- Adjusts Strategy to Reflect Economic Downturn; Continues Focus on Cost Control and Enhancing Efficiencies -
SHENZHEN, China, May 27 /PRNewswire-Asia-FirstCall/ -- China Nepstar Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or "the Company"), the largest drugstore chain in China based on the number of directly operated stores, today announced its unaudited financial results for the first quarter ended March 31, 2009.
Financial Highlights
In January 2009, Nepstar's board of directors approved the termination of a voting rights assignment agreement which assigned 30% of the total voting rights of Yunnan JianZhiJia Chain Drugstore Co. Ltd. ("JZJ") to Nepstar. As of December 31, 2008, JZJ had 355 drugstore outlets, all of which were located in Yunnan province in southwestern China. As a result of the termination of the voting rights assignment agreement, Nepstar no longer consolidated JZJ's financials beginning in the first quarter of 2009, and the financial results of JZJ was accounted for under the equity method.
To facilitate comparability of figures between periods presented, pro forma financial information is presented to show the accounting impact of the termination of the voting rights assignment agreement as if that had been taken place in the beginning of the relevant period.
For the quarter ended March 31, 2009:
-- Revenue was RMB506 million (US$74 million), reflecting a 12.1% increase
compared to revenue of RMB 451 million in the first quarter of 2008 on
pro forma basis
-- Net income was RMB30 million (US$4 million)
-- Net cash flow from operations was RMB93 million (US$14 million)
"As the global economic crisis continues to drive declines in export oriented businesses in southern China, many migrant workers have returned to their rural homes, which has significantly shifted consumption trends," commented Mr Ian Wade, Co-Chief Executive Officer of Nepstar. "Nepstar is actively aligning itself with this change by closing down poorly performing stores in southern regions and focusing our efforts on driving sales in northern regions by improving store efficiencies. As a result, we have been able to minimize the adverse impact on our overall same store sales, and increased first quarter revenues by 12.1% compared to revenue in the first quarter of 2008 on a pro forma basis. We will continue to control costs, improve operating efficiencies and pursue competitive strategies to leverage our brand strength and network scale."
First Quarter Results
Revenue for the quarter ended March 31, 2009 was RMB506 million (US$74 million), compared to RMB543 million for the first quarter of 2008, and was 12.1% higher than revenue of RMB451 million for the first quarter of 2008 on a pro forma basis.
First quarter revenue contribution from prescription drugs was 22.1%, over-the-counter ("OTC") drugs was 37.9%, nutritional supplements was 20.1%, traditional Chinese herbal products was 4.2% and other products was 15.7%. Same store sales (for stores opened before December 31, 2007) for the first quarter of 2009 decreased by 1.9% from the same period last year. The decline was mainly due to the worsened economic environment in southern China, where many export oriented businesses have suffered from collapsing global demand. Same store sales were calculated based on 1,630 stores opened as of December 31, 2007.
Nepstar's portfolio of private label products included 1,451 products as of March 31, 2009. Sales of private label products represented approximately 28.5% of revenue and 42.7% of gross profit for the first quarter 2009.
Gross profit was RMB244 million (US$36 million) for the first quarter of 2009, as compared to RMB259 million for the first quarter of 2008 and RMB229 million on a pro forma basis. Gross margin for the quarter of 2009 was 48.2%, as compared to 47.7% for the same period in 2008 and 50.7% on pro forma basis. The decrease in gross margin compared with that of pro forma basis was largely due to the price adjustments of certain price sensitive products to maintain competitiveness and to address the changing consumer consumption pattern as a result of worsened economic environment.
Sales, marketing and other operating expenses as a percentage of revenue for the first quarter of 2009 increased to 41.0% compared to 35.8% in the first quarter of 2008 and 38.3% on a pro forma basis. The increase was primarily due to an increase in the proportion of newly opened stores in the Company's store base. Also, we incurred costs of RMB1.4 million associated with store closures in the first quarter of 2009. However, sales, marketing and other operating expenses dropped for the second consecutive quarter in absolute amount since the fourth quarter 2008 due to effective cost control measures, particularly in head-count reduction and renegotiation of rental terms.
General and administrative expenses as a percentage of revenue for the first quarter of 2009 was 4.6% compared to 4.4% for the first quarter of 2008 and 5.0% on a pro forma basis. The decrease compared to pro forma basis was also primarily due to efficient cost control measures.
Operating income for the first quarter of 2009 was RMB13 million (US$2 million) compared to RMB41 million for the first quarter of 2008 and RMB34 million on a pro forma basis.
The Company's effective tax rate was 26.5% for first quarter of 2009, compared to 24.5% for the first quarter of 2008. The increase in effective tax rate was primarily due to (i) higher tax rates that certain of the Company's subsidiaries are subject to under the new PRC corporate income tax law, and (ii) an increase in the deferred tax asset valuation allowance for tax loss carry forwards, the benefits of which the Company currently does not expect to be realizable.
Net income in the first quarter 2009 was RMB30 million (US$4 million), or RMB0.30 (US$0.04) basic earnings per American depositary share ("ADS"), and RMB0.28 (US$0.04) diluted earnings per ADS. This compares to net income of RMB55 million, or RMB0.52 basic and RMB0.50 diluted earnings per ADS for the first quarter of 2008. The total number of outstanding ordinary shares for the Company as of March 31, 2009 was 207 million. The weighted average number of ADSs for the first quarter of 2009 was 104 million. One ADS represents two ordinary shares.
As of March 31, 2009, the Company's total cash, cash equivalents and current bank deposits were RMB1,874 million (US$274 million), long term bank deposits were RMB200 million (US$ 29 million), held-to-maturity investment securities were RMB408 million (US$ 60 million) and total shareholders' equity was RMB2,727 million (US$ 399 million).
On March 16, the Company declared a cash dividend of US$0.35 per ADS, or approximately RMB250 million.
First Quarter Operating Highlights
During the first quarter of 2009, management focused on improving product offerings in both pharmaceutical and non-pharmaceutical sectors and enhancing the store operation standards. Meanwhile, in selective areas where business is seriously impacted by the worsened economic environment, aggressive pilot marketing programs were implemented starting from second half of March 2009 in an attempt to grow our market share and enhance our competitive position.
In first quarter of 2009, Nepstar opened 16 new stores organically and closed 34 stores. As of March 31, 2009, Nepstar had a total of 2,336 stores in operation. JZJ had 361 drugstores, in which Nepstar holds 40% equity interest. Since the second half of 2008, Nepstar shifted its strategy to focus on improving the overall quality of store performance by closing poorly performing stores, being more selective in acquiring new stores and slowing the pace of new store openings, which generally incur high initial costs, but generate lower revenues during their first two years of operations.
In the mean time, Nepstar has been in discussions with local governments in Hubei Province and Jilin Province to obtain support for Nepstar to develop those new markets. Once favorable terms are confirmed, Nepstar will consider entering into those new areas. Also in the first quarter of 2009, the Company is exploring business opportunities with catalogue sales, that is, customers could place orders and receive delivery at home according to Nepstar catalogues for products that are not carried at store level. Sixteen stores across China have been experimenting with catalogue sales of household consumables. We are carefully monitoring and adjusting the experimental model.
Business Outlook
Mr. Wade commented, "We are committed to preserving Nepstar's brand equity and expanding market share. Our strategy is to continue to drive same store sales, while reducing overall costs and leveraging our infrastructure to enhance efficiencies. We are reviewing all aspects of operations, including product mix and pricing to ensure the best and most competitive offerings for our customers.
"We remain hopeful that Chinese healthcare reform is poised to benefit the more than one billion people in China and achieve an overall higher quality of life. The Chinese government's recent stimulus and related healthcare subsidy should significantly expand healthcare spending, which will benefit all aspects of the industry, including the retail drugstore market. We believe the worst is already behind us and look forward to recovery in the balance of the year."
Conference Call Information
The Company's management team will host a conference call, to be simultaneously Web cast, on Wednesday, May 27, 2009 at 8:00 a.m. Eastern Daylight Time / 8:00 p.m. Beijing Time. Interested parties may participate in the conference call by dialing +1-877-407-9210 (North America) or +1-201-689-8049 (International) approximately five to ten minutes before the call start time. A live Web cast of the conference call will be available on the Nepstar Web site at http://www.nepstar.cn .
A replay of the call will be available starting on May 27, 2009, at 11:00 a.m. Eastern Daylight Time / 11:00 p.m. Beijing Time through June 3, 2009 at 11:59 p.m. Eastern Daylight Time or June 4, 2009 at 11:59 a.m. Beijing Time. An archived Web cast of the conference call will be available on the Nepstar Web site at http://www.nepstar.cn . Interested parties may access the replay by dialing +1-877-660-6853 (North America) or + 1-201-612-7415 (International) and entering account number 286 and conference ID number 323198.
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is China's largest retail drugstore chain based on the number of directly operated stores. As of March 31, 2009, the Company had 2,336 stores across 63 cities and 40% equity in the 361 stores of its affiliate in Yunnan province, one headquarter distribution center and 12 regional distribution centers in China. Nepstar uses directly operated stores, centralized procurement and a network of distribution centers to provide its customers with high-quality, professional and convenient pharmacy services and a wide variety of other merchandise, including OTC drugs, nutritional supplements, herbal products, personal care products, family care products, and convenience products including consumables. Nepstar's strategy of centralized procurement, competitive pricing, customer loyalty programs and private label offerings has enabled it to capitalize on the robust economic growth in China and to take advantage of the demographic trend in China to achieve a strong brand and leading market position. For further information, please go to http://www.nepstar.cn .
Safe Harbor Statement
This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release and the Company's strategic operational plans and business outlook, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
Exchange Rate Information
The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the exchange rate of US$1.00 = RMB6.8329 on March 31, 2009 as set forth in the H. 10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2009, or at any other certain date. The percentages stated are calculated based on RMB.
For more information, please contact:
In China:
Lucia Qian
China Nepstar Chain Drugstore Ltd.
Marketing and IR Director
Phone: +86-755-2641-4065
Email: qianrt@nepstar.cn
In the United States:
Dixon Chen
Grayling
Investor Relations
Tel: +1-646-284-9403
Email: Dixon.chen@us.grayling.com
Ivette Almeida
Grayling
Media Relations
Tel: +1-646-284-9455
Email: ivette.almeida@us.grayling.com
Tables Follow
China Nepstar Chain Drugstore Ltd.
Condensed Consolidated Statements of Operations
(amounts in thousands - except share and per-share data)
Three-month period ended
March 31,
2008 2009 2009
RMB RMB USD
Revenue 542,738 505,960 74,047
Cost of goods sold (283,477) (261,970) (38,339)
Gross profit 259,261 243,990 35,708
Sales, marketing and other operating
expenses (194,496) (207,622) (30,386)
General and administrative expenses (23,876) (23,295) (3,409)
Income from operations 40,889 13,073 1,913
Interest income 35,502 23,518 3,442
Dividend income from cost method
investments 816 3,776 553
Equity in income of affiliates -- 1,007 147
Earnings before income tax expense
and minority interests 77,207 41,374 6,055
Income tax expense (18,945) (10,944) (1,602)
Minority interests (3,362) -- --
Net income attributable to ordinary
shareholders 54,900 30,430 4,453
Earnings per ordinary share:
Basic 0.26 0.15 0.02
Diluted 0.25 0.14 0.02
China Nepstar Chain Drugstore Ltd.
Condensed Consolidated Balance Sheets
(amounts in thousands)
As of
December 31, As of March 31,
2008 2009 2009
RMB RMB USD
Current assets
Cash, cash equivalents and other bank
deposits 1,197,884 1,874,005 274,262
Held-to-maturity investment
securities 641,000 8,000 1,171
Accounts receivable, net of allowance
for doubtful accounts 88,136 64,936 9,503
Prepayments for purchase of
merchandise paid to related parties 70,306 66,366 9,713
Amounts due from related parties 7,244 27,837 4,074
Prepaid expenses, deposits and other
current assets 178,354 138,975 20,339
Inventories 373,689 273,898 40,085
Deferred income taxes 15,863 15,646 2,290
Total current assets 2,572,476 2,469,663 361,437
Non-current assets
Long-term bank deposits 200,000 200,000 29,270
Held-to -maturity investment
securities 400,000 400,000 58,540
Property and equipment, net 240,396 206,978 30,291
Deposits for purchases of properties
paid to related parties 2,100 -- --
Rental deposits 28,873 28,835 4,220
Cost method equity investments 12,638 12,638 1,850
Equity method investments -- 16,295 2,385
Intangible assets 2,390 1,971 288
Goodwill 35,177 35,177 5,148
Deferred income taxes 4,723 2,997 439
Total non-current assets 926,297 904,891 132,431
Total assets 3,498,773 3,374,554 493,868
Current liabilities
Accounts payable 267,250 237,782 34,799
Amounts due to related parties 64,200 6,607 967
Accrued expenses and other payables 123,905 100,780 14,749
Dividend payable -- 247,908 36,282
Income tax payable 35,344 22,216 3,251
Total current liabilities 490,699 615,293 90,048
Non-current liabilities
Deferred income 14,992 20,185 2,954
Deferred income taxes 10,443 12,400 1,815
Total non-current liabilities 25,435 32,585 4,769
Total liabilities 516,134 647,878 94,817
Minority interests 23,165 -- --
Shareholders' equity
Share capital 165 164 24
Additional paid-in capital 2,823,668 2,663,518 389,808
Accumulated other comprehensive loss (38,009) (37,750) (5,525)
Retained earnings 173,650 100,744 14,744
Total shareholders' equity 2,959,474 2,726,676 399,051
Total liabilities and shareholders'
equity 3,498,773 3,374,554 493,868
China Nepstar Chain Drugstore Ltd.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
Three-month period ended March 31
2008 2009 2009
RMB RMB USD
Cash flows provided by operating
activities 66,225 93,488 13,682
Cash flows (used in)/provided by
investing activities (886,619) 48,606 7,114
Cash flows used in financing
activities (7,564) (16,082) (2,354)
China Nepstar Chain Drugstore Ltd.
Pro Forma Key Financials
(amounts in thousands)
Three-month period ended March 31,
2008
RMB
Revenue 451,334
Gross profit 229,048
Gross Margin 50.7%
Income from operations 33,727
Operating Margin 7.5%
Net income 54,900
Net Margin 12.2%
As of December 31, 2008
RMB
Cash, cash equivalents and other bank
deposits 1,190,873
Total held-to-maturity investment
securities 1,041,000
Long-term bank deposits 200,000
Total assets 3,383,238
Total liabilities 423,764
Total shareholders' equity 2,959,474
For convenient comparison, income statement item amounts for the
three-month period ended March 31, 2008 and balance sheet item amounts as of December 31, 2008 were computed on pro forma basis as if JZJ had been equity accounted for in the period.
