TSX-V: CHO OTCQX: CHLBF www.chinahealthlabs.com TORONTO,
May 31, 2012 /CNW/ - China Health Labs & Diagnostics Ltd.
("China Health" or the "Company") , is pleased to announce the
financial results for the first quarter ended March 31, 2012. In
the first quarter, 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 2012. In 2011, China Health generated revenue
growth of 35% to $45.6 million and profit growth of 53% to over $8
million, compared to 2010. In 2012, the Company expects to
deliver growth in revenue and profits, compared to 2011. The
Company is not providing specific guidance for 2012, but expects
growth in net profits to be lower than the 53% in 2011, due to
increased investment in product development and human resources to
support expansion into new regions of China. Highlights from first
quarter ended March 31, 2012 include: -- Revenue grew by 17%
to $7.883 million and profit decreased by 37% to $0.772 million for
the quarter ended March 31, 2012 compared to the quarter ended
March 31, 2011. -- Earnings per share decreased to $0.01 per basic
and diluted share for the quarter ended March 31, 2012 compared to
$0.02 for the quarter ended March 31, 2011. -- Increased installed
base of BK Clinlabs to 858 rural hospitals, including the
installation of 41 BK Clinlabs in rural hospitals, with 40
installed in Chongqing and 1 in Xinjiang Uygur Autonomous Region.
-- Increased sales in the urban hospital and labs sector by 25% to
$4.327 million, mostly from increased sales of reagent and
consumables. -- Launched five new products in March 2012 for its
total lab solutions businesses, leveraging the Company's
proprietary technologies, which are expected to generate new
revenue and strong gross margins. Delivered 63 rural mobile labs,
one of the new products, which integrate the Company's point of
care technology ("POCT") and lab managements system to deliver
diagnostics to remote rural communities. (See press releases dated
March 15, 2012 and March 27, 2012). The Company's first 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 profits, due to the
seasonality of the Company's customers' purchasing and budgeting
processes. For example in 2011, the first quarter accounted
for approximately 15% of annual revenue and profit, while the
fourth quarter accounted for approximately 43% of annual revenue
and 48% of annual profit. The Company expects a similar
seasonality of revenue and profit in 2012. For further
information on seasonality, please see the Company's financial
statements and MD&A filed on SEDAR. Subsequent to the first
quarter, the Company entered into agreements that will increase its
installed base of BK Clinlabs to 965 rural hospitals (see Press
Release dated May 29, 2012.) In addition, the Company secured
new sales orders for its high margin POCT field diagnostic total
lab solutions. "In the first quarter, our sales and product
development teams worked with our customers to ensure that we can
meet their needs for 2012 with new and existing products and
solutions. While the first quarter is always our slowest for
revenue, 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 in the first quarter, we are confident that we can achieve
our operating goals and generate another year of growth in revenue
and profits in 2012." Revenue for the quarter ended March 31, 2012
increased by 17% to $7.883 million, compared to $6.759 million for
the quarter ended March 31, 2011. 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 are
generally large sales orders that are not placed evenly throughout
the year. Based on discussions with customers, the Company
expects revenue from POCT solutions and products to increase for
the full year of 2012, compared to 2011. In 2011, revenue from
large urban hospitals decreased by 6%, compared to overall growth
of revenue of 35% in 2011. In 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
quarter ended March 31, 2012 increased by 6% to $4.147 million,
compared to $3.894 million for the quarter ended March 31, 2011 due
to overall increase in revenue. Gross margin as a percentage of
revenue for the quarter ended March 31, 2012 was 53% compared to
58% for the quarter ended March 31, 2011. The decrease in gross
margin as a percentage of revenue was due to changes in sales
mix. The lower gross margin as a percentage of revenue for
the quarter ended March 31, 2012 was due to the decrease in revenue
for the higher margin POCT solution and products for the quarter
ended March 31, 2012 as compared to the same period in 2011.
The Company expects the gross margin for 2012 will be consistent
with the gross margin for 2011 of 44%, but expects gross margin to
vary on a quarterly basis due to changes in sales mix.
Administrative expenses for the quarter ended March 31, 2012
increased by 11% to $1.940 million, compared to $1.745 million for
the quarter ended March 31, 2011. 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 decreased to 25%
for the quarter ended March 31, 2012, in comparison to 26% for the
quarter ended March 31, 2011. Share-based compensation for the
quarter ended March 31, 2012 was $0.081 million, compared with
$0.188 million for the quarter ended March 31, 2011. 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 management in September 2011. Research and
development ("R&D") expenditures for the quarter ended March
31, 2012 decreased by 21% to $0.259 million, compared to $0.328
million for the quarter ended March 31, 2011. Research and
development expense as a percentage of revenue were approximately
3% for the quarter ended March 31, 2012, compared to 5% for the
quarter ended March 31, 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. Selling expenses for the quarter ended March 31, 2012
increased by 62% to $0.746 million, compared to $0.462 million for
the quarter ended March 31, 2011. Selling expense as a percentage
of revenue was 9% for the quarter ended March 31, 2012, compared to
7% for the quarter ended March 31, 2011. Selling expenses are
expected to increase in subsequent periods 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 quarter ended March 31, 2012 was $0.004
million, compared with $0.080 million for the quarter ended March
31, 2011. From time to time, the Company will receive government
subsidies for one of the PRC subsidiaries' that qualifies 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 quarter ended March 31, 2012 was $0.371 million, compared with
$0.322 million for the quarter ended March 31, 2011. 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. Operating profit for the quarter ended March 31, 2012
decreased by 16% to $1.206 million, compared to $1.439 million for
the quarter ended March 31, 2011. Profit for the quarter ended
March 31, 2012 decreased by 37% to $0.772 million, compared to
$1.224 million for the quarter ended March 31, 2011. Profit
includes operating profit, interest expense, interest income and
foreign exchange loss. Profit in the quarter ended March 31, 2012
represents 10% of revenue, compared to 18% of revenue for the
quarter ended March 31, 2011. The decrease in operating profit and
profit is due to the lower sales of POCT total lab solutions in the
current quarter as compared to the same quarter last year, which
generates higher margins than the Company's other products. Also,
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 for the quarter ended March 31, 2012 and
$0.02 for the quarter ended March 31, 2011. The decrease in EPS is
due to the decrease in profit for the quarter ended March 31, 2012
as compared to the same period last year. The average number of
basic ordinary shares outstanding for the quarter ended March 31,
2012 was 65,606,686 (fully diluted 65,607,087), compared to
64,780,452 (fully diluted 67,183,226) average shares outstanding
for the quarter ended March 31, 2011. Cash and short-term
investments totaled $6.358 million as at March 31, 2012, compared
with $5.661 million of cash and short-term investments as of
December 31, 2011. The Company's working capital as of March
31, 2012 was $26.509 million, compared with a $26.538 million
working capital as of December 31, 2011. Working capital
decreased by $0.029 million due to the decrease in total current
assets of $1.994 million offset by the decrease in total current
liabilities of $1.965 million. The Company is well positioned to
expand its business for rural lab total 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 Thursday, May 31, 2012 at 10:00 am (Eastern Time). The purpose
of this conference call will be to provide investors with an update
on the first quarter ended March 31, 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: Thursday, May 31, 2012 TIME: 10:00 am, Eastern Time
Participant Dial-InNumber(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 May 31, 2012 to 11:59 pm Eastern Time on June 14,
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:
83319568 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 new products
generating new revenue and increasing gross margins; an increase in
the stalled base of BK Clinlabs; 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'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 discuss 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:
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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