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Highlights From Biosensors International Group’s Latest Full-Year Earnings

Yesterday evening, Biosensors International Group (SGX: B20) released its financial results for the fourth quarter of its financial year ended 31 March 2014 (FY2014). The company is known in the investment community as a developer and manufacturer of innovative medical devices – mainly stents – for use in interventional cardiology and critical care procedures. The company’s products are also usually used during heart surgery and intensive care treatment and monitoring.

Financial Report Card

For the year ended 31 March 2014, Biosensors reported total revenue of US$323.8 million, down 4% from a year ago. Despite revenue falling by just a few percentage points, the company’s net profit for the year had plummeted by 65% from US$115.5 million to US$40.59 million. There are several reasons for the decline as highlighted below:

1) Firstly, gross margins fell from 84.3% in the previous year to 77.3%. The fall was attributed to three areas: Distribution activities for Nobori stents in Japan; the inherently lower margins of the recently-acquired cardiac diagnostic business; and an overall price reduction for drug-eluting stents (DES) that are sold in China.

2) Secondly, the company’s sales & marketing expenses had grown by 20% from a year ago to US$108.28 million partly due to the company’s increased spending on brand building activities.

3) Lastly, financial expenses (i.e. interest payments on borrowings) had rocketed by 94% year-on-year to US$13.37 million. Biosensors had ended FY2014 with a total debt load of US$289.5 million, an increase over its total borrowings of US$277.3 million at the end of FY2013; the higher amount of borrowings had led to larger interest payments.

Other than Biosensors’ disappointing results, there were also other important recent changes within the company that were highlighted in the earnings announcement.

The first concerns a change in leadership at the firm. Mr. Jose (PePe) Calle Gordo has been appointed as Biosensors’ new Chief Executive Officer (CEO) to replace outgoing CEO, Dr. Jack Wang. Wang would become Biosensors’ Chief Technology Officer instead, taking over from Mr. John E. Shulze , who had retired at the end of 2013. Gordo will only officially join Biosensors on 1 Nov 2014; Mr. Yoh-Chie Lu, who’s the Executive Chairman of the company, will lead as interim CEO until Gordo arrives.

Next, Biosensors highlighted its first foray into the US with its interventional cardiology products. The company’s Bio-FreedomTM product had been “[g]ranted a conditional Investigational Device Exemption (IDE) approval for a U.S.-based clinical trial… by the U.S. Food and Drug Administration (FDA).”

Lastly, Biosensors’ new product ChromaTM – “an innovative cobalt chromium bare-metal stent (BMS) coupled with the Company’s special delivery system” – has just been launched this month after receiving its CE (Conformité Européenne) approval last year

Outlook and Valuations

Lu has this to comment on Biosensors’ full year results and recent developments: “[FY2014] was a challenging year. For the first time in five years, our total revenue decreased year over year. Despite additional marketing efforts, product revenue grew only 1%, while licensing revenue declined. Overall, we were experiencing a market slowdown and an increase in competition especially in the fast-growing markets such as China.

Nevertheless, he tried to allay some of the concerns by explaining some of the measures the company would implement to drive growth going forward: “Starting in mid-Q3 FY14, under our board’s direction, we adjusted our overall strategy to focus on improving operational efficiency and productivity while concentrating our investments only on areas with high growth potential. This strategy began to take effect in certain parts and territories during Q4. We are confident that this strategic direction will help the Company improve its performance gradually moving forward.”

As a result of the dip in profits, earnings per share came in at 2.38 US cents, down from 6.71 US cents last year. Shares of Biosensors are currently trading at S$0.98 apiece, which represents a trailing price-to-earnings ratio of 41. There were no dividends declared for FY2014.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.