China Medical Technologies Fourth Quarter and Full Year Financial Results.FY2006 Outlook Targets Exceeded BEIJING -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED CMED Coordinated Medical Emergency Direction CMED Central Massachusetts Emergency Dispatch ), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products and high intensity focused ultrasound HIFU (high intensity focused ultrasound) (sometimes FUS or HIFUS) is a highly precise medical procedure using high-intensity focused ultrasound to heat and destroy pathogenic tissue rapidly. tumor tumor: see neoplasm. therapy system, today announced its unaudited financial results for the fourth quarter ("4Q FY2006") and full year of the fiscal year ended March 31, 2007 ("FY2006"). FY2006 Highlights * Net revenues increased by 47.1% year-over-year to RMB RMB Right Mouse Button RMB Regional Management Board (USACE) RMB Rolf Maier Bode (musician, band) RMB Ren Min Bi (currency of People's Republic of China) 547.0 million (US$70.8 million) exceeding the high end of our targeted range of RMB533 million. * Net income increased by 45.6% year-over-year to RMB289.7 million (US$37.5 million) exceeding the high end of our targeted range of RMB271 million. Non-GAAP adjusted net income, as defined below, increased by 48.8% year-over-year to RMB309.9 million (US$40.1 million). * Diluted earnings per ADS* were RMB10.74 (US$1.39). Non-GAAP adjusted diluted earnings per ADS*, as defined below, were RMB11.44 (US$1.48). * Cash dividend of US$0.40 per ADS* was declared. 4Q FY2006 Highlights * Net revenues increased by 46.0% year-over-year to RMB163.1 million (US$21.1 million). * Net income increased by 21.3% year-over-year to RMB83.7 million (US$10.8 million). Non-GAAP adjusted net income, as defined below, increased by 37.2% year-over-year to RMB91.8 million (US$11.9 million). * Diluted earnings per ADS* were RMB3.11 (US$0.40). Non-GAAP adjusted diluted earnings per ADS*, as defined below, were RMB3.37 (US$0.44). *One American Depositary Share American Depositary Share (ADS) Foreign stock issued in the US and registered in the ADR system. ("ADS") = 10 ordinary shares See "Non-GAAP Measure Disclosures" below, where the impact of certain items on reported results is discussed. "The strong financial and operational progress we achieved in FY2006 is a direct result of the successful execution of our business strategy and our continuous commitments to our customers, shareholders and other stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. ," commented Mr. Xiaodong Wu, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of the Company. "Our ECLIA ECLIA Electrochemiluminescence Immunoassay and HIFU HIFU High-intensity focused ultrasound Surgery A method that focuses ultrasound to heat/ablate target tissue without injuring surrounding structures. See Sonablate 200™. operations continued to deliver robust results and we expect the launch of our FISH products and their sales in June to further solidify our position as a leading advanced in-vitro diagnostics company in China." "Our performance exceeded our own targets and market consensus," commented Mr. Sam Tsang, CFO See Chief Financial Officer. of the Company. "HIFU accounted for approximately 60% of our net revenues in FY2006. We expect that HIFU will maintain a steady growth while ECLIA will continue its growth momentum from increasing reagent reagent /re·a·gent/ (re-a´jent) a substance used to produce a chemical reaction so as to detect, measure, produce, etc., other substances. re·a·gent n. revenue. We have integrated the FISH operation into our core business after completion of the acquisition in March 2007 and expect the diagnostic revenues from ECLIA and FISH will contribute more than half of our net revenues in FY 2007." 4Q FY2006 Financial Results The Company reported net revenues of RMB163.1 million (US$21.1 million) for 4Q FY2006, representing a 46.0% increase from the corresponding period of FY2005. The Company's revenues are currently generated from two product lines, ECLIA diagnostic systems and HIFU tumor therapy systems. ECLIA system sales System sales is a business term used in the franchising industry. Franchisors provide supplies, marketing and administration services to franchisees in return for a part of the franchisees' revenues. Some franchisors also operate some outlets directly. include the sales of ECLIA analyzers and reagent kits. ECLIA system sales for 4Q FY2006 were RMB65.9 million (US$8.5 million), representing a 74.3% increase from the corresponding period of FY2005. The year-over-year growth in the ECLIA system sales reflects rapid acceptance of the ECLIA technology in the medical community in China which in turn drove an increase in sales of reagent kits. Our robust growth in the sales of reagent kits in 4Q FY2006 was a direct result of strong customer reception of our reagents and the launch of more new reagents. HIFU tumor therapy system sales for 4Q FY2006 were RMB97.2 million (US$12.6 million), representing a 31.6% increase from the corresponding period of FY2005. The year-over-year growth in this sector was driven primarily by an increase in unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. resulting from an increased level of awareness and acceptance of the HIFU tumor therapy system in the medical community in China due to the Company's continued marketing efforts. The increase in selling price also contributed to the growth. Gross margin increased to 73.2% for 4Q FY2006 as compared to 70.1% for the corresponding period of FY2005. This improvement in gross margin was primarily due to the price increase for the Company's HIFU tumor therapy system and higher revenue contribution from ECLIA reagents. Research and development expenses were RMB8.0 million (US$1.0 million) for 4Q FY2006, representing a 56.8% year-over-year increase. The increase was primarily due to the HIFU-related medical study that is being conducted in partnership with the PRC Ministry of Health (the "MOH See modem on hold. "), the pre-clinical trials on the Company's HIFU tumor therapy system that are being conducted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. for FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. pre-market approval and research collaboration with the Biomed-X Centre of Peking University Peking University: see Beijing University. Peking University or Beijing University One of the oldest and most important institutions of higher education in China. . Sales and marketing expenses were RMB5.4 million (US$0.7 million) for 4Q FY2006, representing a 33.6% year-over-year increase. The increase was primarily due to greater participation at exhibitions and more promotional events organized by the Company. General and administrative expenses were RMB18.3 million (US$2.4 million) for 4Q FY2006, representing a 14.2% year-over-year increase. The increase was primarily due to amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. from FISH acquisition in the month of March 2007. Other income was RMB2.3 million (US$0.3 million) for 4Q FY2006, which was primarily related to government grants in support of the Company's ECLIA development. Amortization of convertible notes issuance costs of RMB2.1 million (US$0.3 million) for 4Q FY2006 was due to the US$150 million convertible notes issued in November 2006. The issuance costs are amortized over the term of the convertible notes which is five years. Interest income was RMB15.1 million (US$2.0 million) for 4Q FY2006, representing a significant increase from the corresponding period of FY2005. The increase was primarily due to interest income generated from the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). received from the issuance of convertible notes in November 2006. Interest expense of RMB10.2 million (US$1.3 million) for 4Q FY2006 was primarily due to interest incurred by the convertible notes issued in November 2006. The notes bear interest at 3.5% per annum Per annum Yearly. . Income tax expense was RMB9.2 million (US$1.2 million) for 4Q FY2006. However, there was income tax benefit for 4Q FY2005 because an income tax concession was granted by the PRC tax authorities in February 2006. As a result, income tax rate for the Company's PRC subsidiary was retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin reduced from 15% to 10% starting from January 2005 which will expire in December 2007. The effective tax rate for 4Q FY2006 was 9.9%. On March 16, 2007, the 10th people's Congress of China passed the China Unified Corporate Income Tax Law (the "New Law"), which will become effective on January 1, 2008. The New Law established a single unified 25% income tax rate for most companies with some preferential income tax rates to be applicable to qualified hi-tech enterprises. The related detailed implementation rules and regulations (the "IRRs") on the definition of various terms and the interpretation and application of the provisions of the New Law are expected to be promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. by the State Council within 2007. The Company currently believes that the IRRs will not impact its qualification as a hi-tech enterprise, and as such, believes the current tax rate of 15% will continue to apply. In the event the promulgation PROMULGATION. The order given to cause a law to be executed, and to make it public it differs from publication. (q.v.) 1 Bl. Com. 45; Stat. 6 H. VI., c. 4. 2. of the new IRRs results in a change such that the Company will no longer qualify as a hi-tech enterprise, it will be required to pay income tax in accordance with the IRRs starting on January 1, 2008. Net income was RMB83.7 million (US$10.8 million) for 4Q FY2006, representing a 21.3% increase from the corresponding period of FY2005. Adjusted net income excluding stock compensation expense, amortization of acquired intangible assets and income from arranging secondary offering (non-GAAP) was RMB91.8 million (US$11.9 million) for 4Q FY2006, representing a 37.2% increase from the corresponding period of FY2005. Upon approval by the Company last week, 2,550,000 restricted stocks and stock options, equivalent to 255,000 ADS representing approximately 1% of our share capital, were granted to certain directors, officers and management personnel. The restricted stocks and stock options will vest over a period of three years. As of March 31, 2007, the Company's cash balance was RMB1.2 billion (US$152.0 million). Net operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for 4Q FY2006 was RMB 99.1 million (US$12.8 million). As of March 31, 2007, the Company's accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying was RMB201.8 million (US$26.1 million), representing an increase of 6.2% from the balance at December 31, 2006. The accounts receivable turnover Accounts receivable turnover The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills. accounts receivable turnover days improved to 135 days from 140 days of previous quarter. FY2006 Financial Results Net revenues were RMB547.0 million (US$70.8 million) for FY2006, representing a 47.1% year-over-year increase. The targeted net revenues for FY2006 ranged from RMB521 million to RMB533 million. ECLIA system sales for FY2006 were RMB215.6 million (US$27.9 million), representing a 72.3% year-over-year increase. HIFU tumor therapy system sales for FY2006 were RMB331.4 million (US$42.9 million), representing a 34.3% year-over-year increase. Gross margin increased to 72.3% for FY2006 as compared to 70.3% for FY2005 primarily due to similar reasons for 4Q FY2006. Research and development expenses were RMB31.5 million (US$4.1 million) for FY2006, representing a significant year-over-year increase. The increase was primarily due to the HIFU-related medical study that is being conducted in partnership with the MOH, the pre-clinical trials on the Company's HIFU tumor therapy system that are being conducted in the United States for FDA pre-market approval and research collaboration with the Chinese Academy of Sciences The Chinese Academy of Sciences (CAS) (Simplified Chinese: 中国科学院; Pinyin: Zhōngguó Kēxuéyuàn), formerly known as Academia Sinica Institute of Acoustics The Institute of Acoustics (IOA) is a British professional engineering institution founded in 1974. It is licensed by the Engineering Council UK to assess candidates for inclusion on ECUK's Register of professional Engineers. and the Biomed-X Centre of Peking University. Sales and marketing expenses were RMB18.3 million (US$2.4 million) for FY2006, representing a 19.2% year-over-year increase. General and administrative expenses were RMB55.4 million (US$7.2 million) for FY2006, representing a 44.5% year-over-year increase primarily due to an increase in headcount to meet the expansion of the Company's operations and amortization of intangible assets from FISH acquisition in the month of March 2007. Other income was RMB6.0 million (US$0.8 million) for FY2006, which was primarily due to government grants in support of the Company's HIFU and ECLIA development. Amortization of convertible notes issuance costs was RMB3.1 million (US$0.4 million) for FY2006. Interest income was RMB42.0 million (US$5.4 million) for FY2006, representing a significant year-over-year increase. The increase was primarily due to interest income generated from the net proceeds received from the Company's initial public offering in August 2005 and the net proceeds received from the Company's issuance of convertible notes in November 2006. Interest expense was RMB15.3 million (US$2.0 million) for FY2006 primarily due to interest incurred by the convertible notes issued in November 2006. Income tax expense was RMB30.1 million (US$3.9 million) for FY2006. The effective tax rate for FY2006 was 9.4%. Net income was RMB289.7 million (US$37.5 million) for FY2006, representing a 45.6% year-over-year increase. The targeted net income for FY2006 ranged from RMB263 million to RMB271 million. Adjusted net income excluding stock compensation expense, amortization of acquired intangible assets and income from arranging secondary offering (non-GAAP) was RMB309.9 million (US$40.1 million) for FY2006, representing a 48.8% year-over-year increase. Net operating cash flow for FY2006 was RMB347.3 million (US$45.0 million). For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB7.7232 to US$1.00, the noon buying rate in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. , as of Friday, March 30, 2007. Cash Dividend The Board of Directors has declared a cash dividend on its ordinary shares of US$0.04 per share, equivalent to US$0.40 per ADS based on the Company's net income for FY2006. The cash dividend will be paid on or around August 17, 2007 to shareholders of record as of July 18, 2007. Appointment of Director The Company has appointed Mr. Sam Tsang to its Board of Directors, effective June 11, 2007. Mr. Tsang will continue to serve as the Chief Financial Officer of the Company. Prior to joining the Company in February 2004, Mr. Tsang worked as a manager of KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm) KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. . Mr. Tsang has extensive experience in finance, accounting and internal controls. Mr. Tsang is a Certified Public Accountant Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. in the United States and Hong Kong. "We are delighted to welcome Sam to the board." stated Mr. Xiaodong Wu, Chairman and CEO of the Company. "We believe that the Board will benefit from Sam's in-depth financial, legal and operational experience and his contribution is invaluable to the Company's continual success in China's diagnostic and cancer therapeutic business." Outlook for FY2007 The targeted net revenues for the fiscal year ending March 31, 2008 are expected to be between RMB830 million and RMB870 million, representing a year-over-year increase of 51.7% - 59.1%. The targeted adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for the fiscal year ending March 31, 2008 are expected to be between RMB390 million and RMB410 million, representing a year-over-year increase of 25.8% - 32.3%. The lower estimated year-over-year growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. of non-GAAP targeted adjusted net income compared to targeted net revenues are primarily due to higher interest expense and amortization arising from convertible notes, lower interest income resulting from cash payments for FISH acquisition and increase in income tax rate after expiration of income tax concession. The targeted adjusted diluted EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for the fiscal year ending March 31, 2008 is expected to be between RMB14.15 and RMB14.80 assuming a diluted number of ADS of 31,000,000 and excluding interest for convertible notes and amortization of convertible notes issuance cost. The targets are based on the Company's current views on the operating and market conditions which are subject to change. Non-GAAP Measure Disclosures To supplement its consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge presented in accordance with United States Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "), the Company uses non-GAAP measures of adjusted net income and adjusted earnings per share, which are adjusted from results based on GAAP to exclude the impact of stock compensation expense, amortization of acquired intangible assets and income from arranging secondary offering. 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 Company's management believes excluding the non-cash stock compensation expense from its non-GAAP financial measures is useful for itself and investors as such expense will not result in future cash payment and is otherwise unrelated to the Company's core operating results. The Company's management believes excluding the non-cash amortization expense of acquired intangible assets resulting from acquisitions from its non-GAAP financial measures is useful for itself and investors because they enable a more meaningful comparison of the Company's performance between reporting periods. In addition, such amortization will not result in cash settlement in the future. The Company's management believes excluding income from arranging secondary offering from its non-GAAP financial measures is useful for itself and investors because this income is non-recurring in nature and is unrelated to the Company's core operating results. 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 press release. Conference Call China Medical's management team will host a conference call at 8:00 a.m. Eastern Time on June 18, 2007 (or 8:00 p.m. Beijing/Hong Kong time on June 18, 2007) to discuss the results following this earnings announcement. The dial-in details for the live conference call are as follows: * U.S. Toll Free Number 1-866-202-3109 * International dial-in number 1-617-213-8844 Passcode CMEDCALL. 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 10:00 a.m. Eastern Time on June 19, 2007. The dial-in details for the replay are as follows: * U.S. Toll Free Number 1-888-286-8010 * International dial in numbers in numbered parts; as, a book published in numbers. See also: Number 1-617-801-6888 Passcode 32584628 About China Medical Technologies China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostics products using Enhanced Chemiluminescence chemiluminescence /chemi·lu·mi·nes·cence/ (kem?i-loo?mi-nes´ens) luminescence produced by direct transformation of chemical energy into light energy. (ECLIA) technology and Fluorescent in situ Hybridization in situ hybridization A method for localizing a sequence of DNA, mRNA, or protein in a cell or tissue; the use of a DNA or RNA probe to detect a cDNA sequence in chromosome spreads or in interphase nuclei or an RNA sequence of cloned bacterial or cultured (FISH) technology, to detect and monitor various diseases and disorders, and system using High Intensity Focused Ultrasound (HIFU) for the treatment of solid cancers and benign tumors benign tumor n. A tumor that does not metastasize or invade and destroy adjacent normal tissue. Benign tumor An abnormal proliferation of cells that does not spread to other parts of the body. . For more information, please visit www.chinameditech.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These statements constitute "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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, the Company's strategic operational plans, as well as outlook for FY2007, 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, including risks related to the Company's ability of successfully commercialize the products utilizing the FISH technology and launch products in China or elsewhere in a timely manner. 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. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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