SHENZHEN, China, Feb. 9, 2012 /PRNewswire-Asia/ -- Winner Medical Group Inc. (Nasdaq: WWIN) ("Winner Medical" or the "Company"), a leading China-based exporter and retailer of high-quality medical dressings and consumer products made from 100% cotton, today reported consolidated financial results for the first quarter of fiscal 2012, which ended December 31, 2011.
First Quarter of Fiscal 2012 Financial Highlights
Mr. Jianquan Li, chairman of the board of directors and chief executive officer of Winner Medical, commented, "During the past quarter, we achieved revenue growth in both our medical and PurCotton businesses. Sales in Europe, our largest market, increased by 45.8% to $13.1 million in the first quarter of fiscal year 2012, despite the lower selling prices of certain products due to a challenging macro environment brought on by the European debt crisis and tightening budgets at hospitals. We are particularly encouraged by increasingly strong domestic sales in China, which reached $12.1 million in the three-month period ended December 31, 2011. As a percentage of revenue, sales in China increased to 29.3%, second only to Europe."
Mr. Li continued, "For the medical business in China, we have been actively expanding our sales channels by increasing the number of local distributors covering more hospitals and penetrating deeper into existing hospital customer bases, drug store retail chains and other sales channels. In the first quarter of fiscal 2012, we opened two more of our self-branded PurCotton retail stores. As of December 31, 2011, the Company operated 41 retail stores in China, compared to 28 at the end of the same quarter of the previous fiscal year. As more customers come to appreciate our PurCotton brand, we have seen our customer loyalty program membership rapidly increase to approximately 40,000 members in February 2012. Meanwhile, the repurchase rate for members of our customer loyalty program is more than 60%."
Mr. Xiuyuan Fang, chief financial officer of Winner Medical, added, "We are pleased to have maintained positive gross profit growth in the first quarter of the 2012 fiscal year. Our gross margin declined somewhat to 24.9% from 28.1% in the same quarter of the previous fiscal year, mainly due to lower selling prices for certain long-term customers in Europe and the U.S. and a higher average purchase price for cotton, which we had purchased in previous quarters. During this time of tough macroeconomic conditions and business expansion into the Chinese market, our operating and net margins will be under some pressure. Yet, we believe that we are acting in strategically prudent ways that will better position the Company for enhanced profitability in the future."
First Quarter of Fiscal 2012 Financial Performance Revenues in the first quarter of fiscal 2012 increased by 22.6% to $41.3 million from $33.7 million in the same quarter of the previous fiscal year. The increase was mainly attributable to significant continuing demand from existing and new customers in Europe and robust sales of medical products and PurCotton® products in China.
Revenue By Geography
Revenue By ProductsSales generated from medical products increased by 16.6% to $34.1 million in the first quarter of fiscal 2012 from $29.2 million in the first quarter of fiscal 2011. As a percentage of total sales, sales from medical products were 82.4% in the first quarter of fiscal 2012 compared to 86.7% in the same quarter of fiscal 2011.
Sales generated from PurCotton® products increased by 61.8% to $7.3 million in the first quarter of fiscal 2012 from $4.5 million in the first quarter of fiscal 2011. As a percentage of total sales, sales from "PurCotton" branded products were 17.6% in the first quarter of fiscal 2012 compared to 13.3% in the same quarter of the previous year.
Cost of sales increased by 28.1% to $31.0 million in the first quarter of fiscal 2012 from $24.2 million in the same quarter of the previous fiscal year. The cost of sales as a percentage of revenue was 75.1% and 71.9% for the three months ended December 31, 2011 and 2010, respectively. The increase in cost of sales was mainly attributable to the larger volume of cotton required by the Company's higher sales levels.
Gross profit increased by 8.6% to $10.3 million in the first quarter of fiscal 2012 from $9.5 million in the same quarter of the previous fiscal year. Gross margin decreased to 24.9% from 28.1% in the first quarter of fiscal 2011. The decrease in gross margin was mainly due to lower selling prices to certain long-term customers in Europe and the United States and a higher average purchasing price of cotton inventory. The Company expects overall gross margin to recover in line with the anticipated European economic recovery and as the Company continues diversifying its business portfolio by selling advanced medical products and "PurCotton" branded products, which carry higher gross margins.
Government subsidies decreased to $0.1 million in the first quarter of fiscal 2012 from $0.6 million in the same quarter of the previous fiscal year. The decrease was mainly driven by reduced financial incentives from Chinese government authorities, especially from the Shenzhen government. The latter significantly cut financial incentives to local companies in the reporting period because of its large public funding outlays for an international university sporting event, Universiade 2011. However, the Company expects to be the beneficiary of future government incentives for its efforts in government-encouraged activities such as brand development, R&D and related activities.
Loss from commodity derivatives was $6,000 on cotton futures products in the first quarter of fiscal 2012 compared to $181,000 in the same quarter of the previous fiscal year. The decreased loss resulted from the Company's successful implementation of more stringent trading policies and process controls since the establishment of Winner's Commodity Trading Center in July 2011.
Foreign exchange losses, net for the three months ended December 31, 2011, increased $152,000 to a loss of $270,000, from a loss of $118,000 for the same period of the previous fiscal year. The increased loss was mainly due to the Company's involvement in foreign trades with international customers, the majority of which were settled in U.S. Dollars. The average exchange rate of the RMB against the U.S. Dollar was 6.3298 in this reporting quarter as compared to 6.6529 in the same quarter of the previous fiscal year, a 4.9% appreciation of the RMB against the U.S. Dollar.
The Company expects that the RMB will continue to appreciate against the U.S. Dollar in the future. In order to minimize currency exchange risk, the Company has been expanding its business in the PRC market and inserting clauses into contracts stipulating that the selling price is subject to the fluctuation of currency and the price of raw materials.
Selling, general and administrative expenses increased by 15.5% to $7.0 million in the first quarter of fiscal 2012 from $6.1 million in the same quarter of the previous fiscal year. As a percentage of total sales, SG&A expenses was 16.9% and 18.0% for the first quarters of fiscal 2012 and 2011, respectively. The increase of selling, general and administrative expenses resulted from increases in salary, leasing expenses, R&D expenses and domestic transportation expenses and the reversal of taxes for land utilization and property, which were charged to expenses previously refunded by authorities.
Interest expenses increased to approximately $137,000, representing 0.3% of revenue for the three months ended December 31, 2011, compared to approximately $45,000, or 0.1% of revenue for the first quarter of fiscal 2011. The Company's short-term bank loans, as of December 31, 2011, were approximately $9.5 million. The weighted average interest rate on short-term borrowing in the reporting quarter was 7.0%, compared to approximately 4.7% for the quarter ended December 31, 2010. The Company's bank loans are primarily used to supplement working capital for daily operations.
Income tax provision in the first quarter of fiscal 2012 increased by 70.6% year-over-year to $0.6 million from $0.4 million in the same quarter of the previous fiscal year. Income tax as a percentage of income before income taxes was 20.1% for the three months ended December 31, 2011 compared with 10.1% for the same quarter of the previous fiscal year. The comparatively higher effective tax rate for the reporting quarter was mainly due to an approximate $200,000 tax deduction accruing in the same quarter of the previous fiscal year for a 150% tax deductible preferential policy applicable to the Company's research and development expenses. Such an accrual was not made for the three months ended December 31, 2011 because the Company could not reasonably estimate the timing and amounts of government approval for such expenses as local authorities have been experiencing budget tightening.
Net income attributable to Winner Medical decreased by 23.7% year-over-year to $2.5 million from $3.3 million in the first quarter of fiscal 2011. Net margin decreased to 6.2% in this reporting quarter compared to 9.9% in the first quarter of fiscal 2011. The decrease in net income and net margin was primarily due to (1) decreased gross margins as a result of the higher price of cotton purchased in previous quarters of fiscal year 2011; (2) lowered selling prices to customers in Europe and the United States due to the economic downturn in those regions; and (3) net loss from the PurCotton retail business, which is still in a growth stage and requires significant start-up costs. The Company's PurCotton retail business experienced an after-tax loss of $1.1 million and $0.5 million for the three months ended December 31, 2011 and 2010, respectively. The Company regards the loss as a strategic loss that reflects initial start-up expenses for brand-building and expansion of online and offline distribution channels.
Basic and diluted net income per share were both $0.10 for the first quarter of fiscal 2012 versus both being $0.14 for the same quarter of the previous year.
Balance SheetsAs of December 31, 2011, the Company had cash and cash equivalents of $19.5 million compared to $21.9 million as of September 30, 2011. The Company's working capital as of December 31, 2011 was $55.3 million. Net cash used in operating activities was $0.5 million for the three months ended December 31, 2011, down from $7.8 million in the same quarter of the previous fiscal year. The less net cash used in operating activities was mainly attributable to a lower restricted broker margin account and a strengthed account receivable management (resulting in a decreased account receivables balance), as well as less need to purchase processed cotton from third parties as the Company has begun to process cotton for its own use (resulting in a decrease in prepaid expenses).
Operational UpdatesManufacturing linesThe existing four manufacturing lines for PurCotton® jumbo rolls are operating at approximately 100% capacity due to demand. As a result, in December 2011 the Company ordered two new PurCotton® jumbo roll manufacturing lines. The sanitary napkin manufacturing line started trial production at the end of October 2011 and is currently running at approximately 50% of expected capacity, which is in line with management's expectation. In addition, two PurCotton baby diaper manufacturing lines have been installed and are expected to start trial production in February 2012. In January 2011, the Company established Winner (Huanggang) Cotton Processing, Co. Ltd. to process seed cotton. The Company expects that self-processing seed cotton will allow for more stringent quality control and reduced raw material costs, contributing to both the revenue and net income. This cotton processing line is currently meeting approximately 30% of the Company's annual cotton production needs.
PurCotton Retail BusinessAs of February 9, 2012, Winner Medical owned and operated 43 PurCotton® branded retail stores, with 25 in the south of China, seven in Beijing, eight in Shanghai and three in Hong Kong, after having recently opened three new stores in Shenzhen and two in Shanghai. From December 1, 2011 to February 9, 2012, one store in Guangzhou and three in Beijing were closed due to low traffic or expiration of lease agreements, with all four stores having been opened in the initial stage of operating the retail business. Sales generated by the retail business have been rapidly increasing, and the majority of PurCotton chain stores in the south of China (which were opened more than one year ago) have gradually turned a profit. Stores in Beijing and Shanghai are changing locations to adjust the size of stores previously opened. These stores were opened in the initial stage of launching the retail brand and there was a lack of brand recognition in those cities at that time, and the Company is relocating and resizing these stores to better fit local demand. As the PurCotton brand gains market recognition, the Company expects that the stores in Beijing and Shanghai will turn a profit in the future. The three stores in Hong Kong are also experiencing a loss, and the Company does not expect these stores to produce a profit in the short run. However, the Company considers this loss to be part of its mid-term strategy in the Hong Kong market, as these Hong Kong stores help to promote PurCotton's appeal as a high-quality and international brand.
The Company is selling its PurCotton® products online via Taobao.com and its owned Business-to-Consumer (B2C) online store, under a 70% owned company, Shenzhen PurCotton E-Commerce Ltd. In addition, the Company recently signed contracts with distributors to launch its products in Carrefour, RT-MART and locally known supermarkets in Shenzhen, Guangzhou, Beijing, Ordos and Qingdao (some of the cities with the highest per capita income in the PRC).
Going forward, the Company believes it can continue to cultivate distributors and online sales in order to grow sales, while selectively selling through its own PurCotton chain stores to build brand awareness and expose potential customers to the Company's products. With continued implementation of its retail strategy, the Company expects that the PurCotton retail business will play a role in contributing net income to the Company in the mid to long-term range.
OutlookFor the 2012 full fiscal year, the Company reiterates its revenues estimate to be in the range of $179.9 million to $194.8 million, representing a year-over-year growth rate of between approximately 20% and 30%.
This forecast reflects the Company's current and preliminary view, which is subject to change.
Conference CallThe Company will host a conference call at 8:00 p.m. ET on Thursday, February 9, 2012 (9:00 a.m. Beijing Time on Friday, February 10) to discuss its first quarter of fiscal 2012 results and recent business developments. Listeners may access the call by dialing:
1-866-519-4004 (US Toll Free)
10-800-819-0121 (China Domestic Toll Free)
10-400-620-8038 (China Mobile Toll Free)
800-930-346 (Hong Kong Toll Free)
65-6723-9381 (International Toll Dial-in)
A telephone replay will be available shortly after the conclusion of the call and will be accessible from February 9, 2012 at 11:00 p.m. ET to February 17, 2012 at 11:59 p.m. ET by calling 1-866-214-5335 (US), 10-400-692-0026 (China), 800-901-596 (Hong Kong) or 1-612-8235-5000 (International) with passcode 49148692.
The earnings release will be available on the investor relations page of Winner Medical's website at http://winnermedical.investorroom.com/ on Friday, February 10, 2012 (ET).
About Winner MedicalWinner Medical is a leading China-based exporter and retailer of high-quality medical dressings and consumer products made from 100% cotton, according to industry trade association statistics. The Company has fourteen wholly-owned subsidiaries and four joint ventures, which manufacture and sell tailored medical dressings and disposables, as well as non-woven fabric made from natural cotton. With a vertically integrated supply chain ranging from spinning fabric to finished goods, the Company provides its customers with a wide range of high-quality products, from surgical and wound care to consumer goods in China and abroad. Its products include those with FDA, CE mark, TUV and other global standard certifications and the Company holds 54 domestic and international patents. For nine consecutive years, the Company has ranked as one of the leading medical dressing exporters in China, with North America, Europe and Japan as its major markets. In addition, the Company distributes under its own "Winner" and "PurCotton" brand names in China. To learn more about Winner Medical, please visit Winner Medical's website at: http://winnermedical.investorroom.com
Forward-Looking Statements:This press release contains certain statements that may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included herein, are "forward-looking statements" including statements regarding Winner Medical and its subsidiary companies' business strategy, plans and objectives and statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Although Winner Medical believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions and involve known and unknown risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Winner Medical's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in Winner Medical's periodic reports that are filed with and available from the SEC. All forward-looking statements attributable to Winner Medical or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, Winner Medical does not assume a duty to update these forward-looking statements.
Contact:Winner Medical Group Inc.
Ms. Huixuan Chen (Fiona)
Investor Relations Manager
Mr. Rob Koepp
Phone: +86-10-6583-7516 or +1-646-405-5171
Winner Medical Group Inc.Consolidated Statements of Income and Comprehensive Income
Three months endedDecember 31,
Cost of sales
Other operating income/(loss), net
576,953Loss on commodity financial instruments, net
(181,434)Foreign currency exchange losses, net
(117,785)Selling, general and administrative expenses
Income from operations
(45,287)Equity in earnings of 50 percent or less owned persons
81,285Income before income taxes
Net loss/(income) attributable to non-controlling interests
(12,553)Net income attributable to
Winner Medical Group Inc.
3,340,797Foreign currency translation adjustments
1,254,669Comprehensive loss/(income) attributable to
Comprehensive income attributable to
Winner Medical Group Inc.
Net income attributable to Winner Medical Group Inc. per share
Weighted average common stock outstanding
Winner Medical Group Inc.
Consolidated Balance Sheets
December 31, September 30,
US$ US$ ASSETS
Cash and cash equivalents
21,945,105Restricted bank deposits
1,836,491Restricted broker margin account
0Accounts and notes receivable, less allowances for doubtful accounts of US$43,386 and US$159,485 at December 31, 2011 and September 30, 2011, respectively
20,982,263Amounts due from affiliated companies
25,408,700Prepaid expenses and other receivables
8,334,504Income taxes recoverable
146,408Deferred tax assets
376,411Total current assets
79,187,661Property, plant and equipment, net
65,461,750Investment in equity investees
2,421,915Intangible assets, net
126,918Prepaid expenses and other receivables
1,596,354Deferred tax assets
149,918,687LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term bank loans
7,420,580Accrued payroll and employee benefits
1,115,887Accrued and other liabilities
4,253,889Amounts due to affiliated companies
0Income taxes payable
1,970,710Total current liabilities
Deferred tax liabilities
Commitments and contingencies
Common stock, par value $0.001 per share;
authorized 247,500,000, issued and
outstanding December 31, 2011 –24,371,872 shares; September 30, 2011 –24,140,247 shares
24,141Additional paid-in capital
5,866,970Accumulated other comprehensive income
18,169,505Total Winner Medical Group Inc stockholders' equity
Total liabilities and stockholders' equity
|SOURCE Winner Medical Group Inc.|
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