Bumrungrad Hospital Public Company Limited (BH) Earnings Call Transcript & Summary

Good morning, everybody. [Foreign language] Welcome to the First Quarter 2020 Analyst Presentation. The format of this presentation is that it will be conducted primarily digitally rather than a face-to-face meeting due to the COVID situation. Now just as a reminder, for those of you who may not be aware, this recording will be posted on the 7th of May at 9:00 a.m. followed by a Q&A session at 10:30, whereby, management will be -- will make themselves available to you to answer your questions via chat through WebEx. The format of the presentation remains the same. We will start off with an overview of the quarter, delivered by Mr. Neil Sorrentino, our Chief Global strategist; subsequently, a financial -- a deeper dive into the financial performance; and then business updates, where we're excited to present to you further developments on our strategy, namely in precision medicine, digital health and also the concept of digital twin. Now without further ado, I'd like to hand it over to Mr. Neil Sorrentino.

[Foreign Language] Thank you, Daniel, for that introduction. Before we get into the actual quarter results, I wanted to take a few moments to highlight a few things for the audience here. As you know, this is prerecorded, but very, very recently so. We, today, are going to talk a little bit about what you will hear later regarding the digital twin. And while we're in the middle of this COVID crisis globally, we at Bumrungrad are planning for the future and how it is we care for patients. And Jeremy Ford, our Chief Scientist, will talk about that in a moment as well as Khun [ Ling ], our hospital CEO. She will be talking about the e-transformation, the digital transformation of our organization beyond where many, many organizations function and sit today as opposed to where we, Bumrungrad, are in the midst of going now and heading into the future into a completely business transformed approach in delivering healthcare for our international patients as well as our Thai patients. And I also would be remiss if I did not make a comment about Khun [ Ling ] and Dr. Wichai and the many, many people who have led the command and control center for COVID at Bumrungrad International Hospital. They've done an amazing job in making sure that our employees have been well protected. Most importantly, our patients have been well protected, and the care of the many patients we have taken care of who've had COVID infections have been taken care of and have gone on well on to a good recovery. So it is to their credit in the development of COVID-free zones. We were amongst the first in the country to eliminate taking optional surgeries that we felt were unnecessary and brought on a level of risk that we didn't want to take on behalf of other patients here. So it's to that credit of that organization that it requires mentioning. So I mentioned that for the record. So now for the quarter, next slide, there is an interesting quote by Jack Ma, who is the founder of the Alibaba Group, and he was just quoted here recently talking about the fact that for 2020, the object is liquidity, and the object is to, "Staying alive," meaning, both personally, financially and corporately. We're very fortunate here at Bumrungrad to have an extremely strong balance sheet. As a strong balance sheet, you will see on our cash flow, which I'm going to show you in just a moment, how strong we have been over the past several quarters. And it's essentially who we are as an organization, negative debt, strong cash flow to take organizations like Bumrungrad through crises, such as this. Please go to the cash statement, and then we'll come back to this one. Next slide. So here, if you look at our free cash flow over the last 3 quarters. At the end of December 2019, we sat with THB 9.8 billion in free cash flow. At the end of this quarter, quarter 1, it ballooned up to THB 10.4 billion in free cash flow. And then as of unaudited, I will say, unaudited as of April 30, the amount is THB 8.6 billion cash flow. And this is in consideration of having paid the interim dividend that we made to our shareholders of record as of April 30. So we take this cash flow and our intent here is to run our business, manage our business, but at the same time, make sure that liquidity is very, very important in our company during 2020. Please go back to the prior slide. So as you may recall at the last analyst meeting when we spoke, I talked about the dividend presentation that was recommended by the Board to our shareholders as of early March, I believe, March 13. There was an additional March 27 record date established by that Board and mainly was established because of our Annual General Meeting, which had to be postponed because of COVID. So that date was moved to March 27. And as of March 27, the owner shares of record received THB 2.4709 billion in dividends on the basis of an interim dividend payment, for which the Board also stated to the set that there would be no further recommendations to the shareholders for any other additional dividends being made in 2019. So the point here is that while this number is the largest single amount ever dispersed by Bumrungrad since it became a public company in 1989, it also is the largest percentage share of EPS made by the company, also in its recorded public company history. This was done principally by our Board in recognition of our shareholders and their steady, long-term support of this organization as a public company. This amount, THB 2.470 billion, was made, as I said, as a matter of record on April 30, which was 30 days post the last special Board meeting. So now moving to the quarter itself in terms of its performance. And I would refer to the quarter as 2 halves of the same story for the quarter. And the first half represented the first 5, 6 weeks. The second half represented the last half of the quarter, the last 5 to 6 weeks of the quarter. In the first half of the quarter, we experienced, as we normally do in Q1 and in Q3, those 2 being our strongest quarters, we experienced very strong support internationally and Middle East-wise. International was quite strong in that apart from Myanmar, which had issues associated with currency depreciation and political unrest in that country, apart from that, the international support was quite strong. So you see here this axis here represents the weeks of the quarter and this here represents the revenue. And you look at this inflection point right here when it started turning downward as a result of COVID and what was that a direct resultant of. Principally, as the world started shutting down any international travel, we here in Thailand experienced that first with the UAE having implemented in that early period of the quarter a lockdown of any flights leaving the UAE. That was quickly followed by Qatar lockdown, specifically into Thailand, and then the rest of the world shortly thereafter followed suit, including Thailand. So as you know now, 95% of all international travel has collapsed around the world, and that's the same situation here in Thailand, of course. So you'll see this decline here to where at the end of the quarter, for international, we were down 62% against this number here in 2019. So if you go to the Middle East slide, you'll see here that in the early part of the quarter, look at the strength of the Middle East support, 15.3%. If you look more deeply into that number, you will note that although you can't see it here, on one given day, we had a high of 138 Middle Eastern patients, which is as high as it's been in 10 years at Bumrungrad. So unfortunately, while it started out as a great quarter, COVID reared its ugly, deadly head and it came crashing down to 44% negative at the end of the quarter. Next slide. So here, you'll see this bounce. But when you look at it carefully, you will see positive support from Thai business. And you'll see a similar kind of thing when you see expat support for Thai business. Again, the same kind of trend, early strong support in the first part of the quarter and then it waned off. Why did it wane off for Thai business? Well, as all of us in Thailand have experienced this general fear of where to go, trying not to contract the infection and Thai people as well as all other people in Thailand have been fearful from leaving their homes. We, in fact, have even attempted to send physicians and nurses to Thai people's homes. They have rejected that in some measure because of the concern of getting COVID infection. So that, throughout the entire healthcare sector, not just at Bumrungrad, had a negative effect on the sector. And I think as other large or small public company organizations report their earnings, you will see that trend at some similar level. Next slide, please. Expat, you would see the same trend. And then here in March, the early part of March, it declined at 7.3%, then it bumped up and then it went down by 15.5% by the end of the quarter. Same general trend. Although the greatest percentage decline, as you would expect, would be in international business, driven by Middle East business, which is all part of the same total revenue. And as many of you know who follow the company, 66% of our revenue is driven by international revenue, which drives the greatest level of revenue intensity, which also makes an inordinately large contribution to net profit. So as we look at without any projections, but as we look at Q2, the impact of Q2 will be a full quarter of this impact here throughout the quarter. So we do not expect Q2 to be other than a very, very challenging quarter for us. And in addition to that, Q2 is always our slowest quarter. And in addition to that, it's Ramadan during our second quarter, as it normally is. So the impact of all of those 3 issues until the world opens up from a travel ban release, we would expect a very challenging Q2 coming forward. And in that regard, as it relates to guidance, I'm withdrawing our Q1 guidance going forward, making no effort to and thought about Q2 guidance until such time as we can understand more predictably what the Thai travel ban lifting will be as well as some of the other international countries and Middle East countries throughout the world. Next slide. So as a result of what I've just talked to you, and again, I'm not going to get into individual markets because I've actually covered them as I've gone through Thai, expat, international and Middle East. These were the results for the quarter. And I might add that not all, but for many of some of you listening, we beat analysts' expectations for the quarter. I suspect for some of the reason, what happened in our first 6 weeks of the quarter positively affecting the negative impact on the second 6 weeks of the quarter. So we were generally pleased with the results in the quarter, given the strength of the first half of the quarter. Next slide. On the issue of the hostile takeover, as an update for you, as you know, the solicitor has suspended their efforts in moving toward the takeover. They have postponed their Annual General Meeting, which would require the unofficial actions of their Board to be approved or disapproved by their shareholders. That still remains the case. And while suspended, it's inactive. It hasn't been rescinded. So we, as a company, remain vigilant and fully prepared when it is that whatever action the solicitor may or may not take, we remain prepared and have done a lot of work in our regard to deal with this challenge as we go forward whenever it is that the solicitor decides to move forward or not. There's no update from our side. Apart from that, if you have questions, we recommend you check back with the entity that provided the -- that initiated the takeover offer. I'll stop here. As Daniel said, we will be making ourselves available for questions on Thursday. And with this, I'll turn it over to Khun Oraphan for the financial detailed presentation. Khun Oraphan?

[Foreign Language] Good morning, everyone. Continue with Khun Neil expansion on the high -- financial highlights, I would like to present the financial performance to you all. For the total revenue due to the highly disrupted impact of the COVID-19 pandemic in first quarter of 2020, including the national lockdown in Thailand and travel ban in our international countries, the company report total revenue of THB 4,179 million in first quarter of 2020. This amount represents 11.7% decrease from first quarter 2019. The company report revenue from hospital operation of THB 4,090 million or 12% decrease from first quarter last year, mostly due to a decrease in revenue from Thai patient and non-Thai patient by 2.5% and 16.5%, respectively. And for the revenue contribution by nationality, as a result of the COVID-19, the decrease in international revenue was higher than the decrease in Thai revenue. As the result of revenue contribution from Thai patient, was up to 35%, whereas, revenue from non-Thai patient was 65% for our first quarter 2020, compared with 31% and 69%, respectively, from first quarter last year. For the revenue contribution by services. As the result of national lockdown in Thailand and travel ban in our international countries, the decrease in OPD revenue was higher than the decrease in IPD revenue due to -- we have the -- IPD revenue have a longer length of stay. As the result, OPD revenue contribute was 47%, whereas, IPD revenue was 53% for first quarter of 2020 and 48%, respectively, for first quarter of 2019. For the revenue contribution by payer type. There was a share in payer mix due to the COVID impact. For the self-pay decrease of -- from 69% to 62% in first quarter of 2020, mostly due to 35% decrease in revenue from international self-pay as the result of travel ban in all international countries. Also, revenue from Thai self-pay declined by 5.5%, mainly from decrease in checkup revenue. For the international -- sorry, for the insurance contribute, increased from 16% to 18% in first quarter 2020, due to increase in Thai and expat insurance patient. For the government third-party contribution, also increased from 14% to 19% in first quarter 2020, mostly due to 15.8% increase in revenue from Middle East. For the EBITDA, due to the COVID-19 pandemic impact to the volume and revenue, cost of hospital operations also declined 7.9%, mostly due to the physician fee decline and supply cost decline in line with the decrease in revenue from hospital operation. And selling expense also declined mostly due to after marketing expense. However, admin expense increased 7.1%, mostly due to increase in software support maintenance for tech care and other IT supports, which we do not have in first quarter last year. And we have more consulting fee in this quarter. As the result, EBITDA declined in this quarter 23.6% to THB 1,238 million. In this quarter, we have implemented more cost management or CAM in first quarter 2020 and continue for the whole this year that we will explain more in the following slide. For the EBITDA margin, as the result that we have mentioned in the previous slide, EBITDA margin in first quarter 2020 was 29.9%, declined from 34.5% in first quarter last year. For the net profit, the reason of the net profit decline in this quarter are the same as EBITDA decline. Except for the company have higher depreciation, THB 13 million. This is due to the impact of the IFRS #16 regarding to the lease, effective in 1st of January 2020 and increase in ongoing capital spending in first quarter 2020 as well. As the result, the net profit for the first quarter declined by 29.2% to THB 765 million. For the net profit margin in first quarter of 2020 was 18.3% compared to 22.8% in first quarter last year. For the net debt to EBITDA, the company net debt-to-EBITDA ratio in this quarter slightly up from last year to 0.2x, due to -- we have a higher net debt due to less cash on hand from higher short-term investment in first quarter this year. And the net debt to equity, this is the same reason of the net debt to EBITDA that we have higher net debt due to the less cash on hand from higher short-term investment in first quarter as well. But in the overall, the coverage ratio was still lower than the coverage that we require for the bond. For the interest coverage ratio, in first quarter of 2020, has become to 38.2% due to we have the lower EBITDA in this year. That's why we have lower net interest coverage ratio. So that's all for the first section. Thank you.

Thank you, Khun Oraphan. So now we'll be moving into the business update section, whereby, we'll be talking about the COVID measures that we've implemented as well as strategies related to COVID and strategies in the long term, which will be presented by Mr. Jeremy in the -- at the end of the presentation.

[Foreign Language]

Now for our -- for the COVID situation, you're probably, as you can see, aware that the international patient base as well as the Thai base and expat base, has been negatively impacted by it. As a result, we have enacted a number of measures, which we believe allows us to address the near-term situation, both on the cost side and also on the revenue side. And actually, also, more importantly, on the organization side as well, taking advantage of the fact that our organization will not be disrupted in -- during a normal situation when patient flows are at their usual level. There are 3 key themes to that: one is capturing near-term business opportunities; second is transforming the organization for long-term competitiveness; and thirdly, on managing and minimizing near-term effects as a result of COVID. There are some key focal areas there. So on health and safety, we ran through that with you in the previous quarter with Dr. Korpong, who is leading the charge on COVID safety and COVID measures and screening protocols. You may have seen in our social media channel or in our YouTube channel that we have implemented UV robots to disinfect patient rooms and also areas where patients walk through. This is an efficient way to disinfect and to eliminate any bacteria, virus or other infectious organisms that may put -- that may jeopardize patient safety, but also employee safety. And we actually were one of the few organizations, which were ready right from the start of COVID to offer COVID testing as well as developing rapid tests in conjunction with our partners to enable us to more efficiently screen out for COVID patients. We talked about organization. What do we mean by that? Because of the disruption to patient flow and to normal business operations, whenever one does a major revamp of our organization, we decided to take advantage of this opportunity to do so. And that includes ramping up human resources development, training our staff to enable them to deliver higher levels of service and also quality when the situation improves. But also in terms of organizing the structure of the company to allow for greater efficiency and also cost effectiveness across the board. These measures usually are very disruptive to the organization. And as a result, we have decided to do so now, where we can take advantage of COVID. Never let, so to speak, a disaster or a crisis go to waste, as they say. On revenue acquisition, you may have seen in our media channels and in our marketing efforts that we have been promoting telemedicine. We've been promoting care-at-home programs. And this will continue to be intensified and enhanced. There will be a number of other more innovative measures that we have also rolled out. And Khun [ Ling ], she will be outlining them subsequent to this overview. On translational R&D, translational, meaning R&D that shifts on paper projects into commercializable products or services. We have been very excited by a number of developments, which we will be rolling out in the near term. One of which is on wellness AI, using AI that we have developed internally to generate physician support measures and to drive wellness protocols in the future. This links in very well with Bangkrajao, and also, in the future expansions on our wellness side as well. We know that human resources is very limited in this country, especially on wellness. And we believe that with AI, we can ameliorate this situation and allow us to grow much more rapidly in the future as well. We have also started to accelerate the deployment of cancer treatments, and these will be announced as they become available very soon. These are very promising cancer treatments. And these would elevate us to the next level in cancer centers of excellence for which we are very well-known across the Middle East and also globally for. We also have expanded our DNA wellness panel. You may recall that it is currently covering 11 diseases or 11 risks. These will be expanded to 16, and they will go deeper. And in fact, we are also moving towards partnering with some highly promising ways of growing this business in the future to deploy it at the mass market level. And that pretty much covers in terms of an overview of what we're doing. And I would like to hand it over to Khun Oraphan, who will talk more about the cost management measures and also on fiscal discipline and how we are managing to survive, as Neil said earlier in the presentation.

And I would also add, Daniel, for the benefit of those listening that as it relates to translational opportunities, we have talked about this whole question of moving in our experiment with principal healthcare that, that effort continues in a positive way. Four hospitals have been identified and 3 others as Phase II, as we look to develop a second-tier function, either within joint care or within spine surgical care, and that will continue forward. Not as a second brand, but really, the whole aspect of transitional knowledge transfer, technology transfer and how it can benefit both the receiving end, which is Principal Healthcare and Bumrungrad. On the cost management front, as Daniel pointed out, early in January, everyone, including us, saw the concern. As I showed you earlier, as the decline occurred in revenue, we took a pretty active participative initiative in looking at our cost structure. And while we did not mortgage the future, we did look at where it was, given the changes in our volume, where it was that we could deal with costs most effectively. And we identified over the period of the remaining part of 2020, about THB 250 million in potential savings, which management at the medical center level and at the corporate level looked at carefully in trying to bring that down without mortgaging the future. You'll notice that there are talks about a hiring freeze. That hiring freeze has been put in place until such time as the business returns. We've been very, very diligent and deliberative associated with overtime, not compromising direct patient care. That we would not do. But where was that we could deal with it most cost effectively, we have managed our overtime very, very carefully. And we do expect as business comes back because we want to look at how this country opens up and how the world opens up, we will be ready to take on international patients. And I can also tell you that many, many of our referral offices around the world, many of our Middle Eastern countries are very, very anxious to send their patients to Bumrungrad and are just waiting for that time when it is that the country opens up again from a travel ban suspension and elimination standpoint. So we're looking for today and managing our business today, but also looking at the opportunity for tomorrow.

So as we mentioned earlier, this is the playbook for today. But as Neil mentioned as well, we have our strategy in the long term. And we're excited to also unveil a bit of detail on that in the future and how we are moving as an organization to the next level of healthcare down to the genetic level, allowing us to offer precision medicine and customized healthcare for our patients. We know that diseases are very personalized in terms of how it affects people individually, but also how drug interactions and medical interventions are not a one-size-fits-all. But it is on a personal level. And that's why we can leverage our in-house NGS lab, our next-generation sequencing lab as well as the in-house talent that we have to offer this service to our patients to improve patient outcomes and also to prevent, and that is the key theme in the future, to prevent diseases from occurring in the first place and mitigating their effects and their severeness in the future as well.

First of all, I would like to thank you, Daniel, on explaining the above 4 item that we mentioned in this slide and also refer to Khun Neil mention on the cost saving plan. I would like to go to detail in terms of the cost saving plan as the following. We have initiated and implemented cost management or CAM in many ways, like workforce management. We have consolidated a few clinic and -- more earlier to optimize manpower productivity, reducing overtime, part-time and also optimize outsourced workforce. We also suspend hiring and replace staff, and we're having digital work solution to lean the process such as using Microsoft Team to replace physical meetings and support staff during work-from-home period. And we also have the telemedicine to support patient. So move on for the financial discipline. We preserve working capital cash position. We have a good relationship with many key vendors, who offer long-period payment term. And we keep connecting with the key account receivable on assisting them to expedite the repayment. For inventory and supply management, we maintain inventory to actual satisfaction level of customer service, while keeping inventory costs within reasonable bounds. And we also analyze and optimize and prioritize the capital investment for optimize the return, selecting right investment. Investment in a better technology and equipment tend to operate more efficiency and generate profitability and delay or reject a few investment, which could not generate a return. Thank you, Khun.

Now on to Bangkrajao. Bangkrajao, as you may recall in the previous analyst presentation, was scheduled to be soft opened in June. That has now been shifted to the fourth quarter. We believe that, actually, that is a positive because of its alignment with the high season for tourism in Thailand during that period, but also because people during the end of the year want to rest, recuperate for the start of the year. And Bangkrajao allows people to rejuvenate at a much deeper level by offering very advanced and innovative methods of improving their health, and also rejuvenating and destressing at the end of the year. So on that, we think that it is a happy occurrence, and we look forward to welcoming you and showing you Bangkrajao when it becomes soft opened. Now we're going to move into a longer-term strategy on where the hospital is moving and in what direction. We talked about the near-term playbook and the effects that -- the measures we're taking to mitigate the effects of COVID. However, the more exciting bit is what we're going to do for the hospital in the future, and that will be presented by Mr. Jeremy Ford, our Director of R&D and Lab.

My name is Jeremy Ford, Laboratory Research and Technology Director at Bumrungrad International Hospital. Ladies and gentlemen, I wanted to just ask you a question. What is a digital twin? Remember that. I'll come back to it later, hopefully, in the presentation. Science and technology developments are changing the landscapes of every industry, and these same science and technology innovations can be used to change the landscape of our industry. In healthcare, science allows for the analysis and collection of granular personal biological information, which essentially allows us to personalize you via measurement and technology supports the storage and processing, the flow and analysis and the use of that information. A few of the current driving forces within the healthcare market are personal health and interest of everybody in personal health, what health means to me as an individual rather than -- and how does it relate to me as an individual rather than to a population, and also personal ownership of health. I want to take control over my own health. I'm interested in wellness, trying to maintain by lifestyle modifications and changes towards prevention and stopping the development of various diseases and problems. And there's also willingness of people to spend disposable income on preventative health, and this is seen in the direct-to-consumer markets, wearables and the Internet of Things, which is used for monitoring and measurement of various environmental and local and also personal. Traditionally, people go to a doctor when they are symptomatic, right at the tip of the iceberg there. So then the doctor then tries to find out or the clinical care organization tries to find out what's happened, why this patient has become sick and drive down. Now the technology is around it now. Science has made great advances that we can actually look at most of the things that are predisposing or affecting people's wellness or health, looking at their genes, looking at their behaviors, looking at environmental factors, looking at complex biological systems within individuals. And we can look at sort of things like immune imbalances, inflammatory responses, detoxification, a whole lot of things. The technology and the science is available now to be able to do this at a cost-effective and time -- in a timely way. At Bumrungrad, we've developed the expertise and the ability to actually perform most of these analyses, right from genomics, genetics, proteomics, metabolomics, what we call the omics, right up through on-site. We can actually do all these analyses now on-site. So instead of looking at a disease coming from symptomatic, driving down, we're proposing that people might be interested to do genomic profiles, omic profiles and take control of their health and stop breaking water and becoming symptomatic. So moving up rather than moving down. These technologies produce a lot of data and are very, very complex. And -- but once we start to look at these data, we're building up the concept of a digital twin. We're building a digital copy of you. What does that mean in practice? And how do we translate that into a meaningful service offering for our patients, which can make a big difference to our patients? We see that it's done via a Smart Health Hub. A Smart Health Hub, this is an academically validated concept and a Smart Health Hub is a learning organization. It's a digital organization. It's a digitally connected organization. It focuses on the outreach and the inreach of clinical centers of excellence maintained at a medical care hub. And it's also focused towards personalized precision medicine, which is patient-focused within an integrated unit. If we have a digital copy of you, it allows us to deliver this model of care anytime, anywhere, nationally and internationally because it's a digital copy of you. In concept, you don't even have to be physically present. Smart health hub, as far as Bumrungrad is concerned, is -- it revolves around 3 key concepts, 3 pillars, on which we build the Smart Health Hub. One is precision health, one is big data, and one is digital health. Precision health is the foundation of the hub. Precision health is looking at all those deep dive technologies, personalization and you that -- under the tip of the iceberg. Big data is the intermediary, which is taking all that data, managing it, manipulating it, putting it into a structured form so it actually becomes useful. And then digital health is the channel by which we interconnect, communicate, the data is accessed and also used for delivery of services. At Bumrungrad here, we've already, as I mentioned, developed on-site testing capabilities to measure the deep-dive personalization. We can measure pretty much a large amount of sophisticated analyses on you as a person. We've also implemented a big data management tools platform, which supports various AI initiatives. We've already set up quite a few numbers of clinical AIs running against that digital data to improve patient care, personalize the care for you. And also, we're developing a growing digital infrastructure platform, which uses a standards-based integration, which drives towards interconnectivity. The digital ecosystem is very important because it's using -- picking up all sorts of digital data anywhere in the world. So monitoring data through personal devices, Internet of Things, allows for telemedicine, secondary -- second opinions, education, automated responses and things like that. If we have a digital twin, then it allows us to deliver this model of care anytime, anywhere. So in order to answer the question, a digital twin is a digital copy of you, which allows personalized medicine, anytime, anywhere.

Thank you, Jeremy. This concludes the First Quarter 2020 Analyst Presentation. Please remember to tune into our live Q&A session at 10:30, and we'll see you there for management to reply to any questions you may have on Q1 2020 results and also other parts of the presentation we have highlighted to you. Thank you.