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Mindray Medical International (NYSE:MR)

Q1 2012 Earnings Call

May 08, 2012 08:00 AM ET

Executives

Cathy Gao - Manager of Investor Relations

Jie Liu - COO

David Gibson - President

Alex Lung - CFO

Analysts

Richard Yeh - Citigroup

Shaojing Tong - Bank of America/Merrill Lynch

Jinsong Du - Credit Suisse

Jack Hu - Deutsche Bank

Bin Li - Morgan Stanley

Hao Zhou - Piper Jaffray

Sean Wu - JPMorgan

Jessica Li - CICC

Ingrid Yin - Oppenheimer

Wei Du - Goldman Sachs

Jason Mann - Barclays Capital

Anthony Petrone - Jeffries Group

Operator

Good morning everyone, thank you for standing by and welcome to Mindray’s First Quarter 2012 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to your host for today’s conference, Ms. Cathy Gao, Mindray’s Manager of Investor Relations. Please proceed Ms. Gao.

Cathy Gao

Thank you. Hi, everyone. Welcome to Mindray's 2012 First 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 Relations website.

Joining today's call are Mr. Xu Hang, our Chairman and the Co-CEO; Mr. Li Xiting, our President and the Co-CEO; Mr. Alex Lung, our Chief Financial Officer; Mr. Jie Liu, our Chief Operating Officer; Mr. Minghe Cheng, our Chief Strategic Officer; Mr. David Gibson, our President of North America Operations; and Ms. May Li, our Deputy Chief Financial Officer.

In a moment, Mr. Jie Liu will provide an update of the Company's operational performance. Mr. David Gibson will discuss Mindray's operations in the North America region. Mr. Alex Lung will review the details financial results as well as the Company’s outlook for 2012. After that they will be happy to take your questions.

Before we continue, please note that this call will contain forward-looking statements made under the Safe Harbor provisions of the U.S. 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 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 filed with the SEC on April 30, 2012. 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 Mindray's COO, Mr. Jie Liu.

Jie Liu

Thank you Cathy. Good morning and good evening ladies and gentlemen we are all just good start in the first of 2012, overall we continued our sales momentum in the last few quarters and achieved year-over-year revenue growth of 21.1% at $219 million and delivered 16.5 non-GAAP net income growth excluding tax benefit. Net operating cash flow was strong with over 80% year-over-year growth. For the past quarter China in the emerging markets remained the key gross driver for company with each achieving over 20% year-over-year growth.

We also delivered a high single digit year-over-year growth in development market, to be more at systematic R&D approach, we studied a medical product innovation project r MPI project in the first quarter of this year. We expect this initiative to streamline the R&D process between different R&D centers worldwide, he has our product development management and the increased R&D efficiency.

The project we expected lasted for few years, on the merger acquisition front. Today we announced that we acquired a continuous state of Hangzhou Optcla Medical Instrument Corporation Limited. The company there specialized in rigid endoscopes in the surgical device development. These transactions were further strengthening our capabilities to provide operating room to the solutions.

We have to get access to the fastest growing, minimum invasive and digitalized creating equipment market. This is the fifth acquisition we did since 2011, though we continue to actively seek external opportunities. Now let’s look at the detailed performance by geographic and segment respectively.

We had another robust quarter for our domestic sale, China sales growth was 26.8% year-over-year and we have discussed in the last few quarters, the Chinese government intends to increase patient in traffic to (inaudible) hospital and as a result we continue to use robust infrastructure upgrade and device process activity in this segment and other market.

(Inaudible) hospital, our strong segment and we expect the fair well spending trend to continue. Our key account team strategy has pulling to walk way out in the past year and half and that we expect our team to continue grow.

Longer term we are also continued to invest and expand the drug service platform in order to build relationship with key hospital decline and the full serve customer loyalty. We believe that this strategy is important to drive both topline and the bottom line growth in China.

Our long term trend such as green, aging population specifically in our health insurance

coverage, increasing levels reimbursement, urbanization, lifestyle changing. We continue to accelerate the demand of healthcare products and services in China.

In some we remain optimistic about the near and the long term operating environment in the domestic market. We are confident that we have a strong competitive position to seize market alternative. Moving on to our international affairs, we recorded 17.3% sales growth in the first quarter. The emerging markets was again a key gross driver with sales growth of more than 23%. Demand the overall emerging markets remain strong inspite of political uncertainty in the Middle-East Africa regions and the forex exchange control imposed by a few American governments.

There was last year we further expanded our key account coverage in the top emerging countries. And it has a probability in public sector, these investment efforts continue to pay off.

In (inaudible) region, sales more than doubled during the quarter thanks to the growing demand and opportunity in the public sector, sales in Africa and the middle-east also recorded a strong double digit growth despite political unrest there. As a result of our improved grown sales and the associate for structure, developed market combined grew at a higher single digit year-over-year laid primarily by sales in North America.

Average, we provide more information on the North American operation there. In Western Europe we recorded our single digit growth in sales based on the economic outlook in the region. We remain cautious and we have monitor the hospital of capability situation closely and the invest opportunistically to gain shares.

Now let me give you a breakdown of our performance of different business segment in the first quarter. Operation monitor in the life product line meet to high end, if it raises and fax machines in such equipment where all gross contributors for the segment in the first. We think that these products we continue to care prior our sales gross in particular a new product, highly praise for its enhanced performance.

The transform modular Q1 give us more access to 2000 project inside of the hospitals. This new products we are stressing Mindray’s competitive position in the market. The agent sales continue to accelerate and now make up around 32% of our total IVD sales. The five-part hematology analyzer also contribute to an overall IVD sales growth. We expect the recent introduction of BC68 conduit and upcoming BS2000 we have entered high end markets and accelerates reagent growth further in the coming years. The BC6800 is our most sophisticated assistant with high processing speed in hematology segment. Similar to BC6800 there are upcoming BS2000 maybe our fastest chemistry analyzer and we have generated more reagent sales volume in the future.

For the ultrasound segment black-and-white ultrasound product were key driver to our sales growth in the past quarter helped by our launch in the past two years. We also introduced TCAs color ultrasound systems towards the year the year in 2011. The TCA together with some updated color ultrasound system and the economic and ER product it could be introduced this year, will help us gain a stronger foothold in China.

And other emerging markets, going forward, we continue to formulate the best strategies in the market and we are operating in an overall operation efficiency to achieve long term sustainable growth. Now I would like to David to give us more color on North America operations.

David Gibson

Thank you Jie, North American had another good quarter with year-over-year overall sales growth of 11%. This is the 7 consecutive quarter with double digit increases and continue to grow the faster than the overall market. In the first quarter, we expanded and reorganized our sales team and we broaden the opportunities we cover in U.S. hospitals and surgery centers.

We created roles for critical care specialist focused on larger opportunities that are V Series monitors enable us to compete for it. We also created dedicated operative team to support to continued growth of our A Series and N Series (ph) delivery systems and the associated monitoring products. The expansion of our direct ultrasound team has reached the point where we now have full nationwide coverage for the emerging ultrasound markets.

With this new structure, we have the sales channel in place to continue to grow at above market rates. Recently we announced that we have been selected by HealthTrust Purchasing Group as a provider for anesthesia equipment and supplies for the members which include 1400 acute care facilities as well as 10,600 ambulatory surgery centers physicians practices in alternate care site.

With this agreement we can now offer the A series anesthesia systems to help trust members. We see this is a huge win for Mindray as this agreement is not only stronger to our spend of our products but also confirms Mindray as a stronger player in the U.S. anesthesia market. We are continuing our efforts on expanding GPO contracts beyond monitoring to broaden the market penetration of both ultrasound and anesthesia.

Our view is that the U.S. capital market is relatively stable with growth in low single digits, the overall economic uncertainty legal status to healthcare reform and upcoming elections are producing a cautious response from hospitals. Our plans are based on gaining share and not in our market growth so we feel comfortable with the current environment. The DCA advanced color ultrasound system has been launched in the North America market this week at the American College American College of Obstetricians and Gynecologists.

The ECA provides a higher performance solution that rounds at our offering for outpatient (inaudible). Along with the DC7, DC3 M7M5 will have the ability to offer solution to much larger portion of this market than before.

The M7 and M5 continue to do very well in the anesthesia and emergency medicine segment, earning praise from customers for both imaging performance and their reliability. We believe that with the new sales structure in place and our suite of products we continue to deliver low teen growth rate with a focus on expanding our market share while improving the operating margin for the region.

Now I will pass the call to Alex to discuss the detailed financial results as well as the Company’s outlook for 2012.

Alex Lung

Thanks David. In the first quarter, we achieved a 21.1% year-over-year increase on the topline for a total of 219 million leading our growth was China revenues which increased 26.8% year-over-year primarily driven by our strong performance in the mid-end market segment. Regular sales continue to make up more than 90% of our China sales. We are happy to see four consecutive quarters of over 25% sales growth in domestic market.

Thanks to our strengthened sales and distribution networks as well as favorable private and government investment involvement. In the national revenues, we are also strong at 127.2 million, a 17.3% year-over-year growth. This represents 58.1% of our total sales, our good performance continues to reflect the success of our increased investment in international delivery channel.

Emerging markets was the main driver this quarter, and grew 23.2% during the quarter. Non-GAAP gross margin was 55.5% compared to 55.9% in the first quarter of 2011. And 54.7% in the fourth quarter. The sequential increase reflects seasonal pattern as well as change in product mix, the year-over-year decrease was mainly due to negative foreign exchange impact.

Our non-GAAP selling expenses were 17.5% lower than last year’s level of 17.7% and fourth quarters at 19%. This was due to the positive impact of our sales realignment program as well as seasonality.

Non-GAAP general and administrative expenses were 8.7%, higher than 7.7% in the year before and 6.3% in the fourth quarter. The sequential increase was due to seasonality and the annual increase was because of higher legal and depreciation cost. Our non-GAAP research and development expenses were 10.7% of total net revenues. An increase from 9.7% in the same period in 2011 and 9.3% in the quarter before. This was mainly due to strategic investment on the NPI project that David mentioned earlier.

Our non-GAAP operating margin was 18.5% and our non-GAAP net margin was 18.4% for the first quarter. Please note that in the first quarter we did not record any tax benefits related to the national key software enterprise status for the calendar year 2011.

As a reminder we recognize $7.6 million of tax benefit in the first quarter of 2011. Excluding this factor our non-GAAP net income was 40.4 million in the first quarter compares to 34.7 million in the corresponding period the year before representing growth of 16.5%. The national key software enterprise status allows us to enjoy a 10% income tax rate for (inaudible) and a grand of such status is subject to approval each year and our vacation is currently under review.

EBITDA was 46.7 million, 14.3% year-over-year increase, we generated strong net operating cash of 60.1 million this past quarter and up 86.1% compared to 32.3 million in the first quarter of 2011.

This was primarily because of improved operating efficiency. Compared to the fourth quarter, our DSO was 79 days was at 66 days, inventory days were 92 days versus 78 days and cash conversion cycle was 117 days with 100 days last quarter.

Historically our first quarter cash conversion cycle has always been longer than fourth quarter mainly due to (inaudible) schedules. In the first quarter as a result of foreign exchange control recently imposed in some of our key emerging markets. We had experienced some temporary receivable delay.

We expect our DSO trend normalized and be more consistent with historical trends in the next few quarters. In addition, we will also continue to exercise cautious credit policies and enforce insurance protection in our key markets worldwide.

We maintain highly confident step, we have a healthy working capital position. Based on what we can see currently we are maintaining our guidance of more than 18% year-over-year sales growth for year 2012. We continue to expect China and emerging markets to be the key growth drivers due to our strong competitive position and favorable private and government spending trends in healthcare industry.

But we do foresee headwins, in southern regions, in emerging markets that are political unstable and have changing foreign exchange control involvement. For developed markets we expect to continue our steady market share gains in the U.S. based on our product introductions and direct sales effort. While we expect some pressure on our sales in Western Europe as a result of economic uncertainty.

As we communicated with the investor in March despite the macro challenges such as rising cost and RMB appreciation in China we have plans in place and enhanced efficiency and we continue to expect our gross margin to stabilize and our overall operating margins for the year to stay at similar levels as last year. With two views -- the non-operating fees such as government subsidiaries, interest income are difficult for us to predict.

We record tax benefits of 7.6 million in a first quarter of 2011 as a result of receiving the national key software enterprise status for the year 2010. We have not received such notice from the PRC tax authorities in regards to the approval for the year 2011 and have no record any tax benefits in the first quarter of 2012.

Upon notice the potential benefits that will be included in our financial statements, but the likelihood and timing of such approval cannot be determined at this time. Excluding any tax benefits and assuming a corporate income tax rate of 15% of stringent subsidiary. We continue to project non-GAAP net income in 2012 to grow more than 13% year-over-year.

Excluding any potential merger and acquisition expenditure, we continue to expect capital expenditure to be around 19 million for the year 2012. I would like to turn the call back Cathy now.

Cathy Gao

Thanks Alex, we will now open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions). You have a question from the line of Richard Yeh of Citigroup.

Richard Yeh - Citigroup

I have a question on patient monitor demand, can you discuss the market dynamics for patient monitor segments. In the first quarter where was that growth coming from mostly was it from Class Three hospitals or is it country level hospitals. Can you also talk about the in the entire tissue monitor segment is that new demand, the new patient monitors are almost the same as the replacements or still the new demand is more than the replacement. Also have a question on the reagent growth. The percentage of our reagent sales as a percentage with segment is actually growing.

Now in the first it's around 31.5%, I just want to see where do you see is there a percentage or sealing in that segment and where was that reagent growth coming from.

Jie Liu

Hi, Richard this is Jie let me answer some of your questions, I will write down some question may not be complete. Just for the patient monitor segment it seems a many, our patient segment including the patient monitor device integrates, surgical equipment and anesthesia machines as patient monitor segment. In the season passed and all this tough segment actually growing pretty well and especially for their different level in anesthesia machines such increment grow stronger than margin parameter of patient monitors.

But our monitor parameter patient monitor agreed very well too and the growth driver actually we have as many as I mentioned they are the new monitors I make is the enhanced features actually get it pretty well accepted by their customers and they liked it very much and also there are another key drivers T1 is a new transform monitor that will help us our better view in getting more bigger projects in sizeable hospitals.

Because then you get the -- together with your many other modular monitor and also together with IT solutions then you get more 2000 projects for the hospital. So basically those kind of driver actually will help us to move to the mid-to high end hospitals that’s the China and emerging market in the U.S. also. Another driver is for our new VCR product, actually is the - so all this monitor is actually is not only replace exciting monitor but also because of the new products we gained addition access to some other opportunity we didn’t have in the past.

So that monitor side, for the reagent growth that’s major because we have the high speed chemistry analyzer we launched last year and also we had recent launched more five-part hematology analyzer with more insulation in the past gradually you get more reagent consumption. So that’s a key driver for the reagent growth but in the future probably you will see that we have their even higher speed by biochemistry analyzer probably we actually drive more reagent sales in the future.

Operator

And our next question comes from the line of Shaojing Tong of Bank of America/Merrill Lynch.

Shaojing Tong - Bank of America/Merrill Lynch

And first of all I want to ask do you still disclose the China sales what percentage or what number are coming from tender sales and second on your January cost you just mentioned that this is because of seasonality, higher legal cost and the depreciation cost. Can you elaborate a little more on that, is the just as a percentage is quite higher than the previous quarters and as the absolute amount has also quite higher. Thank you.

Jie Liu

Thank you for the questions. Hi, with regard to the China sales to tender sales in China is actually less than 10% for this quarter and for the G&A cost yes we mentioned about the legal and depreciations and actually in the first quarter we dismissed that the transactions, losses against us that was brought to us in the year 2011 and we incur some legal cost in the process of defending ourselves.

In respect of depreciations actually we have a new R&D new building erected in our Shenzhen Headquarter location and the building was only brought into use in May last year. So in the first quarter of last year there was no depreciation for this new building recorded in last year first quarter G&A so that causes the difference between the quarters on a depreciation charge.

Operator

Your next question comes from the line of Jinsong Du of Credit Suisse.

Jinsong Du - Credit Suisse

Just a quick one on margins, just now Alex mentioned that Mindray do expect operating margins to be similar, I mean in this year it will be similar than the last year. If that’s the case then given your first quarter operating margins and you must be expecting a renew for increase in operating margins in subsequent quarters. Could you let us know what will drive that, is it a decrease G&A expenses or some other things.

Alex Lung

With regards to your question on the operating margins actually I mentioned earlier in these quarter, we record some onetime expenses for instance in the G&A we have some legal cost incurring in connection with our handling of the class action law suits and in the research and development expenses we also recur some spending in our MDI project that’s something that we put in place in order to enhance the future management of our R&D processes.

We expect the G&A going forward to be in a more stable manner excluding all this one time incidents and also on the R&D fund. We would be able to manage the total the R&D spending between around 10% of our revenues throughout the whole year.

So we still have confidence that for the whole year we will be able to maintain the overall operating margin at the similar level as 2011.

Operator

Your next question comes from the line of Jack Hu of Deutsche Bank.

Jack Hu

My question is regarding your imaging sector, so for this quarter you grow around 11% however in last year it seems medical imaging was the best performing business segment with 28% in the growth and also in your prepared remarks you mentioned that Black and White are your primary growth driver, previously it seems like Black and White had though the market share over the so what happened in this quarter and how should we implement this going forward. Thank you.

Jie Liu

For the imaging side as we said is a actually Black and White system going faster than the color system. This lowering color system actually become more and more competitive in the market and we in the past we focus more on the more efforts on the DC8, this kind of high end relative mid-to-high end system and but this kind of system when the long term market is taken to really ramp up the sales for their old system such as we have DC6, DC7, DC3 the all class system, all this will be upgraded this year with the different, new models with enhanced features to increase their competitive position in this kind of the low to mid second kind of to a fee and second half of the year will be more new product coming to compete in this segment expecting better result.

Operator

Your next question comes from the line of Bin Li of Morgan Stanley.

Bin Li - Morgan Stanley

My question is on the (inaudible) of your balance sheet amalgamate. In particular, I know your debt level went up this year and yet you have lots of cash on your balance sheet and I've seen that the cash is in China and you need debt to careful for the working capital of offshore business for business expansion of China. I just want to understand what should we think about your debt level going forward. Now you are contemplating between the constant borrowing debt and FX rate is still in working capital needs in different areas. How should we think about the debt level going forward and then the cash management for the overall company?

XU Hang

Yes, it’s a good question. Actually from the company standpoint we have been taking advantage of the low interest rate in the outside China debt market in order to support our outside China international operations and as you have specifically pointed out that at the end of March we're actually our 15 million in order to support the international payment. Actually for the current debt arrangement, it allows us to maintain our RMB cash balance in China. In the first space can help us to earn a high internet income than the foreign rate in the overseas market and in the same time we can take advantage of the potential RMB appreciation as well. So with this arrangement in place we are confident to take on the debt in the international market when the funding is needed. Actually we are doing various international project in order to enhance the cash flow for our international operation such that there will be more operating cash to generate in the international market to support the international market growth. We hope that going forward; we should be able to see the needs of overseas pouring to be less when we are able to exercise these internal initiatives.

Operator

Your next question comes from the line of Hao Zhou of Piper Jaffray.

Hao Zhou - Piper Jaffray

My question is concerning the tax rate. As you mentioned that you have applied for the software enterprise status and how confident are you and what's your status so far and how confident are we that can get this tax benefit for the 2011 that can reflect for this year's balance sheet and also P&L.

Jie Liu

Thank you for the questions. We have been receiving this award for the two years already and that allow us to enjoy the favorable income tax rate for our Shenzhen subsidiary. We continue to apply for the year 2011; unfortunately the relevant PRC authority has a different schedule in releasing the results. So as of this moment we just assure when the results will come out. But I think from the company standpoint with two years of history we have and we have maintained the same operations. So we believe that they are coming to be eligible and with the history of gaining that, we believe that we still have a high possibility of still obtaining that. But unfortunately the time table runs by the PRC authority is beyond our control and we hope that we can get the voting SMS possible too.

XU Hang

Maybe I can add a little bit on this process, a little bit change probably you know that. In the past either yearly basis review of the status but from 2011 applications, we changed to every two years you get it applied, then get it reviewed. We get awarded, we will get two years dinners. But we have reviewed that they are reviewed by low cost authorities. So the nationwide NDIC, a bit tax to review the companies. So as that said, in the past we had a very good track record and now their priority is on the different side and also on schedule is for two years with you. So then you get a sitter for 2011 and they are mostly likely for 2012. You don't need other this kind of application process.

Operator

Your next question comes from the line of Sean Wu of JP Morgan.

Sean Wu - JPMorgan

So what is your strategic vision for the company get down in road. (Inaudible) is from now, what are you doing to improve your competitive dealings against the kind of than say such a GE or therapist. It's not like you are doing R&D like initial time. So I am going to say on the contrary therapist for you to move up there. Sorry for this, very important question.

Unidentified Company Representative

First of all it's very important that over the next five years we have to improve the overall operational efficiency since we have to engage various trading including external consulting fees to help us build a more systematic platform to support a larger organization that results so.

Secondly we'll have to continue to invest heavily in our R&D to continuously launching products each year. In the high-end settlement we need to close our technology steps with the first time of the nationals at a faster rate and the mid to low end, we need to invest in innovation beyond providing just heavy products.

Certainly, we need to continue to invest in building out ourselves on the delivery channel in both domestic tariff market as well as the international market. Specifically international market, we have to continuously increase our investment in those channels in the emerging markets and also we have to remain committed in our channel investment in developing markets in order to keep up with the competitions with the first gen multinationals.

Also very importantly, we'll continue to improve the internal talent shot through. We have to keep up our top talent teams within the R&D function as well as introducing more even marketing investment for the sales and marketing function.

Lastly, while we continue to invest in the above mentioned initiatives, we have to carefully stress it down between near-term goal as well as long-term goals of the organization. We have to both care for the near-term growth but also we must not decide on post-terrain long term competiveness of the organization. In order to continue to be a leader in the emerging market as well as to continue to gain market share in the developing markets, we are confident that if we continue to invest in the above mentioned sales, we will be able to realize our mission to continue to improve healthcare by optimizing (inaudible) and medical technology.

Operator

Your next question comes from Jessica Li of CICC.

Jessica Li - CICC

Quick question, can your gas prices over your domestic competitors widening, if that's the case why is that and how would you maintain or potentially improve your competitive advantage against other domestic players. Thank you.

Jie Liu

Can you repeat the question?

Jessica Li - CICC

Sure, my question is with regards to your competitive advantage versus your other domestic players. I am just wondering whether you see yourself, your gap with your domestic competitors widening and going forward, how would you maintain your leading leadership position or potentially improve upon your current competitors that have established pieces.

Jie Liu

I think they are in the probably you look at some Chinese manufacturers, similar to our products and (inaudible) are some either instruments that's locally public company. I think the gap between either in the minor actually that significantly increased, that means that we are far lean compared with domestic manufacturing in the past couple years and gradually we are moving faster to the mid to higher segment. Some inattentively we are more products to be past to have your to move from a single product selling to those solutions setting. They are kind of actually is not the fun specific Chinese manufacture can really catch here in short term. There we need the company has a very mission actions and also you need to have their capability to deliver these kind of emotions. So in the past couple of years, we believe we already developed a lot of this kind of capability compared with the local manufactures. So moving forward as Mrs. Li said, actually we continue to invest in the research and development and they are closing the gap between minor and the first year multinational companies and this kind of the technology leading, technology we have been used to into maintain our leading position compared with our local manufacturers.

Operator

Your next question comes from the line of Ingrid Yin of Oppenheimer.

Ingrid Yin - Oppenheimer

My question would be on just the MCI product that Alex talked about earlier, can you provide more details in terms of the size of the product and time line and when it will finish and what kind of income you expect?

Jie Liu

The entire project is more integrated product development project where then we need to streamline the project, streamline the R&D process. Of course all the R&D centers worldwide, some inattentively we need to streamline the process from the product concept to feasibility study for the marketing adjustment to the R&D realization through the post R&D service as our value chain to as our one smooth process to make sure all this decision making in the different process is more efficient and more aligned to the marketing requirements. This is when the, this is the process to increasing efficiency as a one significant stage to standardize all the R&D projects and also increase the function of the R&D. So that's not whole. Another question point is R&D is kind of project feasible to by streamline the process creating the environment to encourage the whole innovation. SO address the own mix customer needs in the market to make sure our products can really meet as an exiting the customer needs. Because of this kind of products, we can have the chance to identify the needs and also we have their can change the immediate to their marketing formula to more market differentiator to change the game in the future.

Operator

Your next question comes from the line of Wei Du of Goldman Sachs.

Wei Du - Goldman Sachs

I have a question on your international growth. I guess if I look at it historically, I know this quarter has been a little bit 20%. I think part of the reason is the emerging markets goes down from 30% above to 23 and other, could that be the Western European you said is only middle single digit growth and if you can provide more color on the overall operations, on the geographic level and also I think I probably missed Jack's question on the imitating, that's also I feel like imitating growth but by 11% this quarter is kind of below what I would expect it. Apart from the black and white growth, but can you explain whether that's seasonality or something fundamentally happening here. Thank you.

Jie Liu

For the inside in sales I think for us it’s the emerging markets still keeps a growth key driver. As we said earlier, the areas such as CIS region, probably some other company, statistical result too, we all must trouble the sales to slumbers and the (inaudible) Africa area actually get a very strong double digit growth plus the area we are doing better. In the developed markets actually in the west here, we still maintain very cautious even for the single digits we think we are better than most peers company in west Europe. So that's west Europe. But in the North America, we get a double digit. David can you give more color on the North America operations?

Wei Du - Goldman Sachs

Jie that we know, I think David already mentioned 11% North America growth. I guess I just want to know which we think you see weakening overall and also adjust our business.

Jie Liu

As I said, the (inaudible) actually get a ghost (inaudible) in color system. In the color system is a low to mid-end color system. Actually this market is getting more and more competitive and we are in the past we put our efforts in some TTA system and this mid to high end color system but with a launch of this system the sales need some more time and for their low to mid low end color system in the past we have different mode of (inaudible) 6 to 7. This order is already four to five years and we are by the end of this year, we have some more new model with more enhanced efficient to compete in this segment. As I said earlier, actually this low to mid-segment will be in the better position to compete in the next half, second half of this year.

Operator

Your next question comes from the line of Jason Mann of Barclays Capital.

Jason Mann - Barclays Capital

Congratulations on good quarter especially given your track record to continuing to take share. So I am interested in your value proposition in China and also in the international market. How do you see yourself taking share? Could you even give an example of an instance where you were able to secure a contract that maybe in the past, one of your competitors would have received. And then maybe specifically touch on how your ASP has evolved in relation to this value proposition. In other words are you having to cut your prices in order to take this share? Thanks very much.

Jie Liu

I think that for our line where we really study the product line with a potential life support, maybe imaging and IVD products and each product line actually is well proper vision is a little bit different. That be there for the pension fund is actually more close to their mid to high and of course in the low-end segment we have very strong product order to really complete to gain shares but even for mid to high end, and this was even for last time for the cant carry system for this kind of sub segment we are positioned different as there are some other for IVD product and before their IVD product relatively lower second we are competing with and some kind of the contracts actually is secured because of the reagent blend in the model. So this kind of where you get more products launched, especially for relatively high end BCC6800 and upcoming BS2000 discount of the value proposition gradually moving up. We get a more secured contract of the IVD product for the imaging products especially for the color system relative similar. But we still don't have their high end or premium segments but for the mid to high segment where you have DC8 and you have M7, this kind of machine will be gradually helped manage to gain more access to the market and we didn’t have cancel in the past especially in the markets such as the North America and the West Europe. So in the emerging market and the China we are competing almost from the low to mid to even mid to high segment by the further developed markets such as North America and west Europe, most of this product only competitively low to mid end.

David Gibson

I think I can add to that the wording of the health trust contract is a good example of how the products compete based on, can also compete on the preference of the end performance of the product. Our A series anesthesia machines were valued alongside the full range of offerings from really GE Trigger and some of the other anesthesia vendors that are out there and so the first stage was the product had to success on the merits of the products and then the evaluation was heavily centered on cost of ownership not just your initial acquisition cost of the product. And we were able to compete very favorably there and be awarded the contract. The first stage was to have a product that was acceptable based on the merits of the product and drive preference among the user committee that was put together to do the evaluation and then we were awarded that contract and its very significant because we awarded that contract right alongside of GE and ahead of several other well established anesthesia vendors and some of which how done business without trust in the past and we were able to replace them. So a very significant indication that the model of creating a product that can compete on the differentiation of a lot of small innovations in the way we accomplish the task people are most interested in doing in creating a very easy to use ergonomic, solid performing machine with the A5 and then it complements the A3 gave us the product to get in there.

I think the other question or one of the portions of your question was on price which while we've been gaining share in the US market over the course of the past year, our price overall has been relatively stable. Some products up, some products down but the net effect is the price is relatively stable while gaining that share.

Operator

Your next question comes from the line of Anthony Petrone of Jeffries Group.

Anthony Petrone - Jeffries Group

Thanks for taking the questions. Just wondering one on strategy and a couple of financial questions. Wonder if we can get an update on the sales force build out for the Tier 3 segment of the hospital market in China and then also you were investing in realigning your brands globally. So wondering if those investments are still taking place and then two financials questions. One would be the contribution from acquisitions in the quarter. I know you have Shenke and Hyson in there and what should we expect into the end of the year with the upward acquisition. And the last one would be why the inability in forecasting interest income given the high cash balance. Thanks.

Alex Lung

Let me just answer the financial question first. The contribution from acquisition actually for the quarter in conjunction with the first two acquisition that we did, Shenke acquisition, actually the contributions are pretty small at the moment and there are a lot of work needs to enhance the products before they get them ready to be distributed through our channel. But we have confidence in these acquisitions to be building up in future.

The second question with regards to the interest income projections, actually you may notice that in the China markets, in past several news came up at the earlier of this year and some of the landing restriction has been partially loosen up. So the opportunity of getting a high interest loan become less demanding. So I mean to us because part of our short-term investment returns comes from guaranteed landing. So we expect that if that market continues to be more relaxed than of course opportunity of earning high interest from our short-term investments will be effected down the line.

Operator

And now I will like to turn the call over to Cathy Gao for any closing remarks.

Cathy Gao

Thank you everyone for participating in today's call. As always we appreciate (inaudible). The replay of today's webcast will be available later today. Our management team will be available for questions as well. Thank you for joining us and I will look forward to speaking with you soon.

Operator

Thank you for your participation. This concludes today's conference. You may now disconnect.

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