康华医疗(03689) - 2022 - 年度业绩

Company Overview and Financial Summary This section provides an overview of the company's operations in China, presenting key financial highlights, consolidated statements, and equity structure for the fiscal year 2022 Company and Group Information Guangdong Kanghua Healthcare Co., Ltd., established in China with H-shares listed in Hong Kong, primarily provides hospital, rehabilitation, elderly care, and pharmaceutical sales services, with financial statements presented in RMB - The company, established in China with H-shares listed on the Hong Kong Stock Exchange, primarily operates in hospital services, rehabilitation and other medical services, elderly care services, and pharmaceutical sales[85] - Consolidated financial statements are presented in RMB[86] Financial Highlights In FY2022, the Group's revenue decreased by 5.5% to RMB 1,845.6 million, profit by 58.6% to RMB 27.7 million, and adjusted EBITDA by 30.0%, with no final dividend recommended 2022 Financial Highlights | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 1,845.6 | 1,953.9 | -5.5% | | Profit | 27.7 | 66.9 | -58.6% | | Profit attributable to owners of the Company | 61.0 | 94.3 | -35.3% | | Earnings per share (RMB cents) | 18.3 | 28.2 | -35.3% | | Adjusted EBITDA | 215.8 | 308.1 | -30.0% | - The Board does not recommend the payment of a final dividend for the year[92] Consolidated Statement of Profit or Loss and Other Comprehensive Income For FY2022, the Group reported revenue of RMB 1,845,633 thousand and gross profit of RMB 261,350 thousand, with profit for the year at RMB 27,736 thousand, of which RMB 61,032 thousand was attributable to owners of the Company 2022 Consolidated Statement of Profit or Loss and Other Comprehensive Income Key Data | Indicator | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 1,845,633 | 1,953,944 | | Cost of revenue | (1,584,283) | (1,601,196) | | Gross profit | 261,350 | 352,748 | | Other income | 54,858 | 45,149 | | Administrative expenses | (228,323) | (225,223) | | Profit before tax | 69,309 | 129,209 | | Income tax expense | (41,573) | (62,284) | | Profit and total comprehensive income for the year | 27,736 | 66,925 | | Profit attributable to owners of the Company | 61,032 | 94,307 | | Profit attributable to non-controlling interests | (33,296) | (27,382) | Consolidated Statement of Financial Position As of December 31, 2022, the Group's total non-current assets were RMB 1,594,789 thousand, total current assets were RMB 1,124,545 thousand, total current liabilities were RMB 834,985 thousand, and net current assets were RMB 289,560 thousand 2022 Consolidated Statement of Financial Position Key Data | Indicator | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Total non-current assets | 1,594,789 | 1,579,520 | | Total current assets | 1,124,545 | 1,125,082 | | Total current liabilities | 834,985 | 777,648 | | Net current assets | 289,560 | 347,434 | | Total assets less current liabilities | 1,884,349 | 1,926,954 | | Total non-current liabilities | 381,842 | 452,527 | | Net assets | 1,502,507 | 1,474,427 | Equity As of December 31, 2022, equity attributable to owners of the Company was RMB 1,487,869 thousand, non-controlling interests were RMB 14,638 thousand, and total equity was RMB 1,502,507 thousand 2022 Equity Structure | Indicator | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Share capital | 334,394 | 334,394 | | Reserves | 1,153,475 | 1,092,443 | | Equity attributable to owners of the Company | 1,487,869 | 1,426,837 | | Non-controlling interests | 14,638 | 47,590 | | Total equity | 1,502,507 | 1,474,427 | Accounting Policies This section details the Group's adoption of new and revised International Financial Reporting Standards and outlines those issued but not yet effective Application of New and Revised International Financial Reporting Standards The Group has adopted several amendments to International Financial Reporting Standards for the first time, which had no material impact on the financial position or performance for the current and prior years - The Group has adopted several amendments to International Financial Reporting Standards for the first time, which had no material impact on the financial position or performance[87][99] New and Revised International Financial Reporting Standards Issued But Not Yet Effective The Directors anticipate that the application of all new and revised International Financial Reporting Standards will not have a significant impact on the consolidated financial statements in the foreseeable future - The Directors anticipate that the future application of new and revised International Financial Reporting Standards will not have a significant impact on the consolidated financial statements[2] New and Revised International Financial Reporting Standards Not Yet Effective | International Financial Reporting Standard | Description | Effective Date | | :--- | :--- | :--- | | Amendments to IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | To be determined | | IFRS 17 | Insurance Contracts | January 1, 2023 | | Amendments to IAS 1 | Classification of Liabilities as Current or Non-current | January 1, 2023 | | Amendments to IAS 8 | Definition of Accounting Estimates | January 1, 2023 | Revenue and Segment Information This section provides a detailed analysis of the Group's revenue by service type and operating segment, along with geographical information, major customers, and other income and expenses for FY2022 Revenue Analysis In FY2022, the Group's total revenue was RMB 1,845,633 thousand, primarily derived from hospital services (inpatient, outpatient, physical examination), rehabilitation and other medical services, and elderly care services, with pharmaceutical sales revenue significantly reduced 2022 Revenue Analysis (by Service Type) | Service Type | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Hospital services | 1,721,462 | 1,839,475 | | - Inpatient medical services | 927,086 | 1,079,632 | | - Outpatient medical services | 640,699 | 616,776 | | - Physical examination services | 153,677 | 143,067 | | Rehabilitation and other medical services | 111,714 | 101,507 | | - Rehabilitation hospital and other medical services | 53,093 | 40,841 | | - Rehabilitation center services and other services | 58,621 | 60,666 | | Elderly care services | 12,457 | 12,236 | | Pharmaceutical sales | – | 726 | | Total Revenue | 1,845,633 | 1,953,944 | - Pharmaceutical sales business has been significantly scaled down and gradually integrated with the hospital services segment, with no related revenue in 2022[101][150][261] Segment Information The Group's operations are categorized into four reportable operating segments: hospital services, rehabilitation and other medical services, elderly care services, and pharmaceutical sales, with hospital services generating RMB 1,721,462 thousand in 2022 - The Group's operating segments include hospital services, rehabilitation and other medical services, elderly care services, and pharmaceutical sales[102][110][111] 2022 Segment Revenue and Profit | Segment | 2022 Revenue (RMB thousand) | 2021 Revenue (RMB thousand) | 2022 Segment Profit (RMB thousand) | 2021 Segment Profit (RMB thousand) | | :--- | :--- | :--- | :--- | :--- | | Hospital services | 1,721,462 | 1,839,475 | 238,533 | 316,669 | | Rehabilitation and other medical services | 111,714 | 101,507 | 18,762 | 16,273 | | Elderly care services | 12,457 | 12,236 | 4,055 | 4,178 | | Pharmaceutical sales | – | 726 | – | 116 | | Total | 1,845,633 | 1,953,944 | 261,350 | 337,236 | - Segment profit refers to the profit earned by each segment, before allocation of other income, other expenses, impairment loss allowances, administrative expenses, and finance costs[115] Geographical Information and Major Customers All of the Group's revenue and nearly all non-current assets are derived from China, with a highly diversified patient base where no single patient category contributes over 10% of total revenue - All revenue and almost all non-current assets are derived from China[13] - The patient portfolio is highly diversified, with no single patient category contributing more than 10% of total revenue[13] Other Income Other income for FY2022 was RMB 54,858 thousand, a 21.5% year-on-year increase, primarily driven by investment income from financial assets at fair value through profit or loss, clinical trial revenue, and COVID-19 related rent concessions, partially offset by reduced government subsidies 2022 Other Income Composition | Income Source | 2022 (RMB thousand) | 2021 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Investment income from financial assets at fair value through profit or loss | 13,285 | 8,612 | +54.3% | | Clinical trial and related income | 10,853 | 4,842 | +124.1% | | COVID-19 related rent concessions | 7,396 | – | N/A | | Government subsidies | 5,730 | 11,186 | -48.8% | | Bank and other interest income | 3,226 | 1,869 | +72.6% | | Others | 10,517 | 8,247 | +27.5% | | Total | 54,858 | 45,149 | +21.5% | - Government subsidies decreased primarily due to reduced subsidies for vaccination and COVID-19 related activities[287] - Investment income increased mainly due to an increase in average structured deposits[287] Net Other Expenses, Gains and Losses In FY2022, the Group recorded net other expenses, gains and losses of RMB 677 thousand, an improvement from a net loss of RMB 5,210 thousand in 2021, primarily due to net exchange gains from HKD-denominated financial assets, despite increased fair value losses on financial assets at fair value through profit or loss 2022 Net Other Expenses, Gains and Losses | Item | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Net exchange gains/(losses) | 5,907 | (2,290) | | Fair value losses on financial assets at fair value through profit or loss | (4,436) | (2,328) | | Loss on disposal of property, plant and equipment | (579) | (451) | | Donations | (215) | (141) | | Net | 677 | (5,210) | - Net exchange gains were RMB 5,907 thousand, compared to a loss of RMB 2,290 thousand in 2021, representing a significant improvement[118][164] Profit Before Tax Profit before tax for FY2022 was RMB 69,309 thousand, a significant decrease from RMB 129,209 thousand in 2021, with key expense items such as total staff costs, cost of inventories, and depreciation disclosed 2022 Profit Before Tax Related Expenses | Item | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Total staff costs | 624,332 | 568,633 | | Cost of inventories recognized as expense | 814,510 | 875,486 | | Depreciation of property, plant and equipment | 113,007 | 113,603 | | Depreciation of right-of-use assets | 36,434 | 35,840 | | Research and development expenses | 1,096 | 835 | | Auditor's remuneration | 1,650 | 1,696 | Income Tax Expense Income tax expense for FY2022 was RMB 41,573 thousand, a 33.3% year-on-year decrease, with a 25% corporate income tax rate for mainland Chinese subsidiaries and preferential rates for "small and micro enterprises," while the effective tax rate increased to 60.0% due to unrecognised tax effects of Kangxin Hospital's losses 2022 Income Tax Expense | Tax Type | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | China corporate income tax | 42,346 | 61,103 | | Hong Kong profits tax | 78 | 72 | | Deferred tax (credit)/expense | (851) | 1,262 | | Total | 41,573 | 62,284 | - Mainland Chinese subsidiaries are subject to a 25% corporate income tax rate, with some "small and micro enterprises" enjoying preferential rates of 2.5% to 10%[120][173] - The effective tax rate increased from 48.2% in 2021 to 60.0% in 2022, primarily due to the unrecognised tax impact of losses incurred by Kangxin Hospital[173] Dividends No dividends were paid or proposed by the Company for the year ended December 31, 2022 - No dividends were paid or proposed for the year 2022[130] Earnings Per Share Basic earnings per share for FY2022 decreased to RMB 18.3 cents from RMB 28.2 cents in 2021, with diluted earnings per share being the same due to the absence of potentially dilutive ordinary shares 2022 Earnings Per Share | Indicator | 2022 (RMB cents) | 2021 (RMB cents) | | :--- | :--- | :--- | | Basic earnings per share | 18.3 | 28.2 | | Diluted earnings per share | 18.3 | 28.2 | - Basic earnings per share are calculated based on profit attributable to owners of the Company and the weighted average of 334,394,000 ordinary shares in issue[9][10] - Diluted earnings per share are the same as basic earnings per share due to the absence of potentially dilutive ordinary shares[19][131][132] Financial Assets at Fair Value Through Profit or Loss As of December 31, 2022, the Group's total financial assets at fair value through profit or loss amounted to RMB 572,449 thousand, primarily comprising structured bank deposits, portfolio funds, and fund investments, with structured bank deposits classified as current assets and the others as non-current assets 2022 Financial Assets at Fair Value Through Profit or Loss | Item | 2022 (RMB thousand) | 2021 (RMB thousand) | | :--- | :--- | :--- | | Portfolio funds | 64,449 | 63,326 | | Fund investments | 18,000 | 10,000 | | Structured bank deposits | 490,000 | 530,000 | | Total | 572,449 | 603,326 | | Classification: | | | | Current assets | 490,000 | 530,000 | | Non-current assets | 82,449 | 73,326 | - Portfolio funds primarily invest in Hong Kong-listed shares, managed by discretionary fund managers, and are intended for long-term investment[20][293] - Fund investments primarily target unlisted companies in medical services, biotechnology, medical devices, and medical informatics[21][293] - Structured bank deposits have maturities of less than six months, with principal generally renewed upon maturity[12][293] Management Discussion and Analysis This section reviews the Group's business performance in 2022, discusses the impact of COVID-19, outlines the outlook and strategies for 2023, and details performance across hospital, rehabilitation, and elderly care services Business Review and Outlook 2022 was a challenging year with recurring COVID-19 outbreaks and strict lockdown measures disrupting operations, leading to a decline in overall revenue and profit, but with policy relaxation at year-end, 2023 is expected to see an economic rebound, focusing on post-pandemic recovery and facility upgrades - In 2022, business development and operations faced challenges due to the COVID-19 pandemic and lockdown measures, resulting in a 6.4% reduction in revenue for the hospital services department[34][36] - With the easing of COVID-19 control measures at the end of 2022, the economy is expected to rebound in 2023, and the Group will focus on implementing post-pandemic recovery plans and increasing investment in hospital and elderly care facility upgrades[35][42][55] 2022 Group Overall Financial Performance | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Consolidated Revenue | 1,845.6 | 1,953.9 | -5.5% | | Adjusted EBITDA | 215.8 | 308.1 | -30.0% | | Consolidated Profit | 27.7 | 66.9 | -58.6% | 2022 Business Overview and COVID-19 Impact The persistent COVID-19 pandemic and stringent control measures in 2022 led to hospital operational disruptions, reduced patient willingness to seek medical attention, and significantly impacted demand for medical services, with year-end policy relaxation potentially still affecting supply chains and business operations in the short term - The COVID-19 pandemic and strict lockdown measures in 2022 led to hospital operational disruptions, patients avoiding medical institutions, and an adverse impact on demand for medical services[34] - China eased COVID-19 control measures at the end of 2022, but short-term impacts on supply chains and business operations may persist[35][42] - The government required all first and second-tier hospitals to establish fever clinics and promote online medical services to reduce hospital crowding[74] 2023 Outlook and Strategies With the easing of COVID-19 control measures at the end of 2022, the domestic economy is expected to rebound in 2023, driving business operations, and the Group will prioritize the operation and execution of its post-pandemic recovery plan, increasing investment in upgrading hospital and elderly care facilities - China's economy is expected to rebound in 2023 due to the lifting of pandemic restrictions, driving the Group's business operations[55] - The Group's 2023 strategic focus is on the operation and execution of its post-pandemic recovery plan, along with increasing investment in upgrading hospital and elderly care facilities[55] Hospital Services In 2022, most key performance indicators for the Group's hospital services department, including inpatient visits, average expenditure per inpatient, bed utilization rate, and total surgical procedures, recorded declines, while average expenditure per outpatient and physical examination visits saw slight increases - In 2022, key performance indicators for the hospital services department generally declined, including inpatient visits, bed utilization rate, and total surgical procedures[46] 2022 Hospital Services Key Operating Data | Indicator | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Inpatient visits | 63,053 | 67,546 | -6.7% | | Average length of stay (days) | 6.6 | 7.1 | -0.5 | | Average expenditure per visit (RMB) (inpatient) | 14,703.3 | 15,983.7 | -8.0% | | Outpatient visits | 1,456,072 | 1,487,674 | -2.1% | | Average expenditure per visit (RMB) (outpatient) | 440.0 | 414.6 | +6.1% | | Physical examination visits | 174,143 | 170,702 | +2.0% | | Average expenditure per visit (RMB) (physical examination) | 882.5 | 838.1 | +5.3% | | Total surgical procedures | 42,346 | 46,647 | -9.2% | Revenue Contribution by Medical Specialties In 2022, Obstetrics and Gynecology, Cardiology, Internal Medicine, General Surgery, and Neurology remained the top five specialties contributing to hospital service revenue, accounting for approximately 50.4% of total revenue, with significant declines in Obstetrics and Gynecology, Orthopedics, Emergency, Medical Aesthetics, and Pediatrics, while Cardiology and Nephrology saw slight growth 2022 Hospital Services Revenue Contribution by Medical Specialties | Medical Specialty | 2022 (RMB thousand) | 2021 (RMB thousand) | 2022 % of Hospital Revenue | | :--- | :--- | :--- | :--- | | Obstetrics and Gynecology related departments | 230,402 | 264,436 | 13.4% | | Cardiology related departments | 206,477 | 204,550 | 12.0% | | Internal Medicine related departments | 193,127 | 209,894 | 11.2% | | General Surgery related departments | 120,944 | 133,923 | 7.0% | | Neurology related departments | 117,593 | 124,301 | 6.8% | | Orthopedics related departments | 87,888 | 106,851 | 5.1% | | Emergency related departments | 87,094 | 111,153 | 5.1% | | Nephrology related departments | 65,335 | 62,574 | 3.8% | | Medical Aesthetics related departments | 42,725 | 53,283 | 2.5% | | Pediatrics related departments | 35,128 | 42,581 | 2.0% | | Physical Examination Department | 153,678 | 143,068 | 8.9% | | Total | 1,721,462 | 1,839,475 | 100.0% | - Obstetrics and Gynecology, Cardiology, Internal Medicine, General Surgery, and Neurology are the top five specialties, accounting for approximately 50.4% of total hospital service revenue[241] - Revenue from Obstetrics and Gynecology, Orthopedics, Emergency, Medical Aesthetics, and Pediatrics significantly decreased, primarily due to reduced patient visits during the temporary closure of Kanghua Hospital[134] Kanghua Hospital In 2022, Kanghua Hospital's revenue decreased by 8.0% year-on-year to RMB 1,403.9 million, with declines in both outpatient/emergency visits and discharge numbers, while the hospital continued to enhance management efficiency, update KPI assessment systems, and initiate its Grade III Class A re-evaluation, planning to deepen its "Three-Precision Management" strategy and advance smart hospital construction and internet medical services in 2023 2022 Kanghua Hospital Operating Data | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 1,403.9 | 1,526.0 | -8.0% | | Outpatient and emergency visits | 1,031,835 | 1,091,737 | -5.5% | | Discharges | 50,575 | 53,115 | -4.8% | - Kanghua Hospital continues to enhance management efficiency, update its KPI assessment system, and has initiated its Grade III Class A re-evaluation, aiming to successfully pass by the end of 2023[49] - In 2023, Kanghua Hospital will focus on refined management, precise treatment, and sincere service, advancing smart hospital construction and internet medical services[51][59] - The hospital strengthened standardized management of medical technology applications, completed filing for restricted technologies, and revised the admission system for new technologies and projects[60] Renkang Hospital In 2022, Renkang Hospital's revenue decreased by 4.2% year-on-year to RMB 263.9 million, with outpatient and emergency visits increasing by 5.6% but discharges declining by 18.1%, while the hospital actively pursued Grade II accreditation, strengthened medical quality control, and increased investment in informatization and facilities, planning to reinforce its long-term development vision and build "renowned hospitals, departments, and doctors" in 2023 2022 Renkang Hospital Operating Data | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 263.9 | 275.6 | -4.2% | | Outpatient and emergency visits | 394,190 | 373,384 | +5.6% | | Discharges | 10,442 | 12,746 | -18.1% | - Renkang Hospital is actively pursuing Grade II accreditation, aiming to pass the evaluation by the end of 2023[68] - The hospital increased investment in informatization and facility construction, with a 60% increase in informatization system investment in 2022 compared to 2021[71] Kangxin Hospital In 2022, Kangxin Hospital significantly improved its operating performance, with revenue increasing by 41.8% year-on-year to RMB 53.6 million, growth in both outpatient/emergency visits and discharges, and a substantial increase in interventional surgeries, while the hospital entered a management arrangement with Yinshan Capital to introduce German medical group Artemed's expertise and strengthened medical quality and collaborations 2022 Kangxin Hospital Operating Data | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 53.6 | 37.8 | +41.8% | | Outpatient and emergency visits | 30,047 | 22,553 | +33.2% | | Discharges | 2,036 | 1,685 | +20.8% | | Interventional surgeries | 694 | N/A | +56.3% | - Kangxin Hospital entered a management arrangement with Yinshan Capital to introduce the management experience and international medical expert team in cardiology from German medical group Artemed, aiming to improve and optimize operations[64] - The hospital strengthened medical quality and safety management, established a hospital-level medical quality control committee, and actively engaged in cooperation and exchanges, organizing academic forums[65][66] - Kangxin Hospital continuously develops new technologies and projects, applying for three new technologies in 2022 and pioneering transesophageal echocardiography combined with right heart acoustic angiography in Chongqing[75] VIP Special Services In 2022, the Group's total revenue from special services decreased by 10.1% year-on-year to RMB 156.1 million, accounting for approximately 8.5% of total revenue, with VIP medical services, reproductive medicine, laser treatment, and plastic surgery being the main offerings, and VIP medical services being most affected by the pandemic, experiencing a 13.5% revenue decline - Special services are high-end medical services beyond basic healthcare, primarily targeting high-income patients[141] 2022 Special Services Revenue Contribution | Service Type | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | VIP medical services | 86.9 | 100.5 | -13.5% | | Reproductive medicine | 45.1 | 46.9 | -3.8% | | Laser treatment | 19.8 | 21.7 | -8.4% | | Plastic and cosmetic surgery | 4.2 | 4.6 | -9.4% | | Total Revenue | 156.1 | 173.6 | -10.1% | - VIP medical services were adversely affected by the pandemic, with reduced VIP inpatient and outpatient visits leading to a 13.5% decline in revenue[243] Rehabilitation and Other Medical Services In 2022, the Group's rehabilitation and other related medical services segment revenue increased by 10.1% year-on-year to RMB 111.7 million, with rehabilitation hospital and other medical services revenue growing by 30.0% due to the maturing business and increased patient visits at Hefei Kanghua Rehabilitation Hospital, while rehabilitation center services saw a slight 3.4% decrease due to pandemic impacts, and Anhui Hualin Group continued to expand its rehabilitation development and received multiple certifications and awards 2022 Rehabilitation and Other Medical Services Revenue | Service Type | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Rehabilitation hospital and other medical services | 53.1 | 40.8 | +30.0% | | Rehabilitation center services and other services | 58.6 | 60.7 | -3.4% | | Total Revenue | 111.7 | 101.5 | +10.1% | - Revenue growth in rehabilitation hospital and other medical services is primarily attributed to the maturing business and significant increase in patient visits at Hefei Kanghua Rehabilitation Hospital[245][271] - The decrease in rehabilitation center service revenue is mainly due to business interruptions and suspensions at children's rehabilitation centers caused by pandemic control measures[246][271] - Anhui Hualin Group continues to strengthen standard construction, improve its management system, refine its smart rehabilitation system, and plans to develop new projects to maintain technological leadership[250] Elderly Care Services In 2022, Renkang Nursing Home's elderly care services revenue increased by 1.8% year-on-year to RMB 12.5 million, with an average annual bed utilization rate of 86.1%, as the nursing home's operations matured, management capabilities strengthened, and social security regulations were strictly enforced, with future plans to actively prepare for service quality evaluations and apply for Guangdong Province Elderly-Friendly Medical Institution accreditation 2022 Elderly Care Services Operating Data | Indicator | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 12.5 | 12.2 | +1.8% | | Number of beds | 108 | 108 | 0% | | Average daily elderly patients | 93 | 93 | 0% | | Average annual bed utilization rate | 86.1% | 86.2% | -0.1% | - Renkang Nursing Home's business operations are maturing, having reached maximum operating capacity, with relatively stable revenue levels[161] - The nursing home strengthened its management capabilities, strictly implemented Dongguan City's social insurance system regulations, and provided comprehensive functional medical assessments and professional nursing for elderly residents[136][144] - Renkang Nursing Home will actively prepare for and undergo service quality evaluations, and apply for the Guangdong Province Elderly-Friendly Medical Institution accreditation[260] Pharmaceutical Sales In FY2022, the Group's pharmaceutical sales segment recorded no revenue, as this business was scaled down in 2021 and gradually integrated with the hospital services segment - In 2022, the pharmaceutical sales segment recorded no revenue, as this business was scaled down in 2021 and gradually integrated with the hospital services segment[138][150][261] Industry Outlook and Strategies 2023 marks a pivotal year for China's healthcare market transition to a "post-pandemic" era, with industry reshaping and upgrading driven by an aging population, increased health awareness, digitalization of medical services, rapid infrastructure development, payment reforms, and the growth of traditional Chinese medicine, while the Group aims to enhance smart hospital construction, promote internet medical services, and optimize operational efficiency - 2023 is a critical year for the transformation of China's medical market into a "post-pandemic" era, with the pharmaceutical and medical industries undergoing reshaping, transformation, and upgrading[254] - An aging population and increased health management awareness will drive medical demand growth, with the elderly population proportion expected to reach approximately 25% by 2030[263] - The trend of medical service digitalization is evident, with over 70% of Chinese patients accepting digital medical services provided by tech giants and approximately 50% willing to pay extra for the convenience[145][264] - Medical infrastructure is rapidly developing, with policy support leading to a significant increase in tertiary hospital expansion and primary hospital quality improvement projects[273] - Medical payment reform continues to deepen, with DRG/DIP payment reforms set to cover all medical insurance統籌 regions and disease types to alleviate pressure on medical insurance funds[265] - The Traditional Chinese Medicine industry is experiencing rapid growth, with policy support driving its sustained and rapid development[266] Aging Population and Health Management Awareness China's population is rapidly aging, with a steady increase in the number of elderly aged 60 and above, projected to reach approximately 25% by 2030, driving immense medical demand among this high-incidence disease group, where diagnosis and treatment rates still need improvement - The number of elderly people aged 60 and above in China is steadily increasing, with the proportion of the elderly population expected to reach approximately 25% by 2030[263] - Middle-aged and elderly individuals are a high-incidence group for diseases, driving immense medical demand, and the diagnosis and treatment rates for various diseases need improvement[263] Digitalization of Medical Services The COVID-19 pandemic accelerated the shift from offline to online medical services, with digital touchpoints constantly available for appointments, consultations, and medication dispensing, leading over 70% of Chinese patients to accept digital medical services and approximately 50% willing to pay extra for them - The pandemic has driven the digitalization of medical services, enabling appointment booking, consultations, and medication dispensing through digital means[145] - Over 70% of Chinese patients accept digital medical services, and approximately 50% are willing to pay extra for the convenience brought by digitalization[145] Rapid Development of Medical Infrastructure Since the outbreak of COVID-19, China's new medical infrastructure has entered a rapid development phase to address structural deficiencies in medical resources, with policy support significantly increasing tertiary hospital expansion and primary hospital quality improvement projects, and fiscal interest-subsidized loans expected to provide RMB 200 billion in financial support, accelerating new medical infrastructure development - Since the pandemic, China's new medical infrastructure has entered a rapid development phase to address structural deficiencies in medical resources[273] - With policy support, tertiary hospital expansion and primary hospital quality improvement projects have significantly increased, with fiscal interest-subsidized loans expected to provide RMB 200 billion in financial support[273] Medical Payment Reform Medical payments face pressure, with the DRG/DIP payment reform three-year action plan aiming to cover all national medical insurance pooling regions by the end of 2024 and achieve full coverage of medical insurance funds and disease types by the end of 2025 to effectively alleviate pressure on medical insurance funds, while the commercial health insurance market, though lagging, holds significant potential - The DRG/DIP payment reform plan aims to cover all national medical insurance pooling regions by the end of 2024 and achieve full coverage of medical insurance funds and disease types by the end of 2025, to alleviate pressure on medical insurance funds[265] - China's commercial medical insurance development lags, but the market has immense growth potential[153][265] Rapid Development of Traditional Chinese Medicine Industry The consumer health market has a solid demand base, and the Traditional Chinese Medicine industry is experiencing rapid growth with policy support, including the expansion of sales channels for Traditional Chinese Medicine granule preparations and their inclusion in the standard Class B medical insurance catalog - The consumer health market has solid demand, and the Traditional Chinese Medicine industry is experiencing rapid growth with policy support[266] - The sales scope of Traditional Chinese Medicine granule preparations has expanded to all medical institutions with Traditional Chinese Medicine practice qualifications and is included in the standard Class B medical insurance catalog[266] Our Strategies The Group will enhance smart hospital construction, promote the improvement and expansion of internet medical services to enhance patient satisfaction, and in 2023, will continue to optimize medical services, improve operational efficiency, focus on core businesses, and strengthen management standards and stakeholder relationships - The Group will improve smart hospital construction, promote the enhancement and expansion of internet medical services, and increase patient satisfaction[267] - In 2023, the Group will optimize medical services and operational efficiency, focus on core businesses, raise management standards, and strengthen relationships with stakeholders[267] Major Investments and Future Plans for Capital Assets The Group is developing Kanghua • Qingxi Branch, a new elderly healthcare complex in Qingxi Town, Dongguan City, with Phase I construction of the main structure and acceptance expected by April 2024, and operation by March 2025 - Kanghua • Qingxi Branch is a new elderly healthcare complex development project, planned with 500 inpatient beds and approximately 800 nursing and rehabilitation beds[147][269] - Phase I construction of the main structure and acceptance is expected by April 2024, with operation commencing by March 2025[147] Financial Review This section provides a detailed financial review of the Group's segment revenue, cost of revenue, gross profit, other income and expenses, tax, and overall financial position and liquidity for FY2022 Segment Revenue In FY2022, the Group's total revenue decreased by 5.5% to RMB 1,845.6 million, with hospital services revenue declining by 6.4% due to reduced inpatient visits and lower revenue from certain departments, while rehabilitation and other medical services revenue grew by 10.1%, elderly care services revenue by 1.8%, and pharmaceutical sales recorded no revenue 2022 Segment Revenue Overview | Segment | 2022 (RMB million) | 2021 (RMB million) | Change (%) | % of Total Revenue | | :--- | :--- | :--- | :--- | :--- | | Hospital services | 1,721.5 | 1,839.5 | -6.4% | 93.3% | | Rehabilitation and other medical services | 111.7 | 101.5 | +10.1% | 6.1% | | Elderly care services | 12.5 | 12.2 | +1.8% | 0.7% | | Pharmaceutical sales | – | 0.7 | -100% | 0% | | Total | 1,845.6 | 1,953.9 | -5.5% | 100% | - The decrease in hospital services revenue is primarily due to reduced inpatient visits, lower average expenditure, and declining revenue from certain departments at Kanghua Hospital and Renkang Hospital, partially offset by increased outpatient and physical examination revenue[270][277] - The growth in rehabilitation and other medical services revenue is mainly attributed to a significant increase in rehabilitation patient visits at Hefei Kanghua Rehabilitation Hospital[271] - Elderly care services revenue showed stable growth, primarily because Renkang Nursing Home's operations are maturing and have reached maximum operating capacity[161] Cost of Revenue Total cost of revenue for FY2022 was RMB 1,584.3 million, a 1.6% year-on-year decrease, with hospital services cost of revenue decreasing by 1.6% due to lower variable costs and reduced inpatient visits, while rehabilitation and other medical services cost of revenue increased by 9.1% in line with revenue growth, and elderly care services cost of revenue increased by 4.3%, with pharmaceuticals, medical consumables, and staff costs being major components 2022 Segment Cost of Revenue | Segment | 2022 (RMB thousand) | 2021 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Hospital services | (1,482,929) | (1,507,294) | -1.6% | | Rehabilitation and other medical services | (92,952) | (85,234) | +9.1% | | Elderly care services | (8,402) | (8,058) | +4.3% | | Pharmaceutical sales | – | (610) | -100% | | Total | (1,584,283) | (1,601,196) | -1.1% | - The decrease in hospital services cost of revenue is primarily due to reduced operations at Kanghua Hospital and Renkang Hospital, corresponding to lower pharmaceutical and medical consumable costs and fewer inpatient visits[272] - Kangxin Hospital's cost of revenue increased, but its gross margin remained negative, as it is still in the expansion phase of its operations[272] - Pharmaceutical costs, medical consumable costs, and staff costs accounted for approximately 25.7%, 25.7%, and 34.2% of total cost of revenue, respectively[279] - Total staff-related costs increased by 9.8%, reflecting higher salary levels, overtime compensation, and increased competition for medical professionals[279] Gross Profit and Gross Margin Total gross profit for FY2022 was RMB 261.4 million, a 25.9% year-on-year decrease, with the overall gross margin falling to 14.2%, primarily due to lower average expenditure for inpatient medical services, fewer complex surgeries, temporary closure of Kanghua Hospital's outpatient department, and ongoing losses at Kangxin Hospital 2022 Segment Gross Profit and Gross Margin | Segment | 2022 Gross Profit (RMB thousand) | 2022 Gross Margin (%) | 2021 Gross Profit (RMB thousand) | 2021 Gross Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Hospital services | 238,533 | 13.9% | 332,181 | 18.1% | | Rehabilitation and other medical services | 18,762 | 16.8% | 16,273 | 16.0% | | Elderly care services | 4,055 | 32.6% | 4,178 | 34.1% | | Pharmaceutical sales | – | 0% | 116 | 16.0% | | Total | 261,350 | 14.2% | 352,748 | 18.1% | - The overall gross margin decreased to 14.2%, primarily due to lower average expenditure for inpatient medical services, fewer complex surgeries, the temporary closure of Kanghua Hospital's outpatient department, and ongoing losses at Kangxin Hospital[286] Other Income (Financial Review) Other income for FY2022 was RMB 54.9 million, a 21.5% year-on-year increase, mainly driven by investment income from financial assets at fair value through profit or loss, clinical trial and related income, and COVID-19 related rent concessions, while government subsidies decreased 2022 Other Income Composition | Income Source | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Investment income from financial assets at fair value through profit or loss | 13.3 | 8.6 | +54.3% | | Clinical trial and related income | 10.9 | 4.8 | +127.1% | | COVID-19 related rent concessions | 7.4 | – | N/A | | Government subsidies | 5.7 | 11.2 | -49.1% | | Bank and other interest income | 3.2 | 1.9 | +68.4% | | Total | 54.9 | 45.1 | +21.5% | - Government subsidies decreased primarily due to reduced subsidies for vaccination and COVID-19 related activities[287] - Investment income increased mainly due to an increase in average structured deposits, consistent with the Group's cash management policy[287][288] Net Other Expenses, Gains and Losses (Financial Review) In FY2022, the Group recorded net other expenses, gains and losses of RMB 0.7 million, an improvement from a net loss of RMB 5.2 million in 2021, primarily due to net exchange gains from HKD-denominated financial assets, offsetting fair value losses on financial assets at fair value through profit or loss 2022 Net Other Expenses, Gains and Losses | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Net exchange gains/(losses) | 5.9 | (2.3) | | Fair value losses on financial assets at fair value through profit or loss | (4.4) | (2.3) | | Loss on disposal of property, plant and equipment | (0.6) | (0.5) | | Donations | (0.2) | (0.1) | | Net | 0.7 | (5.2) | - Net exchange gains were RMB 5.9 million, compared to a loss of RMB 2.3 million in 2021, representing a significant improvement[164] Net Impairment Loss Allowance Under Expected Credit Loss Model In FY2022, net impairment loss allowance under the expected credit loss model increased to RMB 4.2 million from RMB 2.9 million in 2021, primarily due to increased balances and aging of trade and other receivables, and a decline in credit ratings for some corporate customers 2022 Net Impairment Loss Allowance Under Expected Credit Loss Model | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Net impairment loss allowance | 4.2 | 2.9 | - The increase in net allowance is primarily due to increased balances and aging of trade and other receivables, and a decline in credit ratings for some corporate customers[165] - The Group strengthened efforts to recover overdue debts, including legal actions and tightening credit reviews for corporate customers[165] Administrative Expenses Administrative expenses for FY2022 were RMB 228.3 million, an increase of approximately 1.4% year-on-year, primarily due to higher administrative staff-related costs, partially offset by a significant reduction in repair and maintenance expenses 2022 Administrative Expenses | Item | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Administrative expenses | 228.3 | 225.2 | +1.4% | | Administrative staff-related costs | 83.7 | 74.4 | +12.5% | | Repair and maintenance expenses | 16.2 | 27.7 | -41.5% | - Administrative staff-related costs increased primarily due to higher staff salaries, bonus payments, and related employee welfare expenses[157] Finance Costs Finance costs for FY2022 were RMB 15.0 million, a 24.1% year-on-year decrease, primarily comprising interest on bank loans and lease liabilities, net of capitalized interest amounts 2022 Finance Costs | Item | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Finance costs | 15.0 | 19.8 | -24.1% | | Interest on bank loans | 18.6 | 18.0 | +3.3% | | Interest on lease liabilities | 9.7 | 11.5 | -15.6% | | Less: capitalized amount | (13.3) | (9.7) | +37.1% | Income Tax Expense (Financial Review) Income tax expense for FY2022 was RMB 41.6 million, a 33.3% year-on-year decrease, with the effective tax rate increasing from 48.2% in 2021 to 60.0% in 2022, primarily due to the unrecognised tax impact of Kangxin Hospital's losses 2022 Income Tax Expense | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Income tax expense | 41.6 | 62.3 | -33.3% | | Effective tax rate | 60.0% | 48.2% | +11.8% | - The increase in the effective tax rate is primarily due to the tax impact of unrecognised tax losses generated by Kangxin Hospital[173] Profit for the Year In FY2022, the Group recorded a profit of RMB 27.7 million, with profit attributable to shareholders of the Company at RMB 61.0 million 2022 Profit for the Year | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Group profit | 27.7 | 66.9 | | Profit attributable to shareholders of the Company | 61.0 | 94.3 | Financial Position As of December 31, 2022, the Group maintained a sound financial position, with changes in property, plant and equipment, right-of-use assets, and trade and other receivables, alongside increases in trade and other payables and provisions - As of December 31, 2022, the Group recorded net current assets of RMB 289.6 million and a net asset position of RMB 1,502.5 million[140] Property, Plant and Equipment, Right-of-Use Assets and Deposits Paid for Acquisition of Property, Plant and Equipment As of December 31, 2022, the Group paid deposits of RMB 58.1 million for the purchase of property, plant and equipment, primarily for Phase II medical equipment at Kangxin Hospital and construction costs for Kanghua • Qingxi Branch, with right-of-use assets amounting to RMB 319.9 million 2022 Property, Plant and Equipment Related Data | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Deposits paid for purchase of property, plant and equipment | 58.1 | 91.6 | | Right-of-use assets | 319.9 | 354.1 | - Deposits are primarily used for Phase II medical equipment at Kangxin Hospital and construction costs for Kanghua • Qingxi Branch, as well as purchasing new medical equipment and other new facilities[187] Other Assets In May 2022, the Company entered into a management arrangement with Yinshan Capital to introduce German medical group Artemed to participate in the daily management and operation of Kangxin Hospital, having paid RMB 20.0 million in brand introduction fees, classified as other assets and amortized over the service period - The Group entered into a management arrangement with Yinshan Capital to introduce German medical group Artemed to participate in the daily management and operation of Kangxin Hospital for a period of 20 years[176] - The Group paid a RMB 20.0 million brand introduction fee, classified as other assets and amortized over the service period[168][178] Financial Assets at Fair Value Through Profit or Loss (Financial Review) As of December 31, 2022, the Group's total financial assets at fair value through profit or loss amounted to RMB 572.4 million, primarily comprising portfolio funds, fund investments, and structured short-term bank deposits, which are part of the Group's cash management activities aimed at achieving higher interest income and capital returns 2022 Financial Assets at Fair Value Through Profit or Loss | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Portfolio funds | 64.4 | 63.3 | | Fund investments | 18.0 | 10.0 | | Structured short-term bank deposits | 490.0 | 530.0 | | Total | 572.4 | 603.3 | - These investments are part of the Group's cash management activities, aiming to achieve higher interest income and capital returns without affecting normal business operations or capital expenditures[180][293] Trade and Other Receivables As of December 31, 2022, trade receivables decreased to RMB 229.6 million, with 73.2% aged within 90 days, and the average trade receivables turnover days were 45.1 days, while other receivables increased to RMB 54.0 million, mainly due to higher prepayments to suppliers and other receivables 2022 Trade and Other Receivables | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Trade receivables | 229.6 | 226.5 | | - % aged within 90 days | 73.2% | 86.0% | | Average trade receivables turnover days | 45.1 days | 40.3 days | | Other receivables | 54.0 | 44.0 | | - Prepayments to suppliers | 19.3 | 13.3 | - The increase in trade receivables and turnover days is primarily due to higher balances from social security funds, other government agencies, and certain corporate customers[169] - The Group conducts credit assessments for trade receivables and has deducted a net impairment loss allowance of RMB 4.2 million[169] Trade and Other Payables and Provisions As of December 31, 2022, trade and other payables and provisions increased to RMB 717.8 million, primarily due to higher trade payables, accrued expenses, advances from customers, and payables for property, plant and equipment acquisitions, while provisions for medical malpractice claims decreased 2022 Trade and Other Payables and Provisions | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Total trade and other payables and provisions | 717.8 | 633.4 | | Trade payables | 348.8 | 321.6 | | Accrued expenses | 106.2 | 98.2 | | Advances from customers | 197.1 | 147.2 | | Payables for acquisition of property, plant and equipment | 36.6 | 30.6 | | Provisions for medical malpractice claims | 1.2 | 1.9 | - The increase in trade payables is mainly due to increased procurement of materials, especially COVID-19 related materials, during the reporting period[172] - The increase in advances from customers is primarily due to increased temporary funds received from social security funds[172] - Provisions for medical malpractice claims decreased, with RMB 2.4 million provided during the year, RMB 1.5 million reversed, and RMB 1.6 million utilized[172][26] Net Current Assets As of December 31, 2022, the Group recorded net current assets of RMB 289.6 million, a decrease from RMB 347.4 million in 2021 2022 Net Current Assets | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Net current assets | 289.6 | 347.4 | Liquidity and Capital Resources The Group maintains a strong financial position with sufficient cash and cash equivalents and stable cash flow from operating activities, managing cash through investment products and having clear capital expenditure plans, with bank loans primarily for Kangxin Hospital's Phase II medical facility development, facing exchange rate fluctuation risks but maintaining a reasonable gearing ratio - The Group maintains a strong financial position with sufficient cash and cash equivalents and stable cash flow from operating activities, adequate to meet working capital needs for the next 12 months[291] - The Group manages cash by investing excess cash in low-risk structured bank deposit products and investment funds to achieve higher interest income and capital returns[196][293] Financial Resources As of December 31, 2022, the Group's cash and cash equivalents amounted to RMB 264.3 million, with no time deposits, and the Directors believe the Group has sufficient liquidity and financial resources to meet its working capital requirements for the next 12 months 2022 Financial Resources | Item | 2022 (RMB million) | 2021 (RMB million) | | :--- | :--- | :--- | | Cash and cash equivalents | 264.3 | 237.3 | | Time deposits | 0 | 3.0 | - The Group generates stable cash inflows from operating activities, and the Directors believe it has sufficient liquidity to meet working capital requirements for the next 12 months[291] Cash Management Activities The Group invests excess cash in low-risk structured bank deposit products and investment funds to achieve higher interest income, adhering to standards that ensure investment products have a maturity generally not exceeding one year, do not affect normal business operations or capital expenditures, are issued by reputable banks, and have low underlying investment portfolio risk, also investing in investment funds and equity investment funds for long-term returns - The Group invests excess cash in low-risk structured bank deposit products and investment funds to achieve higher interest income and capital returns[180][196] - Investment products must meet standards including a maturity generally not exceeding one year, no impact on normal business operations or capital expenditures, issuance by reputable banks, and low underlying investment portfolio risk[180] - The Group's strategy is to explore new potential investment projects and capital market investments to diversify operational risks, broaden income sources, and maximize shareholder value[191][196] Cash Flow Analysis Net cash generated from operating activities for FY2022 was RMB 221.4 million, a 33.6% year-on-year decrease, primarily due to underperformance in adjusted EBITDA, while net cash used in investing activities was RMB 83.2 million, a 72.2% decrease, and net cash used in financing activities was RMB 110.9 million, compared to net cash generated of RMB 23.3 million in 2021 2022 Cash Flow Analysis | Item | 2022 (RMB million) | 2021 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 221.4 | 333.4 | -33.6% | | Net cash used in investing activities | (83.2) | (299.3) | -72.2% | | Net cash (used in)/generated from financing activities | (110.9) | 23.3 | N/A | | Net increase in cash and cash equivalents | 27.4 | 57.3 | -52.1% | - The decrease in net cash from operating activities is primarily attributed to the underperformance of adjusted EBITDA[188] - The decrease in net cash used in investing activities is mainly due to reduced purchases of property, plant and equipment, and a net decrease in financial assets at fair value through profit or loss[183] - Net cash from financing activities shifted from generated to used, primarily due to no new bank loans raised and increased repayment of bank loans[184] Major Investments, Acquisitions and Disposals In January 2022, the Group acquired a 57.7% equity interest in Hefei Aikanghui Health Management Co., Ltd. for RMB 577,000, a company primarily providing home-based elderly rehabilitation and nursing services, with no goodwill arising from the acquisition - In January 2022, the Group acquired a 57.7% equity interest in Hefei Aikanghui Health Management Co., Ltd. for RMB 577,000, a company primarily providing home-based elderly rehabilitation and nursing services[185] - No goodwill arose from this acquisition, resulting in a net cash outflow of RMB 570,000[185] Use of Proceeds from Initial Public Offering The net proceeds from the Company's H-share initial public offering amounted to approximately RMB 782.6 million, with portions utilized for general working capital, expanding existing businesses, upgrading hospital facilities, and business acquisitions by December 31, 2022, leaving RMB 410.8 million unutilized, part of which was used to purchase financial products - The net proceeds from the H-share initial public offering amounted to approximately RMB 782.6 million[198] 2022 IPO Proceeds Utilization | Use | Amount Utilized (RMB million) | % of Net Proceeds | | :--- | :--- | :--- | | General working capital | 78.3 | 10.0% | | Expanding existing businesses and upgrading hospital facilities | 134.7 | 17.2% | | Business acquisitions and potential acquisitions | 158.8 | 20.3% | | **Unutilized