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    Ady 2010 q2 presentation final Ady 2010 q2 presentation final Presentation Transcript

    • AMERICAN DAIRY, INC. (Feihe International) Investor Presentation September 2010 1
    • Safe Harbor Statement CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis presentation includes statements that constitute forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended. These statements relate to future events or to our future financial performance, andinvolve known and unknown risks, uncertainties and other factors that may cause our actual results, levels ofactivity, performance, or achievements to be materially different from any future results, levels of activity,performance or achievements expressed or implied by these forward-looking statements. These statementsinclude, but are not limited to, information or assumptions about revenues, gross profit, expenses, income,capital and other expenditures, financing plans, capital structure, cash flow, liquidity, management’s plans,goals and objectives for future operations and growth. In some cases, you can identify forward-lookingstatements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,”“believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparableterminology. You should not place undue reliance on forward-looking statements since they involve knownand unknown risks, uncertainties and other factors which are, in some cases, beyond our control and whichcould materially affect actual results, levels of activity, performance or achievements. Certain of theinformation contained herein concerning economic trends and performance is based upon or derived frominformation provided by third-party consultants and other industry sources. We have not independentlyverified and cannot assure the accuracy of any data obtained by or from these sources.The forward-looking statements contained in this presentation are made only as of May 2010, and AmericanDairy, Inc. is under no obligation to revise or update these forward-looking statements. 2
    • Business at a Glance We are a leading producer and distributor of infant formula, milk powder, soybean and walnut powder products in China  Headquartered in Beijing  Over 47 years of operating history  Processing facilities in Heilongjiang, Shanxi and Hebei provinces, with processing capacity of 1,250 tons of milk powder per day  Packaging and distribution facilities in Kedong, Heilongjiang province and Langfang, Hebei province  Dairy farms in Gannan and Kedong We are the first and only NYSE-listed Chinese dairy company Our brands, Feifan, Feiyue and Feihui, are among China’s most recognized brands  History of product excellence achieved through secured source of quality milk and stringent quality control  Covers all market segments Nationwide presence, with focus on tier 2 and 3 cities  Over 95,000 retail outlets across China  Presence in 29 provinces, including all tier 1 cities except Shanghai 3
    • Company History • Raised • Raised $80M of • Restructured $18.2M of 1% Guaranteed 1% Guaranteed • Raised $63 M • Feihe, as a • Listed 7.75% Senior Secured Senior Secured with Sequoia SOE, began • Quoted on NYSE Convertible Convertibles Convertibles for 2.1 M operations on OTC Arca Notes Notes due 2012 Notes due 2012 shares1962 1997 2003 2005 2006 2007 2008 2009 • Chairman • Acquired tangible • Langfang • Began • Brought in 8000 • June 8, 2009: Leng led assets of Nutricia, distribution construction Australian Listed on NYSE Management wholly-owned center on two Holstein cows main board Buy Out subsidiary of commenced international Royal Numico in operation accredited • Melamine crisis • Began capacity China organic dairy broke, ADY expansion project farms in passed all gov. in Gannan and Gannan and inspections Longjiang facilities Kedong 4
    • Capital Market Summary  NYSE: ADY  Price (as of 8/19/2010): $7.35  Shares outstanding (as of 6/30/2010): 22.3 million  Market Cap (as of 8/19/2010): $163.7 million 300.0 Revenue Net Income 40.0 35.4 250.0 30.0 200.0 19.6 $US (millions) $US (millions) 20.0 16.4 17 150.0 271.1 8.3 10.0 100.0 193.2 163.9 155.0 133.6 0.0 50.0 115.1 2006 2007 2008 2009 1H09 1H10 0.0 -10.0 2006 2007 2008 2009 1H09 1H10 -20.0 (15.0) * 3Q10E revenue guidance: >$55M 5
    • Company Highlights 1 A Leading Infant Formula Brand in China 2 Large Market Opportunity with Long-Term, High-Growth Prospects 3 Vertically Integrated Business Model – High Barriers to Entry 4 Stringent Quality Control with State of the Art Equipment and Facilities 5 Nationwide Sales Force with Regional Distribution Centers 6 Experienced Management Team with Proven Track Record 7 Strong Financial Position and Profitability 6
    • Company Overview 7
    • China’s Infant Formula Market Dairy Product Consumption China’s Drinking Milk and Infant Formula Market 120 $ 50,000 RMB 250.0Total Dairy Consumption Per Capita1 (kg) 103 45,000 100 95 96 93 95 40,000 200.0 GDP Per Capita ($US) 87 35,000 80 RMB (billions) 30,000 150.0 60 25,000 46 44 20,000 100.0 40 15,000 17 10,000 50.0 20 12 11 6 9 5,000 2 0 0 0.0 India China Thailand Japan France U.K. U.S. 2002 2004 2006 2008 2010E 2012E 1998 2008 GDP Per Capita Drinking Milk Infant Formula Source: Source: Euromonitor (1) Euromonitor. Includes aggregate consumption of milk products, cheese, yogurt, sour milk drinks and other dairy products.  China is the second largest infant formula market behind the U.S., but is expected to grow to $12 billion by 2014 (surpassing the U.S.)  Dairy consumption per capita in China is still significantly lower than in the U.S., Western Europe and more developed Asian nations such as Japan 8
    • China’s Infant Formula Market Milk Powder Sales By Category China’s Milk Powder Market Share (June ’10) Others , 15.93% Dumex , 16.76% Infant Formula 28% Adult Milk Powder Wandashan , 3.88% Pregnant Women Yashili , Mead Johnson ,1% 61% Milk Powder 2.69% 12.06% 9% Synutra , Wholesale Milk 3.27% Powder Feihe (ADY) 4.72%Source: AC Nielsen, Roland Berger analysis Beingmate, Nestle , 10.58% 7.13% Yili , 10.97% Wyeth, Abbott , 7.29% 4.72% Source: Commercial Information Center of China (CIC)  Infant formula accounts for the majority of milk powder sales in China  American Dairy had the third largest market share among domestic players 9
    • Competitive Landscape –Three Groups of Players Market Share • Proven track record of more than 10 years in the Chinese infant formula market • Dumex • Premium and super premium pricing • Mead Johnson • Perceived superior product quality and superior brand International • Wyeth * • Abbott image • Nestle • Strong R&D capabilities • Limited reach in tier 2 and 3 cities due to fragmented retail channels and the lack of modern logistics infrastructure • Feihe • Yili * • Dominant in tier 2 and 3 cities Domestic National • Synutra • Gaining market share from foreign producers in tier 1 cities • Yashili • Strong product mix – low to super premium pricing • Beingmate * • Limited brand recognition • Nanshan Domestic • Unstable product quality • Wandashan Regional • Others • Presence in regional market with the potential to increase scale and gain national presence Source: Industry interviews, Roland Berger analysis 10
    • Our Competitive Advantages Secured Access to High Quality Milk and State of the Art Production Equipment The Heilongjiang Favorable Government Strong Relations with Advantage Support Local Farmers  Heilongjiang is China’s  The central government  Favorable pricing offered premier milk-producing allows one infant milk to incentivize local region at 47°north processing facility per farmers’ willingness to  Situated in one of the county sign exclusive contracts three nutrient-rich black  ADI Feihe’s well- with ADI Feihe soil zones of the world established presence in  Contracts with local Heilongjiang limits new farmers to access over  Natural underground 200,000 dairy cows entrants water reserves with a pH level of 8.5  Strong local and provincial government  Rich and fertile soil relationships contributes to higher milk yield and quality 11
    • ADY is China’s First Vertically IntegratedInfant Formula Company Secured Access to Company-Owned State of the Art Nationwide Milk Collection Milk Stations Processing Facilities DistributionContracts Access to over  Total processing  Sales and marketing 200,000 cows  Over 200 company- capacity: 1,250 tons force of 1,500 to Average yield of 4 owned milk stations of liquid milk/day cover over 95,000 tons/yr per cow across Heilongjiang retail outlets  Increasing capacity to ProvinceADI Feihe Dairy Farms 1,920 tons/day by  Packaging and  Limited competition August 2010 and to distribution facilities Gannan and Kedong due to government 2,820 tons/day by in Kedong Farms: currently regulation of station May 2011 (Heilongjiang) and ~15,000 Australian locations Langfang (Hebei) Hostein cows  Facilities in Heilongjiang, Shanxi Average yield of 8- and Hebei Provinces 10 tons/yr per cow 12
    • Our Geographic Footprint Production Center, Gannan Production Center, Baiquan Production, Distribution & Dairy Farm, Kedong Packaging Center, Kedong Longjiang Heilongjiang Province Dairy Farm, Gannan Beijing Hebei Province Shanxi Province Production Center, Qiqihaer Shanghai Chengdu Wuhan Tier 1 cities Tier-1farm construction Dairy cities Dairy farm construction construction: Production facility under Guangzhou Gannan: +700 tons/day by Aug 2010 Corporate Headquarters, Beijing Shenzhen Longjiang: +900 tons/day by May 2011 Logistics Center, Chengdu and Wuhan Packaging & Distribution Center, Production, Distribution & Packaging Langfang Center for Walnut and Soybean Products, Shanxi 13
    • Nationwide Marketing and Support TV and Media Advertising Call Center and Baby Club Membership Educational Materials Events and Displays We are capitalizing on additional market share opportunities in today’s dynamic market by adopting an aggressive but cautious sales and marketing strategy 14
    • Comprehensive Product Offerings Infant Formula Products Covering Mid-to-High-End Market Segments AstroBaby Feifan Feiyue FeihuiSuper Premium Product Premium Series Medium-High Series Medium Series RMB 308- 368 RMB 198 - 218 RMB 148 per RMB 87 per per 700g tin per 900g tin 900g tin 900g tin Soft launched RMB 52 - 78 RMB 48 per on May 6, RMB 32 per per 400g bag 400g bag 2010 400g bag Adult Formula Products Other Products Prenatal Formula Adult Formula Rice Soybean Walnut Wholesale Cereal Powder Powder Milk Powder 15
    • Growth Initiatives Improving Operating Efficiency at Each Retail Point Enhancing Customer Services and Improving Market Intelligence Improving Nutrition Education Department Strengthening Human Resources Development Strengthening We are committed to become the leading Brand Equity infant formula manufacturer Continue Leadership in Quality Control 16
    • Experienced Management Team You Bin Leng  Over 20 years in the dairy industry and ADI Feihe Chairman for more than seven years Chairman,  Bachelor’s degree in food engineering from Northeast Agriculture Chief Executive Officer University and an EMBA from Peking University Roger Hua Liu  More than 16 years in C-level positions with extensive finance and accounting experience Vice Chairman,  Bachelor’s degree in finance and economics from Xian Jiaotong Secretary University and Shenzhen University Jonathan H. Chou  More than 20 years of finance and banking experience in the U.S. and Asia Pacific Chief Financial Officer  Former Asia Pacific CFO of Honeywell International and AP CFO Lucent Technologies  Awarded “Chinas Top Ten CFOs of 2008” award by CFO World Magazine and holds MBA from Fuqua School of Business at Duke Guilang Zhang  Over 15 years of experience in sales and marketing  Former General Manager of Want-Want China Holdings Want Zai (Hot Special Assistant to the Kid) business, led the company to become Chinas number one dairy Chairman drinks company by net profits from 2003-2006.  Bachelors Degree in Economics from National Chung Hsing University in Taiwan and EMBA from Tsinghua University in Beijing Judy Tu, Esq.  Over 10 years of experience in operating Chinese companies with background in U.S. law Vice President  J.D. from Loyola Law School, Attended University of California, Berkeley A licensed attorney in the State of California. 17
    • Board of DirectorsYou Bin Leng  Over 20 years in the dairy industry and ADI Feihe Chairman for more than seven yearsChairman, Chief Executive Officer  Bachelor’s degree in food engineering from Northeast Agriculture University and an EMBA from Peking UniversityRoger Hua Liu  More than 16 years in C-level positions with extensive finance and accounting experienceVice Chairman  Bachelor’s degree in finance and economics from Xian Jiaotong University and Shenzhen UniversitySheng Hui Liu  Over 10 years of extensive financial knowledge and experience at ADI FeiheDirector, Vice President of Finance  Degrees in economics and accounting from Northeast Agriculture University and Country Cadre Institute of Ministry of AgricultureKirk G. Downing, Esq.  Over 25 years of experience practicing lawDirector  Attorney licensed in the State of CaliforniaJames C. Lewis, Esq.  Over 30 years of experience practicing lawDirector  Attorney licensed in the State of UtahNeil N. Shen  Founding and Managing Partner of Sequoia Capital China  Co-founder of Ctrip .com International (Nasdaq: CTRP) and Home Inns and HotelsDirector Management (Nasdaq: HMIN)  Bachelors degree from Shanghai Jiao Tong University and Masters degree from the School of Management at Yale UniversitySean Shao  Over 20 years of extensive finance and audit experience  Extensive experience as an independent director and as an executive officer in U.S. publicDirector, Audit Committee Chair companies operating in China  Holds a CPA license issued by the American Institute of Certified Public Accountants  Bachelors degree from East China Normal University and Masters degree from the 18 University of California, Los Angeles
    • Revenue Performance Quarterly Revenue Revenue 120.0 113.8 300.0 100.0 250.0 81.4 80.0 72.1 200.0 $US (millions)$US (millions) 60.0 52.2 150.0 43.4 271.1 41.2 40.0 100.0 193.2 163.9 155.0 133.6 20.0 50.0 115.1 0.0 0.0 Q1 2009 Q2 2009 3Q 2009 4Q 2009 1Q2010 2Q2010 2006 2007 2008 2009 1H09 1H10 * 3Q10E revenue guidance: >$55M Achieved 40% organic growth for fiscal 2009 over fiscal year 2008 19
    • Consistent Margins and Expanding Cash Flow Gross Margin Operating Cash Flow60% Gross Margin 48.2% 47.2%50% 35.0 44.2% 39.3% 30.040% 35.4% 25.0 29.9 19.530% 20.0 17.2 $US (millions) 14.6 15.020% 11.1 10.010% 5.00% 0.0 2007 2008 2009 1Q2010 2Q2010 -5.0 2006 2007 2008 2009 1H2009 1H2010 -4.4 -10.0 Maximize branded products mix which would improve operating cashflow and gross margin as all branded products sales are based on “cash on delivery” 20
    • Product Portfolio: Revenue Contribution 2Q 2008 Revenue 2Q 2009 Revenue 2Q 2010 RevenueContribution by Product Contribution by Product Contribution by Product Continuing to focus of product mix after Sept 2008 Melamine Crisis 21
    • Selected Balance Sheet Items (USD in millions) As of June 30, 2010 Assets  In September 2009, the Company paid down $34.0 Cash and Cash Equivalents $12.69 million, or 75%, of the $46.0 million outstanding of its 1% Guaranteed Senior Secured Convertibles Inventories, Net 58.3 Notes due 2012. The remaining payment, Property & Equipment (1) 188.8 approximately $11.5 million, was completed at the end of October 2009. Additionally, the Companys Biological Assets 54.4 7.75% Convertible Notes due 2009 were fully Total Assets $421.8 converted as of October 2, 2009 and the Company has no convertible notes remaining. Short Term Debt Current Maturities of Long-Term Debt 7.3 On August 26, 2009, the Company closed private placement transaction with Sequoia Capital, Notes and Loans Payable 45.5 through which the Company issued 2.1 million Long Term Debt, Net of Current Portion 28.5 shares of common stock to Sequoia Capital for an aggregate purchase price of $63.0 million. Shareholder’s Equity 151.4 Total Liabilities & Equity $421.8 Simplified Capital Structure with No Convertible Notes(1) Includes Net Property and Equipment and Construction in Progress. 22
    • Company Highlights 1 A Leading Infant Formula Brand in China 2 Large Market Opportunity with Long-Term, High-Growth Prospects 3 Vertically Integrated Business Model – High Barriers to Entry 4 Stringent Quality Control with State-of-the-Art Equipment and Facilities 5 Nationwide Sales Force with Regional Distribution Centers 6 Experienced Management Team with Proven Track Record 7 Strong Financial Position and Profitability 23
    • Thank You! 24
    • Key Financial ItemsKey Income Statement Items(USD mn) Dec 31, 2008 Dec 31, 2009 June 30, 2010 Sales 193.2 271.1 133.6 Gross Profit 76.0 130.7 56.9 Sales & Marketing 50.7 105.1 57.9 G&A 19.0 20.5 12.6 Operating Income 6.3 5.1 (22.1) Government Subsidies 6.8 21.2 9.2 Net Income 17.0 19.6 (15.0) Diluted EPS 0.97 0.97 (0.68)Key Cash Flow Items(USD mn) FY2008 FY2009 June 30, 2010Loss on Disposal of Biological Assets 0.3 1.7 8.6Operating cash flow 29.9 17.2 14.6Investing cash flow (32.3) (48.4) (30.8)Financing cash flow 0.7 65.7 (20.9) 25