TORONTO, Aug. 30, 2011 /CNW/ -- TSX-V: CHO OTCQX: CHLBF
www.chinahealthlabs.com TORONTO, Aug. 30, 2011 /CNW/ - China Health
Labs & Diagnostics Ltd. ("China Health" or the "Company")
(TSXV:CHO; OTCQX:CHLBF), is pleased to announce the financial
results for the three and six months ended June 30, 2011. The
Company made progress in building on its position as a leading
provider of total solutions for medical diagnostics and food safety
testing in China. It achieved its business and financial goals
during the three and six months ended June 30, 2011. Highlights
include the following: -- Revenue grew by 67% to $8.095 million and
profit grew by 24% to $1.413 million for the three months ended
June 30, 2011, compared to the same period last year; -- Revenue
grew by 60% to $14.854 million and profit grew by 80% to $2.636
million for the six months ended June 30, 2011 compared to the same
period last year; -- Signed contract to install the BK Clinlab
total lab solution in 587 rural hospitals in Jilin Province, China,
with approximately 288 of the 587 BK Clinlab installations
completed as at June 30, 2011, and the remaining 299 BK Clinlab
completed subsequent to the second quarter; and -- Strong growth in
sales of point of care technology ("POCT") diagnostic solutions to
the Chinese military and government. "The Company continued to show
strong financial results during the first half of the year due to
the growth in sales of our BK Clinlab rural total lab solution and
our POCT diagnostic solutions," said Wilson Yao, CEO of China
Health. "The Company's investment in developing diagnostic total
solutions rather than individual products led to a strong first
half of the year with new customers, including China's National
Emergency Rescue Team for our POCT solutions and Jilin Province for
our BK Clinlab rural total lab solution. We believe that in 2011
our growth will be driven by revenues and profits from the
proprietary solutions we have developed." Revenue for the three and
six months ended June 30, 2011 increased by 67% to $8.095 million
and by 60% to $14.854 million, respectively, compared to the same
periods last year. The growth in revenues was largely due to
increased sales of POCT solutions to China's National Emergency
Rescue Team and the contract to install 587 BK Clinlabs in Jilin
Province, of which the Company had completed installation of
approximately 288 BK Clinlabs as at June 30, 2011. Increased sales
of testing equipment for food safety also contributed to the
growth. The Company expects that in 2011 revenue seasonality will
be similar to previous years with the first quarter revenues being
the smallest due to the budgeting process of the Company's
customers and Chinese New Year holidays, and the fourth quarter
revenues expected to be the largest due to deliveries of products
and services that have been ordered during the year. Revenues
for the three and six months ended June 30, 2010 accounted for
approximately 14% and 28%, respectively, of total revenues of
$33.705 million for the year ended December 31, 2010. Gross margin
for the three and six months ended June 30, 2011 increased by 30%
to $3.299 million and by 84% to $7.193 million respectively,
compared to the same periods last year mostly due to the increased
sales of POCT solutions and BK Clinlab rural total lab solutions.
Gross margin as percentage of revenues for the three and six months
ended June 30, 2011 was 41% and 48%, respectively compared to 52%
and 42% for the same periods last year. The variance in gross
margin as a percentage of revenues was due to changes in sales mix.
The higher gross margin as a percentage of revenues for the six
months ended June 30, 2011 was due to strong growth in high margin
POCT solution sales. In the second quarter of 2010 the Company
generated higher than average margin as a percentage of revenues
due to the sale of POCT diagnostic solutions. The Company expects
that gross margin as a percentage of revenues for the fiscal year
2011 will be comparable to fiscal year 2010, which was 39%.
Administrative expenditures (excluding depreciation, amortization
and share-based compensation) for the three and six months ended
June 30, 2011 increased by 94% to $1.227 million and by 95% to
$2.745 million, respectively, compared to the same periods last
year. The principal reasons for the increase were increased
overhead including employees and facilities to support a growing
customer base and sales, as well as additional costs associated
with being a public company since October 2010. Research and
development expenditures for the three and six months ended June
30, 2011 were $0.012 million and $0.340 million, respectively, a
decrease of 86% and an increase of 154% compared to the same
periods last year. In 2010, research and development focused on
POCT products for the Chinese military and improving the automation
for certain diagnostic equipment. In 2011, research and development
is focused on developing a full range of POCT solutions and
improving the Company's proprietary lab management system. The
Company is accelerating product development to maintain its
competitive advantages in the sectors 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
late 2010, the Company signed a three-year research and development
agreement with the Chinese Military Medical Equipment Research
Institute (the "Institute"), based in Tianjin, and with the Third
Military Medical University (the "University"), based in Chongqing.
The program has four main goals: to improve the "Type B" diagnostic
field lab; to develop a new mobile diagnostic lab to be contained
in a vehicle; to evaluate and improve reagents; and, to develop a
standard training program for military POCT field applications. The
budget for the three-year program is RMB 10 million ($1.51
million), with China Health providing RMB 2 million ($0.30 million)
and the Chinese military providing RMB 8 million ($1.21 million).
China Health is providing three research scientists and the core
technology. The R&D is being conducted in labs provided by the
Institute and the University in Tianjin and Chongqing, including
full science and technology teams. Under the agreement, China
Health will own all of the intellectual property resulting from the
R&D, including any improvements to the Company's existing
technology and solutions. In addition, China Health will own all
marketing and manufacturing rights and will have no restrictions on
China domestic and international markets. Selling expenses for the
three and six months ended June 30, 2011 decreased by 26% to $0.188
million and increased by 57% to $0.649 million, respectively,
compared to the same periods last year. Selling expense as a
percentage of revenues was 2% and 4% for the three and six months
ended June 30, 2011, compared to 5% for the same periods last year.
Selling expenses are expected to increase in subsequent quarters
due to plans to expand the rural lab solution business to
additional Chinese provinces and the food safety business to
additional Chinese cities. Share-based compensation for the three
and six months ended June 30, 2011 was $0.223 million and $0.411
million, respectively, compared with $Nil for the comparable
periods last year. The share-based compensation expense is a result
of granting stock options to its directors, officers and
consultants in October 2010 and April 2011. The fair value of
options granted on October 25, 2010 was estimated on the date of
grant at $0.718 million, and the fair value of options granted on
April 14, 2011 was estimated on the date of grant at $0.607 million
using the Black-Scholes option-pricing model, which is being
expensed over the vesting period ending on October 25, 2011 and
April 14, 2014 respectively. No options were granted by the
Biochem Group prior to the Company completing its Qualifying
Transation in October 2010, hence there was no share-based
compensation in the comparative period. Government subsidy income
for the three and six months ended June 30, 2011 was $Nil and
$0.080 million, respectively, compared with $0.012 million and
$0.042 million, respectively, for the comparable periods last year.
From time to time, the Company will receive government subsidies
for one of the PRC subsidiaries' value-added taxes collected on
sales. There was no such subsidy granted during the three months
ended June 30, 2011. A substantial government subsidy has been
reported for the six months ended June 30, 2011 based on one of the
PRC subsidiaries' value-added taxes collected on sales. The
increase in government subsidy for the six months ended June 30,
2011 mainly arose due to increase in sales generated through this
particular PRC subsidiary. Current income taxes recovery for the
three months ended June 30, 2011 was $0.032 million compared with
income tax expense of $0.353 million for the comparable period last
year. The decrease in current income tax expense is due to the
utilization of loss carry forward from the March 31, 2011
period-end. Current income taxes expense for the six months ended
June 30, 2011 was $0.290 million compared with $0.410 million for
comparative period last year. The decrease in income taxes is
mainly due to an overall increase in income being earned by the
legal entities 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 year 2008 and 2009 with the years 2010
and 2011 being taxed at the 50% reduced tax rate. Profit for the
three and six months ended June 30, 2011 increased by 24% to $1.413
million and by 80% to $2.636 million, respectively, compared to the
same periods last year. Profit in the current three and six months
ended June 30 represents 17% and 18% of gross revenue,
respectively, compared to 24% and 16% of gross revenue for the
comparable periods last year, respectively. The increase in profit
is due to the growing customer base and sales, and to the growth in
sales of rural total lab solution and POCT solutions, which
generate higher margins than the Company's other products and
solutions. However, the decrease of profit as a percentage of
revenues for the three months ended June 30, 2011 was due to higher
administrative expenses incurred to support the overall increase in
the Company's operations and share-based compensation expenses and
additional costs associated with being a public Company since
October 2010, which were not incurred during the comparable three
months ended June 30, 2010. Profit as a percentage of revenues for
the fiscal year 2011 is expected to be comparable to profit as a
percentage of revenues in fiscal year 2010 of 16%. Basic and fully
diluted EPS was $0.02 and $0.04 for the three and six months ended
June 30, 2011, respectively, compared to $0.02 and $0.03 for the
comparable periods last year. The increased profits for the six
months ended June 30, 2011 were partially offset by an increase in
the average number of shares outstanding during the current period
due to becoming a publicly trading company in October 2010 and the
issuance of new shares since October 2010 arising from the exercise
of stock options and share purchase warrants. The average number of
basic ordinary shares outstanding for the six months ended June 30,
2011 was 65,097,415 (fully diluted 67,218,861), compared to
52,232,518 basic and fully diluted average shares outstanding for
the comparable period last year. Cash totaled $3.368 million as at
June 30, 2011, compared with $3.326 million of cash as of December
31, 2010. The Company's working capital as of June 30, 2011 was
$19.144 million, compared with a $16.063 million working capital as
of December 31, 2010. Working capital increased by $3.081
million, or 19%, mainly due to an increase in inventories by $5.628
million and a decrease in deferred revenue by $2.864 million, which
was offset by $0.600 million of reduction on short-term investments
and $2.222 million increase in trade payables and accrued
liabilities. The Company has sufficient working capital to fund the
anticipated growth for 2011; however, the Company may need to
access additional debt or equity funding if it enters into an
agreement for a large number for total lab solutions or if it
pursues suitable acquisition opportunities. Outlook & Growth
Strategy The Company believes that it can continue its strong
growth in revenues and profits and build on the leading position it
has established in China 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
2011, 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
revenues. China Health will be hosting an investor conference call
on Tuesday, August 30, 2011 at 1:00 pm (Eastern Time). The purpose
of this conference call will be to provide investors with an update
of the second quarter 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. Adam Kniec, Consultant (former 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: Tuesday, August 30,
2011 TIME: 1:00 pm (Eastern Time) Participant Dial-In Number(s):
North America Toll-Free Dial-In Number: 1 (888) 231-8191 For
Toronto and International Callers: 1 (647) 427-7450 A Taped Replay
will be available from 3:00 pm Eastern Time on August 30, 2011 to
11:59 pm Eastern Time on September 13, 2011. Taped Replay Toll Free
Number: 1 (855) 859-2056 Taped Replay Local Dial-in Numbers: (778)
371-8506 (416) 849-0833 (514) 807-9274 (403) 451-9481 (613)
667-0035 (902) 455-3955 Taped Replay Password: 93539366 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 2010, China Health had revenues of approximately
$33.7 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 press 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 press 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 press release includes information relating to
revenues, gross margins and expenses for the fiscal year 2011, the
capital requirements to expand its business through sales or
acquisitions, and the expansion of the Company's business through
its sales network in areas where it has proprietary products,
limited competition and strong government support. The
forward-looking information is based on certain assumptions, which
could change materially in the future, including the assumption
that the Company's revenues, gross margins and expenses will be as
expected, its capital requirements to expand its business through
additional sales or acquisition may require additional funding, and
the Company will be able to expand its sales network and business.
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 revenues, gross margins and expenses may be other than as
expected and negatively affect the financial results of the
Company, the Company may not be able to access additional funding
for its sales and acquisitions, 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. China Health cautions that the
foregoing list of material factors is not exhaustive. 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 PRESS RELEASE
REPRESENTS THE EXPECTATIONS OF CHINA HEALTH AS OF THE DATE OF THIS
PRESS 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. To view this news release in HTML formatting, please use the
following URL:
http://www.newswire.ca/en/releases/archive/August2011/30/c7166.html
p Babak Pedrambr/ Investor Relationsbr/ TMX Equicom Groupbr/ T:
(416) 815-0700 ext. 264br/ Email: a
href="mailto:bpedram@equicomgroup.com"bpedram@equicomgroup.com/a /p
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