Ann: Appendix 4C - quarterly, page-20

I emailed the following query to Rob Phillips today.

The recent China CCP belligerence towards all its neighbours under its new president has raised concerns over the companies vulnerability to any actions by the CCP outside of your control. My question is have you been thinking about this and perhaps re-prioritising Europe and US sales so we are not so dependent on China?

His response is below.

Thanks for your support and enquiry.

I certainly have considered a supporting international strategy in case this geopolitical argey-bargey gets serious. From Uscom’s perspective, and using the World Bank Numbers, China represents the biggest growth opportunity as they plan to shift their health DGP spend from 5.15% to 12%, which is massive. From the US perspective they are planning a shift from 17.6 to 12%; a massive contraction. Average world spend is 9.9% and Australia spends about 9.2% and Europe about 10.13%.

From Uscom’s point of view we are strongly committed to global markets and have offices in Sydney, Singapore, Beijing, Budapest, London and LA.

China: Our single biggest defence is to work closely and compliantly in China with Chinese staff and investors. While this isn’t perfect it is smart….. We have worked very hard on China and created great success from this with ~70% of our revenue sourced from China and we have established our own wholly owned subsidiary in Beijing. We are definitely growing this part of our business and with our strong local Uscom China team have great opportunities and are receiving great local support at a Government, Hospital and vendor level. Additionally China is rapidly rebounding with manufacturing indexes already positive for the last two months with infection rates almost zero, while the US has had negative manufacturing indexes for the last 4 months and has rampant infections.

Europe: We already manufacture in Budapest and have just appointed a local salesperson to lead a small sales team and distribution network. The objective of which is to establish a network of sales people to sell our USCOM 1A. BP+ and SpiroSonic and VENTITEST devices throughout Europe. This is a low cost high efficiency operation which was ready to start in January – immediately prior to COVID again. We are slowly starting to activate this network as the single Eu countries start to emerge from the pandemic.

US: As part of risk mitigation I have undertaken a revision of our US distribution strategy and now have appointed dealers to cover nearly 80% of the US. This was about to go live when COVID hit. The initiative is intact but unable to be implemented in the current environment, but will be as soon as feasible. However the US political landscape and health care system are very unstable and not likely to recover foreseeably, but we are there and active and prepared to upregulate.

My Euro and US moves we initiated nearly 2 years ago with the initiation of the US trade wars, as a risk mitigation strategy. We are now waiting for the pandemic to recede so they can be more widely activated.

So I am working on risk mitigation, and even better this strategy should result in a strong platform for global growth for Uscom. I am also aware of events and careful to keep informed if things change.

Again thanks for your support. Not sure why record receipts, revenue, sales and profitability have sent the share-price down; no explaining a traders market. Good fundamentals and smart business practice should always win.

Kind Regards

Rob


My take is they are doing all that can be done in this political and pandemic environment to mitigate risks and that things will pickup once some semblance of normality takes hold.