Business News

China Bottles Inc. Reports Strong Third Quarter 2008 Financial Results

Tuesday 18. November 2008 - China Bottles Inc. ("China Bottles" or "The Company") (BULLETIN BOARD: CBTT) , a leading plastic packaging solutions company and plastic bottle production equipment company in the People's Republic of China, today announced its financial results for the third quarter ended September 30, 2008.

Third Quarter 2008 Highlights
— Revenue reached $ 11.0 million, an increase of 158.6% year-over-year
— Gross profit increased 162.9% year-over-year to $3.3 million with a gross margin of 29.6%
— Operating income increased 205.2% year-over-year to $2.2 million
— Net income increased 157.2% year-over-year to $1.5 million, or $0.02 per fully diluted share
— Expanded bottle blowing machinery market reach to Cambodia and Algeria

“We are pleased to report strong results in the third quarter with triple- digit top and bottom line growth,” stated Mr. Chonghui Zhao, CEO of China Bottles. “Our strong performance can largely be attributed to our growth strategy of enlarging our geographic footprint while deepening penetration in our current markets. During this quarter, we participated in three different trade shows, increasing product orders and strengthening our brand awareness. We also set up a sales center and hired 15 additional sales representatives which contributed to our strong revenue growth.”

Third Quarter 2008 Results

In the third quarter of fiscal 2008, sales revenue increased 158.6% to $11.0 million from $4.2 million in the same period one year ago. Sales of blowing machines, molding and bottles production grew from $2.3 million $1.4 million and $0.6 million for the third quarter of 2007 to $6.3 million, $3.7 million and $1.0 million for the same period of 2008, respectively. The increase in revenue was mainly due to the increase in market acceptance of the Company’s products, particularly high end products, due to growing demand from the drink and beverage industry in China.

Gross profit for the third quarter of 2008 increased 162.9%, to $3.3 million from $1.2 million during the same period in 2007. Gross margin was 29.6% for the third quarter of 2008 compared to 29.2% during the same period in 2007. During the most recent quarter, the Company successfully sold more higher gross margin blowing machines to compensate for increases in the price of raw materials and higher direct labor costs, leading to a slightly higher gross margin.

General and administrative expenses for the third quarter of 2008 totaled $0.8 million, up from $0.3 million in the same period prior year. The increase in general and administrative expenses was primarily due to expanded operations and an increase in staff, travel and entertainment expenses, and higher costs associated with operating as a public company.

Selling and marketing expenses, including distribution expenses for the third quarter of 2008 were $0.2 million, an increase of 17.6% from roughly $0.2 million in the same quarter last year. The increase is primary due to increases in sales activities in the third quarter of 2008.

Operating income for the third quarter of 2008 was $2.2 million, up 205.2% from $0.7 million in the same quarter of 2007. Operation margin was 20.2% compared to 17.1% in the same time last year.

Net income for the third quarter of 2008 was $1.5 million, or $0.02 per fully diluted share, up 157.2% from $0.6 million, or $0.01 per fully diluted share, in the same period in 2007. Net margin for the third quarter of 2008 was 13.8%, unchanged from the same period in 2007.

Nine Months 2008 Results

Net revenue was $50.2 million in the nine months ended September 30, 2008, up 130.4% from $21.8 million in the nine months ended September 30, 2007. Gross profit was $16.2 million with a gross margin of 32.3%, up 100.7% from $8.1 million and a gross margin of 37.0% in the same period last year. Operating income was $12.3 million with an operating margin of 24.6%, up 91.2% from $6.4 million and an operating margin of 29.6% in the same period last year. Net income was $9.2 million, or $0.12 per fully diluted share, up 71.8% from $5.4 million, or $0.09 per fully diluted share, in the nine months ended September 30, 2007.

Financial Condition

As of September 30, 2008, the Company had cash and cash equivalents of $0.9 million, accounts receivable of $15.4 million and working capital of $ 13.9 million. The Company had $18.7 million in shareholders’ equity compared to $8.5 million at the end of 2007. The company generated $1.4 million in cash flow from operating activities during the nine months ended September 30, 2008. The Company believes its existing cash on hand and cash flow from operations will meet its liquidity requirements for the next 12 months. China Bottles’ capital expenditures were approximately $1.5 million in the first nine months of 2008 due to the purchase of equipment and land use rights acquired for the expansion of the Company’s production capacity.

Recent Events
— October 2008, China Bottles participated in the 2008 Autumn Canton
Chinese Export Commodities Fair to showcase its Guozhu brand bottle
blowing machines.

— October 2008, China Bottles participated in the 2008 China Brew &
Beverage Trade Show to showcase its Guozhu brand bottle blowing
machines and Guozhu brand injection mold machines.

— October 2008, China Bottles participated in the 2008 Autumn
Pharmaceutical Machinery Exposition & Nanchang International
Pharmaceutical Machinery Exposition to showcase its Guozhu brand
molding and blowing machines to further tap the pharmaceutical market.

Business Outlook


Despite the global economic slowdown which has recently begun to affect China, China Bottles remains confident in its growth outlook. In particular, the Company believes the Chinese government’s plan to spur economic growth by encouraging domestic consumption will be beneficial as a majority of the Company’s customer base is in China. For the full year of 2008, the Company is forecasting revenues of $61.0 million.

“During recent months, most commodities prices have fallen from historic highs, which we believe will allow us to maintain a cost advantage over competitors,” stated Mr. Zhao. “We are also encouraged by the Chinese government’s announcement that it is set to loosen credit markets, facilitating our ability to obtain financial support from local banks. Aside from the beverage market, we are excited about the growth potential in the pharmaceutical market. China has recently introduced a medical insurance reformation plan which will stimulate the demand for pharmaceutical products which will in turn increase demand for pharmaceutical packaging. Given our capabilities in producing high quality pharmaceutical bottle blowing machines, we believe we are well positioned to take advantage of this market.”

Currently, pharmaceutical products comprise about 20% of China Bottles’ total revenue. For 2009, this percentage is expected to increase to 30%.