China BCT Reports Third Quarter 2011 Results

LIUZHOU CITY, Guangxi Province, China, November 15, 2011 /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 third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

• Revenue increased 28.5% year-over-year to $67.5 million
• Gross profit rose 23.2% year-over-year to $16.3 million
• Operating income grew 31.4% year-over-year to $12.5 million
• GAAP net income climbed 36.9% to $9.5 million, or $0.22 per diluted share, from $6.9 million, or $0.18 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 $9.1 million, or $0.21 per diluted share
• Cash and cash equivalents as of September 30, 2011 totaled $34.3 million, compared to $20.2 million at the end of 2010

"We are pleased with our excellent operational and financial performance in the third quarter, achieving double digit sales growth across our distribution, retail and manufacturing businesses. Because of our integrated business model, we were able to adjust our product mix and strike a good balance between product volume and selling prices, resulted in stable profitability," commented Mr. Huitian Tang, Chief Executive Officer and Chairman of China BCT Pharmacy Group, Inc. "Inflationary pressures have increased cost-base for many manufacturing businesses in China over the past few quarters. So far, we have been spared of any significant impact from raw material and labor cost increases, but we will closely monitor market developments. China BCT is primarily focused in Guangxi, serving consumers in the Tier II and Tier III cities and counties, where competition is less fierce. We maintain our focus on increasing our market share in Guangxi before venturing into neighboring regions."

Third Quarter 2011 Results

Third quarter 2011 revenue increased 28.5% to $67.5 million from $52.5 million in the third quarter of 2010.

Revenue from the Company's pharmaceutical distribution segment increased 31.7% year-over-year to $50.2 million, or 74.4% of total revenue in the third quarter of 2011. Of the $12.1 million year-over-year increase in pharmaceutical distribution sales, $14.5 million was attributable to increased sales to hospitals, while $2.9 million reflected higher sales to other drug stores, offset by a $5.4 million decrease in sales to clinics and other health care centers.

Revenue from the Company's retail pharmacy segment grew 19.0% year-over-year to $13.7 million, or 20.3% of total second quarter revenue, driven by $2.8 million of incremental revenue from existing retail stores including the stores opened during the third quarter of 2010, but partially offset by an $0.6 million decline in new store sales in which comparatively fewer new stores been opened in third quarter 2011.

Revenue from the Company's manufacturing segment rose 23.2% year-over-year to $3.6 million, or 5.3% of total second quarter revenue. This quarter's manufacturing sales growth was due to increased sales volumes, as product pricing remained relatively stable compared with the same period last year.

Gross profit grew 23.2% year-over-year to $16.3 million, up from $13.2 million for the same period of 2010. Gross profit margin declined 1.0 percentage points to 24.2%, as compared to 25.2% in the comparable period last year. The slight decrease in gross profit margin in the third quarter of 2011 mainly reflects a greater mix of sales from the Company's distribution segment, which has lower margins relative to the Company's other businesses.

Within pharmaceutical distribution, gross profit margin declined from 20.9% in the third quarter of 2010 to 19.0% this quarter, primarily due to an increased percentage of sales to other drug stores, which generate lower gross profit margin within the distribution segment. Gross profit margin for the retail pharmacy segment increased to 32.8% from 30.8% in the third quarter of 2010, reflecting increased sales of higher gross margin products. Manufacturing segment gross profit margin was 64.2% and 59.0% during the quarters ending September 30, 2011 and 2010, respectively. The increase in gross profit margin was primarily due to an increase in sales derived from products with higher margins.

Operating expenses slightly increased 2.4% totaled $3.8 million for both periods this year and last year. Administrative expenses decreased 10.3% to $2.1 million, or 3.2% of revenue, as compared to $2.4 million, or 4.5% of revenue, in the same period of 2010, primarily due to a reduction in share based compensation, partially offset by a slight increase in rental expense associated with newly open stores. Selling expenses rose 24.2% to $1.7 million, compared to $1.4 million in the same period of 2010.

Operating income increased 31.4% to $12.5 million, or 18.5% of revenue, from $9.5 million, or 18.0% of revenue, in the third quarter of 2010.

GAAP net income increased 36.9% to $9.5 million, or $0.22 per diluted share, as compared to $6.9 million, or $0.18 per diluted share, in the third quarter of 2010. Diluted earnings per share were calculated using weighted average shares of 38,154,340 and 38,506,274 for the quarters ended September 30, 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, third quarter 2011 non-GAAP adjusted net income was $9.1 million, or $0.21 per diluted share, compared to non-GAAP adjusted net income of $7.3 million, or $0.19 per diluted share in the third quarter of 2010.

Nine Months 2011 Results

Revenue was $191.2 million for the first nine months of 2011, increasing 42.6% from $134.0 million in the same period prior year.

In terms of revenue mix, pharmaceutical distribution segment remained the Company's largest segment for the nine months ended September 30, 2011 at 74.2% of total sales, compared to 70.6% for the same period last year. Retail pharmacy segment sales were $39.4 million, representing 20.6% of total Company sales for the nine months ended September 30, 2011, up 23.0% from $32.0 million, or 23.9% for the same period last year. Manufacturing segment accounted for 5.2% of total sales for the nine months ended September 30, 2011, compared to 5.5% for the same period last year.

Gross profit was $46.0 million, or 24.0% of revenue, up 32.6% from $34.7 million, or 25.9% of revenue, for the nine months ended September 30, 2010.

Operating income was $32.7 million, or 17.1% of revenue, up 26.1% from $25.9 million, or 19.3% of revenue, for the nine months ended September 30, 2010.

Net income increased 33.0% to $24.3 million, or $0.57 per diluted share, compared to $18.3 million, or $0.48 per diluted share, for the first nine months of 2010. Excluding non-cash expense related to change in the fair value of warrant liabilities and share-based compensation expense, adjusted net income was $23.9 million, or $0.56 per diluted share, as compared to $19.4 million, or $0.51 per diluted share for the nine months ended September 30, 2010.

Financial Condition

As of September 30, 2011, China BCT had $34.3 million in cash and cash equivalents, $103.1 million in working capital and a current ratio of 2.81. Long-term bank debt was $0.2 million. Stockholders' equity was $108.7 million on September 30, 2011, compared to $83.1 million at the end of 2010.

The Company used $4.8 million in cash flow from operating activities for the nine months ended September 30, 2011 compared to cash flow generated by operating activities of $9.9 million in the same period prior year, primarily due to an increase in accounts receivable due to a slowdown in payment from customers. Cash used in investing activities was $5.2 million, compared to cash used in investing activities of $8.5 million in the nine months ended September 30, 2010. For the nine months ended September 30, 2011, cash flow from financing activities totaled $22.9 million and included $29.5 million from the placement of preferred stock, offset by the repayment of bank loans.

Business Outlook

"Looking towards 2012, we expect to secure more contracts with hospitals for our distribution segment. During the centralized bidding process in 2011, we successfully secured 2,000-3,000 more product distribution rights to hospital and clinic networks. For our retail segment, we will remain focused on identifying opportunities for selective drugstore acquisitions to further expand our retail network within Guangxi Province. In the fourth quarter of 2011, we expect to increase of our Levodopa raw materials output for products that target the Indian market. We expect these raw materials will contribute positively to our top line growth starting from the beginning of next year. We are committed to growing our footprint to become a larger vertically integrated pharmaceutical player offering retail, wholesale and manufacturing services." concluded Mr. Tang.

Conference Call

China BCT will conduct a conference call at 8:00 a.m. Eastern Time (ET) on Tuesday, November 15, 2011, to discuss its third quarter 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 23706035 approximately five to ten minutes prior to the call. A replay will be available for two weeks starting on Tuesday, November 15, 2011 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 23706035.

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 nine months ended September 30, 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-