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Mindray Medical International Limited (MR)

Q4 2012 Earnings Call

February 26, 2013, 08:00 am ET


Cathy Gao - Manager, IR

Jie Liu - COO

Alex Lung - CFO


Ingrid Yin - Oppenheimer

Jessica Le - CICC

Richard Yeh - Citigroup

Wei Du - Goldman Sachs

Jinsong Du - Credit Suisse

Gideon Lo - Nomura

Sean Wu - JP Morgan

David Turkaly – JMP Securities



Good morning, everyone. Thank you for standing by and welcome to Mindray’s Fourth Quarter and Full-Year 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks we will conduct a question-and-answer session. Today's conference is being recorded for relay purposes. If you have any objections you may disconnect at this time.

I would now like to hand the call over to your host for today's conference, Ms. Cathy Gao, Mindray's Manager of Investor Relations. Please proceed Ms. Gao.

Cathy Gao

Thank you. Hi everyone Welcome to Mindray's 2012 fourth quarter and full-year earnings conference call. We are pleased we released our financial results last night and they are now available on the company's website and the Newswire services. There will also be an archived webcast of this conference call on our Investor Relations website.

Joining today's call are, Mr. Li Xiting, our President and the CEO; Mr. Jie Liu, our Chief Operating Officer; Mr. Minghe Cheng, our Chief Strategic Officer; Mr. Alex Lung, our Chief Financial Officer and Ms. May Li, our Deputy Chief Financial Officer.

In a moment, Mr. Jie Liu will provide an update of the company's operational performance. Mr. Alex Lung will review the detailed financial results as well as the company's outlook for 2013. After that we will be happy to take your questions.

Before we continue, please note that this call will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements made and the views expressed here which are not historical facts are forward-looking statements. You should be cautioned that forward-looking statements are only predictions and may involve inherent risks and uncertainties. As such, our actual results may be materially different from the statements and the views expressed here today due to a variety of factors.

A number of such risks and uncertainties, and the factors are outlined in our public filings with the SEC. In particular, please refer to risk factors beginning on Page 5 of our Annual Report on Form 20-F. Any projections made here today are based only on limited information currently available to us, and are subject to change. Mindray does not undertake any obligations to update any forward-looking statements, except as required under applicable law.

I will now turn the call over to Mindray’s COO, Mr. Jie Liu.

Jie Liu

Thank you, Cathy. Good morning and good evening ladies and gentlemen. Thank you for joining us today. 2012 was another significant year for Mindray. We surpassed $1 billion in annual sales for the first time and continue to deliver solid financial results. We recorded strong year-over-year revenue growth of 20.4% and $1.06 billion for 2012, higher than the sales target of at least 18% that we set out earlier.

Excluding the tax benefits, we also exceeded our non-GAAP net income growth guidance of at least 15% from 18.4% growth. In term of profitability, despite a rising cost in China, our full year gross margin has improved by 140 basis points in 2012 compared to the year before. Our full-year non-GAAP operating margin has also remained largely stable at 21.1% compared to 21.2% in 2011 consistent with what we have been communicating. In addition, we delivered a 59.3% increase in net operating cash inflow for 2012 as we continue to optimize our operations and improve our working capital.

Last year, China and the emerging markets were again the key drivers for our company growth. Each achieved over 20% year-over-year growth and together they represented close to 80% of our total revenues. If you recall, we have significantly strengthened our sales distribution and service capability in those regions over the past couple of years. A key account management team, together with direct servicing platform was formed to serve the large accounts and we have further [eased] our overall customer level.

We also installed the CRM system in major countries to better manage our selling process. Our growth profile in those regions reflects the success of our investment strategies. We also made in-roads in development markets as we continue to build our brand by introducing more products in increasing direct sales.

In 2012, we continued to move up the value chain and then launched several first-generation high end products into the markets, particularly in the IVD area. As a result the IVD segment achieved 28.7% year-over-year revenue growth. We have also successfully ramped up our reagent sales which had higher margin and contributed 35.3% of our overall IVD sales, up from 29.9% in 2011.

To improve our R&D efficiency, we launched the medical product innovation project last year with a focus on speed to market and the product lifecycle management. We made our product development target launching 10 new products into the market. This year in 2013 we expect to introduce another seven to 10 new products.

We also made four more acquisitions in China over the past year together with deals we did in 2011 we have completed eight acquisitions in the last two years. Some of this transaction allowed us temp into new growth areas such as endoscope and orthopedics. The integration of our prior acquisition are also well on track. Going forward, we plan to have more acquisitions in order to further space our company technology and product offering. Although, we are pleased with our revenue milestones and other achievements in 2012 and we want to thank our employees for their hardworking in making this happen.

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