Concord Medical Services Holdings Limited — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP; amounts below are RMB unless stated otherwise.
Business context
The Cayman Islands holding company operates primarily in China through two businesses: self-operated oncology hospitals and clinics, and a network business providing medical equipment, leasing, management, technical support and medical solutions to hospital partners. At year-end, it had six self-owned hospitals and clinics in operation, an internet hospital, and 14 cooperative centers in 11 hospitals. The company is developing proton therapy capacity and expanding its hospital business.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | RMB472.1 million | RMB485.6 million |
| Gross profit (loss) | (RMB152.4 million); margin (32.3%) | (RMB56.9 million); margin (11.7%) |
| Operating loss | RMB525.0 million | RMB458.3 million |
| Net loss | RMB769.0 million | RMB522.7 million |
| Net cash used in operating activities | RMB216.7 million | RMB359.3 million |
| Net cash used in investing activities | RMB118.8 million | RMB566.0 million |
| Net cash from financing activities | RMB383.1 million | RMB642.4 million |
- Hospital revenue grew 35.0% to RMB217.6 million, mainly as Guangzhou Hospital ramped up. Network revenue fell 21.6% to RMB254.4 million, reflecting lower medical-solutions sales, COVID-related operating disruption and expired service agreements.
- Cost of revenue rose 15.1% to RMB624.5 million, outpacing revenue. Hospital gross loss widened to RMB181.6 million; network gross profit declined to RMB29.2 million.
- Net loss included RMB216.6 million of other expenses, mainly related to termination of Beijing Proton Medical Center cooperation agreements, and a RMB61.5 million loss on disposal of Guofu Huimei and subsidiaries. Interest expense increased to RMB120.4 million; a RMB55.0 million foreign-exchange gain partly offset expenses.
- Year-end cash and cash equivalents were RMB158.3 million, with RMB1.1 million restricted cash. Net current liabilities were RMB361.4 million. Short-term borrowings were RMB168.6 million and the current portion of long-term borrowings was RMB344.0 million; total bank and other borrowings were RMB2.984 billion. Weighted average interest rates were 6.60% on short-term and 6.48% on long-term borrowings.
- Debt is secured by significant assets, including equipment, land-use rights, construction in progress and investments. Parent-company shareholders’ deficit was RMB1.864 billion; consolidated equity was RMB2.016 billion, reflecting substantial noncontrolling interests.
- Capital expenditures were RMB311.9 million in 2022. Management estimated 2023 capital expenditures of approximately RMB131.0 million, mainly for hospital construction and equipment in Shanghai, Guangzhou and Beijing.
Changes, outlook and risks
- Revenue declined 2.8% year over year while the gross loss, operating loss and net loss all widened. Management attributed operating disruption and some lower revenues to COVID-19-related closures, travel limits and logistics delays in China.
- Management identified substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flow, net current liabilities and an accumulated deficit of RMB3.767 billion. It said post-year-end loans of RMB68.5 million received by the filing date, plans for additional financing and cost and profitability initiatives alleviated that doubt. The auditor’s report nevertheless includes a going-concern discussion and states its opinion was not modified.
- Management plans to seek financing and loan extensions, improve hospital and network profitability, develop cloud and internet-hospital services, and reduce costs. Shanghai Hospital was expected to begin operations in 2024, with its proton center targeted for completion in 2025; Guangzhou’s proton equipment began clinical trials in November 2022.
- Key execution risks include hospital ramp-up losses, construction funding and delays, recruitment of clinicians, equipment procurement and licensing, and obtaining acceptance and patients for new services. The internet hospital does not hold an ICP license, according to the filing.
- Beijing Proton Medical Center cooperation agreements were terminated under an arbitration award dated November 18, 2022. The company reported a related RMB204.3 million loss from agreement termination in its cash-flow reconciliation. It also sold Guofu Huimei and subsidiaries for RMB190.0 million, recognizing a RMB61.5 million disposal loss.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to insufficient accounting staff and U.S. GAAP and SEC-reporting expertise. Remediation included training and an outside accounting consultant. The auditor did not attest to internal controls.
- China-related risks include evolving healthcare, data and overseas-listing regulation, currency and dividend-transfer restrictions, and potential NYSE delisting if PCAOB audit inspections become unavailable for the required consecutive years. The PCAOB announced full access to inspect China- and Hong Kong-based firms in 2022, but continuation of access remained uncertain.
Investor verification priorities
- Confirm cash runway, debt maturities, collateral, covenant compliance and the availability and terms of post-year-end financing, including related-party loans.
- Assess whether hospital growth can improve margins and cash generation, and whether Shanghai and Guangzhou construction, licensing and proton-therapy timelines remain achievable.
- Review the Beijing project termination accounting and the Guofu Huimei disposal loss, including cash proceeds and any remaining obligations.
- Monitor accounts receivable and loans to related parties, as well as customer and supplier concentration and collectability.
- Track remediation of the material internal-control weakness and whether future filings remain timely and reliable.
- Check current ICP licensing and other operating approvals, and monitor PCAOB inspection access, CSRC filing requirements for any future offering, and NYSE listing status.