China Nepstar Chain Drugstore Terminates Voting Rights Agreement for Yunnan Subsidiary
JZJ was founded in 1999 and is 40% owned by Nepstar, 30% owned by QunxiangIndustrial Trading ("Qunxiang"), a company 100% beneficially owned by adirector of JZJ, and 30% owned by Yunnan Hengyu Industrial Trading Co., Ltd.Under the voting rights agreement, which was entered into in 1999, Qunxiangassigned its voting rights to Nepstar, and as a result, Nepstar held 40% ofthe equity ownership and 70% of the voting rights in JZJ. With thetermination of the voting rights agreement, Nepstar will hold 40% of thevoting rights, as well as continue to hold 40% of the equity ownership in JZJ.
As of September 30, 2008, JZJ had 359 drugstore outlets, all of which werelocated in Yunnan province in southwestern China. JZJ's other shareholdershave expressed an intention to pursue the listing of the portion of the equityinterest they hold in JZJ on the Shenzhen Stock Exchange in three yearsthrough a holding company. The 40% of equity ownership by China Nepstar in JZJis not expected to be diluted after the listing of the holding company. Thevoting rights agreement was terminated in order to facilitate theseshareholders' plan for public listing. JZJ intends to continue to focus itsoperation on the southwest China market.
Prior to the termination of the voting rights agreement, as the majorityof the voting rights of JZJ resided with Nepstar, JZJ's financial results hadbeen consolidated into Nepstar's financial statements. As a result of thetermination of the voting rights agreement, Nepstar will no longer consolidateJZJ's financials, beginning in the first quarter of 2009, and the financialresults of JZJ will be accounted for under the equity method. The followingpro forma financial information is presented to show the accounting impact ofthe termination of the voting rights agreement as if that had been taken placein the beginning of the relevant period.
Dr. Simin Zhang, Chairman of Nepstar, commented, "The Board and the AuditCommittee believe it is in the best interest of the Company to support theother shareholders of JZJ to pursue a public listing of the portion of theequity interest they hold in JZJ. We offer them our best wishes in preparingfor a public listing. Nepstar is now focusing on higher margin core operationsin more affluent markets with higher disposable income per capita. We willcontinue our efforts to maximize margin growth and cash generation for ourshareholders in this difficult economic environment. As the leader in theretail drugstore chain market in China, Nepstar will continue to achieveorganic expansion while seeking complimentary acquisitions in the keymarkets."
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is China's largest retaildrugstore chain based on the number of directly operated stores. As ofSeptember 30, 2008, the Company had 2,667 stores, including the 359 stores inYunNan subsidiary, across 76 cities, one headquarters distribution center and11 regional distribution centers in China. Nepstar uses directly operatedstores, centralized procurement and a network of distribution centers toprovide its customers with high-quality, professional and convenient pharmacyservices and a wide variety of other merchandise, including OTC drugs,nutritional supplements, herbal products, personal care products, family careproducts, and convenience products including consumables. Nepstar's strategyof centralized procurement, competitive pricing, customer loyalty programs andprivate label offerings has enabled it to capitalize on the robust economicgrowth in China and to take advantage of the demographic trend in China toachieve 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 statementsconstitute "forward-looking" statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended, and as defined in the U.S. PrivateSecurities Litigation Reform Act of 1995. These forward-looking statementscan 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 andthe Company's strategic operational plans, contain forward-looking statements.Such statements involve certain risks and uncertainties that could causeactual results to differ materially from those in the forward-lookingstatements. Further information regarding these and other risks is included inthe Company's filings with the U.S. Securities and Exchange Commission,including its annual report on Form 20-F. The Company does not undertake anyobligation to update any forward-looking statement as a result of newinformation, future events or otherwise, except as required under applicablelaw.Nepstar Income Statement for the year ended December 31, 2007 (in RMB 000s) Historical Margin Pro Forma Pro Forma Financials Financials Margin Revenues 1,954,683 -- 1,629,151 -- Gross Profit 862,672 44.1% 762,155 46.8% Income from Operations 180,818 9.3% 165,152 10.1% Share of JZJ's net income -- -- 5,381 -- Net Income 148,165 7.6% 148,165 9.1% Nepstar Income Statement for the three quarters ended September 30, 2008 (in RMB 000s) Historical Margin Pro Forma Pro Forma Financials Financials Margin Revenues 1,740,865 -- 1,462,877 -- Gross Profit 839,923 48.2% 749,712 51.2% Income from Operations 102,950 5.9% 91,298 6.2% Share of JZJ's net income -- -- 4,059 -- Net Income 146,612 8.4% 146,612 10.0%
SOURCE China Nepstar Chain Drugstore Ltd.
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