For the reporting period ended 30 June 2017, due to growing Export sales stemming from increased demand for the Group’s brand offerings in China, the Group reported a 15.2% increase in Revenue and a 62.7% increase in Profit Attributable to Owners of the Parent Company of $21.7 million vis-a-vis $13.3 million for the same period last year.
Key points of the Group’s performance for this reporting period include:
Revenue from the Group’s core business of Direct Selling makes up 51.8% of the Group’s total revenue in 1H2017. Comparing half-on-half, this translates to a decline of 19.0% and is primarily due to a decline in revenue from the Group’s key market of Taiwan for this reporting period.
Momentum from the Export segment continued to gain traction as it increased 121.7% from $20.8 million in 1H2016 to $46.1 million in 1H2017. This accounts for 46.1% of the Group’s total revenue and is primarily driven by growing consumers’ demand for DR’s Secret skin care range in China.
For 1H2017, Manufacturing/Wholesale segment increased 5.7% vis-à-vis the same period last year to $2.1 million. This is mainly attributable to the expansion of the internal sales team since end of FY2016, continuous marketing activities and participation in trade exhibitions which resulted in the sign up of new wholesalers.
As at 30 June 2016, total membership for the Group’s Direct Selling business increased 1.8% to 468,479 members, when compared to 31 March 2017. Active distributors, which refers to members who have received commission for at least 6 months over the last 12 months, makes up approximately 11% of total membership.
Revenue from Singapore for 1H2017 increased 16.9% to $3.6 million due to more marketing activities such as DR’s Secret workshops/trainings and the participation of the Body SOS Health Carnival organized by Mediacorp earlier this year. Management will continue to build market share through our skin care offerings and implement strategies to nurture more younger distributors from its repeat consumers
In 1H2017, revenue from China grew 114.3% to $48.0 million from $22.4 million compared to the same period last year. As explained earlier in the Export Segment, revenue growth in China is driven by growing market demand for our DR’s Secret skin care range. These users are served by DR’s Secret service outlets which are developed over the years from beauty and wellness related business and other traditional businesses.
Barring unforeseen circumstances, Management believes that demand for DR’s Secret skin care range in China will continue to grow healthily for the remaining months of FY2017.
Revenue from Taiwan declined 24.4% in 1H2017, from $55.3 million in 1H2016 to $41.8 million, due to the high base effect in FY2016 coupled with the market measures implemented in the earlier part of 2017.
As the 9th largest direct selling company in Taiwan for FY2016 (Source: Power Networking Monthly, Issue 290/291), new members acquisition in central and southern Taiwan for the remaining months of the year is expected to be slower. As such, Management will increase efforts to tap into the market north of Taichung, which currently makes up 28% of the Group’s total Taiwan revenue and also focus on increasing distributors’ efficiency with the launch of upgraded versions of our online store and mobile apps.
Indonesia Revenue from Indonesia decreased 17.7% from $2.7 million in 1H2016 to $2.2 million in 1H2017 due to the recent switch of strategy from weight Management line to skin care range. While the strategy has yet to gain traction, Management remains cautiously optimistic that the it is crucial to lay this foundation to capitalize on the next growth opportunity when all cosmetics are required to be indicated Halal or no-Halal by 2019.
The Management has currently put in place a Halal Assurance Standards which will be the Halal framework of the Tuas manufacturing facility, slated to come on line in FY2018.
Sales in Other Markets increased by 32.1% from $3.4 million in 1H2016 to $4.4 million in 1H2017 primarily due to the increase in Hong Kong, Vietnam, Korea and Malaysia, offsetting decline from Philippines and Thailand.
Non-current assets of the Group decreased from $26.8 million as at 31 December 2016 to $25.7 million as at 30 June 2017, mainly due to depreciation of Property, Plant and Equipment as well as amortisation of Intangible Assets.
Inventory decreased from $43.0 million as at 31 December 2016 to $41.9 million as at 30 June 2017 as the Group has improved its stock shortages issues faced previously and has sufficient buffer to sustain growth moving forward.
In line with higher revenue generated from the Export Segment, Trade and Other Receivables increased from $23.4 million as at 31 December 2016 to $42.7 million as at 30 June 2017.
Other Assets decreased from $12.1 million as at 31 December 2016 to $10.3 million as at 30 June 2017 mainly due to lower deposits paid to suppliers in line with the decreased orders made to suppliers as the Group currently maintains a sufficient level of inventory. In addition, the decline in Other Assets was due to our Indonesian subsidiary offsetting the overpaid Value Added Tax against existing outstanding tax payable as earlier disclosed during 1Q2017.
Trade and Other Payables decreased by $0.9 million to $42.9 million as at 30 June 2017 mainly due to lower accruals of freelance commissions during the period.
Total Other Financial Liabilities decreased from $7.4 million as at 31 December 2016 to $6.0 million as at 30 June 2017 due to repayment of bank borrowings during the period.
Other Liabilities were maintained at $1.0 million as at 30 June 2017 vis-à-vis 31 December 2016.
Income Tax Payable decreased from $16.5 million as at 31 December 2016 to $14.6 million as at 30 June 2017 due to payment was made for Income Tax Payable of the Company and a subsidiary during the period, offsetting additional tax provisions for the period.
Net cash flows from operating activities of $4.3 million in 1H2017 is mainly attributable to the Group’s net profit before tax in 1H2017 amounting to $30.4 million, offsetting decrease in net cash flows from operations due to increase in trade and other receivables during the period. Net cash flows used in financing activities in 1H2017 of $9.5 million was mainly due to dividend paid and repayment of borrowings. As a result, Cash and Cash Equivalents in the consolidated statement of cash flows decreased to $42.6 million as at 30 June 2017.
As at 30 June 2017, the Group maintained a strong balance sheet and working capital position, with approximately $48.7 million of cash and cash equivalents.
With healthy growth expected for the Group’s Export Segment, barring unforeseen circumstances, Management is cautiously optimistic of the Group’s performance for the next reporting period and for FY2017.
While the Group’s Taiwan market had enjoyed CAGR of 86.6% from FY2009 to FY2016, based on current reaction to market measures implemented earlier this year, Management expects Taiwan to maintain a stable contribution to the Group for this financial year.
Factors that may affect the Group’s performance in the next reporting period and for the next 12 months are as follows:
Other ongoing factors that affect the Group’s performance include, timeline required for product registration in various markets, natural disasters, local direct selling regulations, product regulations and market competition.