China BCT Reports Strong Second Quarter 2011 Results

LIUZHOU CITY, China, August 15, 2011 /PRNewswire-Asia-FirstCall/ -- 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 second quarter ended June 30, 2011.

Second Quarter 2011 Highlights

• Revenue increased 37.1% year-over-year to $65.1 million
• Gross profit rose 27.4% year-over-year to $16.1 million
• Operating income grew 13.2% year-over-year to $11.6 million
• GAAP net income climbed 20.6% to $8.6 million, or $0.19 per diluted share, from $7.1 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 $8.3 million, or $0.18 per diluted share
• Cash and cash equivalents as of June 30, 2011 totaled $63.1 million, compared to $20.2 million at the end of 2010.

"In the second quarter of 2011, we achieved double digit sales growth across our distribution, retail and manufacturing segments, resulting in companywide year-over-year revenue growth of 37.1%," commented Mr. Hui Tian Tang, Chairman and Chief Executive Officer of China BCT Pharmacy Group, Inc. "We believe that our integrated business platform uniquely positions us to capitalize on a wide range of opportunities throughout China's pharmaceutical industry value chain. We intend to carefully deploy our strong cash balance, which totaled over $63.1 million at quarter end, on important strategic initiatives, including the continued expansion of our retail pharmacy footprint in Guangxi Province and the construction of a modern wholesale distribution logistics center in the region."

Second Quarter 2011 Results

Second quarter 2011 revenue increased 37.1% to $65.1 million from $47.5 million in the second quarter of 2010.

Net sales from the Company's pharmaceutical distribution segment increased 45.6% year-over-year to $48.5 million, or 74.5% of total revenue in the second quarter of 2011. Of the $15.1 million year-over-year increase in pharmaceutical distribution sales, $8.4 million reflected higher sales to other drug stores, $4.9 million was attributable to higher sales to hospitals, and $2.3 million was due to higher sales to clinics and health care centers.

Net sales from the Company's retail pharmacy segment grew 12.9% year-over-year to $13.2 million, or 20.1% of total second quarter revenue, driven by $2.3 million of incremental revenue from new retail stores somewhat offset by an 8.4% decline in existing store sales.

Net sales from the Company's pharmaceutical manufacturing segment rose 37.0% year-over-year to $3.5 million, or 5.4% of total second quarter revenue. This quarter's manufacturing sales growth was primarily due to increased sales volumes, as product pricing remained relatively stable year-over-year.

Gross profit grew 27.4% year-over-year to $16.1 million, up from $12.6 million for the same period of 2010. Gross profit margin declined 1.9 percentage points to 24.7%, as compared to 26.6% in the comparable period last year. The decrease in gross margin in the second 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 21.8% in the second quarter of 2010 to 19.2% this quarter, primarily due to an increased percentage of sales to other drug stores, which generate lower gross profit margin within the distribution segment, and due to a greater mix of lower margin products sold to hospitals. Retail pharmacy segment gross profit margin increased to 34.2% from 32.1% in the second quarter of 2010, reflecting fewer price reductions under the Company's recent marketing campaign. Pharmaceutical manufacturing segment gross profit margin was 64.7% and 65.2% during the quarters ending June 30, 2011 and 2010, respectively. The decrease in gross profit margin was primarily due to an increase in sales derived from products with lower margins.

Operating expenses increased by 89.3% to $4.5 million, compared to $2.4 million in the same period last year. Administrative expenses increased 107.4 to $2.7 million, or 4.1% of revenue, as compared to $1.3 million, or 2.7% of revenue, in the same period of 2010, primarily due to an increase in the incurrence of public company professional fees and increased share based compensation. Selling expenses rose 67.0% to $1.8 million, compared to $1.1 million in the same period of 2010.

Operating income increased 13.2% to $11.6 million, or 17.8% of revenue, from $10.3 million, or 21.6% of revenue, in the second quarter of 2010.

GAAP net income increased 20.6% to $8.6 million, or $0.19 per diluted share, as compared to $7.1 million, or $0.19 per diluted share, in the second quarter of 2010. Diluted earnings per share were calculated using weighted average shares of 38,154,340 and 38,471,274 for the quarters ended June 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, second quarter 2011 non-GAAP adjusted net income was $8.3 million, or $0.18 per diluted share, compared to non-GAAP adjusted net income of $7.6 million, or $0.20 per diluted share in the second quarter of 2010.

Six Months 2011 Results

Net revenue was $123.7 million in the first half of 2011, up 51.8% from $81.5 million in the first half of 2010. In terms of revenue mix, pharmacy distribution remained the Company's largest segment in the first half of 2011 at 74.2% of total sales, compared to 69.4% in the same period last year. Retail pharmacy represented 20.8% of total Company sales in the first half of 2011, down from 25.2% in the same period last year. Pharmacy manufacturing accounted for 5.0% of total sales during the first half of 2011, compared to 5.4% in the first half of last year.

Gross profit was $29.7 million, or 24.0% of revenue, up 38.2% from $21.5 million, or 26.3% of revenue, in the first half of 2010. Operating income was $20.2 million, or 16.4% of revenue, up 23.1% from $16.5 million, or 20.2% of revenue, in the first half of 2010. Net income increased 30.6% to $14.9 million, or $0.35 per diluted share, compared to $11.4 million, or $0.30 per diluted share, in the first half 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 $14.9 million, or $0.35 per diluted share, as compared to $12.1 million, or $0.32 per diluted share in the first half of 2010.

Financial Condition

As of June 30, 2011, China BCT had $63.1 million in cash and cash equivalents, $93.1 million in working capital and a current ratio of 2.44. Long-term bank debt was $0.2 million. Stockholders' equity was $99.3 million on June 30, 2011, compared to $83.1 million at the end of 2010.

The Company generated $23.0 million in cash flow from operating activities for the six months ended June 30, 2011 compared to cash flow from operating activities of $6.0 million in the same period prior year. Cash used in investing activities was $4.5 million, compared to cash used in investing activities of $3.7 million in the first half in 2010. For the six months ended June 30, 2011, cash flow from financing activities totaled $23.4 million and included $29.5 million from the placement of preferred stock.

Subsequent Events

On July 6, 2011, the Company announced a share repurchase plan that authorizes the Company to repurchase up to 2,000,000 shares of the Company's common stock from time to time during a one year period commencing on July 4, 2011.

On July 20, 2011, the Company announced that it is in the process of launching 21 new retail pharmacy stores in Guangxi, bringing the total number of "Baicaotang" branded stores to 208.

Business Outlook

"In the second half of 2011, we plan to focus on improving the performance of our existing retail stores while selectively pursuing opportunities to expand our retail pharmacy network. We are currently launching 21 new retail pharmacy stores in Guangxi. As a group, these stores are expected to generate annual revenues of approximately $2.6 million and should be fully operational in the second half of 2011," commented Mr. Tang. "On the distribution side of our business, we expect to commence construction of a state-of-the-art logistics center in the fourth quarter 2011. We are committed to developing a larger and stronger retail and wholesale distribution network, which we expect to yield greater economies of scale and additional synergies across our vertically integrated business model," concluded Mr. Tang.

Conference Call

China BCT will conduct a conference call at 8:00 a.m. Eastern Time (ET) on Monday, August 15, 2011, to discuss its second 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 89691490 approximately five to ten minutes prior to the call. A replay will be available for two weeks starting on Monday, August 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 89691490.

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 208 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 six months ended June 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-