TSX-V: CHO
www.chinahealthlabs.com
TORONTO, May 1, 2013 /CNW/ - China Health Labs & Diagnostics Ltd.
("China Health" or the "Company") (TSXV:CHO), is pleased to announce
the financial results for the year ended December 31, 2012.
In the year ended December 31, 2012, the Company maintained its position
as a leading provider of total solutions for medical diagnostics and
food safety testing in China, and continued its strong financial
position with revenue of $45.8 million and profit of $6.8 million.
Highlights for the year ended December 31, 2012 include:
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Revenue increased slightly to $45.781 million for the year ended
December 31, 2012 compared to $45.611 million for the year ended
December 31, 2011 and profit decreased by 15% to $6.829 million;
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Gross margins as a percentage of revenue increased to 55% for the year
ended December 31, 2012 from 44% for the year ended December 31, 2011.
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Earnings per share decreased to $0.10 per basic and diluted share for
year ended December 31, 2012 compared to $0.12 for the year ended
December 31, 2011.
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Increased installed base of BK Clinlabs to 928 rural hospitals by
installing 111 labs in five new Chinese provinces/ regions in 2012. At
year end, the Company had agreements to install an additional 72 BK
Clinlabs to increase the total to 1,000 locations in ten provinces/
regions, compared to 817 locations in four provinces/ regions at the
beginning of 2012.
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Completed a total of $13.798 million (RMB 86.4 million) sales orders to
deliver food safety total lab solutions and products during the fourth
quarter of 2012, representing a 30% increase in food safety revenues
compared to fiscal 2011.
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Completed sales of two new products launched in 2012 which contributed
to overall higher gross margins.
During the fiscal year 2012, the 18th National Congress of the Communist Party of China was held during
November 2012 and 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. However, the Company was able to maintain its
financial performance during the fiscal year 2012 given its foundation
of successfully delivering its total lab solutions businesses and also
maintaining strong sales in its food safety labs and urban hospitals
and labs business sectors. 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, including penetration into five new provinces in our
rural hospitals and clinics sector," said Wilson Yao, CEO of China
Health. "Progress is made in marketing our food safety labs and
products to new areas outside of Beijing and to new customers,
including higher margins recognized on sales of new products launched
in 2012. The Company had laid a strong foundation for future growth
with our focus on expanding to additional cities and province and
delivering new and improved products to our target markets. Further,
with the new leadership in China expected to continue the commitment to
improving the healthcare and food safety industries, there will be new
opportunities for the Company to continue its growth in China"
Revenue for the year ended December 31, 2012 increased to $45.781
million, compared to $45.611 million for the year ended December 31,
2011. For the year ended December 31, 2012, the Company installed 111
BK Clinlabs in five new provinces and regions and delivered 63 Rural
Mobile Labs and for the year ended December 31, 2011, the Company
installed 607 BK Clinlabs with 587 installed in Jilin Province and 20
installed in Guizhou Province. Although a greater number of BK Clinlabs
were installed in the year ended December 31, 2011, the sales price per
BK Clinlabs in the year ended December 31, 2012 has increased due to
more advanced equipment and products sold as part of the total lab
solutions installed. The average sales price for the BK Clinlabs
installed and Rural Mobile Labs delivered in the year ended December
31, 2012 was approximately $17,000 (RMB 110,000) per lab compared to
the average sales price in the year ended December 31, 2011 of
approximately $11,000 (RMB 70,000) per lab. Further, during the 2012
fiscal year, the Company has installed 52 BK Clinlabs under a new
business model whereby the Company will install the BK Clinlabs in
return for a five-year contract to provide testing reagents and
maintenance services. The BK Clinlabs under this model has an average
sales price of approximately $9,300 (RMB 58,000) per lab; however,
under this model, the customers are required to make minimum purchases
of reagents and consumable over the five year term of the contract,
which is expected to generate revenue of a minimum of $3.114 million
(RMB 19.5 million). Under the new business model, the Company will
generate steady growth in future sales as the averages sales per lab
under this model is approximately $60,000 (RMB 375,000) over the five
year term. For the year ended December 31, 2012, the decrease of 10% in
revenue from POCT solutions and products sales and 41% in revenue from
the rural hospitals and clinics sector were offset by an increase in
revenue of 30% from sales to the food safety business sector and of 6%
from sales to large urban hospitals.
Gross margin for the year ended December 31, 2012 increased by 25% to
$24.979 million compared to $20.044 million for the year ended December
31, 2011. Gross margins were improved in the fiscal year 2012 due to
higher margin sales, specifically in the BK Clinlabs and POCT solution
and product offerings. Gross margin as a percentage of revenue for the
year ended December 31, 2012 was 55%, compared to 44% for the year
ended December 31, 2011. The increase in gross margin as a percentage
of revenue was due to higher margins for BK Clinlabs and POCT solutions
and products sold in the fiscal year 2012 as compared to the fiscal
year 2011 as well as higher margin diagnostic lab equipment sold to
large urban hospitals. The gross margin as a percentage of revenue was
higher by an average of 17% for each of the total lab solutions
business sectors and a slight decrease of 2% for the urban hospitals
and labs sector during the fiscal year 2012 as compared to the fiscal
year 2011.
Administrative expenses for the year ended December 31, 2012 increased
by 39% to $10.148 million, compared to $7.319 million for the year
ended December 31, 2011. The main reason for the increase was higher
overhead costs including expanded facilities to support a growing
customer base and sales as well as an increase in the allowance for
doubtful accounts for certain amounts outstanding over one year. The
additional allowance provided for in the fiscal year 2012 was $1.716
million for amounts in the over one year category. During fiscal year
2012, the Company had larger accounts receivable balances outstanding
in the over one year category from its customers, which includes the
PRC government and related entities. The reason for the slower
collection of large balances from the PRC government and related
entities in fiscal year 2012 is largely due to the 18th National Congress held in November 2012, which involves the change in
leadership. Given the significance of this meeting and the various
levels of government affected, the Company recorded an allowance of
larger balances on certain amounts outstanding over one year. The
Company will continue to perform on-going evaluations of its accounts
receivable accounts and follow up with its customers on overdue
payments. Subsequent recoveries of amounts written off will be credited
against the allowance account. The Administrative expenses as a
percentage of revenue increased to 22% for the fiscal year 2012,
compared to 16% for the fiscal year 2011. While administrative expenses
have increased significantly in the fiscal year 2012 as compared to the
fiscal year 2011, 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 year ended December
31, 2012 increased by 148% to $1.606 million, compared to $0.647
million for the year ended December 31, 2011. Research and development
expenses as a percentage of revenue was approximately 4% for the year
ended December 31, 2012, compared to 1% for the year ended December 31,
2011. Research and development expenses are higher for the fiscal year
2012 as compared to the fiscal year 2011 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 year ended December 31, 2012 increased by 83%
to $3.964 million, compared to $2.171 million for the year ended
December 31, 2011. Selling expenses as a percentage of revenue was 9%
for the year ended December 31, 2012, compared to 5% for the year ended
December 31, 2011. Selling expenses is higher in 2012 as compared to
2011 due to expanding the rural lab solution business to additional
Chinese provinces and the food safety business to additional Chinese
cities.
Current income tax expense for the year ended December 31, 2012 was
$2.796 million, compared to $2.038 million for the year ended December
31, 2011. The increase in income taxes is due to an overall increase in
taxable income netted against higher reduction of income taxes earned
by the Company's PRC subsidiaries which are subject to preferential tax
rates. The higher income taxes and effective income tax rates are also
due to the timing of when intercompany sales are delivered to
customers. Intercompany sales not yet delivered to customers within the
reported period results in higher taxes as a percentage of the
consolidated profit before taxes as each of the Company's PRC
subsidiaries incurs taxes on goods sold to its subsidiaries. The
effective income tax rates are lower in the period when intercompany
sales are sold to its customers.
Operating profit for the year ended December 31, 2012 decreased by 5% to
$9.847 million, compared to $10.356 million for the year ended December
31, 2011. Profit for the year ended December 31, 2012 decreased by 15%
to $6.829 million, compared to $8.071 million for the year ended
December 31, 2011. Profit includes operating profit, interest expense,
interest income and foreign exchange gain/loss. Profit for the year
ended December 31, 2012 represents 15% of revenue, compared to 18% for
the year ended December 31, 2011. The decrease in operating profit and
profit for the year ended December 31, 2012 is due to higher expenses
spent in the year to expand its total lab solution businesses and also
to the $1.716 million allowance on accounts receivable taken for large
outstanding balances in the over one year category, which were mostly
from the PRC government and related entities.
Basic and fully diluted EPS was $0.10 for the year ended December 31,
2012, compared to $0.12 for the year ended December 31, 2011. EPS was
lower for the fiscal year 2012 as compared to the fiscal year 2011 due
to lower profit.
Cash and short-term investments totaled $10.817 million as at December
31, 2012, compared with $5.661 million of cash and short-term
investments as of December 31, 2011. The Company's working capital as
of December 31, 2012 was $29.608 million, compared with a $26.538
million working capital as of December 31, 2011. Working capital
increased by $3.070 million, or 12%, mainly due to $6.096 million
increase in cash and $2,897 million increase in trades and other
receivables, which was offset by $2.738 million increase in loans
payable, $2.010 million increase in income taxes payable and $0.524
million increase in amounts due to related party.
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 continue its
strong 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
3rd, 2013 at 9:00 am (Eastern Time).
The purpose of this conference call will be to provide investors with an
update on year ended December 31, 2012 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
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Ms. Judyanna Chen, Chief Financial Officer
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Mr. Kim Oishi, Member of the Board of Directors
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Mr. Chao Zhang, Vice President, Finance
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Following the update, a question and answer session will be held. To
participate, the time and call-in instructions are as follows:
DATE:
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Friday, May 3rd, 2013
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TIME:
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9:00 am, Eastern Time
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Participant Dial-In Number(s):
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North America Toll-Free Dial-In Number:
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1 (888) 231-8191
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For Toronto and International Callers:
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1 (647) 427-7450
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A Taped Replay will be available from 12:00 pm Eastern Time on May 3rd, 2013 to 11:59 pm Eastern Time on May 17, 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
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(403) 451-9481
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(613) 667-0035
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(902) 455-3955
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Taped Replay Password: 60054721
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 future growth prospects,
the continued commitment of the Chinese government to improve the
healthcare and food safety industries in China and the opportunities
for the Company from such improvements; the continued performance of
on-going evaluations of accounts receivable outstanding over one year;
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; the continuation of the
Company's strong 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 Chinese government may not continue its
commitment to improving the Chinese healthcare and food safety
industries as expected or that any improvements may not open new
opportunities for the Company, 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 discuss 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