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Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated,"Our second quarter performance reflects strong contributions from productssuch as Jingshu Granules, which we have been marketing actively sinceacquiring Anhui Jingfang. This was offset by weaker demand for XLGB, whichreflects continued delay in the implementation of the National Essential DrugList ("EDL") by local governments. We continue to pursue a more diversifiedproduct portfolio strategy, and expect sales of XLGB to recover when therollout of EDL eventually gains momentum."
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Net revenue in the second quarter of 2010 increased 2.8% to RMB137.9million ($20.3 million) from RMB134.1 million in the second quarter of 2009.Xianling Gubao ("XLGB") sales were RMB74.1 million ($10.9 million) in thesecond quarter of 2010, compared to RMB80.7 million in the second quarter of2009. Net revenue from Moisturizing & Anti-itching Capsules and Zaoren AnshenCapsules reached RMB19.0 million ($2.8 million) in the second quarter of 2010,compared to RMB18.2 million in the second quarter of 2009. Net revenue fromthe Company's other products increased 27% to RMB44.8 million ($6.6 million)from RMB35.2 million in the second quarter of 2009, including the contributionof approximately RMB2.1 million from the Company's liquor business.
Gross profit decreased 3.1% to RMB 79.2 million ($11.7 million) in thesecond quarter of 2010 from RMB 81.7 million in the second quarter of 2009.Gross margin was 57.5% in the second quarter of 2010, compared to 61.0% in thesame period of 2009. Tongjitang's gross margin reflects higher revenuecontribution from lower-margin products, as well as increased costs of rawmaterials related to herbal medicines, including the cost of barrenwort.Quality control costs also increased in line with a more stringent regulatoryenvironment.
Operating loss in the second quarter of 2010 was RMB2.8 million ($0.4million), compared to an operating profit of RMB11.7 million in the secondquarter of 2009. Operating loss was mainly attributable to increased sellingand marketing expenses, reflecting the Company's efforts to invest in itssales team's infrastructure and EDL sales network.
Net loss attributable to the Company was RMB4.7 million ($0.7 million),which yielded net loss per ADS of RMB0.18 ($0.03) and net loss per share(2) ofRMB0.05 ($0.01).
Non-GAAP adjusted EBITDA in the second quarter of 2010 was RMB5.7 million($0.8 million), compared to RMB27.1 million in the second quarter of 2009.Non-GAAP adjusted EBITDA per share was RMB0.05 ($0.01) in the second quarterof 2010, compared to RMB0.21 in the second quarter of 2009. For the secondquarter of 2010, the number of shares used in the computation of GAAP earningsper share and Non-GAAP adjusted EBITDA per share was 104.1 million, comparedto 128.3 million in the prior year period. Please refer to the Company's GAAPto non-GAAP reconciliation table provided below for additional details.
Balance Sheet
As of June 30, 2010, the Company had cash and cash equivalents of RMB285.0million ($42.0 million). This compares to RMB237.6 million as of December 31,2009 and RMB208.2 million as of March 31, 2010.
Financial Results for the Six Months Ended June 30, 2009
For the six months ended June 30, 2010, revenues were RMB251.1 million($37.0 million), up from RMB224.2 million in the first six months of 2009.During this same time period, gross profit was RMB141.5 million ($20.9million), up from RMB134.2 million. Income from operations decreased to a lossof RMB12.5 million ($1.8 million) from an operating profit of RMB1.5 millionin the first six months of 2009. Net loss attributable to the Company wasRMB18.1 million ($2.7 million), or a loss of RMB0.17 ($0.03) per share,compared to net income attributable to the Company of RMB5.8 million, orRMB0.04 per share, in the first six months of 2009. Net loss per ADS wasRMB0.70 ($0.10) in the first six months of 2010, compared with net income perADS of RMB0.18 in the first six months of 2009. On a year over year basis,weighted average number of shares outstanding for the first six months of 2010was 104.1 million.
Business Updates
On April 8, 2010, Tongjitang received a letter proposing to acquire all ofTongjitang's outstanding ordinary shares, including ordinary sharesrepresented by American Depositary Shares. The proposal is from HanmaxInvestment Limited, a company controlled by Mr. Xiaochun Wang, Chief ExecutiveOfficer and Chairman of Tongjitang, and Fosun Industrial Co., Limited, whichholds 32.1% of Tongjitang's outstanding ordinary shares (collectively, the"Bidding Parties"). If accepted, Tongjitang will become a privately-heldcompany. On April 12, Tongjitang announced the establishment of a specialcommittee of the board of directors (the "Independent Committee"), comprisedof Tongjitang's three independent directors, to evaluate the proposal. On June1, the Independent Committee announced that Morgan Stanley Asia Limited hasbeen appointed as its independent financial advisor. In addition, IndependentCommittee retained Sheppard, Mullin, Richter & Hampton LLP to serve as itsUnited States law counsel and Thorp Alberga to serve as its Cayman Islands lawcounsel.
On April 1, 2010, Hanmax Investment received a commitment letter issued byCITIC Ka Wah Bank Limited for a US$30 million term loan facility to fund theproposed purchase of the publicly held Tongjitang shares. This letter expiredon April 30. On June 4, 2010, Hanmax Investment received another commitmentletter from CITIC Bank International Limited ("CBI"), which expired on June 30.On July 21, 2010, Hanmax Investment received a new commitment letter from CBIauthorizing a term loan facility up to US$25 million to fund the proposedacquisition of Tongjitang's outstanding ordinary shares. The commitment underthe July 21 commitment letter will expire upon the earlier to occur ofexecution of definitive credit facility documents or September 24, 2010,subject to extension by CBI. More information is available via a Schedule13D/A filed with the SEC on August 2, 2010. Hanmax Investment and CBI are inthe process of negotiating credit documents.
Conference Call
Tongjitang's management team will hold a conference call on Thursday,August 19, at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing/Hong Kong time)following the announcement. Listeners may access the call by dialing thefollowing numbers:
Listeners may access the replay from approximately two hours after thecall ends through August 26, 2010 by dialing the following numbers:
An audio webcast of the call will also be available through the Company'swebsite at http://www.tongjitang.com .
About Non-GAAP Financial Measures
To supplement the Company's unaudited condensed consolidated financialinformation presented in accordance with the United States Generally AcceptedAccounting Principles ("GAAP"), the Company also provides non-GAAP financialmeasures, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per share, allof which exclude depreciation and amortization, interest (income) expense,provision for income taxes and share-based compensation expenses recordedunder FASB Accounting Standards Codification ("ASC") Subtopic 718 - 10Compensation - Stock Compensation: Overall (Pre-codification: SFAS No. 123(R),Share-Based Payment.) The Company's management believes the non-GAAPfinancial measures facilitate better understanding of operating results fromquarter to quarter and allows the management team to better plan and forecastfuture periods, as the non-GAAP financial measures provide additionalinformation to the investors. The non-GAAP information is not in accordancewith GAAP and may be different from non-GAAP methods of accounting andreporting used by other companies. The presentation of this additionalinformation should not be considered a substitute for the GAAP results. Alimitation of using these non-GAAP financial measures is that these non-GAAPmeasures exclude share-based compensation expenses that have been and willcontinue to be significant recurring expenses in the Company's business forthe foreseeable future. Reconciliations of the Company's non-GAAP financialdata to the most comparable GAAP data are included at the end of this pressrelease.
About Tongjitang Chinese Medicines Company
Tongjitang Chinese Medicines Company, through its operating subsidiariesTongjitang Pharmaceutical, Tongjitang Distribution, Tongjitang Chain Stores,Guizhou Long-Life Pharmaceutical Company Limited, Qinghai Pulante, AnhuiJingfang and Gui Liqour Ltd., is a vertically integrated specialtypharmaceutical company focused on the development, manufacturing, marketingand selling of modernized traditional Chinese medicine in China. Tongjitang'sprincipal executive offices are located in Shenzhen, China.
Tongjitang's flagship product, Xianling Gubao, is the leading traditionalChinese medicine for the treatment of osteoporosis in China as measured bysales in Renminbi. In addition to Xianling Gubao, the Company manufactures andmarkets 35 other modernized traditional Chinese medicine products and 36western medicines. Please visit http://www.tongjitang.com for more information.
Safe Harbor Statements
This press release contains forward-looking statements that are madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995. Although the Company believes that the expectationsreflected in such forward-looking statements are based on reasonableassumptions, such statements are subject to risks and uncertainties that couldcause actual results to differ materially from those projected. Although theCompany believes that the expectations expressed in these forward-lookingstatements are reasonable, they cannot assure you that their expectations willturn out to be correct, and investors are cautioned that actual results maydiffer materially from those described in the forward-looking statements inthis press release. A number of factors could cause actual results to differmaterially from those contained in any forward-looking statement, includingbut not limited to the following: the Company's heavy dependence on thesuccess of Xianling Gubao; the Company's ability to market Xianling Gubao tohospitals and to retail pharmacies; the retail prices of its principalproducts' being subject to price control by the government authorities inChina; the inclusion of the Company's products in national and provincialmedical catalogs of the National Medical Insurance Program in China; theCompany's ability to obtain approval from the State Food and DrugAdministration in China to convert a provisional national production standardof the Company's principal products to a national final production standard;the Company's ability to continue having the exclusive production rights forits products; the Company's ability to further improve its barrenwortextraction efficiency; the presence of certain side effects in the Company'scurrent products and the Company's ability to identify side effects associatedwith its current or future products prior to their marketing and sale; theCompany's ability to obtain manufacturing or marketing approval for its futureproducts; the Company's dependence on a limited number of distributors for asignificant portion of its net revenues; the Company's exposure to the risk ofproduct liability claims and its limited insurance coverage; the Company'sability to manage the expansion of its operations and its future research anddevelopment projects successfully; the Company's ability to protect itsintellectual property rights and defend infringement or misappropriationclaims by third parties; intense competition in the pharmaceutical market inChina; the supply of quality medicinal raw materials; uncertainties withrespect to the legal system in China, including uncertainty with respect topotential regulatory changes in China's healthcare industry; if disruptions inthe financial markets and other macro-economic challenges currently affectingthe economy of the United States and other parts of the world continue or evenworsen, it may adversely impact the economy and consumer confidence in China;the Company's ability to expand its business through organic growth andstrategic acquisitions and investments; and the Company's ability to integrateits acquisitions, including the recently-acquired state-owned distillerybusiness in Guiyang . Further information regarding these and other risks isand will be included in the Company's filings with the U.S. Securities andExchange Commission, including its annual report on Form 20-F and otherfilings. The Company does not undertake any obligation to update anyforward-looking statement, except as required under applicable law. Allinformation provided in this press release is as of the date of this pressrelease, and the Company undertakes no duty to update such information, exceptas required under applicable law.
(Note)
The condensed consolidated financial statements of Tongjitang ChineseMedicines Company are stated in Renminbi ("RMB"). The translation of RMBamounts as of and for the period ended June 30, 2010 into United States dollar("US$") is included solely for the convenience of readers and has been made atthe rate of RMB6.7815 to US$1.00, which is based on the noon buying rate inThe City of New York for cable transfers of Renminbi as certified for customspurposes by the Federal Reserve Bank of New York at June 30, 2010. Suchtranslations should not be construed as representations that RMB amounts couldbe converted into US$ at that rate or any other rate.
(Note 1)
The condensed consolidated financial statements of Tongjitang ChineseMedicines Company are stated in Renminbi ("RMB"). The translation of RMBamounts as of and for the period ended June 30, 2010 into United States dollar("US$") is included solely for the convenience of readers and has been made atthe rate of RMB6.7815 to US$1.00, which is based on the noon buying rate inThe City of New York for cable transfers of Renminbi as certified for customspurposes by the Federal Reserve Bank of New York at June 30, 2010. Suchtranslations should not be construed as representations that RMB amounts couldbe converted into US$ at that rate or any other rate.
(Note 2)
"We are in the process of performing valuations of certain identifiableproperty, plant and equipment, land use rights and intangible assets for theacquisitions we completed in the first quarter of 2010 and hence the net bookvalue for investment property, property, plant and equipment, land use rightsand intangible assets and goodwill is preliminary and subject to revision oncewe complete the valuation exercise.
(Note 1)
The condensed consolidated financial statements and the related amounts ofTongjitang Chinese Medicines Company are stated in Renminbi ("RMB"). Thetranslation of RMB amounts as of and for the period ended June 30, 2010 intoUnited States dollar ("US$") is included solely for the convenience of readersand has been made at the rate of RMB6.7815 to US$1.00, which is based on thenoon buying rate in The City of New York for cable transfers of Renminbi ascertified for customs purposes by the Federal Reserve Bank of New York at June30, 2010. Such translations should not be construed as representations thatRMB amounts could be converted into US$ at that rate or any other rate.
(Note 2)
Share-based compensation expenses recorded in accordance to ASC subtopic718-10 ("ASC 718-10"), Compensation - Stock Compensation: Overall(Pre-codification: SFAS No.123(R), Share-Based Payment) are as follows:Financial Results for the Quarter Ended June 30, 2010 -- Net revenue increased 2.8% to RMB137.9 million ($20.3 million)(1), from RMB134.1 million in the prior year period. -- Operating loss was RMB2.8 million ($0.4 million), compared to an operating profit of RMB11.7 million in the prior year period. -- Net loss attributable to the Company was RMB4.7 million ($0.7 million), which yielded net loss per ADS of RMB0.18 ($0.03) and net loss per share(2) of RMB0.05 ($0.01). -- Non-GAAP adjusted EBITDA per share was RMB0.05 ($0.01), compared to non-GAAP adjusted EBITDA per share of RMB0.21 in the second quarter of 2009.
SOURCE Tongjitang Chinese Medicines Company
