TSX-V: CHO OTCQX: CHLBF www.chinahealthlabs.com TORONTO,
Nov. 30, 2011 /CNW/ - China Health Labs & Diagnostics Ltd.
("China Health" or the "Company") (OTCQX: CHLBF), is pleased to
announce the financial results for the three and nine months ended
September 30, 2011. The Company made progress in its mission of
becoming a leading provider of total solutions for medical
diagnostics and food safety testing in China and achieved its
business and financial goals for the three and nine months ended
September 30, 2011. Highlights include the following: -- Revenue
grew by 23% to $10.772 million and profit grew by 46% to $1.592
million for the three months ended September 30, 2011, compared to
the same period last year; -- Revenue grew by 42% to $25.626
million and profit grew by 66% to $4.228 million for the nine
months ended September 30, 2011 compared to the same period last
year; -- Completed installation of 587 BK Clinlab total lab
solutions in rural hospitals in Jilin Province, China by August
2011 to increase installed base to 797 labs, up from 210 locations
at the start of 2011; -- Revenues from point of care technology
("POCT") diagnostic solutions grew by 146% for the nine month
period ended September 30, 2011 compared with the same period in
2010, including sales to the Chinese military and to new customers
acquired in 2011 being, the China's National Emergency Rescue Team,
Chinese Armed Police Force and the Beijing Emergency Affairs
Office. -- Subsequent to the end of the third quarter, signed a
$10.0 million (RMB 61.5 million) sales order to deliver food safety
total lab solutions to the Beijing municipal government. "We are
pleased to report that our strong growth in the first nine months
and third quarter was driven by our investments in developing
diagnostic total solutions that meet our customer's needs, rather
than selling individual products. As a first mover we have
limited competition in providing diagnostic total solutions that
combine equipment, installation, training, our proprietary lab
management system and ongoing service and reagents" said Wilson
Yao, CEO of China Health. "The value we are providing is recognized
in our growth of revenues and margins. We believe that the
future growth of the Company will be driven by revenues and profits
from the proprietary solutions we have developed." Revenue for the
three and nine months ended September 30, 2011 increased by 23% to
$10.772 million and by 42% to $25.626 million, respectively,
compared to the same periods last year. The growth in revenues was
largely due to increased sales of POCT solutions and the completion
of the contract to install 587 BK Clinlabs in Jilin Province.
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 nine months ended
September 30, 2010 accounted for approximately 26% and 54%
respectively of total revenues of $33.705 million for the year
ended December 31, 2010. Gross margin for the three and nine months
ended September 30, 2011 increased by 130% to $4.266 million and by
99% to $11.459 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 in the current nine months
ended September 30, 2011. Gross margin as percentage of revenues
for the three and nine months ended September 30, 2011 was 40% and
45%, respectively compared to 21% and 32% for the same periods last
year. The increase in gross margin as a percentage of revenue was
due to changes in sales mix. The higher gross margin as a
percentage of revenue for the three and nine months ended September
30, 2011 was largely due to strong growth in high margin POCT
solution sales and the completed installation of the 587 BK
Clinlabs. Revenues from the Company's total lab solutions were
approximately 72% and 61% of total revenues for the three and nine
months ended September 30, 2011, respectively, compared to 19% and
23% for the prior comparable periods. In the three and nine months
ended September 30, 2010, the Company sales mix largely consisted
of sales of in-vitro diagnostic equipment to large urban hospitals,
which generate lower gross margin as compared to the sales of total
lab solutions. In 2010, revenue from the total lab solutions grew
by close to 100% and accounted for approximately 41% of total
annual revenues of $33.7 million. In 2011, revenue from total
lab solutions for rural hospitals, POCT solutions for military and
emergency services and food safety total lab solutions is expected
to account for an increasing percentage of total annual
revenues. The Company expects that gross margin as a
percentage of revenues for fiscal year 2011 will be comparable or
higher than the gross margin for fiscal year 2010, which was 39%,
due to the strong margins generated by the total lab solutions.
Administrative expenditures for the three and nine months ended
September 30, 2011 increased by 77% to $1.416 million and by 88% to
$4.161 million, respectively, compared to the same periods last
year. The principal reason for the increase was 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 on the TSX-V since October 2010. Administrative
expenses as a percentage of revenues increased to 13% and 16% for
the three and nine months ended September 30, 2011, respectively,
in comparison to 9% and 12% for the comparative periods last year.
Research and development expenditures for the three and nine months
ended September 30, 2011 were $0.111 million and $0.451 million,
respectively, an increase of 71% and 128% as compared to the same
periods last year. Research and development expense as a
percentage of revenues were approximately 1% for the three months
ended September 30, 2011, about the same as the comparable period
last year. Research and development expense as a percentage of
revenues increased to 2% for the nine months ended September 30,
2011, compared to about 1% for the nine months ended September 30,
2010. 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 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 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 ($1.628 million), with China Health providing RMB 2 million
($0.326 million) and the Chinese military providing RMB 8 million
($1.302 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. During the nine months ended September 30, 2011, the
Company developed and launched their new Type B POCT diagnostic
field lab which is slated to replace the Type A POCT diagnostic
field labs. The Company continues to work closely with its
customers to develop new and improved solutions. Selling expenses
for the three and nine months ended September 30, 2011 increased by
172% to $0.632 million and by 99% to $1.281 million, respectively,
compared to the same periods last year. Selling expense as a
percentage of revenues was 6% and 5% for the three and nine months
ended September 30, 2011, respectively, compared to 3% and 4% for
the same periods last year, respectively. 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 nine months ended September 30, 2011
was $0.190 million and $0.601 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 September
2011 and to employees and consultants in April 2011. The fair value
of options granted on October 25, 2010 was estimated on the date of
grant at $0.718 million, of options granted on April 14, 2011 was
estimated on date of grant at $0.607 million and of options granted
on September 1, 2011 was estimated on date of grant at $0.049
million using the Black-Scholes option-pricing model. The fair
values of options are expensed over the vesting period ending on
October 25, 2011, April 14, 2014 and September 1, 2014,
respectively. No options were granted by the Biochem Group
prior to the completion of the Qualifying Transaction in October
2010, hence there was no share-based compensation in the
comparative period. Government subsidy income for the three and
nine months ended September 30, 2011 was $0.054 million and $0.134
million, respectively, compared with $0.333 million and $0.375
million, respectively, for the comparable periods last year. From
time to time, the Company will receive government subsidy on one of
the PRC subsidiaries' value-added taxes collected on sales. A
substantial government subsidy is calculated based on one of the
PRC subsidiaries' value-added taxes collected on sales. Current
income tax expense for the three months ended September 30, 2011
was $0.142 million compared with income tax recovery of $0.067
million for the comparable period last year. The recovery in
current income tax for the prior period is mainly due to the
utilization of loss carryforward. Current income tax expense for
the nine months ended September 30, 2011 was $0.432 million
compared with $0.343 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 nine months
ended September 30, 2011 increased by 46% to $1.592 million and by
66% to $4.228 million, respectively, compared to the same periods
last year. Profit in the current three and nine months ended
September 30 represents 15% and 16% of gross revenue, respectively,
compared to 12% and 14% 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 labs solution and POCT total lab solutions, which generate
higher margins than the Company's other products and solutions.
Profit as a percentage of revenues was slightly higher in the
current three and nine months ended September 30, 2011 due to the
higher sales mix of rural labs solution and POCT total labs
solutions completed in the current periods. However, the higher
margins generated were partially offset by higher administrative
expenses incurred to support overall increase in the Company's
operations, share-based compensation expenses and additional costs
associated with being a public Company on the TSX-V since October
2010, which were not incurred during the comparable three months
ended September 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 $0.06 for the three and nine months ended
September 30, 2011, respectively, compared to $0.02 and $0.05 for
the comparable periods last year due to increased profit 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 issuing 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 nine months ended September 30, 2011 was 65,261,986 (fully
diluted 67,287,479), compared to 52,232,518 basic and fully diluted
average shares outstanding for the comparable period last year.
Cash and short-term investments totalled $7.059 million as at
September 30, 2011, compared with $5.726 million of cash and
short-term investments as of December 31, 2010. The Company's
working capital as of September 30, 2011 was $22.713 million,
compared with a $16.063 million working capital as of December 31,
2010. Working capital increased by $6.650 million, or 41%,
mainly due to an increase in inventories by $3.371 million and a
decrease in deferred revenue by $1.984 million and loans payable by
$1.126 million, which was offset by $1.050 million of reduction on
short-term investments and $2.927 million increase in trade
payables and accrued liabilities. The Company is well positioned to
expand its business for rural lab total solutions, POCT lab
solutions and food safety lab solutions. 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 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. China Health
continues 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 Wednesday,
November 30, 2011 at 10:00am (Eastern Time). The purpose of this
conference call will be to provide investors with an update of the
third 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. 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: Wednesday, November
30, 2011 TIME: 10:00am,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 1:00 pm Eastern Time on November 30, 2011 to
11:59 pm Eastern Time on December 14, 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: 30217441 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 the Company's growth strategy, requirements for financing,
changes in gross margin, revenues, expenses and profit, and
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 products and
services, operations, market, marketing plans and strategies,
competitive conditions, future developments and proprietary
protections continue as projected, and that 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 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, revenues and
profits may not 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. 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. CHINA HEALTH
LABS & DIAGNOSTICS CONTACT: Judyanna ChenChief Financial
OfficerChina Health Labs & Diagnostics Ltd.T: (416)
865-3351Email: jchen@chinahealthlabs.comBabak PedramInvestor
RelationsTMX Equicom GroupT: (416) 815-0700 ext. 264Email:
bpedram@equicomgroup.com
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