China Health Labs & Diagnostics Ltd. announces financial results for the three and nine months ended September 30, 2011

    




 TSX-V: CHO OTCQX: CHLBF 

 www.chinahealthlabs.com 

 TORONTO, Nov. 30, 2011 /CNW/ - China Health Labs & Diagnostics Ltd.  ("China Health" or the "Company")  (OTCQX: CHLBF), is  pleased to announce the financial results for the three and nine months  ended September 30, 2011. 

 The Company made progress in its mission of becoming a leading provider  of total solutions for medical diagnostics and food safety testing in  China and achieved its business and financial goals for the three and  nine months ended September 30, 2011. Highlights include the following: 




        --  Revenue grew by 23% to $10.772 million and profit grew by 46%
            to $1.592 million for the three months ended September 30,
            2011, compared to the same period last year;
        --  Revenue grew by 42% to $25.626 million and profit grew by 66%
            to $4.228 million for the nine months ended September 30, 2011
            compared to the same period last year;
        --  Completed installation of 587 BK Clinlab total lab solutions in
            rural hospitals in Jilin Province, China by August 2011 to
            increase installed base to 797 labs, up from 210 locations at
            the start of 2011;
        --  Revenues from point of care technology ("POCT") diagnostic
            solutions grew by 146% for the nine month period ended
            September 30, 2011 compared with the same period in 2010,
            including sales to the Chinese military and to new customers
            acquired in 2011 being, the China's National Emergency Rescue
            Team, Chinese Armed Police Force and the Beijing Emergency
            Affairs Office.
        --  Subsequent to the end of the third quarter, signed a $10.0
            million (RMB 61.5 million) sales order to deliver food safety
            total lab solutions to the Beijing municipal government.




 "We are pleased to report that our strong growth in the first nine  months and third quarter was driven by our investments in developing  diagnostic total solutions that meet our customer's needs, rather than  selling individual products.  As a first mover we have limited  competition in providing diagnostic total solutions that combine  equipment, installation, training, our proprietary lab management  system and ongoing service and reagents" said Wilson Yao, CEO of China  Health. "The value we are providing is recognized in our growth of  revenues and margins.  We believe that the future growth of the Company  will be driven by revenues and profits from the proprietary solutions  we have developed." 

 Revenue for the three and nine months ended September 30, 2011 increased  by 23% to $10.772 million and by 42% to $25.626 million, respectively,  compared to the same periods last year. The growth in revenues was  largely due to increased sales of POCT solutions and the completion of  the contract to install 587 BK Clinlabs in Jilin Province.  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 nine months ended  September 30, 2010 accounted for approximately 26% and 54% respectively  of total revenues of $33.705 million for the year ended December 31,  2010. 

 Gross margin for the three and nine months ended September 30, 2011  increased by 130% to $4.266 million and by 99% to $11.459 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 in the current nine months ended September 30, 2011. 

 Gross margin as percentage of revenues for the three and nine months  ended September 30, 2011 was 40% and 45%, respectively compared to 21%  and 32% for the same periods last year. The increase in gross margin as  a percentage of revenue was due to changes in sales mix.  The higher  gross margin as a percentage of revenue for the three and nine months  ended September 30, 2011 was largely due to strong growth in high  margin POCT solution sales and the completed installation of the 587 BK  Clinlabs. Revenues from the Company's total lab solutions were  approximately 72% and 61% of total revenues for the three and nine  months ended September 30, 2011, respectively, compared to 19% and 23%  for the prior comparable periods. In the three and nine months ended  September 30, 2010, the Company sales mix largely consisted of sales of  in-vitro diagnostic equipment to large urban hospitals, which generate  lower gross margin as compared to the sales of total lab solutions. 

 In 2010, revenue from the total lab solutions grew by close to 100% and  accounted for approximately 41% of total annual revenues of $33.7  million.  In 2011, revenue from total lab solutions for rural  hospitals, POCT solutions for military and emergency services and food  safety total lab solutions is expected to account for an increasing  percentage of total annual revenues.   The Company expects that gross  margin as a percentage of revenues for fiscal year 2011 will be  comparable or higher than the gross margin for fiscal year 2010, which  was 39%, due to the strong margins generated by the total lab  solutions. 

 Administrative expenditures for the three and nine months ended  September 30, 2011 increased by 77% to $1.416 million and by 88% to  $4.161 million, respectively, compared to the same periods last year.  The principal reason for the increase was 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 on  the TSX-V since October 2010. Administrative expenses as a percentage  of revenues increased to 13% and 16% for the three and nine months  ended September 30, 2011, respectively, in comparison to 9% and 12% for  the comparative periods last year. 

 Research and development expenditures for the three and nine months  ended September 30, 2011 were $0.111 million and $0.451 million,  respectively, an increase of 71% and 128% as compared to the same  periods last year.  Research and development expense as a percentage of  revenues were approximately 1% for the three months ended September 30,  2011, about the same as the comparable period last year. Research and  development expense as a percentage of revenues increased to 2% for the  nine months ended September 30, 2011, compared to about 1% for the nine  months ended September 30, 2010. 

 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 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 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 ($1.628 million), with China  Health providing RMB 2 million ($0.326 million) and the Chinese  military providing RMB 8 million ($1.302 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. 

 During the nine months ended September 30, 2011, the Company developed  and launched their new Type B POCT diagnostic field lab which is slated  to replace the Type A POCT diagnostic field labs. The Company continues  to work closely with its customers to develop new and improved  solutions. 

 Selling expenses for the three and nine months ended September 30, 2011  increased by 172% to $0.632 million and by 99% to $1.281 million,  respectively, compared to the same periods last year. Selling expense  as a percentage of revenues was 6% and 5% for the three and nine months  ended September 30, 2011, respectively, compared to 3% and 4% for the  same periods last year, respectively. 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 nine months ended September  30, 2011 was $0.190 million and $0.601 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  September 2011 and to employees and consultants in April 2011. The fair  value of options granted on October 25, 2010 was estimated on the date  of grant at $0.718 million, of options granted on April 14, 2011 was  estimated on date of grant at $0.607 million and of options granted on  September 1, 2011 was estimated on date of grant at $0.049 million  using the Black-Scholes option-pricing model. The fair values of  options are expensed over the vesting period ending on October 25,  2011, April 14, 2014 and September 1, 2014, respectively.  No options  were granted by the Biochem Group prior to the completion of the  Qualifying Transaction in October 2010, hence there was no share-based  compensation in the comparative period. 

 Government subsidy income for the three and nine months ended September  30, 2011 was $0.054 million and $0.134 million, respectively, compared  with $0.333 million and $0.375 million, respectively, for the  comparable periods last year. From time to time, the Company will  receive government subsidy on one of the PRC subsidiaries' value-added  taxes collected on sales. A substantial government subsidy is  calculated based on one of the PRC subsidiaries' value-added taxes  collected on sales. 

 Current income tax expense for the three months ended September 30, 2011  was $0.142 million compared with income tax recovery of $0.067 million  for the comparable period last year.  The recovery in current income  tax for the prior period is mainly due to the utilization of loss  carryforward. Current income tax expense for the nine months ended  September 30, 2011 was $0.432 million compared with $0.343 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 nine months ended September 30, 2011 increased  by 46% to $1.592 million and by 66% to $4.228 million, respectively,  compared to the same periods last year.  Profit in the current three  and nine months ended September 30 represents 15% and 16% of gross  revenue, respectively, compared to 12% and 14% 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 labs solution and POCT total lab  solutions, which generate higher margins than the Company's other  products and solutions. Profit as a percentage of revenues was slightly  higher in the current three and nine months ended September 30, 2011  due to the higher sales mix of rural labs solution and POCT total labs  solutions completed in the current periods. However, the higher margins  generated were partially offset by higher administrative expenses  incurred to support overall increase in the Company's operations,  share-based compensation expenses and additional costs associated with  being a public Company on the TSX-V since October 2010, which were not  incurred during the comparable three months ended September 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 $0.06 for the three and nine  months ended September 30, 2011, respectively, compared to $0.02 and  $0.05 for the comparable periods last year due to increased profit  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 issuing 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 nine  months ended September 30, 2011 was 65,261,986 (fully diluted  67,287,479), compared to 52,232,518 basic and fully diluted average  shares outstanding for the comparable period last year. 

 Cash and short-term investments totalled $7.059 million as at September  30, 2011, compared with $5.726 million of cash and short-term  investments as of December 31, 2010.  The Company's working capital as  of September 30, 2011 was $22.713 million, compared with a $16.063  million working capital as of December 31, 2010.  Working capital  increased by $6.650 million, or 41%, mainly due to an increase in  inventories by $3.371 million and a decrease in deferred revenue by  $1.984 million and loans payable by $1.126 million, which was offset by  $1.050 million of reduction on short-term investments and $2.927  million increase in trade payables and accrued liabilities. 

 The Company is well positioned to expand its business for rural lab  total solutions, POCT lab solutions and food safety lab solutions.  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 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. 

 China Health continues 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 Wednesday,  November 30, 2011 at 10:00am (Eastern Time). 

 The purpose of this conference call will be to provide investors with an  update of the third 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. 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:  Wednesday, November 30, 2011

    TIME:  10:00am,Eastern Time

       

    Participant Dial-In Number(s):

      North America Toll-Free Dial-In Number:  1 [phone]

      For Toronto and International Callers:   1 [phone]






 A Taped Replay will be available from 1:00 pm Eastern Time on November  30, 2011 to 11:59 pm Eastern Time on December 14, 2011. 

 Taped Replay Toll Free Number: 1.855.859.2056 

 Taped Replay Local Dial-in Numbers: 





    [phone]     [phone]     [phone]

    [phone]     [phone]     [phone]






 Taped Replay Password: 30217441 

 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 the Company's growth strategy,  requirements for financing, changes in gross margin, revenues, expenses  and profit, and 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 products and  services, operations, market, marketing plans and strategies,  competitive conditions, future developments and proprietary protections  continue as projected, and that 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 may not  proceed or alter its growth strategy, 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 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.  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. 

   

CHINA HEALTH LABS & DIAGNOSTICS


CONTACT:  Judyanna ChenChief Financial OfficerChina Health Labs & Diagnostics Ltd.T: [phone]Email: [e-mail] PedramInvestor RelationsTMX Equicom GroupT: [phone] ext. 264Email: [e-mail] 


    

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