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Press release from CNW Group

China Health Labs & Diagnostics Ltd. announces financial results for the year ended December 31, 2011

Tuesday, April 17, 2012

China Health Labs & Diagnostics Ltd. announces financial results for the year ended December 31, 201108:00 EDT Tuesday, April 17, 2012TSX-V: CHOOTCQX: CHLBFwww.chinahealthlabs.comTORONTO, April 17, 2012 /CNW/ - China Health Labs & Diagnostics Ltd. ("China Health" or the "Company") (TSXV:CHO; OTCQX:CHLBF), is pleased to announce the financial results for the year ended December 31, 2011.The Company continues to show strong performance in being the leading provider of total solutions for medical diagnostics and food safety testing in China and achieved its business and financial goals for the year ended December 31, 2011:Revenue grew by 35% to $45.611 million and profit grew by 53% to $8.072 million for the year ended December 31, 2011 compared to the year ended December 31, 2010;Earnings per share increased to $0.12 per basic and diluted share for year ended December 31, 2011 compared to $0.10 for the year ended December 31, 2010.Increased installed base of BK Clinlab total solution diagnostic labs ("BK Clinlabs") to 833 rural hospitals, from 210 locations at the start of 2011. Completed installation of 623 BK Clinlabs total lab solutions in rural hospitals, with 587 installed in Jilin Province, 20 in Guizhou Province and 16 in Chongqing.Revenues from point of care technology ("POCT") solutions and products grew 98% to $10.97 million in fiscal 2011, compared with POCT revenues of $5.53 million in fiscal 2010;Delivered 67 POCT diagnostic solutions and 30 POCT backpacks, compared with 35 POCT diagnostic solutions and nil backpacks delivered in fiscal 2010. The deliveries in 2011 included sales to new customers such as the China's National Emergency Rescue Team, Chinese Armed Police Force and the Beijing Emergency Affairs Office; andCompleted a $9.938 million (RMB 61.5 million) sales order to deliver food safety total lab solutions to the Beijing municipal government during the fourth quarter of 2011, representing a 77% increase in food safety revenues compared to fiscal 2010."In 2011, our growth was driven by a breakthrough year for our total lab solutions business, where we provide our customers with turn-key solutions for medical diagnostic labs and food safety testing.  The growth of our revenues and margins are a result of the value our solutions deliver to our customers," said Wilson Yao, CEO of China Health. "We achieved a key milestone by completing our first provincial level installation of 587 diagnostic labs in rural hospitals in Jilin province, showing provincial decision makers in China that we can deliver a large project, including the implementation of a service network to provide an ongoing reagents, consumables and maintenance.  Our investment in R&D for product development helped us add new customers for our POCT business and facilitated the growth of our food safety business with new and improved software for our lab management system.  We worked with our customers in 2011 to develop and improve solutions that leverage our proprietary expertise and technology for lab management, resulting in the launching of new products this year that will help us serve our customers and deliver strong growth for our shareholders in 2012 and beyond."Revenue for the year ended December 31, 2011 increased by 35% to $45.611 million, compared to $33.705 million for the year ended December 31, 2010. The growth in revenues was largely due to increased sales for each of the Company's total lab solution business sectors, being the rural hospital and clinics, point of care technology solutions and food safety. Revenues from total lab solutions, including all three sectors, increased by 99% to comprise 58% of total revenues in 2011, compared to 40% of total revenues in 2010.Gross margin for the year ended December 31, 2011 increased by 51% to $20.044 million, compared to $13.235 million for the year ended December 31, 2010 due to increased revenue in the total lab solution business sectors in 2011. Gross margin as a percentage of revenues for the year ended December 31, 2011 was 44% compared to 39% for the year ended December 31, 2010.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 year ended December 31, 2011 was due to strong growth in higher margin POCT solution sales and revenues from the installation of the 607 BK Clinlabs. The total revenues from POCT solutions and BK Clinlabs was approximately 38% of total revenues for the year ended December 31, 2011, compared to 24% for the year ended December 31, 2010. In the year ended December 31, 2010, 60% of Company's revenues consisted of sales of in-vitro diagnostic equipment to large urban hospitals, compared to 42% in 2011, which generate lower gross margin as compared to the sales of POCT solutions and BK Clinlab rural total lab solutions.Administrative expenses for the year ended December 31, 2011 increased by 25% to $7.319 million, compared to $5.855 million for the year ended December 31, 2010. The principal reason for the increase was higher overhead costs including new employees and expanded 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, and the increase is offset by qualifying transaction costs of $1.710 million expensed in 2010. Administrative expenses as a percentage of revenues decreased to 16% for the year ended December 31, 2011, in comparison to 17% for the year ended December 31, 2010.Share-based compensation for the year ended December 31, 2011 was $0.795 million, compared with $0.379 million for the year ended December 31, 2010. The share-based compensation expense is a result of granting stock options to its employees including directors and officers in October 2010 and September 2011 and to employees in April 2011.Research and development ("R&D") expenditures for the year ended December 31, 2011 increased by 45% to $0.647 million, compared to $0.446 million for the year ended December 31, 2010.  Research and development expense as a percentage of revenues was approximately 1% for the years ended December 31, 2011 and 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 was 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 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 and according to the Company's knowledge of Chinese government policy and budget priorities.Selling expenses for the year ended December 31, 2011 increased by 122% to $2.170 million, compared to $0.977 million for the year ended December 31, 2010. Selling expense as a percentage of revenues was 5% for the year ended December 31, 2011, compared to 3% for the year ended December 31, 2010. 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. Selling and marketing expenditures include salaries and benefits, travel, promotion and advertising costs.Government subsidy income for the year ended December 31, 2011 was $0.449 million, compared with $0.412 million for the year ended December 31, 2010. From time to time, the Company will receive government subsidies for one of its 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 for outstanding performance.Current income tax expense for the year ended December 31, 2011 was $2.038 million, compared with $0.990 million for the year ended December 31, 2010. The increase in income taxes is mainly due to an overall increase in taxable income being earned by the legal entities subject to the 25% tax rate, in comparison to the taxable income earned by legal entities which are subject to preferential tax rates.Operating profit for the year ended December 31, 2011 increased by 63% to $10.357 million, compared to $6.369 million for the year ended December 31, 2010. Profit for the year ended December 31, 2011 increased by 53% to $8.072 million, compared to $5.281 million for the year ended December 31, 2010.  Profit includes operating profit, interest expense, interest income and foreign exchange loss. Profit in the year ended December 31, 2011 represents 18% of revenue, compared to 16% of revenue for the year ended December 31, 2010.The increase in operating profit and profit is due to the growing customer base and revenues, and to the growth in sales of rural lab solutions and POCT total lab solutions, which generate higher margins than the Company's other products. Profit as a percentage of revenues was higher in the year ended December 31, 2011 due to the increased sales of rural lab solutions and POCT total labs solutions relative to the Company's other products. 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.Basic and fully diluted EPS was $0.12 for the year ended December 31, 2011, compared to $0.10 for the year ended December 31, 2010 due to increased profit partially offset by issuing new shares from the exercise of stock options and share purchase warrants.The average number of basic ordinary shares outstanding for the year ended December 31, 2011 was 65,348,870 (fully diluted 67,218,937), compared to 54,651,427 (fully diluted 55,188,352) average shares outstanding for the year ended December 31, 2010.Cash and short-term investments totaled $5.661 million as at December 31, 2011, compared with $5.726 million of cash and short-term investments as at December 31, 2010.  The Company's working capital as of December 31, 2011 was $26.538 million, compared with a $16.063 million working capital as of December 31, 2010.  Working capital increased by $10.475 million, or 65%, mainly due to an increase in inventories by $4.228 million, increase in trade and other receivables by $4.213 million and a decrease in deferred revenue by $2.274 million and loans payable by $1.146 million, which was offset by $1.515 million increase in income taxes payable and $1.177 million decrease in loans receivable.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 of total lab solutions or if it pursues suitable acquisition opportunities. Outlook & Growth StrategyThe Company believes that it can continue its strong growth in revenues 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 revenues.China Health will be hosting an investor conference call on Tuesday, April 17, 2012 at 10:00am (Eastern Time).The purpose of this conference call will be to provide investors with the fourth quarter and year end results of the Company. Representatives of China Health on the conference call will be:Mr. Shiping (Wilson) Yao, President and Chief Executive OfficerMs. Judyanna Chen, Chief Financial OfficerMr. Kim Oishi, Member of the Board of DirectorsMr. Chao Zhang, Vice President, FinanceFollowing the update, a question and answer session will be held. To participate, the time and call-in instructions are as follows:DATE: Tuesday, April 17, 2012TIME: 10:00am, Eastern TimeParticipant Dial-In Number(s):    North America Toll-Free Dial-In Number: 1 (888) 231-8191   For Toronto and International Callers: 1 (647) 427-7450A Taped Replay will be available from 12:00 pm Eastern Time on April 17, 2012 to 11:59 pm Eastern Time on May 1, 2012.Taped Replay Toll Free Number: 1.855.859.2056Taped Replay Local Dial-in Numbers:(778) 371-8506  (416) 849-0833  (514) 807-9274(403) 451-9481  (613) 667-0035  (902) 455-3955Taped Replay Password: 70515797About 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 revenues 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 INFORMATIONThis 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 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; 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 revenues 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 revenues.  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, revenues 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 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 Company has also included in this news release figures based on sales orders, installation and deliveries, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS.  Readers are cautioned that such measures are not recognized under IFRS and should not be construed to be indicators of performance or liquidity or cash flows.  The Company's method of calculating these measures may differ from the method used by other entities and accordingly the Company's measures may not be comparable to the measures used by other entities.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.For further information: Judyanna Chen Chief Financial Officer China Health Labs & Diagnostics Ltd. T: (416) 865-3351 Email: jchen@chinahealthlabs.com Babak Pedram Investor Relations TMX Equicom Group T: (416) 815-0700 ext. 264 Email: bpedram@equicomgroup.com