TSX-V: CHO
TORONTO,
May 31, 2013 /CNW/ - China Health
Labs & Diagnostics Ltd. ("China Health" or the "Company")
(TSXV:CHO), is pleased to announce the financial results for the
three months ended March 31,
2013.
Highlights for the quarter ended March 31, 2013 include:
- Revenue decreased to $5.350
million for the quarter ended March
31, 2013 compared to $7.883
million for the quarter ended March
31, 2012 and profit decreased by 282% to a loss of
$1.405 million.
- Gross margins as a percentage of revenue increased to 56% for
the quarter ended March 31, 2013 from
53% for the quarter ended March 31,
2012.
- Earnings per share decreased to a loss of $0.01 per basic and diluted share for the quarter
ended March 31, 2013 compared to
earnings per share of $0.01 for the
quarter ended March 31, 2012.
- Increased installed base of BK Clinlabs to 932 rural hospitals
by installing an additional 4 BK Clinlabs in Jilin Province in 2013. The Company
concluded agreements to install an additional 79 BK Clinlabs to
increase the total to 1,011 locations in twelve provinces/ regions
to date, compared to 817 locations in four provinces/ regions at
the beginning of 2012.
Sales seasonality in China for almost all industries is impacted by
Chinese New Year, which is the major
national holiday in China, and
depending on the Chinese lunar calendar, will generally start in
the last week of January or first two weeks of February. During
Chinese New Year, a large percentage
of factories are shut down and most sales and service activities
are put on hold. Further, the Chinese central government generally
completes and releases their annual budgets after Chinese New Year in March of each year. During
the first quarter of the year, most of the Company's revenue from
the Chinese central government typically is from large sales orders
from the previous year that are being completed, or from smaller
sales orders to fill urgent needs. Most of the Company's
larger sales orders are confirmed after the annual Chinese
government budgets are set and released after March of each
year.
As a result of the above factors, the Company's
first quarter revenue is generally the lowest as a percentage of
annual revenue, and the third and fourth quarters, when the Company
is working to deliver sales orders confirmed after the budgeting
process, tend to comprise the largest percentage of revenue. For an
example, revenue for the quarter ended March
31, 2012 accounted for approximately 17% of total revenue
and 11% of profit, or $45.781 million
and $6.829 million respectively,
while the fourth quarter accounted for approximately 43% of total
revenue and 44% of profit for the year ended December 31, 2012. During the fiscal year 2012,
the 18th National Congress of the Communist Party of China was held during November 2012, and during the first quarter of
fiscal year 2013, the 12th NPC Standing Committee and the 12th
Chinese People's Political Consultative Conference were held, and
these meetings involved a change in leadership at all levels. As
the Company's total lab solution businesses are primarily sold to
the PRC government and related entities, the change in leadership
has had an effect on the Company's business as many administrative
processes and decisions were delayed. The Company expects a similar
seasonality of revenue and profit in the current year and that the
Company will resume growth during the fiscal year 2013. For further
information on seasonality, please see the Company's financial
statements and MD&A filed on SEDAR.
"The Company has continued to expand its
business to new provinces and regions in China in our rural hospitals and clinics
sector," said Wilson Yao, CEO of
China Health. "We are pleased to enter into contracts with the
Inner Mongolia Autonomous Region and with Yunnan Province to install a total of 11 BK
Clinlabs in health centres. The Company expects to expand in these
areas once the local customers recognize the overall benefits of
the BK Clinlabs to operational revenue of the health centres on the
expectation that the BK Clinlabs will improve traffic and health
procedures".
Revenue for the quarter ended March 31, 2013 decreased to $5.350 million, compared to $7.883 million for the quarter ended March 31, 2012. The decrease in revenue is
largely due to decreased sales in the rural hospital and clinics
business sector, with decreased sales of approximately $2.184 million, with 49 BK Clinlabs and 63 Rural
Mobile Labs installed during the quarter ended March 31, 2012 and only 4 BK Clinlabs installed
during the quarter ended March 31,
2013. Revenue from POCT solutions and products and food
safety labs are generally from large sales orders that are not
placed evenly throughout the year.
Gross margin for the quarter ended March 31, 2013 decreased by 28% to $3.003 million compared to $4.147 million for the quarter ended March 31, 2012. Gross margins decreased due to
slower sales during the quarter ended March
31, 2013. Gross margin as a percentage of revenue for the
quarter ended March 31, 2013 was 56%,
compared to 53% for the quarter ended March
31, 2012. The increase in gross margin as a percentage
of revenue was due to higher margins for diagnostic lab equipment
sold to large urban hospitals sold in the quarter ended
March 31, 2013 as compared to the
quarter ended March 31, 2012.
Administrative expenses for the quarter ended
March 31, 2013 increased by 54% to
$2.996 million, compared to
$1.940 million for the quarter ended
March 31, 2012. 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 56% for the quarter ended March 31,
2013, in comparison to 25% for the quarter ended
March 31, 2012. While administrative
expenses have increased significantly as compared to the prior
comparative 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,
which involve hiring and training new employees, setting up
operations in new areas where the Company will have its total lab
solutions installed and/or delivered, and incurring general costs
to support the Company's expansion.
Research and development ("R&D") expenditure
for the quarter ended March 31, 2013
increased by 127% to $0.589 million,
compared to $0.259 million for the
quarter ended March 31, 2012.
Research and development expenses as a percentage of revenue was
approximately 11% for the quarter ended March 31, 2013, compared to 3% for the quarter
ended March 31, 2012. Research and
development expenses are higher 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 expense are
expected to continue to increase as the Company seeks to
incorporate new technology into its POCT solutions, which will take
several years to develop and go to market.
Selling expenses for the quarter ended
March 31, 2013 increased by 32% to
$0.982 million, compared to
$0.745 million for the quarter ended
March 31, 2012. Selling expenses as a
percentage of revenue was 18% for the quarter ended March 31, 2013, compared to 9% for the quarter
ended March 31, 2012. Selling
expenses is higher due to expanding 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 quarter ended
March 31, 2013 was $0.125 million, compared to $0.371 million for the quarter ended March 31, 2012. The decrease in income taxes is
due to an overall decrease in taxable income.
Operating profit for the quarter ended
March 31, 2013 decreased by 229% to a
loss of $1.563 million, compared to a
profit of $1.207 million for the
quarter ended March 31, 2012. Profit
for the quarter ended March 31, 2013
decreased by 282% to a loss of $1.405
million, compared to a profit of $0.772 million for the quarter ended March 31, 2012. Profit includes operating profit,
interest expense, interest income and foreign exchange gain/loss.
Loss for the quarter ended March 31,
2013 represents 26% of revenue, compared to profit of 10% of
revenue for the quarter ended March 31,
2012. The decrease in operating profit and profit for the
quarter ended March 31, 2013 is due
to lower revenue and higher expenses spent in the period to expand
the total lab solution businesses.
Basic and fully diluted EPS was a loss of
$0.01 for the quarter ended
March 31, 2013, compared to earnings
per share of $0.01 for the quarter
ended March 31, 2012. EPS was lower
for the fiscal year 2012 as compared to the fiscal year 2011 due to
lower profit. The average number of basic ordinary shares
outstanding for the quarter ended March 31,
2013 was 65,606,686 (fully diluted 65,606,686), compared to
65,606,686 (fully diluted 65,607,087) average shares outstanding
for the quarter ended March 31,
2012.
Cash totaled $6.924
million as at March 31, 2013,
compared with $10.817 million as of
December 31, 2012. The
Company's working capital as of March 31,
2013 was $28.703 million,
compared with a $29.608 million
working capital as of December 31,
2012. Working capital decreased by $0.905 million, or 3%, mainly due to $3.893 million decrease in cash, $0.307 million increase in deferred revenue,
$0.232 million increase in amounts
due to related party, which was offset by $1.499 million increase in inventories,
$0.962 million increase in deposits
and prepayments, $0.328 million
increase in deferred tax asset and $0.703
million decrease in trade payables and accrued
liabilities.
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
2013 it can resume 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 2013, 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 Friday, May
31st, 2013 at 10:00 am
(Eastern Time).
The purpose of this conference call will be to
provide investors with an update on quarter ended March 31, 2013 results of the Company.
Representatives of China Health on the conference call will be:
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Mr. Shiping (Wilson) Yao, President and Chief Executive
Officer
Ms. Judyanna Chen, Chief Financial Officer
Mr. Chao Zhang, Vice President, Finance (Chief Financial Officer
effective May 31, 2013)
Mr. Kim Oishi, Member of the Board of Directors |
Following the update, a question and answer
session will be held. To participate, the dial-in
instructions are as follows:
DATE: |
Friday, May 31, 2013 |
TIME: |
10:00am, Eastern Time |
Participant Dial-In Number(s):
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North America Toll-Free Dial-In Number: |
1 (888) 231-8191 |
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For Toronto and International Callers: |
1 (647) 427-7450 |
A Taped Replay will be available from
1:00 pm Eastern Time on May 31, 2013, to 11:59 pm
Eastern Time on June 14,
2013.
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: 86571508
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 2012, China Health had revenue of
approximately $45.8 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 the Company's resumption of
growth, the Company's future growth prospects and expansion plans
including hiring and training new employees and setting up
operations in new areas; an increase in R&D expenses as the
Company seeks to incorporate new technology into its product
development and taking several years to go to market if at all; 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; resume growth in revenues 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
revenues. The forward-looking information is based on certain
assumptions, which could change materially in the future, including
the assumption 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's future growth prospects may not be as
expected, the Company may not proceed or alter its growth strategy,
the Company's R&D expenses may increase higher than expected
and such R&D may not result in product development that
will successfully enter the market if at all, the Company may not
be able to obtain any required financing to accelerate growth on
acceptable terms or at all, gross margins, revenues 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
management's discussion and analysis dated April 30, 2013, 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