SHENZHEN, China, March 28, 2014 /PRNewswire-FirstCall/ -- China Nepstar Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or the "Company"), the largest retail drugstore chain in China based on the number of directly operated stores, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2013.
Financial Highlights
For the quarter ended December 31, 2013:
For the year ended December 31, 2013:
Mr. Fuxiang Zhang, Chief Executive Officer, commented, "We are pleased to report that our continued focus on product mix, store transaction efficiency and increasing foot traffic are beginning to deliver results. We have achieved double digit growth in both revenues and same store sales in the fourth quarter of 2013 compared to the same period in 2012 through a combination of strengthening our marketing and promotional efforts, introducing our loyal member reward shopping programs, improving our product range offerings and other proactive marketing strategies. Both of our pharmaceutical products and nutritional supplements products experienced strong sales in the fourth quarter of 2013 compared to the same period in 2012. In general, we have steadily improved sales momentum and strengthened customer relationships throughout the year and in a retail environment that can be challenging."
Fourth Quarter Results
During the fourth quarter of 2013, the Company opened 40 new stores and closed 33 stores. As of December 31, 2013, the Company had a total of 2,066 directly operated stores.
Revenue for the fourth quarter of 2013 increased by 11.6% to RMB749.8 million (US$123.9 million) from RMB671.9 million recorded for the same period in 2012. Same store sales (for the 1,893 operating stores opened before December 31, 2011) for the fourth quarter of 2013, increased by 15.8% compared to the same period in 2012. The increase in same store sales was primarily due to our in-store promotional initiatives, improved product range and strengthened marketing efforts of both pharmaceutical products and nutritional supplements products.
Fourth quarter revenue contribution by product category was 21.8% from prescription drugs; 40.5% from over-the-counter ("OTC") drugs; 13.5% from nutritional supplements; 4.2% from herbal products; and 20.0% from convenience and other products.
Fourth quarter gross profit was RMB317.0 million (US$52.4 million), being an increase from the RMB308.6 million achieved in the same period of 2012. Gross margin in the fourth quarter of 2013 was 42.3%, compared to 45.9% in the same period of 2012. This decrease in gross margin was primarily due to downward pressure on selling price given more sales promotion initiatives to increase our market share.
The Company's portfolio of private label products included approximately 2,104 products as of December 31, 2013. Sales of private label products represented approximately 20.8% of the revenue and 26.6% of the gross profit for the fourth quarter of 2013.
Sales, marketing and other operating expenses as a percentage of revenue, in the fourth quarter of 2013 decreased to 35.3% from 37.6% in the same period of 2012. This decrease was primarily due to growth in same store sales and the closure of underperforming stores.
General and administrative expenses as a percentage of revenue in the fourth quarter of 2013 was 3.8%, compared to 3.4% for the same period of 2012.
An impairment loss of RMB2.6 million (US$0.4 million) was recognized in the fourth quarter of 2013, which represented the reduction of the carrying value of the property and equipment of certain underperforming stores.
Income from operations in the fourth quarter of 2013 was RMB21.2 million (US$3.5 million) compared to income from operations of RMB30.2 million in the same period of 2012. This decrease was mainly the result of lower gross margin.
Interest income for the fourth quarter of 2013 was RMB3.5 million (US$0.6 million), which was the same figure as recorded in the same period last year.
The Company's effective tax rate was 46.2% for the fourth quarter of 2013, compared to 23.9% for the same period in 2012. The Company's income tax expense was RMB11.4 million (US$1.9 million) for the fourth quarter of 2013, compared to RMB24.7 million for the same period in 2012. As compared to the PRC statutory tax rate of 25% applicable to our major operating subsidiaries, the difference in the effective income tax rate for the current quarter was primarily due to non-deductible expenses and the relatively high amounts of operating losses from loss-making subsidiaries, for which full valuation allowances were made on their deferred tax assets, as compared to the overall results of the Company. Shareholders are reminded that in the PRC losses in companies which are part of a group are not allowed to be off-set against profits arising in other companies in the same group. In addition, the Company has in early February 2014 been denied its Hong Kong tax residency that applied in fiscal year of 2013 by the Hong Kong Inland Revenue Department. The Company is therefore now subject to a standard withholding tax rate of 10%, rather than a reduced tax rate of 5% under tax treaty previously applied by the Company, for the dividends to be paid or appropriated from the Company's PRC subsidiaries. This has led to a charge of withholding income tax of RMB11.0 million (US$1.8 million) for the year ended December 31, 2013.
Net profit in the fourth quarter of 2013 was RMB13.3 million (US$2.2 million) representing RMB0.14 (US$0.02) basic and diluted earnings per ADS, compared to net income of RMB78.8 million representing RMB0.80 basic and diluted earnings per ADS in the same period of 2012. However, it is to be noted that this decrease was primarily due to the one-time disposal of our 40% equity interests in JZJ and subsequent recognition of a gain of RMB68.4 million in income in the fourth quarter of 2012, which was non-recurrent exceptional income last year.
In the fourth quarter of 2013, net cash outflows from operating activities were RMB25.2 million (US$4.2 million) compared to net cash inflow of RMB10.2 million in the same period of 2012, primarily due to increased purchases of merchandise on increased sales achieved in Q4 2013.
Fiscal Year 2013 Financial Results
In fiscal year 2013, the Company opened 122 new stores and closed 188 stores. As of December 31, 2013, Nepstar had a total of 2,066 stores in operation.
Total revenue for 2013 increased to RMB2,699.1 million (US$445.9 million) from RMB2,549.9 million in 2012. Same store sales (for 1,893 operating stores opened before December 31, 2011) for 2013 increased by 10.3% compared to 2012. The increase in revenue and same store sales was driven by continued optimization of our merchandise portfolio through diversification into non-pharmaceutical categories, the closure of underperforming stores and more intensive sales promotion initiatives.
In 2013, revenue contribution from prescription drugs was 22.3%, OTC drugs was 39.2%, nutritional supplements was 14.5%, herbal products was 4.1% and convenience and other products was 19.9%. Private label products accounted for 23.5% of total revenue and 31.8% of gross profit, respectively, compared to 26.8% of revenue and 38.0% of gross profit in 2012.
Gross profit at RMB1,178.3 million (US$194.6 million) for 2013 was comparable with the RMB1,180.5 million achieved for 2012. Gross margin was 43.7% in 2013, compared to 46.3% in 2012. The decrease in gross margin was mainly due to downward pressure on sales prices as a result of increased sales promotion initiatives to increase our market share.
Total operating expenses accounted for 42.5% of total revenue in 2013, compared to 44.2% recorded in 2012. Income from operations was RMB23.0 million (US$3.8 million) for 2013, compared to RMB46.9 million for 2012.
Interest income for 2013 was RMB15.7 million (US$2.6 million), compared to RMB16.4 million in 2012. Dividend income from cost method investments was RMB5.2 million (US$0.9 million) for 2013, compared to RMB4.5 million in 2012. Equity in income of an equity method investee was nil in 2013 compared to that of RMB1.3 million in 2012, due to the disposal of our 40% equity interests in JZJ in 2012, which recorded a RMB68.4 million one-time gain in 2012.
The Company's effective tax rate was 73.1% in 2013, compared to 34.6% in 2012. The Company's income tax expense was RMB32.1 million (US$5.3 million) for 2013, compared to RMB47.6 million for the same period in 2012. As compared to the PRC statutory tax rate of 25% applicable to our major operating subsidiaries, the difference in the effective income tax rate was primarily due to non-deductible expenses and the relatively high amounts of operating losses from loss-making subsidiaries, for which full valuation allowances were made on their deferred tax assets, as compared to the overall results of the Company. Shareholders are reminded that in the PRC losses in companies which are part of a group are not allowed to be off-set against profits arising in other companies in the same group. In addition, the Company has in early February 2014 been denied its Hong Kong tax residency that applied in fiscal year of 2013 by the Hong Kong Inland Revenue Department. The Company is therefore now subject to a standard withholding tax rate of 10%, rather than a reduced tax rate of 5% under tax treaty previously applied by the Company, for the dividends to be paid or appropriated from the Company's PRC subsidiaries. This has led to a charge of withholding income tax of RMB11.0 million (US$1.8 million) for the year ended December 31, 2013.
Net income was RMB11.8 million (US$2.0 million) for 2013, which represented RMB0.12 (US$0.02) basic and diluted earnings per ADS.
Net cash-flows from operating activities were RMB6.9 million (US$1.1million) for 2013, compared with RMB41.4million achieved in 2012.
The total number of outstanding ordinary shares of the Company as of December 31, 2013 was 197.4 million. The weighted average number of ordinary shares in 2013 was also 197.4 million. Each ADS represents two ordinary shares of the Company.
As of December 31, 2013, the Company's total cash, cash equivalents, bank deposits and restricted cash were RMB622.8 million (US$102.9 million) and its shareholders' equity was RMB845.5 million (US$139.7 million), compared to RMB664.4 million and RMB1.03 billion, respectively, as of December 31, 2012.
On November 26, 2013, the Company announced a cash dividend of US$0.32 per ADS. Approximately US$31.6 million was subsequently paid to shareholders during January 2014.
Business Outlook
"We believe our wide and varied selection of product offerings, improved retail services and customer loyalty programs, well position the Company for envisaged improvement of the retail pharmacy business in China," Mr. Zhang remarked. "Our objective is to capitalize on our existing extensive store network, customer loyalty to our retail brand and constantly improving product mix, to achieve improved economies of scale and to leverage our operational efficiencies, to thereby improve margins in the long term. However, the immediate outlook in 2014 for retail operations across most sectors in the mainland of China remains challenging."
Conference Call Information
The Company will host a conference call, to be simultaneously webcasted, on Friday, March 28, 2014 at 8:00 a.m. Eastern Time / 8:00 p.m. Beijing Time. Interested parties may participate in the conference call by dialing +1-877-407-9210 (North America) or +1-201-689-8049 (International) approximately five minutes before the call start time. A live web cast of the conference call will be available on the China Nepstar website at www.nepstar.cn.
A replay of the call will be available shortly after the conclusion of the conference call through April 4, 2014 at 11:59 p.m. Eastern Time. An archived web cast of the conference call will be available on the China Nepstar website at http://www.nepstar.cn. Interested parties may access the replay by dialing +1-877-660-6853 (North America) or +1-201-612-7415 (International) and entering conference ID number 13577831.
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is the largest retail drugstore chain in China based on the number of directly operated stores. As of December 31, 2013, the Company had 2,066 stores across 77 cities, one headquarter distribution center and 16 regional distribution centers in China. Nepstar uses directly operated stores, centralized procurement and a network of distribution centers to provide its customers with high-quality, professional and convenient pharmaceutical products and services and a wide variety of other merchandise, including OTC drugs, nutritional supplements, herbal products, personal care products, family care products, and convenience products. Nepstar's strategy of centralized procurement, competitive pricing, customer loyalty programs and private label offerings has enabled it to capitalize on the continuing economic growth in China and take advantage of the demographic trend in China to achieve a strong brand and leading market position. For further information, please go to http://www.nepstar.cn.
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 and the Company's strategic operational plans and business outlook, 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.
Exchange Rate Information
The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars were calculated at the certified exchange rate ofUS$1.00 = RMB6.0537 on December 31, 2013 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2013, or at any other date. The percentages stated are calculated based on RMB amounts.
Contacts
Zixin Shao
China Nepstar Chain Drugstore Ltd.
Chief Financial Officer
+86-755-2641-4065
ir@nepstar.cn
Dixon Chen
Grayling
Investor Relations
+1-646-284-9403
dixon.chen@grayling.com
Ivette Almeida
Grayling
Media Relations
+1-646-284-9455
ivette.almeida@grayling.com
(Tables Follow)
China Nepstar Chain Drugstore Ltd. Unaudited Condensed Consolidated Statements of Income and Comprehensive Income | |||||||
(amounts in thousands - except per-share data) | |||||||
Three-month period ended | Year ended | ||||||
December 31, | December 31, | ||||||
2012 | 2013 | 2013 | 2012 | 2013 | 2013 | ||
RMB | RMB | USD | RMB | RMB | USD | ||
Revenue | 671,863 | 749,829 | 123,863 | 2,549,856 | 2,699,103 | 445,860 | |
Cost of goods sold | (363,305) | (432,840) | (71,500) | (1,369,312) | (1,520,796) | (251,218) | |
Gross profit | 308,558 | 316,989 | 52,363 | 1,180,544 | 1,178,307 | 194,642 | |
Sales, marketing and other operating | (252,562) | (264,509) | (43,694) | (1,011,695) | (1,026,798) | (169,615) | |
General and administrative expenses | (22,573) | (28,721) | (4,744) | (115,734) | (121,542) | (20,077) | |
Impairment losses of property and | (4,693) | (2,556) | (422) | (7,649) | (6,984) | (1,154) | |
Other income | 1,480 | - | - | 1,480 | - | - | |
Income from operations | 30,210 | 21,203 | 3,503 | 46,946 | 22,983 | 3,796 | |
Interest income | 3,496 | 3,492 | 577 | 16,435 | 15,713 | 2,596 | |
Dividend income from cost method | - | - | - | 4,528 | 5,232 | 865 | |
Equity in income of an equity method | 1,289 | - | - | 1,337 | - | - | |
Income from disposal of an equity | 68,440 | - | - | 68,440 | - | - | |
Income before income tax expense | 103,435 | 24,695 | 4,080 | 137,686 | 43,928 | 7,257 | |
Income tax expense | (24,678) | (11,415) | (1,886) | (47,594) | (32,100) | (5,303) | |
Net income | 78,757 | 13,280 | 2,194 | 90,092 | 11,828 | 1,954 | |
Basic earnings per ordinary share | 0.40 | 0.07 | 0.01 | 0.45 | 0.06 | 0.01 | |
Basic earnings per ADS | 0.80 | 0.14 | 0.02 | 0.90 | 0.12 | 0.02 | |
Diluted earnings per ordinary share | 0.40 | 0.07 | 0.01 | 0.45 | 0.06 | 0.01 | |
Diluted earnings per ADS | 0.80 | 0.14 | 0.02 | 0.90 | 0.12 | 0.02 | |
Other comprehensive income, net of tax: | |||||||
Foreign currency translation adjustments | 372 | 798 | 132 | (555) | 65 | 11 | |
Comprehensive income attributable to | 79,129 | 14,078 | 2,326 | 89,537 | 11,893 | 1,965 | |
China Nepstar Chain Drugstore Ltd. Unaudited Condensed Consolidated Balance Sheets | |||
(amounts in thousands) | |||
As of | As of | ||
December 31, | December 31, | ||
2012 | 2013 | ||
RMB | RMB | USD | |
ASSETS | |||
Current assets | |||
Cash and cash equivalents | 371,256 | 361,146 | 59,657 |
Short-term bank time deposits | 237,100 | 184,440 | 30,467 |
Restricted cash | 36,000 | 37,000 | 6,112 |
Accounts receivable, net of allowance for doubtful | 114,601 | 131,984 | 21,802 |
Amounts due from related parties | 8,254 | 379 | 63 |
Prepaid expenses, deposits and other current assets | 147,252 | 169,210 | 27,952 |
Inventories | 478,483 | 551,783 | 91,148 |
Deferred tax assets | 1,704 | 6,330 | 1,045 |
Total current assets | 1,394,650 | 1,442,272 | 238,246 |
Non-current assets | |||
Long-term bank time deposits | 20,000 | 40,256 | 6,650 |
Property and equipment, net | 120,237 | 123,183 | 20,348 |
Rental deposits | 38,236 | 41,946 | 6,929 |
Cost method investments | 12,638 | 12,638 | 2,088 |
Intangible assets, net | 2,868 | 2,509 | 414 |
Goodwill | 51,819 | 51,819 | 8,560 |
Deferred tax assets | 3,056 | 11,723 | 1,937 |
Accrued interest income | 507 | 769 | 127 |
Total non-current assets | 249,361 | 284,843 | 47,053 |
Total Assets | 1,644,011 | 1,727,115 | 285,299 |
LIABILITIES AND SHAREHOLDERS' EQUITY | |||
Current liabilities | |||
Accounts payable | 356,095 | 403,558 | 66,663 |
Bills payable | 20,534 | 4,334 | 716 |
Amounts due to related parties | 18,381 | 29,247 | 4,831 |
Accrued expenses and other payables | 105,503 | 123,065 | 20,329 |
Income tax payable | 40,967 | 34,567 | 5,710 |
Dividend payable | - | 191,246 | 31,592 |
Deferred Income | 14,327 | 22,477 | 3,713 |
Total current liabilities | 555,807 | 808,494 | 133,554 |
Non-current liabilities | |||
Deferred income | 18,365 | 17,391 | 2,873 |
Deferred tax liabilities | 7,499 | 16,541 | 2,732 |
Other non-current liabilities | 36,237 | 39,163 | 6,469 |
Total non-current liabilities | 62,101 | 73,095 | 12,074 |
Total liabilities | 617,908 | 881,589 | 145,628 |
Shareholders' equity | |||
Share capital | 158 | 158 | 26 |
Treasury stock | - | - | - |
Additional paid-in capital | 832,811 | 640,341 | 105,777 |
Accumulated other comprehensive loss | (41,688) | (41,623) | (6,876) |
Retained earnings | 234,822 | 246,650 | 40,744 |
Total shareholders' equity | 1,026,103 | 845,526 | 139,671 |
Total liabilities and shareholders' equity | 1,644,011 | 1,727,115 | 285,299 |
