Announcement of 1999 Interim Results
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GROUP RESULTS
The board of directors of Quality HealthCare Asia Limited (the "Company") herein announces the unaudited consolidated results of the Company and its subsidiaries (the "Group") for the six month period ended 30 June 1999 with comparative figures for the previous corresponding period as follows:
1999 1998
HK$'000 HK$'000
Six months ended 30th June Notes (Unaudited) (Unaudited)
Turnover 158,617 171,090
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Operating profit 14,902 19,180
Taxation 1 (1,083) (3,069)
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Net profit attributable to shareholders 13,819 16,111
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Earnings per share: 2
Basic 2.32 cents 2.87 cents
Diluted 2.13 cents 2.62 cents
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Notes:
(1) Taxation
Hong Kong profits tax has been provided at the rate of 16% (1998: 16%) on the estimated assessable profits arising in Hong Kong during the period.
(2) Earnings per share
The calculation of basic earnings per share is based on the net profit attributable to shareholders of HK$13,819,000 (1998: HK$16,111,000) and on the weighted average of 594,922,657 ordinary shares (1998: weighted average of 560,826,768 ordinary shares) in issue during the period.
The diluted earnings per share is based on the adjusted net profit attributable to shareholders of HK$14,558,000 (1998: HK$17,156,000) calculated on the assumption that the unexercised convertible notes of the Company (which would have a diluting effect on the earnings per share) had been converted at the beginning of the period. The diluted earnings per share is based on 682,556,094 ordinary shares (1998: 655,824,988 ordinary shares), which is the weighted average of ordinary shares in issue during the period plus the aggregate of (i) the weighted average of 12,551,181 ordinary shares (1998: 6,288,186 ordinary shares) deemed to be issued at no consideration if all outstanding share options had been exercised; (ii) the weighted average of 61,684,431 ordinary shares (1998: 88,710,034 ordinary shares) to be issued on conversion of all convertible notes; (iii) 8,650,789 ordinary shares (1998: nil) to be issued on exercise of all outstanding warrants; and (iv) the weighted average of 4,747,036 ordinary shares (1998: nil) to be issued in satisfaction of the deferred consideration for the purchase of Universal Lane Limited.
INTERIM DIVIDEND
The directors do not recommend the payment of an interim dividend for the six month period ended 30 June 1999 (1998: Nil).
INTERIM STATEMENT
The first six months of 1999 were both challenging and exciting for your Group as we made significant progress towards our key objective of building the leading "integrated healthcare services" group in Hong Kong.
It has been challenging because the development activity set out below has been achieved in recessionary times which carried over from 1998. While the recession and a changing medical sector create challenges, we continue to believe in the Chinese expression "adversity creates opportunity". Without such conditions, it would not have been possible to rapidly build the Group to the size and strength it is today. As we all know, when the markets are bullish in Hong Kong, reasonably priced opportunities are few and far between.
The first half of 1999 has been exciting as the Group has been able to "fast track" the addition, mainly by acquisition, of key building blocks in its core businesses. These additions, as set out below, now give the Group the necessary critical mass, in its targeted sectors, on which to profitably grow into the new Millennium.
GROWTH IN SERVICES
To illustrate the impact of the above activity at a glance, the following table illustrates the volumes which are represented.
Dec 1998 Jun 1999 Aug 1999
Medical Centres 105 106 200
Physicians 183 187 300
Corporate Contracts 880 880 1,150
Lives Served 200,000 200,000 300,000
Elderly Care Beds 305 753 988
Physiotherapy Locations 4 6 8
Dental Locations 1 4 4
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FINANCIAL REVIEW
Turnover for the first 6 months of 1999 was 158.6 million (1998 : HK$171.1 million) with a profit after tax of 13.8 million (1998: HK$16.1 million). Earnings per share on the enlarged share base were 2.32 cents (1998: 2.87 cents). Perhaps, as a more meaningful comparison, we should assess the first half of 1999 results against the second half of 1998, where turnover was HK$160.2 million and profits after tax and exceptional items were HK$6 million. This shows a recovery in profitability: profits before tax 1H98: HK$19 million; 2H98: HK$12 million; 1H99: HK$15 million.
In summary, excluding the medical equipment distribution business, turnover has improved over the second half of 1998 and is returning to levels close to the first half of 1998. Elderly Services Division had only a HK$3 million contribution in the period, due to the timing of acquisitions.
The table set out below gives an indication of the comparative revenue figures for each Division.
HK$ Million
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1st HALF 2nd HALF 1st HALF
1998 1998 1999
Quality HealthCare Medical Services 134 127 131
Quality HealthCare Services 19 17 20
Quality HealthCare Elderly Services - - 3
Quality HealthCare Technologies & Services 18 16 5
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171 160 159
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The above comparisons highlight the impact of deepening recession through this eighteen month period. At the same time, shareholders will recognise that the Group has been able to 'weather the storm' while at the same time expending considerable executive and staff time and effort in:
The Directors are now satisfied that the Group has the critical mass and key business sectors from which to grow the base and implement the exciting new marketing plans set out at the end of this report.
BUSINESS REVIEW
After just eighteen months of development activity, and including the acquisition of the AMPG Group in July 1999, the Group has built a formidable integrated healthcare services operation as set out below.
DIVISIONAL INFORMATION
Together with Head Office, the Group now has over 670 employees.
Share Placement
On 25 May, the Group successfully completed a share placing, to institutions from Asia, Europe and the USA, of 89 million shares at $1.07 per share, thereby raising $91.2 million, net of expenses.
There has been increased activity in both out shares and warrants, with increasing monthly trading turnover. For the six months to June, share turnover was 150 million shares (excluding the 89 million placed shares) and 26.5 million warrants. Shareholders will be pleased to note that shares were trading at around HK$0.70 at the 1998 year end and, by the end of June 1999, in the $1.50 range.
There are now a considerable number of brokers who follow Quality HealthCare and many fund managers have visited our facilities and met with senior management. Over the past several months, the public and the investment community have become increasing knowledgeable on the healthcare industry.
FUTURE PLANS AND OPPORTUNITIES
As set out above, over the relatively short period of eighteen months since the Company refocused its efforts under new ownership and management control, it has become the largest fully integrated private sector healthcare provider and the only dedicated healthcare company listed in Hong Kong. It is important to note that not only is it collectively the clear leader, but also the individual Divisions are now already, or are poised to shortly become, leaders in their distinct service areas.
Having now built the critical mass envisaged in its longer term plans, the Group is ideally positioned to begin implementing Phase II of its development programme. With early signs that the recession is bottoming out and optimism, albeit cautious, of there being an upturn in the market, the Group is well placed to take advantage of this well into the new Millennium.
Having up to now expended time, effort and investment on the Planning, Building and Reorganising Phases, the Group is now able to refocus its energies in taking advantage of the various exciting opportunities set out below.
Major Changes in the HealthCare Market
We are operating in a market which is undergoing considerable change. The well publicised Harvard Report consultation period has ended and the Government will soon make public their views on the way forward. This, combined with the current recession, is forcing a rethink of how Hong Kong finances healthcare. The Government's publicly expressed determination to introduce privatisation and outsourcing will provide substantial opportunities for an integrated healthcare services group such as Quality HealthCare, particularly in the following areas:
Elderly Community Developments
The Group's investment in people, software and industry expertise in the care for the elderly sector has positioned it to take advantage of changes in community planning and development concepts which are now being recognised to alleviate a build-up of the shortfall in quality elderly facilities which currently exists.
Over the past six months, Quality HealthCare Elderly Services has made various submissions to, and held discussions with, Government on the creation of community development plans which better accommodate the elderly. Using the knowledge gathered from more developed markets in the US, the UK and Australia and adapting various features thereof to the local market, the Group has advanced concepts for future property developments catering for the elderly by providing a 'continuum of care' which facilitates 'ageing in place'
In formulating the above, the Group has been working with certain leading property developers who have identified both the community need and the potential market for such new property products. These developers also recognise the need to work with our Group for "Quality" elderly, medical and other healthcare input and eventual management of such developments.
"Blue Q" Branding and Membership Packaging
As indicated above, considerable efforts have already been made in all Divisions with signage, marketing materials, etc. to present a uniform Group image through "Blue Q" branding.
The intangible value of the above programme is significant in promoting public awareness of Quality HealthCare and thereby building a Group which is of greater real value than the sum of its parts. At the same time and of much more direct benefit, the Group is now able to actually market a new "Blue Q Card" membership programme to attract large patient groups and increase the numbers of new 'walk-in' patients.
Medical/HealthCare Services Hotline
For a number of years now, one of the units in the Group has operated a medical services 'hotline' for its patients. Over the past few months, the Group has been streamlining and upgrading this service in recognition of its future potential.
Not only is this 'hotline' a valuable customer service feature but it is now perceived to have tremendous marketing potential when linked to today's communication networks, including the Internet.
Internet Marketing
Since the Group opened its webpage last year, it has been actively investigating how it may best optimise the expanding Internet market for healthcare services.
While numerous parties are introducing Internet concepts for all manner of services, when it comes to healthcare, few if any have the depth of either back-up knowledge or facilities that is available to the Group. Having identified this strength, and wishing to promote its integrated services to a wider audience, the Group is actively investigating how best to achieve its objectives. Recognising the need for Internet expertise and the funding which this entails, the Group is pursuing available options and is hopeful of announcing its Internet plans in the near future.
CONCLUSION
The Board took a decision eighteen months ago to build and position Quality Healthcare as the integrated healthcare services group in Hong Kong. Despite the recession, your Board reaffirms that decision as the right one, as evidenced by our determination to move forward rapidly through acquisition and investment. While this can have a short term negative impact on profitability, there is no doubt that we are building a formidable organisation with the right teams, services and positioning to take advantage of the eventual upturn and all the particular sector opportunities in areas where the Group is active in Hong Kong.
The business platform has now been created through acquisition and start-ups and the key elements of divisional management are in place and have accepted responsibility to extract maximum benefit from the existing base. The focus of the Executive Board members can now move from concentration on acquisitions to developing business strategies and providing support to the Division management in the future.
YEAR 2000 COMPLIANCE
The Year 2000 issue has arisen because many computer systems and electronics devices which store date information based on a two year digit sequence are unable to accurately process dates for the Year 2000 and beyond. Non-compliance with the Year 2000 issue by the Group, its suppliers, its customers and other business associates could, if not dealt with, cause disruption to the business operations of the Group. The Group has been informed by insurance brokers that there is no coverage insurance policies for Year 2000 issue losses.
The Group's Year 2000 compliance project plans have four phases: scope analysis, compliance testing, rectification and testing, and implementation. All of these phases have been completed. A contingency plan is also being established to manage the risk of failure and to minimise the potential impact of Year 2000 problems to operations. The plan will continue to be refined and tested throughout 1999.
The total costs of a project to upgrade the Group's computer processing capabilities which, at the same time, will be Year 2000 compliant is estimated to be approximately HK$1.9 million. Approximately HK$1.7 million of these costs have been incurred for purchase of fixed assets such as computer hardware and software. As at 30 June 1999, no material commitments had been contracted but not provided for and the amount authorised by the directors but not yet contracted for was approximately HK$200,000.
PURCHASE, SALE OR REDEMPTION OF SHARES OR WARRANTS
There have been no purchases, sales of redemptions of the Company's shares or warrants by the Company or any of its subsidiaries during the period under review.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Group has complied with the Code of Best Practice set out in Appendix 14 of the Listing Rules of the Stock Exchange, which specifies the best practices to be followed by directors and non-executive directors, for the six month period ended 30 June 1999.
On behalf of the Board
Brian O’Connor
Executive Chairman
Hong Kong, 24 September 1999
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