MLP Saglik Hizmetleri AS
IST:MPARK.E
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MLP Saglik Hizmetleri AS
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Ladies and gentlemen, welcome to MLP Care First Quarter 2019 Results Announcement Conference Call and Webcast. Today's speakers are Muharrem Usta, Chairman & CEO; Burcu Ozturk, CFO; and Deniz Yucel, IR Director.
I will now hand you over to Mr. Deniz Can Yucel. Sir, please go ahead.
Welcome to our first quarter 2019 results conference call and webcast. I would like to remind you our disclaimer about forward-looking statements. The disclaimer is available on the second page of this presentation. Financial footnotes are available on our website. And as usual, we will have a Q&A at the end.
Now I'm moving the floor to our CEO, Mr. Muharrem Usta, for his comments on the quarter results.
[Foreign Language] Thank you, Deniz. Hello everyone. Welcome to our webcast and teleconference in which we will discuss the first quarter results of
MLP Care. [Foreign Language] We've had a good result for 2019 and we've had double-digit growth figures in our EBITDA and revenues numbers -- of inflation. [Foreign Language] To summarize, notwithstanding the macroeconomic factors, we've had a 25% growth in revenues. [Foreign Language] If we add the 3 university hospitals of which we've had the contracts to manage these hospitals; including those, the growth number will be 28%. [Foreign Language] The adjusted EBITDA grew by 20% and if we exclude one-off expenses and income, the growth was 29%. [Foreign Language] The net debt to adjusted EBITDA ratio with the positive impact of the foreign currency hedging that we have completed last year was 2.6% with -- notwithstanding the FX rate increase of the first quarter of 2019.
[Foreign Language] The positive contribution of the 2 hospitals that we opened last year continue. [Foreign Language] The negative impact of these 2 hospitals to EBITDA of the first quarter of 2019 was only TRY 0.8 million. [Foreign Language] We've had TRY 31 million worth of pre-tax losses in the first quarter of 2018 and this figure was TRY 12 million worth of profit in the first quarter of 2019. [Foreign Language] And the net profit for the first quarter of 2019 was TRY 3 million. [Foreign Language] In the meantime Bupa acquired a big insurance group, Acibadem, in Turkey and we did not have a contract -- an agreement with Acibadem Group and after this acquisition, we have had a contract with them. [Foreign Language] Bupa Insurance has a total of 850,000 policies in total and at the top part, most of these insurance policies are top-up insurance. [Foreign Language] We've had double-digit growth of revenues with all the items excluding SSI items.
[Foreign Language] SSI, which means the Social Security Income, grew by 1% in the first quarter of 2019. [Foreign Language] And we've had 38% growth in the revenue group including private insurance, contracted institution and top-up insurance policies. [Foreign Language] And this positive growth rate will continue with the factors that I have just mentioned, which is the acquisition of Bupa of the Acibademi Insurance Group. [Foreign Language] We also continue to have a significant growth in the international -- Medicaid international health tourism or medical tourism. We've had a 75% growth in the industry. [Foreign Language] MLP Care's fast growth in the top-up insurance sector continued in the first quarter of 2019. [Foreign Language] The number of insured people having top-up insurance grew by 47% in the first quarter of 2019 to reach 880,000. [Foreign Language] And the fast growth trend continues in the top-up insurance segment.
[Foreign Language] As I have mentioned, we continue our effort in order to enhance growth in the foreign medical tourism segment. [Foreign Language] The growth was supported by the increase in both inpatient and outpatient numbers as well as the increase of FX-based prices. [Foreign Language] The numbers of inpatient and outpatient figures grew in the first quarter of 2019 by 24% for number of patients and by 20% for number of visits.
[Foreign Language] Now I will turn to floor to Ms. Burcu to give you information about financial statements.
Thank you, Muharrem. In the first question of 2019, we reached high growth rates in both revenue and EBITDA figures. In 2019 first quarter, our revenues grew strongly by 25%. Medical tourism, private medical insurance, self-pay segment and also our ancillary business have continued this growth trend during the first quarter of 2019. If you also include the revenues of managed university hospitals to this numbers, our revenue growth would reach 28% for the first quarter of 2019 as against reported number of 25% On the right-hand side, our adjusted EBITDA also continued its double-digit growth trend with a growth of 20% for the first quarter of 2019. If you look at our EBITDA excluding other operating income and expense items, our EBITDA number increased by 29%. This growth was -- our EBITDA growth was also supported by the successful ramp-up of our new hospitals that were opened in 2018.
We only recorded TRY 0.8 million negative EBITDA from the new hospitals opened in 2018 for the first quarter of '19. Next page. We recognized strong growth across all revenue segments including domestic revenues, medical tourism as well as ancillary business for the first quarter of '19. Our domestic revenues increased by 15% within the first quarter. This strong growth was driven by 3 factors. One of them is our strong pricing strategy for outpatients revenues continued within the first quarter of '19 and also this delivered a growth of 17%. If you look at our inpatient, our inpatient revenue grew by 14%. This was supported by both high volume and strong pricing. If you also include the managed university hospitals to our revenue growth, domestic revenue growth figures will come up to 19% against reported number of 15% for the first quarter of '19.
Foreign medical tourism revenues continued its outstanding performance within the first quarter of '19 with a growth rate of 79%. This is basically coming from 3 factors. One of them is increased patient volume with an impact of 33%. Secondly, revenue mix changed towards highly priced operation. And thirdly, euro-dollar pricing impact also supported us in this revenue growth. For the remainder of 2019, we will focus on increasing our exposure to our tourist revenues by expanding our footprint in the medical tourism arena. Thirdly, our other ancillary business revenue grew by 76% within the first quarter of 2019. 2 factors helped us in our revenue growth. First, we have increased our contribution of management fees coming from university hospitals due to the successful ramp-up of these hospitals. As a reminder, we operate 3 hospitals under university hospital management system.
And secondly, strong growth of our laboratory business contributed also to our other ancillary business growth. In the first quarter of '19, we successfully deployed strong pricing policy for both out and inpatients. Therefore, our domestic revenue grew by 15% in total. On the left-hand side, you'll see that our outpatient revenues was up by 17% basically driven by strong pricing. Similar to 2018, we drive patients with higher income and adjust by unit prices accordingly. Therefore, on the bottom of the left-hand side of the page, you'll see that prices were increased by 18% within the first quarter of 2019 for outpatients revenues. If you look at inpatient revenues, our inpatient revenues increased by 14% due to both higher patient volume as well higher unit prices for the first quarter. Average revenue per protocol growth was up 8% in Q1 2019 in comparison to the 3% compound annual growth rate for the past 4 years.
We expect to continue our strong pricing policy on the next quarter of 2019 for inpatient. On the cost side, we accomplished to continue our smart cost management within the first quarter of '19 and therefore we minimized the increasing effect of inflation on our EBITDA profitability. If you look at the material consumption, material consumption as a percentage of total revenue increased to 24% in Q1 '19 basically due to the inflation adjustment of medicine by 26% in February 2019. This inflation mechanism only related -- was only related to 30% of our material costs. Also, the increase in our lab business in our total revenue also increased our material cost as a percentage of revenue. As a result, our material consumption as a percentage of revenues increased to 24% within the first quarter of '19. Regarding the doctor costs, doctor cost as a percentage of total revenue declined to 20% in Q1 2019. This is coming from the increasing capacity utilization and efficiency initiatives that we took over regarding the doctor cost.
Personnel expenses as a percentage of total revenue declined to 17.2% 2019 thanks to our strong growth of revenues as well as semi-fixed cost structure within the price in our cost. Despite the minimum wage increase by 26% within the first quarter of '19, we successfully decreased our personnel cost as a percentage of revenues. Regarding rent expenses, rent expenses as a percentage of total revenue increased from 7.1% to 7.4% due to the devaluation as well as new hospital openings in 2019. A regulatory ban on FX denominated real estate rent came in 2018. We completely converted all of FX-denominated hospital leasing agreements into Turkish lira as of October 2018. Therefore, the increase of rent expenses in total revenue was only realized at 27 bps points in the first quarter of 2019. Outsourced medical services purchase; which includes laboratory, imaging, cleaning, catering and security type of services; increased as a percentage of revenue in 2019.
This is basically a result of the share of tax services increase in total revenue. On the debt side, in Q1 2019 our open position was reduced to EUR 60 million, which have all hedging transaction that we successfully made in 2018. Our gross debt including bank loans and financial leases that are denominated the FX currency amounts to EUR 140 million. Due to the currency fluctuations in 2018, we have had around 75% of our total FX base debt service regarding 2019 and 2020 periods. This basically corresponds to around 30% of our total FX denominated debt. In summary, I can say that tourist risk for the next 24 months period is almost fully mitigated from a cash flow perspective through our hedging transaction. Following the hedging transaction, the tourist FX portion of our total net debt was decreased to 28% in total. Net debt to our adjusted EBITDA number stands at 2.6x in Q1 2019 results. Our guided net debt to EBITDA numbers for the year-end is going to not exceed any level above 2.5x.
Thanks to our FX-based medical tourism revenues, we have a natural FX hedge in our EBITDA numbers. Overall around 40% of EBITDA is denominated in hard currency. Currently, 11% of our revenues is FX based medical tourism revenues, which are price based in euro or dollars. Beside we also have some FX-based cost which includes material and medical tourism related costs and those costs approximately make around 4% of our revenue. On a net basis, our EBITDA has a long position and we generated these figures in our operational results. As we just explained in the previous slide, hedging transaction has decreased our exposure to FX volatility and therefore FX-based debt service is around 75% covered or hedged for the next 24 months. Therefore, FX costs coming from indebtedness is purely currency almost fully non-cash within our P&L numbers and those FX basically relate to debt service regarding 2021 until 2024.
On the CapEx side, we realized very strong efficiency studies. Our maintenance related CapEx as a percentage of revenue decreased to 1.5% of our revenue for the first quarter of 2019. This came down from 3.6% in Q1 2018. Our efficiency initiatives in CapEx management worked out quite well in the first quarter of 2019. The operating cash flow to EBITDA ratio stood at 16% within the first quarter of '19. The decline in operating cash flow in the first quarter of '19 was a result of 2 things. One of them is we made payments to small scale suppliers shorter than the previous terms due to the liquidity problem that our suppliers are currently having. We expect this trend to be normalized in the next quarters of 2019 and we expect to improve our free cash flow generation capacity within the next quarters of 2019 as well. Also, the growth of revenue by 25% resulted in increase in trade receivables. This also decreased our operating cash flow to EBITDA ratio as well.
So, now I will hand over to Muharrem bae for the outlook.
[Foreign Language] Thank you, Burcu. [Foreign Language] As you all know, the health industry is a more [ defensive ] sector compared to other industries. [Foreign Language] And for this reason, we think that we will meet our growth targets in the remaining part of the year. [Foreign Language] We can summarize our targets for the year 2019 as follows. [Foreign Language] Our growth in the health tourism by the end of 2019 will be about 60%. [Foreign Language] And we target -- we expect that its share in our total revenues will be around 15%. [Foreign Language] We are also planning to develop the newly opened hospitals of our group within the year and we continue in that trend. [Foreign Language] Because we have recently opened many hospitals with a high capacity, right now we have an unutilized capacity and we are targeting to increase the utilization rate.
[Foreign Language] Starting from the second half of year 2018, we started to focus on patient satisfaction rate which has reached 80% and it's one of the highest rates within the industry. From now on, we will strive to have this rate sustainable. [Foreign Language] We see that volatility in FX rate continues in 2019. [Foreign Language] We are targeting to decrease our foreign currency indebtedness and foreign currency risk by repaying our foreign currency denominated loans. [Foreign Language] We have observed that the foreign currency hedging transactions that we had done in the last year's July, September and October months were very accurate and timely. [Foreign Language] With the effect of these hedging transactions, we are targeting to keep our debt to EBITDA ratio at a level of 2.5x.
[Foreign Language] Although some of the cost items were increasing in the first quarter of 2019 as a result of the measures that we took, we are targeting to have a similar EBITDA margin in the end of 2019 similar to that of last year and we are also targeting to increase our free cash flow. [Foreign Language] And we are not planning to open or acquire new hospitals until the interest rates go back to normal levels. [Foreign Language] We have partnerships in 5 university hospitals and a total of 31 hospitals. We are amongst the biggest private healthcare providers of Turkey and we are going to continue to provide our patients with the best of class health services and we are going to focus on profitable growth.
[Foreign Language] Now, I'd like to thank you. We will now take some questions.
[Operator Instructions] We have a question from Jamie Clark from Bank of America Merrill Lynch.
Firstly, in terms of the increased insurance coverage by Bupa Acibadem, I think you said about 655,000 patients will now be eligible for treatment at your facilities. I guess firstly, what kind of revenue impact do you think that's going to have? And secondly, what are the prospects for increasing your insurance coverage to the other -- to the remaining patients comprehensive insurance? And then my second question was on the tax rate, please. You've got a tax expense in this quarter and you had one in the fourth quarter as well. What can we expect going forward? What's -- why is the -- why aren't the tax losses compensating for that?
[Foreign Language] As I said in my presentation, Bupa Insurance acquired Acibadem Insurance and Acibadem Insurance did not have a contract with our group previously. [Foreign Language] The total number of policies on Acibadem insurance company is approximately 850,000. [Foreign Language] The number of highest policies belongs to Allianz Sigorta in Turkey. [Foreign Language] And Acibadem ranks the second. [Foreign Language] These patients started to visit our facilities on the 8th of April. [Foreign Language] We expect that the revenues that we will get from Bupa Acibadem Insurance will be among the Top 3 insurance companies of the country. [Foreign Language] This means a significant input in our revenues item. [Foreign Language] We can see the general direction by simulating the number of incoming patients. [Foreign Language] For example, we have approximately 28,000 patients per month with a top-up insurance from Allianz Insurance. [Foreign Language] And the current trends show that we will have approximately 8,000 new patients in the month of May although it's only the second month of Acibadem Insurance. [Foreign Language]
Because most of these patients belong here, they wanted to visit our hospitals but because of the competition in hospital industry, they did not have a contract with us. [Foreign Language] So from our perspective to summarize the situation, we can easily say that a very big insurance company has come into the picture and it will have a significant contribution in revenues. [Foreign Language] Right now we started to observe a new type of insurance policy. [Foreign Language] HMO insurance policy. [Foreign Language] And this is a newly observed type of policy in Turkey. [Foreign Language] We use this with Nippon Insurance Company and it's been 1 year since its establishment. [Foreign Language] We were able to observe the first outcomes of this type of insurance. [Foreign Language] We will see that the number of HMO policies will increase in the coming months significantly. [Foreign Language] The meaning of this policy is that it's exclusively valid in our group of hospitals. [Foreign Language] And it's a totally new field.
Regarding your second question on the tax expenses. Yes, we do have around TRY 8.5 million of tax expenses in the first quarter. If you separate this into corporate taxes and deferred tax expenses, corporate taxes was realized around TRY 6.5 million. This is related to a couple of our subsidiaries that are making corporate profitable tax in their solo balance sheet or P&L numbers. So, we expect this trend to continue overall for the 2019 year and we expect to have around TRY 20 million, TRY 25 million of corporate tax expense. Secondly, we do have deferred tax expenses which was around TRY 2 million for the first quarter. This is basically coming from the accumulated [indiscernible] that will be offsetted against tax sources. So, this is a one-time impact so we don't expect this TRY 1.5 million or TRY 2 million to continue within the remainder of 2019.
It is April 2019 performance from Alexander. He asked a question on the -- if you also include the university hospitals that are managed, how do you see the overall trend in the recent trading update. So if we compare March and April, April is 1 day less than March [indiscernible]. So overall if you make it apples-to-apples, April has been a good month from a revenue perspective. So even though the elections has already been completed and you would expect to have some decline in revenues, that didn't happen in April. So based on our forecast, I mean yes, it's similar to our forecasted numbers for the April result as well. Any other question that we have?
We have a question from Hanzade Kilickiran from JPMorgan.
The first one is related to social security tariffs. Do you expect another adjustment on the tariffs this year? And even though there was an adjustment I think in late part of 2018, your social security revenues increased by only 1% so I presume that you lost a significant amount of volume here. Can you please explain this? And the second question is about your guidance. I just want to be sure about the guidance. I know you don't provide the number, but you give some sort of indicators. So when you say that medical tourism is likely to grow over 60% accounting for 15% of the revenues, I can calculate something around 12%, 13% revenue growth in 2019 which is around TRY 3.5 billion. So, can you please confirm do you expect a low revenue growth like this? And EBITDA something over TRY 550 million because you already provide numbers like this so it's easy to calculate.
[Foreign Language] Yes, we expect a price increase for the prices of SSI patients because, in the latest meeting of private hospitals in Antalya, a Minister declared this kind of declaration. [Foreign Language] However, we did not take this growth expectation into account while we were preparing our growth plan and it will be an additional contribution if this happens. [Foreign Language] When we look at the breakdown of the growth in our revenues in our hospitals, that's true, we only had 1% growth in SSI; but in all the other segments, the growth differs from 30% to 70%, which brings the average growth to a total of 25%. [Foreign Language] In the recent years, the top-up insurance and the private medical insurance started to take a higher share in our hospitals, which brought down the share of the social insurance in total revenue. [Foreign Language] Also the patient profile -- the patient portfolio of the newly opened hospitals are not suitable with social insurance patients, which also have -- has a negative impact in the number of social insurance patients. [Foreign Language]
So, regarding the question on medical tourism side. There is some seasonality with the medical tourism. The question was around the guidance for 2019. We are still expecting to grow by 60% and medical tourism revenues will stand at around 15% of our total revenue. The thing is that usually at Christmas time and right after Christmas, usually, there is seasonality with the medical tourism revenues. That's why we had slight decline. We believe that we will be continuing the growth trend, especially within the summer period. Usually, I mean during the summer period, the medical tourism revenue goes up. That's why we still keep the 60% growth guidance for medical tourism. And regarding the EBITDA numbers...
Can I please? Sorry for intervening. My question is not related to the medical tourism, it's about the overall revenues. Because what I said is that medical tourism is supposed to grow by 60% and the revenue share will be around 15% so this gives us a total revenue of around TRY 3.5 billion for medical part, which means only 12%, 13% topline growth. So is this true? Or what is your top line growth guidance for the full year 2019? I'm trying to understand it.
We don't provide summary of growth in any case EBITDA level as well as in revenue level. As you may see that, we realized 25% revenue growth within the first quarter, which normally is the math from purely from the medical tourism side. Based on our calculations on the quarterly forecast, we are in line with our quarterly forecast and we believe that we will be making real growth in our revenue numbers as well as EBITDA for the full year 2019.
Okay. So basically are we to assume something over 20% for 2019?
[ Little less ] than that guidance because currency placements stands at 19.5%.
Okay. And can I please ask you one more question if possible? It's about the insurance policies. I mean there was a significant pricing increase in the insurance policies in Turkey. Did you see any sort of negative impact of this? I mean is there any sort of decline in the PMI policies in 2019 because of the affordable planning?
I mean usually, the companies cover for that. That's why we did not see any trend of decrease in terms of like multinational getting out of -- providing a side benefit to the sector. That didn't happen. So, still, we are in line with the last year numbers in terms insurance policy regarding private medical insurance policy. As explained by Muharrem bae, there is huge coverage and increase in the number of top-up insurance policies sold in Turkey due to affordability. We don't see any big trend towards -- from PMI towards top-up insurance. Besides we see an increase in the number of top-up insured people day by day because it's affordable insurance policy, people started to choose this policy against paying out of pocket.
[Operator Instructions]
There is I think one more question on what is the approximate CapEx guidance for 2019. Similar to last year, we expect to keep our maintenance CapEx as a percentage of revenue standing at 2.5%.
Operator?
We have we have no questions at the moment. [Operator Instructions] We have no further questions at the moment. Dear speakers -- we just received one question from Baris Ince from Garanti Securities.
[Foreign Language] To translate the question. Was there any numbers mentioned in the meeting of private hospitals in Antalya for the SSI reimbursement package?
[Foreign Language] There wasn't any figures mentioned in that meeting. But of course, the association of private hospitals is in constant touch with the ministry. [Foreign Language] However, as far as we can see, it's expected to have a connection between the price increases and the inflation rate after the adjustments.
[Foreign Language] Will the price increases of medications be reflected in the increase of EBITDA margin?
[Foreign Language] Burcu will confirm the figures. However, as the economy started to change last year, we started to focus more and more on a more efficient management company. [Foreign Language] Although the tax rate increases have been reflected through the prices of medication and medical equipment. [Foreign Language] We started to have a more meticulous process in our hospitals in order to mitigate the effect of cost increases and to minimize that effect. [Foreign Language]
[Foreign Language] We've had improvements as material costs increased by 2 basis points, you're right. But when you look at the increases in doctors and personnel cost, we see that there's an improvement of 2% and 1.5% respectively because of the reasons that Mr. Muharrem has mentioned. We have good results in terms of efficiency and economies of scale and we will have the positive impact of this in our costs.
[Foreign Language] Because we have underutilization of capacity in our hospitals, the moment we start to have higher revenues, it is positively reflected on the costs of human resources and doctors.
Dear speakers, the floor is yours for the written questions.
There is 1 more question on our market share. What's your current market share on private healthcare market approximately in terms of revenue? We don't count this so there is no available info on the full revenue spending in terms of private market. But I can tell that from a supply perspective, we are currently standing at 11%, 12% of the total private market.
We have no further questions at the moment. Dear speakers, back to you for the conclusion.
[Foreign Language] Distinguished investors and analysts. [Foreign Language] Although 2019 was an economically challenging year, we were able to finalize this first quarter in line with our targeted growth. [Foreign Language] And I can tell you that we will finalize the year in line with our expectations. [Foreign Language] Thank you for listening. Good day to you all.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you all for your participation. You may now disconnect.