Financial Statements And Related Announcement - First Quarter Results
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Review Of Performance
COMPARING 1QFY2018 AGAINST 1QFY2017
Revenue increased by 13.2% or S$1.9 million from 1QFY2017 to 1QFY2018 mainly due to an increase in newborn deliveries from 6,300 in 1QFY2017 to 6,700 in 1QFY2018.
The increase in revenue was also partly due to lower discounts given in India and the Philippines in lieu of more value-added services provided to clients in these countries.
Cost of sales
Cost of sales increased by 8.2% or S$422,000 in 1QFY2018 compared to 1QFY2017. The increase in cost of sales was in line with the increase in client newborn deliveries from 1QFY2017 to 1QFY2018.
Gross profit and gross profit margin
Gross profit increased by 15.9% or S$1.5 million and gross profit margin increased from 64.8% in 1QFY2017 to 66.3% in 1QFY2018.
The increase in gross profit margin was mainly due to lower discounts given in India and the Philippines in lieu of more value-added services provided to clients there.
Other operating income
Other operating income decreased by approximately S$72,000 mainly due to a SPRING grant of approximately S$126,000 in 1QFY2017 for employee training and development and there was no such grant income in 1QFY2018. This decrease was offset by an increase in fair value gains on short term investments of approximately S$81,000 from 1QFY2017 to 1QFY2018.
Administrative expenses increased by S$627,000 or 13.5% from 1QFY2017 to 1QFY2018 partly due to an increase in foreign exchange loss of S$282,000, which is mainly contributed by the weakening of the US$ against the S$ for the Group’s cash and cash equivalents denominated in US$. There was also an increase in information technology expense and amortisation expense by S$53,000 and S$37,000 respectively, as the Group continues to invest in technology and automation to boost efficiency and efficacy.
Share grant expense also increased by S$234,000 from 1QFY2017 to 1QFY2018 due to additional share grants in 1QFY2018. There were no share grants issued in 1QFY2017.
Finance income decreased by 43.4% or S$0.3 million from 1QFY2017 compared to 1QFY2018 due to lower funds placed in fixed deposits as a result of the redemption in December 2016 of the remaining aggregate outstanding S$68.25 million in principal amount of the Notes.
Finance costs decreased by 17.1% or S$13,000 from 1QFY2017 compared to 1QFY2018 mainly due to the repayment of interest-bearing borrowings.
Profit before income tax from operations
As a result of the foregoing, the Group’s profit before income tax from operations for 1QFY2018 was higher than 1QFY2017 at S$0.9 million (1QFY2017: S$0.8 million).
Finance costs of approximately S$1.0 million were recognised on the Notes for 1QFY2017. No such finance cost was recorded for 1QFY2018 due to the full redemption of the Notes in December 2016.
In 1QFY2017, non-operational finance expense were not deductible. Adjusting for these nondeductible items, the effective tax rate for 1QFY2018 was 32.2%, compared to an effective tax rate of 45.4% for 1QFY2017. The higher effective tax rate in 1QFY2017 compared to 1QFY2018 was mainly due to the recording of an under-provision of income tax in FY2016 of S$167,000 and deferred tax asset not recognised on tax losses incurred by certain entities in the Group during the period. In 1QFY2018, there was no such under-provision of income tax. There was also a reduction in tax losses on which deferred tax asset is not recognised.
As at 30 September 2017, the Group maintained a strong balance sheet, with cash and cash equivalents, fixed deposits and short-term investments of S$53.9 million (30 June 2017: S$60.6 million). The decrease in cash and cash equivalents was mainly due to net cash used in investing activities of S$5.9 million, which comprised mainly placement of short term investments of S$5.6 million. The Company also made repayments on its interest-bearing borrowings of S$1.2 million and made share repurchases amounting to S$6.7 million.
This decrease was offset by net cash generated from operating activities of S$1.2 million comprising mainly operating cash flows before movements in working capital of S$1.2 million, net working capital outflow of S$138,000 and net interest received of S$231,000.
Net working capital outflow of approximately S$138,000 was due to the following:
- increase in trade receivables of approximately S$1.0 million;
- decrease in other receivables, deposits and prepayments of approximately S$396,000;
- increase in inventory of approximately S$105,000;
- increase in trade and other payables of approximately S$173,000 and
- increase in deferred revenue of approximately S$412,000.
Property, plant and equipment
As at 30 September 2017, the Group recorded S$12.7 million on the balance sheet for property, plant and equipment (30 June 2017: S$13.1 million).
As at 30 September 2017, the Group recorded S$8.3 million on the balance sheet for investment properties (30 June 2017: S$8.3 million).
Intangible assets comprise customer contracts acquired in business combinations and computer software.
Long term investments
Long term investments comprise a S$4.2 million investment in approximately 4.2 million unquoted ordinary shares of CellResearch Corporation Pte Ltd (“CRC”), and approximately S$1.9 million of investments in money market funds. The investment in CRC aims to strengthen the strategic alliance with CRC and to add value to the Group’s clinical and quality assurance capacity. The ordinary shares are carried at cost less impairment, if any.
Trade receivables, non-current
Non-current trade receivables represent cord blood, cord lining and cord tissue banking service revenues receivable under instalment payment plans that have yet to be billed to the customers. Upon billing, the billed amount will be receivable under the same terms as the current trade receivables.
Other receivables, non-current
On 1 February 2016, the Group announced that it had subscribed for a Class A Redeemable Convertible Note (“RCN”) maturing three years from the issue date in the principal amount of S$4.2 million from CRC. The yielding interest is at a rate of three month SIBOR plus 7% per annum payable annually in arrears. The RCN is carried at cost less impairment, if any.
As at 30 September 2017, the Group recorded inventories of S$1.4 million (30 June 2017: $1.3 million).
Prepayments decreased from S$1.8 million as at 30 June 2017 to S$1.4 million as at 30 September 2017 due mainly to unwinding of prepaid marketing expenses for marketing activities carried out during the financial period.
Trade receivables, current
As at 30 September 2017, the Group recorded current trade receivables of S$24.6 million (30 June 2017: $24.5 million).
Other receivables, current
Other receivables include non-trade receivables and interest receivable on the RCN.
Trade and other payables, current and non-current
As at 30 September 2017, the Group recorded a current trade and other payables of S$11.4 million (30 June 2017: $11.2 million) and non-current other payables of S$207,000 (30 June 2017: S$200,000).
Interest-bearing borrowings, current and non-current
Interest-bearing borrowings decreased by S$1.2 million, from S$8.7 million as at 30 June 2017 to S$7.5 million as at 30 September 2017 due to repayments made during the financial period.
Insurance contract liabilities
Insurance contract liabilities represent outstanding claims liability and liability for expected future claims to be incurred as a result of the Group entering into insurance arrangements with customers.
Deferred revenue represents revenue received in advance for services to be rendered under cord blood, cord lining and cord tissue banking contracts.
Income tax payable
As at 30 September 2017, the Group recorded income tax payable of S$1.5 million (30 June 2017: $1.2 million).
Deferred tax liabilities
Deferred tax liabilities comprise deferred tax liabilities on temporary differences and on intangible assets recognised on business combination.
The Group is actively exploring acquisition and investment opportunities as part of its continuous efforts to augment its market leadership in Asia, where it operates in eight markets. The pursuit of such opportunities comes amid growing public awareness of the benefits of cord blood, cord lining and cord tissue banking services in a number of these markets, where governments are also stepping up efforts to boost birth rates. In Singapore and Hong Kong, for instance, statutory parental leave was recently extended, and young married couples are given priority for access to public housing.
The Group is also looking to expand its diagnostics business, which currently offers non-invasive prenatal testing, urine-based metabolic screening for newborns, and paediatric vision screening for children aged six months to six years. The Group will also continue to actively market its banking and diagnostics services in Asia and work closely with private hospitals, healthcare professionals and relevant stakeholders with the view to enlarging its base of clients.
Barring unforeseen circumstances and excluding any fair value gain or loss on investment properties and any one-off items, the Group expects its core business to remain profitable in FY2018.