CCBC second quarter 2013 revenues increase 30.5% to RMB128.5 million

Nov 19 2012

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 second quarter and first half of fiscal year 2013, which ended September 30, 2012.

Second Quarter of Fiscal 2013 Highlights

• Revenues for the second quarter of fiscal 2013 increased by 30.5% to RMB128.5 million ($20.4 million) from RMB98.4 million in the prior year period.
• New subscriber sign-ups and accumulated subscriber base were 18,491 and 274,705, respectively.
• Gross profit increased by 32.3% to RMB101.4 million ($16.1 million) from RMB76.7 million in the prior year period.
• Gross margin was 78.9%, compared to 77.9% in the prior year period.
• Operating income increased by 24.7% to RMB47.0 million ($7.5 million) from RMB37.7 million in the prior year period, after taking into account the increased management and staff related costs.
• Interest expense amounted to RMB14.1 million ($2.2 million), which was largely attributable to the convertible note issued to KKR China Healthcare Investment Limited ("KKR"), compared to RMB1.2 million in the prior year period.
• Net income attributable to shareholders increased by 6.2% to RMB24.7 million ($3.9 million) from RMB23.2 million in the prior year period.
• Operating cash flow for the quarter amounted to RMB142.5 million ($22.7 million).

First Half of Fiscal 2013 Highlights

• Revenues for the first half of fiscal 2013 increased by 31.1% to RMB243.8 million ($38.8 million) from RMB185.9 million in the prior year period.
• New subscriber sign-up reached 34,951 and accumulated subscriber base expanded to 274,705.
• Gross profit increased by 33.3% to RMB192.3 million ($30.6 million) from RMB144.3 million in the prior year period.
• Operating income increased by 33.5% to RMB91.4 million ($14.6 million) from RMB68.5 million in the prior year period.
• Interest expense amounted to RMB24.3 million ($3.9 million), compared to RMB1.7 million in the prior year period.
• Net income attributable to shareholders amounted to RMB55.8 million ($8.9 million), compared to RMB63.3 million in the prior year period.
• Operating cash flow for the first half of fiscal 2013 was RMB279.4 million ($44.5 million).

"Coming off of robust growth in our financial performance and yet another record in new subscriber numbers, we concluded the first half of fiscal 2013 with notable achievements and records," stated Ms. Ting Zheng, Chief Executive Officer of China Cord Blood Corporation.  "A high mark of 18,491 in new subscriber numbers, which is our highest increase for any single quarter, reflects our continued commitment to optimize our marketing strategy to deepen penetration and enhance our subscriber base.  Our management team's execution capabilities have also been demonstrated by positive performance in such areas as revenue, operating income and built-up cash flow streams resulting from greater volume of upfront customer payments.  These achievements have not only established a solid foundation for the Company to generate long-term sustainable growth, but also provide a platform for the Company to grasp timely opportunities for geographical expansion."

Ms. Zheng further commented, "We are very pleased to have recently received valuable support from KKR and our major shareholder, Golden Meditech Holdings Limited ("Golden Meditech"), who share CCBC's vision for growing the Company in China and throughout the Asia-Pacific region.  Both KKR and Golden Meditech bring valuable management resources and strategic perspectives that fit the Company's expansion plans.  Under the leadership of Mr. Yuen Kam as our newly appointed Chairman and with his extensive experience in China's healthcare industry, the management team and I believe that the present synergies will help drive the Company towards further operational growth and strategic development."

Second Quarter Fiscal 2013 Financial Results

REVENUES.  Revenues increased by 30.5% to RMB128.5 million ($20.4 million) in the second quarter of fiscal 2013 from RMB98.4 million in the prior year period, driven mainly by a significant increase in new subscriber sign-ups during the quarter and expansion in our accumulated subscriber base.  

Revenues generated from storage fees increased to RMB30.3 million ($4.8 million), up 22.7% from RMB24.7 million in the prior year period.  In light of the significant increase in new subscribers, revenue from storage fees accounted for a lesser of 23.6% of total revenues, compared to 25.1% in the prior year period.  

Revenues generated from processing fees were RMB98.2 million ($15.6 million), up 33.2% from RMB73.7 million in the prior year period, reflecting 18,491 new subscriber sign-ups this quarter, a 33.0% annual increase and a 12.3% sequential increase in new subscriber sign-ups.  Revenues generated from processing fees accounted for 76.4% of total revenues, compared to 74.9% in the prior year period.

GROSS PROFIT.  Gross profit for the second quarter of fiscal 2013 increased by 32.3% to RMB101.4 million ($16.1 million) from RMB76.7 million in the prior year period, benefiting from economies of scale.  Gross margin was 78.9%, compared to 77.9% in the prior year period.

OPERATING INCOME.  Operating income for the second quarter increased at a slower pace to RMB47.0 million ($7.5 million) compared to RMB37.7 million in the prior year period.  Operating margin was slightly down to 36.6%, compared to 38.3% in the prior year period, as a result of an increase in management and staff related costs, as well as an increase in depreciation expenses as we begin to depreciate part of the new facility in Guangdong.  Depreciation and amortization expenses for the second quarter were RMB8.3 million ($1.3 million), compared to RMB7.1 million in the prior year period.  

• Research and Development Expenses.  Research and development expenses remained stable at RMB1.9 million ($0.3 million) compared to RMB1.9 million in the prior year period, a reflection of the Company's continuous efforts to enhance operations through technology advancement.
• Sales and Marketing Expenses.  Sales and marketing expenses, increased by 51.0% to RMB23.5 million ($3.7 million) from RMB15.6 million in the prior year period.  These expenses indicated our continuous reach-out to deeply penetrate into the Beijing market, further marketing campaigns to outreach to potential subscribers in the Guangdong market, as well as costs for the building up of development for the Zhejiang market.  Sales and marketing expenses represented 18.3% of revenues in the second quarter of fiscal 2013, up from 15.8% in the prior year period and 16.7% in the first quarter of fiscal 2013.
• General and Administrative Expenses.  General and administrative expenses were RMB29.0 million ($4.6 million), compared to RMB21.4 million in the prior year period and RMB25.1 million in the first quarter of fiscal 2013, mainly due to an increase in management and staff related costs of RMB4.6 million ($0.7 million).  As a percentage of revenue, it increased to 22.6% compared to 21.8% in the prior year period and compared to 21.7% in the first quarter of fiscal 2013.  

OTHER INCOME AND EXPENSES

• Interest Expense.  Interest expense increased to RMB14.1 million ($2.2 million) from RMB1.2 million in the prior year period.  The increase was largely attributable to the issuance of a convertible note to KKR in April 2012.  In the second quarter of fiscal 2013, interest expense related to the convertible note annual coupon payment amounted to RMB7.3 million ($1.2 million) and the amortization of other related costs amounted to RMB6.0 million ($1.0 million).

NET INCOME ATTRIBUTABLE TO SHAREHOLDERS.  Net income attributable to shareholders for the second quarter of fiscal 2013 increased by 6.2% to RMB24.7 million ($3.9 million) from RMB23.2 million in the prior year period.  Net margin for the second quarter of fiscal 2013 was 19.2%. 

EARNINGS PER SHARE.  The terms of the convertible note issued to KKR provides KKR with the ability to participate in any Excess Cash Dividend(2).  Therefore, the calculation of basic EPS has taken into consideration KKR's participating right effect of RMB0.01.  Basic and diluted earnings per ordinary share for the second quarter of fiscal 2013 were RMB0.34 ($0.05). 

LIQUIDITY.  As of September 30, 2012, the Company had cash and cash equivalents of RMB1,324.5 million ($210.7 million) compared to RMB794.3 million as of March 31, 2012.  The Company had total debt of RMB472.6 million ($75.2 million) as of September 30, 2012.  Operating cash flow for the quarter amounted to RMB142.5 million ($22.7 million).

First Half Fiscal 2013 Financial Results

For the first half of fiscal year 2013, total revenues increased by 31.1% to RMB243.8 million ($38.8 million) from RMB185.9 million in the prior year period.  The increase was largely attributable to the significant increase in new subscribers and the expansion of the Company's accumulated subscriber base to 274,705 subscribers.  Processing fees and storage fees grew by 33.6% and 24.0%, respectively.  Gross profit increased by 33.3% to RMB192.3 million ($30.6 million) from RMB144.3 million in the prior year period.  Operating income increased by 33.5% to RMB91.4 million ($14.6 million) from RMB68.5 million in the prior year period. Net income attributable to shareholders amounted to RMB55.8 million ($8.9 million).  Basic and diluted earnings per share attributable to ordinary shares were RMB0.75 ($0.12).  Net cash provided by operating activities in the first half of fiscal 2013 was RMB279.4 million ($44.5 million).

Ms. Zheng concluded, "Even though we recorded impressive performance in our operating markets, we are continuing our efforts to widen market coverage and deepen penetration to capture more of the large regional market potential presented in Beijing, Guangdong and Zhejiang.  We have seen encouraging market responses during this start-up phase of our Zhejiang operation while actively searching for an optimal location to build our facility in the province.  For the Guangdong market, our new facility is well under way in construction to increase capacity in this promising region.  CCBC recently completed a transaction with Cordlife Group Limited ("Cordlife"), which has resulted in the Company now wholly owning our Guangdong subsidiary, thereby allowing the Company to fully benefit from the strong sales and future growth potential of this affluent market.  The strengthening of our long-standing strategic alliance with Cordlife opens additional avenues for us to develop Pan-Asian markets.  Since April 2012, we have bought back approximately $20.3 million worth of shares.  With the resources and talents on hand, we aim to enhance shareholder value by expanding our China and Pan-Asia footprint while continuing to explore opportunities to reward our shareholders for their ongoing support."