SHENZHEN, China, May 16, 2011 /PRNewswire-Asia/ -- Global Pharm Holdings Group, Inc. (OTCBB: GPHG.OB) (“Global Pharm” or the “Company”), a China-based leading vertically integrated pharmaceutical company engaged in pharmaceutical related products distribution and herbal cultivation businesses through its subsidiaries in the Anhui, Jilin, and Shandong provinces, today announced its unaudited financial results for the first quarter ended March 31, 2011.
First Quarter 2011 Highlights
- Net revenues were $42.1 million, an increase of 45.8% over the first quarter of 2010
- Gross profit was $7.8 million, an increase of 53.0% over the first quarter of 2010, with gross margin of 18.6%
- Operating income was $6.7 million, an increase of 43.6% over the first quarter of 2010
- Net income was $5.3 million, or $0.20 per diluted share, an increase of 51.6%, as compared to $3.5 million, or $0.18 per diluted share, in the same period in 2010
- Net operating cash generated during the quarter was $5.8 million
“We are pleased to report a good start of the fiscal year 2011 with a 45.8% increase in revenue compared with the same period last year. This sales growth is mainly driven by our wholly owned subsidiary Shandong Global Pharm (“Shandong Global Pharm,” formerly known as “Yaoyuan”) in the Shandong province, due to the significant increase in customer numbers and enlarged product portfolios,” stated Mr. Yunlu Yin, Chief Executive Officer of Global Pharm. “During the quarter, Global Pharm established two new 97% owned subsidiaries in the Anhui and Shandong provinces respectively, to start its projects of building modern Traditional Chinese Medicine, or TCM, herbal plantation bases. We anticipate that the establishment of the TCM herbal plantation bases will enhance our product portfolio, increase the profit margin, and later make the direct offer to our distribution business unit. Our distribution business will benefit from gaining access to high-quality TCM herb products directly from the source, as well as achieve increased revenue by the consecutive distribution of such herbal products. Following the integration, our distribution business would enjoy greater flexibility in terms of making coordinated sales efforts, allowing us to price our products and services more competitively.”
First Quarter 2011 Financial Summaries (Unaudited)
Three months ended March 31 | Change | |||
(in $ millions, except per-share data in $) | 2011 | 2010 | ||
Net Revenue | 42.1 | 28.9 | 45.8% | |
Gross Profit | 7.8 | 5.1 | 53.0% | |
Operating Income | 6.7 | 4.6 | 43.6% | |
Income before income taxes | 6.7 | 4.7 | 43.3% | |
Net Income | 5.3 | 3.5 | 51.6% | |
Total comprehensive income | 5.4 | 3.5 | 55.9% | |
Basic and diluted earnings per share | 0.20 | 0.18 | 11.1% | |
First Quarter 2011 Results
Total net revenue was $42.1 million for the three months ended March 31, 2011, an increase of 45.8% compared with the same period in 2010. The revenue increase largely reflects strong sales of the pharmaceutical products distribution segment, which contributed $32.5 million or 77.1% of the Company’s total sales in the quarter, compared with $20.9 million or 72.2% of the total revenue in the corresponding quarter last year.
Below is a breakdown of sales per business segment for the three months ended March 31, 2011 and 2010, respectively:
For the Three Months Ended March 31 Revenue | |||||||
in USD except percentage | 2011 | 2010 | Change | ||||
% of revenue | % of revenue | % | |||||
Pharmaceutical products distribution | $32,473,402 | 77.1 | $20,866,986 | 72.2 | 11,606,416 | 55.6 | |
TCM processing and distribution | 4,716,648 | 11.2 | 7,033,942 | 24.3 | (2,317,294) | (32.9) | |
Herbal cultivation and sales | 4,656,951 | 11.1 | - | - | 4,656,951 | NA | |
Flower tea bags | 273,756 | 0.6 | 991,942 | 3.4 | (718,186) | (72.4) | |
Total | $42,120,757 | 100 | $28,892,870 | 100 | $13,227,887 | 45.8 | |
The revenue of the pharmaceutical products distribution segment was $32.5 million for the three months ended March 31, 2011, an increase of 55.6% compared with the same period in 2010. The strong growth in the pharmaceutical products distribution segment was primarily due to a series of marketing activities to promote sales, a broader product portfolio offered to customers and improved efficiency in fulfilling sales orders. During the first quarter of 2011, Global Pharm’s distribution product portfolio expanded from approximately 7,000 products to over 9,000 products. In addition, in order to streamline internal operations and resource allocations, the Company reassigned approximately $2.1 million in revenue generated by the distribution of OEM (OEM drugs refer to generic drugs the Company purchases from pharmaceutical manufacturers that the Company rebrand and sell under its own brand names) products from the TCM processing and distribution business segment to the pharmaceutical product distribution segment in the first quarter of 2011.
The revenue of the TCM processing and distribution segment was $4.7 million, a decrease of approximately 32.9% from the first quarter of 2010, primarily due to approximately $2 million of related sales from OEM products for the three months ended March 31, 2011 have been recorded in the pharmaceutical product distribution segment.
The revenue of the herbal cultivation and sales segment was $4.7 million for the three months ended March 31, 2011. The increase was primarily attributable to the additional sales of herbal products for the three months ended March 31, 2011. The Company had no herbal sales for the comparable period in 2010.
Revenue from the flower tea bags segment was $0.3 million for the three months ended March 31, 2011, compared to approximately $1.0 million for the comparable period in 2010. The significant decrease in sales of flower tea bags was mainly due to increased competition in the market and insufficient marketing.
Gross profit for first quarter 2011 was $7.8 million, an increase of 53.0%, from $5.1 million in the same period a year ago. Gross margins were 16.6%, 19.2%, 31.0%, and 34.0% for each of our pharmaceutical products distribution segment, TCM processing and distribution segment, herbal cultivation and sales segment, and flower tea bags segment, respectively. The increase was largely due to the stronger sales volume of its distribution business and the growth of its herbal cultivation and sales business in the first three months in 2011.
Operating expenses for the first quarter 2011 were $0.4 million, an increase of 150.1%, mostly due to an increase in advertising, freight and labor costs in order to support business growth and expansion.
General and administrative expenses for the first quarter 2011 were $0.7 million, an increase of 142.1%, which was consistent with the increase in net revenue and increased professional service fees of becoming a public company.
Operating income for the first quarter 2011 was $6.7 million, an increase of 43.6% from $4.6 million for the comparable period in 2010.
The effective tax rate for the Company’s operating subsidiaries was 20.6% for the first quarter 2011, and 25% in the same period in 2010. The reduced effective tax rate was mainly due to the increased contribution of its herbal cultivation and sales business, which is subject to zero income tax in the People’s Republic of China (“PRC”).
Net income for the first quarter 2011 was $5.3 million, or $0.20 per weighted and diluted share, compared with net income of $3.5 million, or $0.18 per weighted and diluted share, for the same period a year ago. The diluted weighted average number of shares outstanding was 26.0 million as of March 31, 2011.
Financial Condition
As of March 31, 2011, the Company had $8.9 million in cash and $23.1 million in accounts receivable compared with $4.3 million and $19.8 million as of December 31, 2010. The increase was in line with increased sales. The Company’s inventories increased to $17.7 million as of March 31, 2011 from $16.1 million as of December 31, 2010, mainly due to the increased scale of sales during the first quarter 2011. Working capital was $22.8 million, compared with $17.4 million at the end of 2010. As of March 31, 2011, the Company had $0.6 million in short-term debt compared with $2.0 million as of December 31, 2010. Stockholders’ equity totaled $23.1 million as of March 31, 2011, compared with $17.6 million at the end of 2010.
For the period ended March 31, 2011, Global Pharm generated $5.8 million cash from operating activities, as compared to $0.2 million for the comparable period in 2010. The increase is primarily due to the additional $1.8 million in net income generated, $1.0 million in inventory, $2.1 million in other current assets, and the release of $1.2 million in restricted cash, offset by the decrease of $0.7 million in accounts receivable and $0.4 million of other accrued liabilities. The Company used $46.0 thousand in investing activities for the three months ended March 31, 2011 compared to $9.0 thousand in the same period in 2010, primarily as a result of increased capital expenditures. The Company used $1.1 million in cash for financing activities for the three months ended March 31, 2011 compared with $3.2 million for the three months ended March 31, 2010, a decrease of $2.1 million mainly due to loan payment in the first quarter in 2011 and the dividend paid to the former shareholders of $3.2 million in the comparable period in 2010.
Subsequent Events
On April 29, 2011, the Company’s Board of Directors appointed Mr. Yanliang Song as Vice President in charge of operations of Global Pharm for a term of three years, effective May 1, 2011, thereby increasing the number of Global Pharm executive officers from three to four.
On April 25, 2011, the Company suspended its flower tea bags and sales operations. The Company’s decision was based on the intentions of the local government of Bozhou, in conjunction with another pharmaceutical company, to expand the industry development park in Bozhou, that will utilize the site where Xuelingxian is currently located. The factory buildings and relevant land on which Xuelingxian is situated will be expropriated and Xuelingxian will be required to relocate to a new commercial address. The Company is currently evaluating potential new locations and is conducting market research on the flower tea bags market. The management will decide to either reopen the flower tea bags business in a new location or permanently close it after completing its market research, which expected to be completed in mid-2011.
On April 21, 2
