China Cord Blood Corporation Reports Financial Results

The following excerpt is from the company's SEC filing.

HONG KONG, China, February 24, 2014 — China Cord Blood Corporation (NYSE: CO) (“CCBC” or the “Company”), China’s leading provider of cord blood collection, laboratory testing, hematopoietic stem cell processing, and stem cell storage services, today announced its preliminary unaudited financial results for the third quarter and first nine months of fiscal year 2014, which ended December 31, 2013.

·                  Interest expense amounted to RMB21.9 million ($3.6 million), which was largely attributable to the convertible notes issued during fiscal 2013.

·                  Net income attributable to the Company’s shareholders increased by 2.7% to RMB34.6 million ($5.7 million) from RMB33.6 million in the prior year period.

·                  Operating cash flow for the quarter increased to RMB169.0 million ($27.9 million), compared to RMB144.1 million in the prior year period.

·                  Revenues for the first nine months of fiscal 2014 increased 7.1% to RMB420.9 million ($69.5 million) from RMB393.1 million in the prior year period.

·                  Net income attributable to the Company’s shareholders increased 3.3% to RMB92.4 million ($15.3 million), up from RMB89.4 million in the prior year period.

·                  Operating cash flow for the first nine months of fiscal 2014 was RMB398.6 million ($65.8 million), after taking into account the coupon payments made to the Company’s convertible note holders.

“Overall, we continued to deliver solid business performance in the third quarter. Although the numbers of newborns were still down over last year’s Dragon year, the company achieved sequential quarterly growth in new subscribers and record quarterly revenue, attributable to our upward pricing adjustment implemented in the beginning of our current fiscal year, and from the sound execution of our sales and marketing strategy,” stated Ms. Ting Zheng, Chief Executive Officer of China Cord Blood Corporation.

“In the third quarter, a one-time payment option remained the preferred choice among our new subscribers which contributed to our robust cash flow. As we approach the end of the current fiscal year, we remained focused on completing the capacity expansion at our Guangdong and Zhejiang facilities, which are in their final stages. With the new facilities coming on-line in the near future, we will strive to intensify our marketing effort and further deepen penetration within our key operating regions.”

    Third Quarter and First Nine Months Summary Ended December 31, 2012 and 2013       Three Months Ended December 31,   Nine Months Ended December 31,       2012   2013   2012   2013   (in thousands)   RMB   RMB   US$   RMB   RMB   US$   Revenues   149,320   150,586   24,875   393,112   420,942   69,534   Gross Profit   121,052   123,554   20,410   313,398   342,058   56,503   Operating Income   67,125   65,743   10,860   158,567   167,913   27,736   Net Income Attributable to the Company’s Shareholders   33,631   34,554   5,708   89,419   92,364   15,256   Earnings per Ordinary Shares — Basic1 and Diluted (RMB/US$)   0.42   0.41   0.07   1.17   1.14   0.19                               Revenue Breakdown (%)                           Processing Fees   77.4 % 71.3 %     76.5 % 70.9 %     Storage Fees   22.6 % 28.7 %     23.5 % 29.1 %                                 New Subscribers (persons)   21,218   16,317       56,169   47,505       Total Accumulated Subscribers (persons)   295,923   359,487       295,923   359,487         Summary — Selected Cash Flow Statement Items       Three Months Ended   Nine Months Ended       December 31, 2013   December 31, 2013   (in thousands)   RMB   US$   RMB   US$   Net cash provided by operating activities   168,993   27,916   398,616   65,846   Net cash used in investing activities   (83,955 ) (13,868 ) (140,846 ) (23,266 ) Net cash provided by financing activities   —   —   2,336   386     Third Quarter of Fiscal 2014 Financial Results   REVENUES. Revenues increased by 0.8% to RMB150.6 million ($24.9 million) in the third quarter of fiscal 2014 from RMB149.3 million in the prior year period, driven mainly by higher service fees implemented since the first quarter of fiscal 2014 and the increased contribution of storage revenue from the Company’s expanded accumulated subscriber base, offset in part by the year-over-year decline in new subscriber numbers due to the Dragon year after-effect. The Company’s growing subscriber base and quarter-over-quarter improvement in new subscriber numbers led to a 6.3% sequential increase in revenues from the fiscal 2014 second quarter.   Revenues generated from storage fees increased to RMB43.2 million ($7.1 million), up 27.8% from RMB33.8 million in the prior year period. Because of the increased accumulated subscriber base, revenue from storage fees accounted for 28.7% of total revenues, compared to 22.6% in the prior year period.   1  The terms of the convertible notes issued to KKR China Healthcare Investment Limited (“KKR”) and Golden Meditech Holdings Limited (“Golden Meditech”) provide each party with the ability to participate in any excess cash dividend. Therefore, the calculation of basic EPS has taken into consideration the effect of such participating rights of RMB0.07 ($0.01) and RMB0.13 ($0.02) for the three months and nine months ended December 31, 2013, respectively.  

    Revenues generated from processing fees in this quarter were RMB107.4 million ($17.8 million), down from RMB115.5 million in the prior year period as pricing increases offset part of the impact of year-over-year declines in new subscriber numbers. 16,317 new subscriber sign-ups were recorded during the third quarter of fiscal 2014, representing a 23.1% year-over-year decrease but a 2.4% sequential increase. Revenues generated from processing fees accounted for 71.3% of total revenues, compared to 77.4% in the prior year period.   GROSS PROFIT. Gross profit for the third quarter of fiscal 2014 increased by 2.1% to RMB123.6 million ($20.4 million) from RMB121.1 million in the prior year period. Gross margin continued to improve to 82.0%, compared to 81.1% in the prior year period, as the Company benefitted from increased storage revenue as a percent of the overall revenue mix and slightly improved economies of scale.   OPERATING INCOME. Operating income for the third quarter was RMB65.7 million ($10.9 million), compared to RMB67.1 million in the prior year period. Operating margin decreased to 43.7% from 45.0% in the prior year period. The decrease was mainly due to higher promotion and depreciation expenses. Depreciation and amortization expenses for the third quarter increased to RMB9.9 million ($1.6 million), from RMB8.4 million in the prior year period as the Company’s facility expansion programs gradually reach completion.   Research and Development Expenses. Research and development expenses remained stable at RMB2.4 million ($0.4 million).   Sales and Marketing Expenses. Sales and marketing expenses for the third quarter amounted to RMB28.2 million ($4.7 million), compared to RMB24.8 million in the prior year period. The increase in sales and marketing expenses relates to the effort to attract new subscribers following the Dragon year. Additional expenses were incurred for the implementation of a more extensive marketing plan for the Zhejiang market. This was offset by various cost control measures enforced by the management. As a result, while fiscal 2014 third quarter sales and marketing expenses as a percentage of revenue increased to 18.7% from 16.6% in the prior year period, they showed a sequential improvement from 19.5% in the second quarter of the current fiscal year.   General and Administrative Expenses. General and administrative expenses were stable at RMB27.2 million ($4.5 million), compared to RMB27.0 million in the prior year period and RMB28.0 million in the second quarter of fiscal 2014. As a percentage of revenue, general and administrative expenses were 18.1%, similar to the prior year period, and an improvement from 19.8% in the second quarter of fiscal 2014.   OTHER INCOME AND EXPENSES   Interest Expense. Interest expense decreased to RMB21.9 million ($3.6 million) from RMB23.8 million in the prior year period. The decrease was largely attributable to the capitalization of interest expense for the Company’s in-progress construction of new facilities. Interest expense capitalized in the third quarter of fiscal 2014 amounted to RMB3.6 million ($0.6 million). No interest expense was capitalized in the prior year period.   NET INCOME ATTRIBUTABLE TO THE COMPANY’S SHAREHOLDERS. As the increase in income before tax was partially offset by the increase in income tax expense, net income attributable to the Company’s shareholders for the third quarter of fiscal 2014 increased to RMB34.6 million ($5.7 million) from RMB33.6 million in the prior year period. Net margin for the third quarter of fiscal 2014 was 22.9%, slightly higher than 22.5% for the same period last year and 17.6% for the second quarter of the current fiscal year.  

    EARNINGS PER SHARE. The terms of the convertible notes issued to KKR and Golden Meditech provide each party with the ability to participate in any Excess Cash Dividend2. Therefore, the calculation of basic and diluted EPS incorporates the effect of such participating rights of RMB0.07 ($0.01). Basic and diluted earnings per ordinary share for the third quarter of fiscal 2014 were RMB0.41 ($0.07).   LIQUIDITY. As of December 31, 2013, the Company had cash and cash equivalents of RMB1,754.6 million ($289.8 million) compared to RMB1,494.1 million as of March 31, 2013. The Company had total debt of RMB821.8 million ($135.8 million) as of December 31, 2013. Operating cash flow for the quarter amounted to RMB169.0 million ($27.9 million).   First Nine Months of Fiscal 2014 Financial Results   For the first nine months of fiscal year 2014, total revenues increased 7.1% to RMB420.9 million ($69.5 million) from RMB393.1 million in the prior year period. The increase was largely attributable to the implementation of the Company’s higher service pricing fee and the expansion of the Company’s accumulated subscriber base to 359,487 subscribers, which outweighed the impact of the decrease in new subscriber numbers after the Dragon year. Revenues from processing fees decreased slightly by 0.8% but storage fees grew by 32.7%. Gross profit increased by 9.1% to RMB342.1 million ($56.5 million) from RMB313.4 million in the prior year period. Operating income increased by 5.9% to RMB167.9 million ($27.7 million) from RMB158.6 million in the prior year period. Net income attributable to the Company’s shareholders totaled RMB92.4 million ($15.3 million). Basic and diluted earnings per share attributable to ordinary shares were RMB1.14 ($0.19). Net cash provided by operating activities in the first nine months of fiscal 2014 was RMB398.6 million ($65.8 million).   Conference Call   The Company will host a conference call at 8:00 a.m. ET on Tuesday, February 25, 2014 to discuss its financial performance and give a brief overview of the Company’s recent developments, followed by a question and answer session. Interested parties may access the audio webcast through the Company’s IR website at http://ir.chinacordbloodcorp.com. A replay of the webcast will be accessible two hours after the conference call and available for three weeks at the same URL link above. Listeners may also access the call by dialing 1-631-514-2526 or 1-855-298-3404 for US callers or +852-5808-3202 for Hong Kong callers, access code: 2926250.   2 “Excess Cash Dividend” means any cash dividend to holders of shares that, together with all other cash dividends previously paid to holders of shares in the same financial year, exceeds, on a per share basis, an amount equal to the interest that has accrued and shall accrue at 7% in such financial year divided by the number of shares into which the note is convertible at the conversion price then in effect on the relevant record date.  

    About China Cord Blood Corporation   China Cord Blood Corporation is the first and largest umbilical cord blood banking operator in China in terms of geographical coverage and the only cord blood banking operator with multiple licenses. Under current PRC government regulations, only one licensed cord blood banking operator is permitted to operate in each licensed region and only seven licenses have been authorized as of today. China Cord Blood Corporation provides cord blood collection, laboratory testing, hematopoietic stem cell processing and stem cell storage services. For more information, please visit our website at http://www.chinacordbloodcorp.com.   Safe Harbor Statement   This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates”, “believes”, “expects”, “can”, “continue”, “could”, “estimates”, “intends”, “may”, “plans”, “potential”, “predict”, “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions, uncertainties and other factors may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. The information in this press release is not intended to project future performance of the Company. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company does not guarantee future results, levels of activity, performance or achievements. The Company expectations are as of the date this press release is issued, and the Company does not intend to update any of the forward-looking statements after the date this press release is issued to confirm these statements to actual results, unless required by law.   The forward-looking statements included in this press release are subject to risks, uncertainties and assumptions about the Company’s businesses and business environments. These statements reflect the Company’s current views with respect to future events and are not a guarantee of future performance. Actual results of the Company’s operations may differ materially from information contained in the forward-looking statements as a result of risk factors some of which include, among other things: continued compliance with government regulations regarding cord blood banking in the People’s Republic of China, or PRC and any other jurisdiction in which the Company conducts its operations; changing legislation or regulatory environments in the PRC and any other jurisdiction in which the Company conducts its operations; the acceptance by subscribers of the Company’s different pricing and payment options and reaction to the introduction of the Company’s premium-quality pricing strategy; demographic trends in the regions of the PRC in which the Company is the exclusive licensed cord blood banking operator; labor and personnel relations; the existence of a significant shareholder able to influence and direct the corporate policies of the Company; credit risks affecting the Company’s revenue and profitability; changes in the healthcare industry, including those which may result in the use of stem cell therapies becoming redundant or obsolete; the Company’s ability to effectively manage its growth, including implementing effective controls and procedures and attracting and retaining key management and personnel; changing interpretations of generally accepted accounting principles; the availability of capital resources, including in the form of capital markets financing opportunities, in light of industry developments affecting issuers that have pursued a “reverse merger” with an operating company based in China, as well as general economic conditions; compliance with restrictive debt covenants under our senior convertible notes; and other relevant risks detailed in the Company’s filings with the Securities and Exchange Commission in the United States.  

    This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars as of and for the periods ending December 31, 2013 were made at the noon buying rate of RMB6.0537 to $1.00 on December 31, 2013 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. China Cord Blood Corporation makes no representation that the Renminbi or U.S. dollar amounts referred to in this press release could have been or could be converted into U.S. dollars or Renminbi, at any particular rate or at all.   For more information, please contact:   China Cord Blood Corporation Investor Relations Department Tel: (+852) 3605-8180 Email: ir@chinacordbloodcorp.com   ICR, Inc. Mr. William Zima Tel: (+86) 10-6583-7511 U.S. Tel: (646) 405-5185 Email: William.zima@icrinc.com  

    EXHIBIT 1   CHINA CORD BLOOD CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS As of March 31 and December 31, 2013       March 31,   December 31,       2013   2013       RMB   RMB   US$       (in thousands except share data)                   ASSETS               Current assets               Cash and cash equivalents   1,494,099   1,754,558   289,832   Accounts receivable, less allowance for doubtful accounts (March 31, 2013: RMB14,112; December 31, 2013: RMB17,137)   73,076   86,361   14,266   Inventories   10,265   23,319   3,852   Prepaid expenses and other receivables   11,602   20,991   3,466   Debt issuance costs   3,678   3,587   593   Deferred tax assets   5,454   6,493   1,073   Total current assets   1,598,174   1,895,309   313,082   Property, plant and equipment, net   468,272   600,413   99,182   Non-current prepayments   212,633   210,582   34,786   Non-current accounts receivable, less allowance for doubtful accounts (March 31, 2013: RMB36,361; December 31, 2013: RMB36,817)   249,370   234,838   38,792   Inventories   39,730   46,228   7,636   Intangible assets, net   125,170   121,704   20,104   Available-for-sale equity securities   88,404   149,408   24,680   Other investment   189,129   189,129   31,242   Debt issuance costs   11,667   8,676   1,433   Deferred tax assets   3,727   1,416   234   Total assets   2,986,276   3,457,703   571,171                   LIABILITIES               Current liabilities               Bank loan   50,000   60,000   9,911   Accounts payable   9,890   11,999   1,982   Accrued expenses and other payables   84,006   88,136   14,560   Deferred revenue   172,328   180,767   29,861   Amounts due to related parties   11,241   12,146   2,006   Income tax payable   4,983   2,444   404   Deferred tax liabilities   —   2,600   429   Total current liabilities   332,448   358,092   59,153   Convertible notes   751,781   761,816   125,843   Non-current deferred revenue   530,258   750,213   123,926   Other non-current liabilities   107,158   150,390   24,843   Deferred tax liabilities   23,168   26,866   4,438   Total liabilities   1,744,813   2,047,377   338,203    

    EXHIBIT 1 (continued)   CHINA CORD BLOOD CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS As of March 31 and December 31, 2013 - (continued)       March 31,   December 31,       2013   2013       RMB   RMB   US$       (in thousands except share data)                   EQUITY               Shareholders’ equity of China Cord Blood Corporation               Ordinary shares               - US$0.0001 par value, 250,000,000 shares authorized, 73,140,147 shares issued, and 73,003,248 shares outstanding as of March 31, 2013 and December 31, 2013, respectively   50   50   8   Additional paid-in capital   798,221   798,221   131,857   Treasury stock, at cost               (March 31, 2013 and December 31, 2013: 136,899 shares, respectively)   (2,815 ) (2,815 ) (465 ) Accumulated other comprehensive income   18,256   94,295   15,576   Retained earnings   423,420   515,784   85,201   Total equity attributable to China Cord Blood Corporation   1,237,132   1,405,535   232,177   Non-controlling interests   4,331   4,791   791   Total equity   1,241,463   1,410,326   232,968   Total liabilities and equity   2,986,276   3,457,703   571,171    

    EXHIBIT 2   CHINA CORD BLOOD CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months and Nine Months ended December 31, 2012 and 2013       Three months ended December 31,   Nine months ended December 31,       2012   2013   2012   2013       RMB   RMB   US$   RMB   RMB   US$       (in thousands except share data)                               Revenues   149,320   150,586   24,875   393,112   420,942   69,534   Direct costs   (28,268 ) (27,032 ) (4,465 ) (79,714 ) (78,884 ) (13,031 ) Gross profit   121,052   123,554   20,410   313,398   342,058   56,503   Operating expenses                           Research and development   (2,087 ) (2,401 ) (397 ) (6,210 ) (7,234 ) (1,195 ) Sales and marketing   (24,831 ) (28,217 ) (4,661 ) (67,568 ) (84,274 ) (13,921 ) General and administrative   (27,009 ) (27,193 ) (4,492 ) (81,053 ) (82,637 ) (13,651 ) Total operating expenses   (53,927 ) (57,811 ) (9,550 ) (154,831 ) (174,145 ) (28,767 ) Operating income   67,125   65,743   10,860   158,567   167,913   27,736   Other expense, net                           Interest income   3,874   3,761   621   11,062   12,255   2,024   Interest expense   (23,762 ) (21,866 ) (3,612 ) (48,027 ) (53,085 ) (8,769 ) Exchange loss   (1,010 ) (194 ) (32 ) (959 ) (249 ) (41 ) Dividend income   2,265   1,189   196   4,685   9,911   1,637   Others   45   603   100   (721 ) 1,647   272   Total other expense, net   (18,588 ) (16,507 ) (2,727 ) (33,960 ) (29,521 ) (4,877 ) Income before income tax   48,537   49,236   8,133   124,607   138,392   22,859   Income tax expense   (13,259 ) (14,489 ) (2,393 ) (28,060 ) (45,568 ) (7,527 ) Net income   35,278   34,747   5,740   96,547   92,824   15,332   Net income attributable to non-controlling interests   (1,647 ) (193 ) (32 ) (7,128 ) (460 ) (76 ) Net income attributable to China Cord Blood Corporation’s shareholders   33,631   34,554   5,708   89,419   92,364   15,256                               Net income per share:                           Attributable to ordinary shares                           - Basic   0.42   0.41   0.07   1.17   1.14   0.19   - Diluted   0.42   0.41   0.07   1.17   1.14   0.19                               Other comprehensive income                           - Net effect of foreign currency translation, net of nil tax   784   2,391   395   (1,640 ) 11,985   1,980   - Net unrealized (loss)/gain in available-for-sale equity securities, net of nil tax   (1,193 ) (19,504 ) (3,222 ) (21,143 ) 64,054   10,581   Comprehensive income   34,869   17,634   2,913   73,764   168,863   27,893                               Comprehensive income attributable to non-controlling interests   (1,646 ) (193 ) (32 ) (7,105 ) (460 ) (76 ) Comprehensive income attributable to China Cord Blood Corporation’s shareholders   33,223   17,441   2,881   66,659   168,403   27,817    

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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