Quarterly Results

Financial Statements And Related Announcement - Third Quarter Results

Financials Archive

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Income Statement

Comprehensive Income

Balance Sheet

Review Of Performance

COMPARING 9 MONTHS ENDED 31 MARCH 2018 ("9M2018") AGAINST 9 MONTHS ENDED 31 MARCH 2017 ("9M2017")

Income Statement

Healthbaby's financial results for 3Q2018 have been included in the Group's financial results for 3Q2018 as Healthbaby became a subsidiary of the Group on 2 January 2018.

Revenue

Revenue increased by 14.9% or S$6.6 million from 9M2017 to 9M2018, mainly contributed by the Group's operations in Singapore, India, the Philippines and the newly acquired subsidiary, Healthbaby.

The higher revenue contributions from Singapore, India and the Philippines were driven by an increase in deliveries, as well as lower discounts in India and an increase in contract prices in the Philippines, in lieu of more value-added services provided to clients in these countries.

The increase in deliveries in these three markets was partly offset by a decrease in the number of deliveries in Malaysia. Nonetheless, the total client deliveries for the Group increased from 19,000 for 9M2017 to 19,600 for 9M2018.

Healthbaby accounted for S$1.8 million of the increase in revenue.

Cost of sales

Cost of sales increased by 6.5% or S$1.0 million in 9M2018 compared to 9M2017, mainly attributable to the consolidation of cost of sales of Healthbaby, which became a subsidiary of the Group on 2 January 2018. It was also due to additional value-added services provided to clients in India and the Philippines and the increase in total client deliveries.

Gross profit and gross profit margin

Gross profit increased by 19.6% or S$5.6 million and gross profit margin increased from 64.1% in 9M2017 to 66.7% in 9M2018.

The increase in gross profit margin was partly due to an increase in client deliveries, and consequently revenue contributions from Singapore, which has a higher margin compared to the other markets. The increase was also attributable to lower discounts given in India and the increase in contract prices in the Philippines.

Administrative expenses

Administrative expenses increased by S$1.9 million or 13.0% from 9M2017 to 9M2018, mainly due to the consolidation of administrative expenses of Healthbaby and an increase in foreign exchange loss of S$314,000. The weakening of the US$ against S$ in the 9M2018 resulted in the Group recognising a foreign exchange loss mainly from the revaluation of the Group's cash and cash equivalents denominated in US$. The Group recognised a foreign exchange gain of S$97,000 as US$ strengthened against S$ in the 9M2017.

There was also an increase in information technology expense and amortisation expense from 9M2017 to 9M2018 by S$141,000 and S$91,000 respectively, as the Group continued to invest in technology and automation to boost efficiency and efficacy. Share grant expense increased by S$571,000 from 9M2017 to 9M2018 due to additional share grants in 9M2018. There were no share grants issued in 9M2017.

The increase was partially offset by a decrease in legal and professional fees of approximately S$71,000. This decrease was largely contributed by additional legal and professional fees incurred by the Group for the VGO in 9M2017 which was slightly offset by the fees incurred in relation to acquisition of Healthbaby in 9M2018.

Finance income

Finance income decreased by 31.6% or S$467,000 from 9M2017 compared to 9M2018 mainly due to a lower amount of 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 and the acquisition of Healthbaby in January 2018.

Finance costs

Finance costs increased by 25.9% or S$42,000 from 9M2017 compared to 9M2018 mainly due to higher interest rates on the Group's interest-bearing borrowings, which are subject to market fluctuations and consolidation of finance costs of Healthbaby.

Profit before income tax from operations

As a result of the foregoing, the Group's profit before income tax from operations for 9M2018 was higher than 9M2017 at S$3.2 million (9M2017: S$1.0 million).

Note repurchase expense

Note repurchase expense of S$2.1 million was incurred in relation to the full redemption of the remaining aggregate outstanding S$68,250,000 in principal amount of the Notes in December 2016. No such expense was recognised for 9M2018.

Finance costs (non-operating)

Finance costs of approximately S$1.8 million were recognised on the Notes for 9M2017. No such finance cost was recorded for 9M2018 due to the full redemption of the Notes in December 2016.

Tax

In 9M2017, non-operational finance costs and note repurchase expense were not deductible. Adjusting for these non-deductible items, the effective tax rate for 9M2018 was 33.5%, compared to a higher effective tax rate of 37.1% for 9M2017.

The higher effective tax rate in 9M2017 was due to recording of the under-provision of income tax of S$167,000 in respect of FY2016 in 9M2017, deferred tax assets not recognised on unutilised tax losses, and increased profit contribution by subsidiaries in tax regimes with higher tax rates in 9M2017. It was partially offset by the reversal of over-provision of income tax of S$277,000 in Singapore.

There was no such under and over-provision and under recognition of deferred tax assets in 9M2018.

COMPARING 3 MONTHS ENDED 31 MARCH 2018 ("3Q2018") AGAINST 3 MONTHS ENDED 31 MARCH 2017 ("3Q2017")

Income Statement

Healthbaby's financial results for 3Q2018 have been included in the Group's financial results for 3Q2018 as Healthbaby became a subsidiary of the Group on 2 January 2018.

Revenue

Revenue increased by 24.5% or S$3.5 million from S$14.2 million in 3Q2017 to S$17.7 million in 3Q2018.

The increase in revenue was mainly contributed by India and Singapore as well as the inclusion of the newly acquired subsidiary, Healthbaby. Total client deliveries increased from 6,000 in 3Q2017 to 6,400 in 3Q2018. Revenue per customer in India increased due to lower discounts given as more value-added services were provided to them. The increase in revenue in Singapore was mainly due to higher client deliveries.

Healthbaby accounted for S$1.8 million of the increase in revenue.

Cost of sales

Cost of sales increased by 16.6% or S$830,000 in 3Q2018 compared to 3Q2017, in line with the increase in client deliveries.

Gross profit and gross profit margin

Gross profit increased by 28.8% or S$2.7 million and gross profit margin rose from 64.8% in 3Q2017 to 67.0% in 3Q2018.

The increase in gross profit margin was mainly due to more deliveries in Singapore, which has a higher margin compared to the rest of the countries. The increase was also due to lower discounts given in India, in lieu of more value-added services provided to clients.

Other operating income

Other operating income decreased by 22.4% or S$33,000 mainly due to decrease of S$118,000 in fair value on the short-term investments. The decrease was partially offset by the reversal of provision for expenses no longer required of approximately S$76,000.

Administrative expenses

Administrative expenses rose by 12.0% or S$613,000 in 3Q2018 compared to 3Q2017 mainly due to the consolidation of administrative expenses of Healthbaby and an increase in legal and professional fees of approximately S$80,000 as a result of the acquisition of Healthbaby in 3Q2018. No such fees were incurred in 3Q2017. Share grant expense increased by S$155,000 due to additional share grants in November 2017. There were no share grants issued in 3Q2017. There was also a reversal of over-provision of bonus of S$399,000 in 3Q2017. There was no such reversal of over-provision of bonus in 3Q2018.

The overall increase in administrative expenses was slightly offset by a decrease in foreign exchange loss of S$609,000. The foreign exchange gain in 3Q2018 was mainly due to the reclassification of foreign exchange loss of S$147,000 recognised by the Indonesia subsidiary for HY2018 to the other comprehensive income in 3Q2018. The foreign exchange loss arose due to the revaluation of intercompany payables, which formed part of the Group's net investment in foreign operations in Indonesia, denominated in S$. The foreign exchange loss will be accounted for in the other comprehensive income and accumulated under the foreign currency translation reserve. The foreign currency translation reserve will be reclassified from equity to profit or loss of the Group on disposal of the foreign operations.

The foreign exchange loss in 3Q2017 was attributable to revaluation of the Group's cash and cash equivalents denominated in US$ as US$ weakened against S$. In 3Q2018, the Group's cash and cash equivalent denominated in US$ was significantly reduced following the acquisition of Healthbaby and consequently, the foreign exchange loss has significantly decreased in 3Q2018.

Finance income

Finance income increased by S$39,000 mainly due to the increase in fixed-income investments in the Malaysian subsidiary.

Finance costs

Finance costs increased by 41.5% or S$22,000 from 3Q2017 to 3Q2018 due to higher interest rates on the Group's interest-bearing borrowings, which are subject to market fluctuations. Healthbaby accounted for S$13,000 increase in finance costs.

Profit before income tax from operations

As a result of the foregoing, the profit of S$1.2 million from operations before income tax for 3Q2018 was higher than for 3Q2017.

Tax

In 3Q2017, the effective tax rate was 6.6% against loss before tax of S$394,000. In 3Q2018, the effective tax rate was 32.1% against profit before tax of S$1.2 million. The higher effective tax rate in 3Q2018 was due mainly due to increased profit contribution by subsidiaries in tax regimes with higher tax rates.

Balance sheet

Cash and cash equivalents and fixed deposits

As at 31 March 2018, the Group maintained a strong balance sheet, with cash and cash equivalents, fixed deposits and short-term investments of S$43.6 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, which comprised mainly the acquisition of Healthbaby amounting to S$8.8 million, placement of short term investments of S$7.5 million, offset by the transfer from term deposits of S$10.5 million. In addition, the decrease was also due to net cash used in financing activities of S$12.7 million, which comprised mainly shares repurchases amounting to S$6.7 million, repayment of interest-bearing borrowings of S$4.8 million and dividend payment of S$1.3 million.

This decrease was partly offset by net cash generated from operating activities of S$6.0 million comprising mainly operating cash flows before movements in working capital of S$6.0 million, net interest received of S$1.0 million, offset by net working capital outflow of S$385,000 and income tax paid of S$650,000.

Net working capital outflow of approximately S$385,000 comprised the following:

  • increase in trade receivables of approximately S$3.8 million;
  • decrease in other receivables, deposits and prepayments of approximately S$95,000;
  • increase in inventory of approximately S$128,000;
  • increase in trade and other payables of approximately S$0.9 million and
  • increase in deferred revenue of approximately S$2.6 million.

Property, plant and equipment

As at 31 March 2018, the Group recorded S$12.6 million on the balance sheet for property, plant and equipment (30 June 2017: S$13.1 million).

Investment properties

As at 31 March 2018, the Group recorded S$8.6 million on the balance sheet for investment properties (30 June 2017: S$8.3 million).

Intangible assets

Intangible assets comprise customer contracts acquired in business combinations and computer software. Intangible assets of approximately S$29.2 million were recognised in 3Q2018 as a result of the consolidation of Healthbaby as a subsidiary of the Company. Provisional goodwill, if any, relating to the acquisition has not been recognised separately subject to the finalisation of a purchase price allocation exercise.

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$2.1 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 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.

Inventories

As at 31 March 2018, the Group recorded inventories of S$1.5 million (30 June 2017: $1.3 million).

Prepayments

Prepayments increased from S$1.8 million as at 30 June 2017 to S$2.1 million as at 31 March 2018 mainly due to the consolidation of Healthbaby.

Trade receivables, current

As at 31 March 2018, the Group recorded current trade receivables of S$26.9 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 31 March 2018, the Group recorded current trade and other payables of S$13.4 million (30 June 2017: $11.2 million) and non-current other payables of S$198,000 (30 June 2017: S$200,000).

Interest-bearing borrowings, current and non-current

Interest-bearing borrowings decreased by approximately S$2.0 million, from S$8.7 million as at 30 June 2017 to S$6.7 million as at 31 March 2018, 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

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 31 March 2018, the Group recorded income tax payable of S$2.1 million (30 June 2017: $1.2 million). The increase in income tax payable was due to tax payable on profits earned in 9M2018.

Deferred tax liabilities

Deferred tax liabilities comprise deferred tax liabilities on temporary differences and on intangible assets recognised on business combination.

Commentary

The Group remains upbeat about prospects for stem-cell banking, especially in view of the influx of investment capital into the field of cellular immunotherapies. Notable transactions over the past 12 months include Gilead Sciences, Inc's US$11.9 billion acquisition of Kite Pharma, Inc, Celgene Corporation's US$9 billion takeover of Juno Therapeutics, Inc, and Sanpower Group Co., Ltd's US$820 million acquisition of Dendreon Pharmaceuticals LLC. These developments, the Group believes, bode well for companies involved in stem-cell banking and cryopreservation.

Having achieved four consecutive quarters of net profits as at 31 March 2018, the Group will continue to drive profitability organically while exploring earnings-accretive acquisition and/or investment opportunities. The recent acquisition of Healthbaby validates the Group's approach to growth, as seen from the new subsidiary's contributions to its overall financial performance in 3Q2018. Healthbaby has already started cross-selling some of Cordlife's services to its own customers. On 2 May 2018, it launched in Hong Kong a non-invasive screening service, Metascreen, that can detect more than 100 inherited metabolic disorders in newborn babies.

In seeking to provide more holistic services to its target audience, the Group expanded its suite of non-invasive diagnostics services in February 2018 through a tie-up with US-based PlumCare LLC. The new service, known as PlumcareTM DNA Advisor, helps families detect possible disease-causing genetic mutations associated with common hereditary conditions such as breast and ovarian cancers. The service was launched in Singapore in April 2018.

Barring unforeseen circumstances and exceptional non-operating items, the Group expects to be profitable in the financial year ending 30 June 2018.