Financial Statements And Related Announcement - Half Yearly Results

Financials Archive

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Condensed interim consolidated statement of profit or loss and other comprehensive income

n.m denotes not meaningful

Condensed interim statements of financial position

Review Of Performance

COMPARING 6 MONTHS ENDED 30 JUNE 2024 ("1H2024") AGAINST 6 MONTHS ENDED 30 JUNE 2023 ("1H2023")

Income Statement

Revenue

In 1H2024, the financial impact of the Refund/Waiver for High-Risk Tanks resulted in a revenue reversal of approximately S$9.7 million, which included the recognition of S$0.5 million in contract liabilities relating to future storage obligations for affected clients. Consequently, the Group recorded revenue of approximately S$9.2 million in 1H2024.

Excluding the reversal, the Group's revenue for 1H2024 would have been approximately S$18.9 million, a decline of 33.4% year-on-year ("yoy") from S$28.3 million in 1H2023, mainly contributed by the suspension of the Group's Singapore operations.

Adjusting for the revenue reversal from the Refund/Waiver for High-Risk Tanks, the banking business unit ("Banking revenue") decreased by 35.3% from S$26.0 million in 1H2023 to S$16.8 million in 1H2024. This was mainly due to 38.2% decrease in new samples processed and stored from 8,900 in 1H2023 to 5,500 in 1H2024. The decline in new samples processed and stored is mainly contributed by Singapore, as well as Indonesia, India and Malaysia, as the publicity surrounding the suspension of the Group's Singapore operations had inadvertently affected customer sentiment, even though operations of the overseas subsidiaries have not been directly impacted.

The diagnostics business unit ("Diagnostics revenue") decreased 12.7% or S$0.3 million from S$2.3 million in 1H2023 to S$2.0 million in 1H2024, largely due to the decrease in testing volume in Singapore and Indonesia.

Gross profit and gross profit margin

The Group recorded gross profit of S$1.4 million. Excluding the financial impact of the refunds of approximately S$9.7 million, the gross profit in 1H2024 would have been approximately S$11.1 million, a decline of 42.2% yoy from S$19.2 million in 1H2023. Gross profit margin also decreased to 58.7% in 1H2024 from 67.6% in 1H2023. This is largely attributed to the suspension of Singapore's operations, as Singapore continued to incur fixed running costs in 1H2024.

Other operating income

The increase in other operating income of approximately S$0.2 million in 1H2024 compared to 1H2023 was mainly due to the reversal of over-accrual of expenses in prior years in India.

Selling and marketing expenses

Selling and marketing expenses decreased by 22.1% or S$2.1 million in 1H2024 compared to 1H2023, mainly due to the suspension of operations in Singapore.

Administrative expenses

Administrative expenses increased by 11.5% or S$1.1 million in 1H2024 compared to 1H2023, largely due to increase of approximately S$0.8 million in legal and professional fees and S$0.3 million in consultancy fee and corporate secretarial fees. A significant portion of these increases were attributed to services in relation to regulatory investigations and third party claims.

Finance income

Finance income increased by S$116,000 from 1H2024 to 1H2023 mainly due to the increase in deposit interest rates.

Finance costs

Finance costs relate to lease liabilities which amounted to S$111,000 in 1H2024 (1H2023: S$135,000). The decrease in finance costs was largely due to a decrease in lease liabilities recognised in 1H2024 as compared to 1H2023.

Profit before income tax from operations

As a result of the foregoing, the loss before income tax from operations amounted to S$14.1 million for 1H2024. Excluding the financial impact of the refunds of approximately S$9.7 million, the Group reported a loss before income tax from operations of S$4.5 million in 1H2024, as compared to the profit before income tax from operations of S$2.2 million in 1H2023, largely due to the suspension of operations in Singapore.

Share of profit of associate

In 1H2024, the Group recognised the share of profit of associate of S$610,000 compared to S$523,000 recognised in 1H2023.

Tax

In 1H2024, the Company recognised a tax credit of S$1.2 million, largely due to the recognition of deferred tax asset for the provision of refunds of annual fees for the High-Risk Tanks, offset by the recognition of tax expenses in other countries.

In 1H2023, the over-provision of tax in respect of prior years mainly comprised an over-provision of corporate income tax in Indonesia of S$166,000 and a net over-provision of deferred tax on the share of profits of associate in Malaysia of S$29,000. There were no such over-provisions in 1H2024.

Adjusting for the foregoing, the effective tax rate is negative in 1H2024, as compared to 31.7% in 1H2023, due to loss before tax in 1H2024 largely contributed by Singapore.

Balance sheet

Cash and cash equivalents, unpledged and pledged fixed deposits ("fixed deposits") and shortterm investments

As at 30 June 2024, the Group maintained a strong balance sheet, with cash and cash equivalents, fixed deposits and short-term investments of S$74.7 million (31 December 2023: S$82.5 million). Investments mainly comprise short-term in money market funds and redeemable convertible note ("RCN") from CellResearch Corporation Pte. Ltd. ("CRC").

The decrease in cash and cash equivalents of S$1.0 million from S$18.4 million as at 31 December 2023 to S$17.4 million as at 30 June 2024 was mainly due to cash used in operating activities of S$5.9 million, the purchase of property, plant and equipment of S$1.4 million and total lease and interest payments of S$1.1 million offset by net transfers from term deposits of S$7.2 million.

Net cash used in operating activities of S$5.9 million comprised mainly operating cash flows before movements in working capital of S$13.5 million, offset by net working capital inflow of S$6.2 million and net interest received of S$1.4 million.

Net working capital inflow of approximately S$6.2 million comprised the following:

• increase in trade receivables of approximately S$1.9 million;
• increase in contract assets of approximately S$9,000;
• increase in other receivables, deposits and prepayments of approximately S$0.3 million;
• increase in inventories of approximately S$117,000;
• increase in trade and other payables of approximately S$7.4 million; and
• increase in contract liabilities of approximately S$1.1 million.

The decrease in current and non-current fixed deposits and short-term investments of S$6.8 million is mainly due to the net transfers from term deposits to cash and cash equivalents of S$7.2 million, offset by the strengthening of the Malaysian Ringgit and Indian Rupee against the Singapore Dollar which resulted in translation gains on fixed deposits in the subsidiaries in Malaysia and India.

Property, plant and equipment

As at 30 June 2024, the Group recorded S$16.4 million on its balance sheet for property, plant and equipment (31 December 2023: S$16.3 million). This increase was due to additions of approximately S$1.8 million, which mainly comprised right-of-use assets recognised for new leased office units in India, offset by depreciation of S$1.7 million recognised in 1H2024.

Investment properties

As at 30 June 2024, the Group recorded S$4.7 million on its balance sheet for investment properties (31 December 2023: S$4.7 million).

Intangible assets

Intangible assets comprise client contracts, brand and goodwill acquired in business combinations and computer software.

Deferred tax assets

Deferred tax assets comprise prior year tax losses carried forward as a result of the transitional adjustments arising from the adoption of FRS115 in the Hong Kong subsidiary and unutilised merger and acquisition allowance relating to acquisitions made by the Company in previous years, as well as temporary differences for the provision of refunds of annual fees for the HighRisk Tanks. The increase in deferred tax from S$0.9 million as of 31 December 2023 to S$2.1 million as of 30 June 2024 was due to the provision of refunds of annual fees for the High-Risk tanks, offset by the utilisation against 1H2024 profit of the Hong Kong subsidiary.

Investment in associate

Investment in associate comprise a 39.61% stake in Thai Stemlife Co., Ltd through Stemlife Berhad.

Contract assets, non-current

Non-current contract assets represent all service revenues arising from the performance obligations identified under instalment payment plans in the cord blood, cord lining and cord tissue banking contracts that have yet to be billed to clients. Upon billing, the billed amount will be receivable under the same terms as the current trade receivables. As at 30 June 2024, the Group recorded non-current contract assets of S$62.3 million (31 December 2023: S$62.6 million).

Inventories

As at 30 June 2024, the Group recorded inventories of S$0.9 million (31 December 2023: S$0.8 million).

Prepayments

As at 30 June 2024, the Group recorded prepayment of S$1.9 million (31 December 2023: S$2.2 million). The decrease was mainly due to the unwinding of certain insurance premiums prepayments in Singapore.

Trade receivables, current

Current trade receivables as at 30 June 2024 was S$24.0 million compared to S$22.7 million as at 31 December 2023.

Short-term investments

As at 30 June 2024, the Group recorded short-term investments of S$5.6 million compared to S$5.9 million as at 31 December 2023, which comprises of a RCN in the principal amount of S$4.2 million from CRC, at the yielding interest rate of three month SIBOR plus 7% per annum payable annually in arrears, and money market funds held in Malaysia.

Trade and other payables, current and non-current

As at 30 June 2024, the Group recorded current trade and other payables of S$20.6 million (31 December 2023: S$13.2 million) and non-current other payables of S$989,000 (31 December 2023: S$1,005,000). The increase in current trade and other payables was mainly attributable to Singapore. In 1H2024, Singapore has provided a further provision for refunds of annual fees of S$9.2 million for the High-Risk Tanks. The increase was slightly offset by a decrease of S$1.4 million in the said provision due to refunds done in 1H2024 and reversal of accrued bonus expenses of S$0.3 million.

Lease liabilities, current and non-current

As of 30 June 2024, the Group recognised lease liabilities of S$2.9 million on property and equipment leases (31 December 2023: S$3.5 million). The decrease in lease liabilities was attributable to payments during the period, offset by the addition of new leased office units in India.

Contract liabilities, current and non-current

Contract liabilities represent revenue received in advance for services revenues to be rendered under the various performance obligations identified in the cord blood, cord lining, cord tissue banking and diagnostics contracts. As at 30 June 2024, current and non-current contract liabilities were at S$10.0 million and S$63.0 million respectively (31 December 2023: S$8.9 million and S$62.1 million respectively).

Income tax payable

The Group recorded income tax payable of S$0.2 million as at 30 June 2024 (31 December 2023: S$0.5 million).

Deferred tax liabilities

As at 30 June 2024, deferred tax liabilities amounted to S$3.6 million (31 December 2023: S$3.7 million), comprising deferred tax liabilities on temporary differences and on intangible assets recognised on business combination.

Commentary

On 15 December 2023, the Company received a letter from the MOH directing the Company to, among others, stop for a period of up to six months, the collection, testing, processing and/or storage of any new cord blood and human tissues, or the provision of any new types of tests to patients in Singapore with effect on and from 15 December 2023 (the "Suspension").

On 18 June 2024, the Company announced that it had received another letter from the MOH directing the Company to stop the collection, testing, processing and/or storage of any new cord blood for up to a further three months with effect on and from 15 June 2024 or unless sooner approved by the Director-General of Health (the "Further Suspension").

As announced by the Company on 8 April 2024, the Company has offered a refund of annual fees received from the start of the temperature excursions, as well as a waiver of subsequent fees for affected active clients. While the Company has recognised the financial impact of the refund for High-Risk Tanks in 1H2024, the investigations by the MOH are ongoing and there is no certainty on the outcome of the ongoing investigations.

This, along with the fixed costs being incurred during the Suspension and Further Suspension, is expected to continue to have a negative financial impact on the Group's Singapore operations, which had been the Group's largest revenue contributor.

The team will continue to work closely with MOH to investigate and address the identified lapses related to the Singapore operations. The Group is committed towards working through this matter and making rectifications to improve our processes going forward.

The Group would like to emphasise that the Suspension, Further Suspension and ongoing investigations are isolated to the Group's operations in Singapore and do not impact the operations of the subsidiaries elsewhere. The entities in the markets outside of Singapore operate independently, with their own dedicated teams, and adhere to their respective local laws and regulations.

Overseas operations remain robust, with the Group's Hong Kong and Malaysian subsidiaries achieving their eighth and fourth consecutive re-accreditations, respectively, from the Association for the Advancement of Blood & Biotherapies ("AABB").

Looking ahead, industry-level growth factors remain intact despite elevated global economic uncertainty, driven by increased awareness of preventive and precautionary care over curative treatment among the youth.

The Group has been focused on expanding its product offerings regionally to capture the potential demand. Cordlife Philippines intends to offer a range of diagnostics tests and routine prenatal screenings, while StemLife Berhad ("Stemlife"), the Group's subsidiary in Malaysia, has been working with partners to offer peripheral blood stem cell banking services to patients with cancer or blood disorders.

The Group will continue to proactively work on developing an ecosystem with doctors and hospitals in the various markets to educate and encourage the utilisation of stem cells for various healthcare treatments. StemLife's wholly-owned subsidiary, StemLife Therapeutics Sdn. Bhd, has partnered with Medixcell Laboratory Sdn Bhd ("Medixcell") to harvest and bank cGMP-certified mesenchymal stem cells ("MSCs") from a newborn's umbilical cord amid growing evidence demonstrating the efficacy of MSC-based therapies in treating medical conditions such as orthopaedic, autoimmune disorders and neurological diseases.