Financial Statement Announcement For The Third Quarter Ended 30 September 2019

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Financial Statement Announcement For The Third Quarter Ended 30 September 2019

Balance Sheet

Review of Performance

Statement of Comprehensive Income

Revenue

Revenue from dental and medical outlets increased by 6% from $27.7 million for the three months ended 30 September 2018 ("3Q18") to $29.2 million for the three months ended 30 September 2019 ("3Q19"). The increase of $1.5 million was mainly due to higher revenue from existing dental outlets in Singapore in 3Q19.

As at 30 September 2019, the Group has a total of 77 dental outlets and 4 medical outlets in operations, compared to 72 dental outlets and 4 medical outlets as at 30 September 2018 in Singapore.

As at 30 September 2019, the Group has a total of 27 dental outlets in Malaysia and 1 dental outlet in People's Republic of China ("PRC") in operation, compared to 16 dental outlets in Malaysia and 1 dental outlet in PRC as at 30 September 2018 in Singapore.

Revenue contribution from the dental equipment and supplies distribution business increased by 2% from $1.8 million for 3Q18 to $1.9 million for 3Q19. The increase was due to higher revenue from the dental equipment and supplies distribution company in Malaysia in 3Q19.

For the first nine months ended 30 September 2019, revenue from dental and medical outlets increased by 4% to $84.7 million, compared to $81.5 million in the previous corresponding period mainly due to higher revenue from dental outlets in Singapore.

For the first nine months ended 30 September 2019, revenue from the dental equipment and supplies distribution business increased by 9% to $6.9 million from $6.3 million in the corresponding period mainly due to higher revenue from the dental equipment and supplies distribution company in and Malaysia.

Other Gains – Net

Other gains- net in 3Q19 amounted to $0.4 million was mainly due to the recognition of profit guarantee in 3Q19 offset by plant and equipment written off and provision for impairment of plant and equipment.

Other Items of Expense

Consumables and Supplies Used in Dental & Medical Clinics

Consumables and supplies used increased by 18% from $2.0 million in 3Q18 to $2.3 million in 3Q19. The increase was in line with the increase in revenue and new dental clinics opened in Singapore and Malaysia in 3Q19.

As a percentage of revenue from the dental and medical outlets, consumables and dental supplies used in the dental and medical outlets in 3Q19 were 8.0% compared to 7.1% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, consumables and supplies used increased by $0.4 million or 7% for the same reason given above.

Cost of Sales Dental Equipment and Supplies

The cost of sales from dental equipment and supplies distribution business increased by 13% from $1.3 million in 3Q18 to $1.5 million in 3Q19. The increase was mainly due increase in revenue from the dental equipment and supplies distribution company in Malaysia.

As a percentage of revenue from dental equipment and supplies distribution, cost of sales used in the dental equipment and supplies distribution in 3Q19 was 77.8% compared to 69.9% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, cost of sales from dental equipment and supplies distribution business increased by $0.6 million or 13% mainly due to the same reason given above.

Employee Benefits Expense

Employee benefits expense increased by 8% from $17.0 million in 3Q18 to $18.3 million in 3Q19. The increase of $1.3 million was mainly due to increase in headcount to support more dental outlets in Singapore and Malaysia as well as amortisation of sign on bonus for dentists.

As a percentage of revenue, employee benefits expense in 3Q19 was 58.8% compared to 57.6% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, employee benefits expense increased by $3.0 million or 6% mainly due to the same reasons given above.

Depreciation and Amortisation Expense

Depreciation and amortisation expense increased by 10% from $758k in 3Q18 to $835k in 3Q19. The increase of $77k was due mainly to purchase of dental equipment, furniture, fixtures and fittings for new dental outlets in Singapore and Malaysia.

As a percentage of revenue, depreciation and amortisation expense in 3Q19 was 2.7% compared to 2.6% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, depreciation and amortisation expense increased by $0.1 million or 4% due the same reason given above.

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

Depreciation of ROU assets amounted to $3.1 million due to the adoption of SFRS(I) 16 in FY2019.

Rental Expense

There was no rental expense due to the adoption of SFRS(I) 16 in FY2019.

As a percentage of revenue, total expenses on depreciation of ROU assets and rental in 3Q19 was 9.9% as compared to 10.4% in 3Q18.

Other Expenses

Other expenses decreased by 10% from $1.8 million in 3Q18 to $1.6 million in 3Q19. The decrease of $0.2 million was mainly due to the decrease in advertising, marketing expenses and legal and professional fees.

As a percentage of revenue, other expense in 3Q19 was 5.3% as compared to 6.2% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, other expenses increased by $0.4 million or 7% mainly due to increase in legal fees for China legal case.

Finance Costs

Finance costs increased by 51% from $0.7 million in 3Q18 to $1.0 million in 3Q19. The increase of $0.3 million was mainly due to the adoption of SFRS(I) 16 in FY2019.

As a percentage of revenue, finance costs in 3Q19 was 3.2% as compared to 2.2% in 3Q18.

Comparing nine months ended 30 September 2019 with 30 September 2018, finance costs increased by $0.9 million or 46% mainly due to the same reason given above.

Share of Profit from Equity-Accounting Associates

Share of profit from equity-accounting associates increased by 40% from $0.5 million in 3Q18 to $0.8 million in 3Q19. The increase of $0.3 million was due to higher share of profit from Aidite offset by share of losses from Aoxin Q & M in 3Q19. Aoxin Q & M suffered losses during this period mainly due to start up losses from new hospitals and clinics as well as higher expenses for training dentists and staff to cater for its expansion.

Comparing nine months ended 30 September 2019 with 30 September 2018, share of profit from equity-accounting associates decreased by $0.4 million or 12% mainly due to the same reasons given above.

Profit Before Tax and Net Profit

For the reasons given above, the Group's profit before tax remain the same at $3.7 million for 3Q19 and 3Q18.

Comparing the nine months ended 30 September 2019 with 30 September 2018, profit attributable to owners of the parent decreased by 6% or $0.7 million mainly due to the same reasons given above.

Statement of Financial Position

As at 30 September 2019, the Group has cash and cash equivalents of $19.7 million, bank borrowings plus finance leases amounted to $88.9 million.

Current Assets

Cash and cash equivalents as at 30 September 2019 decreased to $19.7 million from $24.9 million as at 31 December 2018. The decrease of $5.2 million was mainly due to final dividend payment with respect to FY2018, interim dividend payment with respect to FY2019 and payment of sign on bonus to new dentists offset by cash generated from operations.

Other assets as at 30 September 2019 increased to $3.7 million from $2.6 million as at 31 December 2018. The increase of $1.1 million was mainly due to an increase in sign on bonus to new dentists, prepayment to Enterprise Singapore for participation in the scale up programme and deposit paid for the acquisition of a property located at Novena Medical Centre which was completed on 31 October 2019.

Non-Current Assets

The net book value of property, plant and equipment as at 30 September 2019 increased to $23.6 million from $20.4 million as at 31 December 2018. The increase of $3.2 million was mainly due to the purchase of a clinic's property located in Bishan amounting to $2.9 million as well as new plant and equipment for new dental clinics in Singapore and Malaysia offset by depreciation of plant and equipment.

The net book value of ROU assets as at 30 September 2019 was $35.1 million due to the adoption of SFRS(I) 16 in FY2019. The ROU assets relate to leases of premises occupied by the Group's clinics and business units.

Other assets as at 30 September 2019 increased to $13.2 million from $10.8 million as at 31 December 2018. The increase of $2.4 million was mainly due to the an increase in sign on bonus to new dentists and scholarship to local BDS undergraduates for 9 students.

Current Liabilities

Trade and other payables as at 30 September 2019 decreased to $11.3 million from $14.0 million as at 31 December 2018. The decrease of $2.7 million was mainly due to payment of staff bonuses which were accrued as at 31 December 2018.

Other financial liabilities as at 30 September 2019 increased to $0.5 million from $0.4 million as at 31 December 2018. The increase of $0.1 million was mainly due to bill payables arising from the Group's dental and equipment supplies distribution business in Malaysia.

Lease liabilities arising from ROU assets amounting to $11.6 million as at 30 September 2019 due to the adoption of SFRS(I) 16 in FY2019.

Non-Current Liabilities

Lease liabilities arising from ROU assets amounting to $24.0 million as at 30 September 2019 due to the adoption of SFRS(I) 16 in FY2019.

Other financial liabilities as at 30 September 2019 increased to $88.3 million from $86.2 million as at 31 December 2018. The increase of $2.1 million was mainly due to a new bank loan for the purchase of a clinic's property located in Bishan amounting to $2.9 million.

Statement of Cash Flows

The Group generated net cash flow from operating activities of $6.8 million in 3Q19. This was mainly derived from the profit generated in 3Q19, offset by income taxes paid.

Net cash used in investing activities in 3Q19 amounted to $2.1 million, mainly due to purchase of plant and equipment for the opening of new dental clinics and sign on bonus for dentists.

Net cash used in financing activities in 3Q19 amounted to $7.2 million, mainly due to interim dividend payment with respect to FY2019 and repayment of lease liabilities arising from right-of-use assets and interest paid.

Consequent to the above factors, the Group's cash and cash equivalents was $19.7 million as at 30 September 2019.

Commentary

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

Update on the Company's Singapore Operations

The Company has secured locations to open 4 new dental clinics which are expected to commence operations in the fourth quarter 2019 or first quarter of 2020.

Update on the Company's Malaysia Operations

The Company has secured locations to open 5 new dental clinics which are expected to commence operations in the fourth quarter 2019 or first quarter of 2020.

Addition of Dr Lim Kheng Ann to the Group

On 3 September 2019, the Group announced the addition of Dr Lim Kheng Ann, an Oral Maxillofacial Surgeon, to the Group. Dr Lim has been in surgical practice for more than 30 years and specialise in treating disease, injuries and jaw discrepancies in the oral and maxillofacial regions.

Incorporation of Q & M Dental AI. Sdn. Bhd.

On 8 October 2019, the Company announced the incorporation of a wholly-owned subsidiary in Malaysia named Q & M Dental AI. Sdn. Bhd. ("QDAI") with an initial issued and paid up capital of MYR100 comprising of 100 ordinary shares. The principle activites of QDAI is to carry out the business of design, development, implement, installation, repair and maintenance of software and the related artificial intelligent in dental healthcare system.

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

On 10 October 2019, the Company announced the proposed disposal of 36% of the registered capital of Aidite (Qinhuangdao) Technology Co., Ltd. by its subsidiary, Q & M Aidite International Pte Ltd. ("QMAI"). The Company has, through its 75.02% preference shareholding in QMAI, an economic interest of 75.02% in the sales proceeds of the proposed disposal, which is approximately $53.2 million (MB270 million). The net gain by the Company from the proposed disposal is estimated to be $19 million after taking into account the associated costs of the proposed disposal. It is estimated that the Company will received net proceeds of approximately $49 million. The transaction is subjected to approval by shareholders at an EGM to be held and fulfilment of various conditions precedent.

Singapore's First Private Dentistry College ( Registration No. 201841969G) Offering Diplomas in Clinical Dentistry

On 17 October 2019, the Group officially opened Singapore's first private dentistry college offering graduates diplomas studies in clinical dentistry at City Square Mall. Senior Minister of the State, Ministry of Trade & Industry and Ministry of Education, Mr Chee Hong Tat was the Guest-of-Honour at the official opening. The period of registration is from 20 June 2019 to 19 June 2021

Incorporation of Q & M Dental Centre (River Valley) Pte. Ltd.

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Centre (River Valley) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

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

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Surgery (Woodlands) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

Incorporation of Bright Smile Dental Surgery (Buangkok MRT) Pte. Ltd.

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Bright Smile Dental Surgery (Buangkok MRT) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

Incorporation of Q & M Medical Clinic (Buangkok MRT) Pte. Ltd.

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Medical Clinic (Buangkok MRT) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

Incorporation of Q & M Dental Surgery (Tanjong Katong) Pte. Ltd.

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Surgery (Tanjong Katong) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

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

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Surgery (Kovan) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

Incorporation of Q & M Dental Surgery (Clementi West) Pte. Ltd.

On 5 November 2019, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Q & M Dental Surgery (Clementi West) Pte. Ltd. with an initial issued and paid up capital of $0.1 million comprising of 100,000 ordinary shares.

Incorporation of Q & M Dental (Southern) Sdn. Bhd. and Q & M Dental Surgery (Taman Merdeka) Sdn. Bhd.

On 5 November 2019, the Company announced the incorporation of wholly-owned subsidiaries in Malaysia named Q & M Dental (Southern) Sdn. Bhd. and Q & M Dental Surgery (Taman Merdeka) Sdn. Bhd..

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 77 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 operations in Singapore. The Group has secured locations to open 4 new clinics which are expected to commence operations in fourth quarter 2019 or first quarter of 2020. 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 27 clinics in Malaysia. The clinics are 11 dental clinics in Johor, 1 dental centre and 12 dental clinics in Kuala Lumpur and 3 dental clinics in Malacca. The Group has secured locations to open 5 new clinics which are expected to commence operations in fourth quarter 2019 or first quarter of 2020. The eventual number of dental clinics will depend on opportunities and market conditions.

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 is actively working on all viable opportunities to acquire large and established dental institutions 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, Southeast Asia and PRC.