Global Cord Blood Corporation Reports Financial Results for the Fourth Quarter and Full Year of Fiscal 2019

Added 22,194 New Subscribers in 4Q19
4Q19 Revenues Increased by 8.0% YoY to RMB251.7 Million ($37.5 Million)
4Q19 Operating Income Increased to RMB88.9 Million ($13.2 Million)
Conference Call to be Held on June 19, 2019 at 8:00 a.m. ET

HONG KONG, June 18, 2019 /PRNewswire/ -- 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 fourth quarter and full year of fiscal year 2019 ended March 31, 2019.

Fourth Quarter of Fiscal 2019 Highlights

• Fourth quarter revenues increased by 8.0% year over year ("YoY") to RMB251.7 million ($37.5 million).
• New subscribers were 22,194, and the accumulated subscriber base expanded to 750,273^[1].
• Gross profit increased by 8.2% YoY to RMB204.3 million ($30.4 million). Gross margin increased slightly to 81.2% from 81.0% in the prior year period.
• Operating income increased to RMB88.9 million ($13.2 million) due to the absence of share-based compensation expense; all outstanding restricted share units ("RSUs") were fully vested during the quarter ended March 31, 2018.
• Operating income before depreciation and amortization and share-based compensation expense ("non-GAAP operating income")^[2] amounted to RMB101.9 million ($15.2 million).
• Net income attributable to the Company's shareholders increased to RMB91.1 million ($13.6 million) due to improved operating income and an increase in fair value of equity securities^[3] ("mark-to-market gains") of RMB11.5 million ($1.7 million) in the fourth quarter.
• Net cash provided by operating activities improved by 14.0% to RMB221.5 million ($33.0 million).

Full Year Fiscal 2019 Highlights

• Revenues increased by 5.3% YoY to RMB986.8 million ($147.0 million).
• New subscriber sign-ups reached 89,366 and the accumulated subscriber base expanded to 750,273^[1].
• Gross profit increased by 6.0% YoY to RMB800.7 million ($119.3 million).
• Operating income increased by 36.4% to RMB381.7 million ($56.9 million).
• Non-GAAP operating income^[2] improved by 4.7% to RMB434.0 million ($64.7 million).
• Net income attributable to the Company's shareholders increased by 22.8% YoY to RMB291.1 million ($43.4 million).
• Net cash provided by operating activities was RMB792.1 million ($118.0 million).

"During fiscal 2019, the total newborn number in China and in the markets we operate decreased. Despite the market condition, we managed to recruit over 89,000 new subscribers, hitting the upper bound of our fiscal 2019 target. The management team is glad with our achievements," said Ms. Ting Zheng, Chairperson and Chief Executive Officer of GCBC.

"We expect volume contributions from our three markets to remain in their respective trends, and we maintain caution regarding near-term volumes. We believe that our new pricing will absorb some rising cost pressures and bridge the revenue gap while better reflecting the Company's market position. As we continue to re-examine our capital on hand, business position, core competencies, and strategy, we also remain alert to the possible changes ahead together with available opportunities. With the solid foundation set forth by our PRC cord blood banking business, we continue our commitment towards enhancing service quality, customer experience, and taking a pro-active approach to expand our business scope and service offerings in order to take the Company to the next phase," Ms. Zheng concluded.

Fourth Quarter of Fiscal 2019 Financial Results

REVENUES. Revenues in the fourth quarter of fiscal 2019 increased by 8.0% YoY to RMB251.7 million ($37.5 million). The growth was mainly driven by the expansion of the subscriber base.

The Company's accumulated subscriber base reached 750,273^[1] by the end of March 2019, and revenues generated from storage fees increased by 20.0% YoY to RMB103.0 million ($15.3 million). Storage fees accounted for 40.9% of the total revenues, up from 36.8 % in the prior year period.

During the reporting quarter, we recorded 22,194 new subscribers. Revenues generated from processing fees and other services in the fourth quarter increased to RMB148.7 million ($22.2 million) from RMB147.2 million in the prior year period. As a percentage of revenues, revenues generated from processing fees accounted for 59.1% compared to 63.2 % in the prior year period.

GROSS PROFIT. Gross profit for the fourth quarter of fiscal 2019 increased by 8.2% YoY to RMB204.3 million ($30.4 million). A better revenue mix was partially offset by noticeable increases in raw material and labor costs, resulting in gross margin slightly increasing to 81.2% during the quarter from 81.0% in the prior year period.

OPERATING INCOME and NON-GAAP OPEARTING INCOME^[2]. Fourth quarter operating income increased significantly to RMB88.9 million ($13.2 million) from RMB42.2 million in the prior year period. Despite higher sales and marketing expenses, operating income improved due to the absence of share-based compensation expenses related to the Company's RSUs scheme, of which the shares were fully vested in the prior year period. Depreciation and amortization expenses for the reporting quarter was RMB13.1 million ($2.0 million) compared to RMB12.8 million in prior year period. Fourth quarter non-GAAP operating income^[2] was RMB101.9 million ($15.2 million) compared to RMB102.9 million in the prior year period. Non-GAAP operating margin was 40.5% compared to 44.2% in the same period of last year.

Sales and Marketing Expenses. Although no share-based compensation expense was recorded in the fourth quarter, sales and marketing expenses for the fourth quarter was up 12.8% YoY to RMB67.3 million ($10.0 million). Both higher staff renumeration expenses and increased promotional activities contributed to the increase in sales and marketing expenses. While the decline in newborn numbers within the addressable markets was unfavorable, the Company believes it was necessary and remains devoted to raising public awareness and driving public interest towards the potential medical benefits of umbilical cord blood banking. As a percentage of revenues, sales and marketing expenses increased moderately from 25.6% in the prior year period to 26.7% in the reporting period.

General and Administrative Expenses. General and administrative expenses for the fourth quarter dropped to RMB43.5 million ($6.5 million) from RMB83.5 million in the prior year period. Such decrease was mainly due to the absence of share-based compensation expense related to the vesting of all outstanding RSUs. On a quarter over quarter basis, general administrative expense edged down 3% as the Company continued to closely monitor its administrative cost structure.

OTHER INCOME AND EXPENSES.

Change in Fair Value of Equity Securities. In the reporting quarter, the Company recognized an increase in fair value of equity securities, or "mark-to-market gains", of RMB11.5 million ($1.7 million) as other income under the new accounting standard^[3]. Such increase was mainly attributable to the investments in Cordlife Group Limited ("Cordlife").

NET INCOME ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS. As a result of the increase in operating income as well as the recognition of an increase in fair value of equity securities through net income, net income attributable to the Company's shareholders for the reporting period nearly tripled to RMB91.1 million ($13.6 million) from RMB30.5 million in the prior year period. Net margin for the fourth quarter of fiscal 2019 improved to 36.2% from 13.1% in the prior year period.

EARNINGS PER SHARE. Basic and diluted earnings per ordinary share for the fourth quarter of fiscal 2019 improved to RMB0.74 ($0.11).

Full Year Fiscal 2019 Financial Results

For the full year fiscal 2019, total revenues increased by 5.3% YoY to RMB986.8 million ($147.0 million). The increase was mainly attributable to the growth in storage fee revenues as the Company's enlarged subscriber base reached 750,273^[1] as of March 31, 2019. Gross profit increased by 6.0% YoY to RMB800.7 million ($119.3 million). Operating income increased by 36.4% YoY to RMB381.7 million ($56.9 million), mainly due to the absence of share-based compensation expense. Non-GAAP operating income^[2] improved by 4.7% YoY to RMB434.0 million ($64.7 million). Decrease in fair value of equity securities during fiscal 2019 was RMB57.1 million ($8.5 million) and was recorded as other expense following the adoption of a new accounting standard^[3], whereas RMB29.6 million of such decrease was recorded as other comprehensive losses in the previous fiscal year. Net income attributable to the Company's shareholders increased by 22.8% to RMB291.1 million ($43.4 million), resulting from increased operating income, which was partially offset by the decrease in fair value of equity securities. Basic and diluted earnings per ordinary share were RMB2.40 ($0.36). Net cash provided by operating activities in the full year of fiscal 2019 was RMB792.1 million ($118.0 million) compared to RMB818.8 million in the prior year period.

Recent Developments

• On June 4, 2019, the board of directors of the Company (the "Board") received a non-binding proposal letter from Cordlife, a company listed on the Mainboard of the Singapore Exchange Securities Trading Limited ("SGX"), pursuant to which Cordlife proposes 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 will be delisted from the New York Stock Exchange and the Cordlife ordinary shares will continue to trade on 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. The Special Committee intends to retain advisors, including an independent financial advisor and U.S. and Cayman Islands legal counsels, to assist it in its work.
• 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. The proposed transaction is still subject to various conditions, including but not limited to, completion of due diligence, parties entering into definitive agreement, and/or each of Cordlife and the Company obtaining its relevant regulatory and shareholders approval. 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, June 19, 2019, 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 link above. Listeners can also access the call by dialing 1-646-722-4977 or 1-855-824-5644 for US callers, or +852-3027-6500 for Hong Kong callers, access code: 72488018#.

Use of Non-GAAP Financial Measures

GAAP results for the three months and year ended March 31, 2019 include non-cash items related to depreciation and amortization expenses. To supplement the Company's unaudited condensed consolidated financial statements presented on a U.S. GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this press release. The non-GAAP financial measure represents non-GAAP operating income. Such adjustment is a departure from U.S. GAAP; however, the Company's management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company's historical performance. Also, management uses non-GAAP operating income as a measurement tool for evaluating actual operating performance compared to budget and prior periods. These adjusted measures should not be considered an alternative to operating income, or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. These measures are not necessarily comparable to a similarly titled measure of another company. A reconciliation of the adjustments to U.S. GAAP results appears in exhibit 3 accompanying this press release.

About Global Cord Blood Corporation

Global 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 no new licenses will be granted before 2020 in addition to the seven licenses authorized as of today.  Global 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.globalcordbloodcorp.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 conform 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 maintaining 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, the presence of a new majority shareholder, international pressure on trade and currency against the PRC and its potential impact on the PRC consumer behavior, as well as general economic conditions; the non-binding proposal letter from Cordlife 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 ended March 31, 2019 were made at the noon buying rate of RMB6.7112 to $1.00 on March 29, 2019 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. Global 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:

Global Cord Blood Corporation
Investor Relations Department
Tel: (+852) 3605-8180
Email: [email protected]

ICR, Inc.
Mr. William Zima
Tel: (+86) 10-6583-7511
U.S. Tel: (646) 405-5185
Email: [email protected]

SOURCE Global Cord Blood Corporation