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Winner Medical Reports First Quarter 2010 Results

Thursday, February 11, 2010 Press Release J E 4
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SHENZHEN, China, Feb. 10 Winner Medical Group Inc.(NYSE Amex: WWIN; "Winner Medical"), a manufacturer of medical dressings,medical disposables and non-woven PurCotton(R) materials for the medical andconsumer products industries, today reported that fiscal first quarter 2010revenue increased 15.8% to $29.8 million and diluted earnings per shareincreased 142.9% to $0.17.

"Winner Medical delivered strong first-quarter results as our operatingnumbers were enhanced by accelerating growth in the Chinese market for ourWinner(R) brand and finished medical products, which were further supported bysequential increases by PurCotton(R) jumbo roll sales," said Jianquan Li,chairman and Chief Executive Officer of Winner Medical. "Our business isperforming well and our domestic and PurCotton(R) business is on track forstrong profit growth this quarter."

"Looking forward, we will continue to reshape and strengthen our portfolio,by expanding medical products sales into the Chinese marketplace throughdirect sales to hospitals, distributors and chain drugstores, and launchingPurCotton(R) brand products and opening more PurCotton(R) trial stores. Weexpect that these products and sales to the Chinese marketplace will fuel ourgrowth in an increasingly competitive marketplace. We also expect to drivegrowth this year through key strategic investments funded by our continuedstrong cash flow," Mr. Li said.

First Quarter 2010 Highlights

Sales Revenue

Winner Medical reported net revenues of $29.8 million for the firstquarter of 2010, a 15.8% increase from $25.7 million in the first quarter of2009. Net revenues generated from traditional products in the first quarterof 2010 increased approximately 9.5% to $27.3 million from $24.9 million inthe first quarter of 2009, primarily driven by increased sales to North andSouth American customers and Chinese customers. As a component, PurCotton(R)products sales in the first quarter of 2010 increased approximately 199.2% to$2.5 million from $0.8 million in the first quarter of 2009. The strongrevenue was also driven by a large quantity of sales from face masks andprotective products as a result of H1N1 both in the Chinese and global markets.

Gross Profit

Gross profit in the first quarter of 2010 increased to $9.4 million.First quarter 2010 gross margins were 31.7%, a 600 basis point improvementfrom 25.7% reported in the first quarter of 2009, which resulted from theCompany's strategy of targeting the Chinese medical market combined with highmargin sales of PurCottton(R) products, as well as from benefits derived fromour lean production management and favorable foreign exchange rates.

Operating Expenses

In the first quarter of 2010, the Company reported Selling, General andAdministrative expenses of $5.3 million, versus $4.5 million in the firstquarter of 2009. This increase was mainly due to increases in transportationexpenses for the domestic and export markets, increases in salaries formanagement and administrative staff and consulting expenses for brand buildingprojects, as well as an increase in the provision for bad debts.

Operating Income

Operating income increased by 159.4% to $4.5 million in the first quarterof 2010, from $1.7 million in the first quarter of 2009.

Income taxes

The Company's effective tax rate for the first quarter of 2010 was 13.1%,compared to 15.9% in the first quarter of 2009. The lower income tax rate ismainly due to the Company's subsidiary, Winner Industries (Shenzhen),obtaining the High and New Technology Enterprise Certificate which reduced itsincome tax rate from 18% to 15% and also due to the fact that anothersubsidiary, Winner Industries (Huanggang), was entitled to a two-year fullexemption from enterprise income tax, and it experienced high sales revenuegrowth in the first quarter of 2010.

Net Income Attributable to Winner Medical Group Inc.

Net income increased by 165.8% to $3.9 million in the first quarter of2010, as compared to approximately $1.5 million in the first quarter of 2009.Diluted earnings per share were $0.17 in the first quarter, versus $0.07 pershare in the comparable quarter last year. This increase was primarily drivenby high demand of PurCotton(R) products, rapid sales of traditional medicalproducts to Chinese customers and North and South American customers, leanproduction management and favorable foreign exchange rates.

Other Select Data

Average accounts receivable days outstanding were 40 days in the firstquarter of 2010 compared to 45 days in the fourth quarter of 2009.

As of December 31, 2009, the Company had $7.5 million in cash and cashequivalents, compared to $9.5 million as of September 30, 2009. Net cashprovided by operating activities and net cash used in investing activitiesduring the first quarter of 2010 were $3.2 million and $2.1 million,respectively. Working capital as of December 31, 2009 was $26.2 millioncompared to $23.0 million as of September 30, 2009.

2010 First Quarter Operational Highlights

China Medical Market Business Update

Net sales to customers in China totaled $8.1 million in the first quarterof 2010 compared to $2.6 million in the comparable quarter last year, anincrease of 212.7%. This significant quarterly sales gain resulted from theCompany's strategy of launching its own brand name Winner(R) products andselling products through hospitals, distributors, and chain drugstores. TheCompany has established sales distribution channels in major cities such asBeijing, Shanghai, Guangzhou, Shenzhen, Wuhan, and Fuzhou and has cooperatedwith 7 out of the top 10 chain drugstores in China which have a combinednetwork of approximately 20,000 locations in almost all major cities.Winner(R), as a well-known trademark, was recognized by the Trademark Officeof the Chinese State Administration for Industry and is well accepted by theCompany's clients and end customers. The increase of sales within China isalso due to orders related to H1N1 protective products. The Company expectsto strengthen its sales continuously to the Chinese marketplace, and expectsdomestic demand to be driven by Chinese medical reforms and increasing demandfor high quality medical disposable products.

PurCotton(R) Business Update

PurCotton(R) product sales of $2.5 million in the first quarter of 2010represented a 199.2% increase versus the $0.8 million of sales in the firstquarter of the 2009. Sales in the first quarter of 2010 benefited from anincrease in PurCotton(R) raw materials sales (jumbo rolls) to customers inChina and Japan who produce consumer products, including sanitary andincontinence products, as well as from the processing of orders forPurCotton(R) finished medical products, such as operating room towels andsponges for customers in China, Europe, and the United States.

As of December 31, 2009, the first two PurCotton(R) manufacturing lineswere producing at full capacity, with a total production capacity of 200 tonsper month. The third and fourth production lines are expected to startproduction in March and May 2010, respectively. In order to build and marketthe PurCotton(R) brand name in China, the Company has set up a wholly-ownedsubsidiary, Shenzhen PurCotton Technology Co., Ltd., which focuses on sellingits PurCotton(R) branded products through Company owned chain stores. OnDecember 31, 2009, the Company opened its first three PurCotton(R) pilot chainstores and another two stores were opened on February 8, 2010 in Shenzhen,Guangdong province. Each store sells four lines of PurCotton(R) brandedpersonal products and healthcare supplies, including PurCotton(R) babypersonal products, feminine personal products, daily home care products andmedical care products. The total projected average cost to open each pilotstore is approximately $60,000 to $80,000, which includes the lease take-out,a cash deposit, build-out, instruments, inventory stocking and one monthsalary for sales persons. This is a trial step as the Company enters theretail consumer personal products and healthcare suppliers markets in China.The Company will open more stores depending on the growth of market demand forPurCotton(R) products. The Company believes that this flagship product willbe a significant growth driver and complement to its product portfolio.

Conference Call

Winner Medical's senior management will host a conference call to discussits first quarter 2010 results and recent business developments.

A telephone replay will be available shortly after the conclusion of thecall and will be accessible through February 17, 2010 by calling 888-286-8010(US) or +1-617-801-6888 (International); Passcode: 30554778.

About Winner Medical:

Winner Medical is a leading manufacturer and the largest exporter byvolume in the medical dressing industry in China. Headquartered in Shenzhen,the Company has eight wholly-owned operating subsidiaries and four jointventures with over 5,000 employees. The Company engages in the manufacturing,sale, research, and development of medical care products, wound care products,home care products and PurCotton(R) products, a nonwoven fabric made from 100%natural cotton. The products are sold worldwide, with Europe, the UnitedStates and Japan serving as the top three markets. The Company currentlyholds more than sixty patents and patent applications for various products andmanufacturing processes and is one of the few Chinese companies licensed bythe U.S. Food and Drug Administration (FDA) to ship finished, sterilizedproducts directly to the United States market. To learn more about WinnerMedical, please visit Winner Medical's web site at:http://ir.winnermedical.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 of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, asamended. All statements, other than statements of historical fact includedherein are "forward-looking statements" including statements regarding WinnerMedical and its subsidiary companies' business strategy, plans and objectiveand statements of non-historical information. These forward-lookingstatements are often identified by the use of forward-looking terminology suchas "believes," "expects" or similar expressions, involve known and unknownrisks and uncertainties. Although Winner Medical believes that theexpectations reflected in these forward-looking statements are reasonable,they do involve assumptions, risks and uncertainties, and these expectationsmay prove to be incorrect. You should not place undue reliance on theseforward-looking statements, which speak only as of the date of this pressrelease. Winner Medical's actual results could differ materially from thoseanticipated in these forward-looking statements as a result of a variety offactors, including those discussed in Winner Medical's periodic reports thatare filed with and available from the Securities and Exchange Commission. Allforward-looking statements attributable to Winner Medical or persons acting onits behalf are expressly qualified in their entirety by these factors. Otherthan as required under the securities laws, Winner Medical does not assume aduty to update these forward-looking statements.First Quarter 2010 Summary Q1 FY2010 Q1 FY2009 Y/Y (In million) (In million) Sales Revenue $29.8 $25.7 15.8% Cost of Sales $20.4 $19.1 6.4% Gross Profit $9.4 $6.6 42.8% Operating Income $4.5 $1.7 159.4% Net Income Attributable to Winner Medical Group Inc. $3.9 $1.5 165.8% Diluted EPS $0.17 $0.07 142.9%

SOURCE Winner Medical Group Inc.
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