financial analysis

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financial analysis of SMG and RMG



Introduction The Singapore Medical Group (“SMG”) was incorporated in Singapore as a private company limited by shares on 10 March 2005 under the name of Lasik Club Pte Ltd and subsequent changed its name to SMG on 4 August 2006. It was incorporated with the intention of being the holding company for the Group’s various healthcare-related assets and businesses. On 23 July 2009, SMG went public with shares listed on SGX-ST Catalist. SMG currently have twenty-two subsidiaries and affiliates that are categorized into four medical clusters, namely the Eye Cluster, the Aesthetics Cluster, the Orthopedics & Sports Cluster and the Critical Illness Cluster. SMG also expanded its offering overseas, with representative offices in Ho Chi Minh, Vietnam and Jakarta, Indonesia which were launched on 5 November 2011 and 1 November 2011 respectively with the objective to broaden its patient base. Raffles Medical Group (“RMG”) is a leading medical group and the largest private group practice in Singapore. As a fully integrated healthcare organisation, the Group owns and operates a network of family medicine clinics under Raffles Medical Group, a tertiary care private hospital under Raffles Hospital, insurance services under Raffles Health Insurance and a consumer healthcare division under Raffles Health. RMG was founded in 1976, when Dr Loo Choon Yong and Dr Alfred Loh Wee Tiong acquired an existing medical practice with two clinics. RMG was incorporated on 16 May 1989 and listed on SGX Sesdaq and SGX Mainboard on 11 April 1997 and 10 July 2000 respectively.

Given the global economic uncertainty and the slow down of the Singapore economy in 2012, the overall private healthcare industry remains challenging and competitive. Current lifestyles in Southeast Asia reflect a population that has more disposable income, engages in less physical work, and can afford more food, alcohol, and tobacco. As such, chronic diseases related to these lifestyle changes, including diabetes, cancer, obesity, and cardiovascular disease, are increasing significantly. To meet the challenges of providing better patient care at a lower cost, healthcare providers must also be able to integrate clinical data with their financial and administrative data. For many healthcare operators in Southeast Asia, the task of integrating data is simply too difficult, too time-consuming, and too expensive. Yet in

order to stay relevant, they must consider investing in comprehensive IT systems that fully integrate data - from medical information and supply chain activities to organising human capital management (HCM) systems.

1. Elements of differences between both companies RMG dramatically increased their assets about 15% from financial year 2010; on the other hand SMG reduced their assets by 8%. RMG drive up their share capitals by 13 millions, Whilst SMG keep it same. In terms of liabilities, SMG has raised their liabilities but RMG did control well to keep lower from 2010 financial year. RMG has invested drastically in Properties but SMG did nothing in terms of investment. RMG has lessened their cash balance just over 50% however SMG slightly lower their Cash balance. this has happened because of their pursuing assets out of the cash reserves in the short run.

Intangible assets and Investment in subsidiaries, these are the areas both companies keep it same as financial year 2010. Both companies raised their inventories slightly about 5%.this might be attributed to overseeing of rising prices of essential prices in the near future. As the rising prices can substantially burden the payments then it might be beneficial to purchase them in the near term period. RMG performed better than the previous year, with Year-to-date profits up about 12%. It seems like the healthcare industry continues to be resilient despite the economic crisis affecting the rest of the sectors , there is still a strong demand for medical services within the region.SMG has also seen increase in sales even if due to other factor its net profit has gone substantially downwards. the trend has been seen in the various other companies in the same sector which has been confirmed by inflow of patients from middle east and other parts to this region.

2. Measurement of assets and liabilities of SMG & RMG SMG financial statements have been prepared on the historical cost basis whereas RMG financial statements have been prepared in accordance with the Singapore Financial Reporting Standards (FRS) SMG statements are presented in Singapore Dollars (SGD or $) and all values are rounded to the nearest thousand ($’000) except when otherwise indicated, while on the contrary RMG statements have been prepared on the historical cost basis except for investment properties which are measured at fair Value.

When comparing current assets and current liabilities for both companies in 2011, RMG’s current assets are 1.3% higher than the current liabilities while SMG’s current assets are 0.3% lower than the current liabilities. It could be due to the high amount of Loans and Borrowing under the current liabilities under SMG which is raised by $1,369,000 from 2010 to 2011. That is why RMG seems to have a better position in paying the short term liabilities when they fall due. In addition, both companies used weighted average method to measure the Inventory. The inventory amount for SMG is significantly increased by $209,000 from 2010 to 2011 and the Inventory amount of $6,225,000 was recognized under expense. As most of the inventories such as drags and medicine could actually lose value as time passes or expired when they pile up SMG could be facing the risk of obsolesce and spoilage with the inventories. Comparing non-current assets, SMG’s investment in the properties is decreased by $121,000 while RMG’s investment in the properties is 226% up due to addition $ 109,526 for full valuation on two new units of Samsung Hub and Thong Sia building. This considerable increase in the balance sheet also resulted RMG’s stronger financial position in 2011. On 1 January 2011, depreciation for medical equipment for SMG has revised to 10 years which was 5 years useful life. this has become necessary in view of the usabilty of the assets over its effective life period. Further it cofirms a trend in the healthcare industry worldover as tactic to cut down the cost. The revised depreciation rate is applied prospectively without adjustments to previously reported amounts to better reflect the useful life of such assets. The change in this accounting estimate may be resulted in a decrease on the Group’s current year loss after income tax.

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