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Cordlife Group Ltd’s Latest Earnings: What Investors Should Know

The idea of being able to store the cord blood of your newborn baby is similar to buying an insurance policy – you hope you never have to use it, but you feel safer having it.

It is not hard to see why demand for such services might grow higher in the future. As medical technology advances, it’s likely that more applications for cord blood in the treatment of diseases would emerge and that may increase the appeal of cord blood-banking amongst parents.

This is where Cordlife Group Ltd (SGX: P8A) comes in. It is currently the largest private cord blood bank operator in three of its key geographical markets: Singapore, Indonesia, and the Philippines.

Yesterday evening, Cordlife announced its results for its full fiscal year ended 30 June 2015 (FY2015). Let’s see how the company has fared.

Financial and business highlights

Cordlife experienced a strong 17.3% increase in revenue for the year to S$57.6 million. Client deliveries, which jumped 32.9% to 21,085, had been a big contributor to the top-line growth.

Unfortunately, higher revenue did not translate into better operating profit for Cordlife. In fact, the cord blood banking outfit’s operating profit fell 33% to S$6.1 million for the year. This was mainly due to a 15.3% jump in administrative expenses and a 45.3% spike in selling and marketing expenses. These in turn came from Cordlife’s Indian subsidiary which had launched its first integrated marketing plan in India.

Interestingly, Cordlife’s bottom-line still managed to grow – the company’s profit in FY2015 had stepped up by 5.7% to S$32.1 million largely because Cordlife had clocked a S$23.3 million gain through increases in fair values of its financial assets and derivatives.

These in turn had happened because Cordlife’s investment in the China-based China Cord Blood Corporation (CCBC) had been re-categorized from an associate into an investment in a financial asset. Over the course of FY2015, CCBC, which is listed in China, also saw its shares gain in price significantly.

Although Cordlife had managed to achieve steady top- and bottom-line growth, its cash flow picture looks a lot worse. In FY2015, Cordlife produced negative operating cash flow of S$4.23 million. With capital expenditures of S$1.82 million, Cordlife had thus ended its recent fiscal year with a negative S$6.05 million in free cash flow.

These numbers represent a significant deterioration from a year ago when Cordlife had S$3.67 million in positive operating cash flow, S$1.54 million in capital expenditures, and thus S$2.13 million in free cash flow.

Cordlife’s balance sheet has also weakened severely compared to a year ago. As of 30 June 2015, the company had S$129.3 million in total borrowings and just S$S$29.2 million in cash, short-term investments, and fixed deposits. Meanwhile, the self-same figures for Cordlife as of 30 June 2014 were S$12.9 million and S$45.4 million, respectively.

Despite the shakier balance sheet and poor cash flow performance, Cordlife’s board of directors still declared a final dividend of S$0.01 per share, unchanged from a year ago.

A future outlook

According to Cordlife’s comments in the earnings release, it sees growth in emerging Asian nations and the company’s “expanding its geographical footprint for cord blood and umbilical cord lining banking business as well as other newly-introduced products catering to the mother and child segment.”

The company also “expects its core business to remain profitable for FY2016,” “barring any unforeseen circumstances” and excluding a host of non-operational items.

As Cordlife alluded to in its comments, the demand for cord blood and umbilical cord lining banking seems to be on the rise in Asia. Although Cordlife has spent significant sums on marketing over the year, especially in India, the brand awareness and goodwill this might bring may end up being a positive for the company over the long term.

But there are some areas of concern, in particular Cordlife’s lack of cash flow and its weak balance sheet. Investors might want to keep an eye on them.

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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 writer Stanley Lim doesn't own shares in any company mentioned.