Financial Statements And Related Announcement - Full Yearly Results
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Review Of Performance
COMPARING 12 MONTHS ENDED 30 JUNE 2018 ("12M2018") AGAINST 12 MONTHS ENDED 30 JUNE 2017 ("12M2017")
Healthbaby's financial results for 2 January 2018 to 30 June 2018 have been included in the Group's financial results for 12M2018 while the Group's financial results for 12M2017 does not include any results of Healthbaby as it became a subsidiary of the Group on 2 January 2018.
Revenue increased by 13.9% or S$8.3 million from 12M2017 to 12M2018, 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 an increase in contract prices in India and the Philippines, as a result of more value-added services provided to clients in these countries.
The increase in deliveries in these three markets and the addition of six months of deliveries from HealthBaby in 12M2018 was partly offset by a decrease in the number of deliveries in Malaysia. Nonetheless, the total client deliveries for the Group increased from 25,200 for 12M2017 to 25,800 for 12M2018.
Healthbaby accounted for S$3.7 million of the increase in revenue.
Cost of sales
Cost of sales increased by 6.7% or S$1.4 million in 12M2018 compared to 12M2017, 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.
The increase was slightly offset by a decrease in cost of sales in Malaysia due to fewer deliveries.
Gross profit and gross profit margin
Gross profit increased by 17.9% or S$6.9 million and gross profit margin increased from 64.8% in 12M2017 to 67.0% in 12M2018.
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 higher contract prices in India and the Philippines.
Administrative expenses increased by S$3.0 million or 15.2% from 12M2017 to 12M2018, partly due to the consolidation of Healthbaby's administrative expenses of S$0.6 million and an increase in foreign exchange loss of S$651,000.
The increase in foreign exchange loss was partly contributed by the weakening of US$ against S$ in the 12M2018, resulting in the Group recognising a foreign exchange loss from the revaluation of the Group's cash and cash equivalents denominated in US$ of approximately S$285,000 in 12M2018, compared to a gain of S$53,000 in 12M2017.
The Group announced the acquisition of Healthbaby on 3 January 2018. Part of the consideration involved an assumption of a HK$ denominated debt owed by Stemgen to Healthbaby. Foreign exchange loss of S$333,000 from the revaluation of the loan was recognised in 12M2018 and 4Q2018 as HK$ strengthened against S$ from January 2018 to June 2018. There was no such foreign exchange loss in 12M2017 and 4Q2017.
Share grant expense increased by S$681,000 from 12M2017 to 12M2018 due to the issuance of share grants in 12M2018. There were no share grants issued in 12M2017. Excluding Healthbaby, staff-related expenses also increased in 12M2018 as compared to 12M2017 by S$1.5 million, partly attributable to an increase in variable performance bonuses as a result of the increase in profits of the Group in 12M2018.
There was also an increase in information technology expense from 12M2017 to 12M2018 by S$160,000, as the Group continued to invest in technology and automation to boost efficiency and efficacy.
The increase was offset by a reduction in allowance for doubtful debts and bad debts written off in 12M2018 against 12M2017 of S$328,000, which was mainly attributable to India as a result of increased collection efforts.
Finance income decreased by 32.7% or S$607,000 from 12M2017 compared to 12M2018 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 increased by 10.2% or S$23,000 from 12M2017 compared to 12M2018 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 of approximately S$13,000.
Profit before income tax from operations
As a result of the foregoing, the Group's profit before income tax from operations for 12M2018 was higher than 12M2017 at S$4.2 million (12M2017: S$2.2 million).
Fair value gain/loss on investment properties
Certain units owned by the Group in A'Posh Bizhub and certain properties owned by Stemlife Berhad have been designated as investment properties because these are allocated to either be leased to third parties to earn rental income or for capital appreciation. Investment properties are initially recognised at cost and subsequently measured at fair value which reflects the market conditions at the end of the reporting period. The Group engaged independent professional valuers to value these investment properties, resulting in a fair value gain of S$95,000 in 12M2018 and a fair value loss of $168,000 in 12M2017 which are recorded in the income statement.
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$68.25 million in principal amount of the Notes in December 2016. No such expense was incurred for 12M2018.
Finance costs (non-operating)
Finance costs of approximately S$1.8 million were recognised on the Notes for 12M2017. No such finance cost was recorded for 12M2018 due to the full redemption of the Notes in December 2016.
In 12M2017, non-operational fair value loss on investment properties, finance costs and note repurchase expense were not deductible. In 12M2018, non-operating fair value gain on investment properties was not taxable. Adjusting for these non-deductible and non-taxable items, the effective tax rate for 12M2018 was 27.0%, comparable to an effective tax rate of 31.0% for 12M2017.
COMPARING 3 MONTHS ENDED 30 JUNE 2018 ("4Q2018") AGAINST 3 MONTHS ENDED 30 JUNE 2017 ("4Q2017")
Healthbaby's financial results for 4Q2018 have been included in the Group's financial results for 4Q2018 while 4Q2017 does not include any results of Healthbaby as it became a subsidiary of the Group on 2 January 2018.
Revenue increased by 11.1% or S$1.7 million from S$15.9 million in 4Q2017 to S$17.6 million in 4Q2018. Total client deliveries increased from 6,100 in 4Q2017 to 6,200 in 4Q2018.
The increase in revenue and client deliveries was mainly contributed by Singapore as well as the inclusion of the newly acquired subsidiary, Healthbaby. This was offset by a decrease in revenue contribution and client deliveries in India and Malaysia in 4Q2018 against 4Q2017. As the average selling prices of the client contracts in Singapore and Healthbaby are higher than that in India and Malaysia, the increase in revenue of 11% is higher than the increase in deliveries of 2%.
Cost of sales
Cost of sales increased by 7.2% or S$384,000 in 4Q2018 compared to 4Q2017, in line with the increase in client deliveries.
Gross profit and gross profit margin
Gross profit increased by 13.1% or S$1.4 million and gross profit margin rose from 66.6% in 4Q2017 to 67.7% in 4Q2018.
The increase in gross profit margin was mainly due to more deliveries in Singapore, which has a higher margin compared to other markets.
Other operating income
Other operating income increased by 34.9% or S$75,000 mainly due to an increase in fair value gains on the short-term investments held by both the Malaysia and India subsidiaries.
Administrative expenses rose by 21.8% or S$1.1 million in 4Q2018 compared to 4Q2017. This was partly contributed by the consolidation of Healthbaby's administrative expenses of S$0.3 million.
Share grant expense increased by S$109,000 due to the issuance of share grants in November 2017. There were no share grants issued in 4Q2017. Excluding Healthbaby, staff related expenses increased by S$0.9 million in 4Q2018 against 4Q2017, mainly attributable to an increase in variable performance bonuses as a result of the increase in the Group's profits for 12M2018 against 12M2017.
In addition, Singapore recognised a foreign exchange loss of S$333,000 in relation to the revaluation of the HK$ debt as HK$ strengthened against S$ in 4Q2018.
The overall increase in administrative expenses was offset by a decrease in allowances for doubtful debts and bad debts written off of S$379,000, mainly attributable to the India subsidiary as a result of increased collection efforts.
Finance income decreased by S$140,000 due to the withdrawal of fixed deposits for the Healthbaby acquisition in January 2018 as well as a decrease in interest income from short-term investments in the Malaysia subsidiary.
Finance costs decreased by 30.2% or S$19,000 from 4Q2017 to 4Q2018 mainly due to repayments made on the Group's interest-bearing borrowings during the year. Out of the total repayments made on interest-bearing borrowings of S$6.0 million during the year, approximately S$2.7 million was repayment of loans for Healthbaby, which was consolidated in December 2017 and repaid by February 2018. Excluding the repayment of loans of Healthbaby, the Group made principal repayments on its interest-bearing borrowings of approximately S$3.3 million, which partly contributed to the decrease in finance costs.
Profit before income tax from operations
As a result of the foregoing, the profit of S$986,000 from operations before income tax for 4Q2018 was lower than for 4Q2017.
Fair value gain/loss on investment properties
Certain units owned by the Group in A'Posh Bizhub and certain properties owned by Stemlife Berhad have been designated as investment properties because these are allocated to either be leased to third parties to earn rental income or for capital appreciation. Investment properties are initially recognised at cost and subsequently measured at fair value which reflects the market conditions at the end of the reporting period. The Group engaged independent professional valuers to value these investment properties, resulting in a fair value gain of S$95,000 in 4Q2018 and a fair value loss of $168,000 in 4Q2017 which are recorded in the income statement.
In 4Q2017, non-operational fair value loss on investment properties was not deductible. In 4Q2018, non-operational fair value gain on investment properties was not taxable.
The Group also adjusted for an over-provision of tax payable after applying group relief in Singapore in 4Q2018 of S$139,000 as compared to S$104,000 in 4Q2017. In 4Q2017, the Group also recognised an under-provision of S$220,000 of deferred tax in respect of prior years. There was no such reversal of under-provision in 4Q2018.
After adjusting for the group relief and reversal of under-provision of deferred tax, the effective tax rates were at 19.8% and 15.1% for 4Q2018 and 4Q2017 respectively. The slightly higher effective rate in 4Q2018 was due mainly to increased profit contributions from subsidiaries in tax regimes with higher tax rates.
Cash and cash equivalents, fixed deposits and short term investments
As at 30 June 2018, the Group maintained a strong balance sheet, with cash and cash equivalents, fixed deposits and short-term investments of S$44.6 million (30 June 2017: S$60.6 million). Shortterm investments mainly comprise investments in money market funds. The decrease in the total cash and cash equivalents, fixed deposits and short term investments was mainly due to net cash used in investing activities, which comprised the acquisition of Healthbaby amounting to S$8.8 million and purchase of property, plant and equipment and intangible assets of a total of S$2.2 million. In addition, the decrease was also due to net cash used in financing activities of S$13.9 million, which comprised mainly share repurchases amounting to S$6.7 million, repayment of interest-bearing borrowings of S$6.0 million and dividend payment of S$1.3 million.
This decrease was partly offset by net cash generated from operating activities of S$8.8 million comprising mainly operating cash flows before movements in working capital of S$7.4 million, net interest received of S$1.1 million, offset by net working capital inflow of S$1.5 million and income tax paid of S$991,000.
Net working capital inflow of approximately S$1.5 million comprised the following:
- increase in trade receivables of approximately S$4.8 million;
- increase in other receivables, deposits and prepayments of approximately S$56,000;
- decrease in inventory of approximately S$74,000;
- increase in trade and other payables of approximately S$1.8 million and
- increase in deferred revenue of approximately S$4.4 million.
Property, plant and equipment
As at 30 June 2018, the Group recorded S$13.1 million on the balance sheet for property, plant and equipment (30 June 2017: S$13.1 million).
As at 30 June 2018, the Group recorded S$8.6 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. Intangible assets of approximately S$29.2 million were recognised in 12M2018 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 mainly 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. As of 30 June 2018, the receivables are reclassified to other receivables, current.
As at 30 June 2018, the Group recorded inventories of S$1.3 million (30 June 2017: $1.3 million).
Prepayments increased from S$1.8 million as at 30 June 2017 to S$2.1 million as at 30 June 2018 mainly due to the consolidation of Healthbaby.
Trade receivables, current
As at 30 June 2018, the Group recorded current trade receivables of S$27.3 million (30 June 2017: $24.5 million).
Other receivables, current
Other receivables include non-trade receivables and interest receivable on the RCN. In addition, RCN has been reclassified to other receivables, current, as at 30 June 2018.
Trade and other payables, current and non-current
As at 30 June 2018, the Group recorded current trade and other payables of S$14.2 million (30 June 2017: $11.2 million) and non-current other payables of S$345,000 (30 June 2017: S$200,000).
Interest-bearing borrowings, current and non-current
Interest-bearing borrowings decreased by approximately S$3.3 million, from S$8.7 million as at 30 June 2017 to S$5.4 million as at 30 June 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 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 June 2018, 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 the increase in profits in 12M2018.
Deferred tax liabilities
Deferred tax liabilities comprise deferred tax liabilities on temporary differences and on intangible assets recognised on business combination.
The three months ended 30 June 2018 mark the Company's fifth consecutive quarter of net profitability. The Group will seek to further build on this momentum in the quarters ahead by deepening its reach in the various markets it operates in. In countries such as India, the Philippines and Indonesia, for instance, there is significant potential to gain more market share as the Group continues to raise public awareness of the merits of stem-cell banking through education and marketing and as the middle class increasingly spends more on discretionary goods and services, including specialised healthcare.
The Group has a healthy balance sheet with low gearing as well as a strong net operating cash flow. In view of these, it will continue to pursue earnings-accretive acquisition and/or investment opportunities to augment growth. As at 30 June 2018, it had S$44.6 million in cash and cash equivalents, fixed deposits and short-term investments in money market funds, as well as S$9.0 million in net cash generated from operating activities. Debt as a percentage of equity was 4.5%. As disclosed on SGXNet on 16 July 2018, Cordlife is currently in confidential and non-binding discussions to structure possible transactions. No definitive agreements have been signed at this time and there is no certainty that any agreement will materialise.
The Group will also look to launch more non-invasive diagnostic services as part of efforts to expand its product offerings. PlumcareTM DNA Advisor, the Group's latest diagnostic service, was launched in the Philippines in May 2018. This screening service helps families detect possible disease-causing genetic mutations associated with common hereditary conditions such as breast and ovarian cancers. The rollout in the Philippines came a month after PlumcareTM DNA Advisor was launched in Singapore, which is the first market in Asia to offer such a service.
Barring unforeseen developments and exceptional non-operating items, the Group expects to be profitable in its current financial year. As announced on 8 June 2018, the Company has changed its financial year-end to 31 December from 30 June to align with that of its controlling shareholder. With the change, the Company's current financial year, which started on 1 July 2017, will end on 31 December 2018, spanning 18 months. Its subsequent financial year will begin on 1 January 2019 and end on 31 December 2019.