China Health Labs & Diagnostics Ltd (C-CHO) - News Release
China Health Labs earns $5.52-million in 2010
2011-04-11 18:07 ET - News Release
Shares issued 64,829,852
CHO Close 2011-04-08 C$ 1.18
Mr. Wilson Yao reports
CHINA HEALTH LABS & DIAGNOSTICS LTD. ANNOUNCES FINANCIAL RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED DECEMBER 31, 2010
China Health Labs & Diagnostics Ltd. has released the financial results for the year and fourth quarter ended Dec. 31, 2010. China Health recently acquired Whole Vision Limited pursuant to its qualifying transaction (see China Health's news in Stockwatch Oct. 22, 2010). As the qualifying transaction was completed after the 2010 third quarter of both China Health and Whole Vision, the first consolidated financial report is for the year ended Dec. 31, 2010. As previously disclosed, as part of the qualifying transaction, China Health changed its year-end to be the same as that of Whole Vision, which is Dec. 31.
In 2010, the company achieved its business and financial goals and made progress on its mission of becoming a leading provider of total lab solutions for medical diagnostics and food safety testing in China with the following highlights:
- Revenues grew by 41 per cent to over $33.7-million, lead by a more-than-100-per-cent increase in revenues from total lab solutions to account for more than 40 per cent of revenues in 2010;
- Net income grew by 41 per cent to over $5.5-million, if the $1,441,000 of expenses related to the qualifying transaction is excluded, net income would have increased by 78 per cent;
- Net income per share increased by 43 per cent to 10 cents due to increased net income, partially offset by an increase in the weighted average number of shares due to the qualifying transaction and concurrent equity financing;
- Installed base of the BK Clinlab rural lab total solution grew from 86 to 210 locations in three Chinese provinces and secured a bid to install 587 BK Clinlabs in Jilin province for 2011;
- More than doubled sales of POCT solutions to the Chinese military and signed a research and development agreement with the Chinese military;
- Increased sales of food safety lab solutions to the Beijing municipal government;
- Maintained relationships with more than 500 large urban hospitals and labs;
- Commenced trading on the TSX Venture Exchange on Oct. 25, 2010, after completing the qualifying transaction, and concurrently raising approximately $3.6-million in new equity.
The company has entered 2011 well positioned for further growth and with sufficient capital to expand its business for rural total lab solutions, POCT lab solutions and food safety lab solutions, including the 587 locations expected to be installed in Jilin province. In the fourth quarter of 2010, the company secured a bid to install its rural total lab solutions in 587 Jilin locations and expects to finalize the agreement for that installation to be in 2011.
"In 2010, we continued to work with our customers to combine our proprietary equipment, software, training and installation services with an ongoing supply of reagents and maintenance services to provide turnkey medical diagnostic and food safety solutions," said Wilson Yao, president and chief executive officer of China Health. "By providing solutions, rather than individual products, we are solidifying our leadership in our targeted sectors of rural labs, military and emergency services, and food safety in China. This approach enables us to provide significant added value and build long-term relationships with our customers, while generating healthy margins and recurring revenues for our shareholders."
The table is a summary of the consolidated financial data of the company for the two most recently completed fiscal years.
FINANCIAL SUMMARY Year ended Dec. 31 (in millions of dollars, except per share amounts) 2010 2009 Revenue $33.705 $23.824Income from operations 6.497 4.264Net income 5.527 3.914Net income per share -- basic 0.10 0.07Net income per share -- diluted 0.10 0.07
Revenue for the year and fourth quarter ended Dec. 31, 2010, increased by 41 per cent to $33,705,000, and by 46 per cent to $15,679,000, respectively, compared with the same periods in 2009, largely due to the growth of the company's proprietary total lab solutions for rural hospitals, POCT lab solutions for the Chinese military and food safety lab solutions for the Beijing municipal government, which together almost doubled to account for over 40 per cent of 2010 revenues compared with less than 30 per cent for the previous year. In 2011, revenues from these sectors are expected to show strong growth. Revenues from urban hospitals and labs also grew, but at a lower rate of about 19 per cent for the year.
Gross margin for the year and fourth quarter ended Dec. 31, 2010, increased by 60 per cent to $13,235,000 and by 89 per cent to $7.47-million, respectively, compared with the same periods in 2009, due to the increase in revenues generated and improved gross margin as a percentage of sales. Gross margin as percentage of sales increased to 39.3 per cent for the year ended Dec. 31, 2010, and 47.6 per cent for the fourth quarter ended Dec. 31, 2010, compared with 34.7 per cent and 36.8 per cent, respectively, for the same periods in 2009, due to growth in sales of total lab solutions and POCT lab solutions both of which generate higher margins in comparison with other products and services.
Operating expenses for the year and fourth quarter ended Dec. 31, 2010, increased by 66.5 per cent to $7,202,000, and by 215 per cent to $3,953,000, respectively, compared with the same periods in 2009, largely due to increases in administrative expenses, the qualifying transaction expenses and the stock-based compensation expenses. If non-recurring qualifying transaction expenses are excluded, then operating expenses increased by 33.2 per cent and by 100 per cent for the year and fourth quarter ended Dec. 31, 2010, respectively, compared with the same periods in 2009. Operating expenses as a percentage of sales for the year and fourth quarter ended Dec. 31, 2010, increased to 21.4 per cent and to 25.2 per cent, respectively, compared with 18.2 per cent and 11.7 per cent for the same periods in 2009. However, if non-recurring qualifying transaction expenses are excluded, then operating expenses were 17.1 per cent and 16 per cent as a percentage of revenues for the year and fourth quarter ended Dec. 31, 2010, respectively.
Income taxes for the year ended Dec. 31, 2010, were $970,000 compared with $350,000 for 2009 due to increased net income and increased tax rate for one of the company's Chinese operating subsidiaries.
Net income for the year and fourth quarter ended Dec. 31, 2010, increased by 41 per cent to $5,527,000 and by 33 per cent to $2.93-million, respectively, compared with the same periods in 2009 due to increases in revenues and gross margins offset partially by increases in operating expenses and income taxes. Net income as a percentage of revenues was 16 per cent for the year ended Dec. 31, 2010, unchanged compared with the same period in the prior year. If non-recurring expenses of $1,441,000 related to the qualifying transaction are excluded, net income for year ended Dec. 31, 2010, would be $6,968,000, representing a 78-per-cent increase from the prior year. Net income per share increased by 43 per cent to 10 cents for the year ended Dec. 31, 2010, compared with the same period in 2009, due to increased net income, partially offset by an increase in the weighted average number of shares due to the qualifying transaction and concurrent equity financing.
Cash totalled $3,326,000 as at Dec. 31, 2010, compared with $1.16-million of cash as of Dec. 31, 2009. The company's working capital as of Dec. 31, 2010, was $16,063,000, compared with a $10,683,000 working capital as of Dec. 31, 2009. Working capital increased by $5.38-million, or 50 per cent mainly due to net proceeds from the private placement of $3,246,000 and the financing received from loans of $3.91-million offset by cash used in operating activities of $1,245,000.
The company has sufficient working capital to finance the anticipated growth for 2011, including the expected installation of 587 BK Clinlab total lab solutions in Jilin. However, the company may need to access additional debt or equity financing if it enters into an agreement for a large number for total lab solutions or if it pursues suitable acquisition opportunities.
Outlook and growth strategy
The company believes that the Chinese market for medical diagnostics and food safety products and services provides the company ample opportunities to achieve continued strong growth. As China's economy grows, per capita spending and the total budget for health care and food safety are expected to continue increasing. In addition, China Health has targeted sectors that are priorities for the Chinese government: improving the living standards for its rural population, enhancing emergency and rescue services, and implementing better food safety practices. China Health has invested in developing solutions and established a record and key customer and government relationships for these selected sectors. Accordingly, the company believes that it is well positioned to deliver strong revenue and profit growth in 2011 and beyond. China Health's growth strategy will focus on the following:
- Providing total lab solutions (as compared with individual products and services) combining proprietary equipment, software, installation, continuing service and reagents, to sectors where there is limited competition and Chinese government policy and budget support;
- Focusing resources on leveraging its success in serving rural hospitals and clinics, military and civil emergency rescue customers, and food safety to major cities in China to maintain and build its leading market share;
- Continuing to collaborate with customers to develop new and improved solutions, including the research and development agreement with the Chinese military signed in late 2010 (see news in Stockwatch Dec. 8, 2010);
- Seeking acquisitions and opportunities where the company can add new products and services that are complementary to its current offerings.
In 2011, China Health intends to expand its business by focusing its efforts on building its sales network to additional Chinese provinces and cities in the three areas where it has proprietary products and limited competition. The company plans to increase its sales and marketing and research and development budgets in 2011 and will also incur increased expenses related to being a public company. However, the company believes that these investments will result in revenue and gross margin growth that will offset the additional expenses. Going forward, China Health expects revenue growth from its total lab solutions to continue to be stronger than growth from its diagnostic equipment and reagent business to large urban hospitals, and to comprise an increasing percentage of revenues.
China Health will be hosting an investor conference call on Tuesday, April 12, 2011. The purpose of this conference call will be to provide investors with an update of the year-end and fourth quarter results of the company. Representatives of China Health on the conference call are expected to be:
- Shiping (Wilson) Yao, president and chief executive officer;
- Adam Kniec, chief financial officer;
- Kim Oishi, member of the board of directors;
- 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, April 12, 2011;
- Participant toll-free dial-in number for North America: 1-888-231-8191;
- Participant dial-i number for Toronto and international callers: 1-647-427-7450;
(In order to join this conference call, participants will be required to provide the conference ID number.)
A taped replay will be available from 1 p.m. ET on April 12, 2011, to 11:59 p.m. ET on April 19, 2011, at:
- Taped replay toll-free dial-in number: 1-800-642-1687
- Taped replay Toronto and international dial-in number: 1-416-849-0833
- Taped replay password: 58763699
Finally, the company will be granting stock options to certain officers, employees and consultants of the company's Chinese subsidiaries to acquire up to 1,575,000 common shares of the company. The grant date is expected to be the day that is two full business days after the 2010 year-end financial results are announced at an exercise price equal to the closing price the day before the grant date, vesting over a three-year period and expiring on the tenth anniversary of the grant date and conditional on the company being satisfied that all Chinese regulatory requirements have been satisfied and performance targets have been agreed to and met.