China Health Labs And Diagnostics Ltd (TSXV:CHO)
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TORONTO, Aug. 30, 2011 /CNW/ --
TSX-V: CHO
OTCQX: CHLBF
www.chinahealthlabs.com
TORONTO, Aug. 30, 2011 /CNW/ - China Health Labs & Diagnostics Ltd.
("China Health" or the "Company") (TSXV:CHO; OTCQX:CHLBF), is pleased
to announce the financial results for the three and six months ended
June 30, 2011.
The Company made progress in building on its position as a leading
provider of total solutions for medical diagnostics and food safety
testing in China. It achieved its business and financial goals during
the three and six months ended June 30, 2011. Highlights include the
following:
-- Revenue grew by 67% to $8.095 million and profit grew by 24% to
$1.413 million for the three months ended June 30, 2011,
compared to the same period last year;
-- Revenue grew by 60% to $14.854 million and profit grew by 80%
to $2.636 million for the six months ended June 30, 2011
compared to the same period last year;
-- Signed contract to install the BK Clinlab total lab solution in
587 rural hospitals in Jilin Province, China, with
approximately 288 of the 587 BK Clinlab installations completed
as at June 30, 2011, and the remaining 299 BK Clinlab completed
subsequent to the second quarter; and
-- Strong growth in sales of point of care technology ("POCT")
diagnostic solutions to the Chinese military and government.
"The Company continued to show strong financial results during the first
half of the year due to the growth in sales of our BK Clinlab rural
total lab solution and our POCT diagnostic solutions," said Wilson Yao,
CEO of China Health. "The Company's investment in developing diagnostic
total solutions rather than individual products led to a strong first
half of the year with new customers, including China's National
Emergency Rescue Team for our POCT solutions and Jilin Province for our
BK Clinlab rural total lab solution. We believe that in 2011 our growth
will be driven by revenues and profits from the proprietary solutions
we have developed."
Revenue for the three and six months ended June 30, 2011 increased by
67% to $8.095 million and by 60% to $14.854 million, respectively,
compared to the same periods last year. The growth in revenues was
largely due to increased sales of POCT solutions to China's National
Emergency Rescue Team and the contract to install 587 BK Clinlabs in
Jilin Province, of which the Company had completed installation of
approximately 288 BK Clinlabs as at June 30, 2011. Increased sales of
testing equipment for food safety also contributed to the growth.
The Company expects that in 2011 revenue seasonality will be similar to
previous years with the first quarter revenues being the smallest due
to the budgeting process of the Company's customers and Chinese New
Year holidays, and the fourth quarter revenues expected to be the
largest due to deliveries of products and services that have been
ordered during the year. Revenues for the three and six months ended
June 30, 2010 accounted for approximately 14% and 28%, respectively, of
total revenues of $33.705 million for the year ended December 31, 2010.
Gross margin for the three and six months ended June 30, 2011 increased
by 30% to $3.299 million and by 84% to $7.193 million respectively,
compared to the same periods last year mostly due to the increased
sales of POCT solutions and BK Clinlab rural total lab solutions. Gross
margin as percentage of revenues for the three and six months ended
June 30, 2011 was 41% and 48%, respectively compared to 52% and 42% for
the same periods last year. The variance in gross margin as a
percentage of revenues was due to changes in sales mix. The higher
gross margin as a percentage of revenues for the six months ended June
30, 2011 was due to strong growth in high margin POCT solution sales.
In the second quarter of 2010 the Company generated higher than average
margin as a percentage of revenues due to the sale of POCT diagnostic
solutions.
The Company expects that gross margin as a percentage of revenues for
the fiscal year 2011 will be comparable to fiscal year 2010, which was
39%.
Administrative expenditures (excluding depreciation, amortization and
share-based compensation) for the three and six months ended June 30,
2011 increased by 94% to $1.227 million and by 95% to $2.745 million,
respectively, compared to the same periods last year. The principal
reasons for the increase were increased overhead including employees
and facilities to support a growing customer base and sales, as well as
additional costs associated with being a public company since October
2010.
Research and development expenditures for the three and six months ended
June 30, 2011 were $0.012 million and $0.340 million, respectively, a
decrease of 86% and an increase of 154% compared to the same periods
last year. In 2010, research and development focused on POCT products
for the Chinese military and improving the automation for certain
diagnostic equipment. In 2011, research and development is focused on
developing a full range of POCT solutions and improving the Company's
proprietary lab management system. The Company is accelerating product
development to maintain its competitive advantages in the sectors 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 tailor made to
customer needs.
In late 2010, the Company signed a three-year research and development
agreement with the Chinese Military Medical Equipment Research
Institute (the "Institute"), based in Tianjin, and with the Third
Military Medical University (the "University"), based in Chongqing. The
program has four main goals: to improve the "Type B" diagnostic field
lab; to develop a new mobile diagnostic lab to be contained in a
vehicle; to evaluate and improve reagents; and, to develop a standard
training program for military POCT field applications. The budget for
the three-year program is RMB 10 million ($1.51 million), with China
Health providing RMB 2 million ($0.30 million) and the Chinese military
providing RMB 8 million ($1.21 million). China Health is providing
three research scientists and the core technology. The R&D is being
conducted in labs provided by the Institute and the University in
Tianjin and Chongqing, including full science and technology teams.
Under the agreement, China Health will own all of the intellectual
property resulting from the R&D, including any improvements to the
Company's existing technology and solutions. In addition, China Health
will own all marketing and manufacturing rights and will have no
restrictions on China domestic and international markets.
Selling expenses for the three and six months ended June 30, 2011
decreased by 26% to $0.188 million and increased by 57% to $0.649
million, respectively, compared to the same periods last year. Selling
expense as a percentage of revenues was 2% and 4% for the three and six
months ended June 30, 2011, compared to 5% for the same periods last
year. Selling expenses are expected to increase in subsequent quarters
due to plans to expand the rural lab solution business to additional
Chinese provinces and the food safety business to additional Chinese
cities.
Share-based compensation for the three and six months ended June 30,
2011 was $0.223 million and $0.411 million, respectively, compared with
$Nil for the comparable periods last year. The share-based compensation
expense is a result of granting stock options to its directors,
officers and consultants in October 2010 and April 2011. The fair value
of options granted on October 25, 2010 was estimated on the date of
grant at $0.718 million, and the fair value of options granted on April
14, 2011 was estimated on the date of grant at $0.607 million using the
Black-Scholes option-pricing model, which is being expensed over the
vesting period ending on October 25, 2011 and April 14, 2014
respectively. No options were granted by the Biochem Group prior to
the Company completing its Qualifying Transation in October 2010, hence
there was no share-based compensation in the comparative period.
Government subsidy income for the three and six months ended June 30,
2011 was $Nil and $0.080 million, respectively, compared with $0.012
million and $0.042 million, respectively, for the comparable periods
last year. From time to time, the Company will receive government
subsidies for one of the PRC subsidiaries' value-added taxes collected
on sales. There was no such subsidy granted during the three months
ended June 30, 2011. A substantial government subsidy has been reported
for the six months ended June 30, 2011 based on one of the PRC
subsidiaries' value-added taxes collected on sales. The increase in
government subsidy for the six months ended June 30, 2011 mainly arose
due to increase in sales generated through this particular PRC
subsidiary.
Current income taxes recovery for the three months ended June 30, 2011
was $0.032 million compared with income tax expense of $0.353 million
for the comparable period last year. The decrease in current income tax
expense is due to the utilization of loss carry forward from the March
31, 2011 period-end. Current income taxes expense for the six months
ended June 30, 2011 was $0.290 million compared with $0.410 million for
comparative period last year. The decrease in income taxes is mainly
due to an overall increase in income being earned by the legal entities
which are subject to preferential tax rates.
The Company's PRC subsidiaries are subject to income taxes at a
statutory tax rate of 25% in China. Two of the Company's PRC
subsidiaries have been granted preferential tax rates. One subsidiary
is subject to PRC income taxes at 1% of gross sales and another PRC
subsidiary is 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
year 2008 and 2009 with the years 2010 and 2011 being taxed at the 50%
reduced tax rate.
Profit for the three and six months ended June 30, 2011 increased by 24%
to $1.413 million and by 80% to $2.636 million, respectively, compared
to the same periods last year. Profit in the current three and six
months ended June 30 represents 17% and 18% of gross revenue,
respectively, compared to 24% and 16% of gross revenue for the
comparable periods last year, respectively.
The increase in profit is due to the growing customer base and sales,
and to the growth in sales of rural total lab solution and POCT
solutions, which generate higher margins than the Company's other
products and solutions. However, the decrease of profit as a percentage
of revenues for the three months ended June 30, 2011 was due to higher
administrative expenses incurred to support the overall increase in the
Company's operations and share-based compensation expenses and
additional costs associated with being a public Company since October
2010, which were not incurred during the comparable three months ended
June 30, 2010. Profit as a percentage of revenues for the fiscal year
2011 is expected to be comparable to profit as a percentage of revenues
in fiscal year 2010 of 16%.
Basic and fully diluted EPS was $0.02 and $0.04 for the three and six
months ended June 30, 2011, respectively, compared to $0.02 and $0.03
for the comparable periods last year. The increased profits for the six
months ended June 30, 2011 were partially offset by an increase in the
average number of shares outstanding during the current period due to
becoming a publicly trading company in October 2010 and the issuance of
new shares since October 2010 arising from the exercise of stock
options and share purchase warrants. The average number of basic
ordinary shares outstanding for the six months ended June 30, 2011 was
65,097,415 (fully diluted 67,218,861), compared to 52,232,518 basic and
fully diluted average shares outstanding for the comparable period last
year.
Cash totaled $3.368 million as at June 30, 2011, compared with $3.326
million of cash as of December 31, 2010. The Company's working capital
as of June 30, 2011 was $19.144 million, compared with a $16.063
million working capital as of December 31, 2010. Working capital
increased by $3.081 million, or 19%, mainly due to an increase in
inventories by $5.628 million and a decrease in deferred revenue by
$2.864 million, which was offset by $0.600 million of reduction on
short-term investments and $2.222 million increase in trade payables
and accrued liabilities.
The Company has sufficient working capital to fund the anticipated
growth for 2011; however, the Company may need to access additional
debt or equity funding if it enters into an agreement for a large
number for total lab solutions or if it pursues suitable acquisition
opportunities.
Outlook & Growth Strategy
The Company believes that it can continue its strong 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.
In 2011, 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 Tuesday,
August 30, 2011 at 1:00 pm (Eastern Time).
The purpose of this conference call will be to provide investors with an
update of the second quarter results of the Company. Representatives of
China Health on the conference call will be:
Mr. Shiping (Wilson) Yao, President and Chief Executive Officer
Ms. Judyanna Chen, Chief Financial Officer
Mr. Adam Kniec, Consultant (former Chief Financial Officer)
Mr. Kim Oishi, Member of the Board of Directors
Mr. 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, August 30, 2011
TIME: 1:00 pm (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 3:00 pm Eastern Time on August 30,
2011 to 11:59 pm Eastern Time on September 13, 2011.
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: 93539366
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 2010, China Health had revenues of approximately $33.7 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 press 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 press 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 press release
includes information relating to revenues, gross margins and expenses
for the fiscal year 2011, the capital requirements to expand its
business through sales or acquisitions, and the expansion of the
Company's business through its sales network in areas where it has
proprietary products, limited competition and strong government
support. The forward-looking information is based on certain
assumptions, which could change materially in the future, including the
assumption that the Company's revenues, gross margins and expenses will
be as expected, its capital requirements to expand its business through
additional sales or acquisition may require additional funding, and the
Company will be able to expand its sales network and business. 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 revenues, gross margins and expenses may be
other than as expected and negatively affect the financial results of
the Company, the Company may not be able to access additional funding
for its sales and acquisitions, 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. China Health cautions that the foregoing
list of material factors is not exhaustive. 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 PRESS RELEASE
REPRESENTS THE EXPECTATIONS OF CHINA HEALTH AS OF THE DATE OF THIS
PRESS 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.
To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/August2011/30/c7166.html
p Babak Pedrambr/ Investor Relationsbr/ TMX Equicom Groupbr/ T: (416) 815-0700 ext. 264br/ Email: a href="mailto:bpedram@equicomgroup.com"bpedram@equicomgroup.com/a /p