agm_logoTime & date: 10 am, 17 Oct 2014

Venue: NTU@one-north Executive Centre, 11 Slim Barracks Rise




WHILE CORDLIFE's earnings in FY2014 had gone up 125% to S$30.4 million, a shareholder wanted management's comment on the cashflow (operating cashflow was positive S$3.753 million but cashflow from investing was negative S$13.517 million).

1jeremy-yeeJeremy Yee, CEO of Cordlife Group. NextInsight file photo.CEO Jeremy Yee placed the earnings figure in perspective by saying that it had two parts -- organic business growth of 13.0% to S$7.6 million and non-cash gains including a revaluation of its investment in China Cord Blood Corporation (CCBC). 

(CCBC has exclusive rights to operate the cord blood banking business in Beijing, Guangdong and Zhejiang. CCBC also holds a 24.00% equity interest in Shandong Province Qilu Stem Cells Engineering Co. Ltd., the exclusive cord blood banking operator in the Shandong province.)

profit2014In pursuit of growth, Cordlife has deployed cash to invest in India, Indonesia and the Philippines, contributing to the 41% revenue growth of Cordlife in FY2014, he added.

The shareholder next asked: How long would it be before markets like India and Indonesia turn in positive cashflow?

Mr Yee said typically, a market could take 3.5-4 years for the "operating cashflow to meet up with the earnings" at which point the business would reach a steady state.

Steady state companies no longer exhibit growth. Hence, "cash cows are not necessarily great" because it will also mean that the firm would stop re-investing for growth. Without growth, the value of the stock should be at its maximum, he said.

The same shareholder, noting that Fidelity has bought shares in Cordlife, wanted to know if there was a particular buyer behind Fidelity or it's Fidelity itself which owns a 9.22% stake in Cordlife.

Saying that he has spoken regularly with Fidelity, Mr Yee noted that it is one of the biggest funds in the world with roughly US$4 trillion of assets under management and offices around the world. 

Like many peers, Fidelity portfolio managers allocate some money to smaller companies and according to region -- and other criteria. "So you can't say there's someone behind the fund buying."
 
profitFY2014_aA shareholder asked if Cordlife's revenue could be broken down by geographical markets but Mr Yee said the information is not disclosed in order not that Cordlife's competitors may not make use of it. 

"In India, for example, I am fighting against 20 other companies," he quipped.

To a shareholder's view that the share price of Cordlife had been affected by the company's subscribing for convertible notes of CCBC recently, Mr Yee pointed out that world markets had been falling in the light of various factors such as weak global economic growth and Ebola.

Instead, he said, Cordlife's investment in convertible notes enables it to plug further into China for growth prospects.

"Our annualised IRR in China is more than 50%. It doesn't make sense for me to retreat from China, right? The country is allowing people to have a second child in major cities such as Guangzhou, where CCBC has exclusive licence to operate, and in Beijing, where CCBC has exclusive contracts with 158 hospitals."


Next up: "Can you educate us on the 
recently-announced S$500 million debt issuance?"

drhochoonhou10.14Dr Ho Choon Hou, chairman of Cordlife. Photo: Company.Dr Ho Choon Hou, the chairman and non-executive director of Cordlife, said: "We are a pan-Asian health play operating in the fastest-growing markets -- Indonesia, the Philippines, Malaysia and Thailand, China and India. Combine their populations and you then try to project the penetration rate of a custodian service provider like us -- this is a very long tail, meaning it will take us a very long time to get to the mature stage which can be defined as growing at the rate of GDP. 

"For that, I urge shareholders to be patient. Why we have gone out to choose a debt instrument to potentially fund new acquisitions and potentially fund our purchase in China. Look at what is the price of equity. If our stock were trading at $5 now, we would use equity to fund our growth. But the company believes, and you have seen our share buybacks, that the share price is not reflective (of the fundamentals of the company), hence a debt instrument provides better financial engineering."

Mr Yee: "It's either equity or debt, there's no in-between. I don't believe in convertible debt. I don't sell them, I only buy them." 

Another shareholder asked a medical question: What are the latest applications of cord blood?

Dr Ho replied that medical journals report a growing list of uses. However, it is growing slowly and "takes about 20 years from discovery to clinical bedside."

Currently, 70-100 uses can be found for cord blood for autologous (ie, one’s own) usage. 

Mr Yee cited the case of a child with cerebral palsy whose cord blood (stored with Cordlife) was infused into her body, resulting in noticeable improvements in her temperament, concentration level and use of vocalisation. (For more on this case, click here.)


Cordlife's corporate presentation materials are here.

Recent story: Targets: CORDLIFE $1.55; CNMC GOLDMINE 84 cents

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