China Botanic Pharmaceutical Inc. (AMEX: CBP) (formerly Renhuang Pharmaceutical, Inc.), today announced financial results for the three months and fiscal year ended October 31, 2010.
Fourth Quarter 2010 Highlights
Net sales grew 15.2% year-over-year to $16.7 million
Gross profit increased 13.3% to $9.1 million from $8.0 million in the fourth quarter of fiscal year 2009
Gross margin was 54.4%.
Net income was approximately $5.6 million or $0.14 per diluted share, as compared to approximately $5.8 million or $0.15 per diluted share a year ago. New products, including Qing Re Jie Du Oral Liquid, Compound Schisandra Tablets, and Ginseng and Deer Antler Extract accounted for 8.2% of gross sales in the fourth quarter of fiscal 2010.
Fiscal Year 2010 Highlights
Net sales rose to $55.2 million, an increase of 27.1% over fiscal year 2009
Gross profit increased to $29.4 million, up 27.4% from $23.1 million
Gross margin was 53.3% compared to 53.2% in fiscal year 2009
Net income rose 20.4% to $17.9 million or $0.44 per diluted share, as compared to $14.8 million or $0.41 per diluted share in fiscal year 2009
Introduced three new products: Qing Re Jie Du Oral Liquid, Compound Schisandra Granules and Deer Antler Extract, which together accounted for approximately 3.0% of gross sales in 2010
"We are pleased to report double digit revenue and net income growth in fiscal year 2010. This fiscal year, we maintained a leading market position with our Siberian Ginseng product series and successfully introduced several new products, including Compound Schisandra Tablets, which strengthens our offering in the nerve-regulation and depression treatment segment," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "During the year, we experienced increases in average selling prices of several of our products, reflecting the continued strong demand for our all-natural plant based remedies."
Fourth Quarter Fiscal 2010 Results
During the three months ended October 31, 2010, net sales increased 15.2% to $16.7 million, from $14.5 million during the same period in 2009. The rise was mainly attributable to growing market acceptance and resulting increased sales volume of the Company's new products. China Botanic also successfully gained additional market share during the quarter.
Gross profit increased 13.3% to $9.1 million compared to $8.0 million in the fourth quarter of fiscal 2009. Gross margin decreased to 54.4% as compared to 55.3% in the same period of 2009. The growth in gross profit was mainly driven by increased sales. The decline in gross margin was a result of changes in the Company's product mix and higher raw materials costs.
Operating expenses for the fourth quarter of fiscal 2010 were $3.5 million, as compared to $2.2 million in the same period last year. Sales and distribution expenses rose to $1.3 million from $1.1 million a year ago. The spending increase reflected continued investment in the Company's distribution network and TV advertising in order to increase product market share and create greater consumer awareness of the Company's premium quality products. General and administrative expenses increased to $1.4 million from $0.4 million in the fourth quarter of fiscal 2009, primarily reflecting warrants and options granted for services, increase in professional fees, and amortization of intangible assets purchased in the fourth fiscal quarter. Research and development expenses were $0.8 million, up from $0.7 million in the year ago period, reflecting the Company's commitment to continuing to build a pipeline of products.
Our operating income in the fourth fiscal quarter was $5.6 million, compared to $5.8 million in the fourth quarter of 2009. Operating margin decreased year-over-year to 33.6% from 40.0%. The Company did not incur income tax expenses as its subsidiary registered in the PRC has been granted a tax holiday for fiscal 2010. For the fourth quarter ended October 31, 2010, net income declined by 3.0% to $5.6 million, or $0.14 per diluted share, from $5.8 million, or $0.15 per diluted share in the prior year period.
Fiscal Year 2010 Results
For the fiscal year ended October 31, 2010, net sales were $55.2 million, up 27.1% from $43.4 million in fiscal 2009. The increase in sales was mainly attributable to the launch of new OTC medicines, increased demand and strong market acceptance of the Company's products, effective marketing efforts and product price increases. Gross profit was $29.4 million, up 27.4% from gross profit of $23.1 million in fiscal 2009. Gross margin was 53.3% compared to 53.2% in fiscal 2009. Operating expenses for fiscal 2010 were $11.6 million, as compared to $8.3 million for the same period a year ago. Income from operations was $17.8 million, up 20.2% from $14.8 million in fiscal 2009. Net income was $17.9 million, or $0.44 per diluted share, up 20.4% from $14.8 million, or $0.41 per diluted share, for the same period a year ago.
As of October 31, 2010, the Company had cash and cash equivalents of approximately $27.8 million and total current assets of approximately $50.5 million. As of October 31, 2010, China Botanic had working capital of approximately $47.1 million as compared to $32.0 million for the fiscal year ended October 31, 2009. The Company has enhanced its working capital position as a result of tightened credit terms extended to customers and a decrease in the level of inventories. The Company had no long-term debt on its balance sheet as of October 31, 2010. Shareholders' equity stood at $69.8 million, compared with $50.5 million as of October 31, 2009. Net cash flow from operating activities increased to $23.8 million during fiscal year end October 31, 2010 from $13.1 million for fiscal year ended October 31, 2009, primarily reflecting increases in net income and trade receivables and a decrease in inventories.
On November 23, 2010, the Company successfully exhibited its unique portfolio of natural products at the 108th China Import and Export Fair recently held in Guangzhou, China. The Company attracted over 1,000 foreign and domestic visitors at its booth and signed letters of intent from 10 prospective distributors.
On November 29, 2010, the Company changed its name from Renhuang Pharmaceutical Inc. to China Botanic Pharmaceutical Inc. to better reflect the Company's corporate identity, brand image and business operations. The legal structure of China Botanic remains unchanged.
On December 2, 2010, Siberian Ginseng (Acanthopanax) Total Flavonoids Extract was awarded the third prize by the recently held Heilongjiang Province Science and Technological Progress assessment.
On December 14, 2010, the Company announced the appointment of Mr. David Dong as its new Chief Financial Officer.
The market demand for pharmaceutical products in China is rapidly growing and China Botanic's growth strategy focuses on capitalizing on such opportunity through new product introductions, marketing efforts to gain additional market share and a larger distribution network. For fiscal 2011, the Company estimates net sales and net income to grow at 28% to 30%. Excluding any non-cash, non-operational gains or expenses, the Company expects fiscal 2011 net sales of $70.6 million to $71.7 million and net income of $22.9 million to $23.2 million. The Company experiences seasonality in its business, which is strongest in the first and fourth quarter and softer in the spring and summer season or the second and third quarter. Additionally, the Company's financial guidance also reflects its plan to continue to expand its sales and distribution network to drive growth in market share and to increase R&D spending on its pipeline projects.
"In 2011, we expect to see strong growth in revenue as a result of increased market acceptance and awareness of the benefits of our Siberian Ginseng Series in treating depression and nerve-regulation. We also anticipate many of our products will be listed in the reimbursement catalog of essential medicine for health insurance and we expect to grow as the PRC government moves forward with its Health Reforms in 2011," said Mr. Li. "We will continue to present our product offering at international pharmaceutical trade shows and conventions as they present outstanding opportunities to showcase our products to an international audience. In fiscal 2011, we anticipate continued sales growth from China and expansion into the overseas market."
EPS Q4 could have been $0.19 but increased general and administrative expenses kept EPS at $0.14. Their guidance for FY 2011 gives us a good feeling for the future. Especially the fact that they want to expand outside China.