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Biosensors reported poor Q1 FY2014 results

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Biosensors total product revenue for the quarter ended 30 June 2013 decreased by 6% to US$65.0 million from US$69.0 million recorded in the previous year’s corresponding quarter.
Total interventional cardiology revenues decreased by 7% to US$60.9 million in the quarter ended 30 June 2013 from the US$65.7 million reported in the previous year’s corresponding quarter due to a drop in the Group’s drug-eluting stents (“DES”) sales mainly as a result of the Group’s efforts in reducing distributor channel inventories in China in anticipation of China new tenders pricing taking effect.

Biosensors continues to see strong, double~djgit sales growth in EMEA and Asia Pacific regions. Sales of critical care products remained constant at US$3.4 million in the quarter ended 30 June 2013, compared to US$3,3 million in the previous year’s corresponding quarter.

Total revenue, including licensing and royalty revenue, for the quarter decreased 11% to US$76.6 million from US$86.3 million in the previous year’s corresponding quarter. The table below shows the Group’s revenue and the principal components of the revenue, as a percentage of total revenue, for the periods indicated:

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Cost of sales and gross profit:
Overall gross margin for products was 75% for the quarter ended 30 June 2013, compared to 81% for the previous year’s corresponding quarter. Gross margin reduction was attributable mainly to our distribution activities in Japan for the Nobori stents, coupled with the consolidation of the Group’s newly~acquired Cardiac Diagnostic Business, which has a lower gross profit margin.

Operating expenses:
The Group’s total operating expenses for the first quarter were US$41.9 million compared to US$39.5 million for the first quarter in the previous year, an increase of 6% over the prior year’s corresponding quarter.

  1. Sales and marketing expenses
    Sales and marketing expenses increased 19% to US$26.6 million for the quarter ended 30 June 2013 compared to US$22.3 million for the quarter ended 30 June 2012. The increase was due to payroll related expenses, additional investment in brand building activities and trade show related spending.
  2. General and administrative expenses
    General and administrative expenses reduced 8% to US$9.3 million for the quarter ended 30 June 2013 compared to US$10.1 million in the previous year’s corresponding quarter. The decrease was mainly due to reduced spending in consulting and professional fees.
  3. Research and development expenses
    Research and development expenses reduced 4% to US$6.1 million for the quarter ended 30 June 2013 compared to US$6.3 million in the quarter ended 30 June 2012. The decrease was mainly due to lower spending in R&D supplies during the period.
  4. Other operating income/(expenses)
    Other operating expenses for the quarter comprised primarily of net exchange gain arising from the strengthening of EUR and SGD during the period.

Income tax
Biosensor’s income tax for the current quarter comprises mainly corporate income tax expenses.

Net result after tax:
The net result for the quarter ended 30 June 2013 was a profit after tax of US$12.1 million as compared to a net profit after tax of US$32.6 million for the same quarter in the previous year. The decrease in net profit for the quarter as compared to the prior year’s corresponding period was attributable to a number of factors, including the negative impact of reduced licensing revenue, lower product revenue, increased spending on brand building activities, increased finance expenses relating to the fixed rate notes previously issued and non-recurring favorable fair value adjustments of derivatives in the same quarter of the previous year.

Use of proceeds from the issue of 4.875% fixed rate notes due 2017
The Company refers to its announcement on 23 January 2013 in relation to the issuance of an aggregate of S$300 million (approximate US$240 million) in principal amount of 4-year notes with interest at a rate of 4.875%, payable semi-annually in arrear.

As at 30 June 2013, out of the total net proceeds of S$295.4 million (approximate US$238.2 million) from the issuance of 4-year notes, the Company paid US$51.1 million for the acquisition of the business of Spectrum Dynamics.

The Company will continue to make periodic announcements on the utilisation of the proceeds from the notes issue as and when such proceeds are materially deployed.

Commentary
On 26 May 2013, the Company announced the acquisition of substantially all the assets of Spectrum Dynamics, a leader in advanced functional assessment technologies, includIng those used to evaluate patients for cardiac interventions. The purchase consideration of US$51.1 million was funded from the Group’s internal cash resources. The acquisition is expected to have a positive impact on the total revenue of the Group for the current financial year ending 31 March 2014.

For the fiscal year ending 31 March 2014 (“FY14”), management anticipates total revenue to grow around 15% over FY13. This guidance is primarily driven by continued DES product revenue growth in the EMEA and APAC regions, as well as management’s expectations that China sales will recover following the inventory adjustment in Q1 FY14. Management also expects revenue contributions in FY14 to come from the commercialization of various new products and the newly acquired business of Spectrum Dynamics.

Biosensors expects its future royalty income to improve over its Q1 FY14 results. Although royalty revenue is not completely within the Company’s control, the Company will invest in expertise to assist its licensee in Japan in an effort to improve performance. Moreover, the Group’s own sales efforts in Japan have been gaining momentum.

The Group’s interest expense and interest payments will increase in future periods as a result of issuing about US$240 million in principal amount of 4 year notes. With the cash provided from these notes and continued improvement in the Company’s operating performance, the Company is not currently planning additional fund raising activities.

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