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CHINA HEALTH LABS & DIAGNOSTICS LTD. ANNOUNCES FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2011

06/29/2011


TSX-V: CHO
OTCQX: CHLBF

TORONTO, June 29, 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 first quarter ended March 31, 2011.

  • In Q1 2011, the Company achieved its business and financial goals and made progress on its mission of becoming a leading provider of total lab solutions for medical diagnostics and food safety testing in China:

  • Gross revenues grew by 52% to $6.759 million in Q1 2011 compared to Q1 2010;

  • Profit grew by 283% to $1.224 million in Q1 2011 compared to Q1 2010;

  • More than doubled sales of point of care technology ("POCT") solutions;

  • Increased sales of food safety lab equipment; and,

  • Prepared for the installation of 587 BK Clinlabs in Jilin Province, and subsequent to the end of Q1 2011, installed 200 BK Clinlab rural total lab solutions in Jilin Province, increasing the total installed BK Clinlabs to 410 locations in four Chinese provinces.

The Company has entered 2011 well positioned for further growth and with sufficient capital to expand its business for rural total lab solutions, POCT lab solutions and food safety lab solutions, including the 587 locations to be installed in Jilin Province.  The Company will 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.

"Our investment in developing POCT technology and products lead to a strong first quarter with a new customer, the NERT (National Emergency Rescue Team), ordering 13 "Type A" POCT solutions, based on our track record of providing the POCT solutions to the Chinese military," said Wilson Yao, President and CEO of China Health, "We believe that in 2011 our growth will be driven by revenues and profits from the proprietary solutions we have developed. After the first quarter, we signed the contract to install 587 BK Clinlabs in Jilin and have already installed 200 and we are on schedule to install all 587 in 2011, compared to 126 BK Clinlabs installed in 2010."

Gross revenue for Q1 2011 increased by 52% to $6.759 million compared to the same period in 2010.  The growth in revenues was largely due to increased sales of the Company's proprietary POCT total lab solution for the Chinese military and NERT, which grew by 246% to $2.275 million to account for 33.7% of revenues in Q1 2011, compared to $0.657 million or 14.8% of revenues for the same period in 2010. 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 being the smallest due to the budgeting process of the Company's customers and Chinese New Year holidays, and fourth quarter revenue expected to be the largest due to deliveries of products and services that have been ordered during the year.  In 2010, revenues for the first quarter accounted for approximately 13% of total annual revenues of $33.751 million.

Gross margin increased by 183% to $3.894 million in Q1 2011 compared to the same period in 2010, due to the increase in revenues and the change in sales mix.  Gross margin as percentage of sales increased to 58% for Q1 2011 compared to 31% for Q1 2010 mainly due to the growth in sales of POCT total lab solutions, which generate higher margins than the Company's other products and solutions. The Company expects that gross margin as a percentage of sales for the full year of 2011 will be close to the same as in 2010 when it was 39.3%.

Administrative expenditures for Q1 2011 were $1.518 million compared to $0.771 million in Q1 2010, an increase of $0.747 million or 97%. The principal reason for the increase was a need for an increased amount of overhead including employees and facilities to support a growing customer base and sales, as well as additional costs to maintain listing of the Company on the TSX-V. Administrative expenses as a percentage of revenues increased to 22% for Q1 2011 in comparison to 17% for the comparative period in Q1 2010. Administrative expenses as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

Research and development expenditures for Q1 2011 were $0.328 million, an increase of $0.281 million or 598% compared with $0.047 in Q1 2010.  Research and development expense as a percentage of revenues increased to 5% for Q1 2011, compared to about 1% for Q1 2010. Research and development expense as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

In 2010, research and development focused on POCT products for the Chinese military and improving the automation in certain diagnostic equipment. In 2011, research and development is focused on developing a full range of POCT solutions and improving the Company's proprietary and patented 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 Q1 2011, the Company commenced research and development with the Chinese military pursuant to a three-year research and development agreement signed in late 2010 with the Chinese Military Medical Equipment Research Institute, based in Tianjin, and with the Chongqing Third Military Medical University, based in Chongqing.

Selling expenses for Q1 2011 were $0.462 million, an increase of $0.303 million or 191% from $0.159 million in Q1 2010.  Selling expense as a percentage of revenues increased to 7% for Q1 2011, compared to 4% for the same period last year.  The increase in selling expenses was due to expanding the rural lab solution sales and marketing teams to additional Chinese provinces and the food safety business to additional Chinese cities. Selling expenses as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

Share-based compensation for Q1 2011 was $0.188 million compared with $Nil for the Q1 2010. No options were granted by the Biochem Group prior to becoming a subsidiary of the Company and listing on the TSX Venture Exchange in October 2010, hence there was no stock based compensation in the comparative period.

Government subsidy income for Q1 2011 was $0.080 million compared with $0.030 million for Q1 2010. A substantial government subsidy is calculated based on one of the PRC subsidiaries' value-added taxes collected on sales.  Increase in government subsidy mainly arose due to increase in sales generated through this particular PRC subsidiary.

Current income taxes for Q1 2011 were $0.322 million compared with $0.057 million for Q1 2010.  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.  The increase in income taxes is mainly due to an overall increase in income, an increase in non-tax deductible expenses such as share based compensation as well as expenditures incurred outside of the PRC to maintain the Canadian stock exchange listing.

Profit for the quarter ended March 31, 2011 increased by 283% to $1.224 million compared to the same period in 2010. Profit in the current period represents 18% of gross revenue, compared with 7% of gross revenue in Q1 2010. The increase in profit and profit margin was mainly due to the growth in sales of POCT total lab solutions, which generate higher margins than the Company's other products and solutions. The first quarter is historically the smallest for the Company's profits due to the seasonality of its customers' budgeting and purchasing, such that in 2010 Q1 accounted for 6% of the Company's annual net income.

Cash and short-term investments were $3.236 million as at March 31, 2011, compared with $5.6726 million as of December 31, 2010.  The Company's working capital as of March 31, 2011 was $17.165 million, compared with a $16.063 million working capital as of December 31, 2010.

The Company has sufficient working capital to fund the anticipated growth for 2011, including the installation of 587 BK Clinlab total lab solutions in Jilin Province.  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 Wednesday, June 29, 2011 at 10:00am Eastern Time. The purpose of this conference call will be to provide investors with an update of the first quarter results of the Company.  Representatives of China Health on the conference call will be:

      Mr. Shiping (Wilson) Yao, President and Chief Executive Officer
Mr. Adam Kniec, 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, June 29, 2011
TIME:       10:00am, Eastern Time

Participant Dial-In Number(s):
      North America Toll-Free Dial-In Number:         (888) 231-8191
      For Toronto and International Callers:         (647) 427-7450

A Taped Replay will be available from 1:00pm Eastern Time on June 29, 2011 to 11:59pm Eastern Time on July 14, 2011.

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: 77810454

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 AND NON-IFRS MEASURES

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 general growth prospects, its growth in revenues, gross margin and profits, changes in expenses including as a percentage of revenue, its capital requirements to expand its business through sales or acquisitions, and its business expansion plans.  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 margin and profits will continue to grow, changes in its expenses including as a percentage of revenues will be as expected, its capital requirements to expand its business through additional sales or acquisition may require additional debt or equity funding, and the Company will proceed with its business expansion plans.  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 risks that the Company's general growth may not increase, its revenues, gross margins and profits may not increase, changes in its expenses including as a percentage of revenues may not be as expected or otherwise have a negative effect its financial results, the Company may not be able to access additional debt or equity funding for its sales and acquisition opportunities, and the Company's business expansion plans may be altered or not go forward.  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.

China Health has also included in this press release figures based on a contract, which is a non-IFRS measure.  Readers are cautioned that such a measure is not recognized under IFRS and should not be construed to be an indicator of performance or liquidity or cash flows.  China Health's method of calculating this measure may differ from the method used by other entities and accordingly China Health's measure may not be comparable to the measure used by other entities.

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.



TSX-V: CHO:

July 1, 2011 Investor Presentation 1.07 MB
January 2, 2011 Investor Factsheet 532 KB
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