Year End Will Show Higher Gross Profit and Margins Due to Change in Strategy
CHANGCHUN, China and LOS ANGELES, Dec. 31 /PRNewswire-Asia/ -- China Yongxin Pharmaceuticals, Inc. (OTC Bulletin Board: CYXN; "China Yongxin Pharmaceuticals" or the "Company"), a leading manufacturer, distributor and retailer of Chinese traditional medicines, pharmaceutical products, natural health products, health food, cosmetics, and medical equipment in Northeastern China, today announced its projected financial results for the year ending December 31, 2009.
Revenues for the full-year 2009 are projected to be $46.1 million, a 22% decrease from $59.1 million for 2008. The decrease in total revenue is due to the transition of the Company's sales strategy, which, because of the uncertain direction of the National Medical Policy, has been refocused from the wholesale sector to the retail and medical facilities sector. While a broader product portfolio and expanded marketing activities increased 2009 revenues from the Company's retail drug stores by approximately 30% over the prior year, it was not sufficient to completely offset the decrease in the Company's wholesale business, resulting in comparably lower total net revenue.
For 2009, net income is projected to be approximately $5.4 million, a 35% increase over the $4.1 million for 2008. The increase primarily is related to higher margin retail and medical facilities sales.
The Company expects to report that diluted earnings per share increased to $0.16 for 2009 compared to $0.13 for 2008, based on 34.4 million and 31.2 million shares respectively. Provision for income tax in 2009 is $2.7 million compared to $1 million in 2008.
Mr. Yongxin Liu, Chairman and Chief Executive Officer of China Yongxin, commented that during 2009, the Company's wholesale business was impacted by customers waiting for specifics on the new healthcare reform plan. "However, on August 18th, the Chinese government issued China's Essential Drug List (EDL) which included over 300 commonly used pharmaceuticals that will be subsidized by the government to provide easier access to all citizens. We are pleased that China Yongxin is a retailer or distributor of 295 of the products on that list. We are further encouraged by the increasing momentum toward healthcare reform and the government's efforts to boost domestic spending. During 2009, we also added 12 high margin pharmaceutical products with exclusive distribution rights in Jilin province and we expect this to drive market share gains and growth during the coming year," Mr. Liu said.
The cost of goods sold for the year is projected to be approximately $31.3 million, a significant reduction compared to $47.2 million in the prior year. This would represent an improvement in the Company's 2009 gross profit to $15.2 million and gross margin to 32.6%, compared to $11.9 million in gross profit and a gross margin of 20.1% for 2008. The projected increase in gross margins primarily was due to higher margin retail and medical facilities sales.
Operating expenses for 2009 are projected to be approximately $6.8 million, compared to $6.1 million in 2008. Selling expenses for the year are projected to decrease slightly from the prior year to $3.4 million. The Company prudently managed utilities usage, transportation costs and sales people to effectively reduce selling expense and maintain gross profit. General and administrative expenses for 2009 are projected to increase approximately 30.8% to $3.4 million, compared to $2.6 million in 2008. The majority of the increase is related to litigation expenses and consulting service expenses.
Income from operations projected for 2009 is approximately $8.3 million, a 43% increase from the $5.8 million for 2008. Operating margins are expected to be 18% and 9.8% for 2009 and 2008, respectively.
Business Development
On March 9, China Yongxin formally launched its Electronic Diagnosis System, of which 20 systems have been installed so far in Yongxin chain drugstores located in Changchun, Jilin. The System enables our customers to remotely receive medical diagnosis and conveniently purchase prescription drugs at that store. The Company is always working to improve the level of service it offers and leverage its large and growing base of "Member" customers who are entitled to discounts, rebates and special offers. This strategy, in addition to selling a broader array of higher margin health, beauty and cosmetic products has increased customer retention and improved revenue and profitability in this business segment.
Since the beginning of 2009, China Yongxin has signed 12 exclusive distribution agreements for Jilin province with several well known pharmaceutical manufacturers including Tianjin Smith Kline & French Laboratones Ltd. As of June 30, China Yongxin has approximately 216 drugs with exclusive distribution rights in Jilin province. This portfolio is a key component of its long-term growth strategy to leverage the large distribution center and channels established to drive incremental future revenue growth. These agreements are typically one year in duration and are renewable.
China Yongxin recently secured loans from local banks and rural credit unions totaling $2.9 million, with terms ranging from 1 to 3 years, renewable after the initial terms. Loan proceeds will be used to provide working capital for the Company's distribution segment as it capitalizes on new organic growth opportunities supported by the government's new healthcare initiative.
Mr. Liu further commented, "With enhanced government support, specifically the commencement of China's $126 billion health care reform plan focused on providing a broader spectrum of healthcare services and pharmaceutical products to all Chinese residents, we are confident that our modernized logistics center and distribution channels, the broad customer base of our chain drugstores, our extensive product portfolio, and committed management team will enable us to resume our growth momentum and capitalize on a long-term, secular growth opportunity," Mr. Liu concluded.
About China Yongxin Pharmaceuticals, Inc.
China Yongxin Pharmaceuticals, Inc. was founded in 1993 as the Changchun Yongxin Dirui Medical Co., Ltd. (Yongxin), is a manufacturer, retailer and distributor of Chinese traditional medicines, pharmaceutical preparations, natural health products, health food, cosmetics, and medical equipment in Northeastern China. It began retail operations in 2004, and in 2005, it gained franchise rights from one of the world's largest drug chains for China's Jilin Province. By the end of 2007, the Company had become one of the fastest growing drug retailers in China through its retail chain of 93 drug outlets as well as wholesale distribution and manufacturing operations in Northeastern China. For more information about China Yongxin Pharmaceuticals, please visit http://www.yongxinchina.com .
Forward Looking Statements
This news release contains certain "forward-looking statements." Forward-looking statements are based on current expectations and assumptions and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and many of which are beyond the Company's control. The forward-looking statements are also identified through the use of words "believe," enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict" "probable," "potential," "possible," "should," "continue," "project", "expect" and other words of similar meaning. Actual results could differ materially from these forward-looking statements as a result of a number of risk factors detailed in the Company's periodic reports filed with the SEC. Given these risks and uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements and no assurances can be given that such statements will be achieved. China Yongxin Pharmaceutical Inc. does not assume any duty to publicly update or revise the material contained herein.
