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Half Year Financial Statement Announcement And Dividend Announcement For The Year Ended 30 June 2020

Balance Sheet

Review of Performance

Statement of Comprehensive Income

The Covid-19 outbreak has evolved into a global pandemic. Countries have been lockdown or placed under various degrees of lockdown. The resilient healthcare sector has also been impacted as a result of the Circuit Breaker (“CB”) imposed by the Singapore Government in the months of April and May 2020 which shut down all non-essential business activities to curb the spread of the Covid-19 virus.

During the CB in Singapore from 7 April to 1 June 2020, only non-elective urgent and emergent dental treatment is allowed. Singapore is currently in Phase 2 of the CB and dentists can perform more dentistry services but should minimise aerosol generation and schedule time in between to allow disinfection of the clinics.

In Malaysia, the nationwide restricted Movement Control Order (“MCO”) implemented by the Malaysia Government under the Prevention and Control of Infectious Diseases Act 1988 and Police Act 1967 on 18 March 2020 to 9 June 2020, and our Group’s dental clinics in Malaysia are only allowed to treat non-elective, urgent and emergency dental services. Under the current Recovery Movement Control Order (“RMCO”), from 10 June 2020 to 31 August 2020 our dental clinics are allowed to perform most types of dental treatment except Aerosol generating procedures.

In People’s Republic of China, our associated companies’ operations were affected by the Covid-19 pandemic. Aoxin Q & M Dental Group Ltd. (“Aoxin Q&M”) has resumed their operations from 26 March 2020 although the Dalian hospital and clinic are temporarily under lock down again due to the resurgent of the Covid-19 virus. Aidite (Qinhuangdao) Technology Co., Ltd. (“Aidite”) has also resumed operation on 10 February 2020.

Revenue

Revenue contribution from dental and medical clinics decreased by 14% from $56.6 million for the 6 months ended 30 June 2019 (“1H19”) to $48.5 million for the 6 months ended 30 June 2020 (“1H20”) mainly due to the CB which restricted the types of dental services to be performed by dental outlets in Singapore. Revenue generated by Singapore dental outlets for the month of April and May 2020 decreased by approximately 63% as compared to the corresponding months in 1H19. Revenue generated by Singapore dental outlets in June 2020 has more than resumed to pre Covid-19 period and was significantly higher than June 2019 by 20%. From 18 March 2020 to 9 June 2020, our Malaysia dental outlets were only allowed to provide non-elective, urgent and emergency dental services. Revenue generated by Malaysia dental outlets for the months of April and May 2020 dropped by 28% as compared to the corresponding months in 1H19. Revenue generated by Malaysia dental outlets in June 2020 has more than resumed to pre Covid-19 period and was significantly higher than June 2019 by 15%. Revenue from dental and medical clinics includes profit guarantee income.

As at 30 June 2020, 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 30 June 2019 in Singapore.

As at 30 June 2020, the Group has a total of 33 dental outlets in Malaysia and 1 dental outlet in People’s Republic of China (“PRC”) compared to 20 dental outlets in Malaysia and 1 dental outlet in PRC as at 30 June 2019.

Revenue contribution from the dental equipment and supplies distribution business decreased by 11% from $5.0 million in 1H19 to $4.4 million in 1H20. The decrease was mainly due to lower revenue from dental equipment and supplies distribution company in Malaysia in 1H20 arising from the MCO in Malaysia.

As at 30 June 2020, the Group has a total of 1 dental and supplies distribution company and 1 Covid-19 test kits supply company in Singapore and 1 dental equipment and supplies company in Malaysia compared to 1 dental equipment and supplies distribution company in Singapore and 1 dental equipment and supplies distribution company in Malaysia as at 30 June 2019.

Other Gains – Net

Other gains - net in 1H20 amounted to $2.2 million mainly due to an assignment fee income of $1.70 million arising from the acquisition of the Covid-19 diagnostic test kits and related business from Acumen Research Laboratories Pte. Ltd..

Other Items of Expense

Consumables and Supplies Used in Dental & Medical Clinics

Consumables and supplies used decreased by 13% from $4.1 million in 1H19 to $3.6 million in 1H20. The decrease was in line with the decrease in revenue.

As a percentage of revenue from the dental and medical outlets, consumables and supplies used in the dental and medical outlets in 1H20 was 7.3% compared to 7.2% in 1H19.

Cost of Sales Dental Equipment and Supplies

The cost of sales from dental equipment and supplies distribution business decreased by 6% from $3.5 million in 1H19 to $3.3 million in 1H20. The decrease was mainly due to decrease in revenue from the dental equipment and supplies distribution business 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 1H20 was 74.0% compared to 69.8% in 1H19.

Employee Benefits Expense

Employee benefits expense decreased by 18% from $34.7 million in 1H19 to $28.6 million in 1H20. The decrease of $6.1 million was mainly due to $2.3 million Job Support Scheme received from the Singapore Government, lower professional fees paid to dentist as well as the partial reversal of accrued bonus for staff provided in FY2019 for the profit on disposal of Aidite which was not paid due to the economic uncertainty arising from the Covid-19 pandemic.

As a percentage of revenue, employee benefits expense in 1H20 was 54.0% compared to 56.3% in 1H19.

Depreciation and Amortisation Expense

Depreciation and amortisation expense increased by 7% from $1.6 million in 1H19 to $1.7 million in 1H20. The increase of $0.1 million was mainly due to the acquisition of Covid-19 diagnostic test kits and related business from Acumen Research Laboratories Pte. Ltd. as well as 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 1H20 was 3.2% compared to 2.6% in 1H19.

Depreciation of Right-Of-Use (“ROU”) Assets

Depreciation of ROU assets decreased by 35% from $5.4 million in 1H19 to $3.5 million in 1H20. The decrease was mainly due to $2.2 million rental rebate received as a result of the Singapore Government support scheme due to Covid-19 offset by the opening of new clinics in Singapore and Malaysia.

As a percentage of revenue, depreciation of ROU assets in 1H20 was 6.5% compared to 8.7% in 1H19.

Other Expenses

Other expenses decreased by 23% from $3.7 million in 1H19 to $2.8 million in 1H20. The decrease of $0.9 million was mainly due to the decrease in business activity in the CB months of April and May 2020 which led to reduction in expenses such as credit card charges, advertising and marketing expenses as well as the write back of over provision of legal fees accrued in FY2019.

As a percentage of revenue, other expenses in 1H20 was 5.3% compared to 6.0% in 1H19.

Finance Costs

Finance costs increased by 21% from $1.9 million in 1H19 to $2.3 million in 1H20. The increase of $0.4 million was mainly due to an increase in the operating lease interest expense for 1H20.

As a percentage of revenue, finance costs in 1H20 was 4.3% compared to 3.0% in 1H19.

Share of Profit from Equity-Accounted Associates

In PRC, our associated companies’ operations were affected by the Covid-19 pandemic, which resulted in higher loss from equity-accounted associate Aoxin Q & M and lower profit from Aidite. The lower profit contribution from Aidite was due to lower profit as well as lower shareholding in Aidite. Our effective shareholding in Aidite is now 9.19% as a result of the partial disposal in December 2019.

Profit Before Tax and Net Profit

For the reasons given above, the Group produced a respectable profit before tax of $9.0 million for 1H20 compared with $8.6 million in 1H19, representing an increase of 5%.

After deducting provision for income tax expense of $0.1 million, the Group’s net profit was $8.9 million in 1H20.

For 1H20, profit after tax attributable to owners of the parent was $8.1 million as compared to $8.3 million in 1H19.

Statement of Financial Position

As at 30 June 2020, the Group has cash and cash equivalents of $41.6 million, bank borrowings plus finance leases amounted to $84.9 million.

Current Assets

Cash and cash equivalents as at 30 June 2020 increased to $41.6 million from $27.3 million as at 31 December 2019. The increase of $14.3 million was mainly due to proceeds received from the partial disposal of 36% of equity-accounted associate Aidite, offset by second interim dividend payment of $19.1 million with respect to FY2019, purchase of personal protective equipment for inventories due to the need to ensure adequate protection for our patients, dentists and nurses arising from the Covid-19 pandemic.

Trade and other receivables as at 30 June 2020 decreased to $22.3 million from $87.3 million as at 31 December 2019. The decrease of $65.0 million was mainly due to the proceeds received from the partial disposal of 36% of equity-accounted associate, Aidite.

Other assets as at 30 June 2020 increased to $4.0 million from $3.4 million as at 31 December 2019. The increase of $0.6 million was mainly due to deposit for the renovation new head office.

Inventories as at 30 June 2020 increased to $16.0 million from $7.0 million as at 31 December 2019. The increase of $9.0 million was mainly due to holding higher inventories of surgical masks and other personnel protection equipment (PPE) such as gowns, gloves, goggles in line with government advisories and regulations to protect patients, dentists and nurses in the clinics caused by the current Covid-19 pandemic and the possibility of a second wave. It also includes stock holding of such consumables for sale by the dental equipment and supplies distribution companies in Singapore and Malaysia.

Non-Current Assets

The net book value of property, plant and equipment as at 30 June 2020 increased to $27.8 million from $26.1 million as at 31 December 2019. The increase of $1.7 million was mainly due to the acquisition of Covid-19 diagnostic test kits and related business from Acumen Research Laboratories Pte. Ltd. offset by depreciation of plant and equipment.

The net book value of ROU assets as at 30 June 2020 decreased to $44.3 million from $49.5 million as at 31 December 2019. The decrease was due to the depreciation of the ROU assets.

Intangible Assets

Intangible assets as at 30 June 2020 increased to $55.1 million from $53.5 million as at 31 December 2019. The increase of $1.6 million was mainly due to the goodwill arising from the acquisition of Covid-19 diagnostic test kits and related business from Acumen Research Laboratories Pte. Ltd..

Current Liabilities

Trade and other payables as at 30 June 2020 decreased to $14.4 million from $27.1 million as at 31 December 2019. The decrease of $12.7 million was mainly due to payment of the accrued expenses arising from the partial disposal of 36% of equity-accounted associate Aidite, issuance of the Q & M Performance Share Plan 2018 shares to certain dentists as well as payment of staff bonuses and dentists professional fees which were accrued as at 31 December 2019.

Other financial liabilities as at 30 June 2020 increased to $60.4 million from $32.6 million as at 31 December 2019. The increase of $27.8 million was mainly due to the reclassification of a $60.0 million bank loan from non-current liability to current liability as the date for repayment is in March 2021 offset by the reclassification of a $15.0 million bank loan from current liability to non-current liability as the date for repayment has been extended for another 3 years and the redemption of preference shares held in trust in Aidite.

As a result of the reclassification of the $60.0 million bank loan from non-current liability to current liability as mention above, the Group has a small negative working capital of $0.85 million.

Lease liabilities from ROU assets as at 30 June 2020 decreased to $9.5 million from $10.2 million as at 31 December 2019. The decrease was mainly due to the expiry of leases of less than one year that has yet to be renewed.

Non-Current Liabilities

Other financial liabilities as at 30 June 2020 decreased to $24.6 million from $69.8 million as at 31 December 2019. The decrease was mainly due to the reclassification of a $60.0 million bank loan from non-current liability to current liability as the date for repayment is in March 2021 offset by the reclassification of a $15.0 million bank loan from current liability to noncurrent liability as the date for repayment has extended for another 3 years.

Lease liabilities from ROU assets as at 30 June 2020 decreased to $36.1 million from $39.9 million as at 31 December 2019. The decrease was mainly due to the repayment of the operating lease.

Statement of Cash Flows

Net cash flow used in operating activities in 1H20 amounted to $3.5 million. This was mainly derived from profit generated from operation offset by the increase in working capital needed for 1H20.

Net cash from investing activities in 1H20 amounted to $45.4 million, mainly due to proceeds from the partial disposal of 36% of equity-accounted associate Aidite, offset by the investment in the new subsidiary, Acumen Diagnostics Pte. Ltd..

Net cash used in financing activities in 1H20 was $27.5 million, mainly due to second interim dividend payment with respect to FY2019, repayment of lease liabilities arising from right-ofuse assets and share buyback.

Consequent to the above factors, the Group’s cash and cash equivalents was $41.2 million as at 30 June 2020.

Commentary

Industry Prospects

The current Covid-19 situation in Singapore is fluid and remains uncertain. Barring any unforeseen circumstances and the possible worsening of the Covid-19 situation leading to another lock down in Singapore, there are no known significant changes in the trends and competitive conditions of the industry in which the Group operates and no other major known factors or events that may adversely affect the Group in the next reporting period and the next 12 months.

Recent Developments

Update on the Company’s Singapore Operations

Two new clinics in Mayflower and Sembawang Way had commenced operations on 3 June and 20 July 2020 respectively. The Company had consolidated its two clinics in Toa Payoh Central with effect from mid-April 2020. The Company has secured location to open 1 new dental clinic in Woodlands Square which is expected to commence operations in the second half of 2020.

Update on the Company’s Malaysia Operations

The Company has secured locations to open 2 new dental clinics which are expected to commence operations in the second half of 2020.

Proposed Investment for the Establishment of a Surgical Mask Manufacturing Company

On 11 March 2020, the Company announced that the Company had entered into a non-binding memorandum of understanding with Hubei Aishubao Living Supplies Co., Ltd. and Guangzhou Pharmasen Co., Ltd. for the proposed establishment of a surgical mask manufacturing company as a joint venture company, which, if materialized, will result in the Company becoming a shareholder of the joint venture company.

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

On 9 April 2020, the Company wishes to update shareholders that the Group has completed the process of paying taxes in respect of the transfer of the sales Shares to relevant PRC tax authorities and has also received the remaining aggregate consideration from the buyers. Accordingly, all outstanding matters in respect of the completion of the proposed disposal is settled.

Incorporation of Acumen Diagnostics Pte. Ltd.

On 14 April 2020, the Company announced the incorporation of a wholly-owned subsidiary in Singapore named Acumen Diagnostics Pte. Ltd. (“ADPL”) with an initial issued and paid-up share capital of $100,000 comprising of 100,000 ordinary shares. The principle activities of this subsidiary is medical laboratories (E.G. Blood Analysis Laboratories).

Acquisition of Covid-19 Diagnostic Test Kits and Related Business from Acumen Research Laboratories Pte. Ltd.

On 23 April 2020, the Company announced that Acumen Diagnostics Pte. Ltd. (“ADPL”) has entered a business transfer agreement with Acumen Research Laboratories Pte. Ltd. (“ARL”) to acquire Covid-19 diagnostic test kits and related business for a purchase consideration of $0.4 million.

ADPL had entered into a joint venture agreement with Dr. Ong Siew Hwa, Ms. Zeng WeiYi and Acumen Holdings Pte Ltd. to co-operate and develop the business of manufacture, sale and distribution of diagnostic test kits, analysis of test kits, conduct of clinical vaccine trails as well as manufacture, sale and distribution of vaccines. The Company shall invest a total of $3.0 million in cash in the joint venture for a 51% stake.

ADPL had also entered into an option agreement with Dr. Ong pursuant to which Dr. Ong granted ADPL the rights to purchase from her the 100% shareholdings interest in ARL at any time within 18 months after 22 April 2020 for a consideration of $3.0 million.

On 5 July 2020, the Company announced the completion of the acquisition of Covid- 19 diagnostic test kits and related business from ARL and the additional payment of $0.25 million in cash subject to certain performance conditions having been met. Following completion, the Company shareholdings in ADPL is now 51%.

Appointment of Azion Healthcare Sdn Bhd as Exclusive Distributor for Acu-Corona® 3.0 Coronavirus Test Kits in Mexico

On 23 July 2020, the Company announced that Acumen Diagnostics Pte. Ltd. along with Acumen Research Laboratories Pte. Ltd. had entered into an exclusive distribution agreement dated 14 July 2020 with Aizon Healthcare Sdn Bhd (“Azion”). Azion has been appointed as the exclusive buyer and distributor of Acu-Corona® 3.0 Covid-19 reverse transcription polymerase chain reaction test kits in the Mexico for a duration of six months which can be automatically renewed in six months blocks provided Azion purchases five million tests within 3 months of the date of obtaining Regulatory Approvals from the relevant Mexican Authorities.

Increase in Shareholding in Aoxin Q & M Dental Group Limited

On 19 June 2020, the Company announced the acquisition of 548,800 shares in the capital of Aoxin Q & M Dental Group Limited (“AXQM”) in the open market for an aggregate consideration of $75,469.30.

On 9 July 2020, the Company announced the acquisition of 397,500 shares in the capital of AXQM in the open market for an aggregate consideration of $52,595.00.

Following the acquisition, the Company’s shareholding interest in AXQM has increased from 162,354,038 AXQM shares representing 42.55% of the total number of issued AXQM shares, to 163,300,338 AXQM shares representing 42.80% of the total number of issued AXQM shares.

Q & M Dental Centre Builds Local Pipeline of Dental Surgery Assistants through Workforce Singapore (“WSG”) ‘s Place-and-Train Programme

On 2 July 2020, the Company announced a new programme to hire and train midcareer Dental Surgery Assistants. Through the programme, the Group will be able to expand its workforce to support its growing operations and at the same time, create viable and meaningful job opportunities for local mid-careerists who are keen to embark on a new career in healthcare services.

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 operation in Singapore and has initiated a strategy of 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 and currently has secured locations to open 2 new clinics. The eventual number of dental outlets will depend on available opportunities and pertinent market conditions such as the resolution of the Covid-19 pandemic. 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 33 clinics in Malaysia. There are 15 dental clinics in Johor, 15 dental clinics in Kuala Lumpur and 3 dental clinics in Malacca. The Group intends to focus on opening new clinics in Malaysia and has secured locations to open 2 new clinics which are expected to commence operations in the second half of 2020. The eventual number of dental clinics will depend on available opportunities and pertinent market conditions such as the resolution of the Covid-19 pandemic.

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 subject to the resolution of the Covid-19 pandemic.

Expansion in Southeast Asia

The Group is continuously looking for opportunities to expand its businesses through opening new dental clinics in Southeast Asia subject to the revolution of the Covid-19 pandemic.