In line with previous announcement on the new accounting standards SFRS(I) 15, Revenue from Contracts with Customers and certain expenses previously recorded in distribution costs are to be recorded as reduction in revenue. For the reporting period ended 30 September 2019, the Group registered a total revenue of $266.0 million, representing an increase of 91.9% vis-à-vis the same period last year mainly due to revenue from Direct Selling Segment and our Franchise segment in China.
In line with increase of underlying demand, cost of sales increased from $14.8 million in 3Q2018 to $35.6 million in 3Q2019 and also as a result of China increasing custom duties on goods from the United States during the course of 2019, increased filling/bottling/packaging charges and freight & handling charges. This has led to a decrease in Group’s gross profit margin from 81.7% in 3Q2018 to 68.9% in 3Q2019.
The decrease of Group’s net profit margin from 36.9% in 3Q2018, to 21.7% in 3Q2019 is mainly attributable to the following factors:
As a result, Group’s profit attributable to owners of the parent company for 3Q2019 was 16.9% lower than 3Q2018, mainly due to the absence of a one-time other operating income in 3Q2018. For the nine months ended 30 September 2019, the Group’s profit attributable to owners of the parent company increased to $61.9 million from $44.8 million for the same period last year.
Vis-à-vis the same quarter last year, the Group’s Direct Selling revenue increased from $29.1 million in 3Q2018 to $30.8 million in 3Q2019, making up 26.9% of the Group’s total revenue. This is mainly due to growth from Group’s key markets of Singapore and Taiwan. For the nine months ended 30 September 2019, Group’s Direct Selling revenue increased by 21.8% also mainly due to growth in the key markets of Singapore and Taiwan.
As mentioned in the Group’s previous announcement, revenue from Export segment from 3Q2018 onwards is solely made up of exports to Myanmar. For the nine months ended 30 September 2019, Export segment contributes just 0.2% of the total revenue.
Manufacturing/Wholesale segment revenue only makes up 0.6% of the Group’s total revenue in 3Q2019. For the nine months ended 30 September 2019, revenue from this segment decreased 34.1% mainly due to the intense market competition and a general slowdown in the health supplements sector in China since beginning of the 2019.
Revenue from Franchise increased by 63.2% from $50.7 million in 3Q2018 to $82.8 million in 3Q2019 mainly due to growing underlying demand for the Group’s skincare line. Franchise revenue made up 65.5% of the Group’s total revenue for the nine months ended 30 September 2019.
As at 30 September 2019, we have 32 franchisees, which are distributed over eleven provinces and one municipality in mainland China.
As at 30 September 2019, the Group has 103,027 members for its direct selling business, representing a 1.4% increase when compared to 1H2019.
Singapore continued its momentum in 3Q2019 with an improvement of 12.1% to $2.3 million mainly attributable to higher sales from active distributors, as well as increase in orders made through our online store/mobile apps by local customers and customers in other markets e.g. Australia. As a result, overall revenue for the nine months ended 30 September 2019 increased from $5.5 million to $7.2 million compared to the same period last year.
For the nine months ended 30 September 2019, revenue in China increased 172.0% vis-à-vis the same period last year mainly because revenue contribution from the Franchise segment for FY2018 commenced only in the last week of June 2018. Revenue from China in 3Q2019 increased by 61.2% to $83.4 million from $51.7 million in 3Q2018, mainly driven by underlying growth in demand for the Group’s skincare line, DR’s Secret.
In line with the previous announcement, revenue in Taiwan increased from $19.4 million in 3Q2018 to $22.6 million in 3Q2019 mainly due to continuous effort in optimizing online to offline (O2O) interactions between distributors and their online followers, as well as improved distributors’ incentives. In addition, there is a growth in distributors resulting from implemented marketing strategies since 2H2018. These initiatives drew good response which led to a 27.1% increase in revenue for the nine months ended 30 September 2019, vis-à-vis the same period last year.
Revenue from Indonesia decreased from $4.7 million in 3Q2018 to $2.3 million in 3Q2019 mainly due to rampant online discounting and the lack of marketing activities as a result of demonstrations and social tension after the April elections which continued till late October 2019. As a result, revenue in Indonesia declined by 19.7% for the nine months ended 30 September 2019 when compared to the same period last year. Management are currently working with legal professionals and also implementing measures to take steps against the unauthorized online sellers.
Revenue from Other Markets increased by 21.8% in 3Q2019 when compared to 3Q2018 mainly due to the increase in sales from Hong Kong, Malaysia, Thailand, Philippines, Myanmar and Dubai, offsetting declines from the markets of Vietnam and Korea. For the nine months ended 30 September 2019, revenue increased by 35.6% when compared to the same period last year mainly due to the increase in sales from Hong Kong, Malaysia, Thailand, Philippines and Dubai, offsetting declines from the markets of Vietnam, Myanmar and Korea.
Non-current assets of the Group increased from $23.3 million as at 31 December 2018 to $41.9 million as at 30 September 2019, mainly attributable to increase of Property, Plant and Equipment in relation to construction in progress for our Tuas facility, the increase in Right-OfUse Assets with the adoption of SFRS(I) 16 Leases, and our newly acquired investment in associate, Celligenics and an increase in deferred tax asset, offsetting decrease in other financial assets, intangible assets and other intangible assets.
Inventories increased from $31.4 million as at 31 December 2018 to $66.2 million as at 30 September 2019 mainly due to building up of inventories in our Hunan branch in China and headquarter in Singapore in anticipation for higher year-end demand.
Trade and other receivables increased from $5.2 million as at 31 December 2018 to $8.2 million as at 30 September 2019 mainly due to increase in transactions during the last few days of September from a certain subsidiary and VAT receivables.
Other assets increased from $21.7 million as at 31 December 2018 to $29.3 million as at 30 September 2019 mainly due to higher deposits made to suppliers and for the purchase of equipment for our Tuas facility.
Trade and other payables increased from $95.1 million as at 31 December 2018 to $123.9 million as at 30 September 2019 due to increase in accruals for management and staff costs, higher trade payables to our suppliers and sales related expenses from our franchise segment.
Other Financial liabilities have been reduced to nil as at 30 September 2019 due to full repayment of bank borrowings in 3Q2019.
Total lease liabilities increased to $7.7 million as at 30 September 2019 due to the adoption of SFRS(I) 16 Leases.
Other liabilities were maintained at $1.0 million as at 30 September 2019 vis-à-vis 31 December 2018.
Income Tax Payable decreased from $17.8 million as at 31 December 2018 to $15.8 million as at 30 September 2019 due to settlements of tax payables during the period offsetting the additional tax provisions made by the Group.
For the nine months ended 30 September 2019, the Group reported net cash flows from operating activities of $41.7 million mainly attributable to the Group’s net profit before tax of $81.2 million, offsetting changes in working capital as a result of increase in inventories, other assets and trade and other payables, as well as income tax payments for the period. Net cash flow used in investing activities of $9.5 million was mainly due to the acquisition of an associate, Celligenics of $5.6 million, and addition of property, plant and equipment of $5.5 million mainly relating to Tuas facility. Net cash flow of $20.0 million used in financing activities was mainly due to purchase of treasury shares, dividends paid and repayment of bank borrowings of lease liabilities for the nine months ended 30 September 2019.
As at 30 September 2019, the Group maintained $209.2 million in cash and cash equivalents.
Barring unforeseen circumstances, 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 may affect the Group’s performance include, timeline for product license registration and renewal in key markets, natural disasters, unanticipated regulatory changes in key markets we operate in and disruptions from market competition.