China Bct Pharmacy Group (OTC BB:CNBI)

First Quarter 2012 Highlights

• Revenue increased 21.6% year-over-year to $71.2 million
• Gross profit rose 21.3% year-over-year to $16.5 million
• Operating income grew 40.6% year-over-year to $12.1 million
• GAAP net income applicable to common stock increased 32.0% to $7.7 million, or $0.20 per diluted share, from $5.9 million, or $0.15 per diluted share, in the year ago quarter
• 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 stock was $7.9 million, or$0.21 per diluted share
• Cash and cash equivalents as of March 31, 2012 totaled $31.6 million

"We are pleased to report growth of both revenue and net income for the quarter. The strong performance was primarily driven by a 23.1% growth in sales in our pharmaceutical distribution segment, which benefited from increased coverage by China's national insurance plan coupled with separate distribution agreements with seven government-owned hospitals," said Mr. Huitian Tang, Chief Executive Officer and Chairman of China BCT. "Our retail business continued to grow to diversify our business mix. We have been consolidating our existing pharmacy stores into larger stores with built-in TCM, clinics. Also, our manufacturing operation overcame pricing pressures thanks to enhanced sales efforts. Overall, our profitability remains attractive."

Business Outlook

"For the quarters ahead in 2012, we continue to expect double digit revenue growth driven by our ability to develop and leverage new wholesale contracts at the supplier and hospital levels, our expansion of the in-store TCM counseling service concept at our retail stores and greater output from our manufacturing operation.

"We expect to focus on winning additional contracts for our distribution business. Since the centralized bidding process for the 2011 contract closed in the second quarter of 2011, we estimate that to date we have won 2,000 to 3,000 more product distribution rights with regard to our hospital and clinic clients, which represents an approximately 50% increase from 2010. In addition, we have increased the number of bids awarded to us for counties and cities under the New Rural Cooperate Medicare from 6 to 22, after being awarded an additional 16 territories in 2011.

"On the retail pharmacy front, we are committed to growing our network by refining and expanding our existing presence in selected markets. We are targeting to add 4 to 5 drug stores with built-in TCM clinics for each larger city and at least one such store for each county in Guangxi Province. We re-opened our first retail pharmacy store with a built-in TCM clinic in December 2011, the second one in March 2012 and we expect to open another 3 to 4 such stores in April 2012. In the next few quarters, we expect to continue to create larger, attractively refurbished retail stores and close some smaller ones to create higher revenue, more profitable stores. We are targeting a 20 to 30 store program that will cost an estimated $12 million by the end of 2012.

"With regard to profitability, we expect top line growth to enhance overall profitability for the remainder of the year. However we expect to face continued margin pressure. This is due to the increasing sales mix in favor of lower margin products sold to hospitals by our wholesale operation. Manufacturing margins will also be under pressure from the capping of drug prices by the Chinese government . We expect to counteract these pressures somewhat should our retail strategy, with its higher margin TCM sales, prove successful. Reducing distribution costs and increasing margins by building our own distribution center is no longer part of our short-term strategy. We believe that the investment is best undertaken when our overall revenues reach$500 million per year, at which point the economies of scale of the center will be sufficient to justify the cost," concluded Mr. Tang.

Fourth Quarter 2011 Results

• Revenue decreased 0.7% year-over-year to $66.3 million 
• Gross profit rose 12.2% year-over-year to $15.8 million 
• Operating income grew 0.5% year-over-year to $9.5 million 
• GAAP net income declined 7.1% to $6.9 million, or $0.18 per diluted share, from $7.4 million, or $0.19 per diluted share, in the year ago quarter
• Excluding non-cash items related to change in the fair value of warrant liabilities and share-based compensation expense, non-GAAP adjusted net income was $7.8 million, or $0.21 per diluted share
• Cash and cash equivalents as of December 31, 2011 totaled $31.5 million, compared to $20.2 million at the end of 2010

"We were pleased with our fourth quarter performance. Our revenues were stable compared to the fourth quarter last year and the third quarter this year. Our wholesale business remains very competitive and the latest round of bidding for hospital supply contracts meant many of our manufacturing suppliers lost or gained new business, leading to challenges for us in developing new hospital relationships for a new set of products," said Mr. Huitian Tang, Chief Executive Officer and Chairman of China BCT Pharmacy Group, Inc. "However, our retail and manufacturing businesses grew to compensate for this challenge to our wholesale sector. We opened four more in-store TCM clinics and we closed lower-performing stores. Manufacturing continues to weather pricing pressures occasioned by the drug price ceilings imposed by the government. In all an increase of 12% in gross profit contribution compared to the same quarter a year ago is creditable."

Business Outlook

"We ended 2011 on a strong financial position with cash and cash equivalents of $31.5 million at year end. We are pleased to report double digit growth on our top line and bottom line performance, representing year-over-year growth of 28.2% and 22.1%, respectively."

"For 2012, we are targeting double digit revenue growth driven by our ability to develop and leverage new wholesale contracts at the supplier and hospital levels, our expansion of the in-store TCM concept at our retail stores and greater output from our manufacturing operation.

We are targeting improved profitability as we merge more small stores into larger ones with TCM clinics and we expect to open two more in the first quarter and one more in the second quarter.

We are in no doubt however that we will face margin pressure on several fronts. First wholesale will take at least until the second quarter to reestablish momentum following the completion of the supplier bidding process that ended in October 2011. Second, the manufacturing side of the business is under pressure as prices paid for drugs are capped by government regulation.

For the longer term we expect to become increasingly efficient as we create our distribution and logistics center at an estimated cost of $22 million. One hundred acres of land are under negotiation with the government as the site for the center and as soon as the arrangement is settled we will begin construction. We are targeting completion of phase 1 by the end of 2012. We expect to create larger, attractively refurbished retail stores and close some smaller ones again in 2012 to create higher revenue, more profitable stores. We are targeting a 20 to 30 store program that will cost an estimated $11 million.

Overall we are excited by the challenges and opportunities before us in 2012 and are looking forward to reporting our progress throughout the year," concluded Mr. Tang

Third Quarter 2011 Results

First Quarter Highlights:

• Revenue increased 72.2% year-over-year to $58.6 million
• Gross profit rose 53.6% year-over-year to $13.6 million
• Operating income grew 39.4% year-over-year to $8.6 million
• GAAP net income climbed 47.2% to $6.2 million, or $0.16 per diluted share, from $4.2 million, or $0.11 per diluted share, in the year ago quarter
• Excluding non-cash items related to change in the fair value of warrant liabilities and share-based compensation expense, non-GAAP adjusted net income was $6.5 million, or $0.17 per diluted share
• We expanded our retail pharmacy footprint in Guangxi with the opening of 17 new stores, 9 of which began generating revenue in the first quarter of 2011

"In the first quarter of 2011, we achieved strong revenue growth across all three of our business segments, led by pharmaceutical distribution, while growing net income 47% on a year-over-year basis," commented Mr. Hui Tian Tang, Chairman and Chief Executive Officer of China BCT Pharmacy Group, Inc. "We ended the first quarter with a solid balance sheet, including roughly $63 million of cash and cash equivalents, providing us with flexibility this year to expand our retail pharmacy footprint within Guangxi Province and to invest in a state-of-the-art logistics center for our distribution business. We aim to strike an optimum balance among our distribution, retail and manufacturing segments to enhance shareholder value."

"We expect China's strong economy, rapidly growing pharmaceutical industry and favorable healthcare reform policies to continue to create excellent opportunities for China BCT in 2011 and beyond. This year we intend to improve the performance of our existing retail pharmacies while selectively building or acquiring new retail pharmacies within Guangxi Province. By developing a larger, stronger retail network, we expect to gain economies of scale and harvest incremental synergies as we vertically integrate retail with our wholesale distribution and manufacturing operations," said Mr. Tang. "For our distribution segment, we aim to obtain more product distribution rights with hospitals and clinics and win more bids under the New Rural Cooperate Plan. Centralized bidding for the Cooperative's 2011 contract is expected to close in the second quarter of this year and thus far we have won approximately 2,000 additional product distribution rights. We also are on track to begin construction of an advanced wholesale distribution logistics center this year. We believe this modern center and our improved distribution capabilities will help further distinguish China BCT from the competition during future bidding processes. "

For the fourth quarter ended December 31, 2010, the Company expects

• net revenue to be between $58 million and $64 million, or 58% to 75% higher than fourth quarter 2009 revenue of $36.6 million.  
• Fourth quarter 2010 net income, excluding both the non-cash gain of $1.0 million related to change in the fair value of warrant liabilities and the non-cash charge of share based compensation stock of $0.6 million, is expected to be between $6.6 million and $8.1 million, or 61% to 98% higher than the prior year figure of $4.1 million.

For the year ended December 31, 2010, the Company expects

• net revenue to be between $192 million and $198 million, or 41% to 45% higher than full year 2009 revenue of $136.1 million.  
• Full year 2010 net income, excluding both the non-cash gain of $0.6 million related to change in the fair value of warrant liabilities and non-cash charge of share based compensation stock of $1.3 million, is expected to be between $25.5 million to $27.5 million, or 31% to 41% higher than the prior year figure of $19.5 million.

"We are delighted to announce preliminary fourth quarter and full year 2010 results, highlighted by robust top- and bottom-line growth," said Mr. Huitian Tang, Chairman and CEO of China BCT Pharmacy.  "We closed 2010 on a positive note and believe our momentum will continue in 2011 as we execute on our strategy to enhance our wholesale distribution network, rapidly grow our retail pharmacy chain within Guangxi province, and vertically integrate these businesses along with our manufacturing operations to improve overall profitability."  

LIUZHOU CITY, China, Feb. 22, 2011 /PRNewswire-Asia/ -- China BCT Pharmacy Group, Inc., today announced plans to launch 17 new retail pharmacies in Guangxi, further expanding its footprint in the region.

The new stores, which will be operated under the "Baicaotang" brand name, primarily will be located in well-populated cities, including Liuzhou, Hechi, Hezhou, Guigang, Laibin and Guilin. The Company has started the build out process and estimates that the new stores will require total capital expenditures of RMB 8.5 million (approximately US$1.3 million) and will have an average pay back period of between 2.5 and 3 years.

Third Quarter 2010 Highlights

• Revenue increased 55.1% year-over-year to $52.5 million

• Gross profit rose 44.4% year-over-year to $13.2 million

• Operating income grew 30.9% year-over-year to $9.5 million

• GAAP net income was $6.9 million, or $0.18 per diluted share, compared to $5.1 million, or $0.16 per diluted share, in the year ago quarter

• Excluding non-cash income related to a change in the fair value of warrant liabilities, non-GAAP adjusted net income was $6.7 million, or $0.17 per diluted share

"All three of our vertically integrated businesses generated robust revenue growth this quarter, led by our pharmaceutical distribution segment, which benefited primarily from new business with clinics and health care centers under China's Basic Drugs Catalog program and from higher sales to drug store customers. During the quarter we expanded our retail pharmacy footprint by acquiring 33 outlets in Guangxi, and achieved higher sales volumes in our manufacturing business by establishing relationships with new distributors," commented Mr. Hui Tian Tang, Chairman and Chief Executive Officer of China BCT Pharmacy Group, Inc. "We intend to solidify our position as the dominant retail pharmacy chain and wholesale drug distributor in Guangxi by continuing to participate in retail pharmacy consolidation, investing in modern logistical centers and information systems, and capitalizing on China's recent healthcare reform policies."

Business Outlook

"Heading into 2011, we intend to continue to selectively build or acquire retail pharmaceutical chain stores in Guangxi and surrounding regions. By building a larger and stronger retail network, we expect to gain economies of scale and build incremental synergies as we vertically integrate retail with pharmaceutical distribution and manufacturing. In the wholesale distribution we plan to add more profitable contracts with hospitals, as exemplified by our exclusive relationship with Liujiang County Chinese Medicine Hospital and recently strengthened relationships with Liuzhou People's and Worker's Hospitals.  In manufacturing, we are very pleased with the progress of our new Compound Diphenoxylate Tablet product, which is on track to hit an annual revenue run rate of over $1.8 million next year. We aim to replicate this kind of success by focusing on those products in our pipeline that address higher-demand markets. As we execute in each of our business segments, our goal is to deliver shareholder value while playing an important role in China's rapidly growing healthcare industry," Mr. Tang concluded.

"Following our successful bidding for distribution rights in Guangxi province over the past year, we expect sales under these contracts to become an increasingly larger share of our overall revenues," commented Mr. Tang. "While we continue to pursue an organic growth strategy for our distribution segment, we are also aggressively expanding our retail pharmacy presence throughout Guangxi Province through acquisitions. With the addition of the 48 new stores, we are on track to achieve our target of adding a total of 160 pharmacy stores by the end of 2010 to our growing retail chain in Guangxi Province. We expect to be successful once again in renewing existing and winning new contracts as part of the 2010 centralized tendering under the New Rural Corporative Health Insurance Plan and anticipate significant new business opportunities to drive China BCT's growth."

see release

China Baicaotang plans to implement a three-pronged growth strategy to support its business expansion. For its pharmaceutical distribution and retail pharmacy segments, the Company will continue to focus on second and third tier cities and rural markets supported by well-designed marketing initiatives. For 2010, the Company plans to open an additional 160 pharmacy stores and expand the product portfolio which it manufactures to gain market share. In addition, China Baicaotang plans to invest in advanced logistics and information management systems and maximize its utilization rate of Hefeng production capacity.

"China Baicaotang is well-positioned to benefit from Chinese healthcare reform programs and maintain its position as one of the largest manufacturers and distributors in Guangxi Province," concluded Mr. Tang. "As a highly integrated player, our growth is supported by a balanced product portfolio, healthy product margins and a strong brand name."