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CO - China Cord Blood Corporation Reports Financial Results for the First Quarter of Fiscal 2013

1Q13 New Subscribers Up 28.3% to 16,460
1Q13 Revenue Up 31.9% YOY to RMB115.3 Million
1Q13 Operating Income Up 44.4% to RMB44.4 Million
Conference Call to be Held August 23, 2012 at 8:00 a.m. ET
PR NewswirePress Release: China Cord Blood Corporation – 46 minutes ago

HONG KONG, Aug. 22, 2012 /PRNewswire-Asia-FirstCall/ -- China Cord Blood Corporation (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 first quarter of fiscal year 2013, which ended June 30, 2012.

First Quarter of Fiscal 2013 Highlights

Revenues for the first quarter of fiscal 2013 increased by 31.9% to RMB115.3 million ($18.2 million) from RMB87.5 million in the prior year period.
New subscriber sign-ups and accumulated subscriber base were 16,460 and 256,214, respectively.
Gross profit increased by 34.5% to RMB90.9 million ($14.3 million) from RMB67.6 million in the prior year period.
Operating income jumped by 44.4% to RMB44.4 million ($7.0 million) from RMB30.8 million in the prior year period. Operating margin expanded by 3.3 percentage points to 38.5%, as core operations benefited from economies of scale.
Interest expense increased to RMB10.2 million ($1.6 million) from RMB0.5 million as a result of the convertible note issued to KKR China Healthcare Investment Limited ("KKR") in April 2012.
In the absence of the dividend income from our investment in Shandong Cord Blood Bank and discrete tax benefit of our Guangdong subsidiary, both of which took place in the first quarter of fiscal 2012, together with the first-time interest expense in relation to the convertible note that was issued in April 2012, net income attributable to shareholders decreased by 22.3% to RMB31.1 million ($4.9 million) from RMB40.0 million in the prior year period.
Operating cash flow for the quarter amounted to RMB136.9 million ($21.5 million).

"I'm pleased to announce that new subscriber numbers have, once again, set a new record by breaking the 16,000 mark to 16,460 for the first quarter of fiscal 2013, setting the stage for yet another astonishing year," stated Ms. Ting Zheng, Chairperson and Chief Executive Officer of China Cord Blood Corporation. "Not only are we setting new records based on revenues and operating income, but we are also gaining higher cash flows generated from increasing numbers of subscribers who chose to pay full-term storage fees upfront. Benefiting from the current "Dragon Year" baby boom, we are extremely excited about the results in this fiscal year."

Ms. Zheng further commented, "As we remain committed to increasing long-term shareholder value, the management team and I are encouraged to have had the Board of Directors authorize an increase in our annual share repurchase program from $15 million to $20 million, effective August 1, 2012. Upsizing the share repurchase program reflects not only our confidence in the underlying business, but also our long-term commitment to reward our shareholders. During the first quarter of fiscal 2013, the Company repurchased approximately 1.7 million ordinary shares and these shares were held by the Company as treasury stock."

First Quarter Fiscal 2013 Financial Results

REVENUES. Revenues jumped 31.9% to RMB115.3 million ($18.2 million) in the first quarter of fiscal 2013 from RMB87.5 million in the prior year period, driven mainly by the expansion in new subscriber numbers and, to a less extent, ongoing increases in the accumulated subscriber base.

Revenues generated from storage fees increased to RMB28.4 million ($4.5 million), up 25.7% from RMB22.6 million in the prior year period. This was driven by persistent growth in accumulated subscribers, which increased by 29.0% year-over-year to 256,214. Revenue from storage fees accounted for 24.6% of total revenues, compared to 25.8% in the prior year period.

Revenues generated from processing fees were RMB86.9 million ($13.7 million), up 33.9% from RMB64.9 million in the prior year period, reflecting 16,460 new subscriber sign-ups this quarter, a 28.3% annual increase and a 14.8% sequential increase in new subscriber sign-ups.

GROSS PROFIT. Gross profit for the first quarter of fiscal 2013 increased by 34.5% to RMB90.9 million ($14.3 million) from RMB67.6 million in the prior year period. Gross margin improved to 78.9%, reflecting benefits brought about by increasing economies of scale.

OPERATING INCOME. Operating income for the first quarter increased to RMB44.4 million ($7.0 million) compared to RMB30.8 million in the prior year period, as the effects of revenue growth and prudent cost controls continued to surpass the increases in combined costs associated with sales, general and administrative expenses, and the startup costs regarding with the Zhejiang operations. Depreciation and amortization expenses for the first quarter were RMB7.9 million ($1.2 million), compared to RMB7.1 million in the prior year period. Operating margin expanded to 38.5%, up from 35.2% in the prior year period, benefiting from increasing economies of scale and surging subscriber numbers.

Research and Development Expenses. Research and development expenses increased to RMB2.3 million ($0.4 million) compared to RMB1.8 million in the prior year period, a reflection of the Company's continuous efforts to enhance our operations through technology advancement in relation to cord blood stem cell preservation.

Sales and Marketing Expenses. Sales and marketing expenses, a key driving force behind our revenue growth, increased by 52.5% to RMB19.2 million ($3.0 million) from RMB12.6 million in the prior year period. These expenses reflected the Company's efforts to further penetrate into the Beijing and Guangdong markets and the gradual development of costs to build up sales channels and personnel that serve the Zhejiang market. Sales and marketing expenses represented 16.7% of revenues in the first quarter of fiscal 2013, up from 14.4% in the prior year period and up by less than one percentage point compared to the fourth quarter of fiscal 2012.

General and Administrative Expenses. General and administrative expenses were RMB25.1 million ($3.9 million). As a percentage of revenue, it declined to 21.7% compared to 25.7% in the prior year period and compare to 23.1% in the fourth quarter in fiscal 2012.

OTHER INCOME AND EXPENSES

Interest Expense. The Company recorded an interest expense of RMB10.2 million ($1.6 million) compared to RMB0.5 million in the prior year period, which was largely attributable to the issuance of a convertible note to KKR in April 2012. During the period, interest expense related to the convertible note annual coupon payment amounted to RMB5.1 million ($0.8 million) and the interest amortization charge amounted to RMB3.7 million ($0.6 million).

Other. For the first quarter of fiscal 2012, the Company recorded dividend income of RMB7.2 million from the Company's equity investment in the Shandong Cord Blood Bank. No such dividend from Shandong Cord Blood Bank was recorded in first quarter of fiscal 2013. The Company recorded RMB2.4 million ($0.4 million) of dividend income from Cordlife Group Limited ("Cordlife") during the first quarter of fiscal 2013.

NET INCOME ATTRIBUTABLE TO SHAREHOLDERS. The surge in operating income was offset by an increase in interest expense in relation to the convertible note, absence of dividend income of RMB7.2 million from our investment in Shandong Cord Blood Bank and the absence of a discrete tax benefit of RMB10.2 million in the first quarter of fiscal 2012 when the Company's Guangdong subsidiary was accredited as "High and New Technology Enterprise". As a result, net income attributable to shareholders for the first quarter of fiscal 2013 fell by 22.3% to RMB31.1 million ($4.9 million) from RMB40.0 million in the prior year period. Net margin for the first quarter of fiscal 2013 stood at 27.0%, down from 45.8% in the prior year period.

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 of KKR's participating right effect of RMB0.02. Basic and diluted earnings per ordinary share for the first quarter of fiscal 2013 were RMB0.41 ($0.06).

LIQUIDITY. As of June 30, 2012, the Company had cash and cash equivalents of RMB1,146.7 million ($180.5 million) compared to RMB794.3 million as of March 31, 2012. The Company had total debt of RMB416.4 million ($65.5 million) as of June 30, 2012. Operating cash flow for the quarter amounted to RMB136.9 million ($21.5 million).

Ms. Zheng concluded, "Our Guangdong operation continues to deliver impressive performance. In order to sustain momentum in this highly promising market, we are expanding our operations there with a new facility. We anticipate that it will commence operating in two years and will be able to provide a platform for next-stage growth. As we increase our capacity in Guangdong, we will also acquire a minority interest in Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd., the Company's operating arm in Guangdong province from Cordlife. This is pursuant to our recently announced alliance-building transactions. Upon completion of the announced transactions, Cordlife will become an affiliate of our group by holding approximately 10% equity interest in CCBC. This strategic alliance represents immense value for our existing shareholders as we can develop a strategic presence throughout Asia and benefit from Cordlife's Asia-wide expertise to better serve existing and prospective customers."

[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.

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