Despite promising signs in the country's medical device market, a leading Chinese device manufacturer and health services provider reported a loss for 2014 due to accounting changes and bad investments.

Golden Meditech (Beijing) released on June 24 results for the year to March 31. As expected, following a profit warning on June 12, the company reported a loss but its overall business continues to grow.

Golden Meditech focuses on two separate segments. One is healthcare services including the operation of one hospital and one international medical center, cord blood storage and the administration of medical insurance. Its subsidiary, China Cord Blood Corporation (CCBC) is the largest cord blood bank operator in China.

The other segment is medical devices, which the group runs through its subsidiary Beijing Jingjing Medical Equipment (BJJJ). BJJJ manufactures and distributes medical devices for blood-related uses.

The company also has a strategic investment in a Chinese herbal medicine business.

The group reported a rise of 0.6% in total revenue to HK$1,085 million ($139 million) but losses attributable to shareholders of HK$429 million ($55 million) and losses per share of HK$0.336.

In its results announcement, Golden Meditech said it performed "in line with management's expectations" and attributed the poor showing to fair value adjustments in financial assets and liabilities, one-off impairment losses linked to notes convertible to shares at prices as much as 40% below the current value and some bad investments.

Excluding the losses, adjusted profit attributable decreased 18.5% to HK$86 million ($11 million). The board recommended a final dividend of HK$0.026 per share.

Despite the poor performance over the last year, the company expects smoother sailing ahead.

"Golden Meditech is positive towards the healthcare market in mainland China and believe the healthcare reforms will gain momentum to facilitate the healthy growth of entire industry," said Kam Yuen, chairman/CEO of Golden Meditech, in the press release.

The company's numbers suggest he may have a point.

Revenue from healthcare services increased 2.8% to HK$798 million ($102 million), with HK$722 million ($93 million) from the cord blood storage business, HK$71 million ($9 million) from hospital management services and HK$4 million ($516,000) from medical insurance administration.

But the biggest disappointment was in the medical device space.

Revenue from medical devices and accessories distribution and sales was HK$274.20 million ($31 million) in FY2014, down 1.1% from HK$277.24 million ($35 million) in FY2013, accounting for 25% of total revenue.

Almost half of these sales, 46%, come from the sale of medical accessories and these continued to enjoy double-digit growth. The sale of medical devices is still the major business of the company in this segment, accounting for 52% of the segment's revenue.

The company said it expects the demand for its flagship product, the Autologous Blood Recovery System (ABRS) and consumables to continue rising in the long term as "Mainland China's government is promoting healthcare policies related to the clinical use of blood" and the company has gained "production and price advantages."

Distribution of medical devices and accessories took up 2% of the segment's revenue.

In October 2013, Golden Meditech signed a non-binding memorandum of understanding with Cordlife Group, a Singapore-based healthcare company catering to the mother and child segment, to form a JV in the Shanghai Free Trade Pilot Zone.

The company entered a five-year agreement with Cesca Therapeutics (Rancho Cordova, California) to distribute Cesca Therapeutics's AXP AutoXpress (AXP) system which is used for the processing of stem cells from cord blood, in China and Southeast Asia in August 2012. Golden Meditech said it has created a business platform for AXP system by capitalizing on its existing network.

The company has put in place a program of costs controls to mitigate losses in its overseas sales of Chinese herbal medicines.

The company sold 2,942 ordinary shares of Fortress Group, representing around 28% of the group, to Sanpower Group for $101 million and that offset some of the losses but the company said the proceeds will be used to "develop core business" and "explore opportunities emerging from China's healthcare reform."

"Golden Meditech recognized the growth opportunities in the healthcare services and medical devices markets. It has devoted resources to cultivate the development of healthcare service business upon the solid business platform of its medical devices business," said Kam. //