TSX-V: CHO
TORONTO,
Aug. 30, 2013 /CNW/ - China Health
Labs & Diagnostics Ltd. ("China Health" or the "Company")
(TSXV: CHO), is pleased to announce the financial results for the
three and six months ended June 30,
2013.
Highlights for the three and six months ended
June 30, 2013 include:
- Revenue decreased to $6.298
million for the three months ended June 30, 2013 compared to $8.361 million for the three months ended
June 30, 2012 and profit decreased by
261% to a loss of $1.144
million.
- Revenue decreased to $11.647
million for the six months ended June
30, 2013 compared to $16.244
million for the six months ended June
30, 2012 and profit decreased by 272% to a loss of
$2.549 million.
- Gross margins as a percentage of revenue decreased to 42% for
the three months ended June 30, 2013
from 50% for the three months ended June 30,
2012.
- Gross margins as a percentage of revenue decreased to 49% for
the six months ended June 30, 2013
from 51% for the six months ended June 30,
2012.
- Earnings per share decreased to a loss of $0.04 per basic and diluted share for the six
months ended June 30, 2013 compared
to earnings per share of $0.02 for
the six months ended June 30,
2012.
- Increased installed base of BK Clinlabs to 977 rural hospitals
by installing an additional 39 BK Clinlabs during the six months
ended June 30, 2013. The
Company concluded agreements to install an additional 34 BK
Clinlabs to increase the total to 1,011 locations in twelve
provinces/ regions to date, compared to 817 locations in four
provinces/ regions at the beginning of 2012.
Due to seasonality effects, the Company's first
quarter revenue is generally the lowest as a percentage of annual
revenue, and the revenue for the second quarter may also be slow as
the government commences its annual purchases during the second
quarter. The Company delivers sales orders confirmed after the
government budgeting process during the third and fourth quarters
and as a result, the third and fourth quarters tend to comprise the
largest percentage of revenue. For example, revenue for the six
months ended June 30, 2012 accounted
for approximately 35% of total revenue and 22% of profit, or
$16.244 million and $1.481 million respectively, while the third and
fourth quarter accounted for approximately 65% of total revenue and
78% of profit for the year ended December
31, 2012. During the fiscal year 2012, the 18th National
Congress of the Communist Party of China ("18th National Congress") was held
during November 2012, and during the
first quarter of fiscal year 2013, the 12th NPC Standing Committee
and the 12th Chinese People's Political Consultative Conference
were held, resulting in a change in leadership at all levels
of government and re-organizations within certain government
departments thereafter, including the China Food and Drug
Administration and the National Health and Family Planning
Commission. As the Company's total lab solution products are
primarily sold to the PRC government and related entities, the
change in leadership and re-organization has had an effect on the
Company's business. Many government administrative processes and
decisions were delayed resulting in the slowdown in sales for the
Company. As the new Chinese government takes power and
administrative departments return to purchasing and payment
processing, the Company expects sales orders and projects to resume
during the latter part of fiscal year 2013. For further information
on this change, please see the Company's financial statements and
MD&A filed on SEDAR.
Revenue for the three and six months ended
June 30, 2013 decreased by 25% to
$6.298 million and by 28% to
$11.647 million, respectively,
compared to the same periods last year. The decrease in revenue is
largely due to decreased sales in the rural hospital and clinics
and POCT solutions and products business sector, with decreased
sales of approximately $2.016 million
and $2.656 million, respectively, for
the three and six months ended June 30,
2013. During the first six months in 2012, the Company had
80 BK Clinlabs and 63 Rural Mobile Labs installed and only 39 BK
Clinlabs installed during the six months in 2013. Revenue from POCT
solutions and products and food safety labs are generally from
large sales orders that are not placed evenly throughout the
year.
Gross margin for the three and six months ended
June 30, 2013 decreased by 37% to
$2.648 million and by 32% to
$5.650 million, respectively, as
compared to the same periods last year. Gross margins decreased due
to slower sales during the three and six months ended June 30, 2013. Gross margin as a percentage of
revenue for the three and six months ended June 30, 2013 were 42% and 49%, respectively,
compared to 50% and 51% for the same periods last year. Gross
margin as a percentage of revenue decreased due to the change in
sales mix, with 78% of total revenues from our urban hospitals and
labs sector during the six months ended June
30, 2013, as compared to 55% of total revenues for the six
months ended June 30, 2012. The gross
margin as a percentage of revenue is lower in the urban hospitals
and labs sector, as compared to our total lab solution
businesses.
Administrative expenses for the three and six
months ended June 30, 2013 increased
by 22% to $ 2.248 million and by 39%
to $ 5.242 million, respectively, as
compared to the same periods last year. The principal reason for
the increase was higher overhead costs including new employees and
expanded facilities to support a growing customer base and sales.
While administrative expenses have increased significantly as
compared to the prior comparative period, 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 involves 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.
Share-based compensation for the three and six
months ended June 30, 2013 was
$ 15,000 and $47,000 respectively, compared to $46,000 and $127,000 respectively for the same periods last
year. The share-based compensation expense is a result of stock
options that vested during the period for stock options granted to
employees in April 2011 and to an
officer in September 2011. The fair
value of options granted on April 14,
2011 was estimated on date of grant at $0.716 million and of options granted on
September 1, 2011 was estimated on
date of grant at $48,000 using the
Black-Scholes option-pricing model. The fair values of options are
expensed over the vesting period ending on April 14, 2014 and September 1, 2014, respectively. There were
no stock options granted during the three and six months ended
June 30, 2013.
Research and development ("R&D") expenditure
for the three and six months ended June 30,
2013 increased by 231% to $ 1.093
million and by 186% to $ 1.682
million, respectively, compared to the same periods last
year. Research and development expenses are higher as the Company
is investing its resources in developing new products and also in
improving current products to meet an ever evolving healthcare
market in China. Research and
development expenses 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. Research and development is focused on developing new
diagnostics products and solutions based on market conditions and
demand, including 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 tailored to
customer needs. The margins on new products launched are generally
higher than the existing products.
Selling expenses for the three and six months
ended June 30, 2013 increased by 15%
to $0.945 million and by 23% to
$1.927 million, respectively, as
compared to the same periods last year. Selling expenses are higher
due to expanding the rural lab solution business to additional
Chinese provinces and the food safety business to additional
Chinese cities. Selling and marketing expenditures include salaries
and benefits, travel, promotion and marketing and advertising
costs.
Current income tax expense for the three and six
months ended June 30, 2013 was
$0.239 million and $0.364 million, respectively, as compared to the
same periods last year, being $0.480
million and $0.851 million,
respectively. The decrease in income taxes is due to an overall
decrease in taxable income. The Company's PRC subsidiaries are
subject to income taxes at a statutory tax rate of 25% in
China except one subsidiary that
is subject to PRC income taxes at 1% of gross sales. Prior to the
fiscal year 2013, another PRC subsidiary 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 years 2008 and
2009 with the years 2010 to 2012 being taxed at the 50% reduced tax
rate.
Profit for the three and six months ended
June 30, 2013 decreased by 261% to a
loss of $1.144 million and by 272% to
a loss of $2.549 million,
respectively, as compared to the same periods last year. Operating
profit for the three and six months ended June 30, 2013 decreased by 197% to a loss of
$1.226 million and by 213% to a loss
of $2.789 million, respectively, as
compared to the same periods last year. Profit includes operating
profit, interest expense, interest income and foreign exchange
gain/loss. The decrease in operating profit and profit for the
quarter ended June 30, 2013 is due to
lower revenue and higher expenses spent in the period to expand the
total lab solution businesses.
Basic and fully diluted EPS was a loss of
$ 0.02 for the three months ended
June 30, 2013, compared to earnings
per share of $0.01 for the three
months ended June 30, 2012. Basic and
fully diluted EPS was a loss of $0.04
for the six months ended June 30,
2013, compared to earnings per share of $0.02 for the six months ended June 30, 2012. EPS was lower for the fiscal
period 2013 as compared to the fiscal period 2012 due to lower
profit. The average number of basic ordinary shares outstanding for
the six months ended June 30, 2013
was 65,606,686 (fully diluted 65,606,686), compared to 65,606,686
(fully diluted 65,606,887) average shares outstanding for the six
months ended June 30, 2012.
Cash totaled $ 3.458
million as at June 30, 2013,
compared with $10.817 million as of
December 31, 2012. The
Company's working capital as of June 30,
2013 was $28.202 million,
compared with a $29.608 million
working capital as of December 31,
2012. Working capital decreased by $1.406 million, or 5%, mainly due to $7.359 million decrease in cash, $0.880 million increase in deferred revenue,
$0.493 million increase in amounts
due to related party, which was offset by $3.831 million increase in inventories,
$ 2.091 million increase in deposits
and prepayments, $1.049 million
increase in trade and other receivables and $ 0.636 million decrease in trade payables and
accrued liabilities.
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 is pleased to announce that in
August 2013, the Company won a bid
via its agent to sell approximately 150 BK food safety quick test
instruments to the Beijing
municipal government. The total sales amount of this bid is
expected to be approximately $5.482
million (32 million RMB). The
Company expects to deliver these equipment within two months after
an agreement is entered.
The Company believes that the orders and
projects will resume in the second half year and this will help the
Company continually 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 develop 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 Tuesday, September
3rd, 2013 at 10:00 am
(Eastern Time).
The purpose of this conference call will be to
provide investors with an update on the three and six months ended
June 30, 2013 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
Mr. Chao Zhang, Chief Financial Officer
Mr. Kim Oishi, Member of the Board of Directors |
Following the update, a question and answer
session will be held. To participate, the dial-in
instructions are as follows:
DATE: |
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Tuesday, September 3rd,
2013 |
TIME: |
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10:00am, Eastern Time |
Participant Dial-In Number(s):
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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 September 3rd, 2013, to 11:59 pm Eastern Time on September 17th, 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 |
(403) 451-9481 |
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(613) 667-0035 |
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(902) 455-3955 |
Taped Replay Password: 86571508
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 resumption of
growth, the Company's future growth prospects and expansion plans
including hiring and training new employees and setting up
operations in new areas; 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 sales from and delivery of the food
safety testing equipments to the Beijing government; resume 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;
development 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 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, winning the bid to sell food safety
testing equipment for the Beijing
government may not result in an agreement, sales, delivery or
revenues; 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
discussion 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