China Kanghui Holdings Reports Fourth Quarter and Full Year 2011 Financial Results

CHANGZHOU, China, March 19, 2012 /PRNewswire-Asia/ -- China Kanghui Holdings (NYSE: KH) ("Kanghui" or the "Company"), a leading domestic developer, manufacturer and marketer of orthopedic implants in China, today announced its unaudited financial results for the fourth quarter and full year 2011.

Fourth Quarter 2011 Highlights

• Total net revenue for the fourth quarter of 2011 increased by 33.6% year-over-year to RMB96.6 million from RMB72.3 million in the corresponding period of the prior year.
• Gross profit for the fourth quarter of 2011 increased by 32.3% year-over-year to RMB69.2 million from RMB52.3 million in the corresponding period of the prior year.
• Operating income for the fourth quarter of 2011 increased by 17.0% year-over-year to RMB35.8 million from RMB30.6 million in the corresponding period of the prior year.
• Net income for the fourth quarter of 2011 increased by 53.8% year-over-year to RMB42.3million from RMB27.5 million in the corresponding period of the prior year.
• Non-GAAP(1) net income for the fourth quarter of 2011 increased by 57.4% year-over-year to RMB44.4 million from RMB28.2 million in the corresponding period of the prior year.

Full Year 2011 Highlights

• Total net revenue for the full year 2011 increased by 34.7% year-over-year to RMB327.0 million from RMB242.8 million for the full year 2010.
• Gross profit for the full year 2011 increased by 36.8% year-over-year to RMB234.5 million from RMB171.4 million for the full year 2010.
• Operating income for the full year 2011 increased by 22.5% year-over-year to RMB132.3 million from RMB108.0 million for the full year 2010.
• Net income for the full year 2011 increased by 21.5% year-over-year to RMB121.1 million from RMB99.7 million for the full year 2010.
• Non-GAAP(1) net income for the full year 2011 increased by 19.3% year-over-year to RMB128.5 million from RMB107.7 million for the full year 2010.

Mr. Libo Yang, Chief Executive Officer of the Company, stated, "We are very pleased that Kanghui once again exceeded expectations and delivered another strong quarterly financial performance in the fourth quarter of 2011. We continued to expand our market share in China, while further penetrated our existing international sales channels at the same time. Our fourth quarter success concluded a very successful 2011 for Kanghui. With our sustainable advantages, a proven product line, and an exciting new product pipeline, we believe we are well positioned to deliver another successful year in 2012."

Ms. Sarah Wang, Chief Financial Officer of Kanghui, commented, "Our strong fourth quarter financial results reflect our ability to consistently execute on our growth strategy. During the fourth quarter, we experienced strong sales growth across all product segments and markets, driven by the strong demand for our existing product lines. For 2012, we intend to continue with the solid momentum and foundation that we had built in 2011 and to launch additional new products throughout the year to further establish Kanghui as a leading international provider of innovative and diversified orthopedic products."

Fourth Quarter 2011 Financial and Operating Results

Net revenue increased by 33.6% year-over-year to RMB96.6 million ($15.3 million(2)) in the fourth quarter of 2011 from RMB72.3 million in the corresponding period of the prior year. Net revenue from trauma products increased by 45.4% year-over-year to RMB63.7 million ($10.1 million) in the fourth quarter of 2011 from RMB43.8 million in the corresponding period of the prior year. Net revenue from spine products increased by 28.4% year-over-year to RMB28.5 million ($4.5 million) in the fourth quarter of 2011 from RMB22.2 million in the corresponding period of the prior year. Net revenue from OEM products decreased by 30.2% year-over-year to RMB4.4 million ($0.7 million) in the fourth quarter of 2011 from RMB6.3 million in the corresponding period of the prior year. Domestic sales of proprietary products increased by 26.8% year-over-year to RMB70.0 million ($11.1 million) in the fourth quarter of 2011 from RMB55.2 million in the corresponding period of the prior year, while international sales of proprietary products increased by 105.6% year-over-year to RMB22.2 million ($3.5 million) in the fourth quarter of 2011 from RMB10.8 million in the corresponding period of the prior year.

In the fourth quarter of 2011, cost of revenue increased by 36.5% year-over-year to RMB27.3 million ($4.3 million) from RMB20.0 million in the corresponding period of the prior year. Gross profit increased by 32.3% year-over-year to RMB69.2 million ($11.0 million) in the fourth quarter of 2011 from RMB52.3 million in the corresponding period of the prior year. Gross margin for the fourth quarter of 2011 was 71.6%, compared to 72.3% in the corresponding period of the prior year.

Selling expenses increased by 29.2% year-over-year to RMB14.6 million ($2.3 million) in the fourth quarter of 2011 from RMB11.3 million in the corresponding period of the prior year. General and administrative expenses increased by 50.0% year-over-year to RMB13.2 million ($2.1 million) in the fourth quarter of 2011 from RMB8.8 million in the corresponding period of the prior year. Research and development expenses increased by 229.4% year-over-year to RMB5.6 million ($0.9 million) in the fourth quarter of 2011 from RMB1.7 million in the corresponding period of the prior year.

Operating income increased by 17.0% to year-over-year RMB35.8 million ($5.7 million) in the fourth quarter of 2011 from RMB30.6 million in the corresponding period of the prior year. Operating margin decreased to 37.1% in the fourth quarter of 2011 from 42.3% in the corresponding period of the prior year.

Income tax benefit in the fourth quarter of 2011 was RMB0.3 million ($54,000), compared to an income tax expense of RMB2.6 million in the corresponding period of the prior year.

Net income was RMB42.3 million ($6.7 million) in the fourth quarter of 2011, representing a year-over-year increase of 53.8% from RMB27.5 million in the corresponding period of the prior year. On a diluted per ADS(3) basis, the Company reported net income per diluted ADS of RMB1.65 ($0.26) in the fourth quarter of 2011, compared to a net income per diluted ADS of RMB1.10 in the corresponding period of the prior year.

Non-GAAP net income, which excludes share based compensation expenses, increased by 57.4% to RMB44.4 million ($7.1 million) from RMB28.2 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.72 ($0.27) in the fourth quarter of 2011, compared to a non-GAAP net income per diluted ADS of RMB1.12 in the corresponding period of the prior year.

During the fourth quarter of 2011, the Company had a weighted average diluted share count of 154.3 million shares (equivalent to 25.7 million ADSs), compared to 150.6 million shares (equivalent to 25.1 million ADSs) in the corresponding period of the prior year.

Full Year 2011 Financial and Operating Results

For the full year ended December 31, 2011, net revenue increased 34.7% year-over-year to RMB327.0 million ($52.0 million) from RMB242.8 million for the prior year. Net revenue from trauma products increased 30.7% year-over-year to RMB201.6 million ($32.0 million) from RMB154.3 million for the prior year. Net revenue from spine products increased 45.6% year-over-year to RMB99.3 million ($15.8 million) from RMB68.2 million for the prior year. Net revenue from OEM products increased 28.6% year-over-year to RMB26.1 million ($4.1 million) from RMB20.3 million for the prior year. The increase in revenue for full year 2011 also reflects international revenue growth of 48.6% and domestic revenue growth of 32.4%, on a year-over-year basis.

Gross profit for the full year 2011 increased 36.8% year-over-year to RMB234.5 million ($37.3 million) from RMB171.4 million in the prior year. Operating income for full year 2011 increased 22.5% year-over-year to RMB132.3 million ($21.0 million) from RMB108.0 million for the prior year.

Net income for the full year 2011 increased by 21.5% year-over-year to RMB121.1 million ($19.2 million) from RMB99.7 million for the prior year. This is equivalent to RMB4.72 ($0.75) per diluted ADS in the full year 2011. Non-GAAP net income for the full year 2011, which excludes share-based compensation expenses, increased by 19.3% year-over-year to RMB128.5 million ($20.4 million) from RMB107.7 million for the prior year. This is equivalent to RMB5.01 ($0.80) per diluted ADS in the full year 2011.

The weighted average number of diluted shares outstanding was 154.0 million, equivalent to 25.7 million ADSs, for the year ended December 31, 2011, compared to a weighted average of 100.3 million diluted shares outstanding, equivalent to 16.7 million ADSs, for the year ended December 31, 2010.

Balance Sheet

As of December 31, 2011, the Company had cash and cash equivalents of RMB380.1million ($60.4 million), compared to RMB262.5 million as of December 31, 2010. As of December 31, 2011, the Company held short-term investments of RMB77.0 million ($12.2 million), compared to RMB266.7 million as of December 31, 2010.

Business Outlook

Mr. Yang added, "Our progress in 2011 has laid a solid foundation for our continued growth in 2012, as we are focused on further penetrating both our existing domestic and international markets while expanding into new growth opportunities. As we successfully obtained FDA approvals for TGM's Helicon™ Hip System ("HHS"), Milestone Knee System ("MKS") and related surgical instruments, we intend to launch these products this year to kick start our reconstructive joint segment. We have a good start in 2012 and will continue to position Kanghui as a leader in product quality in the fast-growing and relatively underserved joint reconstruction market in China."

The Company anticipates revenue for full year 2012 will be in the range of RMB392 million to RMB403 million, which represents year-over-year growth of 20% to 23%. The Company also estimates its full year 2012 non-GAAP net income to be in the range of RMB146 million to RMB153 million.

Non-Cash Share-Based Compensation Expense Discussion

The Company recognized non-cash share-based compensation expenses of RMB2.0 million ($0.3 million) in the fourth quarter of 2011 and RMB7.4 million ($1.2 million) for full year 2011.

The Company classified these non-cash share-based compensation expenses in its costs of revenue, selling expenses, general and administrative expenses as well as in research and development expenses. The break out of these expenses per line item is provided in the financial tables attached to this press release.

The Company has provided a non-GAAP presentation of results which excludes the non-cash share-based compensation expenses. Please refer to the non-GAAP presentation provided in the appendix for a year-over-year comparison of non-cash share-based compensation expenses. The Company believes that this non-GAAP presentation is a helpful tool for the Company to plan and forecast future periods and both management and investors benefit from referring to such non-GAAP presentation in assessing the performance of the Company.

Conference Call

Kanghui will hold a corresponding conference call and live webcast at 8:00 a.m. ET on Monday, March 19, 2012 (8:00 p.m. Beijing time on Monday, March 19, 2012) to discuss fourth quarter and full year 2011 results and answer questions from investors. Listeners may access the call by dialing:

A replay of the webcast will be accessible through March 26, 2012 on http://ir.kanghui.com/ or by dialing:

About China Kanghui Holdings

Founded in 1997, Kanghui is a leading domestic developer, manufacturer and marketer of orthopedic implants in China. The Company offers a wide array of proprietary orthopedic implant products in trauma and spine, and has an extensive nationwide network of distributors for its products in China, as well as in 28 other countries. Kanghui has strong research and development capabilities, focused on developing new proprietary products and product lines, and enhancing existing products and product lines. For more information, please visit www.kanghui.com.

Use of Non-GAAP Financial Measures

The Company has included non-GAAP financial measures in this press release. Non-GAAP financial measures are defined as GAAP gross profit excluding non-cash share-based compensation expenses, operating income excluding non-cash share-based compensation expenses, net income excluding non-cash share-based compensation expenses, net margin excluding non-cash share-based compensation expenses, basic earnings per share and per ADS excluding non-cash share-based compensation expenses, and diluted earnings per share and per ADS excluding non-cash share-based compensation expenses. The Company believes that management and investors benefit from referring to the non-GAAP financial measures in assessing the performance of the Company and when planning and forecasting future periods. These non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. The use of non-GAAP financial measures has limitations and readers should not consider non-GAAP financial measures in isolation from or as alternatives to consolidated financial metrics prepared in accordance with U.S. GAAP. Readers are encouraged to refer to the reconciliation of non-GAAP measures to GAAP measures included herein.

Safe-Harbor Statement

This press release contains statements of a forward-looking nature, including, among other things, the Company's unaudited operating results for 2011 and anticipated operating results for 2012, new product introductions and the respective timetable, the demand for joint reconstruction products in China, future prospects of the Company and the ability for the Company to realize its business plans for 2012. These forward-looking statements are not historical facts but instead represent only the Company's belief regarding expected results and events, many of which, by their nature, are inherently uncertain and outside of the Company's control. The actual results and other circumstances of the Company may differ, possibly materially, from the anticipated results and events indicated in these forward-looking statements. Announced results for the fourth quarter 2011 are preliminary, unaudited and subject to audit adjustment. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as "may," "could," "would," "plan," "anticipate," "believe," "estimate," "predict," "potential," "expects," "intends" and "future" or similar expressions. These forward-looking statements speak only as of the date of this press release and are subject to change at any time. These forward-looking statements are based upon management's current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company's control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the Company's beliefs regarding its strengths and strategies; the Company's ability to expand its international business; the Company's ability to develop and successfully market new products in China and internationally; the Company's current expansion strategy, including its ability to expand its manufacturing and research and development facilities and capabilities and the Company's future prospects, business development, results of operations and financial condition. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 20-F for the fiscal year 2010, as filed with the Securities and Exchange Commission on June 3, 2011, and are available on the Securities and Exchange Commission's website at www.sec.gov. For additional information on these and other important factors that could adversely affect our business, financial condition, results of operations, and prospects, please see "Risk Factors" that begins on page 5 of the Company's annual report for fiscal year 2010 and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission, which can be found on the Company's website at www.kanghui.com or at www.sec.gov.

(1) All non-GAAP measures exclude share-based compensation expenses. For further details on non-GAAP measures, please refer to the reconciliation tables and a detailed discussion of the Company's use of non-GAAP information set forth elsewhere in this press release.

(2) This announcement contains translations of certain Renminbi ("RMB") amounts into US dollars ("$") at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars as of and for the quarter ended December 31, 2011 were made at the noon buying rate of RMB6.2939 to $1.00 on December 30, 2011 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York. The Company makes no representation that the Renminbi or US dollar amounts referred to in this press release could have been or could be converted into US dollars or Renminbi, at any particular rate or at all.

(3) Each of the Company's American Depositary Shares ("ADS"), which are traded on New York Stock Exchange, represents six of the Company's ordinary shares.