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China BCT Reports First Quarter 2010 Results
Date:5/21/2010

LIUZHOU CITY, Guangxi, China, May 21 /PRNewswire-Asia-FirstCall/ -- China BCT Pharmacy Group, Inc., (OTC Bulletin Board: 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 first quarter ended March 31, 2010.

    First Quarter 2010 Highlights
    -- Revenue increased 5.2% to $34.0 million year over year
    -- Gross profit was up slightly year over year to $8.9 million
    -- Operating income decreased 11.5% to $6.2 million year over year
    -- GAAP net income was $4.2 million in the 2010 first quarter as compared
       to $5.0 million in the year ago quarter
    -- Excluding the non-cash, non-operating charge related to change in the
       fair value of warrant liabilities, non-GAAP adjusted net income was
       $4.5 million

"While we grew sales by leveraging our strong relationships with suppliers and customers, a shift in product mix and significant investments in staffing and marketing negatively affected our profit in the first quarter," commented Mr. Hui Tian Tang, Chairman and Chief Executive Officer of China BCT Pharmacy Group, Inc. "We expect that these strategic investments in our business will return substantial gains over time. As the Chinese government's health care reforms expand, we are already seeing a growing number of our medi-care pharmacy customers receiving state health insurance coverage. Further, our recent acquisition of 48 retail pharmacy stores in Guangxi Province has further expanded our retail footprint to strengthen our leadership in the region and create new growth drivers in the coming quarters."

First Quarter 2010 Results

For the first quarter ended March 31, 2010, revenue increased 5.2% to $34.0 million, as compared to $32.3 million in the same quarter of 2009. The increase in revenue was primarily driven by a 29.0% increase in retail pharmacy sales, reflecting increased marketing campaigns that boosted existing store sales and contribution from new stores which opened in the second half of 2009. Pharmaceutical distribution revenues fell slightly to $23.2 million year-over-year, with a 24.3% growth in hospital sales offset by lower distributor sales. Lower distribution sales primarily reflect a shift in the Company's focus to sell directly to hospitals and the timing of orders from distributors in the first quarter of 2010. In future quarters, the Company anticipates accelerating revenue growth in the distribution segment to be driven by increased contribution from direct sales to hospitals and the consolidation of the recently acquired 48 retail pharmacy stores.

In terms of revenue mix, wholesale distribution accounted for 68.2% of the total, while the retail pharmacy and manufacturing pharmacy contributed 26.1% and 5.7%, respectively, as compared to 72.6% from pharmaceutical distribution, 21.3% from retail pharmacy and 6.1% from manufacturing pharmacy for the first quarter of 2009.

Gross profit was $8.9 million, compared to $8.8 million for the same period of 2009. Gross margin fell to 26.0%, as compared to 27.4% in the comparable period last year. Lower gross margin in the first quarter of 2010 mainly reflected a change in the Company's distribution portfolio that included a more diversified product mix, which is expected to drive sales volume and gross profit dollar growth over time.

Operating expenses increased by 43.9% to $2.7 million, as compared to $1.9 million in the same period last year. Administrative expenses increased 64.9% to $1.6 million, as compared to $1.0 million in the same period of 2009, primarily due to an increase in staff compensation, including year-end bonuses, and rental expenditures. Administrative costs are expected to decline during the remainder of 2010. Selling expenses rose 19.5% to $1,026,519, compared to $858,686 in the same period of 2009, due to increased marketing activities to expand and gain additional market opportunities.

Operating income declined 11.5% to $6.2 million, or 18.2% of revenue, from $7.0 million, or 21.6% of revenue, in the first quarter of 2009.

GAAP net income fell to $4.2 million, or $0.11 per diluted share, as compared to $5.0 million, or $0.16 per diluted share, in the first quarter of 2009. Adjusted net income, excluding the $0.3 million non-cash expense related to change in the fair value of warrant liabilities, was $4.5 million, or $0.12 per diluted share. There were no comparable adjustments to net income in the first quarter of 2009.

Financial Condition

As of March 31, 2010, BCT had $13.0 million in cash and cash equivalents and $35.0 million in working capital and a current ratio of 1.9:1x. Long-term bank debt was $3.6 million. Shareholders' equity was $58.1 million on March 31, 2010, up from $53.4 million at the end of 2009.

The Company generated $3.9 million in cash from operating activities for the quarter ended March 31, 2010, an increase compared to cash used in operating activities of $4.1 million in the same period in 2009. The increase in cash flow from operating activities primarily reflected decrease in trade receivables and increase in accounts payable and better cash management. Inventory level increased quarter-over-quarter as the Company anticipated accelerating revenue growth in future quarters.

Recent Events

In May 2010, China BCT announced that it acquired 48 retail pharmacy stores in two separate transactions. First, the Company acquired 30 retail pharmacy stores from a retail pharmacy operator in Liuzhou City for $2.4 million in cash from Wubaitang, a local pharmaceutical company with pharmaceutical wholesale and retail divisions, in March 2010. Management expects these newly acquired stores to contribute approximately $3.7 million to the Company's revenue in 2010. Subsequently, in April 2010, the Company acquired an 18-store retail pharmacy chain in Zhaoping County, the administrative region of Hezhou City, for $1.3 million in cash from Zhaoping Laobaixing Pharmacy Retail Limited, a local retail pharmaceutical chain store enterprise. The Company estimates that these 18 stores will contribute approximately $1.8 million to annual sales after they become operational.

Business Outlook

"Following our successful bidding for distribution rights in Guangxi province over the past year, we expect sales under these contracts to become an increasingly larger share of our overall revenues," commented Mr. Tang. "While we continue to pursue an organic growth strategy for our distribution segment, we are also aggressively expanding our retail pharmacy presence throughout Guangxi Province through acquisitions. With the addition of the 48 new stores, we are on track to achieve our target of adding a total of 160 pharmacy stores by the end of 2010 to our growing retail chain in Guangxi Province. We expect to be successful once again in renewing existing and winning new contracts as part of the 2010 centralized tendering under the New Rural Corporative Health Insurance Plan and anticipate significant new business opportunities to drive China BCT's growth."

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, Hefeng Pharmaceutical Co. Limited, and Guangxi Liuzhou Baicaotang Medicine Retail Limited in Guangxi province, China. It operates a large regional retail network in Guangxi province, consisting of 114 directly owned retail stores in Guangxi province and currently over 8,000 products are distributed through the Company's wholesale distribution network.

Safe Harbor Statement

This presentation 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 the successful integration of newly acquired stores, the achievability of the payback periods, and the revenue generation potential of the newly acquired stores. 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 months ended March 31, 2010 and 2009 include change in fair value of warrant liabilities. To supplement the Company's condensed 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.



                        China BCT Pharmacy Group, Inc.
            RECONCILIATION OF NON-GAAP NET INCOME AND DILUTED EPS

                                                        Three months Ended
                                                             March 31,
    US$ - thousands, except per share                   2010            2009

    Net income                                         4,244           5,007
    - Non-cash adjustment - Change in fair value
      of warrant liabilities                             289              --
    Adjusted net income excluding non-cash item        4,533           5,007

    Per diluted share
    - Net income per share                             $0.11           $0.16
    - Non-cash adjustment per share                    $0.01           $0.00
    - Adjusted net income per share                    $0.12           $0.16
    Weighted average shares outstanding - '000
    - diluted                                         37,765          32,000



                           Financial Tables Follow



                        China BCT Pharmacy Group, Inc.
              (Formerly named China Baicaotang Medicine Limited)
     Condensed Consolidated Statements of Income and Comprehensive Income
              For the three months ended March 31, 2010 and 2009
                                 (Unaudited)
                            (Stated in US Dollars)

                                                  Three months ended
                                                       March 31,
                                                 2010               2009
    Sales revenue                            $34,028,878        $32,342,392
    Cost of sales                             25,167,201         23,493,795

    Gross profit                               8,861,677          8,848,597

    Operating expenses
        Administrative expenses                1,642,423            996,095
        Selling expenses                       1,026,519            858,686

                                               2,668,942          1,854,781

    Income from operations                     6,192,735          6,993,816
        Interest income                           50,686                106
         Other income                             98,040                 --
         Change in fair value of warrant
          liabilities                           (288,783)                --
    Other expenses                               (39,312)            (2,595)
        Finance costs                           (263,696)          (296,175)

    Income before income taxes                 5,749,670          6,695,152
    Income taxes                              (1,505,505)        (1,688,383)

    Net income attributable to China BCT
     Pharmacy Group, Inc.'s common
     stockholders                             $4,244,165         $5,006,769

    Other comprehensive income
        Foreign currency translation
         adjustments                              24,538            (36,992)

    Total comprehensive income                $4,268,703         $4,969,777

    Earnings per share: basic and diluted          $0.11              $0.16

    Weighted average number of shares
     outstanding:
        basic and diluted                     37,764,573         32,000,000



                        China BCT Pharmacy Group, Inc.
              (Formerly named China Baicaotang Medicine Limited)
                    Condensed Consolidated Balance Sheets
                  As of March 31, 2010 and December 31, 2009
                            (Stated in US Dollars)

                                                 March 31,       December 31,
                                                   2010              2009
                                                (Unaudited)       (Audited)
    ASSETS
        Current assets
            Cash and cash equivalents          $13,033,360       $13,304,158
            Restricted cash                        871,714         1,155,779
              Bills receivable                     129,956                --
            Trade receivables, net              35,110,436        35,410,039
            Amounts due from related
             companies                           7,896,323         4,275,586
            Other receivables, prepayments
             and deposits                        4,055,276         2,526,398
            Inventories                         10,761,047         8,745,525
            Deferred taxes                          28,932            60,164

        Total current assets                    71,887,044        65,477,649
        Goodwill                                   107,968           107,968
        Other intangible assets                    625,520           660,034
        Property, plant and equipment, net      12,028,584        12,171,689
        Land use rights                         13,218,822        13,979,753
        Deposit for acquisition of retail
         chain stores business                   2,434,101                --
        Deferred taxes                             696,149           663,699

    TOTAL ASSETS                              $100,998,188       $93,060,792



                        China BCT Pharmacy Group, Inc.
              (Formerly named China Baicaotang Medicine Limited)
                Condensed Consolidated Balance Sheets (Cont'd)
                  As of March 31, 2010 and December 31, 2009
                            (Stated in US Dollars)

                                                 March 31,       December 31,
                                                    2010             2009
                                                (Unaudited)       (Audited)
    LIABILITIES AND STOCKHOLDERS' EQUITY

    LIABILITIES
        Current liabilities
            Trade payables                      $20,744,178      $19,159,212
            Bills payable                         1,743,428        2,239,604
            Other payables and accrued
             expenses                             3,786,462        3,194,612
            Amounts due to directors                848,208        1,008,111
            Amounts due to related
             companies                              922,913          128,579
            Income tax payable                      682,251          562,603
            Secured bank loans                    6,626,811        7,136,069
            Other loans                           1,500,569        2,361,258
            Retirement benefit costs                 59,158           59,158

        Total current liabilities                36,913,978       35,849,206

        Secured long-term bank loans              3,631,957        3,631,957
         Warrant liabilities                      2,144,202               --
        Retirement benefit costs                    201,320          201,320

    TOTAL LIABILITIES                            42,891,457       39,682,483

    COMMITMENTS AND CONTINGENCIES

    STOCKHOLDERS' EQUITY
        Common stock: par value $0.001
         per share
        Authorized 100,000,000 shares and
         38,119,340 and 37,089,370 shares
         issued and outstanding as of
         March 31, 2010 and December 31,
         2009 respectively                           38,119           37,089
        Additional paid-in capital               15,379,588       14,920,899
        Statutory and other reserves              2,605,901        2,605,901
        Accumulated other comprehensive
         income                                   2,134,808        2,110,270
        Retained earnings                        37,948,315       33,704,150

    TOTAL STOCKHOLDERS' EQUITY                   58,106,731       53,378,309

    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                    $100,998,188      $93,060,792



                        China BCT Pharmacy Group, Inc.
              (Formerly named China Baicaotang Medicine Limited)
               Condensed Consolidated Statements of Cash Flows
              For the three months ended March 31, 2010 and 2009
                                 (Unaudited)
                            (Stated in US Dollars)

                                                   Three months ended
                                                        March 31,
                                                  2010             2009
    Cash flows from operating activities
        Net income attributable to China
         BCT Pharmacy Group, Inc.'s
         common stockholders                   $4,244,165       $5,006,769
        Adjustments to reconcile net
         income to net cash provided by
         (used in) operating activities:-
                Depreciation                      181,481          158,941
                   Deferred taxes                  (1,218)              --
                   Gain on disposal of
                    land use right                (44,919)              --
                Loss on disposal of
                 property, plant and
                 equipment                             --              306
                Amortization of
                 intangible assets                 34,514           29,024
                Amortization of land
                 use rights                       108,355           83,873
                   Change in fair
                    value of warrant
                    liabilities                   288,783               --
        Changes in operating assets
         and liabilities:-
            Trade receivables                     299,603       (7,574,526)
              Bills receivable                   (129,956)              --
            Other receivables,
             prepayments and
             deposits                          (1,528,878)      (1,477,625)
            Inventories                        (2,015,522)        (440,823)
            Trade payables                      1,584,966       (1,397,972)
            Amounts due from (to)
             related companies                    388,390         (277,722)
            Other payables and accrued
             expenses                             591,850        1,463,456
            Bills payable                        (496,176)       2,223,521
            Restricted cash                       284,065       (2,201,559)
            Income tax payable                    119,648          344,597

    Net cash flows provided by (used
     in) operating activities                  $3,909,151      $(4,059,740)



                        China BCT Pharmacy Group, Inc.
              (Formerly named China Baicaotang Medicine Limited)
           Condensed Consolidated Statements of Cash Flows (Cont'd)
              For the three months ended March 31, 2010 and 2009
                                 (Unaudited)
                            (Stated in US Dollars)

                                                   Three months ended
                                                        March 31,
                                                 2010               2009


    Cash flows from investing activities
    Payments to acquire and deposit for
     acquisition of property, plant and
     equipment                                  $(38,376)          $(14,110)
    Proceeds from sales of property,
     plant and  equipment                             --                407
    Proceeds from sales of land use right        697,495                 --
    Deposit for acquisition of retail
     chain stores business                    (2,434,101)                --
    Repayment from related companies                  --          3,671,755

    Net cash flows (used in) provided by
     investing activities                     (1,774,982)         3,658,052


    Cash flows from financing activities
        Repayment (to) from related
         companies                            (3,214,793)         1,040,480
        Repayment to directors                  (159,903)                --
         Net cash received from private
          placement                            2,315,138                 --
        Proceeds from bank loans               1,290,960          9,675,520
        Repayment of bank loans               (1,800,218)        (7,243,454)
        Repayment of other loans                (860,689)          (122,333)

    Net cash flows (used in) provided by
     financing activities                     (2,429,505)         3,350,213

    Effect of foreign currency translation
     on cash and cash equivalents                 24,538             (2,571)

    Net (decrease) increase in cash and
     cash equivalents                           (270,798)         2,945,954

    Cash and cash equivalents - beginning
     of period                                13,304,158          1,265,184

    Cash and cash equivalents - end of
     period                                  $13,033,360         $4,211,138

    Supplemental disclosures for cash
     flow information:
        Cash paid for:
            Interest                            $196,262           $218,520
            Income taxes                      $1,387,075         $1,343,750



    For more information, please contact:

    Company Contact:
     Ms. Shelly Zhang, Chief Financial Officer
     China BCT Pharmacy Group, Inc.
     Email: z_shelly@hotmail.com
     Tel:   +86-772-363-8318

    Investor Relations Contact:
     Ms. Lei Huang, Account Manager
     Email: lei.huang@ccgir.com
     Tel:   +1-646-833-3417

     Mr. Crocker Coulson, President
     Email: crocker.coulson@ccgir.com
     Tel:   +1-646-213-1915

     CCG Investor Relations
     Web:   http://www.ccgirasia.com


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SOURCE China BCT Pharmacy Group, Inc.
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