Investor Presentation July 2011
- 1. July 2011
- 2. Disclaimer Neither this presentation nor any of its contents are to be distributed to third parties without the prior written consent of China Health Labs & Diagnostics Ltd. (“China Health Labs”). This presentation supersedes and replaces any and all material s which may have been provided to potential investors. There are certain risks inherent in an investment in the securities of China Health Labs, which prospective investors should carefully consider before investing in the securities of China Health Labs. Reference is made to the section entitled “Risk Factors” in the draft Filing Statement of China Health Labs dated May 30, 2010, which section is incorporated by reference into this investor presentation, for a discussion of the risks inherent in an investment in the securities of China Health Labs. The draft Filing Statement is available on SEDAR at www.sedar.com under China Health Labs’s profile. This presentation is not, and under no circumstances is it to be construed as, an advertisement or a public offering of these securities. This presentation is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire any of the securities referred to herein. No securities regulatory authority or similar authority has reviewed or in any way passed upon the presentation or the merits of these securities and any representation to the contrary is an offence. This presentation has been prepared for information purposes only in order to assist prospective investors in evaluating an investment in China Health Labs. Except for the statements of historical fact, the information contained herein may be of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of China Health Labs to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information. Although China Health Labs has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. The information contained herein includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by China Health Labs management on the basis of its knowledge of and experience in the industry in which China Health Labs operates. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included data. China Health Labs believes that its industry data is accurate and that its estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness of this included data. Although the data is believed to be reliable, China Health Labs has not independently verified any of the information from third party sources referred to in this presentation or ascertained the underlying economic assumptions relied upon by such sources. 2
- 3. Company Overview Leading provider of total lab solutions for medical diagnostic and food safety in China ? We develop and sell proprietary total lab solutions to targeted sectors and sell diagnostic equipment & reagents to large urban hospitals ? We generate revenues from the sale of solutions and equipment, and recurring revenues from reagents and service ? We manufacture our own propriety equipment and reagents in our Beijing facility ? 2010 revenue and net income growth of 41% ? Q1 2011 revenue growth of 52% ? Q1 net income growth of 283% 3
- 4. China: Growing Healthcare Demand China’s GDP per Capita (in US$) ? Rapid economic growth ? Large population ? Increasing Chinese wealth ? Growing middle class ? Decreasing birth rates ? Increasing older population Source: The World Bank 4
- 5. Transitioning into Universal Healthcare Market Oriented Healthcare China’s Healthcare Expenditure per Capita (in US$) ? High cost of medical services ? Low government funding ? Large investment gap between urban and rural areas ? Insufficient healthcare services in rural areas Out of Pocket Expenditure (% of private health spending) ? Proactive government policies ? Government spending support ? Diversified medical insurance system ? Development of local clinics in urban and rural areas Universal Healthcare Source: The World Bank 5
- 6. Large and Growing Healthcare Market Chinese Medical Equipment Chinese Healthcare China’s healthcare investment Expenditure (in US$ Billions) Expenditure (in US$ Billions) over next 3 years $125B 6
- 7. Competitive Advantage ? First mover in providing total lab solutions instead of individual products ? Patented hardware and software: lab management system (LMS) ? Extensive experience in managing labs ? Strong relations with Chinese government and customers 7
- 8. Chinese government policy support Chinese government budget support Target Areas Large market potential Limited competition 8
- 9. Business Units Traditional New Business Units Business Unit Military & Rural Hospitals Large Urban Emergency Food Safety & Clinics Hospitals & Labs Services ? Established in 2007 ? Established in 2008 ? Established in 2008 ? Established in 1993 ? Strong revenue ? Strong revenue ? Strong revenue ? Steady revenue stream potential potential stream ? High margins ? High margins ? High margins ? Low margins ? No competition ? No competition ? Low competition ? High competition ? Dominant market ? Dominant market ? Strong market ? Strong market position position position position 9
- 10. Rural Hospitals & Labs ? Proprietary total diagnostic lab solution ? ? Initial revenue from testing equipment, hardware, lab management system (LMS), installation and training Recurring revenue from reagents, 800 million China’s rural population service and maintenance ? 330 installations to date ? Contract for additional 467 ? Presence in Henan, Guizhou, Liaoning and Jilin provinces ? Only solution provider to have Chinese central government approval 10
- 11. Military & Emergency Rescue ? Point of Care Technology (POCT) ? Dry chemistry diagnostic system for use in military and rescue operations ? No electricity or clean water required ? Developed in cooperation with Chinese Military ? Only supplier to Chinese military and Chinese National Emergency Reserve Team (NERT) ? ? Sold 17 units in 2009, 34 orders in 2010, 13 orders from NERT in Q1 2011 Signed 3 year R&D agreement with >50% Gross margin Chinese military in Dec 2010 11
- 12. Food Safety Labs ? Total food safety lab solutions ? Tests chemical or biochemical index of food items ? Developed with Beijing municipal government ? 17 large labs, 250 mini-labs and17 mobile labs installed to date in Beijing ? ? New lab management system (LMS) and mobile POCT products under development Use “Beijing Model” as reference site to sell to additional cities in China $1 billion Chinese market opportunity in top 50 cities 12
- 13. Large Urban Hospitals ? ? Medical diagnostic equipment Diagnosis of various blood, liver and kidney related diseases and conditions 50% Percent of 1000 largest Chinese hospitals served ? Competitive imported and locally made product range ? Initial revenue from testing equipment, hardware, lab management system (LMS), installation and training ? Recurring revenue from reagents, maintenance and services 13
- 14. Growth Strategy Focus on total Target growth New & improved Acquisitions & lab solutions areas solutions partnerships ? Provide premium ? Rural areas / Military & ? Continue developing ? Acquisition or value compared with Emergency / Food safety solutions in collaboration partnership with individual products with customers complementary ? Limited competition and businesses ? Build customer loyalty high margins ? Joint R&D with Chinese military ? Target established ? Multiple recurring ? Chinese government brands revenue streams support and budget ? Collaboration with provincial and central ? Businesses that government deliver high quality services 14
- 15. Financials Q1 Q1 2010 2009 Growth Growth 2011 2010 2010 Revenue by Sector 15% Revenue $33.7m $23.8m 41% $6.8m $4.4m 52% 17% Gross $13.2m $8.3m 60% $3.9m $1.4m 183% Profit 59% 9% EPS $0.10 $0.07 43% $0.02 $0.01 100% large Urban Hospitals & Labs Rural Hospitals & Clinics Military & Emergency Services Net $5.5m $3.9m 41% $1.2 m $0.3m 283% Food Safety Income Total $37.1m $21.4m 74% $42.7m $21.4m 100% Assets 15
- 16. Location & Distribution Beijing HQ & Production Facility Guangdong Sales & Distribution Hub Shanghai Sales Office 16
- 17. Management Shiping (Wilson) Yao President, CEO, Chairman and Director Founded Biochem Group in 1993. Over 20 years experience in the medical equipment industry. Member of China’s National Standardization Technical Committee. Member of the Board of Renmin University of China Adam Kniec CFO Founder of ArkOrion Enterprises Inc., a provider of accounting and financial reporting services to Canadian and US publicly traded companies Yuqiang Tang COO, Director Over 15 years of managerial, sales and marketing experience Bill Tunbrant VP of Marketing, Director Wide range of experience in the medical equipment industry, as well as in international manufacturing. Former director of Nibe Industrier AB (OMX: NIBE’B) Chao Zhang VP of Finance 10 years financial management experience in the medical equipment and private health care industries Stephen D. Wortley Secretary Currently a partner at the law firm McMillan LLP 17
- 18. Non-Executive (Independent) Directors Yumin Zhuang Deputy Dean of the School of Finance of Renmin University. Independent supervisor with china CITI Bank. Hong Chang Physician with the University Health Network in Toronto Paul Haber Director of Migao Corporation (TSX: MGO). Former Vice President, Chief Financial Officer and Corporate Secretary of QuStream Corporation (TSXV:QVC) Kim Oishi Director of Zongshen PEM Power Systems (TSX: ZPP). Former President and Director of Hanfeng Evergreen (TSX: HF), Senior Vice President of Hanwei Energy (TSX: HE), Director of Cantronic Systems (TSX-V: CTS), and Grand Power Logistics (TSX-V: GPW) 18
- 19. Investment Highlights ? Diversified revenue model ? Substantial recurring revenue base ? High margin business streams ? Limited market competition ? Chinese government expenditure and policy support ? Sufficient funding to continue growth in 2011 19
- 20. Corporate Information TSX.V Symbol: CHO 52 Week Range: $0.55 - $1.56 Shares Outstanding: 65.6 Million Market Capitalization (July 15, 2011): $59 Million Employees: 233 20
- 21. Operating as: July 2011