China BCT Reports Fourth Quarter and Full Year 2011 Results

LIUZHOU CITY, China, March 30, 2012 /PRNewswire-Asia/ -- 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 fourth quarter and full year ended December 31, 2011.

Fourth Quarter 2011 Highlights

• 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."

Fourth Quarter 2011 Results

Fourth quarter 2011 revenue decreased slightly to $66.3 million from $66.8 million in the fourth quarter of 2010.

Revenue from the Company's pharmaceutical distribution segment decreased 4% year-over-year to $48.7 million, or 73% of total revenue in the fourth quarter of 2011, as it was negatively impacted by the new contracts under the hospital bidding process that ended in October.

Revenue from the Company's retail pharmacy segment grew 10% year-over-year to $13.9 million, or 21% of total fourth quarter revenue, partly due to the opening of four in-store TCM clinics during the quarter.

Revenue from the Company's manufacturing segment rose 7% year-over-year to $3.7 million, or 6% of total fourth quarter revenue.

Gross profit grew 12.2% year-over-year to $15.8 million, up from $14.1 million for the same period of 2010. Gross profit margin increased 2.8 percentage points to 23.9%, as compared to 21.1% in the comparable period last year. The increase in gross profit margin in the fourth quarter of 2011 mainly reflects a greater mix of higher margin retail and manufacturing business and increases in margins within those businesses.

Within pharmaceutical distribution, operating profit margin increased from 14% in the fourth quarter of 2010 to 14.5% in the fourth quarter of 2011. Operating profit margin for the retail pharmacy segment increased to 19.8% from 14.3% in the fourth quarter of 2010, reflecting the start of the in-store TCM clinics which generate higher margins and the closing of less profitable smaller stores. Manufacturing segment operating profit margin was 50% and 44.2% during the quarters ending December 31, 2011 and 2010, respectively.

Operating expenses increased 35.8% and totaled $6.3 million compared to $4.7 million for the same period in 2010. The increase was mainly driven by administrative expenses which increased 63.6% to $4.6 million, primarily due to refurbishment and expansion expenses associated with the Company's headquarters building, offset by a small decrease in selling expenses to $1.8 million, compared to $1.9 million in the same period of 2010.

Operating income increased 0.5% to $9.5 million, or 14.3% of revenue, from $9.4 million, or 14.2% of revenue, in the fourth quarter of 2010.

GAAP net income decreased 7.1% to $6.9 million, or $0.18 per diluted share, as compared to $7.4 million, or $0.19 per diluted share, in the fourth quarter of 2010. Diluted earnings per share were calculated using weighted average shares of 38.2 million and 38.4 million for the quarters ended December 31, 2011 and 2010, respectively. Excluding a non-cash benefit related to change in the fair value of warrant liabilities and excluding share-based compensation expense, fourth quarter 2011 non-GAAP adjusted net income was $7.8 million, or $0.21 per diluted share, compared to non-GAAP adjusted net income of $7.0 million, or $0.18 per diluted share in the fourth quarter of 2010.

Full Year 2011 Results

Revenue was $257.5 million for the twelve months ended December 31, 2011, an increase of 28.2% from $200.8 million in the prior year.

In terms of revenue mix, pharmaceutical distribution segment remained the Company's largest segment for the year ended December 31, 2011 at $190.7 million or 74.0% of total sales, compared to 72.4% last year. Retail pharmacy segment sales were $53.3 million, representing 20.7% of total Company sales in 2011, up 19.54% from last year. The manufacturing segment accounted for $13.6 million or 5.3% of total sales in 2011, compared to 5.4% for the same period last year.

Gross profit was $61.8 million, or 24.0% of revenue, up 26.6% from $48.8 million, or 24.3% of revenue, for the year ended December 31, 2010.

Operating income was $42.2 million, or 16.4% of revenue, up 19.2% from $35.4 million, or 17.6% of revenue in 2010.

Net income increased 22.1% to $31.2 million, or $0.82 per diluted share, compared to $25.7 million, or $0.67 per diluted share prior year. Excluding non-cash expense related to change in the fair value of warrant liabilities and share-based compensation expense, adjusted net income was $31.7 million, or $0.83 per diluted share, as compared to $26.4 million, or $0.68 per diluted share for the year ended December 31, 2010.

Financial Condition

As of December 31, 2011, China BCT had $31.5 million in cash and cash equivalents, $110.0 million in working capital and a current ratio of 2.77. Long-term bank debt was $0.2 million. Stockholders' equity was $116.5 million on December 31, 2011, compared to $83.1 million at the end of 2010.

The Company used $5.8 million in cash flow from operating activities for the twelve months ended December 31, 2011 compared to cash flow generated by operating activities of $15.9 million prior year, primarily due to an increase in accounts receivable due to a slowdown in payment from customers. Cash used in investing activities was $7.4 million, compared to cash used in investing activities of $9.2 million in 2010. Cash flow from financing activities totaled $22.8 million and included $29.5 million from the placement of preferred stock, offset by the repayment of bank loans for the year ended December 31, 2011.

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.

Conference Call

China BCT will conduct a conference call at 8:00 a.m. Eastern Time (ET) on Friday, March 30, 2012, to discuss its fourth quarter and full year 2011 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 65662139 approximately five to ten minutes prior to the call. A replay will be available for two weeks starting on Friday, March 30, 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 65662139.

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 219 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 twelve months ended December 31, 2011 and 2010 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.

-Financial Tables Follow-