China Health Labs & Diagnostics Ltd. Announces Financial
Results for the Third Quarter Ended September 30, 2012
TSX-V: CHO
OTCQX: CHLBF
www.chinahealthlabs.com
TORONTO,
Nov. 30, 2012 /CNW/ - China Health
Labs & Diagnostics Ltd. ("China Health" or the "Company")
(TSXV:CHO; OTCQX:CHLBF), is pleased to announce its financial
results for the third quarter ended September 30, 2012.
China Health will be hosting an investor
conference call on Tuesday, December 4,
2012. This conference call was originally scheduled
for an earlier date but was rescheduled to allow the Company's
management and auditors to complete their review of the appropriate
accounting treatment and IFRS interpretations relating to a sales
arrangement that the Company entered into during the third quarter
and involved five pieces of diagnostic equipment. This review
has been completed and the notes to the financial statements and
the related MD&A for the third quarter contain the relevant
disclosure.
In the three and nine months ended September 30, 2012, the Company has maintained
its position as a leading provider of total solutions for medical
diagnostics and food safety testing in China, and made progress in installing its
total lab solutions and delivering its proprietary products to new
provinces and regions in China and
expects steady growth in the near future.
Highlights from the three and nine months ended
September 30, 2012 includes:
- Gross margins increased by 32% to $5.630
million and by 22% to $13.962
million for the three and nine months ended September 30, 2012, respectively, compared to the
same period last year.
- Profit increased by 48% to $2.357
million and revenue decreased by 11% to $9.623 million for the three months ended
September 30, 2012 compared to the
same period last year.
- Profit decreased by 15% to $3.837
million and revenue increased by 1% to $25.867 million for the nine months ended
September 30, 2012 compared to the
same period last year.
- Increased installed base of BK Clinlabs to 911 rural hospitals
in five new provinces/regions in 2012 and agreements to install an
additional 89 BK Clinlabs to increase the total to 1,000 locations
in 10 provinces, compared to 817 locations in four locations at the
beginning of 2012.
- Increased sales in the urban hospital and labs sector by 25% to
$16.076 million, mostly from
increased sales of reagents and consumables, for the nine months
ended September 30, 2012.
The Company's first and second quarter revenue
and profit are generally the lowest as a percentage of annual
revenue, while the third and fourth quarters tend to comprise the
largest percentage of revenue and profit, due to the seasonality of
the Company's customers' purchasing and budgeting processes. For
example, revenue and profit for the six months ended June 30, 2011 accounted for approximately 33% of
total revenue and profit, respectively for the fiscal year 2011,
while the fourth quarter accounted for approximately 43% of total
revenue and 48% of profit for the year ended December 31, 2011. The Company expects that the
majority of fiscal year 2012 revenue and profit will be generated
in the third and fourth quarters, similar to the seasonality in the
prior year.
"The Company continued to show strong financial
results and growth of its total lab solutions business into new
provinces and regions in China.
Since the beginning of 2012, the Company has installed or
contracted its BK Clinlabs in six new provinces and regions, which
shows significant progress of our marketing team as we were only in
four provinces prior to 2012," said Wilson
Yao, CEO of China Health. "The time and resource spent to
date showed significant results as the Company continues to grow
and gain higher margin on its sales. This shows the value it
creates to its existing customers and also the Company's ability to
develop new technology and products to suit the evolving changes in
the healthcare industry in China.
Based on our progress to date, we are confident that we can achieve
our operating goals and generate another year of growth in revenue
and profit in 2012."
Revenue for the three and nine months ended
September 30, 2012 decreased by 11%
to $9.623 million and increased by 1%
to $25.867 million, respectively,
compared to the same periods last year. For the nine months ended
September 30, 2012, the Company
installed 94 BK Clinlabs in five new provinces and regions and
delivered 63 Rural Mobile Labs. In the comparable period last year,
the Company installed 587 BK Clinlabs in Jilin Province. Although a greater number of
BK Clinlabs were installed in prior comparable period, the sales
price per BK Clinlabs has increased due to more advanced equipment
and products sold as part of the total lab solutions installed. The
average sales price for the BK Clinlabs installed and Rural Mobile
Labs delivered in the nine months ended September 30, 2012 was approximately $0.021 million (RMB
137,000) per lab compared to the average sales price in the
nine months ended September 30, 2011
of approximately $0.011 million
(RMB 70,000) per lab. Further,
in the current fiscal year, the Company has installed 52 BK
Clinlabs under a new business model whereby the Company will
install the BK Clinlabs in return for a five-year contract to
provide testing reagents and maintenance services. The BK Clinlabs
under this model has an average sales price of approximately
$0.009 million (RMB 58,000) per lab; however, under this model,
the customers are required to make minimum purchases of reagents
and consumable over the five year term of the contract, which is
expected to generate revenue of a minimum of $3.052 million (RMB 19.5
million). Under the new business model, the Company will
generate steady growth in future sales as the averages sales per
lab under this model is approximately $0.058
million (RMB 375,000) over the
five year term.
For the nine months ended September 30, 2012, the decrease in revenue for
the POCT solutions and products was offset by an increase in
revenue of 25% for the large urban hospital and labs sector.
Revenue from POCT solutions and products is generally from large
sales orders that are not placed evenly throughout the year.
The Company expects revenue from POCT solutions and products to
increase in fiscal 2012, compared to 2011. In fiscal 2011,
revenue from large urban hospitals decreased by 6%, compared to the
overall growth in revenue of 35% in fiscal 2011. In fiscal
2012, the Company expects the large urban sector to grow due to
expected increased sales in recurring revenue of reagents and
consumables.
Gross margin for the three and nine months ended
September 30, 2012 increased by 32%
to $5.630 million and increased by
22% to $13.962 million, respectively,
compared to the same periods last year. For the nine months ended
September 30, 2012, gross margins
were improved due to higher margin sales, specifically in the BK
Clinlabs and POCT solution and product offerings, in the current
period. Gross margin as a percentage of revenue for the three and
nine months ended September 30, 2012
were 59% and 54%, compared to 40% and 45%, respectively for the
same periods last year.
The increase in gross margin as a percentage of
revenue was due to higher margins for BK Clinlabs and POCT
solutions and products sold in the current nine month period as
compared to last year as well as higher margin diagnostic lab
equipment sold to large urban hospitals. On average, the gross
margin as a percentage of revenues for BK Clinlabs installed,
including the Rural Mobile Labs in the nine months ended
September 30, 2012 was approximately
23% higher as compared to BK Clinlabs completed in the same period
last year. The gross margin as a percentage of revenue on POCT was
also approximately 26% higher on sales of solutions and products in
the current nine month period as compared to the same period last
year. During the three months ended September 30, 2012, the Company entered into a
contract where it placed diagnostic lab equipments in a large
hospital in Shandong in return for
a monthly lease payment over a term of 10 years. The value of the
contract for the 10 year lease is a minimum of approximately
$5.1 million (RMB 32.4 million), with gross margin of
approximately over 75%.
The Company expects the gross margin for fiscal
year 2012 to be consistent with the gross margin for fiscal year
2011 of 44%, but expects gross margin to vary on a quarterly basis
due to changes in sales mix.
Administrative expenses for the three and nine
months ended September 30, 2012
increased by 55% to $2.559 million
and by 29% to $6.335 million,
respectively, compared to the same periods last year. The principal
reason for the increase was higher overhead costs including new
employees and expanded facilities to support a growing customer
base and sales. Administrative expenses as a percentage of revenue
increased to 27% for the three months ended September 30, 2012, compared to 15% for the same
period last year and to 24% for the nine months ended September 30, 2012, compared to 19% for the same
period last year. While administrative expenses have increased
significantly in the current fiscal period as compared to the prior
fiscal period, the Company believes the expenses are necessary in
order to gain a competitive advantage by growing its operations and
customer base and by expanding to new provinces and regions. Costs
are spent to hire and train new employees, set up base in new areas
where the Company will have its total lab solutions installed
and/or delivered and general costs to support a growing
operation.
Share-based compensation for the three and nine
months ended September 30, 2012 was
$0.037 million and $0.164 million, respectively, compared with
$0.190 million and $0.601 million, respectively, for the same
periods last year.
The share-based compensation expense is a result
of stock options that vested during the period for stock options
granted to employees in April 2011
and to an officer in September 2011.
The fair value of options granted on April
14, 2011 was estimated on date of grant at $0.669 million and of options granted on
September 1, 2011 was estimated on
date of grant at $0.048 million using
the Black-Scholes option-pricing model. The fair values of options
are expensed over the vesting period ending on April 14, 2014 and September 1, 2014, respectively. There were
no stock options granted during the nine months ended September 30, 2012.
Research and development ("R&D") expenditure
for the three and nine months ended September 30, 2012 increased by 427% to
$0.585 million and by 160% to
$1.174 million, respectively,
compared to the same periods last year. Research and
development expenses as a percentage of revenue was approximately
6% and 5% for the three and nine months ended September 30, 2012, respectively, compared to 1%
and 2%, respectively for the same periods last year.
Research and development expenses are higher for
the fiscal period 2012 as compared to prior fiscal period as the
Company invests its resources in developing new products and also
in improving current products to meet an ever evolving healthcare
market in China. Research and
development is focused on developing new diagnostics products and
solutions based on market conditions and demand, including a full
range of POCT solutions and improving the LMS system. The Company
is accelerating product development to maintain its competitive
advantages in the areas where it has developed unique proprietary
solutions. Since the Company often collaborates with its customers
to develop solutions, it is able to keep costs under control while
developing products tailor made to customer needs. In March 2012, the Company launched four new
products: Type C POCT Diagnostic Field Lab, Rural Emergency Rescue
Medical Total Solution, BK Early Diagnosis System for
Cardio-Cerebral Vascular Disease and BK Food Safety Rapid Test
System. These new products were developed to meet specific
medical diagnostic and food testing needs of customers and based on
the Company's knowledge of Chinese government policy and budget
priorities. The margins on new products launched are generally
higher than the existing products.
Selling expenses for the three and nine months
ended September 30, 2012 increased by
31% to $0.827 million and by 87% to
$2.396 million, respectively,
compared to the same periods last year. Selling expenses as a
percentage of revenue was 9% for the three and nine months ended
September 30, 2012, compared to 6%
and 5%, respectively for the same periods last year. Selling
expenses are expected to be higher in 2012 as compared to 2011 due
to plans to expand the rural lab solution business to additional
Chinese provinces and the food safety business to additional
Chinese cities. Selling and marketing expenditures include salaries
and benefits, travel, promotion and marketing and advertising
costs.
Current income tax expense for the three months
ended September 30, 2012 was a
recovery of $0.235 million, compared
to income tax of $0.142 million for
the same period last year. Current income tax for the nine months
ended September 30, 2012 was
$0.617 million, compared to
$0.432 million for the same period
last year.
The recovery of $0.235
million for the three months ended September 30, 2012 was mostly due to income tax
refunded during the period after completion of the Company's annual
tax audit in China and losses
recorded at some of the Company's PRC subsidiaries. The increase in
income taxes during the nine months ended September 30, 2012 is mainly due to an overall
increase in taxable income being earned by the Company's PRC
subsidiaries subject to the 25% tax rate, in comparison to the
taxable income earned by the Company's PRC subsidiaries which are
subject to preferential tax rates.
The Company's PRC subsidiaries are subject to
income taxes at a statutory tax rate of 25% in China. Two of the Company's PRC
subsidiaries have been granted preferential tax rates. One
subsidiary is subject to PRC income taxes at 1% of gross sales and
another PRC subsidiary is qualified for income tax exemption during
the first two years of profitable operations followed by a 50% tax
reduction in the next three years for engaging in R&D
activities in a particular economic zone. The subsidiary
received income tax exemptions in the years 2008 and 2009 with the
years 2010 to 2012 being taxed at the 50% reduced tax rate.
Operating profit for the three and nine months
ended September 30, 2012 increased by
5% to $2.023 million and decreased by
9% to $4.489 million, respectively,
compared to the same periods last year. Profit for the three and
nine months ended September 30, 2012
increased by 48% to $2.357 million
and decreased by 9% to $3.837
million, respectively, compared to the same periods last
year. Profit includes operating profit, interest expense,
interest income and foreign exchange gain/loss. Profit for the
three and nine months ended September 30,
2012 represents 24% and 15% of revenue, respectively
compared to 15% and 16% of revenue, respectively for the same
periods last year.
During the nine months ended September 30, 2012, operating profit and profit
decreased due to increased operating expenses. As the Company grows
and continues its effort to expand its total lab solution
businesses to other provinces and cities, expenses are expected to
increase as a percentage of revenue.
Basic and fully diluted EPS was $0.04 and $0.06 for
the three and nine months ended September
30, 2012, respectively, compared to $0.02 and $0.06 for
the three and nine months ended September
30, 2011, respectively. EPS was higher during the three
months ended September 30, 2012 as
compared to the same period last year due to higher profit and
remained the same for the nine months ended September 30, 2012 as compared to prior
period.
The average number of basic ordinary shares
outstanding for the nine months ended September 30, 2012 was 65,606,686 (fully diluted
65,606,816), compared to 65,261,986 (fully diluted 67,287,479)
average shares outstanding for the nine months ended September 30, 2011.
Cash totaled $2.850
million as at September 30,
2012, compared with $5.661
million of cash and short-term investments as of
December 31, 2011. The
Company's working capital as of September
30, 2012 was $26.116 million,
compared with a $26.538 million
working capital as of December 31,
2011. Working capital decreased by $0.422 million due to the increase in total
current liabilities of $1.170 million
offset by the increase in total current assets of $0.748 million.
The Company is well positioned to expand its
business for rural total lab solutions, POCT lab solutions and food
safety lab solutions. However, the Company may need to access
additional debt or equity funding if it seeks to accelerate its
growth, if it enters into an agreement for a large number of total
lab solutions or if it pursues suitable acquisition
opportunities.
Outlook & Growth Strategy
The Company believes that for the fiscal year
2012 it can continue its strong growth in revenue and profits and
build on the leading position it has established in China in providing total lab solutions for
rural hospitals and clinics, POCT solutions for military and
emergency services, and food safety lab solutions, based on the
size and growth of the Chinese market for medical diagnostics and
food safety, the government support for the market and the
Company's proprietary products and services and customer
relationships.
In 2012, China Health intends to expand its
business by focusing its efforts on expanding its sales network to
additional Chinese provinces and cities in the areas where it has
proprietary products and limited competition. Going forward, China
Health expects revenue growth from its total lab solutions business
lines to continue to be stronger than growth from its traditional
business with large urban hospitals, and to comprise a higher
percentage of revenue.
China Health will be hosting an investor
conference call on Tuesday, December 4,
2012 at 10:00 am (Eastern
Time).
The purpose of this conference call will be to
provide investors with an update on the third quarter ended
September 30, 2012 results of the
Company. Representatives of China Health on the conference call
will be:
Mr. Shiping (Wilson) Yao,
President and Chief Executive Officer
Ms. Judyanna Chen, Chief Financial Officer
Mr. Kim Oishi, Member of the Board
of Directors
Mr. Chao Zhang, Vice President,
Finance
Following the update, a question and answer session will be
held. To participate, the time and call-in instructions are as
follows:
DATE: |
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Tuesday, December 4, 2012 |
TIME: |
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10:00 am, Eastern Time |
Participant Dial-In Number(s): |
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North America Toll-Free Dial-In Number: |
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1 (888) 231-8191 |
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For Toronto and International Callers: |
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1 (647) 427-7450 |
A Taped Replay will be available from
1:00 pm Eastern Time on December 4, 2012 to 11:59
pm Eastern Time on December 18,
2012.
Taped Replay Toll Free Number:
1.855.859.2056
Taped Replay Local Dial-in Numbers:
(778) 371-8506 |
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(416) 849-0833 |
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(514) 807-9274 |
(403) 451-9481 |
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(613) 667-0035 |
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(902) 455-3955 |
Taped Replay Password: 74573565
About China Health Labs & Diagnostics
Ltd.
China Health, operating in China as the Biochem Group, is a leading
diagnostic lab solution provider for the public healthcare industry
in China. The Company develops and
sells Biochem Group branded and third-party medical diagnostic
products and services to diagnostic facilities in China. Customers include large urban
hospitals, rural hospitals, Chinese military and rescue operations,
the Beijing government and
third-party distributors.
In 2011, China Health had revenue of
approximately $45.6 million, and
intends to expand its business by focusing its efforts on expanding
its sales network in three areas where it provides proprietary
solutions, has limited competition and that are supported by
Chinese government policy and budgets: BK Clinlab total lab
solutions for rural hospitals and clinics, POCT solutions for
military and emergency rescue services, and food safety solutions
for large cities in China.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
FORWARD LOOKING INFORMATION
This news release contains forward-looking
statements and information that are based on the beliefs of
management and reflect China Health's current expectations.
When used in this news release, the words "estimate", "project",
"belief", "anticipate", "intend", "expect", "plan", "predict",
"may" or "should" and the negative of these words or such
variations thereon or comparable terminology are intended to
identify forward-looking statements and information. The
forward-looking statements and information in this news release
includes information relating to steady growth in the near future;
similar seasonality effects as in the past; the achievement of
operating goals and another year of growth in revenue and profit in
2012; generating steady growth in future sales under the new
business model for BK Clinlabs; an increase in revenue from POCT
solutions and products and from recurring revenue of reagents and
consumables from the large urban sector; the gross margin for 2012
to be consistent with the gross margin for 2011, but to vary on a
quarterly basis; an increase in selling expenses due to plans to
expand the rural lab solution business to additional Chinese
provinces and the food safety business to additional Chinese
cities; an increase in expenses as a percentage of revenue as the
Company expands its total lab solution businesses, the need to
access additional debt or equity funding if the Company seeks to
accelerate its growth, if it enters into an agreement for a large
number of total lab solutions or if it pursues suitable acquisition
opportunities; the continuation of the Company's strong growth in
revenue and profits and the building of its leading position in
China in providing total lab
solutions for rural hospitals and clinics, POCT solutions for
military and emergency services, and food safety lab solutions;
expansion of the Company's business by focusing on expanding its
sales network to additional Chinese provinces and cities in the
areas where it has proprietary products and limited competition;
and the revenue growth from the Company's total lab solutions
business lines to continue to be stronger than growth from its
traditional business with large urban hospitals, and to comprise a
higher percentage of revenue. The forward-looking information
is based on certain assumptions, which could change materially in
the future, including the assumption that the Company will achieve
its operating goals, that the Company will deliver products as
contracted and able to collect and recognize revenue, that actual
revenue, expenses, gross margins and profits with certain business
lines or the business as a whole will substantially meet budget or
management's expectations, that the Company will continue with its
growth strategy including the expansion of businesses, that
additional debt or equity funding required to accelerate growth,
and that the Company's products and services, operations, market,
marketing plans and strategies, competitive conditions, future
developments and proprietary protections continue as
projected. Such statements and information reflect the
current view of China Health with respect to risks and
uncertainties that may cause actual results to differ materially
from those contemplated in those forward-looking statements and
information. By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements, or
other future events, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
risk that the Company may not proceed or alter its growth strategy,
the Company may not be able to obtain any required financing to
accelerate growth on acceptable terms or at all, gross margins,
revenue and profits may not continue to increase or increase less
than expected, costs and expenses may increase greater than
expected, and the Company may not be able to expand its business as
expected through its sales network in any of the areas in which it
has proprietary products, limited competition and strong government
support. These and other risks are further described under
"Risk Factors" in the Company's year ended December 31, 2011 management's discussion and
analysis dated April 16, 2012, which
is available on SEDAR and may be accessed at www.sedar.com.
When relying on China Health's forward-looking statements and
information to make decisions, investors and others should
carefully consider the foregoing factors and other uncertainties
and potential events. China Health has assumed a certain
progression, which may not be realized. It has also assumed
that the material factors referred to above will not cause such
forward-looking statements and information to differ materially
from actual results or events. However, the list of these
factors is not exhaustive and is subject to change and there can be
no assurance that such assumptions will reflect the actual outcome
of such items or factors.
THE FORWARD-LOOKING INFORMATION CONTAINED IN
THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF CHINA HEALTH AS OF THE DATE OF THIS NEWS
RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH
DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON
FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS
INFORMATION AS OF ANY OTHER DATE. WHILE CHINA HEALTH MAY ELECT TO, IT DOES NOT
UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT
AS REQUIRED IN ACCORDANCE WITH APPLICABLE LAWS.
SOURCE CHINA HEALTH LABS &
DIAGNOSTICS