Mr. Kim Oishi reports
CHINA HEALTH LABS & DIAGNOSTICS LTD. ANNOUNCES 2010 REVIEW AND GROWTH STRATEGY UPDATE
China Health Labs & Diagnostics Ltd. has increased deliveries of its BK Clinlab total lab solution to rural clinics, point-of-care technology (POCT) products for the Chinese military and food safety lab solutions in the fourth quarter ended Dec. 31, 2010. These deliveries are expected to result in strong revenue and earnings growth for the fourth quarter and year ended Dec. 31, 2010, compared with the same periods in 2009.
The financial results up to and including the 2010 third quarter that are set out in this release are for Whole Vision Ltd., which China Health recently acquired pursuant to its qualifying transaction (see China Health's news release in Stockwatch dated 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 will be for the year ended Dec. 31, 2010, which is expected to be filed on SEDAR on or before May 2, 2011.
As previously disclosed in news releases in Stockwatch dated Oct. 28, Nov. 18 and Nov. 23, 2010, the company signed agreements to supply over $11-million of its proprietary products, which were expected to be mostly delivered in 2010. The company is pleased to report that it completed delivery of all these proprietary products in the fourth quarter of 2010 and expects to recognize most, if not all, of the revenue in 2010. As a result of these deliveries, the company expects that about 75 per cent of revenues in the fourth quarter of 2010 will be from proprietary products for rural hospital labs, military and emergency POCT, and food safety customers. Since the company generates higher margin for its proprietary products, it expects that gross margin in the fourth quarter of 2010 will increase significantly compared with gross margin in the third quarter of 2010, when most sales were generated from sales to large urban hospitals. In addition, the company expects that about 40 per cent of annual 2010 revenues will be from proprietary products, compared with about 20 per cent in 2009.
Whole Vision previously reported revenue growth of 109 per cent and 38 per cent, and earnings growth of 48 per cent and 49 per cent, for the three-month and nine-month periods ended Sept. 30, 2010, compared with the same periods in 2009. In 2009, Whole Vision generated $23.8-million of annual revenue and earnings of $3.9-million, with the fourth quarter accounting for approximately 45 per cent of revenue and 56 per cent of earnings, and the company expects a similar pattern in 2010. Accordingly, with an expected strong fourth quarter in 2010, the company expects to report strong revenue and earnings growth for the year ended Dec. 31, 2010. As set out above, the year ended Dec. 31, 2010, will be the first consolidated financial report for China Health and Whole Vision, so the earnings growth of the consolidated company will be partially offset by expenses from China Health, including non-recurring expenses related to the qualifying transaction and continuing expenses of being a public company. China Health expects that consolidated earnings for the year ended Dec. 31, 2010, will show strong growth compared with the 2009 earnings for the same period, even after accounting for these expenses.
In 2011, China Health intends to expand its business by focusing its efforts on expanding its sales network to three areas where it has proprietary products, limited competition and strong government support -- rural diagnostic medical facilities in China, military and emergency services, and food testing applications. Going forward, China Health expects revenue growth from proprietary products to continue to be stronger than growth from its traditional business with large urban hospitals. Therefore, in 2011, proprietary products are expected to comprise a higher percentage of revenues compared with 2010, which is expected to provide support for profit margins.
"Through strategic planning and focused efforts, we achieved our business and financial goals in 2010, including becoming a public company listed on the TSX Venture Exchange. With an experienced management and technology team, proprietary products, an established customer base and the increased access to capital and technology that comes with being a public company, China Health is well positioned to realize on the tremendous opportunities in China's medical diagnostic and food safety sectors," said Wilson Yao, chief executive officer of China Health. "In addition to securing new orders from our existing customers, including the Chinese military, Beijing government and provinces where we have installed BK Clinlabs in rural hospitals, we will continue to focus on expanding our business to new customers. In 2010, we increased our installed base of BK Clinlabs from 86 to 210 rural hospital locations. In 2011, we expect that our first major new customer will be the Jilin provincial government, which selected China Health as the successful bidder to install 587 BK Clinlabs, which will increase our installed base to 797 labs in rural hospitals. We have confidence that we will add value for shareholders in 2011."