Fang Liu - IR Manager Jianyu Yang - Chairman and Chief Executive Officer Kong Yap - Chief Financial Officer.
Good morning and good evening everyone. Welcome to Concord Medical’s First Half 2016 Earnings Conference Call. With us today are Dr. Jianyu Yang, Chairman and Chief Executive Officer of Concord Medical; Ms. Kong Yap, Chief Financial Officer of the company; and Ms. Fang Liu, IR Manager of the company.
[Operator Instructions] I must advise you that this conference is being recorded today, Thursday, August 25, 2016. I would now like to hand the conference over to your first speaker today, Ms. Fang Liu. Thank you. Please go ahead..
Hello, everyone. The conference results were released earlier today and are available on the company’s Investor Relations website as well as on the respective wire services.
Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties and as such our results may materially differ from the views expressed today.
Further information regarding those and other risks and uncertainties is included in our registration statement and our Form 10-K and other documents filed with the SEC. Concord Medical does not assume any obligation to update any forward-looking statements, except as required under applicable law.
At this time, I would like to turn the call over to our Chairman and CEO, Dr. Yang. Please go ahead..
Hello, everyone. Welcome to the Concord Medical first half 2016 earnings conference call. In the first half of this year, our revenue and profit was seeing some headwinds due to internal and external factors and we have taken initiatives in cutting cost and expenses to lower the impact.
During the second quarter of 2016, we are glad to see our loss was apparently decreased quarter-over-quarter. In Q2, our total revenue fell about 21.7% than the same period last year with the loss of RMB18 million. Since late last year, industrial regulation has started restricting our original business model of collaborating with military hospitals.
At the same time, as we initiated the business model transformation since 2014, former centers are gradually coping and the company was focused on the planning and construction of our wholly owned hospitals. Both the deteriorating regulatory environment and the strategic transformation remain the main factors contributing to the revenue decrease.
Concord Cancer Hospital, which we acquired in Singapore last April, was keeping restructuring to a new stage of business and treatment process brought obvious net loss. We are delighted to see patients from mainland China have started to visit our hospital and with the most advanced treatment approach and chemotherapy since this March.
We will be able to provide better oncology service with further collaboration between Concord Cancer Hospital and MD Anderson Cancer Center, MDACC for short, on treatment technology, know-how and branding. At the same time, we achieved inspiring achievements on our strategic information.
As an upgraded version of our original business model, the Meizhongjiahe network of wholly owned imaging diagnosis and radiotherapy hospitals is gradually implemented. The first hospital under this chain, Datong Meizhongjiahe Cancer Hospital, has opened preliminary since May.
Datong Hospital will join the local social insurance coverage and provide high quality cancer diagnosis to local patients at Datong and Shanxi Province.
Followed on Datong project, we have also accelerated the planning of the network of independent radiotherapy hospitals and imaging diagnosis center by expanding our next step to cities such as Wuxi, Hangzhou, Nanchang and Shanghai.
Learning from the experience of Datong Hospital, we will further optimize the processes of establishing level two specialty cancer hospitals, such as site selection, government approval, decoration, environment assessment and lessons application.
The other premium medical institutions in mainland China, Shanghai Concord Cancer Hospital and Guangzhou Concord Cancer Hospital are progressing steadily in this quarter.
Although the planned construction dates have been put back due to the delay in governmental troubles, we will try our best to make sure the successful establishment of both hospitals by accelerating the pace of construction and the preparation work. Chinese economy has entered into new normal stage.
Facing new challenges from the regulatory environment, we will continue to execute our development strategies in the long run, steadily expand our network of Meizhongjiahe hospitals and diagnostic imaging centers, fully leverage our strategic partnership with MDACC to establish high level hospitals and solidify our leadership in cancer specialty medical management.
We will make full use of our accumulated medical resources and academic skills to adopt the international standards and to advance the cancer treatment and diagnostics in China, serve the Chinese patients with might and main. This concludes my comments. Thanks for listening. At this point, I would like to turn the call over to our CFO, Mr.
Kong Yap to review our financial performance..
Okay. Thank you, Dr. Yang. Welcome everyone to our call. First, I would like to review the highlights of our first half 2016 financial results. Please note that all financial currency amounts mentioned in this presentation will be in RMB, expect those which will be specifically identified in other currencies or format.
For the first half of 2016, total revenues were RMB254.6 million, a 21.7% decrease from RMB325.2 million in the same period last year. Total net revenues is composed of net revenues from the network business of $246.7 million and from Concord Cancer Hospital of $8 million.
Gross profit was $101.6 million, representing a 33.9% decrease from RMB153.6 million in the first half of 2015. The gross profit margin for the first half of 2016 was 39.9% compared to 47.2% for the same period last year.
Net loss attributable to ordinary shareholders for the first half of 2016 were RMB50.4 million, which consist of RMB32.2 million in Q1, RMB18.2 million in Q2 compared to a net income of RMB65.1 million for the same period last year.
Net loss is composed of net loss from the network business of RMB20.4 million and from Concord Cancer Hospital of RMB30 million.
Basic and diluted loss per American Depositary Share, or ADS, for short, in the first half of 2016 were both RMB1.15 or $0.17 compared to basic and diluted profit per ADS of RMB1.45 and RMB1.44 respectively in the same period last year.
Adjusted EBITDA non-GAAP was RMB68.6 million for the first half of 2016, representing a 49.1% decrease from RMB134.8 million in the same period last year. And now let me present our financial results for the first half of 2016 by segment. Let’s start with our network business.
Net revenues from the network business were RMB246.7 million, a 22.2% decrease from the net revenues RMB317 million in the first half of 2016, attributable to the closure of certain cooperative centers in our network of centers during the past years and the changes in the revenue-sharing split according to the contracts signed within the company and our public hospital partners.
Cost of revenues of the network business was RMB170.9 million, a 12.7% decrease from RMB157.8 million in the first half of 2015. Since 2015 Q4, the network business has continued facing uncertainties in the regulatory environment. Our revenues and profits of the original network business were still under pressure.
As of June 30, 2016, the company operated a network of 123 cooperative centers in 52 cities in China and had entered into agreements to establish one additional center. Gross profit from the network business was RMB108.8 million, representing a 31.7% decrease from RMB159.2 million in the first half of 2015.
The gross profit margins for the first half of 2016 was 44.1% compared to 50.2% for the same period last year.
The decrease was mainly due to the closure of certain cooperative centers in our network of centers during the past years and the changes in the revenue-sharing split according to the contracts signed between the company and our public hospital partners, bringing more significant decrease in revenues than in cost.
As of June 30, 2016, the company had bank credit lines totaling RMB3.5 billion, equivalent to $524.6 million, of which RMB1.1 billion, which is $168.9 million was utilized.
Going forward, we will continue to make greater efforts to improve the cost efficiency in our centers and we are still – and we will selectively transform some of the existing centers into freestanding, fully owned centers to minimize the negative impact of the downturns of our original network business.
We are pleased to have announced the primary opening of our Datong Hospital in May and we are accelerating our pace of expanding the Meizhongjiahe freestanding hospital network throughout China.
Now let me turn to the financial summary of our Concord Cancer Hospital in Singapore, which is a high end, privately owned, for profit oncology hospital with 31 beds. The financial results of the hospitals were consolidated to our financial results starting from Q2 2015.
In the first half of 2016, net revenues for the hospital business were RMB8 million. Cost of service of the hospital business for the first half of 2016 were RMB15.2 million. Gross loss from the hospital business was RMB7.2 million in the first half of 2016.
The hospital established existing patients from China since Q1 2016 for the latest immunotherapy treatments. With the support and guidance from MD Anderson’s MDACC, we also started renovations in Concord Cancer Hospital in Singapore to update the facilities and to expand the radiotherapy services.
A linear accelerator will be installed in these hospitals to better serve patients from South Asia as well as from Mainland China. In July, the Board received going private non-binding proposal from buyer parties, including Mr.
Jianyu Yang, Chairman and Chief Executive Officer of the company, Morgancreek Investment Holdings Company – Limited and investment vehicles controlled by Mr. Yang and Blue Ocean Management Limited. The buyer party proposed to acquire all of the outstanding Class A ordinary shares and ADS of the company.
They are not beneficially owned by the buyer’s party and their affiliates at a prize of $1.73 per Class A ordinary share or $5.91 per ADS.
Currently, the Board is carefully reviewing the proposal in consultations with its legal and financial advisors and will determines the course of actions that is believed is in the best interest of the company’s shareholders. And that concludes our prepared remarks. Thank you for your attention. And now, we would like to open up to questions.
Operator, please go ahead. Thank you..
Operator:.
Once again, thank you for joining us today. Please don’t hesitate to contact us if you have further questions. Thank you for your continued support. Have a good day..
Ladies and gentlemen, that doesn’t include our conference for today. Thank you for participating. You may all disconnect..
Thank you..