BEIJING, Sept. 1 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") , a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the fourth fiscal quarter ("4Q FY2008") and the full fiscal year ended March 31, 2009 ("FY2008").
"In FY2008, we achieved significant operational milestones," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "We continue to believe that China IVD market is significantly under-developed and under-penetrated. We are confident in our positioning as an advanced in-vitro diagnostic company in China to capture the enormous growth potentials in this business segment over the next 10 years. We also maintain our steady dividend policy to reward our shareholders despite challenging circumstances."
4Q FY2008 Unaudited Financial Results
The Company reported revenues from continuing operations of RMB248.6 million (US$36.4 million) for 4Q FY2008, representing a 37.3% increase from the corresponding period of FY2007.
The Company's revenues from continuing operations are currently generated from two product lines, ECLIA diagnostic systems and FISH diagnostic systems.
ECLIA system sales for 4Q FY2008 were RMB139.0 million (US$20.3 million), representing a 23.9% increase from the corresponding period of FY2007. The year-over-year growth in the ECLIA system sales was primarily due to the increasing utilization of the Company's ECLIA analyzers by hospitals as well as the expanded installed base of the analyzers which resulted in increased sales of ECLIA reagent kits.
FISH system sales for 4Q FY2008 were RMB109.6 million (US$16.0 million), representing a 59.3% increase from the corresponding period of FY2007. The strong year-over-year growth in the FISH system sales was primarily due to significant increase in sales of FISH probes to hospitals as a result of increase in new hospital customers and the increased usage of the Company's FISH probes by existing hospital customers.
Gross margin increased to 75.8% for 4Q FY2008 from 58.6% for the corresponding period of FY2007. The increase in gross margin was primarily due to the change in revenue mix where almost all revenues were generated from recurring sales of higher margin ECLIA reagent kits and FISH probes in 4Q FY2008.
Research and development expenses were RMB10.7 million (US$1.6 million) for 4Q FY2008, representing a 70.4% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits and FISH probes.
Sales and marketing expenses were RMB13.6 million (US$2.0 million) for 4Q FY2008, representing a 97.4% year-over-year increase. The increase was primarily due to the continued expansion of the direct sales force for FISH system sales, increased product promotional activities as well as cost of the ECLIA analyzers provided free of charge to customers.
General and administrative expenses were RMB48.1 million (US$7.0 million) for 4Q FY2008, representing a significant year-over-year increase. The increase was primarily due to the increased headcount associated with the expansion of the Company's operations, an increase in stock compensation expense arising from a restricted stock grant in June 2008 and amortization of acquired intangible assets in connection with the acquisition of the SPR technology in December 2008.
Interest expense of convertible notes was RMB27.8 million (US$4.1 million) for 4Q FY2008, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008. The Company's outstanding convertible notes of US$150.0 million and US$276.0 million bear interest at 3.5% and 4.0% per annum, respectively and will mature in November 2011 and August 2013, respectively.
Interest expense of amortization of convertible notes issuance costs of RMB4.6 million (US$0.7 million) for 4Q FY2008, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.
Other interest expense of RMB0.8 million (US$0.1 million) for 4Q FY2008 was primarily due to the present value discounting of other payable of US$10 million for the final payment of the FISH acquisition in March 2009.
Income tax expense was RMB32.1 million (US$4.7 million) for 4Q FY2008. The high effective tax rate was primarily due to certain expenses of the Company such as amortization of acquired intangible assets, stock compensation expense and interest expense of convertible notes were not deductible for income tax computation in the PRC and the accrual for withholding income tax on distributable earnings in the PRC.
Income from continuing operations was RMB56.3 million (US$8.2 million) for 4Q FY2008, representing a 8.6% increase from the corresponding period of FY2007.
Net income was RMB56.3 million (US$8.2 million) for 4Q FY2008, representing a 46.5% decrease from the corresponding period of FY2007.
Non-GAAP income from continuing operations excluding stock compensation expense, amortization of acquired intangible assets and acquired IPR&D charge was RMB120.0 million (US$17.6 million) for 4Q FY2008, representing a 48.5% increase from the corresponding period of FY2007.
Stock compensation expense for 4Q FY2008 was RMB13.9 million (US$2.0 million), of which RMB2.3 million was allocated to research and development expenses and RMB11.6 million to general and administrative expenses.
Amortization of acquired intangible assets for 4Q FY2008 was RMB49.8 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.4 million to general and administrative expenses.
As of March 31, 2009, the Company's cash balance was RMB1,456.4 million (US$213.1 million).
As of March 31, 2009, the Company's net accounts receivable was RMB343.0 million (US$50.2 million), representing an increase of 20.7% from the balance at December 31, 2008.
FY2008 Unaudited Financial Results
Revenues from continuing operations were RMB830.0 million (US$121.5 million) for FY2008, representing a 51.6% year-over-year increase. The targeted revenues from continuing operations for FY2008 ranged from RMB825.0 million to RMB838.0 million.
ECLIA system sales for FY2008 were RMB504.7 million (US$73.9 million), representing a 32.6% year-over-year increase. FISH system sales for FY2008 were RMB325.3 million (US$47.6 million), representing a 94.9% year-over-year increase.
Gross margin increased to 73.6% for FY2008 as compared to 55.2% for FY2007 primarily due to similar reasons for 4Q FY2008.
Research and development expenses were RMB31.5 million (US$4.6 million) for FY2008, representing a 55.5% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits and FISH probes.
Acquired IPR&D charge was RMB244.9 million (US$35.8 million) which related to the acquisition of SPR technology in December 2008.
Sales and marketing expenses were RMB56.0 million (US$8.2 million) for FY2008, representing a significant year-over-year increase. This increase was primarily due to the continued expansion of the direct sales force for FISH system sales, increased product promotional activities as well as the cost of the ECLIA analyzers provided free of charge to customers.
General and administrative expenses were RMB137.8 million (US$20.2 million) for FY2008, representing a significant year-over-year increase. The increase was primarily due to an increase in headcount to meet the expansion of the Company's operations, an increase in stock compensation expense arising from a restricted stock grant in June 2008 and amortization of acquired intangible assets in connection with the acquisition of the SPR technology in December 2008.
Interest expense of convertible notes was RMB83.2 million (US$12.2 million) for FY2008, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.
Interest expense of amortization of convertible notes issuance costs of RMB14.4 million (US$2.1 million) for FY2008, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.
Other interest expense of RMB4.2 million (US$0.6 million) for FY2008 was primarily due to the present value discounting of other payable of US$10.0 million for the final payment of the FISH acquisition which was paid in March 2009.
Income tax expense was RMB73.0 million (US$10.7 million) for FY2008. The high effective tax rate was primarily due to certain expenses of the Company such as the charge related to acquired IPR&D, amortization of acquired intangible assets, stock compensation expense and interest expense of convertible notes were not deductible for income tax computation in the PRC and the accrual for withholding income tax on distributable earnings in the PRC.
Loss from continuing operations was RMB2.1 million (US$0.3 million) for FY2008, including a charge of RMB244.9 million (US$35.8 million) for acquired IPR&D for the acquisition of the SPR technology in December 2008.
Income from discontinued operation was RMB258.2 million (US$37.8 million) for FY2008, representing a 28.6% year-over-year increase, primarily due to a one-time gain of RMB137.2 million (US$20.1 million) from the sale of the HIFU business in December 2008. A portion of this gain amounting to RMB106.2 million (US$15.5 million) has been deferred in accordance with GAAP because of the subsequent event described in the section headed, "Recent Development on the Sale of the HIFU Business" below.
Net income was RMB256.2 million (US$37.5 million) for FY2008, representing a 21.2% year-over-year decrease.
Non-GAAP income from continuing operations excluding stock compensation expense, amortization of acquired intangible assets and acquired IPR&D charge was RMB419.6 million (US$61.4 million) for FY2008, representing a 80.9% year- over-year increase. The targeted adjusted income from continuing operations for FY2008 ranged from RMB410.0 million to RMB420.0 million.
Stock compensation expense for FY2008 was RMB50.2 million (US$7.3 million), of which RMB8.2 million was allocated to research and development expenses and RMB42.0 million to general and administrative expenses.
Amortization of acquired intangible assets for FY2008 was RMB126.6 million (US18.5 million), of which RMB90.1 million was allocated to cost of revenues and RMB36.5 million to general and administrative expenses.
For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8329 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Tuesday, March 31, 2009.
Annual Cash Dividend
The Board of Directors has declared an annual cash dividend on its ordinary shares of US$0.055 per share, equivalent to US$0.55 per ADS based on the Company's unaudited net income for FY2008. The cash dividend will be paid on or around October 28, 2009 to shareholders of record as of September 30, 2009.
Outlook
Please refer to the section "Outlook for 2Q FY2009" in the earnings announcement for FY2009 First Fiscal Quarter.
Recent Development on the Sale of the HIFU Business
In June 2009, the Company received a letter from Chengxuan International Ltd. ("Chengxuan"), the buyer of the HIFU Business and a major shareholder of the Company in connection with a notice issued by the State Food and Drug Administration ("the SFDA") in April 2009. The notice from the SFDA required the submission of new clinical trial data for the renewal application of the registration certificate for the HIFU system for the further evaluation of the renewal application and did not permit the sale of the HIFU system starting from April 2009 until the approval of the renewal application. The Company recently received another letter from Chengxuan which updated their ongoing discussion with the SFDA about the requirements for the new clinical trial data for the HIFU system, Chengxuan's loss of revenues due to the unexpected prohibition on selling the HIFU system since April 2009 and their indication of seeking maximum compensation of approximately US$15.5 million. The Company has established a special committee comprising two independent directors to evaluate and handle the related matters with Chengxuan and the special committee has engaged legal counsel to advise on Chengxuan's request for compensation. Due to this subsequent event and the uncertainty of the outcome, the Company has reduced the gain on the sale of the HIFU Business recorded in December 2008 by deferring approximately US$15.5 million of the gain in accordance with GAAP. This accounting treatment does not indicate any agreement of the Company to Chengxuan's request for compensation. The Company seeks to come up with a fair and acceptable solution to both parties. As such, the outcome may be different from the current estimate, and accordingly the amounts that are recorded in our consolidated financial statements for the year ended March 31, 2009 to be included in our annual report on Form 20-F, might be lower than US$15.5 million.
Non-GAAP Measure Disclosures
To supplement its consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses non-GAAP measures of income from continuing operations and earnings from continuing operations per ADS, which are adjusted from the results based on GAAP to exclude the impact of stock compensation expense, amortization of acquired intangible assets and acquired IPR&D charge. Non-GAAP financial measures are used by the Company in their financial and operating decision-making because management believes they reflect the Company's ongoing business in a manner that allows meaningful period-to-period comparison. The Company's management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose. The Company's management also believes the non-GAAP financial measures are useful for itself and investors because it makes more meaningful comparisons of the Company's current results of operations to those of prior periods.
The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure, please see the financial statements included with this earnings announcement.
Conference Call
The Company's management team will host a conference call at 8:00a.m. U.S. Eastern Time on September 1, 2009 (or 8:00p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.
A live webcast of the conference call will be available on http://ir.chinameditech.com .
A replay of this webcast will be available for one month on this website.
A telephone replay of the call will be available after the conclusion of the conference call through 10:00a.m. U.S. Eastern Time on September 2, 2009.
About China Medical Technologies, Inc.
China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products using Enhanced Chemiluminescence (ECLIA) technology, Fluorescent in situ Hybridization (FISH) technology and Surface Plasmon Resonance (SPR) technology to detect and monitor various diseases and disorders. For more information, please visit http://www.chinameditech.com .
Safe Harbor Statement
This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can 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 contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
Reconciliations of Non-GAAP Income from Continuing Operations to GAAP Income
SOURCE China Medical Technologies, Inc.
CONTACT: Sam Tsang and Winnie Yam at +852-2511-9808 or
IR@chinameditech.com
Web site: http://www.chinameditech.com/
