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 Third Quarter 2018 Results Announcement Conference Call [indiscernible].
Today's speakers are Muharrem Usta, Chairman and CEO; Burcu Öztürk, CFO; and Deniz Can Yücel, IR Director.
I will now hand you over to Mr. Deniz Can Yücel. Sir, the floor is yours.
Welcome to MLP Care's Third Quarter 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 the presentation. Financials with footnotes are available on our website.
Now I am leaving the floor to our CEO, Mr. Muharrem Usta, for his comments for the first 9 months results.
[Foreign Language] Thank you, Deniz. Welcome to the teleconference in which we're going to discuss the third quarter results of MLP Care in 2018.
[Foreign Language] I will try to give you a brief summary of our performance in Q3 2018, and we will go into further details later on.
[Foreign Language] In spite of macroeconomic factors and long holidays during this period, we continued to grow rapidly, and we achieved 25% of growth in the last quarter. [Foreign Language] Without adding the negative EBITDAs coming from the Mersin and Pendik hospitals that we opened in the first half of this year, we can see that the comparable EBITDA has grown by 56% in the third quarter. [Foreign Language] And again, within the same period, our medical tourism revenues grew by 71%, which is a record-high figure. [Foreign Language] And we continued to reduce our risk -- FX risk exposure through our growth in the medical tourism segment.
[Foreign Language] During our IPO, we had told you that we were going to open 2 new hospitals in Pendik and Mersin. And we continued -- we completed the opening of these 2 hospitals in the first 5 months of the year, as I said before. [Foreign Language] And both these hospitals continued to ramp up and contribute to revenues as planned. [Foreign Language] And in the last months of 2018, we will also see a positive EBITDA contribution from Pendik hospital because we're growing quite well. [Foreign Language] And the hospital in Mersin opened 3 months later than the one in Pendik. Therefore, we plan to see a positive EBITDA effect from this hospital in the first quarter of 2019.
[Foreign Language] And again, in this quarter, we converted all our rent expenses, all dollar-denominated rent expenses, to Turkish lira. [Foreign Language] This, of course, frees us of the FX risk in this regard.
[Foreign Language] With the cash coming in from the IPO, we were able to reduce our debt and improve our net debt-to-adjusted EBITDA ratios. Moreover, we were able to fix a -- the FX rates for the capital and the interest rates to be paid for the upcoming 2 years for our syndicate loan and the financial leases between July and September. [Foreign Language] And through this, we were able to minimize the impact of macroeconomic factors on our company. [Foreign Language] Of course, we will see a clear impact of this development on our balance sheet and on our P&L in the months to come.
[Foreign Language] As I explained before, we opened 2 new hospitals this year, which meant an additional bed capacity of approximately 500 beds, which brought our total bed capacity to approximately 6,000 beds. [Foreign Language] Due to the fact that we opened a lot of new hospitals recently, we have a lot of untapped capacity, [Foreign Language] and our capacity occupancy rate in the first 9 months of 2018 was approximately 65%. [Foreign Language] It is to our advantage that, in this period when we experienced macroeconomic turbulences, we had such additional and free capacity. Next year, we will act in line with our projections to increase our capacity utilization rate.
[Foreign Language] In the first 9 months of the year, we grew our revenue by 20% in all segments. However, taking into account the affiliated university hospitals that we have, our total revenue growth in this 9 months period was 27%. [Foreign Language] And within the same period, our EBITDA grew significantly and increased by 25%. [Foreign Language] Taking into consideration that we opened 2 new hospitals in this period, excluding the impact of those 2 hospitals, we can say that in the first 9 months of the year our EBITDA grew by 33%.
[Foreign Language] And we achieved a growth in the number of patients that we treat, both domestically and internationally. [Foreign Language] We had growth both in inpatient and outpatient figures. [Foreign Language] And we experienced even a higher growth in the inpatient segment due to the increased number of protocols, and as a result, there was an increase in the revenues coming in from the inpatient segment. [Foreign Language] Of course, our growth in the inpatients segment was positively affected by the increase in the SSI tariffs, especially for complex treatments and complex surgeries. We will continue to experience this impact in the months to come.
[Foreign Language] We grew by double digits in our EBITDA, as I said before. [Foreign Language] This is an improvement in spite of the additional expenses coming from the 2 new hospitals. Let me summarize the factors: [Foreign Language] We put emphasis on promising segments [Foreign Language] such as top-up insurance, PMI and medical tourism. [Foreign Language] And of course, the hospitals that we had opened up before but that were still classified as developing hospitals, they contributed to our revenue growth and profitability because they've made more revenues and a higher profitability as well. [Foreign Language] In spite of increasing costs, we were able to achieve savings through substantial plans. [Foreign Language] And we converted our rent contracts to Turkish lira at a fixed rate of TRY 4 per dollar.
[Foreign Language] Let's have a look at our revenue breakdown by payer type. We grew in all payer types in double digits, except for SSI. And we didn't have any significant plans to grow in the SSI segments, anyways. [Foreign Language] So looking at the revenue breakdown of the first 9 months, we see that the share of SSI in our revenues is 30%. This used to be higher. [Foreign Language] In the segment where we have the PMIs, the top-up and the contracted institutions we were able to grow at a rate of 33% in the first 9 months. [Foreign Language] And in medical tourism, we grew by 70%.
[Foreign Language] Let me give you some brief information about the increase in the SSI tariffs.
[Foreign Language] So the SSI adjusted its price tag on the 5th of July this year. [Foreign Language] And we started seeing the positive impact of these adjusted prices, of these revised prices in the third quarter, especially on the inpatient segment, as I said before. [Foreign Language] Of course, this so far had a positive impact on our revenues as well as our EBITDA figures, and it will continue to do so. [Foreign Language] And the self-pay segment grew by 18% in the first 9 months.
[Foreign Language] Looking at the first 9 months of the year, in the self-pay segment, we just started adjusting our prices due to the inflation increase. [Foreign Language] And in October, only in 1 month's time, we had approximately a 10% price increase in this group. [Foreign Language] So this is a group where we can gain revenues at a rate of inflation plus 3% to 6% [Foreign Language] because, of course, our brand appeals to the highest income group in Turkey in the self-pay segment. [Foreign Language] And we see this segment as a segment where we can grow our prices 3 or 5 points above the materialized inflation rate.
[Foreign Language] Other businesses make up 9% of our total revenues, and this segment also grew by 47%. [Foreign Language] And this is due to the fact that we had an increase in the management fees that we receive from university hospitals as well as a strong growth in our lab services.
[Foreign Language] Let's have a look at top-up insurance. The number of policyholders in this segment grew by 41% in the first 9 months of 2018. However, our share from this segment grew by approximately 90%, [Foreign Language] and this is due to the fact that our brand is very strong in the top-up segment. [Foreign Language] So people who buy these policies, they prefer our brand, and that's why the segment grew by 41%, whereas we grew at a rate of 92%.
[Foreign Language] Our growth in medical tourism in the first 9 months of the year was approximately 70%. [Foreign Language] This, of course, has to do with the dollar- and euro-denominated pricing but not only because of that because we also improved our operational range internationally, and we continue to do so.
[Foreign Language] Looking at the inpatient and the outpatient figures for the first 9 months of the year, we can see that the inpatient segment grew by 37%, and the outpatient segment grew by 11%. [Foreign Language] And in spite of the fact that the number of our inpatients' protocols increased by 37%, our occupancy rate is still at 64%, so we still have a lot of additional capacity.
[Foreign Language] Let me wrap up before I pass the floor on to Burcu.
[Foreign Language] In the third quarter of the year, in spite of the macroeconomic distortions, we were able to achieve an improvement that was above the expected levels both in our revenue and in our EBITDA figures. [Foreign Language] And this growth will continue in the last quarter.
[Foreign Language] Now I give the floor to our CFO, Burcu Öztürk.
Thank you, Muharrem bey. Welcome, everyone.
In the third quarter and 9-month results of 2018, we reached very high growth rates in both revenue and EBITDA figures, as mentioned by Muharrem bey. Our revenues grew strongly by 25% within the third quarter of 2018 despite the seasonal effect of long holiday periods as well as the turbulence in Turkey. Medical tourism, top-up insurance, self-pay segments and also the recent SSI pricing improvement helped us grow our revenues within the last -- third quarter of 2018.
In 9 months 2018, revenues increased by 20% overall. If you also include the revenues coming from managed hospitals to this number, the revenue growth rate would be 27%, in comparison to 20% reported number. Our EBIT also continued its accelerated double-digit growth rate by around 25% growth rate it did in the first 9 months of 2018.
EBITDA growth for the last quarter is even higher, which is 41%. So we've been very good in terms of EBITDA growth rates, especially within the last quarter. Due to the new hospital openings, which is Pendik and Mersin, within the first quarter of 2018, we had to record some negative EBITDA numbers amounting to TRY 22 million within the first 9 months of 2018. If we exclude this negative EBITDA during this ramp-up period, 9 months 2018 comparable EBITDA growth would be 33%.
Next slide. All 3 revenue segments, including domestic, medical tourism and ancillary business, grew within the first 9 months of 2018.
Our domestic revenues increased by 15% within the last -- the third quarter of 2018 and, on a total basis, 14% within the first 9 months of 2018. This strong growth was particularly driven by 3 factors. First, our strong pricing strategy regarding outpatient revenues continued in the third quarter of 2018 as well. Second, our inpatient revenue growth was supported by both higher volume and pricing growth. And lastly, Pendik and Mersin hospital openings also contributed to our overall hospitals revenue growth regarding the domestic revenues.
If you look at the foreign medical tourism revenue. Foreign medical tourism revenue boomed with a growth rate of 83% within the third quarter of 2018. This was basically due to higher patient volume; revenue mix change towards higher units prices; and also the euro and dollar pricing, which helped us grow our revenues. We aggressively continued to focus on growing our foreign medical tourism and increased our exposure to FX-based revenues to make sure that we do have a natural hedge we do not see in our numbers.
If you look at the other ancillary business. Other ancillary business grew by 47% within the first 9 months of 2018. This was particularly driven by the contribution of management fees that we receive from university hospitals. Due to their successful ramp-up process, university hospitals are continuing to add on our revenue growth. And as well as in -- on top of university hospitals revenue growth, we also continued to grow our laboratory business. So currently, we continue. We will be focusing on increasing our revenues from management of university hospitals and grow our other ancillary business for the last quarter as well for 2018.
Next slide, okay. So we successfully deployed strong pricing policy for both out- and inpatients. Therefore, our domestic revenues of our hospitals grew by 14% in the first 9 months of 2018.
On the left-hand side, you'll see that outpatient revenue growth was by 18%; and basically coming from strong pricing, which is around 36%, as well as [ real prices ] in the first 9 months. So this 36% revenue growth from pricing is basically coming from the fact that these are the high-level-income patients. And therefore, we increased -- we continued to increase our unit prices accordingly. And also, successful launch of our patient satisfaction rating system within the second quarter of 2018 helped us and supported us in the strong pricing for outpatients as well.
If you look at our average revenue per visit, you'll see that average revenue per visit is double within the first 9 months of 2018 in comparison to the compound annual growth of 18% over the past 3 years. So we've been growing quite strongly in terms of unit price increases regarding outpatient volumes and pricing.
Regarding the inpatient revenues. Inpatient revenues increased by 11%. This is basically a mix of higher patient volume as well as price increases. Again, the inpatients revenues -- volume growth is basically showing that we do have sufficient volume for growth. As mentioned by Muharrem bey, our capacity utilization for the whole group is only coming at 65%. This shows that we have so much room for growth regarding our existing and new hospitals, and we can continue to grow from a volume perspective with respect to inpatients revenues.
If you look at the average revenue per protocol. This also increased in the 9 months of 2018. And if you look at the growth rate, 9 months '18 result grew more than the compound annual growth rate over the past 3 years. So we successfully increased our units prices. And if you look at the 9 months '18 results growth rate which was realized at 9%, this is again 4x higher than the compound annual growth rate over the past 3 years. So we've been quite successful in terms of increasing our units prices in the inpatient segment as well.
Regarding the costs. We accomplished to continue our smart cost management in 2018 9 months. And therefore, you'll see that we improved our EBITDA profitability within the 2018 results.
If you look at the material consumption. Material consumption as a percentage of total revenue declined in 2018. This is basically due to 2 factors. One is favorable patient mix, the changing towards less-costly units procedures; and also decline in the share of laboratory services in our total revenues, which also again has higher material costs. Due to the decline in laboratory revenues in total, naturally our material costs as a percentage of sales goes down. If you look at the doctor costs: Doctor costs, which is almost fully variable, is improved, despite the new hospital openings, with higher units doctor costs. So we've been doing quite well in terms of managing our doctor costs as well for 2018. Personnel cost is a semi-fixed cost. And personnel cost as a percentage of total revenue is slightly lower in comparison to 2017. This is basically coming from the fact that we've been growing beyond the inflation rate within the first 9 months of 2018. And personnel cost, which is semi-fixed, is naturally going down as a percentage of revenues.
Rent expenses as a percentage of revenue increased in 2018. This is basically related to FX impacts; and new hospital openings, which have higher cost base in comparison to its revenues. Due to the regulation change as of October 2018, all of our building rent expenses are converted into TL. And as mentioned by Muharrem bey, although the regulation did stipulate a fixed rate of TRY 4.5, dollar rate of TRY 4.5, we successfully negotiated with landlords and agreed on a TRY 4 rate regarding U.S. dollar versus Turkish lira. So this is basically going to improve our rent costs as a percentage of sales within the last quarter of 2018. If we do a quick math on the September results: With the improvements of our rent costs, the rent costs as a percentage of sales will decline to 7% in comparison to 8% within the first 9 months.
Capital injection during IPO and recent successful hedging transaction helped us reduce the open net debt position to EUR 50 million level. We previously also reported around EUR 50 million open position within the second half results. So we expect to maintain our high EBITDA growth for the following quarter of 2018. And also, the recent devaluation of Turkish lira against euro subsequent to September 2018 results gives us in our net debt-to-adjusted EBITDA guidance within a range of 2 to 2.5x, although we are -- our rough results show 2.7x. Within the EBITDA improvement as well as the devaluation of Turkish lira, we will be decreasing this number to 2.5-ish levels for the year-end 2018.
If you look at our gross debt and hedging transaction overall. Our gross debt related to bank loans and financial leases denominated in FX amounts to a total of EUR 138 million. As of September 2018, EUR 41 million of gross debt was subject to a hedging transaction. Subsequently after September 2018, we had another EUR 13 million principal payments. And in total, currently, 40% of our FX-denominated debt is under a hedging transaction and fully mitigated against FX volatility. On a cash flow basis, next 24 months, including 2018 and until 2020 year-end, our fully -- I mean our FX payments are fully mitigated and covered through a cross-currency swap transaction, so this will help us secure our cash flows during the volatile times in terms of the devaluation of Turkish lira. And we will make sure that we sustain our cash flows and manage our cash flows based on this cross-currency transaction.
And in summary, I can say that total net debt -- including the euro-denominated cash, our net debt position decreases to 26% in total from 54%, including the year-end EBITDA, through hedging transaction.
So regarding the -- just one subsequent note on that regarding the current devaluation of Turkish lira. Our net debt will come down by around TRY 60 million based on our simulation studies. And of course, this will be an FX income that will be recorded for the last quarter of 2018, as long as the current devaluation of Turkish lira continues until the end of December 2018.
Okay, thanks to our FX-based medical tourism revenues, which have been booming in the past quarters, we do have a natural FX hedge in our EBITDA numbers. Overall, around 35% of our EBITDA is denominated in hard currency. Around 6 -- 10% of our revenues is FX based, coming from medical tourism revenues. Also, we have some FX-based costs that come to around 5% of our revenues, so if we do the math, around 6% of our revenues is hard currency denominated, which is -- which corresponds to around 35% of our EBITDA numbers. So this helps constitute our P&L position as well as EBITDA position. As we discussed during our previous calls, as long as euro and dollar valuates again -- against Turkish lira, then our EBITDA would be increasing in nominal terms because, above EBITDA level we have a long position from an FX perspective. So medical tourism is -- medical tourism FX-based revenues are helping our FX position a lot. And we will be continuing to grow our medical tourism in that part as well.
As we just explained in a previous slide, successful hedging transactions helped us decrease our FX volatility. And FX-denominated debt -- related debt service is also hedged for the next 24 months. So including the current devaluation of Turkish lira against dollars, we expect to have some FX income for the last quarter of 2018 in our numbers, but of course, as the hedging transaction had been performed in July throughout September, we had to record FX losses for this quarter due to the fact that, in comparison to year-end 2017 numbers, up until July and September, we still have to record some FX losses regarding the gross debt. So that's why 2018 9 months is up with a little bit higher FX losses, but despite that, we expect to have some FX income coming from the recent devaluation of Turkish lira.
Finally, consolidated CapEx as a percentage of revenues slightly increased to 2.9% within the first 9 months of 2018. Last year, it used to be around 2.5%. Our guidance was around 2.6% throughout the whole year. We plan to keep that. And usually, our CapEx spending is very seasonal and slightly below our CapEx spending at beginning of the year. That's why we don't expect material amounts of maintenance-related CapEx for the last quarter of the year. That's why we keep our guidance at 2.6% for the remainder of the year, and we will be completing the full year at around 2.6% maintenance CapEx.
If you look at the new hospital CapEx. It's basically related to Mersin and Pendik hospitals that were opened in 2018, and also we have some ramp-up related CapEx regarding the 2017 year openings. So that's -- new hospital CapEx is basically 2 hospitals plus ramp-up of the previous-year openings.
If you look at the operating cash flow. Operating cash flow-to-EBITDA ratio was around 61% in the 9 months 2018. This is basically a result of growth in trade receivables and seasonal impact because the increase in terms of revenues around 20%, 25%; and changing the revenue mix towards private medical insurance as well as top-up insurance have naturally increased our trade receivable balance. And our trade receivable balance increased by around TRY 130 million. With that, we have some cash burn on the operating cash flow level. That trend will be covered especially within the first quarter of 2019 because we will continue to grow our revenues within the last quarter. It is our highest-revenue production capacity quarter, if you look at the total year. So -- and trade receivables will be naturally increasing within the last quarter as well, but once this quarter is done and year is closed, we will automatically start to decrease our trade receivable balance and complete the collection. So we look at declining operating cash flow due to the increase in trade receivables and due to the seasonal impacts.
Now I will hand over to Muharrem bey for the outlook and prospects.
Thank you.
[Foreign Language] Thank you, Burcu.
So in summary. We will close this year with a strong EBITDA and revenue growth. [Foreign Language] And just like we did in the first quarter, we will continue to grow substantially in the fourth quarter. [Foreign Language] Well, 13% of our revenue breakdown came from medical tourism in the third quarter, and this rate will continue to grow. [Foreign Language] And we will continue to actively manage pricing in the high inflation rate period. [Foreign Language] Well, in the third quarter, our net debt-to-EBITDA ratio has increased. However, in the upcoming periods, we will be generating more cash and deleveraging our balance sheet.
[Foreign Language] Due to high interest rates, we do not plan to carry out any investments until the interest rates are back to a normal level. [Foreign Language] However, of course, we will be looking out for opportunities that may come up. [Foreign Language] And as I said before, next year, we will be opening a new hospital in Gaziantep. [Foreign Language] However, the thing about this hospital is that we do not invest in the construction of this hospital, neither the CapEx, [Foreign Language] so it's the land owner who pays out the construction and the CapEx costs. [Foreign Language] So our rent will be a certain share of our revenue, both for the CapEx investment and for the construction costs, [Foreign Language] and this rate is the best rate that we have so far. [Foreign Language] So all in all, I can say that, for next year, we don't have any CapEx investments planned.
[Foreign Language] We are determined to fill up our free capacity, and we want to grow through this. And as I said before, we have a lot of large hospitals with capacity that we can easily utilize.
[Foreign Language] That's all from my side. We will now move on to the Q&A session. Thank you for listening.
Operator?
[Operator Instructions] Our first question comes from [ Jemal Demestraj ] from [indiscernible].
My question is related to your FX short position. When you look at your balance sheet, you've got financial notes. We see around $22 million long and EUR 143 million short position when you look at your financial numbers, but in your presentation you mentioned that the short position is around $47 million. And could you reconcile these figures to better understand the picture from our perspective? Because we see a significant increase in your FX and it's very high compared to your figures. And if you -- even if you are hedging your position, what would -- what could be the picture going forwards, assuming that Turkish lira will stay at current levels?
[Foreign Language] Let me explain the numbers. So overall, we have a gross total EUR 138 million. So this is a gross number. So on top of that, we do have receivables that are -- sorry. We do have cash loan that is denominated in euro, which corresponds to EUR 31 million. So we deducted that from EUR 138 million. Plus, we do have EUR 40 million hedging transaction that was performed before September 30, 2018. We deduct that number from our overall net position as well. And lastly, we did a second hedging of EUR 13 million after the balance sheet date, so once you deduct that as well, you reach to around EUR 50 million number.
But that number, you mentioned that in the cash side you -- so you -- the numbers I am looking at are the net numbers, as far as I see, but you might have some hedging that you might see -- not see in your financials. So for me it's very difficult to really grasp this picture because the net-net -- because that figure, the -- when I look at the cash side -- and I'm just reading the financial footnotes. And maybe you could give some picture for the following quarters to see the direction of that number. Because if you are hedged in third quarter, if you are hedged, you would have maybe less costs, right? Or there are some costs included in that number. Maybe there are some one-off costs that we can have some idea so that going forward we can assume lower FX expenses going forward. So it's really difficult for us to understand, from my side.
Okay. So if you look at the numbers on our financial statement on Page 45. It is this foreign currency risk position. We can always put a reconciliation of our numbers. So we don't do any adjustments on our FX numbers, first of all. As I explained during the presentation, because we did the hedging transaction as of July through September, do not calculate our FX expenses as if we did the transaction from the beginning of the year. First of all, let me explain that. Secondly, the hedging position which is EUR 41 million is under 19.a within the foreign currency risk position. You'll see that EUR 41 million is hedged, so you can trace the number from that. The only point that is not within the financial statement is EUR 13 million that we had subsequently. We also included that as a footnote to the presentation. So everything is disclosed. We can always provide you a reconciliation and how we apply the numbers within our financial pack or also to the appendix, but it is not adjustments on all -- adjustments on the FX position. But that's -- all the numbers are quite transparent. We will provide you to make it easier to calculate the numbers.
Yes. The -- rather than the numbers, what I want to see is -- there are some costs in third quarter that had hit the bottom line despite very strong operating performance, which I respect, but in terms of the -- even if the numbers are -- the numbers you have, like it's EUR 47 million, I -- could we have for -- because I'm trying to reach the financial expenses figure. That's very high. So there might be some one-offs that belonged to third quarter that I cannot maybe understand, so that's the reason I'm asking that. Maybe I can ask later like specifically.
Yes, let's do a separate call for that. We'll call you back. It is nominal adjustment, definitely. One thing that, once you do the math -- I understand that you're doing the math, saying that the -- we used to have EUR 50 million. You do the FX loss calculation based on the 2017 year-end euro figure, which is TRY 4.5, to TRY 7, September '18 result of TRY 7 euro rate. So you do the math, over EUR 50 million, but that didn't happen so just because we did the hedging transaction, as I said, from July throughout September. That's why we had to record some FX losses from -- until July. So if you look at the hedging transaction, of course, it's going to benefit us for the future, but for this quarter or for overall 2018 results, because we did this during the year -- midyear like we say, we didn't fully benefit from the hedging transaction. That's why the FX losses are higher in comparison to your calculation over EUR 50 million only. We can always provide the calculation method and walk you through a conference call with you.
Our next question comes from Bram Buring from Wood & Co.
Just to follow up then on the last question. So one, you said it's -- we had TRY 175 million worth of negative FX reval in the third quarter and just looking at the third quarter as a standalone. So you're saying that the majority of that TRY 175 million loss was generated before the hedging was put in place in July. Is that the way to understand it?
Yes, yes. Plus...
Okay, how much is that then?
And hedging transaction was performed in July, but also only EUR 26 million of hedging transaction was performed in July. If you look at the remainder of the period, we did further hedging which is around EUR 14 million, and that hedging took place with a euro rate of around TRY 7. That's why for the euro-denominated loans amounting to, for example, EUR 15 million, we still have to record FX losses, because euro went up but we continued to hedge. And we didn't mitigate any FX losses from that loan. Plus, EUR 13 million which we hedged subsequently after September 2018, that didn't have any impact on the balance sheet either. So that will impact 2018 last quarter's and 2019. Although currently we are in a good position, with respect to the calculation of FX losses, of course because hedging was performed later on, we have to record some losses. Plus, if you look at the cash number, which -- we used to have around EUR 40 million. Now we carry a EUR 30 million cash balance in our balance sheet. Of course, this is -- is the cash number that we use throughout the period. That's why didn't record FX gains from cash during the -- throughout the whole period. So we used it in Turkish lira, then we convert it into euro, et cetera. So you need to calculate the number of our gross debt. And over gross debt, you need to calculate the number, starting from July. So what we didn't -- the only mitigation we could perform within the balance sheet was related to July-and-onwards increases in euro, which is from -- starting from around TRY 6. So from TRY 6 to TRY 7 euro-versus-Turkish lira rate, we were protected, but before that, we had to record FX losses.
Okay. So that last part is understandable. You hedged at TRY 7 when -- TRY 6. And so yes. You had also said FX hedging from the beginning of the year. I don't know if that's because we're talking about some number on a 9-month basis, but -- yes.
No, no. I'm saying that we had -- yes. We had in July, and that's why we had to record FX losses up until July. And only 25 million was hedged in July. The remainder was hedged at around TRY 7, which is the current rate. That's why that hedging didn't help us in terms of recording FX losses.
Yes. And -- but the EUR 26 million in July, that was hedged at that TRY 5, spot TRY 6 level, correct?
Yes, yes, yes. So from -- for example, year-end rate is TRY 4.5 for euro, TRY 4.5 minus TRY 5.7, so TRY 1.2 multiplied by around EUR 25 million. So at least from that hedge portion, we have to record another EUR 13 million...
Okay. Why was the -- why are you using the base of TRY 4, spot TRY 5.7 which was the end-of-year rate in 2017? Why wasn't it the "end of second quarter" rate?
I'm explaining the TRY 285 million of FX losses that was recorded throughout the year. We can do the math over the 6 months as well. So when we explain that 6 months number, that also -- you may remember that we explained the hedging transaction, but when we were explaining the figures, we also declared that the hedging was subsequently performed. So for example, within the 6 months results there was no hedging within the balance sheet. We did the hedging subsequently, so we were protected only by EUR 25 million. And then we did another hedging transaction, but as that's the market spot rate, that doesn't protect you from recording FX losses in comparison to TRY 4.5 at year-end 2017. And there is another portion of EUR 13 million hedging transaction. Our hedging transaction is not kind of protecting us from an -- not to record any FX losses. We are trying to make sure that our cash flow is sustained over the next 24 months. That's why to us the strategic rationale behind doing hedging is cash flow. So next 24 months, at least we know how much debt we are going to pay out in Turkish lira-denominated numbers. So that's why it's not -- I know our concern is not more on the FX losses. Our concern is more on the cash flow management.
[Operator Instructions]
We have one question from [ Is Bank ].
Let me read it. We see sharp increase in expenses from operating activities. Can you give us the details? Are there any FX-related costs there? Also, could you give some margin guidance for the last quarter 2018? So basically, the increase in other operating activities is coming from the -- it's not basically FX-related costs. We do have some operational FX gains and losses. That's basically coming from the medical tourism activities. And the increase in our nominal costs as part of other costs is coming from the partnership and marketing-related expenses with regards to medical tourism. So whatever you see in terms of nominal cost increase, it's basically related to marketing efforts within the international arena. That's why it's going up. If you look at our FX-denominated costs, yes, we do have FX-denominated costs with regards to medical tourism; and that FX-denominated costs regarding medical tourism amounts to around 2% of our revenues. As we just walked through, 10% of our revenues is coming from medical tourism, whereas we do have 2% of revenues coming from medical tourism costs that are FX-based. In net-net we still have a long position, which is around 8% of revenues. That's why we still keep the advantage of having medical tourism revenues in FX. So basically, the increase is related to medical tourism activities. And regarding the margin guidance for the fourth quarter: Due to the seasonality in health care sector, last quarter is the best quarter in terms of EBITDA production capacity and in terms of revenue growth profile. We've already gone through the worst quarter, which was the second -- sorry, third quarter due to the holiday and turbulence in Turkey. So last quarter is going to be a -- margin is -- automatically will be going up. That's why we expect to increase our margin by around 1% for the last quarter's.
[Foreign Language]
[Foreign Language]
[Foreign Language] As far as I can understand, there are no other questions. And the last question was answered by Burcu, so I would like to thank all participants. And see you next time. Thank you.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you all for your participation. You may now disconnect.