China Yongxin Pharmaceuticals Reports a 26% Increase in net Income for the 2009 Fiscal Year

Wednesday, April 7, 2010 Corporate News
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CHANGCHUN, China and LOS ANGELES, April 6 ChinaYongxin Pharmaceuticals, Inc. (OTC Bulletin Board: CYXN) (the "Company" or"China Yongxin"), a fast-growing vertically-integrated health products companyin China, announced today its financial results for the fourth quarter and forthe year ended December 31, 2009.

Net income increased to $5.1 million in 2009, a 26% increase over $4.1million in 2008. The increase was primarily related to higher margin sales andwas largely due to an increase in gross profit resulting from a change in thecomposition of products sold, specifically, an increase in retail productsales.

Revenues for the year ended 2009 decreased to $47.6 million, or 19.5% from$59.1 million for 2008. The decrease in total revenue was due to thetransition of the Company's sales strategy, which, because of the uncertaindirection of the National Medical Policy, had been refocused from thewholesale business to the retail and medical facilities sector. Although abroader product portfolio and expanded marketing activities increased 2009revenues from the Company's retail drug stores by approximately 27.9% over theprior year, it was not sufficient to completely offset a decrease in revenuefrom the Company's wholesale business, resulting in comparably lower total netrevenue. The substantial increase in revenue from the retail segment wasattributable to the addition of seven new retail drugstores in 2009, alllocated in prime locations in the center of cities in Jilin province. Tofurther its new retail oriented sales strategy, the Company recently announcedits plan to open 28 new retail stores in 2010.

The Company also reported that basic and diluted earnings per shareincreased to $0.15 for the year ended December 31, 2009 compared to $0.13 for2008, based on 35.1 million and 31.2 million diluted weighted average sharesoutstanding for 2009 and 2008, respectively, and 33.2 million and 31.2 millionbasic weighted averages shares outstanding for 2009 and 2008, respectively.These shares do not include approximately 1.67 million shares of preferredstock owned by management, which is convertible into 10 million shares ofcommon stock.

The cost of goods sold for the year was $31.3 million, a significantreduction compared to $47.2 million in the prior year. The decreasecorresponded with a decrease in sales volume. However, the Company was ableto reduce the cost of sales to net sales percentage from approximately 80% in2008 to 66% in 2009 due to a change in product mix in which the proportion ofproducts sold with higher profit margins increased, such as cosmetics andcertain health and nutritional products. The Company improved its grossprofit margin by approximately 37.2% from $11.9 million in 2008 to $16.3million in 2009. The increase in gross margins was primarily due to highermargin retail and medical facilities sales.

Operating expenses for 2009 were $7.1 million, compared to $6.0 million in2008. Selling expenses remained at approximately the same level, at $3.5million. Management believes that in 2009 the Company prudently managedutilities usage, transportation costs and sales people to effectively reduceselling expenses and maintain its gross profit. General and administrativeexpenses for 2009 increased approximately 43.0% to $3.6 million, compared to$2.5 million in 2008. The majority of the increase was related to litigationwhich was recently concluded.

Income from operations for 2009 was approximately $9.2 million, anincrease from the $5.9 million for 2008. Operating margins were 18% and 9.8%for 2009 and 2008, respectively. A substantial portion of the increaseresulted from the expansion of the hospital market business and the increaseof the sale of the health care, cosmetic and nutrition products as well asmedical facilities sales.

Mr. Yongxin Liu, Chairman and Chief Executive Officer of the Company,commented, "During 2007, the Company anticipated potential impact on itswholesale distribution business resulting from uncertainty created by theproposed National Medical Policy. We were pleased that the Chinesegovernment's August 18th issuance of China's Essential Drug List (the "EDL")included over 300 commonly used pharmaceuticals that will be subsidized by thegovernment to provide easier access to all citizens. The Company is aretailer or distributor of 295 of the products on the EDL. We continue to beencouraged by the government's successful effort toward healthcare reform andefforts to boost domestic spending."

Mr. Liu also added, "Our income growth in 2009 indicates that our businessmodel has placed the Company in a strong position to take positive advantageof increased government support of health care and the continued expansion ofthe economy in China." On March 9 2009, China Yongxin once again demonstratedits "state-of-the-art" approach to providing retail drug customers with a highlevel of service by formally launching its proprietary Electronic DiagnosisSystem (the "System"), of which 20 Systems have been installed so far in chaindrugstores located in Changchun, Jilin. This proprietary system enables ourcustomers to remotely receive medical diagnosis and conveniently purchaseprescription drugs at that store. The Company continues to improve the levelof service it offers and leverage its large and growing base of customers whoopt in as drugstore "members" and who are then entitled to discounts, rebatesand special offers. This strategy, in addition to selling a broader array ofhigher margin health, beauty and cosmetic products has increased customerretention and improved revenue and profitability in this business segment.

Since the beginning of 2009, China Yongxin has signed 12 exclusivedistribution agreements for high margin pharmaceutical products within Jilinprovince with several well-known pharmaceutical manufacturers includingTianjin Smith Kline and French Laboratories Ltd. As of June 30, 2009, ChinaYongxin has approximately 216 drugs with exclusive distribution rights inJilin province. This portfolio is a key component of its long-term growthstrategy to leverage the large distribution center and channels established todrive incremental future revenue growth. These agreements are typically oneyear in duration and are renewable.

About China Yongxin Pharmaceuticals, Inc.

Founded in 1993, China Yongxin Pharmaceutical, Inc. is avertically-integrated retailer and distributor of Chinese traditionalmedicines, pharmaceutical preparations, natural health products, health food,cosmetics, and medical equipment in northeastern China. Its retail operationsbegan in 2004, and in 2005, it gained franchise rights from one of the world'slargest drug chains for China's Jilin province. The Company had become one ofthe fastest growing drug retailers in China through its retail chain of 93drug outlets as well as wholesale distribution in northeastern China. Formore information about China Yongxin Pharmaceuticals Inc., please visithttp://www.yongxinchina.com .

Forward Looking Statements

This news release contains certain "forward-looking statements."Forward- looking statements are based on current expectations and assumptionsand are inherently subject to risks and uncertainties, some of which cannot bepredicted or quantified, and many of which are beyond the Company's control.The forward-looking statements are also identified through the use of words"believe," enable," "may," "will," "could," "intends," "estimate,""anticipate," "plan," "predict" "probable," "potential," "possible," "should,""continue," "project", "expect" and other words of similar meaning. Actualresults could differ materially from these forward-looking statements as aresult of a number of risk factors detailed in the Company's periodic reportsfiled with the SEC. Given these risks and uncertainties, investors arecautioned not to place undue reliance on such forward-looking statements andno assurances can be given that such statements will be achieved. ChinaYongxin Pharmaceuticals Inc. does not assume any duty to publicly update orrevise the material contained herein.(TABLE TO FOLLOW) China Yongxin Pharmaceuticals, Inc. Consolidated Statements of Income for the Years Ended December 31, 2009 and 2008 2009 2008 Net Revenues $ 47,589,280 $ 59,116,534 Cost of Goods Sold (31,271,463) (47,226,275) Gross profit 16,317,817 11,890,259 Operating Expenses: Selling expenses 3,543,383 3,521,147 General and administrative expenses 3,575,059 2,500,366 Total operating expenses 7,118,442 6,021,513 Income From Operations 9,199,376 5,868,745 Other Income (Expense): Other income 278,846 690,516 Other expense (137,849) (152,469) Interest income (expense) 9,173 (6,679) Total other income 150,170 531,368 Operating Income Before Income Tax and Non controlling Interest 9,349,545 6,400,113 Provision for income tax (2,594,483) (1,009,643) Net Income Before Non controlling Interest and Discontinued operations 6,755,062 5,390,470 Loss from discontinued operations (30,951) (84,850) Net Income Before Non controlling Interest 6,724,111 5,305,619 Non controlling interest (1,599,122) (1,239,480) Net Income 5,124,989 4,066,139 Other Comprehensive Item: Foreign exchange translation gain 123,209 824,961 Net Comprehensive Income $ 5,248,198 $ 4,891,100 Earnings per share Basic $ 0.15 $ 0.13 Diluted $ 0.15 $ 0.13 Weighted average number of shares outstanding Basic 33,240,797 31,150,819 Diluted 35,070,051 31,150,819

SOURCE China Yongxin Pharmaceuticals, Inc.


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