New Frontier Health Corporation Announces Fourth Quarter and Fiscal 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 financial results for the fourth quarter and fiscal year ended December 31, 2020.

Financial and Operating Highlights¹

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

For the Quarter Ended December 31, 2020:

• Revenue increased by 2.2% yoy to RMB654.0 million from RMB639.7 million and increased by 4.4% from the prior quarter, as patient volume recovered from the COVID-19 pandemic onset.
• Net loss decreased to RMB101.4 million from RMB251.6 million in the prior year period and increased from RMB69.8 million in the prior quarter. The yoy decrease was mainly due to the RMB148.4 million decrease in transaction costs related to the Company’s business combination, increased patient volume and strong revenue growth month-over-month in the fourth quarter of 2020, ongoing implementation of cost-saving initiatives, and overall cost reductions as a result of government policies in response to the COVID-19 pandemic, which offset an increase in finance costs related to the Company’s senior secured credit facility that it entered into in connection with the closing of the business combination (the “Senior Secured Term Loan”). The qoq increase was mainly attributable to an increase in promotion and marketing expenses from a series of promotional activities held in the fourth quarter of 2020 and an increase in exchange loss due to the appreciation of RMB as compared to the U.S. Dollar in the fourth quarter of 2020.
• Adjusted EBITDA (before IFRS 16 adoption)³ increased by 252.1% yoy to RMB90.5 million from RMB25.7 million and increased by 0.6% from the prior quarter. The increase was primarily due to revenue recovery and the implementation of permanent and temporary cost savings initiatives, as well as revenue ramp-up from expansion assets.
• Tier 1 Operating Assets: revenue increased by 0.8% yoy to RMB465.7 million from RMB462.2 million and increased by 4.4% qoq. Adjusted EBITDA (before IFRS 16 adoption) increased by 15.3% yoy to RMB124.0 million from RMB107.6 million. The yoy increases in revenue and Adjusted EBITDA were primarily attributable to recovery of patient volume across various specialties and ongoing implementation of permanent and temporary cost controls.
• Tier 2 Operating and Other Assets: revenue decreased by 14.3% yoy to RMB82.2 million from RMB95.9 million, primarily as a result of decreased patient volume due to lower birth rates in 2020 and lower overall pediatric patient volume. Adjusted EBITDA (before IFRS 16 adoption) increased to RMB4.3 million from RMB0.6 million due to continued implementation of permanent and temporary cost controls.
• Expansion Assets: revenue increased by 30.0% yoy to RMB106.2 million from RMB81.6 million due to strong growth of the new hospitals in Guangzhou and Pudong, Shanghai. Adjusted EBITDA (before IFRS 16 adoption) improved by 72.5% yoy to RMB(10.2) million from RMB(37.0) million due to the ongoing ramp-up of expansion assets.

For the Fiscal Year Ended December 31, 2020:

• Revenue decreased by 7.7% to RMB2,260.5 million from RMB2,449.2 million due to an overall decrease in patient volume and the number of procedures performed as a result of the COVID-19 pandemic in the first half of 2020.
• Net loss decreased to RMB419.1 million from RMB458.7 million, mainly due to the RMB 157.0 million decrease in transaction costs from the business combination, implementation of permanent and temporary cost-saving initiatives, and cost reductions as a benefit of government policies in response to the COVID-19 pandemic, which offset an increase in finance costs relating to the Senior Secured Term Loan.
• Adjusted EBITDA (before IFRS 16 adoption) increased by 16.1% to RMB166.7 million from RMB143.6 million, mainly due to the implementation of cost controls and ramp up of expansion assets in Guangzhou and Pudong, Shanghai.
• Tier 1 Operating Assets: revenue decreased by 11.9% to RMB1,596.1 million from RMB1,810.7 million. Adjusted EBITDA (before IFRS 16 adoption) decreased by 19.9% to RMB371.5 million from RMB463.8 million due to a decline in patient volume as a result of the COVID-19 pandemic.
• Tier 2 Operating and Other Assets: revenue decreased by 15.6% to RMB302.9 million from RMB358.8 million due to a decrease in patient volume as a result of the COVID-19 pandemic. Adjusted EBITDA (before IFRS 16 adoption) improved to RMB0.3 million from RMB(0.2) million due to the ongoing implementation of cost-savings initiatives.
• Expansion asset revenue increased by 29.3% to RMB361.5 million from RMB279.6 million due to the continued ramp-up of expansion assets. Adjusted EBITDA (before IFRS 16 adoption) improved by 47.2% yoy to RMB(85.2) million from RMB(161.4) million as a result of the strong revenue growth of the new hospitals in Guangzhou and Pudong, Shanghai.
• Outpatient visits decreased by 17.3% yoy to 522,969 from 632,664 and increased by 1.2% qoq.
• Inpatient admissions decreased by 19.5% yoy to 8,699 from 10,805 and increased by 7.4% qoq.
• Bed utilization rate* decreased to 33.3% yoy from 38.3% due to lower inpatient admissions during the COVID-19 pandemic.
• ASP: outpatient ASP increased by 11.0% yoy and inpatient ASP increased by 15.0% 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 of the year.

Mr. Antony Leung, Chairman of NFH said, “2020 was challenging for both us and others around the world. We quickly implemented a comprehensive and active response to combat difficulties related to the pandemic in an effort to protect our employees and our patients. Thanks to the tremendous strength and determination of our entire team, we managed to navigate the pandemic in a swift, smooth manner. As the volumes for our outpatient visits and inpatient admissions continued to grow quarter-over-quarter in the fourth quarter of 2020, we were able to achieve some revenue recovery as well as improved profitability. In addition, as the number of people seeking higher acuity services increased, both inpatient and outpatient ASP increased by double digits.”

Ms. Roberta Lipson, Chief Executive Officer of NFH and founder of UFH, commented, “As daily life in China has mostly returned to normal, travel restrictions continue to ease, and international borders open on a controlled basis, we believe this bodes well for our ongoing recovery trends. To reach a younger target audience, we delivered a live talk show on TMall, one of China’s largest e-commerce platforms during the 11.11 festival. In the two-hour live broadcast, more than two million viewers tuned in from across the country. We are also proud of several major developments in the recent months. During the fourth quarter, we completed most of the construction on our new Women’s and Children’s Hospital (DTU) in the northwest corner of Beijing, which began soft opening in late March 2021. The hospital will be the first Level III accredited specialty hospital in the UFH network with a capacity of more than 200 beds. To offer our patients access to a wider variety of medical specialty talent, we have also signed an agreement for close cooperation between our Qingdao United Family Hospital (“QDU”) and doctors at Shandong University Qilu Hospital (QILU). In addition, in December, Shanghai United Family Hospital (“PXU”) launched its Health Management Center, which offers a full range of preventative checks with individualized follow-up health management services. Looking ahead, we remain encouraged by our expansion initiatives and will continue to execute our operational and strategic plans.”

Fourth Quarter and Fiscal Year 2020 Results

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. There are 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”), 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”).

 

Revenue (RMB mm)
	4Q19			4Q20			Y-o-y Change %				Q-o-q Change %				Fiscal Year 2019			Fiscal Year 2020			Y-o-y Change %
Tier 1 Operating Assets (1)	462.2			465.7			0.8	%			4.4	%			1,810.7			1,596.1			(11.9	%)
Tier 2 Operating and Other Assets (2)	95.9			82.2			(14.3	%)			3.2	%			358.8			302.9			(15.6	%)
Operating Assets(3)	558.1			547.9			(1.8	%)			4.2	%			2169.6			1,899.1			(12.5	%)
Expansion Assets(4)	81.6			106.2			30.0	%			5.4	%			279.6			361.5			29.3	%
Total	639.7			654.0			2.2	%			4.4	%			2,449.2			2,260.5			(7.7	%)

1. Tier 1 Operating Assets: For the fourth quarter of 2020, revenue from UFH’s tier 1 facilities and their associated clinics increased by 0.8% yoy due to steady growth in various specialties, such as family medicine, internal medicine, surgery, and orthopedics; however, Tier 1 Operating Assets were also impacted by lower obstetrics revenue due to lower birth rates in 2020 and lower revenue from pediatrics yoy. Both BJU and PXU, as well as their associated clinics, achieved revenue growth qoq as a result of growth in various specialties, as previously noted. For fiscal 2020, revenue from UFH’s tier 1 facilities and their associated clinics decreased by 11.9% yoy due to an overall decline in patient volume for the year as a result of COVID-19.
2. Tier 2 Operating and Other Assets: For the fourth quarter of 2020, revenue from UFH’s tier 2 facilities and other assets, as a group, decreased by 14.3% yoy and increased by 3.2% qoq due to the decrease in patient volume and demand for obstetrics and pediatric procedures as compared to the prior year, as well as the gradual recovery of patient volume and increase in demand for non-emergency medical services as compared to the prior quarter. For fiscal 2020, revenue from UFH’s tier 2 facilities and other assets, as a group, decreased by 15.6% yoy due to a decline in patient volume as a result of COVID-19 and a decrease in demand for pediatric and obstetric services as compared to the prior year.
3. Total Operating Assets: For the fourth quarter of 2020 and fiscal 2020, revenue from UFH’s operating assets, as a group, decreased by 1.8% and 12.5% yoy, respectively, due to the overall decrease in patient volume and decreased demand for certain non-emergency services as a result of the COVID-19 pandemic. For the fourth quarter of 2020, revenue from UFH’s operating assets, as a group, increased by 4.2% qoq due to the recovery of patient volume and an increase in demand for such non-emergency medical services at the end of the year.
4. Expansion Assets: As a result of increased brand recognition and new patient uptick at UFH’s GZU and PDU facilities, revenue for UFH’s expansion assets, as a group, increased to RMB106.2 million in the fourth quarter of 2020 from RMB81.6 million in the fourth quarter of 2019 and RMB361.5 million in fiscal 2020 from RMB279.6 million in fiscal 2019. In the fourth quarter of 2020, GZU recorded revenue growth of 35.4% yoy and PDU 24.6% yoy. In addition, since opening in the fourth quarter of 2018, both GZU and PDU have developed higher acuity services, such as surgery and orthopedics, which contributed significantly to revenue growth in the fourth quarter of 2020 and a qoq increase of 5.4%.

Adjusted EBITDA (before IFRS 16 adoption) (RMB mm)
	4Q19				4Q20				Y-o-Y Change %				Q-o-q Change %					Fiscal Year 2019		Fiscal Year 2020			Y-o-y Change %
Adjusted EBITDA (before IFRS 16 adoption)
Tier 1 Operating Assets(1)	107.6				124.0				15.3	%			(1.6	%)				463.8		371.5			(19.9	%)
Tier 2 Operating and Other Assets(2)	0.6				4.3				662.7	%			9.9	%				(0.2	)	0.3			216.8	%
Operating Assets(3)	108.1				128.3				18.7	%			(1.3	%)				463.5		371.8			(19.8	%)
Expansion Assets(4)	(37.0	)			(10.2	)			72.5	%			21.1	%				(161.4	)	(85.2	)		47.2	%
Unallocated Cost	(45.4	)			(27.6	)			39.0	%			(1.9	%)				(158.5	)	(119.9	)		24.4	%
Total Adjusted EBITDA (before IFRS 16 adoption)(5)	25.7				90.5				252.1	%			0.6	%				143.6		166.7			16.1	%

1. Tier 1 Operating Assets: BJU, PXU, and their associated clinics achieved Adjusted EBITDA (before IFRS 16 adoption) of RMB124.0 million in the fourth quarter of 2020, an increase of 15.3% yoy due to revenue recovery and cost control. Adjusted EBITDA (before IFRS 16 adoption) of tier 1 facilities and their associated clinics decreased by 19.9% yoy due to a decline in patient volume as a result of COVID-19.
2. Tier 2 Operating and Other Assets: TJU, Rehab, and QDU achieved Adjusted EBITDA (before IFRS 16 adoption) of RMB4.3 million in the fourth quarter of 2020, compared to RMB0.6 million in the fourth quarter of 2019, primarily attributable to the implementation of cost control measures.
3. Total Operating Assets: UFH’s operating assets, as a group, achieved Adjusted EBITDA (before IFRS 16 adoption) increase of 18.7% yoy to RMB128.3 million in the fourth quarter of 2020, a decrease of 1.3% qoq, primarily due to strong revenue recovery and implementation of cost control measures.
4. Expansion Assets: Expansion assets, as a group, experienced an increase in Adjusted EBITDA (before IFRS 16 adoption) to RMB(10.2) million in the fourth quarter of 2020, an improvement from RMB(37.0) million in the fourth quarter of 2019, due to strong revenue growth. Adjusted EBITDA (before IFRS 16 adoption) for GZU reached breakeven for eight consecutive months, beginning in May 2020.
5. Total Adjusted EBITDA (before IFRS 16 adoption) for the fourth quarter of 2020 was RMB90.5 million compared to RMB25.7 million in the prior year period, primarily due to revenue recovery, strong ramp-up of expansion assets, and implementation of cost control measures. Adjusted EBITDA (before IFRS 16 adoption) of UFH’s tier 1 facilities and their associated clinics decreased by 19.9% yoy due to a decline in revenue as a result of COVID-19.

Key Operating Metrics

 

	4Q2019					4Q2020					Y-o-Y Change %							Q-o-q Change %
	Outpatient Volume		Inpatient Admission			Outpatient Volume		Inpatient Admission			Outpatient Volume			Inpatient Admission				Outpatient Volume			Inpatient Admission
Tier 1 Operating Assets	120,131		1,850			109,605		1,409			(8.8	%)		(23.8	%)			0.0	%		9.0	%
Tier 2 Operating and Other Assets	23,038		616			21,343		489			(7.4	%)		(20.6	%)			0.5	%		14.3	%
Operating Assets(1)	143,169		2,466			130,948		1,898			(8.5	%)		(23.0	%)			0.1	%		10.3	%
Expansion Assets(2)	20,267		446			23,884		476			17.8	%		6.7	%			8.2	%		(2.7	%)
Total UFH	163,436		2,912			154,832		2,374			(5.3	%)		(18.5	%)			1.2	%		7.4	%

	2019						2020						Y-o-Y Growth %
	Outpatient Volume			Inpatient Admission			Outpatient Volume			Inpatient Admission			Outpatient Volume				Inpatient Admission
Tier 1 Operating Assets(1)	473,471			6,924			372,355			5,150			(21.4	%)			(25.6	%)
Tier 2 Operating and Other Assets(1)	87,511			2,374			73,577			1,818			(15.9	%)			(23.4	%)
Operating Assets Subtotal	560,982			9,298			445,932			6,968			(20.5	%)			(25.1	%)
Expansion Assets(2)	71,682			1,507			77,037			1,731			7.5	%			14.9	%
Total	632,664			10,805			522,969			8,699			(17.3	%)			(19.5	%)

1. Operating Assets (Tier 1 and Tier 2): The yoy decline of both inpatient and outpatient volume for the fourth quarter and fiscal 2020 was primarily due to circumstances related to the COVID-19 pandemic, as patients postponed or cancelled non-emergency medical services. Following the downgrade of the emergency response to Beijing’s second wave of COVID-19 cases in June, outpatient volumes began to recover gradually in August. By September, total outpatient volume of operating assets had recovered to the same level as the same month in the prior year. Inpatient volume continued to be affected as the Company was encouraged to delay non-emergency and elective procedures. The yoy decline in inpatient admission was attributable to 1) lower admissions in obstetrics department due to nation-wide low birth rates in 2020, and 2) lower admissions in the pediatrics department throughout UFH’s facilities, as schools remained closed and enhanced personal hygiene and protective measures for school children were implemented. However, the Company continued to see strong yoy growth in other departments, such as family medicine, dental, internal medicine, surgery, and orthopaedics.
2. Expansion Assets: Both PDU and GZU had significant yoy growth in both outpatient and inpatient volumes for the fourth quarter and fiscal 2020. The increases were primarily as a result of increased patient demand due to increased brand recognition and higher demand for OBGYN, internal medicine, and other specialties. Since opening in the fourth quarter of 2018, both PDU and GZU have developed higher acuity and complex specialties, including internal medicine, emergency services, and orthopedics, and have begun to offer more complex surgeries such as breast cancer surgery, complicated endoscopic gastrointestinal surgery, intestinal massive tumor removal, kidney surgery, thyroid cancer surgery, and knee and shoulder joint arthroscopies.

FINANCIAL RESULTS

Unaudited Fourth Quarter of 2020 Results

Revenue increased by 2.2% yoy to RMB654.0 million ($100.2 million) from RMB639.7 million and increased by 4.4% from the prior quarter, as patient volume continued to recover since the initial outbreak of the COVID-19 pandemic in February.

• Tier 1 Operating Assets: revenue decreased by 0.8% to RMB465.7 million from RMB462.2 million. Adjusted EBITDA (before IFRS 16 adoption) decreased by 15.3% to RMB124.0 million from RMB107.6 million due to a decline in patient volume as a result of the COVID-19 pandemic.
• Tier 2 Operating and Other Assets: revenue decreased by 14.3% to RMB82.2 million from RMB95.9 million due to a decrease in patient volume as a result of the COVID-19 pandemic. Adjusted EBITDA (before IFRS 16 adoption) improved to RMB4.3 million from RMB0.6 million due to implementation of cost savings initiatives.
• Expansion asset revenue increased by 30.0% to RMB106.2 million from RMB81.6 million due to the continued ramp-up of expansion assets. Adjusted EBITDA (before IFRS 16 adoption) improved by 72.5% yoy to RMB(10.2) million from RMB(37.0) million as a result of the strong revenue growth of the new hospitals in Guangzhou and Pudong, Shanghai.

Operating expenses were RMB623.2 million ($95.5 million) in the fourth quarter, representing a decrease of 24.1% yoy from RMB820.7 million and an increase of 5.4% qoq.

• Salaries, wages and benefits expenses decreased 22.7% yoy to RMB298.5 million from RMB386.1 million and increased by 1.2% qoq. The yoy decrease was primarily due to the RMB14.0 million decrease in transaction bonuses, which were paid in connection with the business combination, the implementation of cost-saving initiatives, which include voluntary pay reductions at headquarters, utilization of employee leave, and reduction in social insurance and benefits expenses as a result of government policies during the pandemic. The qoq increase was primarily due to new hires as service needs increased at facilities such as BJU, DTU, TJU, and GZU due to expansion of such facilities and the continued recovery from the COVID-19 pandemic.
• Supplies and purchased medical services expenses increased 14.2% yoy to RMB127.5 million from RMB111.6 million and increased by 11.9% qoq, mainly due to the enhancement of vaccination services and increased use of medical supplies as a result of the increase in number of patients treated and the Company’s expansion to provide more complex and sophisticated services.
• Depreciation and amortization expenses increased 16.7% yoy to RMB105.8 million from RMB90.6 million and increased by 0.6% qoq, due to fair value appreciation of plant and equipment as well as contracts with insurers related to the business combination.
• Lease and rental expenses decreased 90.6% yoy to RMB0.3 million from RMB3.5 million and decreased by 52.7% qoq, primarily due to a reduction in monthly lease payments as a result of government policies implemented during the COVID-19 pandemic.
• Impairment of trade receivables increased 14.9% yoy to RMB4.6 million from RMB4.0 million and increased by 724.1% qoq from RMB0.6 million, primarily due to the increase in trade receivables as a result of revenue growth.
• Other operating expenses decreased 61.5% yoy to RMB86.6 million from RMB224.9 million, mainly due to the RMB 134.4 million decrease in transaction costs incurred in connection with the business combination and the implementation of cost-saving initiatives. Other operating expenses increased by 14.0% qoq, or RMB10.6 million, primarily attributable to an increase in promotion and marketing expenses due to a series of promotional activities put in place in the fourth quarter.

As a result of the above, income from operations in the fourth quarter of 2020 was RMB30.8 million ($4.7 million) compared to loss from operations of RMB181.0 million in the prior year period. Loss before income taxes in the fourth quarter of 2020 was RMB83.0 million ($12.7 million), compared to RMB244.8 million in the prior year period. Net loss in the fourth quarter of 2020 was RMB101.4 million ($15.5 million), compared to RMB251.6 million in the prior year period. Decreased losses in the fourth quarter yoy mainly resulted from a significant decrease in transaction costs by RMB148.4 million, increased patient volume and strong revenue growth month-over-month in the fourth quarter of 2020, cost-saving initiatives, and cost reductions as a benefit of government policies in response to the COVID-19 pandemic, which offset an increase in finance costs due to the Company’s Senior Secured Term Loan.

As of December 31, 2020, the Company had RMB640.4 million ($98.2 million) in cash and cash equivalents. Cash generated from operating activities for the fourth quarter were RMB67.1 million ($10.3 million), cash used for investing activities were RMB104.2 million ($16.0 million), and cash used for financing activities were RMB57.8 million ($8.9 million), which were used for capital lease payments and repayment of the Senior Secured Term Loan.

Full Year 2020 Results

Revenues decreased by 7.7% to RMB2,260.5 million ($346.4 million) from RMB2,449.2 million.

• Tier 1 Operating Assets: revenue decreased by 11.9% yoy to RMB1,596.1 million from RMB1,810.7 million, and Adjusted EBITDA (before IFRS 16 adoption) decreased by 19.9% yoy to RMB371.5 million from RMB463.8 million primarily due to decreased patient volume as a result of the COVID-19 pandemic.
• Tier 2 Operating and Other Assets: revenue decreased by 15.6% yoy to RMB302.9 million from RMB358.8 million, and Adjusted EBITDA (before IFRS 16 adoption) increased to RMB0.3 million from RMB(0.2) million, primarily as a result of the implementation of cost control measures, with tier 2 operating and other assets approaching break-even as a group.
• Expansion Assets: revenue increased by 29.

Contacts

Investors

Arthur, Yue Chen

Tel: +86-150-0500-3258

Email: arthur@new-frontier.com

ICR, LLC

William Zima

Tel: +1-203-682-8200

Email: bill.zima@icrinc.com

Media

Wenjing Liu

Tel: +86-186-1151-5796

Email: liu.wenjing@ufh.com.cn

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