The Fast Growing Chinese Dairy Industry Will Bring New Opportunities for CMCI

Although China’s dairy industry does not have a long history, it has experienced fast development. Since the break out of the “melamine event” in September 2008, the Chinese government has implemented a series of critical actions to regulate the dairy industry for a healthier industry environment. In 2009, the Chinese dairy industry had mostly returned to a normal developing stage, and in 2010, the industry was in an adjusting and recovering process. The dairy product output reached 38,250,000 tons in 2011, a 6.9% increase compared with 35,188,400 tons in 2010, a nearly 300% increase compared to that in 2001. The annual growth rate for 2011 is 5% higher than that for 2010. In 2012, dairy product output is projected to reach 40 million tons.

Currently, the enterprises in the industry are profitable in general. The annual revenue growth for leading companies, such as Erie, Mengniu and Sanyuan, are all higher than 20%. The rapid development of the dairy processing industry further promoted the scale and specialization of the dairy farming industry. The quality of the dairy farming industry continuously improves, with the acceleration of standardized and scaled cultivation of dairy cows, the steady expansion of coverage rate of fine breeds, increase of per unit yield level, and effective protection of raw milk quality. The Chinese dairy industry is at a new starting point. Based on the “Twelfth Five-Year” plan, the output of the dairy industry will increase by 5.8% annually and reach 50 million tons by 2015.

To achieve great-leap-forward development, the Company is vigorously optimizing and implementing new management measures to improve the capacity of raw milk production through accelerating the standardized and scaled cultivation of dairy cows to facilitate the transition of the operating model. In the meantime, the Company further strengthens the quality control system to ensure the safety of raw milk. As reflected in the strong financial performance in the recent three years, the Company’s business has been steadily growing. The revenue for fiscal year 2012 ended June 30, 2012 was $29.8 million, increased by $4.8 million as compared to $25 million in fiscal year 2011 ended June 30, 2011. The net income for fiscal year 2012 ended June 30, 2012 was $17.4 million, increased by $8.5 million as compared to $8.9 million of 2011. The net profit margin was 58% in fiscal year 2012, or an increase of 96% as compared to 35% in fiscal 2011.

Mr. Youliang Wang, CEO of China Modern, commented: “While learning the successful experiences from our peers in the industry, we have creatively adopted a new business model. Furthermore, we deeply understand the nutritional needs of dairy cows and have established our own mechanism of dairy farming. Meanwhile, we motivated farmers’ enthusiasm to better feed the cows, enhanced feeding management and lowered the feeding cost under the new business model, which has greatly improved the financial performance for the Company. In fiscal year 2012, the net profit margin increased to 58% as compared to 35% in 2011. To further improve our profitability, we will effectively implement the operating management measures under new business model and deepen the relationship between the management team and our customers.”

Mr. Wang continues: “We’ll continuously grow the Company’s top line and bottom line results to earn a better return for our shareholders.”