Financial Statement And Dividend Announcement For The Second Quarter Ended 30 June 2018 (“2Q18”)

Financial Statement And Dividend Announcement For The Second Quarter Ended 30 June 2018 (“2Q18”)

Balance Sheet

Statement of Comprehensive Income

Revenue

Revenue from dental and medical clinics decreased 5% from $118.7 million for the 12 months ended 31 December 2016 (“FY16”) to $112.8 million for the 12 months ended 31 December 2017 (“FY17”). The decrease of $5.9 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017 offset by higher revenue from acquired dental outlets in Singapore.

As at 31 December 2017, the Group has a total of 70 dental outlets and 4 medical outlets in operations, compared to 71 dental outlets, 4 medical outlets and 1 aesthetic centre as at 31 December 2016 in Singapore.

As at 31 December 2017, the Group has a total of 14 dental outlets in Malaysia and 1 dental outlet in People’s Republic of China (“PRC”) compared to 6 dental outlets in Malaysia and 4 dental hospitals and 8 dental outlets in PRC as at 31 December 2016.

Revenue contribution from the dental equipment and supplies distribution business decreased 22% from $13.7 million in FY16 to $10.7 million in FY17. The decrease of $3.0 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

There was no revenue from dental supplies manufacturing in FY17 as Aidite was deconsolidated in December 2016 and is now an associate of the Group.

Other Gains / (Losses)

Other gains / (losses) in FY17 amounted to $9.9 million compared to $16.9 million in FY16. The decrease was mainly due to a lower one-time gain of $17.1 million from the spin-off of Aoxin from a subsidiary to an associate in April 2017 as compared to a one-time gain of $21.3 million from the spin-off of Aidite from a subsidiary to an associate in FY16. Provision on impairment on goodwill and provision for legal fees and due diligence fees also contributed to the decrease.

Other Items of Expense

Consumables and Supplies Used in Dental & Medical Clinics

Consumables and supplies used decreased 21% from $10.2 million in FY16 to $8.1 million in FY17. The decrease was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017 as well as a change in accounting treatment implemented in FY17 for instruments which are now capitalised resulting in lower cost of consumables and supplies used in FY17.

As a percentage of revenue from the dental and medical clinics, consumables and dental supplies used in the dental and medical outlets in FY17 was 7.2% compared to 8.6% in FY16.

Cost of Sales Dental Equipment and Supplies

The cost of sales from dental equipment and supplies distribution business decreased 24% from $9.8 million in FY16 to $7.5 million in FY17. The decrease was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

As a percentage of revenue from dental equipment and supplies distribution, cost of sales used in the dental equipment and supplies distribution in FY17 was 69.8% compared to 71.3% in FY16.

Cost of Dental Supplies Manufacturing

There was no cost of dental supplies manufacturing as Aidite was deconsolidated in December 2016 and is now an associate of the Group.

Employee Benefits Expense

Employee benefits expense decreased 6% from $74.6 million in FY16 to $69.8 million in FY17. The decrease of $4.8 million was mainly due to the deconsolidation of Aidite in December 2016 and Aoxin in April 2017 from subsidiaries to associates offset by increase in employee benefits expenses for acquired and new clinics in Singapore and Malaysia.

As a percentage of revenue, employee benefits expense in FY17 was 56.5% compared to 48.1% in FY16.

Depreciation and Amortisation Expenses

Depreciation and amortisation expenses decreased 27% from $4.5 million in FY16 to $3.3 million in FY17. The decrease of $1.2 million was mainly due to the deconsolidation of Aidite in December 2016 and Aoxin in April 2017. Aidite and Aoxin are now associates of the Group.

As a percentage of revenue, depreciation and amortisation expenses in FY17 was 2.6% compared to 2.9% in FY16.

Other Expenses

Other expenses decreased 34% from $12.8 million in FY16 to $8.5 million in FY17. The decrease of $4.3 million was mainly due to the the deconsolidation of Aidite in December 2016 and Aoxin in April 2017. Aidite and Aoxin are now associates of the Group.

As a percentage of revenue, other expenses in FY17 was 6.9% compared to 8.3% in FY16.

Profit Before Tax and Net Profit

For the reasons given above, the Group’s profit before tax decreased 31% from $35.5 million in FY16 to $24.4 million in FY17.

After excluding other gains / (losses) and loss attributable to non-controlling interests, profit attributable to owners of the parent increased 23% from $11.4 million in FY 16 to $14.0 million in FY17.

Statement of Financial Position

As at 31 December 2017, the Group has cash and cash equivalents of $37.0 million, MTN, bank borrowings and finance leases amounted to $84.9 million.

Current Assets

Cash and cash equivalents as at 31 December 2017 decreased to $37.0 million from $44.1 million as at 31 December 2016. The decrease of $7.1 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017, $1.5 million for share buyback and dividend payment of $11.2 million offset by cash received of $5.4 million for the settlement of amount owing for the subscription of preference shares in Q & M Aidite International Pte. Ltd..

Trade and other receivables as at 31 December 2017 decreased to $15.9 million from $23.9 million as at 31 December 2016. The decrease of $8.0 million was mainly due to cash received for the settlement of amount owing for the subscription of preference shares in Q & M Aidite International Pte. Ltd. as well as the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

Inventories as at 31 December 2017 decreased to $6.5 million from $7.6 million as at 31 December 2016. The decrease of $1.1 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

Non-Current Assets

The net book value of property, plant and equipment as at 31 December 2017 decreased to $20.3 million from $27.4 million as at 31 December 2016. The decrease of $7.1 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

The intangible assets as at 31 December 2017 decreased to $53.5 million from $75.5 million as at 31 December 2016. The decrease of $22.0 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017 as well as the impairment on goodwill for Chuangyi.

Investment in associates as at 31 December 2017 increased to $74.9 million from $39.8 million as at 31 December 2016. The increase of $35.1 million was due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017 off set by the disposal of preference shareholding of Q & M Aidite International Pte. Ltd. in FY17.

Current Liabilities

Trade and other payables as at 31 December 2017 decreased to $18.2 million from $21.0 million as at 31 December 2016. The decrease of $2.8 million was mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017.

Other financial liabilities as at 31 December 2017 increased to $60.5 million from $15.5 million as at 31 December 2016. The increase of $45.0 million was mainly due to the reclassification of MTN from non-current liability to current liability as the MTN will be repaid by 18 March 2018, and therefore the current liability exceed current assets by $16.1 million as at 31 December 2017. The Company has since secured $60.0 million bank facility as at 25 January 2018 to repay the MTN due on 18 March 2018.

Non-Current Liabilities

Other financial liabilities as at 31 December 2017 decreased to $24.4 million from $69.3 million as at 31 December 2016 due to the reclassification of MTN from non-current liability to current liability.

Statement of Cash Flows

The Group generated net cash flow from operating activities of $16.1 million in FY17. This was mainly derived from the profit generated in FY17.

Net cash used in investing activities in FY17 amounted to $8.2 million, mainly due to the deconsolidation of Aoxin from a subsidiary to an associate in April 2017 offset by the receipt for the subscription of preference shares in Q & M Aidite International Pte. Ltd..

Net cash used in financing activities in FY17 was $14.9 million mainly due to share buyback, interest payment and dividend payment of $11.2 million.

Consequent to the above factors, the Group’s cash and cash equivalents was $37.0 million as at 31 December 2017.

Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results.

No forecast had been issued for the current financial reporting period. The financial results are in line with the expectations as disclosed in previous quarterly announcements.

A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the Group operates and any known factors or events that may affect the Group in the next reporting period and the next 12 months.

Industry Prospects

Barring any unforeseen circumstances, there are no significant changes in the trends and competitive conditions of the industry in which the Group operates and no major known factors or events that may adversely affect the Group in the next reporting period and the next twelve months.

Recent Developments

  • Sale and Purchase of Shares in Aidite (Qinhuangdao) Technology Co., Ltd. (“Aidite”)

    On 27 September 2017, the Company and Qianhai Jianyuan Investment Consultancy (Shenzhen) Co., Ltd. had agreed to terminate the Aidite Share Transfer Agreement, previously announced on 4 April 2017.

    Further, on 15 November 2017, the Company had completed a share purchase agreement with Dr. Cheah Kim Fee (“Dr Cheah”), All Win Investment Holdings Pte. Ltd. (“All Win”), Full Win Investment Holdings Pte. Ltd. (“Full Win”) and Initial Capital Investment Pte. Ltd. (“Initial Capital”) whereby All Win, Full Win and Initial Capital shall purchase 4.15% of the total preference shareholding of Q & M Aidite International Pte. Ltd. (“Sales Shares”) from the Company and Dr. Cheah.

  • Disposal of Shares in Q & M Medical Aesthetic & Laser Centre Pte. Ltd.

    On 4 December 2017, the Company announced the completion of a share purchase agreement with Dr. Li Jingxiang for the disposal of Q & M Medical Aesthetic & Laser Centre Pte. Ltd. for a total consideration of $0.2 million.

  • Establishment of $500 million Multicurrency Debt Issuance Programme

    On 5 December 2017, the Company announced the establishment of a $500 million Multicurrency Debt Issuance Programme (the “Programme”), under which the Company may issue notes and perpetual securities from time to time. DBS Bank Ltd., Oversea-Chinese Banking Corporation Limited and United Overseas Bank Limited have been appointed by the Company as the joint arrangers and dealers of the Programme. The proceeds of this Programme is to be used for general corporate purposes, including financing acquisitions and/or investments (including investments in associated companies), refinancing of borrowings and financing of working capital and capital expenditure requirements of Issuer and/or its subsidiaries.

  • Conclusion of Strategic Review of the Company’s Business

    On 25 December 2017, the Company announced the observations of Religare Capital Markets Corporate Finance Pte. Ltd., its appointed financial adviser (“FA”) to undertake an independent strategic review of options available for its business. Based on the FA report, the Company is of the opinion that no change in the strategy of the Company is required and has therefore concluded the strategic review.

  • Cessation of Interest in the Proposed Acquisition of the Business Assets of Starbite Dental Centre

    On 25 January 2018, the Company announced the cessation of interest in the proposed acquisition of 100% of the business assets of Starbite Dental Centre.

  • Facility Agreement with United Overseas Bank Limited (“UOB”) and Oversea-Chinese Banking Corporation Limited (“OCBC”)

    On 25 January 2018, the Company entered into banking facility agreements with: a) UOB pursuant to which a $30 million, 3 years term loan has been granted to the Company; and b) OCBC pursuant to which a $30 million, 3 years term loan has been granted to the Company. The banking facilities are to be used for the redemption of the $60 million 4.40 per cent. MTN due on 18 March 2018.

Future Plans

The Group intends to continue executing the business plans outlined below.

  • Expansion of network of dental clinics in Singapore and acquisitions of specialist dental clinics in Singapore

    The Group will be focusing on its operation in Singapore and has initiated a strategy of intensive organic growth of its dental clinics in Singapore. It will expand its team of dentists to support the future growth of its operation in Singapore. While the eventual number of dental outlets will depend on opportunities and market conditions, the Group believes it is well-positioned to cater to the rising demand for primary and higher value specialist dental healthcare services.

  • Expansion into private dental healthcare market in Malaysia

    Currently, the Group operates 6 dental clinics in Johor, 1 dental centre and 4 dental clinics in Kuala Lumpur and 3 dental clinics in Malacca. The Group is closely monitoring the Malaysian economy with a view of further expansion into Malaysia.

  • Expansion into private dental healthcare market in the People’s Republic of China (“PRC”)

    The main thrust of the Group’s proposed joint ventures and organic growth initiatives in PRC is to develop a new and sustainable growth pillar that can yield long term value for the Group. The Group will continue to seek opportunities for the acquisition of larger and established dental institutions, dental laboratories and dental supplies manufacturers in PRC.

  • Expansion through acquisitions, joint ventures and/or strategic alliances

    The Group is continuously looking for opportunities to expand its businesses through acquisitions, joint ventures or strategic alliances with parties who create synergistic value with its existing business in Singapore, Malaysia and PRC

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