康华医疗(03689) - 2023 - 中期业绩

Financial Summary The company achieved significant financial improvement for the six months ended June 30, 2023, with revenue growing 14.5% to RMB 987.5 million and a profit of RMB 29.4 million, reversing the loss from the prior year, while adjusted EBITDA surged 98.1% to RMB 129.2 million, indicating strong core business performance, with no interim dividend recommended Financial Summary for the Six Months Ended June 30, 2023 | Indicator | H1 2023 (RMB million) | H1 2022 (RMB million) | YoY Change | | :--- | :-------------------- | :-------------------- | :------- | | Revenue | 987.5 | 862.7 | +14.5% | | Profit/(Loss) for the Period | 29.4 | (22.3) | Turned to profit | | Profit/(Loss) for the Period Attributable to Owners of the Company | 50.7 | (4.8) | Turned to profit | | Earnings/(Loss) Per Share (RMB cents) | 15.1 | (1.4) | Turned to profit | | Adjusted EBITDA | 129.2 | 65.2 | +98.1% | | Interim Dividend | Not recommended | None | - | Condensed Consolidated Financial Information This section presents the company's unaudited condensed consolidated financial statements, including the statement of profit or loss and other comprehensive income, statement of financial position, and explanations of key accounting policies and the impact of new IFRS, showing a transition from loss to profit and improved financial position Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income The company achieved a significant turnaround from loss to profit for the six months ended June 30, 2023, with total revenue growing 14.5% and gross profit surging 93.2%, primarily due to business recovery and cost control, leading to a substantial increase in income tax expense Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (For the Six Months Ended June 30) | Indicator | 2023 (RMB thousand) | 2022 (RMB thousand) | YoY Change | | :--- | :------------------ | :------------------ | :------- | | Revenue | 987,498 | 862,722 | +14.5% | | Cost of Revenue | (816,504) | (774,199) | +5.5% | | Gross Profit | 170,994 | 88,523 | +93.2% | | Other Income | 21,179 | 28,795 | -26.4% | | Net Other Expenses, Gains and Losses | 1,122 | 691 | +62.4% | | Net Impairment Loss Provision under Expected Credit Loss Model | (2,236) | (2,991) | -25.3% | | Administrative Expenses | (125,617) | (115,340) | +8.9% | | Finance Costs | (6,361) | (8,550) | -25.6% | | Profit/(Loss) Before Tax | 59,081 | (8,872) | Turned to profit | | Income Tax Expense | (29,715) | (13,399) | +121.8% | | Profit/(Loss) and Total Comprehensive Income/(Loss) for the Period | 29,366 | (22,271) | Turned to profit | | Profit/(Loss) for the Period Attributable to Owners of the Company | 50,655 | (4,771) | Turned to profit | | Profit/(Loss) for the Period Attributable to Non-controlling Interests | (21,289) | (17,500) | +21.7% | Condensed Consolidated Statement of Financial Position As of June 30, 2023, the company's financial position is robust, with increases in net current assets and total equity, while non-current assets slightly decreased and total current liabilities reduced, indicating improved liquidity Condensed Consolidated Statement of Financial Position (As of June 30, 2023) | Indicator | June 30, 2023 (RMB thousand) | December 31, 2022 (RMB thousand) | Change | | :--- | :--------------------------- | :--------------------------- | :--- | | Total Non-current Assets | 1,512,601 | 1,594,789 | -5.2% | | Total Current Assets | 1,145,824 | 1,124,545 | +1.9% | | Total Current Liabilities | 753,240 | 834,985 | -9.8% | | Net Current Assets | 392,584 | 289,560 | +35.6% | | Total Assets Less Current Liabilities | 1,905,185 | 1,884,349 | +1.1% | | Total Non-current Liabilities | 361,348 | 369,821 | -2.3% | | Net Assets | 1,543,837 | 1,514,528 | +1.9% | | Equity Attributable to Owners of the Company | 1,549,662 | 1,499,007 | +3.4% | | Non-controlling Interests | (5,825) | 15,521 | -137.5% | Significant Accounting Policies and Application This section outlines the basis of preparation and key accounting policies for the interim condensed consolidated financial information, highlighting the adoption of new IFRS and amendments, particularly IAS 12's retrospective application for deferred tax on lease transactions, which adjusted opening retained profits and equity - The interim condensed consolidated financial information is prepared on a historical cost convention, except for certain financial assets measured at fair value[127] - The Group has adopted IAS 8 (Amendments) clarifying the distinction between changes in accounting estimates and changes in accounting policies, and IAS 12 (Amendments) narrowing the scope of initial recognition exemption, requiring recognition of deferred tax assets and liabilities for temporary differences arising from leases and decommissioning obligations[127][128][139][142] - The retrospective application of IAS 12 amendments resulted in a decrease in profit/(loss) and total comprehensive income/(loss) for the period by RMB 1,257 thousand (2022: RMB 669 thousand), and a total net impact on equity as of December 31, 2022, of RMB 12,021 thousand[146][149][153] Management Discussion and Analysis This section provides a detailed discussion of the company's business performance, financial condition, liquidity, and capital resources for the six months ended June 30, 2023, showing strong post-pandemic recovery, significant revenue growth across segments, improved profitability, and active strategic investments and capital expenditure plans Business Review and Outlook The company experienced a significant business recovery in the first half of 2023, with consolidated revenue growing 14.5% year-on-year and a return to profitability, primarily driven by the release of medical service demand post-pandemic, leading to a substantial increase in patient visits, while continuing to optimize its service portfolio, enhance management efficiency, and actively respond to industry changes Business Overview for the Six Months Ended June 30, 2023 The company achieved a strong business recovery in the first half of 2023, with total inpatient visits increasing by 17.6%, overall bed utilization rising to 69.8%, and total surgical procedures growing by 10.6%, primarily due to the release of medical service demand after the lifting of pandemic restrictions - The Chinese economy showed signs of moderate recovery in the first half of 2023, with the healthcare industry undergoing a critical transformation phase[26] - Since March 2023, with the lifting of all pandemic restrictions, demand for medical services has been released, leading to a significant increase in patient visits[27] Key Operating Data for Hospital Services (For the Six Months Ended June 30) | Indicator | H1 2023 | H1 2022 | YoY Change | | :--- | :----------- | :----------- | :------- | | Total Inpatient Visits | 35,012 | 29,761 | +17.6% | | Overall Average Expense Per Inpatient (RMB) | 15,635.9 | 14,930.3 | +4.7% | | Overall Bed Utilization Rate | 69.8% | 61.2% | +8.6 percentage points | | Average Length of Stay (Days) | 6.6 | 6.7 | -0.1 days | | Total Outpatient Visits | 718,641 | 692,141 | +3.8% | | Overall Average Expense Per Outpatient (RMB) | 434.7 | 456.0 | -4.7% | | Total Surgical Procedures | 19,714 | 17,826 | +10.6% | Hospital Services The hospital services segment recorded a 14.1% revenue growth in the first half of 2023, with Kanghua Hospital and Kangxin Hospital revenues increasing by 17.1% and 77.2% respectively, while Renkang Hospital's revenue decreased by 11.5% due to fewer outpatient visits post-pandemic, and cardiology became the largest medical specialty with 51.2% revenue growth Kanghua Hospital Kanghua Hospital recorded revenue of RMB 765.0 million in the first half of 2023, a 17.1% year-on-year increase, primarily driven by increased patient visits, while actively enhancing management efficiency and medical technology application, and being recognized among China's top county-level hospitals - Kanghua Hospital's revenue was RMB 765.0 million, a 17.1% year-on-year increase, mainly due to increased patient visits[5] - The hospital is committed to strengthening its management mechanisms, improving management efficiency, and striving to pass the Grade III Class A re-evaluation by the end of 2023[5] - Kanghua Hospital was awarded "Top 300 County-level Hospitals in China's Hospital Competitiveness 2022"[5] Renkang Hospital Renkang Hospital successfully passed its Grade II Class A qualification assessment in the first half of 2023, but its revenue decreased by 11.5% to RMB 115.9 million, primarily due to fewer outpatient visits and fever/vaccination services post-pandemic, while the hospital is advancing its trauma center construction - Renkang Hospital successfully passed its Grade II Class A qualification assessment[6] - Renkang Hospital's revenue was RMB 115.9 million, a 11.5% year-on-year decrease, mainly due to fewer outpatient visits and patients for fever and vaccination services after the pandemic subsided[6] - The hospital is advancing the construction of its trauma center and received positive feedback from the Municipal Health Commission for the pre-assessment of a "Provincial Grade IV Trauma Center"[6] Kangxin Hospital Kangxin Hospital recorded revenue of RMB 40.0 million in the first half of 2023, a significant 77.2% year-on-year increase, by strengthening medical management, optimizing processes, and hosting international cardiovascular disease forums to enhance medical standards and brand recognition, while exploring DRGS medical insurance payment reform - Kangxin Hospital's revenue was RMB 40.0 million, a significant 77.2% year-on-year increase[210] - The hospital continuously strengthens medical management, optimizes medical processes, and hosted an international cardiovascular disease forum, enhancing brand awareness[7][210] - Kangxin Hospital is exploring Diagnosis-Related Grouping (DRGS) medical insurance payment reform to improve efficiency[7] Medical Specialty Revenue Contribution In the first half of 2023, cardiology replaced obstetrics and gynecology as the Group's largest medical specialty, with revenue growing 51.2% year-on-year, while obstetrics and gynecology revenue declined 6.6% due to lower birth rates, and pediatric medicine, physical examination, internal medicine, emergency, and oncology departments all recorded significant revenue growth Medical Specialty Revenue Contribution (For the Six Months Ended June 30) | Medical Specialty | YoY Change | 2023 (RMB thousand) | % of Hospital Revenue (2023) | 2022 (RMB thousand) | % of Hospital Revenue (2022) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cardiovascular-related Departments | +51.2% | 144,010 | 15.6% | 95,242 | 11.8% | | Internal Medicine-related Departments | +17.9% | 112,435 | 12.2% | 95,339 | 11.8% | | Obstetrics and Gynecology-related Departments | -6.6% | 106,499 | 11.6% | 114,054 | 14.1% | | Neurology-related Departments | +10.4% | 63,175 | 6.9% | 57,215 | 7.1% | | General Surgery-related Departments | +10.9% | 61,728 | 6.7% | 55,662 | 6.9% | | Emergency-related Departments | +14.7% | 50,083 | 5.4% | 43,681 | 5.4% | | Orthopedics-related Departments | -5.3% | 41,884 | 4.5% | 44,210 | 5.5% | | Oncology-related Departments | +12.5% | 35,381 | 3.8% | 31,446 | 3.9% | | Nephrology-related Departments | +8.8% | 34,529 | 3.7% | 31,729 | 3.9% | | Medical Aesthetics-related Departments | +10.8% | 23,813 | 2.6% | 21,488 | 2.7% | | Pediatric Medicine-related Departments | +46.0% | 22,975 | 2.5% | 15,739 | 2.0% | | Physical Examination Department | +30.5% | 61,024 | 6.6% | 46,766 | 5.8% | | Other Clinical Departments | +6.0% | 163,347 | 17.7% | 154,172 | 19.1% | | Total | | 920,883 | 100.0% | 806,743 | 100.0% | - Cardiovascular department has replaced obstetrics and gynecology as the Group's largest medical specialty, with revenue increasing by 51.2% year-on-year, primarily due to a significant increase in Kangxin Hospital's revenue[9] - Obstetrics and gynecology revenue decreased by 6.6%, mainly due to a decline in birth rates during the pandemic[9] VIP Special Services The Group's VIP special services generated total revenue of RMB 91.6 million in the first half of 2023, a 6.8% year-on-year increase, with VIP medical services revenue growing 21.3% due to increased inpatient and outpatient visits post-pandemic, while reproductive medicine revenue declined 21.1% due to worsening fertility sentiment - Total special services revenue was RMB 91.6 million, a 6.8% year-on-year increase[213] Special Services Revenue Contribution (For the Six Months Ended June 30) | Special Service | YoY Change | 2023 (RMB thousand) | 2022 (RMB thousand) | | :--- | :--- | :--- | :--- | | VIP Medical Services | +21.3% | 61,027 | 50,328 | | Reproductive Medicine | -21.1% | 18,039 | 22,853 | | Plastic and Aesthetic Surgery | -14.6% | 2,206 | 2,582 | | Laser Treatment | +3.4% | 10,293 | 9,952 | | Total Special Services Revenue | +6.8% | 91,565 | 85,715 | - VIP medical services revenue increased by 21.3%, mainly due to increased VIP inpatient and outpatient visits after the pandemic recovery[230] - Reproductive medicine revenue decreased by 21.1%, primarily due to a general worsening of fertility sentiment and the lingering effects of the pandemic[12] Rehabilitation and Other Medical Services The rehabilitation and other medical services segment recorded revenue of RMB 60.7 million in the first half of 2023, a 22.9% year-on-year increase, primarily due to increased admissions at rehabilitation hospitals, an expanded network of rehabilitation centers, and recovery from pandemic impacts, with Anhui Hualin Group actively expanding its market and attracting significant growth in work-related injury and burn patients - Revenue from the rehabilitation and other medical services segment was RMB 60.7 million, a 22.9% year-on-year increase[2][215] - The increase in revenue was mainly due to increased admissions at rehabilitation hospitals, the continuous expansion of the rehabilitation center network, and recovery from the impact of the pandemic[2] - Anhui Hualin Group saw a 140% increase in surgeries, 35% growth in work-related injury patients, and 27% growth in burn patients in the first half of 2023[216] - Anhui Hualin Group actively promotes internal organizational innovation, introduces young medical professionals, and explores the construction of medical-related commercial platforms to promote the application of traditional Chinese medicine[232] Elderly Care Services The elderly care services segment's revenue in the first half of 2023 was RMB 5.9 million, a 10.5% year-on-year decrease, primarily due to a decline in the number of elderly patients admitted caused by pandemic-related restrictions, while Renkang Nursing Home achieved an average bed utilization rate of 82.6% and is committed to improving service quality for five-star accreditation - Revenue from the elderly care services segment was RMB 5.9 million, a 10.5% year-on-year decrease[208][239][247] - The decrease in revenue was mainly due to a decline in the number of elderly patients admitted during the reporting period and the continued negative impact of the pandemic[208][239] - Renkang Nursing Home had an average of 92 elderly patients admitted, with an average bed utilization rate of 82.6%[247] - Renkang Nursing Home will continue to focus on improving service quality and cooperate with Guangdong Province's assessment of elderly care institutions, striving to achieve five-star elderly care institution accreditation[247] Industry Outlook and Strategy China's healthcare industry has entered the post-pandemic era with increased public health awareness and ongoing government medical reforms, and the company will align with government policies, strengthen talent development and medical technology, and establish specialized departments to enhance competitiveness and achieve sustainable healthy development - China has entered the post-pandemic era, with increased public health management awareness and a rebound recovery in the medical industry[248] - The government is strengthening the universal healthcare security system, deepening medical reforms, and resolutely cracking down on corruption in the medical industry as part of the "14th Five-Year Plan"[248][233] - The Group will closely follow government policies, strengthen talent development and medical technology, and establish specialized departments based on social needs to enhance competitiveness[31] - The Group will continue to optimize medical services, enhance medical operational efficiency, fully leverage the advantages of its subsidiary hospitals, and ensure the overall business recovers as quickly as possible[249] Future Plans for Major Investments and Capital Assets The company is actively advancing the construction of Kanghua • Qingxi Branch, a project aimed at enhancing high-end comprehensive medical and nursing care services, while also acquiring additional equity in Kangxin Hospital to achieve full control and optimize its operational management Kanghua • Qingxi Branch Kanghua • Qingxi Branch is a new elderly healthcare complex being developed by the Group in Qingxi Town, Dongguan City, with a total construction area of over 130,000 square meters, planning for 500 inpatient beds and approximately 800 nursing and rehabilitation beds, with Phase I expected to be operational by March 2025 and a total investment of approximately RMB 156.4 million for the six months ended June 30, 2023 - Kanghua • Qingxi Branch is a new elderly healthcare complex development project by the Group located in Qingxi Town, Dongguan City, with major facility construction commencing in 2021[16] - The planned construction includes several medical technology buildings, inpatient buildings, and nursing buildings, expected to have 500 inpatient beds and approximately 800 nursing and rehabilitation beds[32] - Phase I construction is expected to complete the main structural work and acceptance by April 2024, and relevant interior decoration by February 2025, aiming for Phase I to be operational by March 2025[32] - As of June 30, 2023, the total investment for Kanghua • Qingxi Branch was approximately RMB 156.4 million[32] Acquisition of Additional Equity in Kangxin Hospital The company is acquiring an additional 40% equity in Kangxin Hospital for a consideration of RMB 108.0 million, which upon completion will make Kangxin Hospital a wholly-owned subsidiary, aiming to gain full equity control and facilitate management arrangements with Yinshan Capital, with a deposit of RMB 16.2 million paid as of the reporting period end, and the acquisition pending completion - The Company has agreed to acquire a 40% equity interest in Kangxin Hospital from Dongguan Jiade Medical Investment Co., Ltd. for a consideration of RMB 108.0 million[204][250] - The acquisition will enable the Group to obtain full equity control over Kangxin Hospital and facilitate its management arrangements with Yinshan Capital Co., Ltd[251] - As of June 30, 2023, the Group has paid a deposit of RMB 16.2 million to the seller for this acquisition[235] - The acquisition agreement has not yet been completed, mainly due to administrative procedures related to the release of equity pledges as collateral for certain bank loans[235] Financial Review This financial review details the company's revenue, costs, gross profit, and gross margin across business segments, as well as other income and expenses, showing a 14.5% increase in total revenue and a 93.2% surge in gross profit, primarily driven by the strong recovery and efficiency improvements in hospital services, leading to a turnaround to profit for the period and a corresponding increase in income tax expense Segment Revenue The company's total revenue increased by 14.5% year-on-year to RMB 987.5 million, with the hospital services segment contributing 93.3% of total revenue, growing 14.1% driven by increased patient visits and higher average expenses post-pandemic, while rehabilitation and other medical services revenue grew 22.9%, and elderly care services revenue decreased by 10.5% Segment Revenue (For the Six Months Ended June 30) | Segment | 2023 (RMB thousand) | % of Total Revenue (2023) | 2022 (RMB thousand) | % of Total Revenue (2022) | YoY Change | | :--- | :------------------ | :-------------------- | :------------------ | :-------------------- | :------- | | Hospital Services | 920,883 | 93.3% | 806,743 | 93.5% | +14.1% | | Rehabilitation and Other Medical Services | 60,741 | 6.2% | 49,416 | 5.7% | +22.9% | | Elderly Care Services | 5,874 | 0.6% | 6,563 | 0.8% | -10.5% | | Total | 987,498 | 100.0% | 862,722 | 100.0% | +14.5% | - The increase in hospital services revenue was mainly due to business recovery after the lifting of pandemic-related controls and measures, increased inpatient and outpatient visits, and higher average expenses for inpatient medical services and physical examination services[21][37] - The increase in rehabilitation and other medical services revenue was mainly due to the continuous recovery of patient visits after the lifting of pandemic-related controls and measures, and the maturation and improvement of rehabilitation hospital operations[254] - The decrease in elderly care services revenue was mainly due to a reduction in patient admissions during the reporting period and the continued negative impact of the pandemic[239] Cost of Revenue The Group's total cost of revenue increased by 5.5% year-on-year to RMB 816.5 million, with the hospital services segment's cost of revenue increasing by 4.9% primarily due to higher consumption of pharmaceuticals and medical consumables, while rehabilitation and other medical services' cost of revenue grew 15.6%, and elderly care services' cost of revenue decreased by 4.3%, with pharmaceuticals, medical consumables, and staff costs accounting for 26.7%, 26.4%, and 33.2% of total cost of revenue, respectively - The Group's total cost of revenue was RMB 816.5 million, a 5.5% year-on-year increase[18][123] - The cost of revenue for the hospital services segment increased by 4.9% to RMB 761.2 million, mainly due to increased consumption of pharmaceuticals and medical consumables[255] - The cost of revenue for the rehabilitation and other medical services segment increased by 15.6% to RMB 51.2 million, mainly due to increased business volume[240] - Pharmaceuticals, medical consumables, and staff costs accounted for approximately 26.7%, 26.4%, and 33.2% of the Group's total cost of revenue, respectively[241] Gross Profit and Gross Margin The Group's total gross profit significantly increased by 93.2% year-on-year to RMB 171.0 million, with the overall gross margin improving to 17.3% (from 10.3% in the prior year), primarily driven by a strong rebound in hospital services operations, increased average patient expenses, a higher number of surgeries, and improved financial performance of Kangxin Hospital - The Group's total gross profit was RMB 171.0 million, a 93.2% year-on-year increase[24][123] - The overall gross margin increased to 17.3% (from 10.3% in the prior year)[24][18] - The increase in gross margin was mainly due to a strong rebound in hospital services operations, increased average expenses for inpatient medical services and physical examination services, a higher number of surgeries performed, and improved financial performance of Kangxin Hospital[24] Other Income The Group's other income decreased by 26.4% year-on-year to RMB 21.2 million, primarily due to reduced investment income from financial assets at fair value through profit or loss, lower fixed operating lease income, and no vaccine-related income during the reporting period, although clinical trial and related income increased - Other income was RMB 21.2 million, a 26.4% year-on-year decrease[189][243] - The decrease was mainly due to reduced investment income from financial assets at fair value through profit or loss (RMB 6.4 million, a 19.3% year-on-year decrease), lower fixed operating lease income, and no vaccine-related income obtained during the reporting period[189][243] - Clinical trial and related income increased to RMB 5.3 million, a 35.3% year-on-year increase[189][243] Other Expenses, Gains and Losses The Group recorded a net gain of RMB 1.1 million in other expenses, gains, and losses, primarily attributable to a fair value gain of RMB 1.7 million from financial assets at fair value through profit or loss, partially offset by a net exchange loss of RMB 0.5 million, mainly from Hong Kong dollar-denominated financial assets - Other expenses, gains, and losses resulted in a net gain of RMB 1.1 million (prior year: RMB 0.7 million)[178][258] - This was primarily attributable to a fair value gain of RMB 1.7 million from financial assets at fair value through profit or loss (prior year: fair value loss of RMB 2.4 million)[178][258] - A net exchange loss of RMB 0.5 million was recorded (prior year: net exchange gain of RMB 3.1 million), mainly from Hong Kong dollar-denominated financial assets[178][258] Net Impairment Loss Provision under Expected Credit Loss Model During the reporting period, the net impairment loss provision under the expected credit loss model was RMB 2.2 million (prior year: RMB 3.0 million), primarily affected by an increase in the overall balance of trade and other receivables, an increase in aging, and a decline in credit ratings for some corporate clients, though the company has strengthened overdue debt recovery and credit review - The net impairment loss provision under the expected credit loss model was RMB 2.2 million (prior year: RMB 3.0 million)[259] - The net provision was mainly due to an increase in the overall balance of trade and other receivables at the end of the reporting period, an increase in the aging of the Group's trade receivables, a decline in credit ratings for some corporate clients, and the impact of outstanding patient debts[259] - The Group has intensified efforts to recover overdue debts, including through legal action for patient receivables, and tightened credit review for corporate clients[259] Administrative Expenses Administrative expenses increased by 8.9% year-on-year to RMB 125.6 million, primarily due to a significant increase in management and consulting fees related to the outsourced management arrangement for Kangxin Hospital, with lease expenses and property management expenses also rising, while other major administrative expenses remained relatively stable due to strict cost control - Administrative expenses were RMB 125.6 million, an 8.9% year-on-year increase[261] - This was mainly due to a significant increase in management and consulting fees by RMB 15.7 million (prior year: RMB 5.3 million), primarily attributable to management fees paid since June 2022 related to the outsourced management arrangement for Kangxin Hospital[261] - Lease expenses and property management expenses increased, while administrative staff costs and other major administrative expenses remained relatively stable[261] Finance Costs Finance costs for the reporting period decreased by 25.6% year-on-year to RMB 6.4 million, primarily attributable to reduced interest on bank loans raised and a decrease in the interest component related to lease liabilities, partially offset by capitalized interest amounts - Finance costs were RMB 6.4 million, a 25.6% year-on-year decrease[262] - Finance costs include interest on bank loans raised of RMB 8.4 million (prior year: RMB 9.6 million), interest components related to lease liabilities of RMB 4.1 million (prior year: RMB 5.1 million), less interest capitalized in the cost of qualifying assets of RMB 6.1 million (prior year: RMB 6.2 million)[262] Income Tax Expense Income tax expense for the first half of 2023 significantly increased by 121.8% year-on-year to RMB 29.7 million, primarily due to increased profit generated by Kanghua Hospital, with the Group's subsidiaries in China generally subject to a 25% income tax rate, while some small and micro enterprises enjoy preferential rates - Income tax expense was RMB 29.7 million, a 121.8% year-on-year increase[42][191] - The increase in income tax expense was mainly due to the increased profit generated by Kanghua Hospital during the reporting period[42] - The Group's subsidiaries in China are generally subject to an income tax rate of 25% on their taxable income, with certain subsidiaries classified as "small and micro enterprises" enjoying preferential income tax rates ranging from 2.5% to 10%[42][192] Profit for the Period The Group recorded a profit of RMB 29.4 million for the reporting period, successfully reversing the loss of RMB 22.3 million from the prior year, with profit attributable to shareholders at RMB 50.7 million, reflecting a significant improvement in overall business performance - The Group recorded a profit of RMB 29.4 million for the reporting period (prior year: loss of RMB 22.3 million)[264] - Profit attributable to shareholders was RMB 50.7 million (prior year: loss of RMB 4.8 million)[264] Adjusted EBITDA The Group's adjusted EBITDA significantly increased by 98.1% year-on-year to RMB 129.2 million, indicating robust core business operations after excluding financing, investment-related income, fair value changes, exchange rate impacts, capital expenditures, and significant non-cash losses - The Group's adjusted EBITDA increased by 98.1% year-on-year to RMB 129.2 million[119][203] Adjusted EBITDA Reconciliation (For the Six Months Ended June 30) | Indicator | 2023 (RMB thousand) | 2022 (RMB thousand) | | :--- | :------------------ | :------------------ | | Profit/(Loss) Before Tax | 59,081 | (8,872) | | Add: Income Tax Expense | 29,715 | 13,399 | | Add: Finance Costs | 6,361 | 8,550 | | Add: Depreciation of Right-of-use Assets | 18,117 | 18,127 | | Add: Depreciation of Property, Plant and Equipment | 54,853 | 57,008 | | EBITDA | 138,412 | 74,813 | | Less: Fair Value Gain/(Loss) on Financial Assets at Fair Value Through Profit or Loss | (1,718) | 2,361 | | Less: Investment Income from Financial Assets at Fair Value Through Profit or Loss | (6,384) | (7,907) | | Add: Exchange Loss/(Gain) | 493 | (3,076) | | Less: Bank and Other Interest Income | (1,576) | (946) | | Adjusted EBITDA | 129,227 | 65,245 | - Adjusted EBITDA is a non-IFRS measure designed to exclude non-core operating impacts such as taxes, debt costs, depreciation, and amortization, to reflect the Group's underlying profitability[59] Financial Position This section analyzes the company's financial position as of June 30, 2023, including property, plant and equipment, right-of-use assets, trade and other receivables, other assets, and trade and other payables, showing increases in net current assets and net assets, growth in trade receivables, and a reduction in trade payables due to accelerated payments Property, Plant and Equipment, Right-of-Use Assets, and Deposits Paid for Acquisition of Property, Plant and Equipment As of June 30, 2023, the Group's property, plant and equipment increased, while right-of-use assets slightly decreased, with capital expenditures primarily for upgrading hospital service capabilities, constructing Phase II medical facilities at Kangxin Hospital, and developing Kanghua • Qingxi Branch, and deposits paid for property, plant and equipment acquisitions decreased - Property, plant and equipment amounted to RMB 1,113.4 million (December 31, 2022: RMB 1,085.8 million), and right-of-use assets amounted to RMB 302.3 million (December 31, 2022: RMB 319.9 million)[124] - The Group incurred expenditures for the acquisition of property, plant and equipment and construction in progress of RMB 19.0 million and RMB 63.5 million respectively, mainly for upgrading and expanding hospital operational service capabilities, construction costs for Kangxin Hospital Phase II medical facilities, and the development of Kanghua • Qingxi Branch[47][196] - Deposits paid for the acquisition of property, plant and equipment were RMB 12.9 million (December 31, 2022: RMB 58.1 million), mainly referring to deposits paid for Kangxin Hospital Phase II medical facility construction costs and payments for new medical equipment and other new facilities[48][124] Trade and Other Receivables As of June 30, 2023, total trade and other receivables increased to RMB 337.3 million, with trade receivables rising to RMB 279.7 million, of which 62.6% were aged within 90 days, and the average turnover days were 46.7 days, while other receivables increased to RMB 57.6 million, mainly due to the deposit paid for the acquisition of additional equity in Kangxin Hospital - Total trade and other receivables increased to RMB 337.3 million (December 31, 2022: RMB 281.2 million)[124][199] - Trade receivables increased to RMB 279.7 million, with 62.6% aged within 90 days, and the average trade receivables turnover days were 46.7 days[49][199] - The increase in trade receivables and turnover days was mainly due to increased balances from social security funds and other government departments, as well as some corporate clients[49] - Other receivables increased to RMB 57.6 million, mainly due to a deposit of RMB 16.2 million paid for the acquisition of additional equity in Kangxin Hospital[73][199] Other Assets The Group's other assets include a brand introduction fee of RMB 20.0 million paid for the Kangxin Hospital management arrangement, amortized over the service period, and as Kangxin Hospital achieved its revenue growth target during the performance period, the Group is not entitled to a refund of this fee - The Group has paid a brand introduction fee of RMB 20.0 million to Yinshan Capital to facilitate the introduction of the "Artemed" brand, classified as other assets in the consolidated statement of financial position[65] - The brand introduction fee is amortized over the service period, with RMB 0.5 million amortized and deducted from profit or loss during the reporting period[51] - Kangxin Hospital achieved its revenue growth target during the performance period, thus the Group is not entitled to a refund of the brand introduction fee from Yinshan Capital[65] Trade and Other Payables and Provisions As of June 30, 2023, trade and other payables and provisions decreased to RMB 651.7 million, primarily due to reduced trade payables from accelerated payments to suppliers, as well as decreases in accrued expenses and advances received, while provisions for medical malpractice claims increased - Trade and other payables and provisions decreased to RMB 651.7 million (December 31, 2022: RMB 717.8 million)[75][207] - The decrease was mainly due to accelerated payments to suppliers during the reporting period, leading to a reduction in trade payables to RMB 314.0 million, accrued expenses to RMB 85.3 million, and advances received to RMB 185.9 million[75][207] - Provisions for medical malpractice claims increased to RMB 2.4 million (December 31, 2022: RMB 1.2 million)[75][207] Aging Analysis of Trade Payables (As of June 30) | Aging | June 30, 2023 (RMB thousand) | December 31, 2022 (RMB thousand) | | :--- | :--------------------------- | :--------------------------- | | Within 30 days | 92,160 | 94,494 | | 31 to 90 days | 139,064 | 124,444 | | 91 to 180 days | 41,948 | 77,870 | | 181 to 365 days | 18,893 | 26,086 | | Over 365 days | 21,925 | 25,916 | | Total | 313,990 | 348,810 | Net Current Assets and Net Assets As of June 30, 2023, the Group recorded net current assets of RMB 392.6 million (December 31, 2022: RMB 289.6 million) and net assets of RMB 1,543.8 million (December 31, 2022: RMB 1,514.5 million), demonstrating continuous improvement in its financial position - Net current assets were RMB 392.6 million (December 31, 2022: RMB 289.6 million)[77] - Net assets were RMB 1,543.8 million (December 31, 2022: RMB 1,514.5 million)[77] Liquidity and Capital Resources This section outlines the company's liquidity and capital resources, including strong financial resources, active cash management activities, cash flow analysis, significant investments, capital expenditures, use of IPO proceeds, debt, asset pledges, financial instruments, gearing ratio, and exchange rate fluctuation risks, confirming the company possesses sufficient liquidity and financial resources to support its operations and future development Financial Resources As of June 30, 2023, the Group maintained a strong financial position with cash and cash equivalents of RMB 285.0 million, time bank deposits of RMB 61.6 million, and restricted bank balances of RMB 35.5 million, with the directors believing the Group has sufficient liquidity and financial resources to meet working capital needs for at least the next twelve months - Cash and cash equivalents amounted to RMB 285.0 million (December 31, 2022: RMB 264.3 million)[66] - Time bank deposits amounted to RMB 61.6 million (December 31, 2022: nil)[66] - Restricted bank balances amounted to RMB 35.5 million (December 31, 2022: RMB 2.3 million)[66] - The Group will have adequate and sufficient liquidity and financial resources to meet its working capital requirements for at least the next twelve months after the end of the reporting period[66] Cash Management Activities The Group manages excess cash by purchasing investment products, including structured short-term bank deposits and fund investments, to generate higher interest income and capital returns without impacting business operations or capital expenditures, focusing on low-risk, short-term products and actively exploring equity investments in the healthcare sector - The Group's investments (classified as financial assets at fair value through profit or loss) totaled RMB 386.0 million (December 31, 2022: RMB 572.4 million)[67][188] - Investments include structured short-term bank deposits of RMB 350.0 million (December 31, 2022: RMB 490.0 million) and fund investments of RMB 36.0 million (December 31, 2022: RMB 18.0 million)[67][188] - The Group purchases investment products from financial institutions to obtain higher interest income, carefully balancing the risks and returns of investment products, without affecting business operations or capital expenditures[80][86] - The Group also invests in investment funds and equity investment funds to earn long-term investment returns and explore new potential investment projects and capital market investments to diversify operational risks and broaden income sources[86] Cash Flow Analysis The Group's net cash flow from operating activities increased by 24.1% year-on-year to RMB 62.6 million, primarily due to improved adjusted EBITDA performance and recorded profit, while net cash flow from investing activities turned to a net inflow of RMB 18.4 million, mainly from net proceeds from the disposal of financial assets at fair value through profit or loss, and net cash flow used in financing activities increased to RMB 60.4 million, primarily due to acquisition deposits and new bank loans Cash Flow Analysis (For the Six Months Ended June 30) | Cash Flow Type | YoY Change | 2023 (RMB thousand) | 2022 (RMB thousand) | | :--- | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | +24.1% | 62,571 | 50,421 | | Net Cash Flow from/(used in) Investing Activities | N/A | 18,351 | (149,356) | | Net Cash Flow used in Financing Activities | +266.3% | (60,406) | (16,490) | | Net Increase/(Decrease) in Cash and Cash Equivalents | N/A | 20,516 | (115,425) | - The increase in net cash flow from operating activities was mainly due to improved adjusted EBITDA performance and recorded profit[82] - Net cash flow from investing activities was mainly due to net proceeds of RMB 187.5 million from the disposal of financial assets at fair value through profit or loss[94] - The increase in net cash flow used in financing activities was mainly attributable to a deposit of RMB 16.2 million paid for the acquisition of additional equity in Kangxin Hospital and new bank loans raised of RMB 30.7 million[84] Significant Investments, Acquisitions and Disposals During the reporting period, the Group acquired an additional 32.9% equity interest in Hefei Aikanghui Health Management Co., Ltd. for a cash consideration of RMB 49,000, a company primarily providing home-based elderly rehabilitation and nursing services in Hefei City, with no other significant investments, acquisitions, or disposals - The Group acquired an additional 32.9% equity interest in Hefei Aikanghui Health Management Co., Ltd. for a cash consideration of RMB 49,000, a company primarily engaged in providing home-based elderly rehabilitation and nursing services in Hefei City[70] - Save as disclosed in this announcement, the Group had no other significant investments, acquisitions, or disposals during the reporting period[85] Capital Expenditures The Group's capital expenditures for the reporting period amounted to RMB 82.6 million, primarily for expanding operations, maintaining medical facilities, and improving operational efficiency, funded mainly by cash flow from operating activities and bank loans, with capital commitments for property, plant and equipment contracted but not provided for totaling RMB 219.5 million as of June 30, 2023 - The Group's capital expenditures for the reporting period amounted to RMB 82.6 million (prior year: RMB 78.7 million)[87] - Capital expenditures primarily include the purchase of property, plant and equipment (including capital expenditures for construction in progress) to expand operations, maintain medical facilities, and improve operational efficiency[87] - The Group primarily funds capital expenditures through cash flow from operating activities and bank loans[87] - As of June 30, 2023, the Group's capital commitments for property, plant and equipment contracted but not provided for in the interim condensed consolidated financial information amounted to RMB 219.5 million[68][114] Use of Proceeds from Initial Public Offering The net proceeds from the company's initial public offering were approximately RMB 782.6 million, with portions utilized for general working capital (10%), expanding existing businesses and upgrading hospital facilities (17.2%), and business acquisitions and potential acquisitions (22.4%) as of June 30, 2023, leaving an unutilized balance of RMB 394.6 million, partly used for purchasing financial products and time bank deposits - The net proceeds from the initial public offering were approximately RMB 782.6 million[88] Use of Proceeds from Initial Public Offering (For the Six Months Ended June 30, 2023) | Use | Amount Utilized (RMB million) | % of Net Proceeds | | :--- | :-------------------------- | :---------------- | | General Working Capital | 78.3 | 10% | | Expanding Existing Businesses and Upgrading Hospital Facilities | 134.7 | 17.2% | | Business Acquisitions and Potential Acquisitions | 175.0 | 22.4% | | Total Utilized | 388.0 | 49.6% | | Unutilized Balance | 394.6 | 50.4% | - The unutilized balance of net proceeds was RMB 394.6 million, part of which has been used to purchase certain financial products and placed in time bank deposits to obtain higher interest income and capital returns[90] - The Company does not anticipate any significant changes to the planned use of proceeds as stated in the prospectus[90] Debt As of June 30, 2023, the Group had secured bank loans with a carrying value of RMB 296.7 million, primarily for the development of Kangxin Hospital Phase II medical facilities and Kanghua • Qingxi Branch construction, including floating and fixed interest rates, and secured by equity pledges, leasehold land mortgages, and director guarantees, while also facing contingent liabilities of approximately RMB 12.1 million for medical malpractice claims, with a provision of RMB 2.4 million made - The Group's bank loan financing includes RMB 620.0 million for the development of Kangxin Hospital Phase II medical facilities and Kangxin Hospital operations, and RMB 330.0 million for the construction and development of Kanghua • Qingxi Branch[97] - As of June 30, 2023, the Group had secured bank loans with a carrying value of RMB 296.7 million (December 31, 2022: RMB 280.9 million)[97][117] - Bank loans are secured by equity pledges, leasehold land mortgages, and guarantees from Mr. Wang Junyang, the Chairman of the Group[97][99] - The Group's ongoing medical malpractice claims total approximately RMB 12.1 million (December 31, 2022: RMB 14.0 million), with a provision of approximately RMB 2.4 million made[101][110] Pledge of Assets As of June 30, 2023, certain property, plant and equipment with a net carrying value of RMB 17.1 million and leasehold land (including right-of-use assets) with a net carrying value of RMB 80.1 million were pledged to secure bank facilities granted to the Group - Certain property, plant and equipment of the Group with a net carrying value of RMB 17.1 million (December 31, 2022: RMB 21.0 million) have been pledged[92] - Leasehold land (including right-of-use assets) with a net carrying value of RMB 80.1 million (December 31, 2022: nil) has been pledged to secure bank facilities granted to the Group[92] Financial Instruments The Group's financial instruments primarily include trade receivables, financial assets at fair value through profit or loss, bank deposits, trade payables, bank loans, and lease liabilities, with management closely monitoring these risks to ensure timely and effective appropriate measures are taken - The Group's financial instruments primarily include trade and other receivables, financial assets at fair value through profit or loss, time bank deposits, bank balances and cash, restricted bank balances, trade and other payables, amounts due to non-controlling shareholders of subsidiaries, bank loans, and lease liabilities[105] - The Company's management manages and monitors these risks to ensure that appropriate measures are taken in a timely and effective manner[105] Gearing Ratio As of June 30, 2023, the Group's gearing ratio (total interest-bearing bank loans divided by total equity and multiplied by 100%) was 19.2%, a slight increase from 18.5% as of December 31, 2022 - The Group's gearing ratio was 19.2% (December 31, 2022: 18.5%)[106] Exchange Rate Fluctuation Risk The Group faces foreign exchange risk primarily from Hong Kong dollar-denominated financial assets, with management mitigating currency risk by closely monitoring foreign currency exchange rate movements and considering hedging significant foreign currency exposures when necessary - The Group holds certain financial assets denominated in Hong Kong dollars and is therefore exposed to foreign exchange risk, primarily from fluctuations in the exchange rate between the Hong Kong dollar and the Renminbi[115] - The Group has not applied any derivative financial instruments to hedge its currency risk exposures[115] - Management manages currency risk by closely monitoring movements in foreign currency exchange rates and will consider hedging significant foreign currency exposures when necessary[115] Other Information This section covers other important information for the reporting period, including the company's employee situation, remuneration policies, training programs, interim dividend decision, securities transactions, post-reporting period events, interim results review, corporate governance compliance, and changes in board members Employees, Remuneration Policies and Training Programs As of June 30, 2023, the Group had a total of 3,956 full-time employees, implementing comprehensive remuneration policies including basic salary, performance bonuses, and other benefits, adjusted regularly to maintain competitiveness, and providing systematic training and education programs to enhance professional skills, foster high standards of practice, and promote a proactive risk reporting culture - As of June 30, 2023, the Group had a total of 3,956 full-time employees (December 31, 2022: 3,848 employees)[116] - Employee-related costs for the reporting period were approximately RMB 311.6 million (prior year: RMB 308.9 million)[116] - The Group's comprehensive employee remuneration policy includes basic salary calculated with reference to individual position, qualifications, and years of service, performance bonuses based on specific indicators of individual job functions, and other benefits, with the remuneration structure regularly adjusted based on current market data[116] - The Group provides systematic training and education programs aimed at equipping employees with solid medical principles and knowledge, practice skills, and fostering high standards of practice, organizational capabilities, and a proactive risk reporting culture[288] Interim Dividend The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023 - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023 (prior year: nil)[119][184][268] Repurchase, Sale or Redemption of the Company's Securities During the reporting period, neither the Company nor any of its subsidiaries repurchased, sold, or redeemed any of the Company's listed securities - During the reporting period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[269] Events After the Reporting Period Subsequent to the reporting period, the Company entered into a supplemental agreement with Yinshan Capital to extend the term of the Kangxin Hospital management arrangement, and is finalizing details and implementing a spin-off plan to separate the land and buildings of Kangxin Hospital, while also negotiating with Yinshan Capital for the sale of a controlling interest in Kangxin Hospital - On July 14, 2023, the Company entered into a supplemental agreement with Yinshan Capital to extend the term of the Kangxin Hospital management arrangement[271] - The Company is finalizing details and implementing a spin-off plan to separate the land and buildings from Kangxin Hospital[271] - The Company is also negotiating with Yinshan Capital regarding the sale of a controlling interest in Kangxin Hospital (after the completion of the spin-off)[271] Review of Interim Results The Company's Audit Committee has reviewed the Group's interim results for the six months ended June 30, 2023, confirming compliance with applicable accounting standards and requirements and adequate disclosure, with the Company's auditor also conducting a review in accordance with Hong Kong Review Engagements Standards - The Company's Audit Committee has reviewed the Group's interim results for the six months ended June 30, 2023, and considers that the Company has complied with applicable accounting standards and requirements and made adequate disclosures[273] - The Company's auditor has also reviewed the Group's interim results for the six months ended June 30, 2023, in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants[283] - The Company's Audit Committee comprises three independent non-executive directors, of whom Mr. Chan Sing Nang possesses appropriate professional qualifications[275] Compliance with Corporate Governance Code The Company confirms compliance with all code provisions set out in Part 2 of the Corporate Governance Code contained in Appendix 14 to the Hong Kong Listing Rules for the six months ended June 30, 2023, committed to maintaining high standards of corporate governance to protect shareholder interests and establish highly accountable and transparent practices - The Company has complied with all code provisions set out in Part 2 of the Corporate Governance Code contained in Appendix 14 to the Hong Kong Listing Rules for the six months ended June 30, 2023[276] - The Board is committed to promoting good corporate governance to protect the interests of the Company's shareholders and believes that maintaining a high level of corporate governance is a key success factor for the Company[278] Changes in Information of Directors, Supervisors and Chief Executive No changes in information requiring disclosure have occurred since the date of the Company's 2022 Annual Report - No changes in information requiring disclosure have occurred since the date of the Company's 2022 Annual Report, in accordance with Rule 13.51B(1) of the Hong Kong Listing Rules[279] Publication of 2023 Condensed Consolidated Interim Results and Interim Report This interim results announcement has been published on the HKEX website and the Company's website, with the Company's 2023 interim report, containing all information required by the Hong Kong Listing Rules, to be dispatched to shareholders and published on the aforementioned websites in due course - This interim results announcement has been published on the HKEX website (www.hkexnews.hk) and the Company's website (www.kanghuagp.com)[282](index=282&type=chunk) - The Company's 2023 interim report, containing all information required by the Hong Kong Listing Rules, will be dispatched to the Company's shareholders and published on the aforementioned websites in due course[282] Acknowledgements The Board takes this opportunity to express its gratitude for the contributions made by the Group's management team and employees, and extends its sincere thanks for the continued support from all shareholders and business partners - The Board, on behalf of the Board, takes this opportunity to express its gratitude for the contributions made by the Group's management team and employees, and extends its sincere thanks for the continued support from all shareholders and business partners[281]