American Dairy shifts more infant formula

By Dominique Patton

- Last updated on GMT

Related tags: Infant formula, Milk

American Dairy, the owner of China's Feihe Dairy, said a 28 per
cent rise in volumes sold of its Feihe infant formula drove growth
during 2005, helped by promotional efforts and additional
distribution.

Infant formula is seeing strong growth in China, a relatively underdeveloped market, and the firm has outlined its plans to make Feihe a leading brand.

The company said it invested in advertising and promotions during the fourth quarter as well as increased distribution salaries and transportation to expand to new market areas.

Total revenue was up 82 per cent to US$68 million from $37.4 million in 2004, thanks to the 17.2 million kgs sold.

Sales of the CPP series milk powder also increased during the year (up 88 per cent to 4.5 million kg), and the firm also sold 1.1 million kg of milk powder with nucleotides product.

However it is feeling the effect of higher commodity costs, with whey and sugar prices increasing over the year and eating into gross margin. Gross margin during 2005 was 43 per cent versus 52 per cent in the 2004.

It has also increased overheads with the ramp up of new manufacturing facilities not yet in use.

Despite the declining margin, profits surged as a result of tax rebates and incentives from the government. The company is currently exempt from corporate income tax through 2009. These rebates positively impacted other income by $2.2 million in 2005, making up an overall profit of $11.6 million.

The firm said it remains on track to build a new packaging and distribution center in Lang Fang, China, which is designed to lower transportation fees, enhance product quality and increase sales capacity over time.

Related topics: Markets, Nutritionals

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