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Jianquan Li, Chairman and Chief Executive Officer of Winner Medical,commented, "2008 was a challenging year for Winner Medical. The appreciationof the RMB and increasing operating costs challenged our profitability and theglobal economic crisis had a severe impact on the world economy in the fourthfiscal quarter. Despite these negative factors, we are pleased to be able tomeet the top end of our revenue expectations, reporting roughly $85.51 millionin total sales revenue for the quarter. Our performance was supported bystable and strong growth in the export markets for our traditional medicalcare, wound care and home care products.
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"In the fourth quarter, our record sales growth was the result ofsuccessful execution of our initiative to boost sales to large customers inthe US and Europe. Our ability to enhance production efficiency and implementstringent cost controls also allowed us to stabilize our gross margin andprofit, despite the negative effect of foreign currency exchange ratefluctuations and rising labor costs," he continued.
"Our PurCotton products performed solidly, with total sales of $1.36million in the fiscal year of 2008. We will further strengthen marketingefforts for PurCotton and we believe the growing sales of this new productwill be a complementary growth driver to our traditional products over themid- to long-term.
"We believe the year ahead will inevitably be even more challenging, asthe global economic outlook has worsened and we expect these conditions tocontinue. In view of the difficult business environment, we have set fourstrategic priorities to sustain our revenue, profitability and balance sheet.First, we will implement even more stringent cost control measures to optimizeproduction efficiency and reduce controllable expenses, such as facilitiesexpenses, by 10%. Second, we will invest to develop domestic market in China.Third, we will continue our ongoing strategy to deepen our relationships withour major US, Europe and Japanese customers to maintain stable order growth.Fourth, we will maintain our solid cash position.
"Further, we believe that the PRC government's plan to stimulate domesticconsumption and economic growth will benefit us in three aspects. The taxreform implemented this year will lower our VAT tax and export tax for certainof our products. The central bank's decision to cut interest rates willreduce our interest expenses. Finally, investments to develop the primarymedical care and healthcare services system in urban and rural areas willbenefit our domestic sales," Mr. Li concluded.
Fourth Quarter 2008 Unaudited Financial Results
Revenue: Winner Medical reported net sales revenue of $25.22 million, a17.24% increase over the fourth quarter of fiscal 2007. Healthy revenuegrowth was mainly due to strong demand, particularly in the U.S.; revenue fromthe U.S. was approximately $3.99 million for the fourth quarter of fiscal 2008,an increase of 84.05% compared to the same period last year. The U.S. marketaccounted for 15.83% of total revenue for the quarter ended September 30, 2008.
Gross Profit: For the fourth quarter of fiscal 2008, gross profit was$6.69 million, an increase of 17.09% over $5.71 million in the same period offiscal 2007. Gross margin was 26.52%, versus 26.56% achieved in the fourthquarter of fiscal 2007. The slight decline in gross margin was mainly due toincreased raw materials costs.
Operating Expenses: Selling, general and administrative expenses decreasedby 8.98% to $3.86 million in the fourth quarter of fiscal 2008, from $4.24million in the fourth quarter of fiscal 2007. During this quarter, thedecrease in the operating expenses was mainly due to lower transportation feesfor exports.
Operating Income: During the period, operating income was $2.14 million,an increase of 35.44% compared with $1.58 million of same quarter of 2007.The increase was mainly attributed to decreased export transportation fees andeconomies of scale related to higher sales revenue.
Income Taxes: The income tax provision for the three months endedSeptember 30, 2008 was $478,000, up from $88,000 for the same period in 2007.The increase in tax provision was mainly due to a change in tax rate for oursubsidiaries in China as the result of Chinese Income Tax reform that wentinto effect on January 1, 2008.
Net income: Net income increased by 7.40% to $1.60 million, or $0.03 perbasic and diluted share, compared to net income of $1.49 million, or $0.04 perbasic and diluted share, for the fourth quarter of last fiscal year. Thisincrease can be attributed to economies of scales gained from higher salesrevenue during the three months ended September 30, 2008 as compared with thesame period last year, and the decrease in transportation expenses. This isdespite the expenses incurred related to the commencement of trial productionof PurCotton products.
Full Year Ended September 30, 2008 Audited Financial Results
Revenue: Winner Medical reported net sales revenue of $85.51 million forthe fiscal year ended September 30, 2008, a 21.66% increase over the fiscalyear 2007. The strong revenue growth was mainly due to strong demand,particularly in Europe and the U.S. Revenue from European customers wasapproximately $40.58 million for the fiscal year 2008, an increase of 31.04%compared to the same period last year, while revenue from the U.S. was $12.40million for the fiscal year 2008. Europe and the U.S. accounted for 47.46%and 14.51% of total revenue for the fiscal year ended September 30, 2008,respectively.
Gross Profit: Gross profit increased by 23.02% to $21.42 million for thefiscal year ended September 30, 2008, from $17.41 million in the same periodin fiscal 2007. Gross margin was 25.05%, an increase from 24.77% in the sameperiod of fiscal 2007. The gross margin increase was mainly due to improvedproduction management, and unit product cost decreases as a result ofeconomies of scale.
Operating Expenses: Selling, general and administrative expenses increasedby 20.72% to $14.44 million in the fiscal year 2008, from $11.96 million inthe fiscal year 2007. During fiscal year 2008, Winner Medical made anincremental sales and marketing investment in its PurCotton(TM) product line.Increased administrative expenses are largely a result of expenses related tothe grant of 1 million shares of restricted stock to the Company's managementand employees, increased administrative expenses for the Winner Huanggangfactory, and the administrative expenses related to the implementation of aSarbanes-Oxley 404 compliance project in January 2008.
Operating Income: Operating income for the fiscal year of 2008 was $6.02million, an increase of 3.45% from $5.82 million in the same period of fiscalyear 2007. The increase was mainly attributable to the increase of grossprofit margin and sales revenue.
Income Taxes: The income tax provision for the fiscal year 2008 was$591,000, down from ($15,000) in the same period in 2007. The increased taxprovision was mainly due to a change in the tax rate for the Company'ssubsidiaries in China as the result of Chinese Income Tax reform that wentinto effect on January 1, 2008.
Net income: For the fiscal year ended September 30, 2008, net incomedecreased by 9.93% to $5.07 million, or $0.11 per basic and diluted share,compared to net income of $5.63 million, or $0.13 per basic and diluted share,for the fiscal year 2007. The net income decrease is mainly attributable tothe high fixed expenses related to the commencement of trial production ofPurCotton in the new Winner Huanggang factory, which include depreciation,amortization, employee salary and training expenses, and resulted in a netloss of approximately $1.20 million for the fiscal year 2008. There was alsoan increase of approximately $956,000 in foreign exchange loss compared withthe same period last year. The Company granted 911,500 shares of restrictedstock to its management and employees pursuant to the Company's stockincentive plan approved on October 7, 2007; the portion of expensesattributable to such grants for the nine months ended June 30, 2008 wasapproximately $382,000. In addition, there was a $606,000 increase in incometaxes due to a change in the tax rate in our subsidiaries in China.
Balance Sheet
Cash and cash equivalents as of September 30, 2008 was approximately $6.46million; compared with $6.38 million as of September 30, 2007. The Company'sworking capital as of September 30, 2008 was $12.37 million compared with$12.37 million of last year. Net operating cash flow as of September 30, 2008was $9.77 million, an increase of 27.55 % compared with the fiscal year of2007.
Fourth Quarter 2008 Operational Highlights
Medical care, Wound care and Home care products in Export Markets
North and South America -- Revenue from customers in the North and SouthAmerica was approximately $3.99 million for the three months ended September30, 2008, an increase of 84.05% compared to the same period last year. Northand South America accounted for 15.83% of total revenue for the three monthsended September 30, 2008. The Company has been gradually shifting resourcesand services to focus on the larger-sized customer segment and successfullyattained a higher order volume from existing customers, especially in theUnited States. As a result, it expects revenue from these larger customers toincrease in the future.
Europe -- Revenue from European customers was approximately $40.58 millionfor the fiscal year 2008, an increase of 31.04% compared to the same periodlast year. Europe accounted for 47.46% of total revenue for the fiscal yearended September 30, 2008, respectively. The Company has adopted the samestrategy in Europe as it has in the Americas: gradually shifting resources andservices to focus on the larger-sized customer segment. As a result, itexpects revenue from these larger customers to increase in the future.
Medical care, Wound care and Home care products in China
The Company formed a partnership with seventeen over the counter drugstorechains, enabling access to a retail distribution network of 13,736 drugstoresacross China. The Company believes that selling through the OTC drugstorenetwork is an ideal way to build its own brand and penetrate the domesticretail market.
Partnerships with distributors in Shanghai, Guangdong, Zhejiang and HunanProvince demonstrate progression of the Company's strategy to expand medicalcare and homecare product sales domestically.
During this year, Winner Medical has gradually refined the domestic salesstrategies by reducing raw material sales in China and expanding sales offinished products in the domestic market. As a result, sales revenue recordeda 28.58% increase to $10.96 million for the fiscal year ended September 30,2008, against $8.53 million in the fiscal year 2007.
PurCotton(TM):
In the fiscal year of 2008, the Company grew PurCotton sales steadily.$514,000 in raw material sales in the fourth quarter were mainly to customersin Japan, the U.S., and China. At the same time, the Company are in the stageof processing small scale trial orders of PurCotton finished medical products,such as operation room towel and sponges, with customers in North America andEurope.
During the quarter, Winner Medical obtained the patent for PurCotton inthe U.S. and South Africa and has now obtained five patents for PurCottonproducts in five countries, including China, the U.S., Russia, Singapore, andSouth Africa.
Winner Medical believes that demand for PurCotton will steadily grow.While it will be necessary to build education levels and cultivate interest inthe short term, Winner Medical is confident in its mid- to long-term growthpotential and steady progress has been made to expand the sales revenue.
The Company has signed a contract with a Canadian customer to sellfinished sponges made from PurCotton. The contract amounts to around $50,000per month beginning in January 2009.
In China, the Company has started to market finished consumer products inthe form of cosmetic cotton products in Mainland China and wipes/tissue inHong Kong. Winner Medical believes that the domestic market will providesignificant opportunities for PurCotton sales.
In addition, the Company will further investigate ways to reduceproduction costs further, improve efficiency and further improve productquality to attract more customers in the Japan, U.S., China, and Europeanmarkets in the coming year.
2009 Guidance
The Company maintains its estimate that revenue in fiscal year 2009 willrange from $100.90 million to $106.88 million, an increase of 18% to 25%compared to fiscal year of 2008.
Conference Call
Winner Medical senior management will host a conference call at 5am(Pacific) / 8am (Eastern) / 9pm (Shenzhen/Hong Kong) on Wednesday December 10,2008 to discuss its 2007/08 full year results and recent business developments.The conference call may be accessed by calling (US) 800-638-5439, (China) 10-800-130-0399 or (HK) 800-96-3844; Passcode: 48215697. A telephone replay willbe available shortly after the call until December 17, 2008 at (US) 888-286-8010 or (International) +1-617-801-6888; Passcode: 42826083.
About Winner Medical
Winner Medical is a leading manufacturer in the medical dressing industry(medical and wound care products) in China. Headquartered in Shenzhen, theCompany has eight wholly-owned manufacturing and distribution facilities, fourjoint-venture factories and over 5,000 employees. The Company engages in themanufacture, sale, research, and development of medical care products, woundcare products, home care products and PurCotton(TM) products, a nonwovenfabric made from 100% natural cotton. The products are sold worldwide, withEurope, the U.S. and Japan serving as the top three markets. The Companycurrently holds 50 patents and patent applications in various products andmanufacturing processes and is one of the few Chinese companies licensed withthe U.S. Food and Drug Administration (FDA) to ship finished, sterilizedproducts directly to the U.S. market. To learn more about Winner Medical,visit Winner Medical's web site http://www.winnermedical.com .
Forward-Looking Statements
This press release contains certain statements that may include "forwardlooking 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.Fourth Quarter 2008 Highlights -- Total net sales revenue increased by 17.24% over the fourth quarter of fiscal 2007 to $25.22 million -- Gross profit increased by 17.09% over the fourth quarter of fiscal 2007 to $6.69 million -- Operating income increased by 35.44% over the fourth quarter of fiscal 2007 to $2.14 million -- Net income increased by 7.39% over the fourth quarter of fiscal 2007 to $1.60 million -- Net income per share for the fourth quarter of 2008 was $0.03 per basic and diluted share, compared to $0.04 per basic and diluted share for the fourth quarter of fiscal 2007 Full Fiscal Year 2008 Highlights -- Total net sales revenue increased by 21.66% over the fiscal year 2007 to $85.51 million -- Gross profit increased by 23.02% year-over-year to $21.42 million -- Operating income increased by 3.45% over the fiscal year of 2007 to $6.02 million -- Net income decreased by 9.93% over the fiscal year 2007 to $5.07 million -- Net income per share for the fiscal year 2008 was $0.11 per basic and diluted share, compared to $0.13 per basic and diluted share for the fiscal year 2007
SOURCE Winner Medical Group Inc.
