TSX-V: CHO
TORONTO,
Dec. 2, 2013 /CNW/ - China Health
Labs & Diagnostics Ltd. ("China Health" or the "Company")
(TSXV: CHO), is pleased to announce the financial results for the
three months ended September 30,
2013.
Highlights for the three and nine months ended
September 30, 2013 include:
- Revenue decreased to $6.641
million for the three months ended September 30, 2013 compared to $9.623 million for the three months ended
September 30, 2012 and profit
decreased by 267% to a loss of $1.390
million.
- Revenue decreased to $18.288
million for the nine months ended September 30, 2013 compared to $25.867 million for the nine months ended
September 30, 2012 and profit
decreased by 203% to a loss of $3.939
million.
- Gross margins as a percentage of revenue decreased to 52% for
the three months ended September 30,
2013 from 59% for the three months ended September 30, 2012.
- Gross margins as a percentage of revenue decreased to 50% for
the nine months ended September 30,
2013 from 54% for the nine months ended September 30, 2012.
- Earnings per share decreased to a loss of $0.06 per basic and diluted share for the nine
months ended September 30, 2013
compared to earnings per share of $0.06 for the nine months ended September 30, 2012.
- Increased installed base of BK Clinlabs to 1,002 rural
hospitals by installing an additional 74 BK Clinlabs during the
nine months ended September 30,
2013. The Company concluded agreements to install an
additional 12 BK Clinlabs to increase the total to 1,014 locations
in fourteen provinces/ regions to date, compared to 817 locations
in four provinces/ regions at the beginning of 2012.
Sales seasonality in China for almost all industries is impacted by
Chinese New Year, which is the major
national holiday in China, and
depending on the Chinese lunar calendar, will generally start in
the last week of January or first two weeks of February. During
Chinese New Year, a large percentage
of factories are shut down and most sales and service activities
are put on hold. Further, the Chinese central government generally
completes and releases their annual budgets after Chinese New Year in March of each year. During
the first quarter of the year, most of the Company's revenue from
the Chinese central government typically is from large sales orders
from the previous year that are being completed, or from smaller
sales orders to fill urgent needs. Most of the Company's
larger sales orders are confirmed after the annual Chinese
government budgets are set and released after March of each
year.
As a result of the above factors, the Company's
first quarter revenue is generally the lowest as a percentage of
annual revenue, and the third and fourth quarters, when the Company
is working to deliver sales orders confirmed after the budgeting
process, tend to comprise the largest percentage of revenue. For an
example, revenue for the quarter ended March
31, 2012 accounted for approximately 17% of total revenue
and 11% of profit, or $45.781 million
and $6.829 million respectively,
while the fourth quarter accounted for approximately 43% of total
revenue and 44% 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. As the Company's
total lab solution products are primarily sold to the PRC
government and related entities, the change in leadership has had
an effect on the Company's business. In November 2013, the Third Plenary Session of the
18th Central Committee was held in Beijing. This was the first meeting under the
new leadership to discuss the foundation of the reform and future
development in China. Many
government administrative processes and decisions were delayed as a
consequence of the change in leadership and reform resulting in the
slowdown in sales for the Company. As many of the decisions made
during the Third Plenary Session will positively affect the
healthcare industry in China, the
Company expects sale orders and projects to resume or improve
during the last quarter of 2013 or next year. 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 in the rural hospitals and clinics
sector," said Wilson Yao, CEO of
China Health. "We are pleased to have entered into contracts with
Hunan Province to install 3 BK
Clinlabs in local health centres. The Company expects to expand in
these areas once the local customers recognize the overall benefits
of the BK Clinlabs to operational revenue of the health centres on
the expectation that the BK Clinlabs will improve traffic and
health procedures. We also plan to deliver our food safety testing
BK-iQM systems to the Beijing
municipal government in the fourth quarter, which has a total sales
value of approximately $5.3
million."
Revenue for the three and nine months ended
September 30, 2013 decreased by 31%
to $6.641 million and by 29% to
$18.288 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. During the first
nine months in 2012, the Company had 80 BK Clinlabs and 63 Rural
Mobile Labs installed and only 74 BK Clinlabs installed during the
nine months ended September 30, 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 nine months ended
September 30, 2013 decreased by 39%
to $3.430 million and by 35% to
$9.080 million, respectively, as
compared to the same periods last year. Gross margins decreased due
to slower sales during the three and nine months ended September 30, 2013. Gross margin as a percentage
of revenue for the three and nine months ended September 30, 2013 was 52% and 50%, respectively,
compared to 59% and 54% 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 urban hospitals and labs
sector during the nine months ended September 30, 2013, as compared to 62% of total
revenues for the nine months ended September
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 nine
months ended September 30, 2013
increased by 6% to $2.720 million and
by 26% to $7.962 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 nine
months ended September 30, 2013 was
$13,000 and $60,000 respectively, compared to $37,000 and $164,000 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 $0.069 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 nine months ended
September 30, 2013.
Research and development ("R&D") expenditure
for the three and nine months ended September 30, 2013 increased by 21% to
$0.707 million and by 103% to
$2.389 million, respectively,
compared to the same periods last year. Research and development
expenses are higher 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. 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 nine months
ended September 30, 2013 increased by
31% to $1.083 million and by 26% to
$3.010 million, respectively, as
compared to the same periods last year. Selling expenses is 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
nine months ended September 30, 2013
was $0.213 million and $0.576 million, respectively, as compared to the
same periods last year, being a recovery of $0.235 million and an income tax expense of
$0.617 million, respectively. The
decrease in income taxes is due to an overall decrease in taxable
income during the nine months ended September 30, 2013. 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.
Operating profit for the three and nine months
ended September 30, 2013 decreased by
159% to a loss of $1.390 million and
by 203% to a loss of $3.939 million,
respectively, as compared to the same periods last year. Operating
profit for the three and nine months ended September 30, 2013 decreased by 153% to a loss of
$1.080 million and by 186% to a loss
of $3.869 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 September 30, 2013 is
due to lower revenue and higher expenses spent in the period to
expand the businesses and R&D.
Basic and fully diluted EPS was a loss of
$0.02 for the three months ended
September 30, 2013, compared to
earnings per share of $0.04 for the
three months ended September 30,
2012. Basic and fully diluted EPS was a loss of $0.06 for the nine months ended September 30, 2013, compared to earnings per
share of $0.06 for the nine months
ended September 30, 2012. EPS was
lower for the fiscal period 2013 as compared to the fiscal period
2012 due to lower profit.
Cash totaled $3.060
million as at September 30,
2013, compared with $10.817
million as of December 31,
2012. The Company's working capital as of September 30, 2013 was $26.432 million, compared with a $29.608 million working capital as of
December 31, 2012. Working
capital decreased by $3.176 million
due to the decrease in total current assets of $2.839 million and the increase in total current
liabilities of $0.337 million. For
the nine months ended September 30,
2013, net cash used in operating activities was $6.216 million compared to $5.052 million for the same period last year. The
increase in cash used in operating activities for the nine months
ended September 30, 2013 is mostly
due to changes in non-cash working capital balances, together with
a decrease in profit. For the nine months ended September 30, 2013, cash used in investing
activities was $0.400 million,
compared to cash from investing activities of $0.024 million for the same period last year. The
change mainly relates to the purchases of property and equipment of
$0.524 million and purchases of
intangible assets of $0.035 million.
Cash used in financing activities was $1.461
million for the nine months ended September 30, 2013, compared to cash provided
from financing activities of $3.306
million for the same period last year. The increase in cash
used is due to the repayment of $1.695
million in loan during the current nine month period
compared to loans received of $2.732
million for the same period last year.
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 it can resume its
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.
For the fourth quarter of 2013, the Company
expects sales to be stronger than the other three quarters due to
the signing and execution of the food safety contract. The overall
performance for fiscal 2013 is expected to be weaker than the
previous year.
For the next 12-month period, 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 revenues.
China Health will be hosting an investor
conference call on Monday, December
2nd, 2013 at 10:00 am
(Eastern Time).
The purpose of this conference call will be to
provide investors with an update on quarter ended September 30, 2013 results of the Company.
Representatives of China Health on the conference call will be:
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: |
Monday, December 2nd, 2013 |
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 December 2nd, 2013, to 11:59 pm Eastern Time on December 9th, 2013.
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: 18993006
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; 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; 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; 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;
expected sales in the fourth quarter will be stronger than in the
previous three quarters and the performance for fiscal year 2013 is
expected to be weaker than the previous year. 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, 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