China Dairy Corporation Limited operates on Chinese market since 2005. Since then, company has grown into a leading raw milk producer located in the renowned agriculture and dairy province of Heilongjiang in the north of China. China Dairy Corporation Limited generates its income through a number of activities complementing the production and wholesale of raw milk. It includes the breeding and sale of cows and the production and sale of organic fertilizer made from cow manure. The Group exclusively utilizes Holstein cows for its milk production. Holstein cows are popular in dairy farming due to their adaptability to a wide range of environments and their milk production. Market Review As we can say, China Dairy Corporation Limited is a participant in the dairy farming industry in China’s Heilongjiang province, where it produces and sells raw milk to dairy processors. Today, the demand for milk in China is growing. Production of milk has also been promoted by the Chinese government. The Chinese Government supports both milk producers and stimulate demand for its market. This would greatly develop the Chinese milk market. However, in recent years this growth has been impacted by a number of factors, including a restructure of the industry following the 2008 milk scandal and more recently, a rise in the input costs of milk production which has resulted in some participants leaving the industry. After this scandal, the Chinese government has developed and implemented a number of policies and initiatives aimed at supporting the further development of dairy farming and quality control. These actions include, first of all, strengthening the regulatory framework and quality controls by government’s monitoring capabilities. In addition, the Chinese government has subsidized the farmers who bought cows with high milk yield and quality. While the milk scandal had a significant negative effect on the dairy industry in China, it has begun to recover and resulted in the restructuring and transformation of the industry. China is now the largest single dairy importing market in the world and is now the most important market for Australia, accounting for 19% of dairy exports by both volume and value. Demand is being driven by a growing middle class with an increasing taste for Western foods and an interest in the good things in life. Now China-based companies are starting to come to Australia, looking to improve their dairy technology and to source more milk. Milk production in China As you can see on this graph, the Chinese milk market in recent years is growing rapidly. We can say that these are good times for the company China Dairy Corporation Limited. Along with the spread on the market in Australia, which will provide new technologies and the experience of Australian farmers, steady growth in demand for milk in China have a positive impact on the company's financial performance. Growth Drivers and Competition Today, almost 20 thousand cows distributed among 200 local farmers. Of these, more than two and a half thousand belong to China Dairy Corporation Limited. Company’s aggregate milk production capacity from these cows as at 30 June 2015 was approximately 238 tons per day. Competitive factors of China Dairy Corporation Limited: Business diversification. China Dairy Corporation Limited is constantly developing a business model expanding beyond company-raised cows to farmer-raised and farmer-owned cows. These new methods of milk production have allowed company to reduce costs and increase gross profit margins. At the same time, it preserves the quality of the milk which is sold to its customers. This puts the China Dairy Corporation Limited in a stronger competitive position as not only can it supply a large volume of milk to dairy processors, it can also do it in an efficient manner. Economies of scale. In addition, China Dairy Corporation Limited is the largest company in the dairy industry. Because the company can afford economies of scale. This gives a clear advantage over its competitors. The company, which is ready to supply uninterrupted milk on the market is always interesting for large retailers Diversification of production channels. China Dairy Corporation Limited forms strong relationships with its customers, all of whom have been purchasing milk since at least 2012. Having different customers allows company which gives confidence in the stability of milk sales. In addition, company’s customers are geographically close to the Group’s operations, thereby reducing transportation costs. Growth strategy: Geographic expansion. First of all, China Dairy Corporation Limited plans to reduce its costs by optimizing transportation costs. The company wants to increase the number of dairy warehouses and logistics points. This will allow company to get closer to its customers and expand its market share. Product diversification. The company also intends to expand its presence in the market by diversifying its products. Including special milk for children and other dairy products. To do this the China Dairy Corporation Limited plans to conduct market research and analysis of its production facilities. This requires funds to be received with the IPO. Acquisitions in Australia and China. Moreover, the company plans to absorb dairy producers in China and Australia. First, it will result in new market share in other cities and countries. In addition to this, the company will be able to use new technologies and experience in the dairy industry. FinancialsNotional Consolidated Statement of Profit or Loss and Other Comprehensive Income presented in US$Notional Consolidated Actual and Pro-Forma Statements of Financial Position presented in US$ Milk sales are rising every year, but what is more interesting - in 2015 the company increased its sales commission by almost 40%. In connection with the IPO, marketing expenses increased by 400 000 this year. While the strengthening of the dollar and the weakening of the yuan adversely manifested in the report for 2015, which is considered to be in dollars. Biological Assets is directly buying cows and all the costs of their transportation, medicine, feed. They are divided into two types: not mature, that is, the inability to produce milk and mature one. For manufacturing company, CDS at a relatively low level of debt - it creates a reserve to cover unexpected costs or implementation of highly profitable projects. Also after the IPO, the issue of bonds is expected at lower rates. A large number of cash on the balance sheet caused by high turnover and the need to reserve for cash shortages. Freezing funds in feed and medicines in addition to their usual flaws fraught with damage. In general, the lack of high profits in recent years by not operating activities indicates that the company does not get rid of non-core assets and business functions effectively.Risks Risk of fluctuation of milk prices. Milk prices are set by the PRC and global markets depending on the product type and seasonal demand. In recent years, quality of milk and veracity of origin of milk products within the PRC have materially and adversely affected the reputation of domestic PRC milk producers and increased demand for foreign milk in China. Therefore, company needs to take into account that milk prices can go down, which will significantly reduce its revenue. Risk of fluctuation of input costs. Moreover, the China Dairy Corporation Limited must take into account external risks over which the Company has little or no control. Such risks as an increase in prices for feed products, as well as changes in the cattle market, land use costs, economic conditions and other.The Company may not be able to recover these costs from consumers of its products in a timely manner or at all. The loss of major customers. Transactions for the supply of milk in large retail chains usually do not have the character of long-term contracts. There is a risk that some companies may refuse to milk China Dairy Corporation Limited Outbreak of animal diseases. An occurrence of serious animal diseases, such as foot-and-mouth disease, or an outbreak of any other epidemic in the PRC Currency risk. In addition to the above-mentioned operational risks, it is necessary to allocate certain risks relating to changes in exchange rates. The company is dealing with different currencies: Australian dollar, US dollar and the Yuan. Fluctuations in these rates can complicate the company's activities abroad. Moreover, dollar exchange rate may adversely affect the statements of financial position of the company.Summary IPO of China Dairy Corporation Limited stands apart from the majority of IT companies published or plans to enter the stock market in recent years. Firstly, it is an excellent portfolio acquisition due to low correlation with the prices of energy, metals, or income level. Secondly, the company manages to getting government subsidies in China, and funded in developing Australia. Thirdly, the issue on the Australian market will open up access to cheap credit and leasing. Perhaps that is now the precise moment of production capacity in the Chinese market: the consequences of milk scandal of 2008 are forgotten, food import is reduced, the state began to subsidize farms.