| To: Business Editor | For immediate release |
But bright outlook for improved future results
HONG KONG : 18 APRIL 2001
Quality HealthCare Asia Limited, (QHA-HKSE 593 ), Hong Kong's leading integrated healthcare provider, today announced a net loss of HK$ 46 million for the year 2000, following significant investment to firmly establish EHA as the 'Clearing House' for the healthcare industry, rapid expansion during the second year of the Group's elderly care home business, and the write-off of establishment costs of both the Chinese Medicine and Pro-Health businesses. No dividend for the second half of the year is being recommended.
Investment for the Future
The Chairman, Brian O'Connor, said that 2000 was a year of intensive activity, against a difficult stock market background, and reporting a significant loss was a disappointment. However, he stressed that the Group's core businesses all expanded, adding, "I believe that the worst is now behind us, and that the investments made during 2000 will lead to improved future results".
He said that throughout the year the Group had continued to set the benchmarks for international standards and to maintain its position in Hong Kong's private sector as the largest integrated healthcare provider, a platform for expansion in Asia.
Tasks for 2001
"Our tasks for the Group in 2001 are clear; increased profitability through concentration on improving the margins in our existing revenue base, and more emphasis on promoting the 'Blue Q' brand to the general public", he added.
Why a Loss
The Chairman said, "The single most negative factor on operations and results in 2000 was the decision to obtain a main board listing on the Hong Kong stock exchange for EHA, the Group's, now well established, transaction-handling and claims-processing business. Complexities in the listing process, delays in satisfying regulatory requirements, and other factors, resulted in completion much later than anticipated, by which time market confidence in the technology sector had collapsed. This prevented the Group from reaping the benefits of having created Asia's leading e-health group. However, we see those benefits as having been postponed, rather than lost.
"Under the management of Sam Abunassar, EHA has made remarkable progress in a very short time, against very difficult equity market conditions and perceptions. The company has, through its recently announced iBusiness transaction, attracted a number of 'blue chip' shareholders, including HSBC, Hutchison Whampoa, Cheung Kong, Hang Seng Bank and Excel Technology International," he said.
The Chairman stressed that the Group's core Medical, and Dental Physiotherapy Nursing, activities were profitable during the year, and the bulk of the Group's losses were associated with EHA's start-up and the investments in Elderly Care, Chinese Medicine, and the Pro-Health wellness programme.
( The following sections are extracted from the Group's press announcement )
FINANCIAL AND GROUP REVIEW
Highlights of the Group's year are set out below :
Turnover
Group turnover for the year 2000 amounted to HK$ 1,107 million, as compared to HK$ 461 million for the prior year. Turnover from continuing operations rose 49% to HK$ 689 million. The ground engineering and construction element, which is now a discontinuing operation, produced revenue of HK$ 418 million.
Comparisons to 1999 complicate the results
Comparison of the 2000 financial results with the prior year is complicated by a number of factors :
i) the impact of new accounting standards which were announced in April 2000 and effective from the beginning of that year
ii) the sale of certain operations to, and the consolidation of, EHA from 28 June 2000; and
iii) the resulting consolidation of the ground engineering and building construction business of Kin Wing Chinney from 28 June 2000.
Taking the above into account, the overall consolidated results for the year 2000 reflect a loss of HK$ 46 million after tax and minority interests, compared to a re-stated profit after tax for the prior year of HK$ 17 million. This represents a loss of 5.4 cents per share for the year 2000 (1999 - re-stated earnings of 2.7 cents per share). No dividend will be recommended for the second half of the year.
To set out the results in the context of the Group's main activities:
ehealthcareasia ('EHA')
The negative impact of both the start-up costs of EHA and the associated finance costs exceeded HK$ 100 million.
The Group had planned to reduce its equity holdings in EHA to the level where it would become an associated company (i.e. less than a 50% holding) through the sale of shares, to both reduce or eliminate the costs of acquisition and offset the EHA start-up costs/losses. Regrettably, due to procedural delays in establishing EHA, and the unfavourable market conditions that have persisted since, the Group has not been able to realise the exceptional gains expected from the sale of such shares, nor has it been able to thereby reduce the HK$ 304 million debt and associated financing costs arising therefrom, and this is reflected in the losses for the year.
Despite these difficulties, the Group remains committed to EHA, because it is very clear that there is great potential for a company that can provide a range of efficiency-enhancing services to healthcare professionals, insurers and others who pay for healthcare. Others, too, are recognising this. For example, through its recently announced iBusiness transaction, it has attracted a number of 'blue chip' shareholders , including HSBC, Cheung Kong, Hang Seng Bank, Hutchison Whampoa and Excel Technology International Holdings. In addition, EHA is also attracting attention from potential international investors and has announced it is in preliminary discussions with an investor who may take a stake in EHA.
On 26 March 2001, EHA announced it would sell its 50% interest in the ground engineering and building construction business for HK$ 88 million cash, and thereby focus on its core healthcare business.
Our expectations are that EHA will show significant improvement in performance in its first full year of public company operations. A key task will be to demonstrate to the equity investors that this is a real business, not an internet business. The internet is merely one of the means by which EHA communicates with its customer base. An investor relations programme is planned for the coming months, to promulgate these distinctions.
Quality HealthCare Medical Services
Quality HealthCare Medical Services comprises the medical practice businesses, and is the largest delivery network of quality primary healthcare services in Hong Kong.
Medical Services contributed profits of HK$ 36 million. This is a reduction on the previous year, due to difficulties in increasing charges, given the lingering recessionary / deflationary economy in Hong Kong. In addition, costs were incurred in the latter part of the year, as the outsourcing of 'back office' tasks gathered momentum. This meant the continued employment of processing staff who duplicated those working in EHA.
The outsourcing of large blocks of administration functions to EHA means that the duplicated costs referred to above no longer exist, allowing QHMS to concentrate on marketing and service provision in the future.
Medical Services' already large revenues are budgeted to grow, and the main emphasis for this year is on margin improvement for greater profitability.
Quality HealthCare Services
Our Dental Physiotherapy Nursing operation increased its revenue but saw profits reduce to HK$ 2.0 million, as a result of start-up losses related to the opening of new clinics in 2000.
Through increased utilisation, we expect this division to show an increase in revenue and profit in 2001. Concentration will again be focused on margin improvement.
Chinese Medicine and Pro-Health
2000 was a year of establishing both of these embryonic businesses, and costs, which have now been fully absorbed, were substantial at HK$ 9.5 million.
The costs involved in establishing these initiatives will not need to be repeated in 2001, and therefore breakeven or a small loss is targeted for these operations.
Quality HealthCare Elderly Services
Elderly Care grew by 53%, to some 2,000 elderly care beds, largely by acquisition. Unfortunately, however, the completion of our acquisitions occurred late in 2000 and therefore did not allow the revenues to be reflected in the current year reported operating results.
Nevertheless, a greatly reduced loss of HK$10.1 million was reported for the year.
Revenues are expected to grow further in 2001, and management's focus is on improvements in margins through increasing occupancy levels in existing homes and stringent cost controls.
We will also look for opportunities to acquire homes which meet our strict criteria in respect of location, size, occupancy, profitability, cost, and lease terms.
While the market has been competitive, we have stepped-up our promotional campaign, to achieve increased occupancy, to result in breakeven for the full year.
Overall, the fundamentals of the physical healthcare businesses are sound, and further attention is being focused on their profitability in 2001 and beyond, by extracting better margins from our substantial existing, and expanding, revenue base.
Senior Appointment
The Board recognises the need to strengthen the senior management and is pleased to welcome Geoff Broomhead to the position of Group Chief Financial Officer. Mr. Broomhead is well known to Quality HealthCare. He joined the Group when EHA acquired Software Associates in Australia last year. He has now relocated to Hong Kong, has been instrumental in restructuring EHA and has instituted strong financial controls and management information systems, while creating an effective in-house team. He has over 20 years' experience in corporate accounting and the financial management of both private and public companies. He holds a fellowship with both the Australian Society of Accountants and the Institute of Chartered Secretaries and Administrators. Key elements of Mr. Broomhead's remit will be the improvement of management information systems and ensuring that key financial targets are met.
Outlook
Quality HealthCare continues to build its position as the market-leading 'integrated healthcare services provider' in Hong Kong, with the largest network of healthcare professionals and the widest range of services in the private sector. The Group has also taken the lead in forging best practices and quality commitments in Hong Kong's healthcare system.
With very large revenues being generated by our businesses, we recognise the significance of improving our margins and, in 2001, are focused on achieving this objective.
The Group has received several approaches from potential investors seeking a minority stake in our Elderly Care operations, which focus on serving Hong Kong's rapidly greying population. The Group is prepared to consider this, as it would provide additional finance to reduce debt and continue the development of the Elderly Care business. Further information will be given to shareholders if and when these approaches bear fruit.
EHA has emerged as the leader in its field in Asia. The business is targeted to significantly improve its performance during its financial year ending March 2002, and its future is most encouraging.
Quality HealthCare looks forward to the time when consolidation in the very fragmented Asian healthcare market becomes appropriate. In particular, we are monitoring China's healthcare reform programme. There is no doubt that profitable opportunities for established providers such as Quality HealthCare will present themselves in the relatively near future.
In time, we aim to become a truly regional force, as I stated last year in our Vision 2002 initiative.
Healthcare Reform
Healthcare is in the early stages of a major reformation process throughout Asia.
In Hong Kong, in particular, the Government has issued a consultative paper on the long-term restructuring of the SAR's healthcare system. Such major reforms present opportunities for the Group. Other indications of future Government outsourcing have become evident, but we are disappointed by the slow pace of the action which Government itself acknowledges is much needed.
Throughout the 2000 year, Quality HealthCare continued to demonstrate what 'Quality' means and, in so doing, practices the five elements that make up the Group's approach: Care, Growth, Commitment, Professionalism and Reach. With these messages in mind, we are all working towards consolidating our businesses and an upturn in operations during 2001.
Our tasks are clear - increased profitability through concentration on improving the margins in our existing revenue base, the reduction of debt, and more emphasis on promoting the 'Blue Q' brand to the general public.
For more information, please contact:
Philip Kirkwood
Director
Quality HealthCare Asia Limited
Tel: +852 2169 7411
Fax: +852 2824 0308
E-Mail: philip@qha.com.hk
Ruth Fazakerley
Director
Weber Shandwick Worldwide
Tel: +852 2542 6115
Fax: +852 2545 8890
E-Mail: rfazakerley@webershandwick.com
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