Quarterly Results

Financial Statements And Related Announcement - Second Quarter Results

Financials Archive

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Income Statement

Comprehensive Income

Balance Sheet

Review Of Performance

COMPARING 6 MONTHS ENDED 31 DECEMBER 2017 ("HY2018") AGAINST 6 MONTHS ENDED 31 DECEMBER 2016 ("HY2017")

Revenue

Revenue increased by 10.4% or S$3.1 million from HY2017 to HY2018, mainly contributed by the Group's operations in Singapore, India and the Philippines.

The higher revenue contributions from these three markets were driven by an increase in deliveries in Singapore and the Philippines, 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 Singapore and the Philippines was partly offset by a decrease in the number of deliveries in Hong Kong and Malaysia, resulting in comparable total client deliveries for the Group of approximately 13,100 for both HY2017 and HY2018.

Cost of sales

Cost of sales increased by 1.8% or S$197,000 in HY2018 compared to HY2017, mainly attributable to additional value-added services provided to clients in India and the Philippines.

Gross profit and gross profit margin

Gross profit increased by 15.2% or S$2.9 million and gross profit margin increased from 63.8% in HY2017 to 66.6% in HY2018.

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.

Other operating income

Other operating income rose by approximately S$55,000 mainly due to an increase in fair value gains on short term investments of approximately S$91,000 in HY2018 compared to HY2017. The increase was slightly offset by a decline of S$35,000 in sponsorships received by the company in relation to the organisation of prenatal and educational talks.

Administrative expenses

Administrative expenses increased by S$1.3 million or 13.5% from HY2017 to HY2018, mainly due to an increase in foreign exchange loss of S$923,000. This was largely contributed by the weakening of the US$ 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 from HY2017 to HY2018 by S$117,000 and S$82,000 respectively, as the Group continued to invest in technology and automation to boost efficiency and efficacy.

Share grant expense increased by S$416,000 from HY2017 to HY2018 due to additional share grants in HY2018. There were no share grants issued in HY2017.

The increase was partially offset by a decrease in legal and professional fees of approximately S$151,000 mainly contributed by Singapore and Malaysia. This decrease was largely contributed by additional legal and professional fees incurred by the Group for the VGO in HY2017. No such fees were incurred in HY2018.

Finance income

Finance income decreased by 47.5% or S$0.5 million from HY2017 compared to HY2018 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.

Finance costs

Finance costs increased by 18.3% or S$20,000 from HY2017 compared to HY2018 mainly due to higher interest rates on the Group's interest-bearing borrowings, which is subject to market fluctuation.

Profit before income tax from operations

As a result of the foregoing, the Group's profit before income tax from operations for HY2018 was higher than HY2017 at S$2.0 million (HY2017: S$1.4 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 HY2018.

Finance costs (non-operating)

Finance costs of approximately S$1.8 million were recognised on the Notes for HY2017. No such finance cost was recorded for HY2018 due to the full redemption of the Notes in December 2016.

Tax

In HY2017, non-operational finance costs and note repurchase expense were not deductible. Adjusting for these non-deductible items, the effective tax rate for HY2018 was 34.3%, compared to a lower effective tax rate of 25.2% for HY2017. The lower effective tax rate was mainly due to a reversal of an over-provision of income tax of S$277,000 in Singapore, offset by a recording of the under-provision of income tax S$167,000 in respect of FY2016 in HY2017 In HY2018, there was no such over/under-provision of income tax.

COMPARING THREE MONTHS ENDED 31 DECEMBER 2017 ("2Q2018") AGAINST THREE MONTHS ENDED 31 DECEMBER 2016 ("2Q2017")

Income Statement

Revenue

Revenue increased by 7.6% or S$1.2 million from S$15.2 million in 2Q2017 to S$16.4 million in 2Q2018.

The increase in revenue was mainly contributed by India, the Philippines and Singapore. Revenue per customer in India and the Philippines increased due to lower discounts given in India and higher contract prices in the Philippines. These pricing revisions were provided in lieu of more value-added services provided to clients in these countries. The increase in revenue in Singapore was mainly due to more client deliveries.

The overall increase in revenue was slightly offset by fewer deliveries in other markets, resulting in a decrease in total client deliveries from 6,700 in 2Q2017 to 6,400 in 2Q2018.

Cost of sales

Cost of sales decreased by 4.0% or S$225,000 in 2Q2018 compared to 2Q2017, in line with fewer client deliveries. The decrease was slightly offset by the value-added services provided to clients in India and the Philippines.

Gross profit and gross profit margin

Gross profit increased by 14.5% or S$1.4 million and gross profit margin rose from 62.8% in 2Q2017 to 66.8% in 2Q2018.

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 and higher contract prices in the Philippines, in lieu of more value-added services provided to clients there.

Other operating income

Other operating income increased by 51.0% or S$127,000 due to a grant from SPRING of approximately S$131,000 received in 2Q2018 in relation to the development of a new employee performance and talent management software. There was no such grant income in 2Q2017.

Administrative expenses

Administrative expenses rose by 13.5% or S$642,000 in 2Q2018 compared to 2Q2017 mainly due to an increase in foreign exchange loss of S$641,000, which was mainly contributed by the weakening of the US$ 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$64,000 and S$45,000 respectively, as the Group continued to invest in technology and automation to boost efficiency and efficacy. Share grant expense increased by S$182,000 due to additional share grants in 2Q2018. There were no share grants issued in 2Q2017.

The overall increase in administrative expenses was slightly offset by a decrease in legal and professional fees of approximately S$282,000 mainly attributed by Singapore and the Malaysia subsidiary. This decrease was largely contributed by additional legal and professional fees incurred by the Group for the VGO in 2Q2017. No such fees were incurred in 2Q2018.

Finance income

Finance income decreased by S$249,000 mainly 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

Finance costs increased by 100% or S$33,000 from 2Q2017 to 2Q2018, partly due to a reversal of an over-accrual of interest expense in the three months ended 30 September 2016 of approximately S$24,000. There was also an increase in finance costs due to higher interest rates on the Group's interest-bearing borrowings, which are subject to market fluctuations.

Profit before income tax from operations

As a result of the foregoing, profit of S$1.1 million from operations before income tax for 2Q2018 was higher than for 2Q2017.

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 incurred for 2Q2018.

Finance costs (non-operating)

Finance costs of approximately S$786,000 were recognised on the Notes for 2Q2017. No such costs were recorded for 2Q2018 due to the full redemption of the Notes in December 2016.

Tax

In 2Q2017, non-operational finance costs and note repurchase expense were not deductible. Adjusting for these non-taxable items, the effective tax rate for 2Q2018 was 36.0%, compared to an effective tax rate for 2Q2017 of 0%. In 2Q2017, there was a reversal of an over-provision of income tax of S$277,000 in Singapore, offset by deferred tax asset not recognised on tax losses. In HY2018, there was no such reversal of over-provision of income tax.

Balance sheet

Cash and cash equivalents and fixed deposits

As at 31 December 2017, the Group maintained a strong balance sheet, with cash and cash equivalents, fixed deposits and short-term investments of S$52.8 million (30 June 2017: S$60.6 million). The decrease in cash and cash equivalents was mainly due to net cash used in financing activities of S$9.9 million, which comprised mainly shares repurchases amounting to S$6.7 million, repayment on its interest-bearing borrowings of S$2.0 million and dividend payment of S$1.3 million.

This decrease was offset by net cash generated from operating activities of S$3.0 million comprising mainly operating cash flows before movements in working capital of S$3.9 million, net interest received of S$419,000, offset by net working capital outflow of S$1.1 million and income tax paid of S$247,000.

Net working capital outflow of approximately S$1.1 million comprised the following:

  • increase in trade receivables of approximately S$3.0 million;
  • increase in other receivables, deposits and prepayments of approximately S$818,000;
  • increase in inventory of approximately S$181,000;
  • increase in trade and other payables of approximately S$800,000 and
  • increase in deferred revenue of approximately S$2.0 million.

Property, plant and equipment

As at 31 December 2017, the Group recorded S$12.5 million on the balance sheet for property, plant and equipment (30 June 2017: S$13.1 million).

Investment properties

As at 31 December 2017, the Group recorded S$8.4 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.

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$2.0 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 December 2017, 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$2.0 million as at 31 December 2017 due to an increase in prepayment of insurance premiums for the Group.

Trade receivables, current

As at 31 December 2017, the Group recorded current trade receivables of S$25.6 million (30 June 2017: $24.5 million).

Other receivables, current

Other receivables include non-trade receivables and interest receivable on the RCN. The increase in current other receivables from S$2.1 million as at 30 June 2017 to S$2.8 million as at 31 December 2017 was mainly due to a deposit of S$678,000 made in October 2017 for the acquisition of HealthBaby Biotech (Hong Kong) Co., Limited, announced on 3 January 2018.

Trade and other payables, current and non-current

As at 31 December 2017, the Group recorded current trade and other payables of S$12.0 million (30 June 2017: $11.2 million) and non-current other payables of S$209,000 (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$6.8 million as at 31 December 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

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 December 2017, the Group recorded income tax payable of S$1.8 million (30 June 2017: $1.2 million). The increase in income tax payable was due to tax payable on profits earned in HY2018.

Deferred tax liabilities

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

Commentary

Demand for stem cell banking services in Asia remains encouraging amid growing public awareness and appreciation of pre-emptive healthcare. This upswing bodes well for the Group, one of the leading private cord blood banks in the region, and validates its ongoing efforts to reinforce its presence in the eight markets it operates in. The Group's recent acquisition of HealthBaby Biotech (Hong Kong) Co., Limited is a case in point.

Following the earnings-accretive acquisition, which was completed on 2 January 2018, the Group is now the market leader in Hong Kong with more than 30,000 cord blood units under storage. It is actively exploring synergy and economies of scale between its two brands, "HealthBaby" and "Cordlife" in Hong Kong. The acquisition comes at a time when Hong Kong is stepping up efforts to encourage young married couples to start parenthood early and have more children.

Besides stem cell banking, the Group is also expanding its suite of non-invasive diagnostics services. In December 2017, it launched in Indonesia and the Philippines a clinically approved non-invasive prenatal test known as NICE® (Non-Invasive Chromosome Examination). Developed by an established joint venture between Eone Life Science Institute in South Korea and Diagnomics Inc in the United States, NICE® is a blood test that can accurately detect up to 10 chromosomal abnormalities in preborn children.

As disclosed on 19 January 2018, Dr Wong Chiang Yin is stepping down as Executive Director and Group Chief Executive Officer to pursue his personal interests. He will become an honorary advisor to the Group after his last day on 4 April 2018. The search for a new Group CEO is underway. The Group does not expect the resignation of Dr Wong to affect the operations of the Group in any way.

Barring unforeseen circumstances and exceptional non-operating items, the Group expects to remain profitable in FY2018.