Global Cord Blood : Q2 Fiscal 2021 Financial Results

Global Cord Blood Corporation Reports Financial Results

for the Second Quarter and First Half of Fiscal 2021

Added 17,643 New Subscribers in 2Q21

Conference Call to be Held on November 25, 2020, at 8:00 a.m. ET

HONG KONG, China, November 24, 2020 -- Global Cord Blood Corporation (NYSE: CO) ("GCBC" 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 unaudited financial results for the second quarter and first half of fiscal 2021 ended September 30, 2020.

Second Quarter of Fiscal 2021 Highlights

• Revenues decreased by 8.9% year-over-year ("YoY") to RMB285.6 million ($42.1 million).
• New subscribers and accumulated subscriber base were 17,643 and 867,1801, respectively.
• Gross profit decreased by 9.1% YoY to RMB240.9 million ($35.5 million). Gross margin edged down slightly to 84.3% from 84.6% in the prior year period.
• Operating income decreased by 3.7% YoY to RMB139.2 million ($20.5 million). Operating margin increased to 48.7% from 46.1% in the prior year period.
• Operating income before depreciation and amortization ("non-GAAP operating income2") decreased by 3.5% YoY to RMB151.4 million ($22.3 million).
• Net income attributable to the Company's shareholders increased by 9.2% to RMB131.4 million ($19.4 million), largely due to an increase in fair value of equity securities ("mark-to-market gain").
• Net cash provided by operating activities was RMB174.8 million ($25.7 million).

First Half of Fiscal 2021 Highlights

• Revenues decreased by 3.5% YoY to RMB566.5 million ($83.4 million).
• New subscribers and accumulated subscriber base were 34,876 and 867,1801, respectively.
• Gross profit decreased by 2.9% YoY to RMB478.4 million ($70.5 million).
• Operating income increased by 6.2% YoY to RMB272.7 million ($40.2 million).
• Non-GAAPoperating income2 increased by 5.5% YoY to RMB297.3 million ($43.8 million).
• Net income attributable to the Company's shareholders increased by 15.4% to RMB263.9 million ($38.9 million), mainly due to the decrease in operating expenses and the mark-to-market gain in the six reporting months.
• Net cash provided by operating activities was RMB274.6 million ($40.5 million).

"We successfully managed to recruit 17,643 new subscribers in the second quarter, keeping us on track to meet our annual target despite challenges associated with Covid-19, a downward trend in newborns and an overall cautious consumer environment," said Ms. Ting Zheng, Chairperson and Chief Executive Officer of GCBC. "Although future regulation in the cord blood banking industry in China remains unclear, we continue to prepare for multiple potential outcomes and carry on with our business expansion and risk diversification efforts."

Summary - Second Quarter and First Half Ended September 30, 2019 and 2020

		Three Months Ended September 30,	Six Months Ended September 30,
		2019				2020				2019					2020
(in thousands)		RMB	RMB	US$	RMB	RMB	US$
Revenues	313,464				285,607	42,066		586,839	566,520	83,440
Gross Profit	265,149				240,909	35,483		492,775	478,359	70,455
Operating Income3	144,435				139,161	20,497		256,821	272,670	40,163
Change in Fair Value of
Equity Securities	(7,043 )		5,699	839		2,936	24,104	3,550
Dividend Income	-				1,281	189		507	1,281	189
Net Income Attributable to
the Company's
Shareholders	120,353				131,434	19,360		228,697	263,943	38,877
Earnings per Ordinary
Share (RMB/US$)
- Basic	0.99				1.08	0.16		1.88	2.17	0.32
- Diluted	0.99				1.08	0.16		1.88	2.17	0.32
Revenues Breakdown (%)
Processing Fees and Other
Services	63.9%				57.5%					62.7%	57.5%
Storage Fees	36.1%				42.5%					37.3%	42.5%
New Subscribers (persons)	21,551				17,643					42,366	34,876
Total Accumulated						867,1801										867,1801
Subscribers (persons)	791,812								791,812
Summary - Selected Cash Flow Statement Items
	Three Months Ended September 30,Six Months Ended September 30,
	2019				2020					2019					2020
(in thousands)		RMB	RMB	US$	RMB	RMB	US$
Net cash provided by
operating activities	208,255			174,814	25,747				378,011					274,643	40,450
Net cash provided by/
(used in) investing
activities	1,396			(3,876)	(571)				(5,229)					(11,320)	(1,667)
Net cash used in
financing activities	(4,039)			(6,074)	(895)				(4,039)					(6,074)	(895)

Second Quarter of Fiscal 2021 Financial Results

REVENUES. Revenues decreased by 8.9% YoY to RMB285.6 million ($42.1 million) in the second quarter of fiscal 2021, as the decrease in revenues from processing fees and other services from fewer new subscribers outpaced growth in storage fee revenues.

Despite facing difficulties in the second quarter, the Company recruited 17,643 new subscribers. Revenues generated from processing fees and other services in the reporting quarter decreased by 18.1% YoY to RMB164.3 million ($24.2 million), representing 57.5% of total revenues compared to 63.9% in the prior year period.

The accumulated subscriber base as of September 30, 2020 expanded to 867,1801. Revenues generated from storage fees increased by 7.3% YoY to RMB121.3 million ($17.9 million) in the reporting quarter.

GROSS PROFIT. Gross profit for the second quarter decreased by 9.1% YoY to RMB240.9 million ($35.5 million). Gross margin decreased slightly to 84.3% from 84.6% in the prior year period, as raw material cost continued to exert margin pressure despite cost-saving efforts.

OPERATING INCOME. As cost-saving measures were implemented to counter the topline decrease, operating income for the reporting quarter decreased by 3.7% YoY to RMB139.2 million ($20.5 million). Operating margin improved to 48.7% from 46.1% in the prior year period, primarily due to measures taken to improve cost-efficiency. Depreciation and amortization expenses for the second quarter were RMB12.3 million ($1.8 million), representing a slight decrease from RMB12.5 million in the prior year period. Non-GAAP operating income2 decreased by 3.5% YoY to RMB151.4 million ($22.3 million) in the reporting quarter.

Research and Development Expenses. Research and development expenses decreased to RMB5.0 million ($0.7 million) from RMB6.4 million in the prior year period.

Sales and Marketing Expenses. Sales and marketing expenses decreased to RMB54.1 million ($8.0 million) from RMB64.9 million in the prior year period, due to the Company's ongoing efforts to effectively manage its sales, marketing and promotional activities in light of weak demand. In particular, the reduction in sales force head count and remuneration, as well as fewer promotional activities, kept sales and marketing expenses in check with the topline reduction. Sales and marketing expenses as a percentage of revenues decreased to 19.0%, compared to 20.7% in the prior year period and 19.6% in the prior quarter.

General and Administrative Expenses. General and administrative expenses decreased by 13.7% YoY to RMB42.7 million ($6.3 million) as a result of lower staff costs and provisions. General and administrative expenses as a percentage of revenues decreased to 14.9% from 15.8% in the prior year period and 15.9% in the prior quarter.

OTHER INCOME AND EXPENSES.

Change in fair value of equity securities. In the reporting period, the Company recognized a mark- to-market gain of RMB5.7 million ($0.8 million), compared to a mark-to-market loss of RMB7.0 million in the prior year period. The changes were mainly attributable to the Company's investments in equity securities.

Dividend Income. In the second quarter, the Company received RMB1.3 million ($0.2 million) dividend income from the Company's equity investments, whereas no such income was recorded in the prior year period.

NET INCOME ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS. The recognition of mark-to-market gain and dividend income compensated for the decline in operating income. Income before income tax for the second quarter increased by 8.4% YoY to RMB156.2 million ($23.0 million). Income tax expense for the second quarter was RMB22.9 million ($3.4 million). Net income attributable to the Company's shareholders for the reporting quarter increased by 9.2% YoY to RMB131.4 million ($19.4 million). Net margin for the reporting quarter improved to 46.0% from 38.4% in the prior year period.

EARNINGS PER SHARE. Basic and diluted earnings per ordinary share for the second quarter of fiscal 2021 was RMB1.08 ($0.16).

First Half of Fiscal 2021 Financial Results

For the first half of fiscal year 2021, total revenues decreased by 3.5% YoY to RMB566.5 million ($83.4 million). The decrease was mainly due to the decline in new subscribers. Revenues from processing fees and other services decreased by 11.4% YoY to RMB325.9 million ($48.0 million), whereas revenues from storage fees increased by 10.0% YoY to RMB240.6 million ($35.4 million). Gross profit decreased by 2.9% YoY to RMB478.4 million ($70.5 million). Operating income increased by 6.2% YoY to RMB272.7 million ($40.2 million). Non-GAAP operating income2 increased by 5.5% YoY to RMB297.3 million ($43.8 million). Net income attributable to the Company's shareholders improved by 15.4% to RMB263.9 million ($38.9 million). Basic and diluted earnings per ordinary share was RMB2.17 ($0.32). Net cash provided by operating activities in the first half of fiscal 2021 was RMB274.6 million ($40.5 million).

Corporate Developments

• On June 4, 2019, the Board of Directors of the Company (the "Board") received a non-binding proposal letter from Cordlife Group Limited ("Cordlife"), a company listed on the Mainboard of the Singapore Exchange Securities Trading Limited ("SGX"), pursuant to which Cordlife proposed to combine the businesses of Cordlife and the Company, by way of a statutory merger. According to the letter, Cordlife would issue approximately 2,497.9 million ordinary shares at an issue price of SGD0.5 per ordinary share in exchange for all of the outstanding ordinary shares of the Company at $7.50 per ordinary share. Upon completion of the proposed transaction, the Company's ordinary shares would be delisted from the New York Stock Exchange, and Cordlife ordinary shares would continue to trade on the SGX. On June 5, 2019, the Board formed a special committee of independent directors (the "Special Committee") who are not affiliated with Cordlife to evaluate such proposal.
  On November 11, 2019, the Company appointed Mr. Jack Chow as an independent non-executive director ("INED") of the Board. Mr. Chow has extensive professional experience and a broad network in the finance and investment industry. He replaced Mr. Mark Chen as a member of the Audit Committee and Ms. Jennifer Weng as a member of the Special Committee. Mr. Chow also joined the
  Board's Compensation Committee and Nominating and Corporate Governance Committee.
  On February 6, 2020, the Company appointed Mr. Jacky Cheng as an INED of the Board. Mr. Cheng has extensive professional experience and knowledge in legal and compliance and Chinese laws.
  He joined the Board's Compensation Committee as a member and the Company's Special
  Committee as a member. Currently, the Special Committee is composed of four members, including Mr. Mark Chen, Dr. Ken Lu, Mr. Jack Chow, and Mr. Jacky Cheng.
• The Company cautions its shareholders and others considering trading its ordinary shares that no decisions have been made with respect to the Company's response to the proposed transaction with Cordlife. The proposed transaction is still subject to various conditions, including but not limited to, completion of due diligence, parties entering into a definitive agreement, and/or each of Cordlife and the Company obtaining its relevant regulatory and shareholder approvals. In addition, litigation has been filed in the Cayman Islands challenging the proposed transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed, or that this or any other transaction will be approved or consummated.

Conference Call

The Company will host a conference call at 8:00 a.m. ET on Wednesday, November 25, 2020, 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 can access the audio webcast through the Company's IR website at http://ir.globalcordbloodcorp.com. A replay of the webcast will be accessible two hours after the conference call and available for seven days at the same URL above. Listeners can also access the call by dialing 1-646-722-4977 or 1-855-824-5644 for US callers, or [phone] for Hong Kong callers, access code: 84298954#.

1. During the three months and six months ended September 30, 2020, 17,643 and 34,876 new subscribers were recruited, respectively. The Company reclassified 396 and 790 private cord blood units as donated cord blood units during the three months and six mon ths ended September 30, 2020, respectively, after the Company determined that the recoverability of these prior private cord blood banking subscribers was remote. Therefore, the Company terminated their subscription services according to the subscription contracts and these units are being treated as if they were donated cord blood units and will be part of the Company's non-current inventories. Hence, the net accumulated subscriber base was 867,180 as of September 30, 2020.
2. See exhibit 3 to this press release for a reconciliation of non-GAAP operating income to exclude the non-cash items related to the depreciation and amortization expenses to the comparable financial measure prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").