New Frontier Health Corporation Announces Second 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 second quarter ended June 30, 2020.

Financial and Operating Highlights¹

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

Second Quarter 2020 Highlights:

• Revenue decreased by 12.6% yoy to RMB548.9 million from RMB628.1 million and increased by 27.4% from the prior quarter, as revenue continued to recover since the initial outbreak of the COVID-19 pandemic in February.
• Adjusted EBITDA (before IFRS 16 adoption)³ reverted to a profit of RMB54.0 million in the second quarter of 2020 compared to a loss of RMB(67.7) million in the prior quarter, representing a slight increase from RMB52.8 million in the prior year period. The change was primarily due to a recovery of revenue and implementation of cost controls.
• Net loss decreased to RMB79.3 million in second quarter of 2020 from RMB 168.6 million in the prior quarter, representing a slight increase from RMB75.2 million in the prior year period, resulting mainly from revenue decline, increased finance costs, and increased depreciation expenses (inclusion of the full the depreciation expenses of the newly expanded PXU facility in the second quarter of 2020).
• Tier 1 Operating Assets: revenue decreased by 19.8% yoy to RMB382.3 million from RMB476.5 million and increased by 26.6% qoq. Adjusted EBITDA (before IFRS 16 adoption) decreased by 27.4% yoy to RMB98.6 million from RMB135.8 million and increased by 331.0% qoq. The yoy declines in revenue and adjusted EBITDA were primarily due to a decline in patient volume as a result of the COVID-19 pandemic and the impact from the second wave of the outbreak in Beijing in June 2020. However, the strong revenue recovery from Q1 2020 was due to strong revenue recovery in Beijing and Shanghai prior to the second wave outbreak, easing of travel restrictions within China, and increased demand for non-emergency medical services.
• Tier 2 Operating and Other Assets: revenue decreased by 6.6% yoy to RMB77.6 million from RMB83.0 million, and Adjusted EBITDA (before IFRS 16 adoption) increased to RMB3.6 million from RMB(3.5) million, primarily due to a recovery of revenue and implementation of cost controls.
• Expansion Assets: revenue increased by 30.0% yoy to RMB89.1 million from RMB68.5 million due to the continued ramp-up of the new hospitals in Guangzhou and Pudong, Shanghai, despite the impact from the COVID-19 pandemic, and Adjusted EBITDA (before IFRS 16 adoption) increased by 52.3% yoy to RMB(19.5) million from RMB(40.8) million.
• Outpatient visits decreased by 23.3% yoy to 125,723 from 164,010 and increased by 40.5% qoq.
• Inpatient admissions decreased by 23.6% yoy to 2,059 from 2,695 and increased by 0.1% qoq.
• Bed utilization rate* decreased to 32.1% yoy from 37.5%.
• ASP: outpatient ASP increased by 10.8% yoy and inpatient ASP increased by 16.1% yoy due to an increase in the number of higher acuity services provided at the Company’s facilities.

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

New Additions to Executive Management Team

The Board of Directors (the “Board”) of the Company appointed Mr. Carl Wu, a current member of the Board and Chairman of the Executive Committee of NFH, as President of NFH and appointed David Zeng, another current member of the Board, as Chief Operations Officer (“COO”) of NFH, effective August 1, 2020. Mr. Wu and Mr. Zeng together will form a new President and COO Office within NFH, which will replace the COO Office led by Jeffrey Staples, who has resigned from the Company for personal reasons. Mr. Wu will maintain his responsibility as Chairman of the Executive Committee. The President and COO Office will retain the same reporting lines as the previous COO Office.

Mr. Antony Leung, Chairman of NFH, commented, “Similar to many others in the industry, our business continued to be negatively affected by the COVID-19 pandemic during the quarter. However, the COVD-19 situation in China now seems to be under control. Although there is no assurance of the future path of the disease, we expect that any future outbreaks can be more easily controlled by effective public health measures. In the second quarter, we were glad to see a revenue recovery and operational ramp-up trend that led to quarter-over-quarter growth as well as improved profitability on the back of our previously announced efficiency initiatives. Our outpatient visits increased quarter-over-quarter, driving similar, sequential growth in revenues across all asset categories. We remain confident in our company and expect to continue to execute our operational and strategic plans.”

“We are also excited that Carl and David have formally joined the leadership team,” Mr. Leung continued. “They have been working closely with the executive team over the last several months and have been making significant progress in a number of strategic areas while improving the performance of the Company. I look forward to working closely with Roberta, Carl and David, and the management and medical teams to continue delivering world class healthcare to patients in China.”

Ms. Roberta Lipson, Chief Executive Officer of NFH and founder of UFH, added, “We are happy to see signs of recovery this quarter. Both outpatient visits and inpatient admissions across our network rebounded steadily in April and May, with an acceleration toward the end of May as the government eased COVID-19 related restrictions. Despite the second outbreak in Beijing in June, which was quickly contained, our outpatient volume achieved a 41% increase from the previous quarter. Meanwhile, we made progress on our strategic growth initiatives. For example, our hospital in Guangzhou, which first opened its doors in the fourth quarter of 2018, started to achieve monthly EBITDA breakeven in May 2020. Our Shanghai United Family Hospital launched its Center for Healthy Aging this quarter, providing health management services to patients aged 60 and older, reflecting the needs of Shanghai’s shifting demographic. In Beijing, both our Beijing United Family Hospital and our New Hope Oncology Center expanded their capabilities with investments in equipment upgrades. We also opened our Beijing United Family Tianchen Clinic in partnership with the Asia Infrastructure Investment Bank.”

“In addition to making progress in pursuit of our strategic growth, we are proud of our contributions to society’s needs during the outbreak. Many of our facilities have been approved to provide COVID-19 polymerase chain reaction (PCR) tests and antibody tests to patients on-site. In addition, our Beijing United Family Hospital was one of a select few private hospitals approved to carry out the supporting lab work, and we believe that both of these efforts will translate into business growth, as this testing brings more people through our doors to experience UFH’s environment and service for the first time. As our business continues its expected return to normal growth, we remain focused on network efficiency, expansion asset ramp-up, core market facilities, and service line development. Finally, I want to thank our team, which has made a significant effort to protect each other, our patients, and their families during this difficult time,” concluded Ms. Lipson.

Second Quarter 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)	2Q19	2Q20	Y-o-y Change %	Q-o-q Change %
Tier 1 Operating Assets (1)	476.5	382.3	-19.8%	26.6%
Tier 2 Operating and Other Assets (3)	83.0	77.6	-6.6%	22.0%
Operating Assets(4)	559.5	459.8	-17.8%	25.8%
Expansion Assets(5)	68.5	89.1	30.0%	36.2%
Total	628.1	548.9	-12.6%	27.4%

1. Tier 1 Operating Assets: revenue from UFH’s tier 1 facilities and their associated clinics decreased by 19.8% yoy due to a decline in patient volume as a result of the impact from the second wave of COVID-19 in Beijing in June 2020. However, revenue increased by 26.6% from the prior quarter due to strong revenue recovery in Beijing prior to the second wave outbreak, easing of travel restrictions within China, and increased demand for non-emergency medical services.
2. Tier 2 Operating and Other Assets: revenue from UFH’s tier 2 facilities and other assets, as a group, decreased by 6.6% yoy due to a decline in patient volume as a result of COVID-19. However, revenue increased by 22.0% qoq due to the easing of travel restrictions within China and increased demand for non-emergency medical services.
3. Total Operating Assets as a group decreased by 17.8% yoy and increased by 25.8% qoq due to patient volume recovery, easing of travel restrictions within China, and increased demand for non-emergency medical services. However, our facilities in Beijing were still affected by the second wave of COVID-19 in Beijing in June 2020.
4. Expansion Assets: UFH’s GZU and PDU facilities were formally launched with complete practice licenses^{Complete practicing licenses means after receiving the formal approval of practicing license for medical institutions and obstetrics operating license} in the fourth quarter of 2018. As a result of a strong ramp-up, driven by increased brand recognition and new patient uptick at GZU and PDU, revenue for UFH’s expansion assets, as a group, increased to RMB89.1 million in the second quarter of 2020 from RMB68.5 million in the second quarter of 2019. GZU recorded revenue growth of 17.3% yoy and PDU 26.2% yoy.

	Adjusted EBITDA (before IFRS 16 adoption) (RMB mm)
			2Q19		2Q20			Y-o-Y Change %		Q-o-q Change %
Adjusted EBITDA (before IFRS 16 adoption)
		Tier 1 Operating Assets(1)	135.8	98.6		-27.4%					331.0%
		Tier 2 Operating and Other Assets(2)	-3.5	3.6		201.4%					130.9%
		Operating Assets(3)	132.3	102.2		-22.8%					800.7%
		Expansion Assets(4)	-40.8	-19.5		52.3%					54.4%
		Unallocated Cost(5)	-38.7	-28.7		25.8%					21.0%
Total Adjusted EBITDA (before IFRS 16			52.8	54.0		2.3%					179.8%
adoption)(6)

1. Tier 1 Operating Assets: due to a decline in revenue as a result of COVID-19, BJU, PXU, and their associated clinics achieved Adjusted EBITDA (before IFRS 16 adoption) of RMB98.6 million in the second quarter of 2020, a decrease of 27.4% yoy. Adjusted EBITDA increased by 331.0% qoq due to strong revenue recovery and implementation of cost control measures.
2. Tier 2 Operating and Other Assets:TJU, Rehab, and QDU achieved Adjusted EBITDA (before IFRS 16 adoption) of RMB3.6 million in the second quarter of 2020 compared to RMB(3.5) million in the second quarter of 2019, primarily due to implementation of cost control measures.
3. Total Operating Assets: UFH’s operating assets, as a group, achieved Adjusted EBITDA (before IFRS 16 adoption) decrease of 22.8% yoy to RMB102.2 million in the second quarter of 2020, an increase of 800.7% 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 total Adjusted EBITDA (before IFRS 16 adoption) to RMB(19.5) million in the second quarter of 2020, an improvement from RMB(40.8) million in the second quarter of 2019, due to both strong revenue ramp-up and cost control measures. Adjusted EBITDA (before IFRS 16 adoption) for GZU reached breakeven in May.
5. Unallocated Cost: Headquarter expenses decreased by 25.8% due to cost control measures implemented during the quarter. During this process, corporate headquarters reduced its administrative headcount by approximately 21.5%, or approximately 38 positions in total, through position elimination and attrition. In addition to headcount reductions, members of the Company’s senior management team took voluntary pay reductions ranging from 20% to more than 30% for the remainder of 2020. Further, SG&A expenses for corporate headquarters decreased by 33.9% yoy for 2020 as a result of headquarters cost reviews and reduced travel, communication, and other expenses.
6. Total Adjusted EBITDA (before IFRS 16 adoption) for the second quarter of 2020 was RMB54.0 million compared to RMB52.8 million in the prior year period, primarily due to the recovery of revenue, strong ramp-up of expansion assets, and cost control measures adopted in the second quarter.

Key Operating Metrics	2Q2019			2Q2020			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	123,801	1,789		89,415	1,204		-27.8%	-32.7%		40.4%	-3.2%
Tier 2 Operating and Other Assets	21,552	528		18,438	450		-14.4%	-14.8%		46.8%	-0.2%
Operating Assets(1)	145,353	2,317		107,853	1,654		-25.8%	-28.6%		41.4%	-2.4%
Expansion Assets(2)	18,657	378		17,870	405		-4.2%	7.1%		35.3%	12.2%
Total UFH	164,010	2,695		125,723	2,059		-23.3%	-23.6%		40.5%	0.1%

1. Operating Assets (Tier 1 and Tier 2): the yoy decline of both inpatient and 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 affected 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 maintain social distancing practices; and 4) the closing of certain outpatient clinics in February. Inpatient volume was also affected as the Company was encouraged to delay non-emergency and elective procedures. With the easing of government policy as COVID-19 numbers decreased across China, most outpatient volumes began to recover gradually in May and June, although recovery in Beijing hospitals and clinics were further affected as Beijing experienced a second wave surge in cases in June 2020. The qoq decline in inpatient admission was due to lower admissions in the pediatrics department throughout UFH facilities, as schools stayed closed and enhanced personal hygiene and protective measures for school children were implemented. However, Company experienced strong growth in other departments including internal medicine, surgery, orthopedics, which recorded over 32.4% qoq growth in terms of inpatient admissions in Q2 2020.
2. Expansion Assets: PDU and GZU saw continued ramp ups in inpatient volume, driven by OBGYN, postpartum care, internal medicine, orthopedics, surgeries, and other services. Outpatient volume declined yoy due to the COVID-19 pandemic outbreak in Guangzhou in April; however, there were strong recovery trends during the quarter as various restrictive measures were relaxed. Outpatient volume for PDU achieved 21.3% yoy growth during the period and GZU started to see an increase in outpatient volume yoy in June.

FINANCIAL RESULTS

Unaudited Second Quarter 2020 Results

Revenue was RMB548.9 million ($77.7 million) in the second quarter, representing a decrease of 12.6% yoy from RMB628.1 million in the second 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. However, revenue increased by 27.4% from the prior quarter due to strong recovery in patient volume and demand for premium healthcare service.

• Tier 1 Operating Assets: revenue decreased by 19.8% yoy to RMB382.3 million from RMB476.5 million and increased by 26.6% qoq. The decline in revenue and adjusted EBITDA was primarily due to a decline in patient volume as a result of the COVID-19 pandemic and the impact from the second wave outbreak in Beijing in June 2020.
• Tier 2 Operating and Other Assets: revenue decreased by 6.6% yoy to RMB77.6 million from RMB83.0 million, and Adjusted EBITDA (before IFRS 16 adoption) increased to RMB3.6 million from RMB(3.5) million, primarily due to a recovery of revenue and implementation of cost controls.
• Expansion Assets: revenue increased by 30.0% yoy to RMB89.1 million from RMB68.5 million due to the continued ramp-up of the new hospitals in Guangzhou and Pudong, Shanghai, despite the impact from the COVID-19 pandemic. Adjusted EBITDA (before IFRS 16 adoption) increased by 52.3% yoy to RMB(19.5) million from RMB(40.8) million.

Operating expenses were RMB565.1 million ($80.0 million) in the second quarter, representing a decrease of 10.8% yoy from RMB633.7 million and a slight increase of 1.1% qoq.

• Salaries, wages and benefits expenses decreased by 20.0% yoy to RMB289.0 million from RMB361.3 million and decreased by 5.0% qoq, primarily due to the implementation of cost-saving initiatives, which included a 38 headcount reduction and voluntary pay reductions at headquarters, utilization of employee leave and limiting new hires, and reductions in contributions to social insurance and benefits expenses as a result of government policies during the pandemic. The Company incurred a severance cost of RMB11 million in the second quarter due to headcount reduction.
• Supplies and purchased medical services expenses increased by 2.8% yoy to RMB103.4 million from RMB100.7 million and 37.0% qoq, mainly due to the enhancement of vaccination and postpartum services to drive recovery of patient volumes in the second quarter.
• Depreciation and amortization expenses increased by 24.6% yoy to RMB106.2 million from RMB85.2 million and decreased by 1.8% qoq. The yoy increase was 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.
• Lease and rental expense (benefit) was a benefit of RMB0.8 million in the second quarter, primarily due to a reduction in rental expenses as a result of government policies during the pandemic.
• Bad debt benefit increased by 26.2% yoy to RMB1.8 million from RMB1.4 million compared to a bad debt expense of RMB4.0 million in the prior quarter, primarily due to better collection rates over the past year.
• Other operating expenses decreased by 18.3% yoy to RMB69.1 million from RMB84.5 million, mainly due to cost-saving initiatives and the decrease in transaction costs and fees payable to certain Chinese partners of the Company. Other operating expenses increased by 6.1%, or RMB4.0 million, from the prior quarter, mainly representing an increase in fees payable to certain Chinese partners as a result of increased profitability due to the revenue recovery from the prior quarter.

As a result of the above, loss from operations in the second quarter of 2020 was RMB16.2 million ($2.3 million) compared to loss from operations of RMB5.6 million ($0.8 million) in the prior year period. Loss before income taxes in the second quarter of 2020 was RMB72.4 million ($10.2 million), compared to loss before income taxes of RMB52.6 million ($7.4 million) in the prior year period. Net loss in the second quarter of 2020 was RMB79.3 million ($11.2 million) compared to net loss of RMB75.2 million ($10.6 million) in the prior year period. The increase in losses yoy mainly resulted from an expanded cost basis, reflecting full operations of the new PXU facility, the revenue decline caused by the pandemic, and increased finance costs due to the Company’s Senior Secured Term Loan, and which were partially offset by cost-saving initiatives and cost reductions as a benefit of government policies in response to the COVID-19 pandemic.

As of June 30, 2020, the Company had RMB845.8 million ($119.7 million) in cash and cash equivalents. Cash generated from operating activities for the second quarter were RMB386.6 million ($54.7 million), cash used for investing activities were RMB112.6 million ($15.9 million), and cash used for financing activities were RMB476.8 million ($67.5 million) for repayment of IFC loans and increased interest from Senior Secured Term Loan.

RECONCILIATON OF NON-IFRS FINANCIAL MEASURES
(RMB mm)
	For the three months ended June 30,
	2019		2020
Net loss	(75)		(79)
Less: Finance income	(1)		(1)
Add: Finance costs	34		66
Add: Foreign exchange loss/(gain)	14		–
Less: Gain on disposal of an associate	–		(3)
Less: Other income, net	(1)		(6)
Add: Income tax expense	23		7
Operating loss	(6)		(16)
Add: Share-based compensation	19		1
Add: Depreciation and amortization	85		106
Add: Discontinued monitoring fee payable to Fosun Pharma and TPG	1		–
Add: Transaction related costs	4		1
Add: Severance costs	–		11
Adjusted EBITDA	103		103
Less: Lease expense adjustments as a result of IFRS 16 adoption	(50)		(49)
Adjusted EBITDA (before IFRS 16 adoption)	53		54

		For the three months ended June 30, 2020
		Operating assets Tier 1		Operating assets – Tier 2 and other assets		Expansion assets		Total
Segment results		120		8		–		128
Less: Segment lease expense adjustment as a result of adoption of IFRS 16		(22)		(5)		(19)		(46)
Add: Severance costs		1		1		–		2
Adjusted EBITDA (before IFRS 16 Adoption)		99		4		(19)		84
Add: Unallocated costs – severance related								9
Less: Unallocated costs – others								(39)
Total Adjusted EBITDA (before IFRS 16 Adoption)								54
Add: Lease expense adjustment as a result of adoption of IFRS 16								49
Adjusted EBITDA								103
Less: Share-based compensation								(1)
Less: Depreciation and amortization								(106)
Less: Transaction related costs								(1)
Less: Severance costs								(11)
Operating loss								(16)
Add: Finance income								1
Less: Finance costs								(66)
Add: Other income, net								6
Add: Gain on disposal of an associate								3
Less: Income tax expense								(7)
Net loss								(79)

RECENT DEVELOPMENTS

COVID-19 Recovery Trend & Operational Focus

Recovery prior to second outbreak in Beijing in June

The Company’s outpatient visits and inpatient admissions continued to be lower during the quarter compared to the prior year period. The Company’s facilities have been significantly affected by the government’s COVID-19 related restrictions, including: 1) closing borders to foreigners, which led to fewer expatriate patients in the Company’s facilities; 2) temporary suspension of multi-site practice for physicians; and 3) restrictions on types of services offered at medical facilities. Despite these restrictions, the Company’s facilities saw strong volume recovery month over month as China’s COVID-19 cases generally continued to decrease and restrictive regulations were relaxed or removed completely.

In April, May, and June, the Company saw a steady rebound in both outpatient visits and inpatient admissions across the UFH network.

Contacts

Investors
Harry Chang

Tel: +852-9822-1806

Email: harry@new-frontier.com

ICR, LLC
William Zima

Tel: +1-203-682-8200

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

Media
Wenjing Liu

Tel: +86-186-1151-5796

Email: liu.wenjing@ufh.com.cn

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