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China BCT Reports Third Quarter and Nine-Month FY2012 Results

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LIUZHOU, China, Nov. 14, 2012 /PRNewswire/ -- China BCT Pharmacy Group, Inc., (OTC BB: CNBI), ("China BCT" or the "Company"), a leading pharmaceutical distributor, retail pharmacy, and manufacturer of pharmaceutical products in Guangxi Province, China, today announced results for the three and nine month periods ended September 30, 2012.

Third Quarter 2012 Highlights     

  • Revenue decreased 18% year-over-year to $55.4 million
  • Gross profit decreased 34% year-over-year to $10.7 million
  • Operating income decreased 53% year-over-year to $5.8 million
  • GAAP net income applicable to common stockholders decreased 65% to $2.9 million, or $0.08 per diluted share, from $8.3 million, or $0.22 per diluted share, in the third quarter of 2011
  • Excluding non-cash items related to change in the fair value of warrant liabilities and share-based compensation expense, non-GAAP adjusted net income applicable to common stockholders was $3.0 million, or $0.08 per diluted share
  • Cash and cash equivalents as of September 30, 2012 totaled $19.4 million, compared to $31.5 million at the end of 2011

"In the third quarter, the trend of strong pressure on wholesale prices and margins continued," said Mr. Huitian Tang, Chief Executive Officer of the Company.  "Government pressure on those margins through a zero profit policy for drug sales by the hospitals, a ceiling on drug price increases during the contract bidding process and a mandate for hospitals to take the lowest bid price in all cases continue.  These are the challenges that we are addressing.  However we have yet to halt the decline in operating profit from our wholesale activities which has declined 32% for the first nine months of the year and 68% for the third quarter.  We have put a great deal of effort into expanding our retail operations to offset the wholesale declines and results are encouraging.  Our operating profit from our retail activities is up 10% for the year so far, although expansion costs have reduced profitability for the third quarter by 11%."

Third Quarter 2012 Results

Third quarter 2012 revenue decreased 18% to $55.4 million from $67.5 million in the third quarter of 2011, was mainly due to selling price pressures in the pharmaceutical distribution segment.

Revenue from the Company's pharmaceutical distribution segment decreased 23% year-over-year to $38.6 million, or 70% of total revenue in the third quarter of 2012. 

Revenue from the Company's retail pharmacy segment decreased 1% year-over-year to $13.5 million, or 24% of total third quarter revenue.  A $1.2 million decrease in sales due to the closure of 17 stores over the last twelve months was partly offset by a $0.5 million increase from newly opened stores. 

Revenue from the Company's manufacturing segment fell 8% year-over-year to $3.3 million, or 6% of total third quarter revenue. 

Gross profit fell 34% year-over-year to $10.7 million, from $16.3 million for the same period of 2011. Gross profit margin was reduced to 19.4%, as compared to 24.2% in the comparable period last year. The decrease in gross profit margin in the third quarter of 2012 mainly reflected the price pressures on sales to hospitals from the PRC government-mandated collective tender process and pressures on prices of drugs sold to health care community centers via the government-controlled prices of drugs on the prescribed list within the Basic Drug Catalogue.   

Within pharmaceutical distribution, operating profit margin decreased to 6.6% in the third quarter of 2012 from 16.0% in the third quarter of 2011.  Operating profit margin for the retail pharmacy segment decreased to 15.9% from 17.7% in the third quarter of 2011.  Manufacturing segment operating profit margin was 42.3% and 53.8% during the three months ended September 30, 2012 and 2011, respectively.     

Selling and administrative expenses totaled $4.9 million for the three months ended September 30, 2012, as compared to $3.8 million for the three months ended September 30, 2011, representing an increase of $1.1 million or approximately 28.9%. 

Operating income decreased 53.2% to $5.8 million, or 10.5% of revenue, from $12.5 million, or 18.5% of revenue, in the third quarter of 2011.

GAAP net income applicable to common stockholders decreased 65.3% to $2.9 million, or $0.08 per diluted share, as compared to $8.3 million, or $0.22 per diluted share, in the third quarter of 2011. Diluted earnings per share were calculated using weighted average shares of 38.2 million shares for the three months ended September 30, 2012 and 2011. Excluding a non-cash gain related to change in the fair value of warrant liabilities and excluding share-based compensation expense, third quarter 2012 non-GAAP adjusted net income attributable to common shareholders was $3.0 million, or $0.08 per diluted share, compared to $7.9 million, or $0.21 per diluted share in the third quarter of 2011.

Nine-Month Results

Revenue was $187.7 million for the nine months ended September 30, 2012, a decrease of 1.8% from $191.2 million in the same period in the prior year.

In terms of revenue mix, the pharmaceutical distribution segment remained the Company's largest segment for the nine month period at $135.4 million or 72.1% of total sales, compared to 74.2% last year. Retail pharmacy segment sales were $41.4 million, representing 22.0% of total Company sales in the nine month period ended September 30, 2012, up from 20.6% of total sales in the same period last year.  The manufacturing segment accounted for $11.0 million or 5.9% of total sales in the nine month period of 2012, compared to 5.2% for the same period last year.   

Gross profit was $40.6 million, or 21.6% of revenue, for the nine months ended September 30, 2012, down 11.7% from $46.0 million, or 24.0% of revenue for the same period in 2011.

Operating income was $26.5 million, or 14.1% of revenue, for the nine months ended September 30, 2012, down 19.0% from $32.7 million, or 17.1% of revenue for the same period in 2011.

GAAP net income attributable to common shareholders decreased 27.2% to $15.7 million, or $0.41 per diluted share, compared to $21.6 million, or $0.57 per diluted share for the same nine month period in 2011. Excluding a net non-cash expense related to change in the fair value of warrant liabilities and share-based compensation expense, adjusted net income was $16.0 million, or $0.42 per diluted share, as compared to $21.2 million, or $0.56 per diluted share for the nine month period a year ago.   

Financial Condition

As of September 30, 2012, China BCT had $19.4 million in cash and cash equivalents, $127.0 million in working capital and a current ratio of 2.89. Long-term bank debt was $0.1 million. Stockholders' equity was $133.4 million on September 30, 2012, compared to $116.5 million at the end of 2011.

The Company generated a $10.7 million cash outflow from operating activities for the nine months ended September 30, 2012 compared to cash outflow of $4.8 million in the nine months of the prior year, primarily due to a slowdown in the collection of accounts receivable. Cash used in investing activities was $2.9 million, compared to cash used in investing activities of $5.2 million in the same period a year ago. Cash inflow from financing activities totaled $1.4 million.

Business Outlook

"In a very challenging year for our wholesale business we have remained profitable to date.   

Looking forward, we are working on expanding our wholesale business by adding new supply contracts.  Since the bidding round for new contracts closed in the second quarter of 2011, we have won 2,000-3,000 more product distribution rights with regard to our hospital and clinic clients.  This represented an approximately 50% increase over 2010.  We also increased the number of bids awarded to us for counties and cities under the New Rural Cooperate Medicare bidding process from 6 counties and cities to 22.  We look forward to competing aggressively in the next round of centralized bidding which appears to have been pushed out to 2013 due to the delay in the publication of the new basic drug list. 

We are also focusing on growing our retail pharmacy business.  We have been consolidating our existing pharmacy stores into larger stores with built-in traditional Chinese medicine, or TCM, clinics; we are targeting to have about 4 to 5 such stores built for each larger city and at least one such store built for each county in Guangxi.    We re-decorated and opened our first 3,000 square feet pharmacy store with built-in TCM clinics in December 2011 where we provide around 5,400 types of products.  We built 3 consultation rooms for TCM doctors to provide free consultations to increase in-store TCM sales and attract more in-store traffic.  As of September 30, 2012, we now have 8 stores with built-in TCM clinics, including one mega store of 18,000 square feet and we expect to open another 2-5 such stores in the remainder of 2012 at a cost of approximately $2.4 million for the re-decorating and re-opening.  We will put priority focus on quality rather than quantity of the stores that we are going to operate.   

Overall we are excited by the challenges and opportunities before us.  Despite current price pressures, we believe the Chinese government desires an efficient and viable drug supply chain and we are working towards being a leader in that chain in Guangxi Province," concluded Mr. Tang.

Conference Call

China BCT will conduct a conference call at 8:00 a.m. Eastern Time (ET) on Wednesday, November 14, 2012, to discuss its third quarter and nine-month 2012 financial results.

The conference call can be accessed by dialing 866-759-2078 (U.S. and Canada callers) or 706-643-0585 (international callers) and entering the conference ID 70856824 approximately five to ten minutes prior to the call. A replay will be available for two weeks starting on Wednesday, November 14, 2012 at 11:00 a.m. ET by dialing 855-859-2056 (U.S. and Canada callers) or 404-537-3406 (international callers) and entering the conference replay ID 70856824.

About China BCT

China BCT is engaged in pharmaceutical distribution, pharmacy retailing, and the manufacture of pharmaceuticals products through its subsidiaries Guangxi Liuzhou Baicaotang Medicine Limited, Guangxi Liuzhou Baicaotang Medicine Retail Limited, and Hefeng Pharmaceutical Co. Limited in Guangxi province, China. It operates a large regional retail network in Guangxi province, consisting of 195 directly owned retail stores in Guangxi province and currently over 8,000 products are distributed through the Company's wholesale distribution network. For more information, please visit www.china-bct.com.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including: changes from anticipated levels of sales; future international, national or regional economic and competitive conditions; changes in relationships with customers; access to capital; difficulties in developing and marketing new products and services; marketing existing products and services; customer acceptance of existing and new products and services; and other factors detailed in the Company's periodic filings with the Securities and Exchange Commission (http://www.sec.gov). Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this presentation.

Use of Non-GAAP Financial Information 

GAAP results for the three and nine months ended September 30, 2012 and 2011 include change in fair value of warrant liabilities and share-based compensation expense. To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release, which are non-GAAP net income and non-GAAP diluted earnings per share. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results related to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measures to the nearest GAAP measure appears in the table below.

China BCT Pharmacy Group, Inc.

RECONCILIATION OF NON-GAAP NET INCOME AND DILUTED EPS

 


Three months Ended


Nine months Ended

September 30,

September 30,


2012


2011


2012


2011

US$ - thousands, except per share







Net income (GAAP) applicable to common stock

$2,873


$8,291


$15,708


$21,587

- Share-based compensation expense

166


3


471


574

- Change in fair value of warrant liabilities

(53)


(392)


(191)


(968)

Adjusted net income (non-GAAP)

$2,986


$7,902


$15,988


$21,193









Per diluted share








Net income (GAAP)

$0.08


$0.22


$0.41


$0.57

Share-based compensation expense

$0.00


$0.00


$0.01


$0.02

Change in fair value of warrant liabilities

($0.00)


($0.01)


($0.00)


($0.03)

Adjusted net income (non-GAAP)

$0.08


$0.21


$0.42


$0.56

Weighted average shares outstanding – '000







-diluted

38,154


38,154


38,154


38,154


 

-Financial Tables Follow-

China BCT Pharmacy Group, Inc.

(Formerly named China Baicaotang Medicine Limited)

Consolidated Statements of Income and Comprehensive Income

(Stated in US Dollars)

 


           Three months ended         
September 30,
(unaudited)


              Nine months ended             
September 30,
(unaudited)


2012


2011


2012


2011

Sales revenue

$ 55,402,769


$  67,480,712


$ 187,746,088


$ 191,199,700

Cost of sales

44,654,619


51,180,349


147,134,670


145,219,476

Gross profit

10,748,150


16,300,363


40,611,418


45,980,224









Operating expenses








      Administrative expenses

2,567,242


2,127,195


7,188,885


7,843,247

      Selling expenses

2,356,450


1,719,926


6,919,100


5,435,073

Total operating expenses

4,923,692


3,847,121


14,107,985


13,278,320









Income from operations

5,824,458


12,453,242


26,503,433


32,701,904









Non-operating income (expense)








      Interest income

4,077


21,510


22,873


47,499

      Other income

72,776


20,278


324,546


157,019

   Change in fair value of warrant liabilities

53,418


391,652


190,871


967,696

   Other expenses

(13,674)


(7,147)


(26,177)


(24,733)

      Finance costs

(260,948)


(256,156)


(753,233)


(646,060)

Total non-operating income
               (expense)

(144,351)


170,137


(241,120)


501,421









Income before income taxes

5,680,107


12,623,379


26,262,313


33,203,325

Income taxes

(1,527,284)


(3,165,839)


(6,771,893)


(8,893,359)

Net income

4,152,823


9,457,540


19,490,420


24,309,966

Other comprehensive income (loss)








      Foreign currency translation








adjustments

(360,123)


1,047,236


651,779


3,398,140

Total comprehensive income

$   3,792,700


$  10,504,776


$ 20,142,199


$  27,708,106









Earnings per share – basic and diluted

$            0.08


$             0.22


$            0.41


$             0.57









Weighted average number of shares








outstanding – basic and diluted

38,154,340


38,154,340


38,154,340


38,154,340









Reconciliation of net income to income
  applicable to common stock:








Net income

$   4,152,823


$   9,457,540


$  19,490,420


$  24,309,966

Less: dividends and accretion on
  preferred stock

(1,279,511)


(1,167,011)


(3,782,283)


(2,723,026)

Income applicable to common stock

$   2,873,312


$   8,290,529


$  15,708,137


$  21,586,940

 

 

China BCT Pharmacy Group, Inc.

(Formerly named China Baicaotang Medicine Limited)

Consolidated Balance Sheets

(Stated in US Dollars)

 


September 30,


December 31,


2012


2011


(Unaudited)


(*)







Assets






Current assets






Cash and cash equivalents

$

19,367,354


$

31,479,528

Restricted cash


762,722



1,052,096

Accounts receivable, net


142,273,600



118,406,001

Bills receivable


92,379



33,052

Amounts due from related companies


255,025



255,169

Other receivables, prepayments and deposits


11,840,383



5,750,056

Inventories


18,782,283



14,183,052

Deferred income taxes


866,896



927,860

Total current assets


194,240,642



172,086,814







Property, plant and equipment, net


19,859,886



18,097,062

Land use rights, net


13,397,724



13,584,135

Long-term deposits


7,388,784



7,070,400

Goodwill


542,248



540,157

Other intangible assets, net


439,582



504,948

Deferred income taxes


687,376



667,509

Other investment


31,576



31,424

Total assets

$

236,587,818


$

212,582,449

 

(*) Derived from audited financial statements

 

 

China BCT Pharmacy Group, Inc.

(Formerly named China Baicaotang Medicine Limited)

Consolidated Balance Sheets (Cont'd)

(Stated in US Dollars)

 


September 30,


December 31,


2012


2011


(Unaudited)


(*)







Liabilities and stockholders' equity






Current liabilities






Accounts payable

$

45,611,582


$

42,290,191

Bills payable


1,800,390



2,104,192

Other payables and accrued expenses


6,111,440



5,490,237

Amounts due to directors


127,961



168,246

Amounts due to related companies


710,790



37,604

Income taxes payable


1,513,048



2,726,869

Secured bank loans, current portion


11,105,443



9,036,060

Other loans


212,349



200,956

Retirement benefit costs


63,347



46,854

Total current liabilities


67,256,350



62,101,209







Secured bank loans


143,680



206,767

Warrant liabilities


120



190,991

Retirement benefit costs


167,903



177,368

Total liabilities


67,568,053



62,676,335







Commitments and contingencies












Convertible redeemable preferred stock






Series A convertible, redeemable preferred stock:






$0.001 par value; 20,000,000 shares authorized;






9,375,000 shares issued and outstanding


35,668,186



33,385,903







Stockholders' equity






      Common stock: par value $0.001 per share;






150,000,000 shares authorized;






38,154,340 shares issued and outstanding


38,154



38,154

Additional paid-in capital


18,745,218



18,273,766

Statutory and other reserves


6,851,002



6,851,002

Accumulated other comprehensive income


9,560,934



8,909,155

Retained earnings


98,156,271



82,448,134

Total stockholders' equity


133,351,579



116,520,211

Total liabilities and stockholders' equity

$

236,587,818


$

212,582,449

 

 

China BCT Pharmacy Group, Inc.

(Formerly named China Baicaotang Medicine Limited)

Consolidated Statements of Cash Flows

(Stated in US Dollars)

 


Nine months ended September 30,


(Unaudited)


2012


2011





Cash flows from operating activities:




Net income

$  19,490,420


$  24,309,966

        Adjustments to reconcile net income to net cash used in
            operating activities:




Depreciation and amortization

1,234,769


1,141,687

Deferred income taxes

48,658


(4,133)

Loss on sale of property, plant and equipment

-


10,960

Change in fair value of warrant liabilities

(190,871)


(967,696)

Share-based compensation expense

471,452


574,136

Changes in operating assets and liabilities, net of effects of acquisitions
            of distribution stores:




Accounts receivable

(23,338,452)


(30,174,501)

Bills receivable

(59,426)


(18,381)

Other receivables, prepayments and deposits

(6,070,497)


(1,128,518)

Inventories

(4,542,253)


(2,025,584)

Bills payable

(315,434)


(942,186)

Accounts payable

3,153,342


4,862,137

Other payables and accrued expenses

602,945


(967,922)

Retirement benefit costs

5,950


(6,803)

Income tax payable

(1,227,012)


496,034

Total adjustments

(30,226,829)


(29,150,770)

Net cash used in operating activities

$  (10,736,409)


$  (4,840,804)





 

 

China BCT Pharmacy Group, Inc.

(Formerly named China Baicaotang Medicine Limited)

Consolidated Statements of Cash Flows (Cont'd)

(Stated in US Dollars)

 


Nine months ended September 30,


(Unaudited)


2012


2011





Cash flows from investing activities:




Additions to property, plant and equipment

$   (2,593,919)


$    (1,887,074)

Net cash from acquisition of distribution chains

-


36,502

Payment to acquire intangible assets

(449)


(12,068)

Proceeds from sale of property, plant and equipment

-


4,039

Change in long-term deposits

(284,598)


(3,365,600)

Net cash used in investing activities

(2,878,966)


(5,224,201)





Cash flows from financing activities:




     Advance/repayment to related companies

674,702


(5,677,714)

     Proceeds received from placement of preferred stock

-


29,495,866

     Change in restricted cash

295,237


475,110

     Repayments to directors

(41,115)


(31,606)

     Proceeds from bank loans

11,034,710


9,888,040

     Repayments of bank loans

(9,071,202)


(11,270,387)

Preferred dividends paid

(1,500,000)


-

Net cash provided by financing activities

1,392,332


22,879,309





Effect of foreign currency translation on cash and cash equivalents

110,869


1,292,319





Net (decrease)/increase in cash and cash equivalents

(12,112,174)


14,106,623





Cash and cash equivalents - beginning of period

31,479,528


20,157,112





Cash and cash equivalents - end of period

$    19,367,354


$    34,263,735





Supplemental disclosures for cash flow information :




     Cash paid for :




          Interest

$      645,651


$       580,475

          Income taxes

$     7,950,247


$      8,401,458









Non-cash financing and investing activities




Dividends and accretion on preferred stock

$      3,782,283


$      2,723,026





Company Contact:
Ms. Shelly Zhang, Chief Financial Officer
China BCT Pharmacy Group, Inc.
Email: shelly.zhang@china-bct.com
Tel: (86) 772-363-8318
Website: www.china-bct.com

Investor Relations Contact:
Mark Collinson, Partner
CCG Investor Relations
Email: mark.collinson@ccgir.com
Tel: +1-310-954-1343
www.ccgirasia.com

SOURCE China BCT Pharmacy Group, Inc.



RELATED LINKS
http://www.china-bct.com

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