Aesthetic Medical International Holdings Group Limited (AIH) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen. And thank you for standing by. And welcome to Aesthetic Medical International Second Quarter and First Half of 2021 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. As a reminder, today’s conference call is being recorded. On the call today from Aesthetic Medical International are Dr. Pengwu Zhou, Chairman and Chief Executive Officer, Mr. Toby Wu, Chief Financial Officer; Mr. Joe Su, Senior Director of Investor Relations and Mr. Derrick Chi, Assistant to Chairman. Dr. Zhou will review the business operations and the Company’s highlights, followed by Mr. Joe Su, , who will introduce the Company’s financial performance. Chairman, CFO and IR team will all be available to answer your questions during the Q&A session that follows. Before we get started, I’d like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the Company’s filings with the SEC, which include today’s press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law. Our discussion today will include non-IFRS financial measures, including EBITDA, adjusted loss and adjusted EBITDA. You should not consider EBITDA, adjusted EBITDA and adjusted loss as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not prepared in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. You’re encouraged to review the Company’s financial information in its entirety and not rely on a single financial measure. At this time, I would like to turn the call over to Dr. Pengwu Zhou, Chairman and CEO of Aesthetic Medical International. His opening remarks will be delivered in English by his assistant Derrick Chi, . Dr. Zhou, please go ahead.
Dr. Pengwu Zhou: Thank you, operator, and everyone for joining the call today. We are pleased to see an encouraging result in this quarter in terms of operational and financial results, strategic restructuring plan, and our development in the field of non-surgical aesthetic medical services. As the impact of COVID-19 has been gradually receding in mainland China, the public has resumed their daily activities, as well as their consumption of aesthetic medical services. Supported by the recovery of market demand, the number of our active customers in the first half of 2021 increased by 21.7% year-over-year, which drove the revenue growth of 68.6% year-over-year and the gross profit margin improvement of 8.4 percentage point in the first half of 2021. Adjusted EBITDA also rebounded from loss in the first half of 2020 to profit in the first half of 2021. We highly value the importance of sustainable growth and have been contemplating a strategic restructuring plan. Specifically, we plan to cease the operations of or divest certain hospitals and clinics that either are located in our non-core markets or did not meet our internal performance requirements before the end of this year. By ceasing the operations of or divesting these underperforming hospitals and clinics that hindered our financial performance, we can focus on realizing the full potential of retained assets. We assessed the value of these hospitals and clinics, which was recorded a non-operating and non-cash impairment loss in the second quarter of 2021. We believe that this is an essential move to improve our operations and solidify AIH’s leading position in the market. In the long run, we expect the overall profitability of the retained hospitals and clinics will improve, thus ensuring a healthier financial performance. In the first half of 2021, we opened a non-surgical aesthetic medical clinic in Beijing. It has achieved outstanding performance with an average monthly revenue of over RMB 1 million in this quarter, and has realized satisfying net profit margin. We expect a continued growth momentum in the third quarter of 2021. Currently, three similar satellite clinics will commence operations around the end of this year. Going forward, we strategically shifted focus from rapid national expansion, to a more focused, stable and sustainable growth in terms of revenue and profitability. We’ll continue to focus on renovating our existing flagship hospitals and investing in synergistic clinics to promote or connect organic growth. We also plan to focus on the core regional market. For example, the Guangdong-Hong Kong-Macau, Greater Bay Area and the Yangtze Delta area and we’ll look for opportunities to establish hospitals or clinics in the regional market. Although sporadic COVID-19 cases are detected from time to time in mainland China, economic activities in regions where AIH operates have not been materially affected. Our hospitals and clinics are implementing necessary precautions, including temperature check for employees and disinfection of premises, to secure a hygienic environment for both staff and customers. Riding on the vibrant development of the aesthetic medical market in the People’s Republic of China together with AIH’s extensive experience in the field, we believe that AIH will be able to increase its market penetration and seize market opportunities from the expanding market. Thank you again for all your support and attention. And I will now like to turn the call to our Senior Director of Investor Relations Joe to introduce the financials for the second quarter and first half of 2021. Joe, please go ahead.
Unidentified Company Representative: Thank you, Dr. Zhou, and hello, everyone. I will summarize some of the key unaudited financial results and operation results for the second quarter ended June 30, 2021. In the second quarter of 2021, our total revenue increased by 34.4% to RMB 224 million, primarily due to the recovery of economic activities and customers’ demands and purchasing power in mainland China, together with the Company’s efforts to boost sales. Revenue from non-surgical aesthetic medical services was RMB 117 million, representing an increase of 41.3% from RMB 82.8 million in the second quarter of 2020. Revenue from minimally invasive aesthetic treatments was RMB 56.6 million, representing an increase of 33.5% from RMB 42.4 million in the second quarter of 2020. Revenue from energy-based treatments was RMB 60.4 million, representing an increase of 49.5% from RMB 40.4 million in the second quarter of 2020. Revenue from surgical aesthetic medical services was RMB 91.2 million, representing an increase of 27.9% from RMB 71.3 million in the second quarter of 2020. Revenue from general healthcare services and other aesthetic medical services was RMB 15.8 million, representing an increase of 25.4% from RMB 12.6 million in the second quarter of 2020. Gross profit was RMB 133.6 million, representing an increase of 40.3% from RMB 95.2 million in the second quarter of 2020, primarily due to the significant growth in total revenue. Gross profit margin was 59.6%, representing an increase of 2.5 percentage points from 57.1% in the second quarter of 2020, mainly due to more higher margin services and products sold during the second quarter of 2021. Gross profit of non-surgical aesthetic medical services was RMB 68.6 million, representing an increase of 48.8% from RMB46.1 million in the second quarter of 2020. Gross profit margin was 58.6%, compared with 55.8% in the second quarter of 2020. Gross profit of minimally invasive aesthetic treatments was RMB 32.6 million, representing an increase of 26.8% from RMB 25.7 million in the second quarter of 2020. Gross profit margin was 57.6%, compared with 60.6% in the second quarter of 2020. Gross profit of energy-based treatments was RMB 36 million, representing an increase of 76.5% from RMB 20.4 million in the second quarter of 2020. Gross profit margin was 59.6%, compared with 50.7% in the second quarter of 2020. Gross profit of surgical aesthetic medical services was RMB55.4 million, representing an increase of 33.8% from RMB 41.4 million in the second quarter of 2020. Gross profit margin was 60.7%, compared with 58.1% in the second quarter of 2020. Gross profit of the general healthcare services and other aesthetic medical services grew significantly, from RMB 7.7 million in the second quarter of 2020 to RMB 9.6 million in the second quarter of 2021. Gross profit margin was 60.8%, compared with 61.3% in the second quarter of 2020. Selling expenses were RMB 112.3 million, representing 50.1% of the Company’s total revenue of the same period, compared to selling expenses of RMB 92.5 million in the second quarter of 2020, which represented 55.5% of the Company’s total revenue of the same period. Selling expenses increased on a year-over-year basis, primarily due to the Company launched more marketing initiatives after it gradually resumed operations in the second quarter of 2021. General and admin expenses were RMB 44.8 million, representing a decrease of 21.3% from RMB 56.9 million in the second quarter of 2020, primarily due to the decrease of RMB 11.4 million in ESOP related expenses. Impairment of goodwill was RMB 111.6 million, compared with nil in the same period of 2020. Impairment of intangible assets was RMB 43.7 million, compared with nil in the same period of 2020. Impairment of property, plant and equipment was RMB 139.8 million, compared with nil in the same period of 2020. The Company incurred these impairments during the second quarter of 2021, primarily due to its strategic restructuring. The change of these three items were primarily because the Company has performed impairment assessments at cash-generating unit level and noted several recoverable amounts were lower than their carrying amounts for certain cash-generating units. Relevant impairments are non-operating and non-cash items. As a result of the foregoing, the Company recorded a loss of RMB 324.5 million for the second quarter of 2021, compared with a loss of RMB 64.6 million in the second quarter of 2020. Basic loss per share was RMB 3.58, compared with basic loss per share of RMB 0.95 in the second quarter of 2020. Diluted loss per share was RMB 3.58, compared with diluted loss per share of RMB 0.95 in the second quarter of 2020. EBITDA for the second quarter of 2021 was a loss of RMB 294.9 million, compared with a loss of RMB 34.3 million in the second quarter of 2020. Adjusted loss for the second quarter of 2021 was RMB 14.9 million, compared with an adjusted loss of RMB 31.1 million in the second quarter of 2020. Adjusted EBITDA for the second quarter of 2021 was a profit of RMB 14.7 million, compared with a loss of RMB 1.0 million in the second quarter of 2020. Now, I’d like to move on to the first half of 2021 unaudited financial results. Total revenue was RMB 434.5 million, representing an increase of 68.6% from RMB 257.7 million in the same period of 2020, primarily due to the recovery of economic activities and customers’ demands in mainland China, together with the Company’s effort to promote sales. Gross profit was RMB 255.8 million, representing an increase of 96.6% from RMB 130.1 million in the same period of 2020, primarily as a result of significant growth in total revenue. Gross profit margin was 58.9%, representing an increase of 8.4 percentage points from 50.5% in the same period of 2020, mainly due to more services and products with higher profit margin sold during this period. Gross profit of non-surgical aesthetic medical services was RMB 129.4 million, representing an increase of 104.7% from RMB 63.2 million in the same period of 2020. Gross profit margin was 57.3%, compared with 48.5% in the same period of 2020. Gross profit of minimally invasive aesthetic treatments was RMB 60.2 million, representing an increase of 65.8% from RMB 36.3 million in the same period of 2020. Gross profit margin was 55.5%, compared with 53.4% in the same period of 2020. Gross profit of energy-based treatments was RMB 69.2 million, representing an increase of 159.2% from RMB 26.7 million in the same period of 2020. Gross profit margin was 58.8%, compared with 43.1% in the same period of 2020. Gross profit of surgical aesthetic medical services was RMB 108.5 million, representing an increase of 83.6% from RMB 59.1 million in the same period of 2020. Gross profit margin was 60.9%, compared with 53.2% in the same period of 2020. Gross profit of general healthcare services and other aesthetic medical services grew significantly, from RMB 7.8 million in the same period of 2020 to RMB 17.9 million in the same period of 2021. Gross profit margin was 58.9%, compared with 48.4% in the same period of 2020. Selling expenses were RMB 206.3 million, representing 47.5% of the Company’s total revenue of the same period, compared to selling expenses of RMB 170.5 million in the same period of 2020, which represented 66.2% of the Company’s total revenue of the same period. Selling expenses increased on a year-over-year basis, primarily due to the Company has launched more marketing initiatives after it gradually resumed operations in the second quarter of 2021. General and admin expenses were RMB 86.9 million, representing a decrease of 18.4% from RMB 107.8 million in the same period of 2020, primarily due to the decrease of RMB 21.7 million in ESOP related expenses. As a result of the foregoing, the Company recorded a loss of RMB 344.7 million for the six months ended June 30, 2021, compared with a loss of RMB 147.5 million in the same period of 2020. Basic loss per share was RMB 3.92, compared with basic loss per share of RMB 2.17 in the same period of 2020. Diluted loss per share was RMB 3.92, compared with diluted loss per share of RMB 2.17 in the same period of 2020. EBITDA for the six months ended June 30, 2021 was a loss of RMB 286.7 million, compared with a loss of RMB 104.9 million in the same period of 2020. Adjusted loss for the six months ended June 30, 2021 was RMB 22.8 million, compared with adjusted loss of RMB 89.6 million in the same period of 2020. Adjusted EBITDA for the six months ended June 30, 2021 was a profit of RMB 35.2 million, compared with a loss of RMB 46.7 million in the same period of 2020. Operational results: In terms of operating performance, repeat customers, defined as active customers who had previously received at least one procedure from the Company, accounted for 61.5% of the Company’s active customer base in the first half of 2021. The total number of active customers was 125,261, representing an increase of 21.7% from 102,933 in the same period of 2020. This is mainly because the impact of COVID-19 has gradually receded in the first half of 2021. Number of treatments: In the first half of 2021, the Company performed a total of 270,424 treatments, including 45,238 surgical treatments and 225,186 non-surgical treatments, representing an increase of 33.5%, 21.5% and 36.2%, respectively, from 202,608 total treatments, 33,241 surgical treatments and 165,367 non-surgical treatments in the first half of 2020. As of June 30, 2021, cash and cash equivalents RMB 47.2 million, compared to RMB 44.4 million as of December 31, 2020. Looking ahead, we will continue to execute our strategies throughout the year. This is not only to provide better and quality services to our customers, but it provides sustainable growth to our shareholders. This concludes our prepared remarks. Thank you for joining us on today’s call. And we will now open the call to questions. Operator, please go ahead.
Operator: Thank you. Our first question is from the line of Meg Cole of Safari . Please go ahead. Line is open.
Unidentified Analyst: Thank you so much for the presentation. Learning that the Company has actually divested some sort of assets during the period, and may I know what are the impacts of the divestiture to our net income and profit? And are we expecting for the asset diversion in the near future please? Thank you.
Unidentified Company Representative: Thank you again for your question. Yes. Actually, the impact for the diversified, you can see our income statement, the data. Yes, it will be the very good number over there. Actually, remaining hospitals in our system is very profitable, and then we will also have a plan to improve and expanding our flagship hospital in the 2022. So, that’s why we have a very strong confidence to turn our company to be a profitable company in the year 2020.
Operator: We have a question from the line of Anna Xi.
Unidentified Analyst: Thank you for the presentation tonight. I would like to ask because previously you have mentioned that we are going to open up more satellite hospitals or satellite clinics in various regions. And also, can you please share with us the upcoming opening plan? And also, I’d like to know which areas will be your key focus in the future? Thank you
Unidentified Company Representative: Thank you for questions. The areas for our key focus would be the Guangdong, Hong Kong and Macao Bay Area as well as the Yangtze River area and other Tier 1 cities like Beijing in China. And for the expansion plan of our clinics, we’re currently discussing partnership options with multiple investors, like funds or other companies. So, the final structure design will be subject to the -- who we cooperate with. But the overall strategy is the same that is till the next year we plan to complete about 10 clinics in the regions that we just mentioned, and for the next three to five years, we plan to open about 30 to 50 clinics. Thanks.
Unidentified Analyst: Thank you very much. Can I ask another question as well?
Unidentified Company Representative: Sure.
Unidentified Analyst: Yes. I would like to know that with the current economies and also with the current policy, especially the Common Prosperity, is there any impact on our business or on the demand for aesthetic services in overall?
Unidentified Company Representative: Overall we don’t see any material impact from this. Thanks.
Operator: We have a question from
Unidentified Company Representative: Operator, we cannot hear you.
Operator: We have a question from Meg Cole of Safari . Please go ahead.
Unidentified Analyst: Thanks management for sharing that. I know that we are going to open further hospitals and clinics in other regions. May I just clarify? Are we expecting any further assets divest in the near future? And how are we going to ensure that our existing remaining hospitals and clinics are performing, like hitting our performance guidance, please? Thanks.
Unidentified Company Representative: We don’t have any further plan during the near future for any further divesting or disposal? And could you please repeat your second question again?
Unidentified Analyst: Yes. Because this time regarding the asset divest, it’s because some of them are not performing, how -- and do we have any measures to make sure that our remaining assets are going to perform well?
Unidentified Company Representative: Actually based on the past experience, all those remaining hospitals were performing well, even though in 2020 and 2021. So, we have a very strong confidence that we can continue to maintain the performance of those remaining hospitals, are doing profitable and getting better. So, we also believe that we can put more our source and our attention on those areas, for example, in the Guangdong province, in the Shanghai area. So, we believe that after shutting those not performing well hospitals, we have a more attention and more sources on those existing or we can call that remaining hospitals. We’ll enhance those hospitals, being better than 2020. So, this is what we are planning to do. And additional thing, we also plan to putting some improvement on the decoration as well as on the marketing on those remaining, existing hospitals as well. So, we believe that those hospitals will be doing good in the 2022.
Operator: Thank you. Now, I’d like to hand the conference back to Mr. Joe Su, for closing remarks.
Unidentified Company Representative: Thank you, operator. On behalf of our entire management team, I’d like to thank everyone again for joining us today. If you have any further questions, please contact us through email at ir@pengai.com.cn or reach our IR consultant DLK Advisory at ir@dlkadvisory.com. We appreciate your interest and support in Aesthetic Medical International and look forward to speaking with you again next time. Thank you.
Operator: Thank you everyone again for attending Aesthetic Medical International’s second quarter and first half of 2021 earnings conference call. This concludes our call today. And we thank you all for listening in. Goodbye.
