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spk01: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Aesthetic Medical International's Third Quarter 2020 Unaudited Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. This conference has been recorded today, Monday, November 30, 2020. If you require operator assistance, please press star then zero. Joining us today from Aesthetic Medical International are the company's chairman and CEO, Dr. Pengwu Zhou, and the company's IRD, Mr. Zeng Yiquan, and the company's financial officer, Mr. Guanhua Wu. Before we get started, I would 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 discussion of the risks and uncertainties, you should review the company's filings with the SEC, which includes 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 profit, and adjusted EBITDA. you should not consider EBITDA, adjusted EBITDA, and adjusted profit as a substitute or are superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not determined 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 are 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 Mr. Peng Wuzhong, Chairman and CEO of Aesthetic Medical International. His opening remarks be delivered in English by IRD Mr. Song Yik Wong. Mr. Zhou, please go ahead.
spk03: I would like to summarize the response measures of the company for the COVID-19 pandemic in the third quarter of 2020, as well as the performance of the company in the third quarter of 2020. Then, with our investor relations director, Mr. Jiang, to interpret and explain our financial statements in more detail, the operating status of the company, and the relevant situation of the company's future development,
spk04: Thank you, operator, and everyone for joining Aesthetic Medical International's third quarter 2020 and audit earning conference call today. I will begin my remarks by providing an overview of the company's response to the COVID-19 outbreak during the third quarter 2020, followed by a summary. of the company's third quarter 2020 performance. Then Dr. Jenny Guang, our IRD, will review our financial results and operations performance in more detail. And she will elaborate a few other items related to our outlooks and the approaches we are taking to implement our initiative in this fiscal year.
spk03: Although the current COVID-19 epidemic in China has been effectively controlled, we are still implementing strict and thorough measures to prevent and control COVID-19, including disinfecting and ventilating the facilities that are not limited to regular companies, and taking strict measures to protect our frontline employees and customers. During the lunch break for employees,
spk04: Despite the fact that the COVID-19 is under effective control in China at this current stage, we are implementing a thorough COVID-19 prevention scheme and measures, including but not limited to regularly sterilizing and ventilating the company's facilities. taking strict protective measures to protect our frontline employees and customers, celebrating employees' lunch times, monitoring the body temperature of our employees and customers, and keeping track of the travel history and health of our employees and their immediate family members.
spk03: I am very honored to announce In the third quarter of 2020, our active customer base has reached 83,222, which is 16.4% compared to 71,502 in the third quarter of 2019. This reflects that in the process of dealing with the impact of the COVID-19 pandemic and the unpredictable COVID-19 pandemic, Our management has shown the ability to adapt and our business flexibility. At the same time, mainly through the acquisition of Guangdong Penghai Aviation Hospital, management limited company and the entire industry chain, our core business measures have been implemented well, and our market share in the medical industry has been strengthened.
spk04: I'm very pleased to announce that for the third quarter of 2020, we recorded a total number of active customers of 83,222, achieving an increase of 16.4 from 71,502 in the third quarter of 2019. This reflects our management accuracy and business resilient despite the full burnout and the unpredictability brought by the COVID-19 pandemic. At the same time, our core business initiatives were well executed and our market share in the aesthetic medical industry was strengthened primarily through our completion of the acquisition of Guangdong Penghai Hanfei Hospital Management Co-Limit. and our integration of the industry chain.
spk03: At the end of September 2020, all medical institutions in China have resumed operations. In the third quarter of 2020, the company's business situation has fully recovered and surpassed that of the same period last year. As China gradually recovers from the impact of the COVID-19 pandemic, according to the signals shown by the market, At the end of September 2020,
spk04: all of our aesthetic treatment center in China has resumed operations. In the third quarter of 2020, the company's business operation has resumed to the same or even surpassed the same period last year. The markets have been signaling the recovery in our business and the aesthetic medical industry as China gradually recovers from the aftermath of COVID-19 outbreak. Customers are adapting to the new normal and gradually restoring their conscientious enthusiasm in consuming aesthetic medical service. In addition to allocating our resources to focus on enhancing our customers' stickiness and improving our brand awareness, long-term growth and turns within emphasis on sustainability remains our priority.
spk03: As a result, our revenue increased from RMB 2.379 billion in the same period in 2019 to RMB 2.813 billion in the third quarter of 2020, and 41.4 million US dollars, with an increase of about 18.2%. Our net profit increased from RMB1.643 billion in the same period in 2019 to RMB1.797 billion in the third quarter of 2020, and a growth of about US$26.5 million.
spk04: Turning back quickly to our third quarter 2020 unaudited result, you can see from our earnings release, our total number of active customers and financial performance in third quarter 2020 has recovered despite the fact that the aftermath of COVID-19 outbreak has not been completely unlimited. Therefore, our revenue increased by 18.2%. to RMB 281.3 million, approximately equals to $41.4 million in third quarter 2020, from RMB 237.9 million in third quarter 2019. And our gross profit increased by 9.4% to RMB 179.7 million, which is approximately equals to 26.5 million U.S. dollars. In the third quarter of 2020, from RMB 164.3 million in the same period of 2019.
spk03: Thank you again for your support and attention. Next, our investor relations director, Mr. Jiang, will report on our third quarter of 2020
spk04: Thank you again for all your support and attention. Next, I will turn the call over to Mr. Chen Liguang, our IRD, who will reveal our operation result and financial result for the third quarter of 2020 and the nine-month end, September 30th. as well as our business outlook on behalf of the management team. Mr. Sun, please go ahead. Thank you, Dr. Zhou, and good morning, everyone. Next, on behalf of the management team, I will summarize some of the key unordered financial results and operation results for third quarter 2020 and nine months end, September 2020. First of all, third quarter 2020 on all the financial results. In this quarter, our total revenue increased by 18.2% to RMB 281.3 million, which is about 41.4 million US dollars. The increase in the total revenue was primarily due to the acquisition of Guangdong Penai Hanfei Hospital Management Corporation Limited and the increased total number of active customers developed through the company's enhanced marketing and advertising efforts. The gross profit was RMB 179.7 million, which is $26.5 million and increase of 9.4% from RMB 164.3 million in the third quarter of 2019, primarily as a result of the increase in revenue due to the acquisition of the Guangdong Penghai Hanfei and the expand customer base. The gross profit margin was 63.9, a decrease of 5.2% points from 69.1 in the third quarter of 2019, mainly due to the more competitive pricing strategy adopted by the company, and it subsidized in response to the outbreak of COVID-19. The gross profit of non-surgical aesthetic medical service was RMB 87.7 million, which is about 12.9 million U.S. dollars, a decrease of 19.4 from RMB 108.8 million in the third quarter of 2019. The gross profit margin was 63.4%, a decrease from 75.2% in the third quarter of 2019. The gross profit of minimal invasive aesthetic treatment was RMB 46.5 million, which is about 6.8 million US dollar, an increase of 36% from RMB $34.2 million in the third quarter of 2019. Gross profit margin was 65.7% and increased from 64.8% in the third quarter of 2019. The gross profit of energy-based treatment with RMB 41.1 million, which is about 6.1 million US dollar, a decrease of 44.9% from RMB 74.6 million in the third quarter of 2019. The gross profit margin was 60.8%, a decrease from 81.2% in the third quarter of 2019. The gross profit margin of surgical aesthetic medical service was RMB $86.1 million, which is about $12.7 million, an increase of $65.9 million from RMB $51.9 million in the third quarter of 2019. The gross profit margin was 66.8% and increased from 64.2% in the third quarter of 2019. The gross profit of general health care service and other aesthetic medical service was RMB 5.9 million, which is about $0.9 million, an increase of 59.5% of RMB 3.7 million in the third quarter of 2019. The gross profit margin was 41.8%, an increase from 29.8% in the third quarter of 2019. Expenses was RMB 140 million which is about 20.6 million US dollar representing 49.8% of the company's total revenue of the same period comparing to selling expenses of RMB 103.5 million in the Third quarter of 2019, which represents 43.5% of the company's total revenue of the same period. Selling expenses increase on a year-over-year basis, primarily because of the company's enhancing its marketing efforts and advertising and the marketing expenses to expand the brand's reach. boost sales and attracting new customers. The general and administrative expenses were RMB 61.1 million, which is about 9 million U.S. dollar, an increase of 14.4% from RMB 53.4 million in the third quarter of 2019. primarily due to the increase of share-based compensation expenses, which was first recognized in June 2019, and the acquisition of Guangdong Penai Hansei. As a result of the foregoing, the companies record a loss for the third quarter, of 2020 of RMB 17.7 million, which is about 2.6 million US dollar compared with a profit of RMB 118.8 million RMB in the third quarter of 2019. Basic loss per share was RMB 0.26, which is about 4 cents U.S. dollar compared with the basic earning per share of RMB 2.77 in the third quarter of 2019. Diluted loss per share was RMB 0.26, which is about 4 cents U.S. dollar compared with the diluted loss per share of RMB 0.12 in the third quarter of 2019. The EBITDA for the third quarter of 2020 was RMB 6.9 million, which is about 1 million US dollar, a decrease of 95.4% from RMB 1.3 million in the third quarter of 2019. The adjusted profit for the third quarter of 2020 was RMB 6.9 million, which is about $1 million, a decrease of 65.8% from RMB 20.2 million in the third quarter of 2019. The adjusted EBITDA for the third quarter of 2020 was RMB 31.5 million, which is about $4.6 million, a decrease of 39.1% from the RMB $51.7 million in the third quarter of 2019. The nine-month end, September 30, 2020, unaudited financial results. For the nine-month end, September 30th, our total revenue decreased by 14.6 to RMB 539.0 million or US dollar 79.4 million. The decrease in total revenue was primarily due to the temporary shutdown of the company's treatment center in February and March. of 2020 and all those control measures implemented by the companies to limit the customer flow in the treatment centers due to the outbreak of COVID-19 during the first quarter and second quarter of 2020 and the more competitive pricing strategy adopted by the company and it subsidized in response to the outbreak of COVID-19. The gross profit was RMB 309.8 million, which is about 45.6 million US dollar, a decrease of 28.1% from RMB 430.9 million in the same period of 2019, primarily as a result of the decrease in the revenue in the first quarter and the second quarter of 2020 due to the COVID-19 outbreak. The gross profit margin was 57.5% and decrease of the 10.8% point from the 68.3% in the same period of 2019, primarily as a result of the decrease in revenue in the first quarter and the second quarter of 2020 due to the COVID-19 outbreak. And the gross profit margin for the non-surgical athletic medical service was RMB 150.9 million. And the gross profit margin of minimal invasive treatment was RMB 83.7 million. The gross profit of energy-based treatment was RMB 67.2 million. The gross profit of the surgical aesthetic medical service was RMB 145.4 million. The gross profit of the general healthcare service and other aesthetic medical service was RMB 13.5 million. The selling expenses with RMB 310.5 million representing 57.6% of the company's total revenue of the same period, comparing to the selling expenses of RMB 267.8 million in the same period of 2019. And administrative expenses was RMB 168.8 million, which is an increase of 41% from RMB 119.7 million in the same period of 2019 due to the increase of share-based compensation expense. which was first recognized since June 2019. As a result of the foregoing, the company registered a loss for the nine month end in September 30th, 2020 of RMB 165.2 million which is about 24.3 million US dollar, compared with a profit of RMB 198.9 million in the same period of 2019. The basic loss per share was RMB 2.43, which is about 33 cents of US dollar. The EBITDA for the September 30th, 2020 was a loss of RMB 98 million, which is about 14.4 million US, a decrease of 133.1% from a profit of RMB 295.7 million in the same period of 2019. The adjusted profit for the nine month end was RMB 82.5 million, which is about 12.1 million US dollar. The adjusted EBITDA for the nine month end was a loss of RMB 15.2 million, which is about 2.2 million US, a decrease of 109.9% from a profit of RMB 153.3 million in the same period of 2019. And now I am going to share with you about our operational results. The repeat customers are defined as active customers who have previously received at least one procedure from the company account for 56.8% of the company's active customers based in the third quarter of 2020. The company conducted a total of 187 including about 49,551 surgical treatments and 132,393 non-surgical treatments in the third quarter of 2020. representing an increase of 14.6% and 27.8% and 14.3% respectively from 153,943 total treatments and 38,764 surgical treatments. and 115,799 non-surgical treatments in the third quarter of 2019. Repeat customers account for 58.6% of the access customers based in the 9 months and September 30, 2020. And 49 months and the company conducted a total 413,077 treatments including 86,792 surgical treatments and 297 1076 non-surgical treatments representing an increase of 14.8%, 30%, and 13.1% respectively from 360, 41, 360,471 total treatments and 66,748 surgical treatments and 263,235 non-surgical treatments in the same period of 2019. Now for a quick summary of our balance sheet and cash flow. As of September 30th, we had a cash and cash equivalents of RMB 66.2 million, which is about 9.8 million US dollar, and RMB 154.5 million as of December. 31st, 2019, the net cash used in operating activities with RMB 19.7 million, which is about 2.9 million for the nine months end, compared to the net cash generated from operating activities of RMB of RMB 99.6 million for the same period of 2019. The net cash used in investing activity was RMB 106.9 million, which is about 15.7 million US dollar, and the net cash generated from financing activities with RMB 33.3 million, which is about 5.6 million US dollars for the nine months. For our other developments, on October the 13th, this year the companies announced that its board of directors had approved a share repurchase program under which the company was authorized to repurchase in the open market up to $6 million worth of its ADS from time to time until October 12th. 2021, depending on general market condition and trading price and other factors, as well as subject to the applicable laws and the company's security trading policy. As of November 30th, 2020, 45,000 ABS was repurchased with a total consideration of approximately $0.3 million. And for our business outlook, as China gradually recovers from the aftermath of the COVID-19 outbreak, the company has experienced a recovery in its business operations. While the duration of the COVID-19 pandemic and its negative impact to market demand and the company's business operations still cannot be conclusively and accurately estimated at the same time since there is still uncertainty for the possible COVID-19 outbreak in the future, The company currently expects that its revenue for the fourth quarter of this year will be gradually recovered. Such expectation reflects the current and preliminary view of the company's management team based on the information available at this time and may be subject to change. The company will continue to monitor and evaluate the development of the pandemic and the result financial impact on the company. The liquidity and capital resources. The company has net current liability of RMB 236.2 million. RMB as the as at the September 30th this year, from the second quarter of fiscal year 2020 to the third quarter of fiscal year 2020, and the companies completed three acquisitions leading to a potential cash flow amounting to approximately RMB 54 million in the coming 12 months after the date of this release. During the first quarter of 2020, due to the outbreak of COVID-19, the company shut down its aesthetic treatment centers. This creates medical and advice impact on its revenue and cash flow for the first half of 2020 with with potential continuing impacts on subsequent periods after considering the gradual recovery of business post the COVID-19 outbreak. It's expected cash flow from future operations taking into consideration cost cutting measures funds from bank borrowings and other source of financing. The company concluded that it has sufficient financial resources to meet its financial obligations as and when they fall due in the coming 12 months. I would like to add some color regarding our company's strategy in the We plan to stay focused on integrating the aesthetic medical industry change. During the past few years, the aesthetic medical industry has been evolving from niche to mass market consumption with higher consumption demand and more standardizing and diversifying products and services and other high level of brand recognition. To adopt to this market trend, we strive to become an athletic medical company with more competitive medical capability. The ability to provide a full cycle service and more importantly with well recognized brands and a larger business scale. To that end, we need to quickly increase our business scale to improve our competitive strengths, our market share, and accordingly our profitability. Our strategy is crystal clear. It is to make good use of our funding to consolidate good targets with attractive valuation. Now, I would like to turn the discussion over to the operator, Andrew, for any questions.
spk01: Andrew. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael Irwin of Univest Securities. Please go ahead.
spk06: Hi. Michael Irwin, Univest Securities project associate. My first question is China has been recovering quite well from the COVID-19 outbreak and things are appearing to be mostly back to normal. Have you seen business returning to normal or about normal levels currently?
spk04: Thank you, Michael. We have, as you can see, we have a pretty good increase in numbers and for some numbers we even made some new records for this year. So we are expecting an even better report card for the next quarter.
spk06: My next question is, are there any concerns about the two Shanghai locations with the sudden increase in cases in Shanghai region?
spk04: Thank you for your question. Shanghai is a very big city with millions of people. The population of Shanghai is almost as large as the population of Australia. one or two single cases will not affect the entire picture. And the local government is doing a good job finding out those cases and treat them with the right treatment. So we are very optimistic about what's going on in Shanghai.
spk06: Okay, and there has been a global trend of more males getting the aesthetic treatments. Have you also been seeing this trend in your centers with more males actually coming into your clinic to receive treatment as well?
spk04: Thank you. That's a very good question. Currently, we have about 5% of the male patients, but we are expecting more and more male customers in the long run because the consuming behavior of the young Chinese is changing. So, yeah, we're expecting more in the future.
spk06: Thank you, Michael. Thank you.
spk01: The next question comes from Ivy Wang of Univest. Please go ahead.
spk02: Hi, this is Ivy from Univest. I have two questions. The first is, what will the cooperation with MAD Network bring to AIH? And is there any data showing how many customers are attracted by this app to AIH?
spk04: Thank you. Thank you, Ivy. As you may know, we are a very traditional and modernist company in the industry, which means currently we don't have too much genes in World Wide Web, but we can let the professional do their part. Forming an alliance with the network is going to help us in a few parts. For example, branding. For example, we are getting more attention from the young customers. And, of course, we are expecting an increase in sales. Thank you.
spk02: Yeah, okay, that's good to know.
spk04: I don't have the exact number, so maybe we can wait until the next quarter.
spk02: Yeah, okay, thank you. So my second question is, can I know more about your future business development plans? Like, is there any further cooperation plans to build our brand awareness? Thank you.
spk04: After the IPO last year, we are expanding very quickly in the country and we are setting up a few satellite clinics, which is like small clinics surrounding big cities. We are getting pretty good results from those. Also, we are implementing our online to offline strategies. We are trying to cooperate with Tencent. Maybe we are going to develop our own app in the future so that we can reactivate our old patients, our old customers. And of course, we can do a lot more on those apps. For example, like selling cosmetic products or other consumption goods on the app. So yeah, a 0 to 0 strategy.
spk02: Yeah, OK, thank you. That's all my questions.
spk04: Thank you, Rocky.
spk01: The next question comes from Steve Halper of Cancer Fitzgerald. Please go ahead.
spk05: Hi, good morning. I was just wondering how much cash did you use for the acquisitions that you completed in the third quarter?
spk04: Thank you. We already paid about $200,000. Sorry, 20 million RMB. Yeah, that's the cash that we already paid, and we are going to pay a little bit more in the future.
spk05: Are those structured as earnouts, and can you quantify what the earnout provisions are?
spk04: I don't have the exact number with me right now, but maybe you can shoot us an email and we can send you the exact numbers back to you. Thank you. You okay? Thank you. Yep.
spk01: Again, if you have a question, please press star then 1 on a touch tone phone. This concludes our question and answer session. I would like to turn the conference back over to Mr. Sung Yik Wong for any closing remarks.
spk04: Thank you, Andrew. On behalf of our entire management team, I would like to thank everyone again for joining us today for our conference call. If you have any questions, please contact us through emails at IR at penai.com.cn or reach our IR consultant, Ascent Investor Relations at tinachelle at ascent-ir.com. Management will respond to your question as soon as possible. We appreciate your interest and support in Aesthetic Medical International and look forward to speaking with you again next time. Andrew, please go ahead.
spk01: Thanks, everyone, again for attending Aesthetic Medical International's third quarter 2020 Unaudited Earnings Conference call. This concludes our call today, and we thank you all for listening in. Goodbye.
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