up 72% from $11.6 million in 2005. Based on diluted shares outstanding of 16.6 million, which assumes conversion of convertible debt in 2006, the Company expects net income per diluted share of $1.20.

About American Dairy, Inc.

American Dairy, Inc. conducts operations in The People's Republic of China ("China") through its wholly owned subsidiary, Feihe Dairy. Founded in 1962, Feihe Dairy is one of the leading producers and distributors of milk powder and soybean products in China. Feihe Dairy is located in Kedong County, China, and has been in operation since 2001. American Dairy also has a milk powder processing plant, BaiQuan Feihe Dairy in Kedong County, and also has a milk powder processing plant in the city of QiQiHaEr, Heilongjiang Province. http://www.feihe.com/

Certain of the statements made herein constitute forward-looking statements that involve risks and uncertainties. In such instances, actual results could differ materially as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in The People's Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product and service development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products and services, and other risk factors detailed in forms filed with the Securities and Exchange Commission from time to time. AMERICAN DAIRY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, --------------------------------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ SALES $25,599,650 $11,912,904 $68,023,903 $37,416,223 COST OF GOODS SOLD 16,295,578 4,630,746 38,715,895 18,006,918 ------------ ------------ ------------ ------------ Gross Profit 9,304,072 7,282,158 29,308,008 19,409,305 ------------ ------------ ------------ ------------ OPERATING AND ADMINISTRATIVE EXPENSES: Distribution expenses 6,770,702 5,958,535 16,742,578 13,486,232 General and administrative expenses 837,886 486,487 2,484,039 1,313,358 Other operating expenses - (96,034) Depreciation (428,350) 3,302 161,450 54,419 ------------ ------------ ------------ ------------ 7,180,238 6,352,290 19,388,067 14,854,009 ------------ ------------ ------------ ------------ Income from operations 2,123,834 929,868 9,919,941 4,555,296 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE): Other income (expenses) 2,141,346 1,484,566 2,220,751 1,489,767 Gain on disposal of assets 9,125 (1,935) 9,125 693 Interest and finance costs (282,578) (5,105) (522,812) (49,353) ------------ ------------ ------------ ------------ 1,867,893 1,477,526 1,707,064 1,441,107 ------------ ------------ ------------ ------------ MINORITY INTEREST 2,424 (28,836) 2,424 356 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 3,994,151 2,378,558 11,629,429 5,996,759 (PROVISION FOR) BENEFIT FROM INCOME TAXES - - - 261,621 ------------ ------------ ------------ ------------ NET INCOME 3,994,151 2,378,558 11,629,429 6,258,380 Other comprehensive income, net of tax: Foreign currency translation adjustment (56,837) - 605,261 - ------------ ------------ ------------ ------------ TOTAL COMPREHENSIVE INCOME $3,937,314 $2,378,558 $12,234,690 $6,258,380 ============ ============ ============ ============ BASIC NET INCOME PER COMMON SHARE $0.28 $0.20 $0.83 $0.52 ============ ============ ============ ============ WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 14,075,682 11,924,678 13,931,006 12,077,085 ============ ============ ============ ============ DILUTED NET INCOME PER COMMON SHARE $0.25 $0.16 $0.74 $0.47 ============ ============ ============ ============ WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 16,817,936 15,022,167 16,057,073 13,455,700 ============ ============ ============ ============ See accompanying notes to financial statements. AMERICAN DAIRY INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2004 ASSETS 2005 2004 ------------ ------------ Current assets: Cash $12,958,435 $6,645,197 Accounts receivable Trade-net of allowance for bad debts of $309,461 and $0, respectively 4,132,931 670,580 Employees 488,413 267,249 Other 1,516,105 332,970 Commercial note receivable - secured - 217,391 Inventories 9,622,347 5,042,398 Prepaid expenses 875,031 565,069 Advances to suppliers 1,216,172 307,667 Other tax refundable 500,892 37,381 ------------ ------------ Total current assets 31,310,326 14,085,902 ------------ ------------ Property and equipment: Fixed assets, net of accumulated depreciation 34,685,898 9,027,394 Construction in progress 3,373,833 14,720,742 ------------ ------------ 38,059,731 23,748,136 ------------ ------------ Total assets $69,370,057 $37,834,038 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY 2005 2004 ------------ ------------ Current liabilities: Accounts payable and accrued expenses $11,855,430 $9,033,956 Current portion of long term debt 102,466 118,140 Advances from related parties 932,942 1,141,581 Advances from employees 947,596 653,865 Deferred income 12,073,781 9,694,523 Short-term notes and loans payable 7,323,801 241,546 ------------ ------------ Total current liabilities 33,236,016 20,883,611 ------------ ------------ Long term debt, net of current portion shown above 5,543,517 597,875 ------------ ------------ Minority interest 493,500 180,458 ------------ ------------ Stockholders' equity: Common stock, $.001 par value; 50,000,000 shares authorized; 14,132,824 and 13,556,354 shares issued and outstanding at December 31, 2005 and 2004, respectively 14,133 13,556 Additional paid-in capital 9,208,837 7,519,174 Retained earnings 20,268,793 8,639,364 Accumulated other comprehensive income 605,261 - ------------ ------------ Total stockholders' equity 30,097,024 16,172,094 ------------ ------------ Total liabilities and stockholders' equity $69,370,057 $37,834,038 ============ ============ See accompanying summary of accounting policies and notes to financial statements.

Source: Business Wire

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