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China Water and Drinks Inc. Reports Record Fiscal Year 2007 Results

2008-05-05 18:29 848

SHENZHEN, Guangdong, China, May 5 /Xinhua-PRNewswire-FirstCall/ -- China Water and Drinks Inc. (OTC Bulletin Board: CWDKE) ("China Water and Drinks" or "the Company"), a leading producer and distributor of bottled water in the People’s Republic of China ("PRC"), today reported record financial results for fiscal year 2007.

Full Year 2007 Highlights

-- Revenue increased 59% year-over-year to a record $56.8 million

-- Gross profit increased 114% year-over-year to a record $19.4 million

-- Gross margin improved from 25.4% to 34.2%

-- Net income grew 211% to a record $19.4 million, or $0.24 per fully

diluted share

-- Acquired 100% of Nanning Taoda Drink Company Limited ("Nanning") in

exchange for cash of $5.3 million and common stock shares totaling a

value of $5.3 million to be issued in future

-- Acquired 66.67% of Shenyang Aixin Industry Limited ("Shenyang"), for

$1.1 million in cash and 177,333 shares of common stock

-- Acquired 48.0% of Hutton Holdings Corporation ("Hutton") in exchange

for $9.0 million and 2.1 million shares of common stock

Full Year 2007 Results

Revenues for the full year of 2007, which were $56.8 million, increased 59% over the full year results of 2006. The Company’s newly acquired bottled water production plants, Nanning and Shengyang, which were acquired on June 15, 2007, and August 24, 2007, respectively, increased total capacity and allowed the Company to meet the rapidly expanding demand in southwest and northeast China.

Gross profit was $19.4 million, an increase of 114% from the same period in 2006, driven by expanded production capacity. Gross margin was 34.2%, up from 25.4% in the same period in 2006. The improvement in gross margin was primarily due to the introduction of automated PET bottle production and our focus on marketing and selling our higher margin product lines coupled with a reduced average labor cost largely resulting from greater automation of our productions lines. The shift in product mix also increased our profit margins with an increased focus on higher margin products, particularly the products sold under the Company’s Darcunk brand as well as larger, carboy-sized bottled water products.

Operating expenses were $1.9 million, down 37.5% from $3.1 million in 2006. The decline in operating expenses was primarily due to lower general and administrative expenses resulting from bad debt recovery of $1.6 million. As a percentage of sales revenue, general administrative expenses in 2007 decreased to 3%, as compared to 8% for 2006. This percentage decrease resulted primarily from an increase in revenues while administrative costs remained relatively constant due to efficiencies driven through centralized management of processes and operations.

Income from operations in 2007 was $17.5 million, up 193% from 2006. Operating margin was 30.8%, up from 16.7% in 2006.

Net income for the full year 2007, was $19.4 million, or $0.24 per fully diluted share, up 211% from $6.3 million, or $0.10 per fully diluted share, in 2006.

Financial Condition

As of December 31, 2007, China Water and Drinks had cash and cash equivalents of $10.9 million, working capital of $32.4 million. Shareholder’s equity stood at $77.5 million, up from $6.6 million on December 31, 2006.

On January 29, 2008, the Company closed with certain accredited investors a $50 million private placement of secured convertible notes.

Business Outlook

According to recently published data from Beverage Marketing Corporation (BMC), from 2002 to 2007 China represented the most rapidly expanding country worldwide in terms of consumption of bottled water, showing compound annual growth projections of 17.5%, which is double that of the United States.

This growth trend in China continues to be driven by increasing demand for bottled water which is clean and safe to drink. This trend is enhanced by China’s rapidly increasing number of middle-income consumers. The middle-income expansion is not matched by improvements in key infrastructure services such as piped water, which remains undrinkable in many areas and therefore creates significant opportunities for growth in our business. Health and wellness remain key drivers of growth with the increasing demand for healthier and more natural products and shows no signs of relenting over 2008, according to Euromonitor.

Our ability to meet the growing demand is aided by the construction of China Water and Drinks’ new factory in Changchun City which is nearing completion and is expected to begin production in July of 2008. The new factory is expected to have an initial annual production capacity of 178.5 million bottles, or 130 million liters.

Management retains previous financial guidance for the year 2008 with projected revenue to be about $105.0 million and projected net income of about $30.0 million.

"In 2008, we plan to take advantage of the ever increasing demand for high quality and safe drinking water by China’s emerging middle class," commented Mr. Chen. "In addition to building our new facility in Changchun City, we intend to use the proceeds from our recent financing transactions to expand production through acquisitions. We will also strive expand our distribution network and leverage the Darcunk brand by expanding our product offerings to include new specialty water products, such as flavored and nutrient rich bottled water products."

About China Water and Drinks Inc.

China Water and Drinks Inc. is a leading producer and distributor of bottled water in China. Through its production facilities in Guangzhou, Zhanjiang, Feixian, Changchun, Nanning and Shenyang, the Company produces and distributes bottled water to thirteen provinces in China. The Company markets its own product under the brand ‘Darcunk’, supplies purified water to both local and international beverage brands such as Coca-Cola and Uni-President and provides private label bottled water for companies such as Sands Casino, Macau.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management’s current expectations. Such factors include, but are not limited to the company’s ability to meet demand and complete product orders, maintain and expand our customer base, coordinate product design with its customers, ability to expand and grow its distribution channels, identify acquisition candidates, political and economic factors in the People’s Republic of China, the company’s ability to find attractive acquisition candidates, dependence on a limited number of larger customers and other factors detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

- FINANCIAL TABLES FOLLOW -

CHINA WATER AND DRINKS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended

December 31

2007 2006

Revenue

Sales $ 56,773 $ 35,700

Cost of sales (37,342) (26,621)

Gross profit 19,431 9,079

Expenses

General and administrative expenses (1,874) (2,923)

Selling expenses (64) (178)

Total Expenses (1,938) (3,101)

Income before the following items and

taxes 17,493 5,978

Other Income 541 285

Income from equity investment 1,797 --

Income before income taxes and minority

interests 19,831 6,263

Income taxes (307) --

Minority interests (76) --

Net income 19,448 6,263

Earnings per share:

Basic $ 0.25 $ 0.10

Diluted $ 0.24 $ 0.10

Weighted average number of shares

outstanding:

Basic 77,196 59,872

Diluted 80,896 59,872

CHINA WATER AND DRINKS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Year ended

December 31

2007 2006

Balance sheet data:

Cash and cash equivalents $ 10,868 $ 1,836

Working capital 32,358 957

Total assets 99,294 26,062

Total current liabilities 21,060 19,343

Long term liability 267 163

Total liabilities 21,327 19,506

Minority interest 517 --

Total stockholders’ equity 77,450 6,556

CHINA WATER AND DRINKS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended

December 31

2007 2006

Net cash provided by operating activities 828 10,586

Net cash used in investing activities (17,797) (200)

Net cash provided by (used in) by financing

activities 26,021 (9,921)

Net increase in cash and cash equivalents 9,052 465

Cash and cash equivalents at the beginning of

year 1,836 1,371

Cash and cash equivalents at the end of year 10,868 1,836

For more information, please contact:

CCG Elite Investor Relations

Crocker Coulson, President

Tel: +1-646-213-1915

Email: crocker.coulson@ccgir.com

Web: http://www.ccgelite.com

Source: China Water and Drinks Inc.
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Keywords: Food/Beverages
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