New Frontier Health Corporation Announces First Quarter 2020 Financial Results

BEIJING–(BUSINESS WIRE)–New Frontier Health Corporation (“NFH” or the “Company”) (NYSE: NFH), operator of the premium healthcare services provider United Family Healthcare (“UFH”), today announced its unaudited financial results for the first quarter ended March 31, 2020.

Financial and Operating Highlights¹

All comparisons made on a year-over-year (“yoy”) basis. ²

For the Quarter Ended March 31, 2020:

• Revenue decreased by 25.4% to RMB430.9 million from RMB577.4 million due to decreased patient volume, as non-emergency services were postponed or cancelled a result of the COVID-19 pandemic.
• Net loss increased to RMB168.6 million from RMB45.7 million, resulting mainly from the revenue decline and increased finance costs.
• Adjusted EBITDA (before IFRS 16 adoption)³ decreased to RMB(67.7) million from RMB30.9 million primarily due to the impact on revenue from COVID-19.
• Tier 1 Operating Assets: revenue decreased by 30.6% yoy to RMB301.9 million from RMB435.1 million, and Adjusted EBITDA (before IFRS 16 adoption) decreased by 79.3% to RMB22.9 million from RMB110.5 million, due to a decline in patient volume due to the COVID-19 pandemic.
• Tier 2 Operating and Other Assets: revenue decreased by 26.9% yoy to RMB63.6 million from RMB87.0 million, and Adjusted EBITDA (before IFRS 16 adoption) decreased to RMB(11.5) million from RMB0.4 million, due to a decrease in patient volume as a result of the COVID-19 epidemic.
• Expansion Assets: Revenue increased by 18.1% yoy to RMB65.4 million from RMB55.4 million due to the continued ramp-up of the new hospitals in Guangzhou and Pudong, Shanghai despite the impacts of the COVID-19 pandemic, and Adjusted EBITDA (before IFRS 16 adoption) increased by 2.2% yoy to RMB(42.6) million from RMB(43.6) million.
• Outpatient visits decreased by 41.0% yoy to 89,463 from 151,551.
• Inpatient admissions decreased by 20.7% yoy to 2,056 from 2,594.
• Bed utilization rate* decreased to 32.7% from 36.1%.
• ASP: outpatient ASP increased by 9% and inpatient ASP increased by 13% yoy as a result of an increase in the number of higher acuity services provided at our facilities, as less urgent services were postponed due to the pandemic.

* Bed utilization is calculated based on the weighted average maximum bed capacity for the period.

Mr. Antony Leung, Chairman of NFH, commented, “The first quarter of 2020 was challenging for many due to the effects of the COVID-19 pandemic. Our business was negatively impacted as a result of a decrease in our patient volume, but we continued to make progress in pursuing our strategic growth. We have seen sustained week to week revenue recovery starting in the end of February and expect our business to return to normal soon. In the meantime, our team has been working tirelessly to manage our corporate overhead and cash flow in order to drive operational efficiencies in light of the challenging environment and, at the same time, to ensure that our frontline staff and facilities continue to have the resources to protect our patients and to pursue new growth initiatives. We remain optimistic about the progress and direction of the Company and that we will emerge from this pandemic as a stronger platform.”

Ms. Roberta Lipson, Chief Executive Officer of NFH and founder of UFH, added, “Despite the impact of COVID-19, we saw a new category of first time patients entering our network who we expect to retain as loyal customers. Some of these patients entered through our new on-line consultation platforms and subsequently converted to hospital appointments, and others came for treatment of serious diseases including stroke and cancer, having not achieved access at their traditional public providers. Despite the COVID-19 interruptions, we were also able to continue to execute on our long-term growth strategy by resuming construction work in our new Beijing hospital, and progressing in the design and licensing for our new Shenzhen hospital.

“During the quarter, we initiated some changes at our corporate headquarters with the goal of reducing costs related to salary and benefits, as well as those related to general administrative expenses, which we expect will result in future and ongoing cost savings. We also received some relief and incentives from local governments. Starting in the end of February, we began to see sustained recovery of our patient volumes, and as our business continues to return to normal growth, we remain focused on network efficiency, expansion asset ramp-up, and core market facility and service development. We are committed to delivering long-term value through growth in patient volume, service offerings, and our network.”

Key Operating Metrics

For management purposes, the Company is organized into business units based on the category and stage of development of the Company’s healthcare facilities and geographic locations, and has three reportable operating segments as follows:

(a) Tier 1 Operating Assets: the existing general healthcare facilities located in tier 1 cities in China, such as Beijing United Family Hospital (“BJU”) and Shanghai United Family Hospital (“PXU”), and their associated clinics.

(b) Tier 2 Operating and Other Assets: the existing general healthcare facilities located in tier 2 cities in China, such as Tianjin United Family Hospital (“TJU”), Qingdao United Family Hospital (“QDU”), and other assets, such as a Beijing United Family Rehabilitation Hospital (“Rehab”) and other clinic assets.

(c) Expansion Assets: the facilities recently opened or about to open including Shanghai Xincheng United Family Hospital (“PDU”), Guangzhou United Family Hospital (“GZU”), and Beijing Jingbei Women and Children’s United Family Hospital (“DTU”).

	1Q19				1Q20				Y-o-Y Change %
	Outpatient Volume		Inpatient Admission		Outpatient Volume		Inpatient Admission		Outpatient Volume		Inpatient Admission
Tier 1 Operating Assets	114,913		1,687		63,696		1,244		-44.6%		-26.3%
Tier 2 Operating and Other Assets	21,139		616		12,564		451		-40.6%		-26.8%
Operating Assets(1)	136,052		2,303		76,260		1,695		-43.9%		-26.4%
Expansion Assets(2)	15,499		291		13,203		361		-14.8%		24.1%
Total UFH	151,551		2,594		89,463		2,056		-41.0%		-20.7%

1. Operating Assets (Tier 1 and Tier 2): The decline of outpatient volume was primarily due to the COVID-19 pandemic, as patients postponed or cancelled non-emergency medical services. In addition, the Chinese Government implemented various preventive measures during the pandemic that impacted the Company’s hospital and clinic operations. Such measures included: 1) the temporary closing of non-emergency departments, including dentistry and dermatology; 2) the temporary suspension of vaccine services; 3) daily limitations on volume for certain specialties to ensure social distancing; and 4) the closing of certain of the Company’s and outpatient clinics in February. Inpatient volume was also impacted as the Company was encouraged to delay non-emergency/elective procedures.
2. Expansion Assets: PDU and GZU saw continued ramp-up in inpatient volume driven by their OBGYN, postpartum care, pediatric, family medicine, surgeries, and other services. Outpatient volume declined yoy due to the COVID-19 pandemic.

First Quarter 2020 Results (RMB mm)
Revenue		1Q19		1Q20		Y-o-y Change %
	Tier 1 Operating Assets (1)	435.1		301.9		-30.6%
	Tier 2 Operating and Other Assets (3)	87.0		63.6		-26.9%
	Operating Assets(4)	522.0		365.5		-30.0%
	Expansion Assets(5)	55.4		65.4		18.1%
Total		577.4		430.9		-25.4%

1. Tier 1 Operating Assets: Revenue of UFH’s tier 1 facilities and their associated clinics decreased by 30.6% yoy due to a decline in patient volume because of COVID-19. However, the Company’s oncology services revenue grew 40% yoy because its facilities were viewed by patients as safer and more accessible than public hospitals for their treatments.
2. Tier 2 operating and other assets: Revenue from UFH’s tier 2 facilities and other assets, as a group, declined 26.9% yoy due to a drop in patient volume as a result of COVID-19.
3. Total Operating Assets as a group declined 30.0% yoy.
4. Expansion Assets: UFH’s GZU and PDU were formally launched, with complete practicing licenses ⁴, in the fourth quarter of 2018. As a result of a strong ramp-up, driven by increased brand recognition and new patient uptake at GZU and PDU, revenue for UFH’s expansion assets, as a group, increased from RMB55.4 million in the first quarter of 2019 to RMB65.4 million in the first quarter of 2020. GZU recorded revenue growth of 11.9% yoy and PDU 20.1% yoy.

First Quarter 2020 Results (RMB mm)
Adjusted EBITDA (before IFRS 16 adoption)
		1Q19		1Q20		Y-o-Y Change %
Adjusted EBITDA (before IFRS 16 adoption)
	Tier 1 Operating Assets(1)	110.5		22.9		-79.3%
	Tier 2 Operating and Other Assets(2)	0.4		-11.5		-2964.8%
	Operating Assets(3)	110.9		11.3		-89.8%
	Expansion Assets(4)	-43.6		-42.6		2.2%
	Unallocated costs(5)	-36.4		-36.4		0.2%
Total Adjusted EBITDA (before IFRS 16 adoption)(5)		30.9		-67.7		-319.0%

1. Tier 1 Operating Assets: As a result of the impacts of COVID-19, BJU, PXU, and their associated clinics (together, “Tier 1 operating assets”) achieved Adjusted EBITDA (before IFRS 16 adoption) decrease of 79.3% yoy in the first quarter of 2020.
2. Tier 2 Operating and Other Assets: TJU, Rehab, QDU, and other clinics in Tier 2 cities achieved Adjusted EBITDA of RMB(11.5) million in the first quarter of 2020, compared to RMB0.4 million in the first quarter of 2019, due to the decrease in patient volume.
3. Total Operating Assets: UFH’s operating assets, as a group, achieved Adjusted EBITDA (before IFRS 16 adoption) decrease of 89.8% yoy as of March 31, 2020, to RMB11.3 million.
4. Expansion Assets: Expansion assets, as a group, experienced an increase in total Adjusted EBITDA (before IFRS 16 adoption) from RMB(43.6) million in the first quarter of 2019 to RMB(42.6) million in the same period of 2020. UFH is currently overseeing the planning and renovation of the Shenzhen hospital, and is in return receiving a branding/management fee.
5. Total Adjusted EBITDA (before IFRS 16 adoption) for the first quarter of 2020 was RMB(67.7) million compared to RMB30.9 million in the prior year period.

FINANCIAL RESULTS

Unaudited First Quarter 2020 Results

Revenue was RMB430.9 million ($60.9 million) in the first quarter, representing a decrease of 25.4% yoy from RMB577.4 million in the first quarter of 2019. The decrease primarily resulted from a decline in patient volume as patients postponed or cancelled non-emergency medical services due to the impact of COVID-19.

• Tier 1 Operating Assets: revenue decreased by 30.6% yoy to RMB301.9 million from RMB435.1 million, and Adjusted EBITDA (before IFRS 16 adoption) decreased by 79.3% to RMB22.9 million from RMB110.5 million, due to the decline in patient volume caused by the COVID-19 outbreak.
• Tier 2 Operating and Other Assets: revenue decreased by 26.9% yoy to RMB63.6 million from RMB87.0 million and Adjusted EBITDA (before IFRS 16 adoption) decreased to RMB(11.5) million from RMB0.4 million due to impact of COVID-19.
• Expansion Assets: revenue increased by 18.1% yoy to RMB65.4 million from RMB55.4 million due to the continued ramp-up of expansion assets, and Adjusted EBITDA (before IFRS 16 adoption) increased by 2.2% yoy to RMB(42.6) million from RMB(43.6) million.

Operating expenses were RMB559.2 million ($79.0 million) in the first quarter, representing a decrease of 4.0% yoy from RMB582.8 million.

• Salaries, wages and benefits expenses decreased 6.9% yoy to RMB304.2 million from RMB326.6 million due to the reduction in social insurance and benefits expenses as a result of government policy changes during the pandemic. The majority of the cost cutting initiatives were conducted during the second quarter of 2020 and will be reflected in the financials of the coming quarters.
• Supplies and purchased medical services expenses decreased 18.8% yoy to RMB75.5 million from RMB93.0 million, mainly attributable to decreased usage due to the decline in patient volume, and was partially offset by increased purchases of personal protective equipment and implementation of new infection control measures during the pandemic.
• Depreciation and amortization expenses increased 29.2% yoy to RMB108.1 million from RMB83.6 million primarily due to fair value appreciation of plant and equipment, contracts with insurers related to the business combination, and full depreciation of the newly expanded PXU facility in the first quarter of 2020.
• Lease and rental expenses decreased 33.2% yoy to RMB2.3 million from RMB3.4 million primarily due to the termination of certain office rentals for the old PXU facility.
• Impairment of trade receivables decreased 12.9% yoy to RMB4.0 million from RMB4.6 million primarily due to better collection rates over the past year.
• Other operating expenses decreased 9.0% yoy to RMB65.1 million from RMB71.6 million mainly due to the decrease in fees payable to certain of the Company’s Chinese partners, which resulted from a recognized loss in the first quarter of fiscal 2020.

As a result of the above, loss from operations in the first quarter of fiscal 2020 was RMB128.3 million ($18.1 million) compared to loss from operations of RMB5.3 million ($0.8 million) in the prior year period. Loss before income taxes in the first quarter of fiscal 2020 was RMB175.8 million ($24.8 million) compared to loss before income taxes of RMB27.6 million ($3.9 million) in the prior year period. Net loss in the first quarter of 2020 was RMB168.6 million ($23.8 million) compared to net loss of RMB45.7 million ($6.4 million) in the prior year period. Increased losses in the first quarter of fiscal 2020 mainly resulted from the revenue decline caused by the epidemic and increased finance costs as a result of the Company’s new Senior Secured Term Loan in an aggregate principal amount of RMB2,094.6 million (i.e., the RMB equivalent of US$300 million).

As of March 31, 2020, the Company had RMB1,438.3 million ($203.1 million) in cash and cash equivalents and restricted cash. Cash used for operating activities were RMB237.0 million ($33.5 million), cash used for investing activities were RMB14.6 million ($2.1 million), and cash used for financing activities were RMB53.1 million ($7.5 million).

RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

(RMB mm)
			For the three months ended March 31,
			2019		2020
Net loss			(46)		(169)
Less: Finance income			(1)		–
Add: Finance costs			35		72
Less: Other gains			(12)		(17)
Less: Other income, net			–		(7)
Add: Income tax expense/(benefit)			18		(7)
Operating loss			(6)		(128)
Add: Share-based compensation			3		3
Add: Depreciation and amortization			84		108
Add: Discontinued monitoring fee payable to Fosun Pharma and TPG			1		–
Add: Transaction costs-insurance amortization			–		1
Adjusted EBITDA			82		(16)
Less: Lease expense adjustments as a result of IFRS 16 adoption			(51)		(52)
Adjusted EBITDA (before IFRS 16 adoption)6			31		(68)

		For the three months ended March 31, 2020
		Operating assets Tier 1		Operating assets – Tier 2 and other assets		Expansion assets		Total
Segment results		44		(6)		(20)		18
Less: Segment lease expense adjustment as a result of adoption of IFRS 16		(21)		(5)		(23)		(49)
Less: Unallocated costs								(37)
Adjusted EBITDA (before IFRS 16 Adoption)		23		(11)		(43)		(68)
Add: Lease expense adjustment as a result of adoption of IFRS 16								52
Adjusted EBITDA								(16)
Less: Share-based compensation								(3)
Less: Depreciation and amortization								(108)
Less: Transaction costs – insurance amortization								(1)
Operating loss								(128)
Add: Finance income								–
Less: Finance expense								(72)
Add: Other gains								17
Add: Other income								7
Add: Income tax benefit								7
Net loss								(169)

RECENT DEVELOPMENTS

COVID-19 Impacts

Pre COVID-19 Status: In the first 20 days of January 2020, the Company was performing in line with expectations on both a revenue and EBITDA basis, supported by strong growth in inpatient services. The total number of inpatient days during this period increased by 20% yoy, and each of the Company’s business segments achieved double-digit growth. The total number of surgical procedures completed during this period also increased significantly by 43% yoy with over 320 procedures performed, including a significant number of high acuity complex cases.

COVID-19 Impacts: As discussed above, the Company’s business has been significantly impacted by the COVID-19 pandemic, with outpatient volume and inpatient admissions dropping 58% yoy and 19% yoy, respectively, in February. The decrease in volume was largely a result of the countrywide shutdown of businesses and movement across China due to the pandemic. In addition, various government preventive measures also had negative impacts on the Company’s business, including 1) temporary suspensions of certain non-emergency services such as dentistry and temporary closure of a number of outpatient clinics, 2) increased border controls, which resulted in fewer expatriate patients, and 3) temporary suspension of multi-site practice for physicians in a number of cities. As of the date of this release, most of these restrictions, with the exception of the border control measures, have begun to be lifted or have been removed altogether.

Recovery Status: Despite the challenges experienced in the first quarter of 2020, the Company has seen positive signs of increasing patient confidence as demand for its services return. This is evidenced by a steady week-over-week increase in outpatient visits and inpatient admissions in the Company’s hospitals and clinics since the third week of February. Most of China’s largest cities (except for Beijing) began lifting most of their restrictive measures starting in March. Excluding the Company’s facilities in Beijing, by the last week of April, the Company had achieved 87% of revenue as compared to the same week in 2019. The Beijing city government had lowered its emergency response levels and released most of its corresponding travel restrictions by the end of April. As a result, by the third week of May, the Company, including its Beijing operations, had achieved over 93% of revenue as compared to the same week in 2019. Despite slower recovery in the number of its expatriate patients, the Company has seen healthy recovery and growth from Chinese patients.

The Company expects the recovery trend to continue and to resume year-over-year revenue growth in the coming months, barring reemergence of widespread contagion of COVID-19 in China.

Online Consultations

During the pandemic, the Company launched a new online and telephone consultation service covering 30 specialties to the general public. Since the launch of the services in February, a total of nearly 5,000 online consultations were conducted, out of which approximately 30% of the patients were new patients following their on line consultation, and approximately 8% of these online patients have already made in-person follow up appointments to visit UFH physician. In addition, the offline revisit rate for those returning patients have reached approximately 185% in May. The Company intends to continue to expand its online consultation services and expects that this service will enable it to provide seamless online-offline medical services to its patients.

Since February, the Company has given more than 300 online public health talks through live-broadcasting video platforms hosted by various facilities covering topics from COVID-19 impact on mental health to cancer care. The public health talks have cumulatively reached approximately 17 million people. Through these online and telephone programs and consultations, the Company has remained engaged with its current patients while introducing a broader array of customers to its high quality services.

Significant Development in Oncology and Other Higher Acuity Specialties

During the pandemic, the government imposed strict measures on public hospitals, which have since reduced the number of available appointments, suspended elective surgeries, and reduced bed capacity at such facilities. Due to concerns of potential COVID-19 infection risks and reduced capacity at public hospitals, new patients have been drawn to the Company’s facilities, particularly for its higher acuity specialties. Revenue at its Beijing oncology center grew significantly during the COVID-19 outbreak with net revenue increasing by 39% yoy and volume of new treatment patients (including both chemo and radiotherapy) increasing by 92% yoy. External physicians from various other hospitals and clinics have increasingly referred patients to our facilities for procedures and treatment, resulting in a 106% yoy increase in terms of patient referrals, demonstrating the reputation and technical capability of our facilities.

COVID-19 PCR and Antibody Testing Capabilities

As one of the most recognized private premium healthcare providers in China, many of our facilities have been approved to provide COVID-19 polymerase chain reaction (“PCR”) tests and COVID-19 antibody tests to patients on site and for group testing for corporate and school partners at their work sites or campuses. The Company has provided PCR tests and antibody tests to more than 5,000 patients as of the date of this release and has generated roughly RMB1 million in revenue from these tests. The Company is currently in discussions with a number of Fortune 500 companies with operations in China to provide COVID-19 testing to their employees and, in some cases, to their customers, which could potentially generate additional revenue and attract new patients to the Company’s network.

Cost Saving Initiatives

Corporate Headquarters: Starting in the second quarter, the Company’s corporate headquarters has begun a restructuring process aimed at increasing administrative and operating efficiencies, which is expected to result in run rate cost savings through permanent headcount reductions. In this process, the Company expects to reduce administrative headcount by approximately 28% at corporate headquarters, or approximately 50 positions in total, through position elimination and attrition. Through headcount reduction, our corporate headquarters is expected to have a run-rate cost savings of approximately RMB26 million per annum.

In addition to headcount reductions, the senior management team of the Company took a voluntary pay reduction ranging from 20% to more than 30% for the remainder of 2020.

Further, SG&A expenses have also been reduced by approximately RMB9 million, or 24%, for 2020 compared to 2019 as a result of headquarters cost reviews and reduced travel, communication and other expenses.

Factoring in the headcount reduction, salary reduction, and SG&A reduction, our corporate headquarters is expected to save approximately RMB29 million for the 2020 fiscal year compared to 2019 after taking into consideration one-time severance costs and partial-year impacts from cost initiatives conducted during the year.

Going forward, management is expected to manage and review corporate overhead annually with a zero based budgeting approach.

Hospital Facilities: Starting in February, the Company has taken various measures to reduce overall costs for the 2020 fiscal year, including Company-wide hiring and salary freezes (except for front-line revenue generating clinicians), strict travel and training policies, and detailed review of outsourced services, supplies, utilities, and other expenses.

Contacts

Media
Wenjing Liu

Tel: +86-186-1151-5796

Email: liu.wenjing@ufh.com.cn

Investors
Harry Chang

Tel: +852-9822-1806

Email: harry@new-frontier.com

ICR, LLC
William Zima/Rose Zu

Tel: +1-203-682-8200

Email: bill.zima@icrinc.com/rose.zu@icrinc.com

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