Appendix 4D and Interim Financial Report
Sydney, Aug 30, 2017 AEST (ABN Newswire) - The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of Traditional Therapy Clinics Limited (ASX:TTC) (the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the half-year ended 30 June 2017 ('reporting period').
During the financial period, the principal continuing activities of the consolidated entity consisted of providing healthcare services in the People's Republic of China.
Review of operations
HY2017 recorded a 16% increase in revenue from $28.9 million in HY2016 to $33.4 million in HY2017. This growth was driven by:
- An increase in Owned Clinics revenue from $18.8 million in HY2016 to $24.7 million in HY2017 primarily due to the following factors:
o The full period impact of 7 new Owned Clinics acquired in the second half-year of FY2016. This contributed an additional $2.2 million in revenue during HY2017;
o The organic growth of 22 existing Owned Clinics. This contributed an additional $1.7 million in revenue during HY2017; and
o Acquisition of 9 clinics in HY2017. This contributed $2.2 million in revenue during HY2017.
- Revenue from Owned Clinics was impacted by the renovation of 6 clinics in January 2017. The impact on revenue was a decrease of $0.8 million.
- Revenue from Franchise Clinics however decreased by $1.4 million primarily due to the following changes:
o A change in the management fee and training fee levy method, which has reduced the average management fee by 20% and training fee by 13%, offsetting the full period impact of a net increase of 15 franchise clinics in FY2016. This has resulted in a fee reduction of $1.2 million collected from the franchise clinics.
o The revenue increase from the 11 newly granted franchise clinics in FY2017 was offset by the acquisition of 9 clinics from the franchise network. In HY2016, there was a net increase of 21 franchise clinics.
- Negative impact from currency exchange (AUD:RMB) from 1:4.80 in HY2016 to 1:5.19 in HY2017, an unfavourable change of 8.1%.
In terms of the actual performance in RMB currency (which is currency of the operating business), total revenue from clinics has increased by RMB35 million or 25%, from RMB138 million in HY2016 to RMB173 million in HY2017.
(B) Gross Profit
Gross profit decreased by $0.9 million in HY2017 (a decrease of 5%) mainly as a result of an additional $1.4 million of commission expenses paid to the therapists. As mentioned in the FY2016 annual report, there had been an increase in the rate of commission paid to therapists, which is a key resource to the business, from 21% to 35% since July 2016.
(C) Operating Costs
Costs including Selling and Distribution Expenses, General and Administrative Expenses and Other Expenses was consistent with HY2016. The increase in advertisement and promotion expenses of $0.4 million was due to more owned clinics offset by the decrease of foreign exchange loss of $0.33 million.
EBITDA slightly decreased from $15.6 million in HY2016 to $15.1 million in HY2017 primarily due to various factors affecting revenue and cost of revenue, reflecting the matters discussed above.
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About Traditional Therapy Clinics Ltd
Traditional Therapy Clinics Limited (ASX:TTC) is a franchisor and the owner of one of the largest chains (by number of clinics) of traditional therapeutic health and wellness clinics in China. It currently has 343 franchised clinics and 35 owned clinics in operation. It is a well established business with a strong growth profile, employing a repeatable and scalable business model.
TTC has a highly recognised and respected brand, having received the prestigious Chinese Well-Known Trademark designation from the State Administration for Industry and Commerce. It operates within a strongly regulated industry sector of significant scale, which offers opportunity for further growth.
TTC is an ASX listed company employing around 1,000 staff across 27 of the 33 administrative divisions in China. More information is available at https://www.ttc-ltd.com/