Tongjitang Chinese Medicines Company Reports Second Quarter 2010 Financial Results
SHENZHEN, China, Aug. 18 /PRNewswire-Asia-FirstCall/ -- Tongjitang Chinese Medicines Company (the "Company" or "Tongjitang") (NYSE: TCM), a leading specialty pharmaceutical company focusing on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China, today announced its financial results for the quarter ended June 30, 2010.
Financial Results for the Quarter Ended June 30, 2010
-- Net revenue increased 2.8% to RMB137.9 million ($20.3 million)(1), from
RMB134.1 million in the prior year period.
-- Operating loss was RMB2.8 million ($0.4 million), compared to an
operating profit of RMB11.7 million in the prior year period.
-- Net loss attributable to the Company was RMB4.7 million ($0.7 million),
which yielded net loss per ADS of RMB0.18 ($0.03) and net loss per
share(2) of RMB0.05 ($0.01).
-- Non-GAAP adjusted EBITDA per share was RMB0.05 ($0.01), compared to
non-GAAP adjusted EBITDA per share of RMB0.21 in the second quarter of
2009.
Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated, "Our second quarter performance reflects strong contributions from products such as Jingshu Granules, which we have been marketing actively since acquiring Anhui Jingfang. This was offset by weaker demand for XLGB, which reflects continued delay in the implementation of the National Essential Drug List ("EDL") by local governments. We continue to pursue a more diversified product portfolio strategy, and expect sales of XLGB to recover when the rollout of EDL eventually gains momentum."
Net revenue in the second quarter of 2010 increased 2.8% to RMB137.9 million ($20.3 million) from RMB134.1 million in the second quarter of 2009. Xianling Gubao ("XLGB") sales were RMB74.1 million ($10.9 million) in the second quarter of 2010, compared to RMB80.7 million in the second quarter of 2009. Net revenue from Moisturizing & Anti-itching Capsules and Zaoren Anshen Capsules reached RMB19.0 million ($2.8 million) in the second quarter of 2010, compared to RMB18.2 million in the second quarter of 2009. Net revenue from the Company's other products increased 27% to RMB44.8 million ($6.6 million) from RMB35.2 million in the second quarter of 2009, including the contribution of approximately RMB2.1 million from the Company's liquor business.
Gross profit decreased 3.1% to RMB 79.2 million ($11.7 million) in the second quarter of 2010 from RMB 81.7 million in the second quarter of 2009. Gross margin was 57.5% in the second quarter of 2010, compared to 61.0% in the same period of 2009. Tongjitang's gross margin reflects higher revenue contribution from lower-margin products, as well as increased costs of raw materials related to herbal medicines, including the cost of barrenwort. Quality control costs also increased in line with a more stringent regulatory environment.
Operating loss in the second quarter of 2010 was RMB2.8 million ($0.4 million), compared to an operating profit of RMB11.7 million in the second quarter of 2009. Operating loss was mainly attributable to increased selling and marketing expenses, reflecting the Company's efforts to invest in its sales team's infrastructure and EDL sales network.
Net loss attributable to the Company was RMB4.7 million ($0.7 million), which yielded net loss per ADS of RMB0.18 ($0.03) and net loss per share(2) of RMB0.05 ($0.01).
Non-GAAP adjusted EBITDA in the second quarter of 2010 was RMB5.7 million ($0.8 million), compared to RMB27.1 million in the second quarter of 2009. Non-GAAP adjusted EBITDA per share was RMB0.05 ($0.01) in the second quarter of 2010, compared to RMB0.21 in the second quarter of 2009. For the second quarter of 2010, the number of shares used in the computation of GAAP earnings per share and Non-GAAP adjusted EBITDA per share was 104.1 million, compared to 128.3 million in the prior year period. Please refer to the Company's GAAP to non-GAAP reconciliation table provided below for additional details.
Balance Sheet
As of June 30, 2010, the Company had cash and cash equivalents of RMB285.0 million ($42.0 million). This compares to RMB237.6 million as of December 31, 2009 and RMB208.2 million as of March 31, 2010.
Financial Results for the Six Months Ended June 30, 2009
For the six months ended June 30, 2010, revenues were RMB251.1 million ($37.0 million), up from RMB224.2 million in the first six months of 2009. During this same time period, gross profit was RMB141.5 million ($20.9 million), up from RMB134.2 million. Income from operations decreased to a loss of RMB12.5 million ($1.8 million) from an operating profit of RMB1.5 million in the first six months of 2009. Net loss attributable to the Company was RMB18.1 million ($2.7 million), or a loss of RMB0.17 ($0.03) per share, compared to net income attributable to the Company of RMB5.8 million, or RMB0.04 per share, in the first six months of 2009. Net loss per ADS was RMB0.70 ($0.10) in the first six months of 2010, compared with net income per ADS of RMB0.18 in the first six months of 2009. On a year over year basis, weighted average number of shares outstanding for the first six months of 2010 was 104.1 million.
Business Updates
On April 8, 2010, Tongjitang received a letter proposing to acquire all of Tongjitang's outstanding ordinary shares, including ordinary shares represented by American Depositary Shares. The proposal is from Hanmax Investment Limited, a company controlled by Mr. Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, and Fosun Industrial Co., Limited, which holds 32.1% of Tongjitang's outstanding ordinary shares (collectively, the "Bidding Parties"). If accepted, Tongjitang will become a privately-held company. On April 12, Tongjitang announced the establishment of a special committee of the board of directors (the "Independent Committee"), comprised of Tongjitang's three independent directors, to evaluate the proposal. On June 1, the Independent Committee announced that Morgan Stanley Asia Limited has been appointed as its independent financial advisor. In addition, Independent Committee retained Sheppard, Mullin, Richter & Hampton LLP to serve as its United States law counsel and Thorp Alberga to serve as its Cayman Islands law counsel.
On April 1, 2010, Hanmax Investment received a commitment letter issued by CITIC Ka Wah Bank Limited for a US$30 million term loan facility to fund the proposed purchase of the publicly held Tongjitang shares. This letter expired on April 30. On June 4, 2010, Hanmax Investment received another commitment letter from CITIC Bank International Limited ("CBI"), which expired on June 30. On July 21, 2010, Hanmax Investment received a new commitment letter from CBI authorizing a term loan facility up to US$25 million to fund the proposed acquisition of Tongjitang's outstanding ordinary shares. The commitment under the July 21 commitment letter will expire upon the earlier to occur of execution of definitive credit facility documents or September 24, 2010, subject to extension by CBI. More information is available via a Schedule 13D/A filed with the SEC on August 2, 2010. Hanmax Investment and CBI are in the process of negotiating credit documents.
Conference Call
Tongjitang's management team will hold a conference call on Thursday, August 19, at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing/Hong Kong time) following the announcement. Listeners may access the call by dialing the following numbers:
United States toll free: 1-888-259-8389
Hong Kong toll free: 800-903-658
Northern China toll free: 10-800-714-1504
Southern China toll free: 10-800-140-1379
International: 1-913-312-1483
Listeners may access the replay from approximately two hours after the call ends through August 26, 2010 by dialing the following numbers:
United States toll free: 1-888-203-1112
International: 1-719-457-0820
Password: 6642433
An audio webcast of the call will also be available through the Company's website at http://www.tongjitang.com .
About Non-GAAP Financial Measures
To supplement the Company's unaudited condensed consolidated financial information presented in accordance with the United States Generally Accepted Accounting Principles ("GAAP"), the Company also provides non-GAAP financial measures, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per share, all of which exclude depreciation and amortization, interest (income) expense, provision for income taxes and share-based compensation expenses recorded under FASB Accounting Standards Codification ("ASC") Subtopic 718 - 10 Compensation - Stock Compensation: Overall (Pre-codification: SFAS No. 123(R), Share-Based Payment.) The Company's management believes the non-GAAP financial measures facilitate better understanding of operating results from quarter to quarter and allows the management team to better plan and forecast future periods, as the non-GAAP financial measures provide additional information to the investors. The non-GAAP information is not in accordance with GAAP and may be different from non-GAAP methods of accounting and reporting used by other companies. The presentation of this additional information should not be considered a substitute for the GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation expenses that have been and will continue to be significant recurring expenses in the Company's business for the foreseeable future. Reconciliations of the Company's non-GAAP financial data to the most comparable GAAP data are included at the end of this press release.
About Tongjitang Chinese Medicines Company
Tongjitang Chinese Medicines Company, through its operating subsidiaries Tongjitang Pharmaceutical, Tongjitang Distribution, Tongjitang Chain Stores, Guizhou Long-Life Pharmaceutical Company Limited, Qinghai Pulante, Anhui Jingfang and Gui Liqour Ltd., is a vertically integrated specialty pharmaceutical company focused on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China. Tongjitang's principal executive offices are located in Shenzhen, China.
Tongjitang's flagship product, Xianling Gubao, is the leading traditional Chinese medicine for the treatment of osteoporosis in China as measured by sales in Renminbi. In addition to Xianling Gubao, the Company manufactures and markets 35 other modernized traditional Chinese medicine products and 36 western medicines. Please visit http://www.tongjitang.com for more information.
Safe Harbor Statements
This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from those described in the forward-looking statements in this press release. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's heavy dependence on the success of Xianling Gubao; the Company's ability to market Xianling Gubao to hospitals and to retail pharmacies; the retail prices of its principal products' being subject to price control by the government authorities in China; the inclusion of the Company's products in national and provincial medical catalogs of the National Medical Insurance Program in China; the Company's ability to obtain approval from the State Food and Drug Administration in China to convert a provisional national production standard of the Company's principal products to a national final production standard; the Company's ability to continue having the exclusive production rights for its products; the Company's ability to further improve its barrenwort extraction efficiency; the presence of certain side effects in the Company's current products and the Company's ability to identify side effects associated with its current or future products prior to their marketing and sale; the Company's ability to obtain manufacturing or marketing approval for its future products; the Company's dependence on a limited number of distributors for a significant portion of its net revenues; the Company's exposure to the risk of product liability claims and its limited insurance coverage; the Company's ability to manage the expansion of its operations and its future research and development projects successfully; the Company's ability to protect its intellectual property rights and defend infringement or misappropriation claims by third parties; intense competition in the pharmaceutical market in China; the supply of quality medicinal raw materials; uncertainties with respect to the legal system in China, including uncertainty with respect to potential regulatory changes in China's healthcare industry; if disruptions in the financial markets and other macro-economic challenges currently affecting the economy of the United States and other parts of the world continue or even worsen, it may adversely impact the economy and consumer confidence in China; the Company's ability to expand its business through organic growth and strategic acquisitions and investments; and the Company's ability to integrate its acquisitions, including the recently-acquired state-owned distillery business in Guiyang . Further information regarding these and other risks is and will be included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F and other filings. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of the date of this press release, and the Company undertakes no duty to update such information, except as required under applicable law.
(1) This announcement contains translations of certain Renminbi 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 June 30, 2010 were made at the
noon buying rate on June 30, 2010 in the City of New York for cable
transfers in Renminbi per US dollar as certified for customs purposes
by the Federal Reserves Bank of New York, which was RMB6.7815 to
USD1.00. Tongjitang makes no representation that the Renminbi or US
dollar amounts referred to in this release could have been or could be
converted into US dollars or Renminbi, as the case may be, at any
particular rate or at all.
(2) All references to "shares" are to the Company's ordinary shares. Each
of the Company's American Depositary Shares, which are traded on the
New York Stock Exchange, represents four ordinary shares.
For further information, please contact:
ICR, Inc.
Ashley M. Ammon or Christine Duan
Tel: +1-203-682-8200 (Investor Relations)
Tongjitang Chinese Medicines Company
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
Second Quarter Ended June 30,
2009 2010 2010
RMB RMB US$
(Note)
Net revenues 134,069 137,859 20,329
Cost of revenues 52,334 58,652 8,649
Gross profit 81,735 79,207 11,680
Advertising expenses (3,517) (2,627) (387)
Other selling and marketing
expenses (36,994) (49,273) (7,266)
General and administrative expenses (26,011) (26,432) (3,898)
Research and development expenses (3,992) (3,558) (525)
Gain on disposal of property, plant
and equipment and land use rights -- 34 5
Other operating income 492 (117) (17)
Income (loss) from operations 11,713 (2,766) (408)
Other income (expenses):
Interest income 1,236 141 21
Interest expense (2,133) (3,076) (454)
Government grants 1,045 1,092 161
Investment gain / (loss) 631 (263) (39)
Other income / (expenses), net 6,324 361 53
Income (loss) before income taxes
and non-controlling interests 18,816 (4,511) (666)
Provision for income taxes (1,618) (285) (42)
Net income (loss) 17,198 (4,796) (708)
Net (income) loss attributable to
the non-controlling interests (41) 96 14
Net income (loss) attributable to
the Company 17,157 (4,700) (694)
Earnings per share
Ordinary shares
-Basic 0.13 -0.05 -0.01
-Diluted 0.13 -0.05 -0.01
Shares used in computation of
earnings per share
Ordinary shares
-Basic 128,279,051 104,066,526 104,066,526
-Diluted 128,279,051 104,066,526 104,066,526
Half Year Ended June 30,
2009 2010 2010
RMB RMB US$
(Note)
Net revenues 224,248 251,142 37,033
Cost of revenues 89,999 109,593 16,161
Gross profit 134,249 141,549 20,872
Advertising expenses (16,400) (6,108) (901)
Other selling and marketing
expenses (67,560) (98,395) (14,509)
General and administrative expenses (43,021) (44,711) (6,593)
Research and development expenses (6,805) (5,618) (828)
Gain on disposal of property, plant
and equipment and land use rights -- 34 5
Other operating income 988 799 118
Income (loss) from operations 1,451 (12,450) (1,836)
Other income (expenses):
Interest income 2,673 599 88
Interest expense (4,265) (5,566) (821)
Government grants 2,420 2,284 337
Investment gain / (loss) 615 (212) (31)
Other income / (expenses), net 6,627 24 4
Income (loss) before income taxes
and non-controlling interests 9,521 (15,321) (2,259)
Provision for income taxes (3,660) (3,024) (446)
Net income (loss) 5,861 (18,345) (2,705)
Net (income) loss attributable to
the non-controlling interests (66) 236 35
Net income (loss) attributable to
the Company 5,795 (18,109) (2,670)
Earnings per share
Ordinary shares
-Basic 0.04 -0.17 -0.03
-Diluted 0.04 -0.17 -0.03
Shares used in computation of
earnings per share
Ordinary shares
-Basic 129,512,746 104,066,526 104,066,526
-Diluted 129,512,746 104,066,526 104,066,526
(Note)
The condensed consolidated financial statements of Tongjitang Chinese Medicines Company are stated in Renminbi ("RMB"). The translation of RMB amounts as of and for the period ended June 30, 2010 into United States dollar ("US$") is included solely for the convenience of readers and has been made at the rate of RMB6.7815 to US$1.00, which is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York at June 30, 2010. Such translations should not be construed as representations that RMB amounts could be converted into US$ at that rate or any other rate.
Tongjitang Chinese Medicines Company
Condensed Consolidated Balance Sheets
(In thousands, except share data)
Dec. 31, Mar. 31, Jun. 30, Jun. 30,
2009 2010 2010 2010
RMB RMB RMB US$
(Note 1)
ASSETS
Current assets:
Cash and cash equivalents 237,578 208,145 284,993 42,025
Short-term bank deposit 50,000 52,500 82,500 12,165
Notes receivable 70,248 60,728 51,556 7,602
Accounts receivable, net of
allowance for doubtful
accounts 232,038 240,253 233,771 34,472
Inventories 139,100 167,348 164,906 24,317
Trading securities 1,447 1,512 1,193 176
Prepaid advertising expenses 1,204 1,147 3,949 582
Receivable on sales of
property, plant and equipment 9,320 9,320 9,320 1,374
Other prepaid expenses and
current assets, net of
allowance for doubtful accounts 16,139 26,816 28,250 4,168
Deferred tax assets 7,565 6,508 7,031 1,037
Total current assets 764,639 774,277 867,469 127,918
Property, plant and equipment,
net (Note 2) 172,097 252,384 248,950 36,710
Land use rights, net 42,515 43,181 42,896 6,325
Deposit for acquisition of a
subsidiary 120,599 -- -- --
Deposits for acquisition of
property, plant and equipment,
and intangible assets 162,440 172,331 177,351 26,152
Deferred tax assets 2,809 2,652 2,660 392
Long-term other assets 1,000 1,752 1,566 231
Acquired intangible assets, net
(Note 2) 27,592 27,711 26,277 3,875
Goodwill (Note 2) 2,345 81,868 81,582 12,030
Receivable on sales of property,
plant and equipment 9,170 6,840 4,510 665
Total assets 1,305,206 1,362,996 1,453,261 214,298
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings 101,100 112,522 150,026 22,123
Accounts payable 38,288 41,302 32,944 4,858
Accrued expenses and other
current liabilities 161,433 185,973 196,538 28,981
Income taxes payable 3,089 2,589 2,066 305
Unrecognized tax benefit 937 962 976 144
Amounts due to related parties 900 13,948 7,010 1,034
Total current liabilities 305,747 357,296 389,560 57,445
Long-term bank loans 50,000 50,000 112,000 16,516
Deferred tax liabilities 11,868 29,236 30,240 4,459
Total liabilities 367,615 436,532 531,800 78,420
Total shareholders' equity
attributable to the Company 937,591 924,759 919,837 135,639
Non-controlling interest -- 1,705 1,624 239
Total equity 937,591 926,464 921,461 135,878
Total liabilities and equity 1,305,206 1,362,996 1,453,261 214,298
(Note 1)
The condensed consolidated financial statements of Tongjitang Chinese Medicines Company are stated in Renminbi ("RMB"). The translation of RMB amounts as of and for the period ended June 30, 2010 into United States dollar ("US$") is included solely for the convenience of readers and has been made at the rate of RMB6.7815 to US$1.00, which is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York at June 30, 2010. Such translations should not be construed as representations that RMB amounts could be converted into US$ at that rate or any other rate.
(Note 2)
"We are in the process of performing valuations of certain identifiable property, plant and equipment, land use rights and intangible assets for the acquisitions we completed in the first quarter of 2010 and hence the net book value for investment property, property, plant and equipment, land use rights and intangible assets and goodwill is preliminary and subject to revision once we complete the valuation exercise.
Tongjitang Chinese Medicines Company
Reconciliation of GAAP to Non-GAAP
(In thousands, except share and per share data)
Second Quarter Ended June 30,
2009 2010 2010
RMB RMB US$
(Note 1)
GAAP net income 17,157 (4,700) (694)
Share-based compensation expenses
(Note 2) 2,033 26 4
Depreciation and amortisation 5,345 7,125 1,051
Interest (income) expense, net 897 2,935 433
Provision for income taxes 1,618 285 42
Non-GAAP adjusted EBITDA 27,050 5,671 836
GAAP earnings per share
Ordinary shares
-Basic 0.13 -0.05 -0.01
-Diluted 0.13 -0.05 -0.01
Non-GAAP adjusted EBITDA per share
Ordinary shares
-Basic 0.21 0.05 0.01
-Diluted 0.21 0.05 0.01
Shares used in computation of GAAP
earnings per share / Non-GAAP
adjusted EBITDA per share
Ordinary shares
-Basic 128,279,051 104,066,526 104,066,526
-Diluted 128,279,051 104,066,526 104,066,526
Half Year Ended June 30,
2009 2010 2010
RMB RMB US$
(Note 1)
GAAP net income 5,795 (18,109) (2,670)
Share-based compensation expenses
(Note 2) 4,068 159 23
Depreciation and amortisation 10,014 11,922 1,758
Interest (income) expense, net 1,592 4,967 732
Provision for income taxes 3,660 3,024 446
Non-GAAP adjusted EBITDA 25,129 1,963 289
GAAP earnings per share
Ordinary shares
-Basic 0.04 -0.17 -0.03
-Diluted 0.04 -0.17 -0.03
Non-GAAP adjusted EBITDA per share
Ordinary shares
-Basic 0.19 0.02 0.00
-Diluted 0.19 0.02 0.00
Shares used in computation of GAAP
earnings per share / Non-GAAP
adjusted EBITDA per share
Ordinary shares
-Basic 129,512,746 104,066,526 104,066,526
-Diluted 129,512,746 104,066,526 104,066,526
(Note 1)
The condensed consolidated financial statements and the related amounts of Tongjitang Chinese Medicines Company are stated in Renminbi ("RMB"). The translation of RMB amounts as of and for the period ended June 30, 2010 into United States dollar ("US$") is included solely for the convenience of readers and has been made at the rate of RMB6.7815 to US$1.00, which is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York at June 30, 2010. Such translations should not be construed as representations that RMB amounts could be converted into US$ at that rate or any other rate.
(Note 2)
Share-based compensation expenses recorded in accordance to ASC subtopic 718-10 ("ASC 718-10"), Compensation - Stock Compensation: Overall (Pre-codification: SFAS No.123(R), Share-Based Payment) are as follows:
Second Quarter Ended June 30,
2009 2010 2010
RMB RMB US$
(Note 1)
General and administrative expenses 2,033 26 4
Half Year Ended June 30,
2009 2010 2010
RMB RMB US$
(Note 1)
General and administrative expenses 4,068 159 23
SOURCE Tongjitang Chinese Medicines Company
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