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Mindray Medical International Ltd. (NYSE:MR)

Q3 2013 Earnings Call

November 5, 2013 8:00 AM ET


Cathy Gao – Manager, IR

May Li – President and Co-CEO

Alex Lung – CFO

Jie Liu – COO

Wang Jianxin – Chief Administrative Officer


Ben Li – Morgan Stanley

Yeh Chen [ph] – Citigroup

Wei Du – Goldman Sachs

Sean Wu – JPMorgan

Serena Shao – Bank of America Merrill Lynch

Iris Wang – Credit Suisse

Bo Pang [ph] – Oppenheimer


Good evening, everyone. Thank you for standing by and welcome to Mindray’s Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, we will conduct a question and answer session.

Today’s conference is being recorded for replay purposes. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to your host for today’s conference, Miss. Cathy Gao, Mindray’s Manager of Investor Relations. Please proceed, Miss. Gao.

Cathy Gao

Thanks, Operator. Hi, everyone. Welcome to Mindray’s 2013, Third Quarter Earnings Conference Call. We released our financial results last night and they are now available on the Company’s website and Newswire Services. There will also be an archived webcast of this conference call on our Investor Relation’s website.

Joining today’s call are, Mr. Li Xiting, our President and the Co-CEO; Mr. Minghe Cheng, our Co-CEO and the Chief Strategic Officer; Mr. Wang Jianxin, our Chief Administrative Officer; Mr. Jie Liu, our Chief Operating Officer; Mr. Alex Lung, our Chief Financial Officer; and Ms. May Li, our Chief Investment Officer.

In a moment, Ms. May Li will provide an update of the Company’s operational performance and Mr. Alex Lung will review the detailed financial results, as well as the company’s outlook for 2013. After that the management team will be happy to take your questions.

Before we continue, please know that this call will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Statements made and the views expressed here which are not historical facts are forward-looking statements. You should be cautioned that the forward-looking statements are only predictions and may involve inherent risks and uncertainties. As such, our actual results may be materially different from the statements and the views expressed here today due to a variety of factors.

A number of such risks and uncertainties and the factors are outlined in our public filings with the SEC. In particular, please refer to risk factors beginning on Page 5 of our Annual Report on Form 20-F. Any projections made here today are based only on limited information currently available to us, and are subject to change. Mindray does not undertake any obligations to update any forward-looking statements except as required under applicable law.

I will now turn the call over to our CIO, Ms. May Li.

May Li

Thank you, Cathy. Good morning and good evening, ladies and gentlemen. Thank you for joining us today. In the third quarter we reported $296.3 million in total net revenues, representing 15.3% year-over-year growth. International sales grew 17.9% over the same period of last year. We are particularly happy we [ph] sustain a strong sales performance in Western Europe which achieved over 25% year-over-year increase.

In the emerging markets, we are pleased to see continued good sales momentum in some of the key countries. China sales grew 12.1% in the third quarter. The recent weak market environment has disrupted purchasing and marketing activity and caused the sales pressure in the third quarter.

However, we believe the long-term growth seen in China’s med tech industry remains strong. Reagents accounted for 40.2% of the total IVD sales, up from 37.4% a year ago, and 36.6% in the previous quarter. We are happy with this increasing trend. And I believe we are well on track to achieve an even higher ratio of reagent contribution.

Now, let me discuss some other achievements during the quarter. Our cash conversion cycle has significantly improved to 91 days compared to 106 days a year ago. This improvement demonstrated our continued efforts to improve our operational performance.

During the quarter we also introduced our very first chemiluminescence immunoassay product, the CL-2000i along with several reagents. We are excited about this launch as it further strengthen our IVD product offerings.

In addition we completed two acquisitions in the third quarter including Zonare, which we have discussed previously and Ulco Medical, an Australia-based former distributor of Mindray.

Now let’s look at our detailed performance by geography and segment respectively. Starting with China and the emerging markets, then onto the develop markets. Our domestic sales increased 12.1% year-over-year. As mentioned the recent slowdown in the health care industry has interrupted purchasing and marketing activity.

Hospitals have been cautious and in some cases delaying their orders in some of the product segments that we compete in. Although this phenomenon has hurt our sales growth in the near-term, the industry fundamentals remains solid and the underlying demand has not winged [ph]. We are hopeful that this disruption will go away over time. And we believe we are well-positioned to compete when demand resumes.

In spite of the slowdown, our IVD reagent sales continue to climb, thanks to our high-end products such as BC-6800 and BS-800. We remain optimistic about long-term growth prospects of the segment based on a growing recognition of our brand and attractive product performance as well as the changing market trends where service revenues will become a more important source of income for hospitals.

Longer term the government’s focus has not change and intent to expand and upgrade county level hospitals, increased patient traffic to such hospitals and also for domestic brand. Also the government recently reiterated its goal of supporting private hospitals so that they can enjoy the same benefits as public hospitals.

Currently private hospitals only provide around 9% of all national healthcare services in China. By 2015, this number is expected to reach 20%. This trend will definitely benefit companies such as Mindray whose value proposition is to offer [ph] competitive products and services.

We will continue to formulate strategies that will allow us to best capture such opportunities and work hard to improve our sales program and expand our direct service and platform. This, along with our extensive product offerings continues to put us in a very strong position in a domestic marketplace.

As for our international sales, we recorded 17.9% year-over-year growth in the third quarter. Overall emerging markets achieved 8.1% growth year-over-year. In the third quarter Latin America, Asia Pacific, and Eastern Europe represented the highest-to-growth regions with each delivering about 20% over-year-over sales growth. We did well in several key Latin America countries such as Brazil, Mexico and Columbia where we achieved over 40% growth.

As we had anticipated, offsetting this with weaker sales in countries such as Venezuela where challenging ethics and imports policies as well as political issues hurt our performance. However, the long term underlying demands in these countries are still strong. We remain hopeful that the macro environment there should gradually improve over the next few quarters.

In Asia Pacific, we did particularly well in Indonesia and the Philippines largely due to our improved brand awareness, attractive products and good services. In the CIS region, as discussed before, the tough sales comparison affected the year-over-year growth performance in our single largest sales country there, Russia.

In the Middle East, we achieved solid results in Saudi Arabia while Turkey sales were softer this quarter due to fewer public purchasing activities. Political instability in certain African countries such as Egypt also impacted our sales in the region.

Looking ahead, we have remained optimistic about the overall growth potential in emerging markets. There will be a subject to risks resulting from changes in political and economic environments. We will continue to expand our key account coverage in our top emerging countries and enhance our capabilities in public and private sector participation. Sales in the developed markets grew 35.4% year-over-year. Western Europe posted more than 25% year-over-year sales increase.

Excluding the sales contribution from Zonare, we’ll continue to achieve great growth in key countries including Germany, the U.K. and Spain. Increasing brand awareness coupled with our high performance products and services continue to help us earn great feedback and the references for our services. And Mindray has successfully gain market share in the region.

Although the overall operating environment remains challenging for all industry players, we are confident that our value proposition is appealing and our expansion strategies are working well. Quarter-to-quarter sales growth could fluctuate but our long-term prospects in Western Europe look promising.

In North America, sales this quarter included contributions from the Zonare. Excluding Zonare’s revenues, our organic business also improved in a recorded single-digit growth. Going forward we expect our U.S. business to stabilize and we will continue to focus on accelerating our product development and in improving operational efficiencies to enhance our long-term competitive position.

We are also pleased to share the integrations of Zonare and Ulco are well on track. We will leverage the strength of the combined businesses to further improve Mindray’s ultrasound innovation and the sales and marketing channel capabilities in Australia. Going forward, we will continue to seek promising external cooperation or M&A opportunities.

Now let me give you a breakdown of the performance of our different business segments in the third quarter. In this quarter, net revenues from the Patient Monitoring and Life Support segment was 6.2% year-over-year. Overall, our defibrillators, high-end monitors and anesthesia products performed well. In addition, our performance in this business line improved sequentially largely due to sales improvement in the North American region.

Patient Monitoring and Life Support is the most mature segment among Mindray’s [ph] business lines. Over the last two decades, we have gradually transformed from a product provider to total-solution’s provider. We are now able to provide integrated solutions for clinicians from critical care to sub-acute settings across the emergency room, OR, ICU and the CCU departments. Based on our comprehensive product portfolio, we are confident that we can maintain our leading position in the marketplace.

In our IVD segment, sales increased 14.2% year-over-year. The reagents and the five part hematology analyzers were the main contributors to growth this quarter. We are also pleased to introduce our first chemiluminescence immunoassay product, the CL-2000i, along with the several reagents in the third quarter.

As we have stated in the past, immunoassay is the single largest segment within the IVD sector. Up to now, the segment in China has been dominated by MNCs [ph]. Mindray is the first and only Chinese company to offer products that can compete with these leading international players in terms of test peak, product quality and et cetera.

The CL-2000i apart from being a standalone analyzer can also work together with our bio chemistry analyzers to provide a whole range of solutions for automatic left blood testing and speed up the processing of samples in laboratories.

The launch of this product marks another milestone for Mindray to penetrate into the fast growing clinical lab test markets through our well established sales marketing and service channels. As the installation base for products such the BS-800, the BC-6800 and the BS-2000 continues to ramp up. Together with the recent additions of new products in immunoassay, coagulation and microbiology, we are excited to be able to provide increasingly competitive and a comprehensive lab solutions for our customers.

For the medical imaging segment, the year-over-year net revenues growth for this quarter was 26.7%, up significantly from previous quarters. This included in our other net revenue contributions. Apart from that, color ultrasound did well and drove our sales growth in this quarter.

As mentioned earlier, our integration with Zonare is well on track and as we discussed in the last call, the key factor that ensures successful integration is people and we have had no major retention issues. We are happy with what everyone has done to allow us to achieve synergies.

As we continue to integrate, we will focus on managing the stability of our business leveraging the combined entities to accelerate the launch of the next generation of high-end ultrasound products, reduce costs, further grow the business and improve our profits.

Our other net revenues grew 31.2% year-over-year in the third quarter. This was mainly because of the increasing revenues from our after-sales services and the sales contribution from the orthopedics business.

Now, I will pass the call to Alex to discuss the quarter’s financial details and our outlook for the rest of 2013.

Alex Lung

Thanks, May. In the third quarter, our topline recorded a 15.3% year-over-year increase to $296.3 million. China’s net revenues were $132 million, a 12.1% year-over-year increase. International net revenues were $164.3 million, a 17.9% year-over-year growth. This represents 55.5% of our total net revenues.

Non-GAAP gross margin was 56.4%, compared to 56.5% in the third quarter of 2012 and lower than 58.2% in the previous quarter. Despite writing cost, we managed to keep our gross margin largely stable on a year-over-year basis through our efforts on improving operational deficiencies. The sequential decrease was mainly due to the seasonality.

Our non-GAAP selling expenses were 18.3% of total net revenues, higher than 17.8% from last year’s level [ph] and the previous quarter of 17%. The increase was mainly due to the inclusion of Zonare.

Non-GAAP general and administrative expenses were 8.4% of total net revenues, lower than 9.2% in the year before and 8.5% in the second quarter of 2013. The year-over-year drop was mainly the result of a lower sales rate [ph] in 2012. And the sequential decline was due to seasonality.

We have continued to invest in R&D over the past quarter. Our non-GAAP R&D expenses were 10.3% of the total revenue compared to 8.6% in the same period of last year and 8.9% in the previous quarter.

Non-GAAP operating income grew 7.4% year-over-year to $53.5 million. Non-GAAP net income increase 14.5% over the same period last year to $57.4 million. GAAP net income decrease 15.9% year-over-year to $30.1 million mainly due to a withholding tax arriving from a onetime fund transfer all over China.

This transfer gives us the possibility to meet the long-term funding requirements for our overseas expansion. In addition, this fund can also be used to repay our overseas fund forwarding [ph] if the interest rate or exchange rate becomes unfavorable to us.

After excluding the withholding tax emulation to the one time fund transfer, in this quarter, our effective tax rate is relatively low. This is mainly because of gradual ramp up in software sales from our recently established software development company in China that is qualified for China tax policy.

EBITDA recorded in this quarter was $64.7 million, a 33.8% increase over the third quarter of 2012. Our cash conversion cycle was 91 days in the third quarter, down from 106 days in a year ago and compared to 85 days in the five quarters [ph].

The year-over-year improvement was mainly due to better control on receivable collection and the sequential difference was mostly because of our seasonality. Our accounts receivable turnover days were 56 days, it was [ph] 66 days in the same period last year and 52 days in the second quarter of 2013.

Our inventory turnover days were 94 days, compared to 100 days in the third quarter of 2012 and 88 days in the five quarter [ph]. Overall we are happy with our improvement in receivable collection. We will continue to adopt healthy credit policy and enforce insurance protection in our key markets worldwide.

Now I will discuss our financial guidance for full year 2013. At this time, we are reviving our financial guidance for 2013 primarily due to near-term continuous possible project being [ph] slowdown in China. We have now expect our 2013 net revenues to grow at least 13% year-over-year.

In China, although our competitive position remains strong and the long-term trends are favorable, we anticipate that the overall buying activities in the sector will continue to be slow in near-term. Therefore this leads us to lower our 2013 sales expectation in the domestic market.

In the other geography, we expect some countries to perform well in the emerging markets, but political issues and currency policy issues are safe and effective [ph] in other areas. For develop markets, we are delighted with our performance in Western Europe so far and anticipate that our competitive advantages will allow us to continue to gain market share in the region.

We expect our North America business to stabilized and will continue to execute our strategy in order to strengthen our market position.

Moving onto our non-GAAP net income guidance, as a result of our lower top line broadcast [ph], we now project our full year non-GAAP net income to grow at least 11%. This guidance excludes any tax benefits related to the National Key Software Enterprise status and assuming a corporate income tax rate of 15% for the Shenzhen subsidiary [ph].

For the full year, we continue to expect our gross margin to stabilize and our operating margin to be close to last year [ph]. We still think that other non-operating figures such as government subsidy are difficult for us to predict.

We also lowered our forecast on capital expenditure in 2013 to $100 million from our previous projections of $130 million due to the project approval delays from the government.

Separately last night we announced a share buyback program of up to $200 million for the next nine months. We view this initiative as a proper way to deliver value to our shareholders. We will continue to invest prudently and look for promising external growth opportunities in order to make the best use of our cash [ph].

That’s all I have for now. And I would like to turn the call back to Cathy.

Question-and-Answer Session

Cathy Gao

Thanks, Alex. We’ll now open the line for questions. Operator, go ahead please.


Ladies and gentlemen, we will now begin the question and answer session. (Operator instructions) Your first question comes from the line of Ben Li from Morgan Stanley. Please ask your question.

Ben Li – Morgan Stanley

Thanks for taking my question. I was hoping that if you could give us more color on the weakness in the top line and bottom line for the quarter. So I’m specifically referring to the acquisition team the Zonare and Australian [ph] acquisition. And can you tell us how much these two deals contribute to the top line overall growth? And if you were to breakdown further, how much these two add to the international growth in the quarter? And also we understand that on the bottom line it’s a drag [ph], so how much [indiscernible] on the bottom line?

And also we’re trying to understand the weakness in China sales where your – as you said, many of your competitors have shown pretty strong growth across the Board from fees and [ph] even higher. And are you suggesting you are losing market share in the quarter [indiscernible] that?

And then one more question if I could. When I look at the non-GAAP and GAAP reconciliation, there’s a GAAP withholding tax for financial group [ph] fund transfer which is about the $20 million or so which is a pretty big number. Can you explain what they are and why we’re excluding it from the non-GAAP calculation? Thank you.

Alex Lung

Hi, Ben. This is Alex. Thank you very much for your question. It’s a very long question. So I’ll try to answer as much as I can from my perspective and then I’ll have my colleagues here to answer some other aspect concerning the quarter three performance as well.

Maybe I’ll go straight to the last point that you mentioned about the withholding tax aspect. Well the nature of this is actually emulation to our overall cash funding to relocate part of our cash from China to outside China. And the mechanism from that [ph] we are doing it just by way of having our Shenzhen [ph] subsidiary to pay a dividend to the Hong Kong holding company. And based on the regulations, we are obliged to pay a withholding tax as a result of this dividend payment to the Hong Kong company as it is our internal policy that we don’t generally pay dividend outcomes as subsidiaries. And for China, we haven’t really paid dividend out in that [indiscernible] already.

So to us, it’s maybe [indiscernible] really one time. We do not average [ph] a recurring dividend payment coming out from our China entity. As such, we have traded expenses in relation to this fund transferred as a one-time expenses and as such excluded from our non-GAAP presentations.

Ben Li – Morgan Stanley

Okay, thank you and on the acquisition contribution?

Alex Lung

And another question that referred to the impact of all the effect of our topline, important line as a result of the acquisition from Zanore and from Ulco, actually, we don’t separate the – disclosed the individual performance of each individual entity.

I would say Zonare contributions to us for the topline is in terms of growth rate is higher than the bottom line mostly because Zonare itself as we may have mentioned in another occasion, is not a profitable business. As such, even though it contributes some defect to the growth rate at the top line, actually it utilizes some of the operating efficiencies of our core business. All core business very small acquisitions [ph] in Australia saw the effect and then the only competitive transaction sometimes attend the sudden effect to this particular importance is very minimal.

And the one of the question with regards to with China, I will pass the question to Mr. Wang.

Wang Jianxin

[Foreign Language]

May Li

Well, I’ll quickly translate for Mr. Wang. So as you may have noticed from a lot of the news headlines, the anti-corruption activities within the healthcare industry in China has really picked up steam in the second half of this year starting from this summer. And as a result of that, we are seeing a slowdown in hospital purchasing and also in the marketing activities for a lot of the industry players in some of the product segments that we compete in.

Wang Jianxin

[Foreign Language]

May Li

And so the impact of – the impact and the degree of the anti-corruption campaign has really exceeded our previous expectations. It sort of took us by surprise. And so that was mainly why we didn’t really foresee such an imminent slowdown in China sales this quarter.

And we are expecting such impact to continue going into the remainder of this year. However, as we discussed earlier, we very much believe that the demand, that the fundamental demand and also the underlying demand of the hospitals remain solid. And at some point, when the anti-corruption campaign hopefully facing out with time such demand will resume and as with previous anti-corruption campaigns in the industry, we very much believe that it works in our favor over the longer term as it corrects a lot of the misbehaviors in the industry.

And on top of that, we are very excited to see the private hospitals start to expand. And we very much believe in an environment where private hospitals become a more powerful force in the marketplace. Mindray is very well positioned to compete. So our view for the China market remains very optimistic for the longer term. But we are expecting some near-term challenges.

Ben Li – Morgan Stanley


Wang Jianxin

[Foreign Language]

May Li

So we have also taken noticed that some of the multinational players in China and the [indiscernible] space hasn’t really seen a negative impact in their business over the past quarter and I think from a very high level we very much believe in one of the important reasons is, we have very different business compositions in China.

For most of the multinational players that have already posted the results for the past quarter, big tickets imaging equivalents account for substantial majority of the social revenues in China. And for us, it’s obviously a very different story.

In China, our sales are still heavily weighted towards Patient Monitoring and Life Support products. And from the perspective hospitals purchasing behavior, for big tickets imaging equipments, as you know, most of them have to go through a longer purchasing cycle. A lot of the orders are decided, for this quarter, are decided probably two quarters back. And also for hospitals it’s to purchase any equipment, a big ticket imaging equipment, they have to first of all approve – apply for a quota from relevant regulatory bodies. And once they get the quota, they are obviously understandable and they are all willing to forego such quota.

So we rarely see cancellation of such orders. But for Patient Monitoring business, obviously it’s a very small ticket and so relatively shorter purchasing cycle. It doesn’t have to see regulatory approvals when purchasing et cetera. So the dynamics are different for big ticket imaging and monitors.

And also I think lastly, the – for a lot of the hospitals in China, imaging products, definitely seen as ROI products and needed more desperately than monitors installed as part of the, in some cases, fixture of the infrastructure.

So I hope I have addressed your question regarding why we are seeing probably conflicting messages for China business from the multinationals.

Ben Li – Morgan Stanley

Thank you.


Thank you for your question. Your next question comes from the line of Richard Yeh from Citigroup. Please ask your question.

Yeh Chen [ph] – Citigroup

Good morning and good evening everyone. And this Yeh Chen [ph], raising question on behalf of Richard. Thank you very much for taking my questions. Actually we are trying to have a better understanding of the market demand in Chinese medical devices market in the past quarter and also going forward.

So is the demand for medical device is slowing in China due to some – the near complete of construction cycled hospitals or purely due to the anti-corruption approach [ph]? And what are the demand trends in the mid-tier hospitals, high-end hospitals and lower tier hospitals over the next two to three years and basically your understanding or observation in the market?

And also we’re trying to understand the gross margin trend [ph] for our China operation also business in develop market and the emerging market. We know that China operation has higher margin versus in the other markets. And could you elaborate more on that? And what could be the trend in the future? Thank you.

May Li

[Foreign Language]

Wang Jianxin

[Foreign Language]

May Li

Yes. So Yeh [ph], the short answer is our – yes, some hospitals in China either constrained by funding availability or constrained by some policies. We’re not able to finish the construction as planned. So this definitely contributed to the slowdown for the industry.

And in terms of impact to different tiered hospitals, we are definitely seeing that a lot of it is reflected in tier two and above hospitals, i.e. more sizable hospitals who has been impacted more by the anti-corruption [ph] and as well as the construction cycle delay.

Yeh Chen [ph] – Citigroup

And now for the [ph] gross margin question. Thank you.

Alex Lung

Hi. This is Alex. Hi. With regard to the gross margin trend, actually this is widely affected by the composition of the product mix [indiscernible] regions. You may already know actually from the straight product lines that we have, the highest gross margin coming from the admission [ph] products. And then [indiscernible] is the IVD products, and then the lower of the spectrum is actually from the Patient Monitoring and Life Support.

In China, we actually sell mainly all these three product lines. And then in the emerging market, we sell mostly the Patient Monitors and together with some imaging products.

So the margin is actually full shots [ph] from the China because of the mix shift. And in the develop market, half of our business actually coming in from the Patient Monitor side. So that’s why develop market in a way is behind the emerging market and China.

Yeh Chen [ph] – Citigroup

Yes. Thanks, Alex. We are trying to understand the trend, the gross margin trend in like China or emerging market and develop market. And we know that due to the product mix difference and the gross margin in different regions are different. So what about the trend over like in upcoming quarters and what is your expectation?

Alex Lung

Well overall [indiscernible] it’s our strategy to maintain a stable gross margins. How we actually maintain that is actually from continues cost improvements in order to achieve that. So this is our overall growth.

In terms of the performance of maybe in Q4 as we mention, our gross margin do fluctuate in different tier [ph]. In Q4 normally, our gross margin is low compared to the other quarters, mostly because it’s near the budget year and also because of the high volume of projects [ph]. So in general our gross margin in Q4 is lower compared to the other three quarters.

Yeh Chen [ph] – Citigroup

Thank you. Thank you very much.


Thank you for your question. (Operator instructions) Your next question comes from the line of Wei Du from Goldman Sachs. Please ask your question.

Your next question comes from the line of Wei Du from Goldman Sachs. Please ask your question, sir.

Wei Du – Goldman Sachs

Hey, can you hear me?

May Li


Wei Du – Goldman Sachs


May Li


Wei Du – Goldman Sachs

Yes. The question is – I’m not sure if this is the answer, about the [ph] acquisition impact on the top line, bottom line and also the top line impact from international business, we see that international has been quite strong for the quarter. So can you give us more details on the new acquisitions from this quarter’s top line, bottom line? And what can we – region [ph] to the numbers better? Thank you.

Alex Lung

Hi. Thank you very much for the question. This is Alex. So, yes, in this quarter the two acquisitions is actually coming from the international side. So it does tell us to [ph] achieve a [indiscernible] past two quarters.

As I mentioned earlier, the impact of the bigger acquisitions [ph], we do not actually disclose that quickly [ph]. And but I mean, as I mentioned in the earlier questions from Ben Li, the acquisition impact mostly coming in from Zonare and the Ulco acquisition is actually very, very minimal. But I mean, the new platform, the Zonare to us is that they have more contribution on the top line growth whereas in the bottom line growth it’s more of strategic effects [ph].


Thank you for your question. Your next question comes from the line of Sean Wu from JPMorgan. Please ask your question.

Sean Wu – JPMorgan

Hello. Yes, thank you very much for taking my question. I have a quick question for you [indiscernible]. One in – about your guidance, you guided us for 30% plus growth on top line [ph] [indiscernible] bottom line. If tier like [ph] if you think about 19% growth in first quarter and probably 8% decline in the first quarter. So how do you see your sales [indiscernible] 19% in the first quarter [indiscernible] come from like you will see immediate decline more of like 8% [ph]. [Inaudible] $200 million in share buyback, you have [indiscernible] I think in 2011, you have a $130 million stock of buyback.

So how much was that was bought back? Among the 150 million if I recorded it well, like how much of 130 million was utilized? And then what’s your plan for [indiscernible] over which kind of period of time? Thank you very much.

Alex Lung

Hi, Sean. Thank you for the question. This is Alex. Maybe I’ll give you some color on the composition of the topline guidance for the full year. For us, we know the cost to arrive at the overall 13% growth rate for the full year.

Actually, the full expectation of the inhibition region would be for China, we expect the full year to be around meeting growth for North America and the emerging markets at the lower term growth and then for the Western Europe to growth at [indiscernible]. So that would be the composition. So that’s how we actually project the full year results.

And I believe that we will also see that for the China, to actually pay for the full year. And we have observed that the China growth for the – for the first three quarters I think close to over – close to 20% on the first nine months. So we do anticipate because of the rare risk driven [ph] that’s explained by our CAO, Mr. Wang, China performance will have some – slowdown in the third quarter.

May Li

And Sean, regarding the questions on the buyback, back in November 2011, the Board authorized the company to buy back up to $100 million worth of company stocks over a period of 12 months and the end results was $10 million worth of company stocks was bought back and due to some reasons.

And for this time, we have already announced the buyback program. It was authorized to be effective over the next nine months and up to the size of $200 million worth. And we have also stated in our public announcement that the Board will periodically reveal the program and may authorize adjustments to the program’s terms and size. And also this program may also be – can be suspended or discontinued at any time. So it is a pretty flexible program and it is under the Board’s discretion to decide when to start and when to adjust or when to suspend or discontinue the program.


Thank you for your question. Your next question comes from the line of Serena Shao from Merrill Lynch. Please ask your question.

Serena Shao – Bank of America Merrill Lynch

Thanks for the taking my questions. I have – I just have a simple question here about your emerging markets. It seems like the weakness in the last two quarters has been totally gone and the emerging markets performance has recovered very well. I just want to know how sustainable this recovery is and then how do you deal with the growth perspective in the near term? Thanks.

Jie Liu

Hi, Serena, this is Jie. Starting the emerging market, I think we talk about a lot about their fluctuation on the currency political issues for this quarter especially if it’s a major impact coming from the Middle East and Africa and the CIS region. And CIS region is pretty major because of the Russia and the Middle East and Africa, that’s because of Turkey and Egypt, this kind of three countries actually dragging down their emerging market performance.

But in general, on their emerging market, we still accomplish the emerging markets because of their larger demand is still there. A lot of this is on mate [ph] and that we are relatively in a better position to capture the opportunities in the future. So beyond that we are still very confident now the future growth for the emerging markets.

Serena Shao – Bank of America Merrill Lynch

Okay, thanks.


Thank you for your question. Your next question comes from the line of Iris Wang from Credit Suisse. Please ask your question.

Iris Wang – Credit Suisse

Thank you for taking my question. I actually have a question about the balance sheet item and I noted you had a big jump in the goodwill and intangible asset in the quarter. All together, they had over $100 [indiscernible] medium increase. So Alex, can you give us some more color about this?

Alex Lung

Hi, Iris. Thank you very much for the questions. Actually the goodwill increase was mainly driven from the acquisitions of the Zonare entity. As you may note on our past announcement, we spent exactly about – just like $100 million in applying the Zonare Company. Because of the loss [ph] making situations of the company, the balance sheets of the company is actually at net liability when we acquired it.

So from an accounting standpoint, we actually I mean except the considerations that we pay, becomes a few and also some of it actually being allocated to intangible assets such as the technology of the company and also the customer relationships that was developed by the company. And getting [ph] intangible asset was not reflected in the [indiscernible] of Zonare. So that actually explains why there’s such a big increase in both the [indiscernible] access and therefore associated with this one at the acquisition.

Iris Wang – Credit Suisse

Yes, thank you for that. And if I’m allowed can I just clarify about the withholding tax for inter-company transfer, is it going to take cash out of China? And is it a provision or it’s just an expense that will actually occur in the future?

Alex Lung

Okay, this is a – we currently make the provision as we already initiated the applications for the transfer of funds from China to the Hong Kong companies. The actual payment of the cash actually arises when we actually remit the cash. So it depends on how long it takes for the application to approve and also our internal funds, our ability.

So the tax payment is going to be paid out in a manner as to how we actually – when we are actually making the payment. So at this moment, our payment – our availability cash to pay out is mainly restricted by our short-term investment because you will see in our balance sheet, most of the cash is actually tied into our short-term investment which has an expiry period.

And so it is actually one of the fact that that affecting how quickly we will pay the cash as such how quickly we may need to be able to pay it.

Iris Wang – Credit Suisse

Thank you, Alex.


Thank you for your question. Your next question comes from the line of Bo Pang [ph] from Oppenheimer. Please ask a question.

Bo Pang [ph] – Oppenheimer

Hi, everyone. Actually, this is Bo [ph] asking question on behalf of Ingrid Yin. So thank you for taking my question. My question is regarding the operating expenses. So you’re adjusted on guidance in quite a relatively high operating expenses ratio in fourth quarter.

So we are just wondering – and also the ratio, go back to like 2011 level, so we are wondering if the trend is going sustainable going forward and how do you think about this? Is this because of the intense competition worldwide or something else? Thank you.

Alex Lung

Hi. This is Alex. Thank you for the questions. With regards to your question on the operating expenses for Q4, actually one point that I need to highlight is that actually in our – in our performance, we have other acquisitions of the Zonare. They actually have a relatively high operating expenses ratios as compared to our – the original Mindray business. And the acquisitions that have a stronger effect in Q4. So as such maybe from your calculations it has evidence that in Q4 we have relatively higher operating expenses ratio [indiscernible] as compared to the past.

So I think this is actually one of the [indiscernible]. And secondly that in this year overall, we also invest more in our overall R&D. So you will – you will actually see the past three quarters in terms of the R&D expenses as the percentage of revenue is also higher than the past three quarters [ph].

Bo Pang [ph] – Oppenheimer

Got your point. Thank you.


Thank you for your question. I would now like to hand the call over back to Miss. Cathy Gao. Please continue.

Cathy Gao

Thank you everyone for participating in today’s call. As always, we appreciate your support on Mindray. The replay of today’s webcast will be available later today. And our management team and the IR team will be available for questions.

Thank you again for joining us. And we look forward to speaking with you soon.


Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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