TSX-V: CHO OTCQX: CHLBF TORONTO, Aug. 29, 2012 /CNW/ -
China Health Labs & Diagnostics Ltd. ("China Health" or the
"Company") , is pleased to announce the financial results for the
second quarter ended June 30, 2012. In the six months ended June
30, 2012, the Company maintained its position as a leading provider
of total solutions for medical diagnostics and food safety testing
in China, and made progress in delivering another year of growth in
fiscal year 2012. In fiscal year 2011, China Health generated
revenue growth of 35% to $45.6 million and profit growth of 53% to
over $8 million, compared to fiscal year 2010. In fiscal year
2012, the Company expects to deliver growth in revenue and profits,
compared to fiscal year 2011. The Company is not providing
specific guidance for fiscal year 2012, but expects growth in net
profits to be lower than the 53% in fiscal year 2011, due to
increased investment in product development and human resources to
support expansion into new regions in China. Highlights from the
three and six months ended June 30, 2012 includes: -- Revenue grew
by 9% to $16.244 million and profit decreased by 44% to $1.481
million for the six months ended June 30, 2012 compared to the same
period last year. -- Revenue grew by 3% to $8.361 million and
profit decreased by 50% to $0.710 million for the three months
ended June 30, 2012 compared to the same period last year. --
Increased installed base of BK Clinlabs to 897 rural hospitals
including in four new provinces and region in 2012. -- Increased
sales in the urban hospital and labs sector by 17% to $8.900
million, mostly from increased sales of reagent and consumables,
for the six months ended June 30, 2012. -- Increased sales in the
rural hospital and clinics sector by 34% to $3.090 million due to
higher sales price on BK Clinlabs installed in the six months ended
June 30, 2102 as compared to BK Clinlabs installed in same period
last year. The Company's first and second quarter revenue and
profit are generally the lowest as a percentage of annual revenue,
while the third and fourth quarters tend to comprise the largest
percentage of revenue and profit, due to the seasonality of the
Company's customers' purchasing and budgeting processes. For
example, revenue and profit for the six months ended June 30, 2011
accounted for approximately 33% of total revenue and profit,
respectively for the fiscal year 2011, while the fourth quarter
accounted for approximately 43% of total revenue and 48% of profit
for the year ended December 31, 2011. The Company expects that the
majority of fiscal year 2012 revenue and profit will be generated
in the third and fourth quarters, similar to the seasonality in the
prior year. For further information on seasonality, please see the
Company's financial statements and MD&A filed on SEDAR. "The
Company has made much progress in expanding its total lab solutions
business to new provinces and regions. In the current year, the
Company has installed and contracted its BK Clinlabs to five new
provinces and regions, an increase to nine provinces and regions to
date. The growth of our rural hospital and clinics sector and also
in reagent and consumable sales to urban hospitals and labs
resulted in higher sales in the current six-month period as
compared to sales in the same period last year. Typically, the
first two quarters is always our slowest for revenue; however, our
team works very hard to make sure that our solutions are worked
into the annual budgets of our Chinese government customers," said
Wilson Yao, CEO of China Health. "Based on our progress to date, we
are confident that we can achieve our operating goals and generate
another year of growth in revenue and profit in 2012." Revenue for
the three and six months ended June 30, 2012 increased by 3% to
$8.361 million and by 9% to $16.244 million, respectively, compared
to the same periods last year. The growth in revenue was largely
due to increased sales in the rural hospital and clinics and large
urban hospital and labs sectors, offset by a decrease in revenue
for POCT solutions and products for defense and rescue agencies
sector. Revenue from POCT solutions and products is generally
from large sales orders that are not placed evenly throughout the
year. The Company expects revenue from POCT solutions and
products to increase for the full year of 2012, compared to fiscal
year 2011. In fiscal year 2011, revenue from large urban
hospitals decreased by 6%, compared to overall growth of revenue of
35% in fiscal year 2011. In fiscal year 2012, the Company
expects the large urban sector to grow due to expected increased
sales in recurring revenue of reagents and consumables. Gross
margin for the three and six months ended June 30, 2012 increased
by 27% to $4.185 million and by 16% to $8.332 million,
respectively, compared to the same periods last year, due to
overall increase in revenue during the current three and six months
ended June 30, 2012. Gross margin as a percentage of revenue for
the three and six months ended June 30, 2012 were 50% and 51%,
respectively, compared to 41% and 48%, respectively for the same
periods last year. 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 current six month period as
compared to last year. On average, the gross margin as a percentage
of revenues for BK Clinlabs installed, including the Rural Mobile
Labs in the six months ended June 30, 2012 was approximately 20%
higher as compared to BK Clinlabs installed in the same period last
year. The gross margin as a percentage of revenue on POCT was also
approximately 17% higher on sales of solutions and products in the
current six months period as compared to the same period last year.
The higher margin in BK Clinlabs and POCT solutions and products
was netted against lower margins on sales in the large urban
hospital and labs sectors. The Company expects the gross margin for
fiscal year 2012 to be consistent with the gross margin for fiscal
year 2011 of 44%, but expects gross margin to vary on a quarterly
basis due to changes in sales mix. Administrative expenses for the
three and six months ended June 30, 2012 increased by 22% to $1.836
million and by 16% to $3.776 million, respectively, 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.
Administrative expenses as a percentage of revenue increased to 22%
for the three months ended June 30, 2012, compared to 19% for the
same period last year and to 23% for the six months ended June 30,
2012, compared to 22% for the same period last year. Share-based
compensation for the three and six months ended June 30, 2012 was
$0.046 million and $0.127 million, respectively, compared with
$0.223 million and $0.411 million, 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 $0.669 million and of options granted
on September 1, 2011 was estimated on date of grant at $0.048
million 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 six months ended June 30,
2012. Research and development ("R&D") expenditure for the
three and six months ended June 30, 2012 increased by 2652% to
$0.330 million and by 73% to $0.589 million, respectively, compared
to the same periods last year. Research and development
expenses as a percentage of revenue was approximately 4% for the
three and six months ended June 30, 2012, compared to 0% and 2%,
respectively for the same periods last year. 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 tailor made to customer needs. In March 2012,
the Company launched four new products: Type C POCT Diagnostic
Field Lab, Rural Emergency Rescue Medical Total Solution, BK Early
Diagnosis System for Cardio-Cerebral Vascular Disease and BK Food
Safety Rapid Test System. These new products were developed
to meet specific medical diagnostic and food testing needs of
customers and based on the Company's knowledge of Chinese
government policy and budget priorities. Selling expenses for the
three and six months ended June 30, 2012 increased by 338% to
$0.822 million and by 142% to $1.568 million, respectively,
compared to the same periods last year. Selling expenses as a
percentage of revenue was 10% for the three and six months ended
June 30, 2012, compared to 2% and 4%, respectively for the same
periods last year. Selling expenses are expected to be higher in
2012 as compared to 2011 due to plans to expand the rural lab
solution business to additional Chinese provinces and the food
safety business to additional Chinese cities. Government subsidy
income for the three months ended June 30, 2012 increased to $0.064
million from $nil in the same period last year and for the six
months ended June 30, 2012 decreased by 15% to $0.068 million
compared to the same period last year. From time to time, the
Company will receive government subsidies for one of the PRC
subsidiaries that qualify as a high-tech Company and is involved in
developing the Company's lab management software, and also for
another PRC subsidiary that is located in a certain district and is
eligible for government grant based on outstanding performance.
Current income tax expense for the three months ended June 30, 2012
was $0.480 million, compared to an income tax recovery of $0.032
million for the same period last year. Current income tax for the
six months ended June 30, 2012 was $0.851 million, compared to
$0.290 for the same period last year. The increase in income taxes
is mainly due to an overall increase in taxable income being earned
by the Company's PRC subsidiaries subject to the 25% tax rate, in
comparison to the taxable income earned by the Company's PRC
subsidiaries which are subject to preferential tax rates. The
higher income taxes and effective income tax rates are due to the
timing of when intercompany sales are delivered to customers. For
intercompany sales not yet delivered to customers within the
reported period will result in higher taxes as a percentage of the
consolidated profit before taxes as each of the Company's PRC
subsidiaries would incur taxes on goods sold to its subsidiaries.
The effective income tax rates would be lower in the period when
intercompany sales are sold to its customers. Operating profit for
the three and six months ended June 30, 2012 decreased by 21% to
$1.261 million and by 19% to $2.467 million, respectively, compared
to the same periods last year. Profit for the three and six months
ended June 30, 2012 decreased by 50% to $0.710 million and by 44%
to $1.481 million, respectively, compared to the same periods last
year. Profit includes operating profit, interest expense,
interest income and foreign exchange gain/ loss. Profit for the
three and six months ended June 30, 2012 represents 8% and 9% of
revenue, respectively compared to 17% and 18% of revenue,
respectively for the same periods last year. The decrease in
operating profit and profit is due to increased expenses and
current income taxes. As the Company grows and continues its effort
to expand its total lab solution businesses to other provinces and
cities, expenses are expected to increase as a percentage of
revenue. Basic and fully diluted EPS was $0.01 and $0.02 for the
three and six months ended June 30, 2012, respectively, compared to
$0.02 and $0.04 for the three and six months ended June 30, 2011,
respectively. The decrease in EPS is due to the decrease in profit
for the three and six months ended June 30, 2012 as compared to the
same periods last year. The average number of basic ordinary shares
outstanding for the six months ended June 30, 2012 was 65,606,686
(fully diluted 65,606,887), compared to 65,097,415 (fully diluted
67,218,861) average shares outstanding for the six months ended
June 30, 2011. Cash and short-term investments totaled $5.432
million as at June 30, 2012, compared with $5.661 million of cash
and short-term investments as of December 31, 2011. The
Company's working capital as of June 30, 2012 was $27.004 million,
compared with a $26.538 million working capital as of December 31,
2011. Working capital increased by $0.466 million due to the
increase in total current assets of $0.548 million offset by the
increase in total current liabilities of $0.082 million. 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
2012 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 2012, 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 Wednesday, August 29, 2012 at 10:00 am (Eastern
Time). The purpose of this conference call will be to provide
investors with an update on the second quarter ended June 30, 2012
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, August 29, 2012 TIME:
10:00 am, 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 August 29, 2012 to 11:59 pm
Eastern Time on September 12, 2012. 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: 23951000 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 2011, China Health had revenue of approximately
$45.6 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 delivering growth in revenue and profits in 2012; growth in net
profits to be lower than in 2011 due to increased investment in
product development and human resources to support expansion into
new regions of China; similar seasonality effects as in the past;
the achievement of operating goals and another year of growth in
revenue and profit in 2012; an increase in revenue from POCT
solutions and products and from recurring revenue of reagents and
consumables from the large urban sector; the gross margin for 2012
to be consistent with the gross margin for 2011, but to vary on a
quarterly basis; an increase in selling expenses due to plans to
expand the rural lab solution business to additional Chinese
provinces and the food safety business to additional Chinese
cities; an increase in expenses as a percentage of revenue as the
Company expands its total lab solution businesses, 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
revenue 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 revenue. The
forward-looking information is based on certain assumptions, which
could change materially in the future, including the assumption
that the Company will achieve its operating goals, that the Company
will deliver products as contracted and able to collect and
recognize revenue, that actual revenue, expenses, gross margins and
profits with certain business lines or the business as a whole will
substantially meet budget or management's expectations, that the
Company will continue with its growth strategy including the
expansion of businesses, that additional debt or equity funding
required to accelerate growth, and 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 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, revenue 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 year ended
December 31, 2011 management's discussion and analysis dated April
16, 2012, 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. CHINA HEALTH
LABS & DIAGNOSTICS CONTACT: Please contact:Judyanna ChenChief
Financial OfficerChina Health Labs & Diagnostics Ltd.T: (416)
865-3351Email: jchen@chinahealthlabs.comBabak PedramInvestor
RelationsTMX Equicom GroupT: (416) 815-0700 ext. 264Email:
bpedram@equicomgroup.com
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