China Botanic net sales increase 56.1% to $18.9 million for second quarter 2011

China Botanic Pharmaceutical Inc. (AMEX: CBP) (formerly Renhuang Pharmaceutical, Inc.) ("China Botanic" or the "Company"), a developer, manufacturer and distributor of botanical products, bio-pharmaceuticals and traditional Chinese medicines ("TCM") in China, today announced financial results for the three months ended April 30, 2011.

Second-Quarter 2011 Highlights and Recent Events

• Net sales increased 56.1% year-over-year to $18.9 million
• Gross profit increased 79.3% to $11.1 million from $6.2 million in the second quarter of fiscal year 2010
• Gross margin increased to 59.0% from 51.4% a year ago
• Net income rose 107.1% to $7.1 million or $0.19 per diluted share
• The Company's wholly owned subsidiary, Harbin Renhuang Pharmaceutical Co., Ltd received official approval to produce water-based mixtures.
• The Company successfully completed research of the chromatographic fingerprints for its Siberian Ginseng series products, utilizing a state-of-the-art analysis method which identifies the chemical characteristics of the designated medicine.
• The Company successfully completed a feasibility study to analyze the benefits of using straw pellets, a renewable bio-fuel, for its production operations and plans to put the new fuel into use by October, 2011.

"During the second fiscal quarter of 2011, we continued to benefit from our strong market position, customer loyalty and well-accepted increases in selling prices, resulting in nearly 56% year-over-year growth in revenue and more than 100% year-over-year growth in net income. We are pleased to report strong financial performance during the quarter and remain optimistic about the future," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "In addition, our four new products, namely Qing Re Jie Du Oral Liquid, Compound Schizandra Tablets, Ginseng and Venison Extract, and Badger Oil have been well accepted in the market and contributed 19% of the quarter's total sales revenue up from 15% in the first fiscal quarter of 2011."

Second-Quarter Fiscal 2011 Results

During the three months ended April 30, 2011, net sales increased 56.1% to $18.9 million, from $12.1 million during the same period in 2010. The rise was mainly attributable to year-over-year increase in average selling prices of the Company's products and the growing market acceptance of the Company's new products introduced in the second half of 2010. Sales declined compared to the first quarter fiscal 2011 due to normal seasonality. April to August is typically the company's slowest period of the year.

Gross profit increased 79.3% to $11.1 million compared to $6.2 million in the second quarter of fiscal 2010. Gross margin increased to 59.0% as compared to 51.4% in the same period of 2010. The growth in gross profit was mainly driven by price increases across all of the Company's products, somewhat mitigated by modest increases in raw material prices.

Operating expenses for the second quarter of fiscal 2011 were $3.1 million, as compared to $2.8 million in the same period last year. Sales and distribution expenses rose to $1.5 million from $1.3 million a year ago. The spending increase reflected the Company's efforts to expand its distribution network, market share, and awareness of its premium quality products. General and administrative expenses decreased 12.6% to $0.9 million. Research and development expenses were $0.7 million, up from $0.6 million in the year ago period, reflecting the Company's continued commitment to build a strong pipeline of new products.

Operating income in the second quarter was $8.0 million, compared to $3.4 million in the second quarter of 2010. Operating margin increased year-over-year to 42.5% from 28.1%.

The Company incurred income tax expenses $1.0 million in the second quarter of fiscal 2011, compared to no taxes paid for the first quarter 2010, due to the 15% tax rate imposed effective January 1, 2011. For the second quarter ended April 30, 2011, net income increased 107.1% to $7.1 million, or $0.19 per diluted share, from $3.4 million, or $0.09 per diluted share for the same period a year ago.

Six Month Results

Total revenue for the six month period ended April 30, 2011 was $41.5 million, an increase of 42.0% from $29.2 million for the first six months of fiscal 2010. Gross profit in the first half of fiscal 2011 rose 59.0% to $25.0 million, representing a gross margin of 60.1% as compared to 53.7% in the first half of fiscal 2010. Operating income grew 82.6% year-over-year to $19.7 million. In the first six months of fiscal 2011, net income was $18.0 million or $0.48 per diluted share, up from $10.8 million or $0.29 per diluted share in the first six months of fiscal 2010.

Financial Condition

As of April 30, 2011, the Company had cash and cash equivalents of approximately $27.6 million and total current assets of approximately $54.6 million. As of April 30, 2011, China Botanic had working capital of approximately $42.4 million as compared to $47.1 million for the fiscal year ended October 31, 2010.  The Company had no long-term debt on its balance sheet as of April 30, 2011. Shareholders' equity stood at $90.0 million, compared with $69.8 million as of October 31, 2010. Net cash flow from operating activities for the six months ended April 30, 2011 was $16.1 million compared to $19.3 million for the same period of 2010.

Business Outlook

"We anticipate continued growth in revenue and net income in the coming years driven by our established market presence, strong customer loyalty, ability to introduce new market-oriented products and aggressive sales and marketing efforts. We are confident that we will achieve our goals for fiscal 2011 and meet our financial guidance for revenue in the range of $70.6 million to $71.7 million and our raised after-tax net income guidance of approximately $25.5 million," said Mr. Li. "The recent government levied price controls in the TCM industry do not result in a margin squeeze for China Botanic as our product prices are significantly lower than the government price ceilings and the prices of our competitors. We enjoy a strong pricing advantage even after our recent price increases and our customers are satisfied with the high-quality of our products. In addition, our research team continues to work on several other promising products and we hope to announce new product introductions in the coming quarters, which will strengthen our market position and enhance our longer term growth."