Financials Archive

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Full Year Financial Statement Announcement And Dividend Announcement For The Year Ended 31 December 2019

Balance Sheet

Review of Performance

Statement of Comprehensive Income

Revenue

Revenue from dental and medical outlets increased by 6% from $112.6 million for the 12 months ended 31 December 2018 ("FY18") to $119.2 million for the 12 months ended 31 December 2019 ("FY19"). The increase of $6.6 million was mainly due to higher revenue from existing and new dental outlets in Singapore and Malaysia.

As at 31 December 2019, the Group has a total of 80 dental outlets, 5 medical outlets and 1 dental college in operations, compared to 73 dental outlets and 4 medical outlets as at 31 December 2018 in Singapore.

As at 31 December 2019, the Group has a total of 31 dental outlets in Malaysia and 1 dental outlet in People's Republic of China ("PRC") compared to 17 dental outlets in Malaysia and 1 dental outlet in PRC as at 31 December 2018.

Revenue contribution from the dental equipment and supplies distribution business increased by 7% from $8.2 million in FY18 to $8.8 million in FY19. The increase of $0.6 million was mainly due to higher revenue from the dental equipment and supplies distribution company in Malaysia.

Other Gains – Net

Other gains - net amounted to $8.2 million in FY19. This consisted of the one-time gain arising from the partial disposal of 36% of equity-accounted associate, Aidite of $11.6 million offset by allowance for impairment for trade and other receivables.

Other Items of Expense

Consumables and Supplies Used in Dental & Medical Clinics

Consumables and supplies used increased by 10% from $8.4 million in FY18 to $9.2 million in FY19. The increase was in line with the increase in revenue, opening of new dental clinics in Singapore and Malaysia as well as higher cost of consumables and laboratory charges in 2019.

As a percentage of revenue from the dental and medical clinics, consumables and dental supplies used in the dental and medical outlets in FY19 was 7.7% compared to 7.5% in FY18.

Cost of Sales Dental Equipment and Supplies

The cost of sales from dental equipment and supplies distribution business increased by 12% from $5.8 million in FY18 to $6.5 million in FY19. The increase was mainly due to the increase in revenue of the dental equipment and supplies distribution company in Malaysia as well as increased cost of imported equipment due to depreciating riggit.

As a percentage of revenue from dental equipment and supplies distribution, cost of sales used in the dental equipment and supplies distribution in FY19 was 74.3% compared to 71.0% in FY18.

Employee Benefits Expense

Employee benefits expense increased by 9% from $70.6 million in FY18 to $77.1 million in FY19. The increase of $6.5 million was mainly due to increase in revenue, headcount to support more dental outlets in Singapore and Malaysia as well as one-time special bonus to staff for the profit generated from the partial disposal of 36% of equity-accounted associate, Aidite.

As a percentage of revenue, employee benefits expense in FY19 was 60.3% compared to 58.4% in FY18.

Depreciation of Right-Of-Use ("ROU") Assets

Depreciation of ROU assets amounted to $11.7 million due to the adoption of SFRS(I) 16 in FY19.

Rental Expenses

Rental expense decreased by 99% from $12.9 million in FY18 to $0.2 million in FY19. The decrease was mainly due to the adoption of SFRS(I) 16 in FY19 which resulted in $11.7 million expensed off in depreciation of ROU assets and $1.3 million in finance cost.

As a percentage of revenue, total expenses on depreciation of ROU assets, rental expense and finance cost arising from the adoption of SFRS(I) 16 in FY19 was 10.3% compared to 10.6% in FY18.

Finance Costs

Finance costs increased by 57% from $2.6 million in FY18 to $4.1 million in FY19. The increase of $1.5 million was mainly due to the adoption of SFRS(I) 16 in FY19 which resulted in an interest expense of $1.3 million.

As a percentage of revenue, finance costs in FY19 was 3.2% compared to 2.2% in FY18.

Other Expenses

Other expenses increased by 8% from $7.5 million in FY18 to $8.1 million in FY19. The increase of $0.6 million was mainly due to increase in legal and professional fees arising from regulatory compliance, the legal cases in China and Malaysia and drafting of agreements.

As a percentage of revenue, other expenses in FY19 was 6.3% compared to 6.2% in FY18.

Share of Profit from Equity-Accounted Associates

Share of profit from equity-accounted associates decreased by 10% from $4.6 million in FY18 to $4.2 million in FY19. The decrease of $0.4 million was mainly due to share of losses from Aoxin Q & M in FY19. Aoxin Q & M suffered losses during this period mainly due to gestation losses from newly opened hospitals and clinics.

Profit Before Tax and Net Profit

For the reasons given above, the Group's profit before tax increased by 36% from $14.8 million in FY18 to $20.1 million in FY19. The provision of one-time special bonus to staff from the partial disposal of Aidite as well as the adoption of SFRS(I) 16 in FY19 resulted in a reduction in the Group's profit before tax of $3.1 million.

After deducting provision for income tax expense of $1.9 million, the Group's net profit increased 29% from $14.1 million in FY18 to $18.2 million in FY19.

For the reasons given above, profit attributable to owners of the parents increased by 28% from $14.0 million in FY18 to $18.0 million in FY19.

Statement of Financial Position

As at 31 December 2019, the Group has cash and cash equivalents of $27.3 million, bank borrowings plus finance leases amounted to $92.0 million.

Current Assets

Cash and cash equivalents as at 31 December 2019 increased to $27.3 million from $24.9 million as at 31 December 2018. The increase of $2.4 million was mainly due to cash generated from operations.

Trade and other receivables as at 31 December 2019 increased to $69.8 million from $16.7 million as at 31 December 2018. The increase of $53.1 million was mainly due to proceeds receivable of $53.0 million from the partial disposal of 36% of equity-accounted associate, Aidite.

Other assets as at 31 December 2019 increased to $3.4 million from $2.6 million as at 31 December 2018. The increase of $0.8 million was mainly due to increase in sign on bonus for new dentists and scholarships to local BDS undergraduates for 9 students.

Inventories as at 31 December 2019 increased to $7.0 million from $6.9 million as at 31 December 2018. The increase of $0.1 million was mainly due to increase in inventories from the dental equipment and supplies distribution company in Malaysia.

Non-Current Assets

The net book value of property, plant and equipment as at 31 December 2019 increased to $26.1 million from $20.4 million as at 31 December 2018. The increase of $5.7 million was mainly due to the purchase of 2 clinics' properties located in Bishan amounting to $2.9 million and Novena Medical Centre amounting to $2.5 million as well as new plant and equipment for new dental clinics in Singapore and Malaysia.

The net book value of ROU assets as at 31 December 2019 was $33.5 million due to the adoption of SFRS(I) 16 in FY19. The ROU assets relate to leases of premises occupied by the Group's clinics and business units.

Investment in associates as at 31 December 2019 decreased to $42.0 million from $77.4 million as at 31 December 2018. The decrease of $35.4 million was mainly due to the partial disposal of 36% of equity-accounted associate, Aidite.

Other assets as at 31 December 2019 decreased to $9.4 million from $10.8 million as at 31 December 2018. The decrease of $1.4 million was mainly due to the reclassification of $5.5 million preference shares held in trust in Aidite to trade and other receivables as a result of the partial disposal of 36% of equity-accounted associate, Aidite offset by an increase in sign on bonus for dentists.

Current Liabilities

Trade and other payables as at 31 December 2019 increased to $20.9 million from $14.0 million as at 31 December 2018. The increase of $6.9 million was mainly due to accrual of incidental expenses arising from the partial disposal of 36% of equity-accounted associate, Aidite as well as Q & M Performance Share Plan shares awarded yet to be issued to certain dentists.

Other financial liabilities as at 31 December 2019 increased to $22.2 million from $0.4 million as at 31 December 2018. The increase of $21.8 million was mainly due to the reclassification of a $15.0 million loan from non-current liability to current liability as the date for repayment is in 2020, reclassification of $5.5 million preference shares held in trust from non-current liability to current liability as well as bill payables arising from the Group's dental and equipment supplies distribution business in Malaysia.

Lease liabilities arising from ROU assets amounting to $10.8 million as at 31 December 2019 due to the adoption of SFRS(I) 16 in FY19.

Non-Current Liabilities

Other financial liabilities as at 31 December 2019 decreased to $69.8 million from $86.2 million as at 31 December 2018. The decrease of $16.4 million was mainly due to the reclassification of a $15.0 million loan from non-current liability to current liability and reclassification of $5.5 million preference shares held in trust from non-current liability to current liability offset by new bank loans for the purchase of clinics' properties located in Bishan amounting to $2.3 million and Novena Medical Centre amounting to $2.5 million.

Lease liabilities arising from ROU assets amounting to $23.3 million as at 31 December 2019 due to the adoption of SFRS(I) 16 in FY19.

Statement of Cash Flows

The Group generated net cash flow from operating activities of $28.0 million in FY19. This was mainly derived from the profit generated in FY19.

Net cash used in investing activities in FY19 amounted to $9.3 million, mainly due to the purchase of 2 clinics' properties located in Bishan amounting to $2.9 million and Novena Medical Centre amounting to $2.5 million, plant and equipment for the existing clinics and opening of new dental clinics as well as sign on bonus for dentists.

Net cash used in financing activities in FY19 was $16.3 million, mainly due to dividends paid to equity owners of $6.4 million, payment of lease liabilities arising from right-of-use assets and interest payment offset by drawdown of bank loans for the purchase of 2 clinics' properties located in Bishan and Novena Medical Centre.

Consequent to the above factors, the Group's cash and cash equivalents was $27.3 million as at 31 December 2019.

Commentary

Industry Prospects

The current COVID-19 situation remains uncertain and fluid. It is likely to result in an economic slowdown for Singapore and fluctuation in foreign currency. Notwithstanding the current uncertainty and 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

Update on the Company's Singapore Operations

The Company has secured location to open a new dental clinic which is expected to commence operations in the first half of 2020.

Update on the Company's Malaysia Operations

The Company has secured locations to open 3 new dental clinics which are expected to commence operations in the first half of 2020.

Grant of Awards Pursuant to the Q & M Performance Share Plan 2018

On 18 November 2019, the Company awarded 5,839,906 number of shares pursuant to the Q & M Performance Share Plan 2018 to some dentists of the Group.

Update on the Proposed Disposal of 36% of the Registered Capital of Aidite (Qinhuangdao) Technology Co., Ltd.

On 29 November 2019, the Company announced the results and approval by the shareholders at the extraordinary general meeting and the resolution was duly passed.

On 15 January 2020, the Company wishes to update the shareholders that Q&M Aidite International Pte. Ltd. has received from each of Health Advance Limited, Schroder Adveq Asia Hong Kong I Limited and ASP Hero SPV Limited, 85% of their respective portion of the aggregate consideration amounting to RMB 238 million. The Company will update shareholders once the balance of the aggregate consideration is received.

On 11 February 2020, the Company received from Suzhou Junlian Xinkang Venture Capital Partnership (Limited Partnership) their full portion of aggregate consideration net of tax amounting to RMB 73 million.

Incorporation of Q & M Dental Surgery (Canberra MRT) Pte. Ltd.

On 13 December 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Surgery (Canberra MRT) Pte. Ltd. with an initial issued and paid-up share capital of $0.1 million comprising 100,000 ordinary shares.

Update on Discovery of Improprieties in the Company's Malaysian Subsidiaries in Johor Bahru, Malaysia

On 16 January 2020, the Company announced that the Company had on 10 September 2019 reached a full and final settlement of all claims between the Company and Dr Hong An Liang ("Dr Hong") and Mdm Chong Lee Lee ("Mdm Chong") by way of a consent judgement issued by the JB High Court (the "Consent Judgement"). The Company has received the duly sealed Consent Judgement. Pursuant to the terms of the Consent Judgement, Dr Hong and Mdm Chong have agreed to pay the Company RM3.5 million as full and final settlement of all claims in accordance with the terms of the Consent Judgement. In addition, Dr Hong and Mdm Chong had on 15 January 2020, published an open apology to the Company in Nanyang Siang Pau (Malaysian newspaper) and The Straits Times (Singapore newspaper).

Update for new SGX risk based approach to quarterly reporting

Under the new SGX risk based approach to quarterly reporting which took effect on 7 February 2020, the Group will cease quarterly reporting and adopt half yearly reporting with effect from financial year 2020.

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

Currently, the Group operates 80 clinics in Singapore. The Group will be focusing on its operations 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 operations in Singapore. The Group intends to open at least 10 new clinics in Singapore for 2020 and has secured location to open a new clinic which is expected to commence operations in first half of 2020. The eventual number of dental outlets will depend on available opportunities and pertinent market conditions. The Group believes it is well-positioned to cater to the rising demand for primary and higher value specialist dental healthcare services to its patients/customers.

Expansion into private dental healthcare market in Malaysia

Currently, the Group operates 31 clinics in Malaysia. The clinics are 13 dental clinics in Johor, 1 dental centre and 14 dental clinics in Kuala Lumpur and 3 dental clinics in Malacca. The Group intends to open at least 10 new clinics in Malaysia for 2020 and has secured locations to open 3 new clinics which are expected to commence operations in first half of 2020. The eventual number of dental clinics will depend on available opportunities and pertinent market conditions.

Expansion into private dental healthcare market in the People's Republic of China ("PRC")

The main thrust of the Group's proposed expansion in PRC is through organic growth to develop a new and sustainable growth pillar that can yield long term value for the Group.

Expansion in Southeast Asia

The Group is continuously looking for opportunities to expand its businesses through opening new dental clinics in Southeast Asia.