Burjeel Holdings PLC (BURJEEL) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the Burjeel Holdings First Quarter 2025 Earnings Call. Today's call will be hosted by our CEO, John Sunil; and our CFO, Muhammed Shihabuddin, who will be providing an overview on our financial and operational performance, followed by a Q&A session. I'm Sergei Levitskii, Director of Investor Relations and will be moderating today's session. First, please review disclaimer on Slide #2, which includes important information regarding the interpretation and limitations of historical data and forward-looking statements. I will hand over the floor to our CEO, John Sunil, for a brief overview on our results and recent business highlights.

Thank you, Sergei. Good afternoon, everyone. Let me begin by acknowledging that the first quarter of 2025 brought a number of operational challenges for our business. We started the year strong with solid performance in January and February. However, March proved weaker than expected, driven primarily by a sharper-than-anticipated drop in patient footfalls, particularly during Ramadan and delays in ramping up several complex care programs. These pressures led to a shortfall against our internal expectations, especially on EBITDA. That said, we take full responsibility for the outcome, and we are responding decisively. We have strengthened operational oversight and tightened controls across high-cost areas such as staffing, marketing and maintenance. In parallel, we are accelerating performance improvements in underperforming sites and driving cost efficiency through targeted procurement measures. Encouragingly, we have already seen positive signals early in the second quarter, including a solid start in April and growing momentum from our growth assets in oncology, fertility and surgical care. While it's too early to determine whether adjustments to full year guidance are needed, we remain fully committed to transparency, disciplined execution and restoring momentum and margins. Our midterm strategic direction remains unchanged. We are confident in the strength of our platform, the growing demand for specialized complex care and our ability to create sustainable long-term value for our patients, partners and shareholders. Before moving to the performance analysis, let me first walk you through the key business and medical highlights. One of our key strategic pillars is oncology, where we have made meaningful progress this quarter through two significant expansions within the Burjeel Cancer Institute. First, we launched a new cancer center in Al Ain, extending our oncology footprint and further strengthening what is now the largest network of comprehensive cancer facilities in the UAE. Second, at the Burjeel Medical City, we opened a dedicated breast cancer center, a first-of-its-kind facility offering comprehensive multidisciplinary care for women with both malignant and benign breast conditions. The center integrates diagnostics, surgery, medical oncology, radiology and support services under one roof, setting a new benchmark for women's care in the region and reinforcing our commitment to personalized patient-centric medicine. In February, we also acquired an 80% stake in the Dubai-based Advanced Care Oncology Center, a leading radiation and chemotherapy provider. This strategic move supports our goal to build a stand-alone radiation oncology network integrated with BCI, expanding access to advanced cancer care across GCC and accelerating our oncology ramp-up. And we remain focused on delivering value to our shareholders. Our AGM approved a full year dividend of AED 170 million for the year 2024, representing 47% of reported net profit and is expected to be paid out during May. From medical side, we further strengthened our oncology capabilities with the appointment of Dr. Ajlan Al Zaki, a UAE national and internationally recognized expert in cellular therapy and hematologic malignancies. With the background at leading U.S. institutions, including Stanford and MD Anderson, Dr. Al Zaki brings deep expertise in CAR-T therapy and immunotherapy innovation. He's now leading the establishment of a dedicated cellular therapy center focused on expanding access to next-generation cancer treatments across the region. As a part of this vision, we partnered with a U.S.-based Caring Cross to locally manufacture CAR-T cell therapies in the UAE. These treatments, which globally cost between USD 350,000 and over $1 million remain inaccessible for most patients. By localizing production, we aim to reduce cost by up to 90%, significantly improving affordability and access to advanced cancer care throughout MENA. Clinically, we reached a major milestone with 50 successful multi-organ transplants since inception, including 20 liver and 30 kidney transplants. Notably, we performed the UAE's first pediatric living donor transplant on a 5-month-old Emirati infant, a case previously declined by several international hospitals. This underscores our growing reputation for delivering complex care cases. We also ensured 500 successful robotic surgeries using the Da Vinci system, led by a multidisciplinary team of surgical experts. These include high-risk cancer operations and complex transplant procedures across a range of specialties, demonstrating our commitment to surgical precision, innovation and clinical excellence. To provide details on the performance, I'll hand over to our CFO, Shihab.

Thank you, John. In first quarter, the group patient volume was primarily driven by the strong growth in January and February, where inpatient volume is increased by 15 percentage and outpatient volumes increased by 8 percentage supported by the continued ramp-up of our recently launched facilities and maintain the conversions. However, March patient volumes were impacted by Ramadan. The impact was higher than what we expected. Despite this, inpatient footfall increased by 11 percentage year-on-year for the quarter, while outpatient footfall increased by 5 percentage year-on-year. Outpatient utilization was moderate, reflecting the ongoing expansion of our number of physicians we added into our network as well as the softer patient volume in March, whereas our bed occupancy improved to 68 percentage. Let us move to the next slide to review how these trends impacted our revenue growth. The group revenue for Q1 grew by 6 percentage reaching AED 1.3 billion. Particularly in Jan and February, the growth was strong at 14.5 percentage, in line with our guidance supported by higher patient footfall and healthy surgical mix. However, as we discussed earlier, the drop in patient footfall in March, combined with the delay in our complex care program as well as some underperformance in our ramp-up process brought March revenue down by 12 percentage. As a result, we fell short of our Q1 revenue guidance. Looking a bit deeper, our patient yield in Q1 2025 was diluted by a shift in case mix around 65 percentage of our incremental inpatient footfall came from our lower yield specialties like medical oncology, pediatric, internal medicines, gynecology department, neonatology, which ultimately impacted the surgical conversion as well. From a segment perspective, our revenue trends were broadly consistent with the overall group performance. But it's worth of highlighting that medical centers posted a strong growth, driven by a ramp-up of our centers opened last year. Other revenue also grew sharply, mainly fueled by the expansion of our O&M business segment. Turning to profitability, given that around 75 percentage of our costs are fixed, the revenue shortfall in March had a direct impact on our Q1 profitability. The AED 100 million gap translated into the AED 80 million of unrealized EBITDA for the quarter. I'll walk you through the details of the next few slides. On a more positive note, we are already seeing encouraging early sign of recovery. Revenue in April grew over 20% year-on-year in post Ramadan. That gives us the confidence that our year-to-date top line performance remains broadly on track with our full year guidance. But of course, we'll have a better visibility once we complete our full Q2, and we'll revisit 2025 outlook at that point in time. Let's take a closer look on Burjeel Medical City. Burjeel Medical City delivered a strong result in the first quarter. The revenue grown about 18% year-on-year in Jan and Feb. This was driven by 20% increase in our patient volume, healthy surgical conversion rate and healthy patient realization across our core specialties in this quarter. However, March was softer than anticipated. The revenue declined around 3 percentage year-on-year. As we saw at the group level, the sharper-than-expected impact of Ramadan led to reduce the patient flow and lower surgical volumes, even though the full quarter, BMC's revenue still grew at 11% year-on-year. Medical oncology remained a major growth driver, delivering 31 percentage year-on-year growth and contributing over half of BMC incremental revenue for the quarter. Operational performance also strengthened where occupancies improved to 66 percentage from 55% Q-on- in last year. Following the expansion of our surgical force late last year and during Q1, we are beginning to see the early improvement in core coordinations and patient translation into advanced treatment. While the full impact of surgical conversions will take some time to materialize. The initial signs are encouraging and reinforcing our confidence in BMC's strategic direction. So overall, BMC continued to demonstrate a strong underlying growth and improving profitability. Despite the challenges in March, BMC's EBITDA increased by 20% year-on-year in Q1 with margin improvement to 17 percentage compared to 16 percentage in last year, and we expect this positive trend to continue through the year. As previously mentioned, we are now going to take a deep dive into our profitability and operating cost trend. As I mentioned, the sharp revenue decline in March directly impacted the profitability for the quarter with around 75 percentage of our cost base are fixed. The AED 100 million revenue shortfall in March translated into about AED 80 million unrealized EBITDA. As a result, the group EBITDA declined by 23 percentage compared to Q1 of last year. Looking at the key cost drivers, doctors and employee salaries increased by 11 percentage year-on-year, reflecting the onboarding of 188 doctors during 2024 and further 33 doctors in Q1 2025. These additions are strategic, aimed at strengthening our surgical oncology and primary care platform. As I explained earlier, as well as subspecialties conversion is a part of clinical protocol. For us, establishing specialized services and the ramp-up is taking time, which is all will mitigate when the conversion is get improved. Good part is that we are securing outpatient volume growth, and we have enough inpatient capacity to manage without any additional investment. That makes group differentiated from the competitor. Inventory costs are marginally decreased, benefiting from the continued formulary optimizations and stronger procurement efficiencies. Other overhead expenses rose year-on-year, primarily due to focus on marketing and maintenance investment, business expansions, and we moved our maintenance contracts towards the CMCs, a comprehensive maintenance contract that will strengthen our equipment, which will ultimately will help us to reduce our replacement cost. So for the time being, it may reflect in my P&L as a cost, but which is going to be normalized as we go. Losses from the recently launched facilities totaled around AED 17 million, in line with our expectations during the ramp-up phase. This primarily relates to the PhysioTherabia centers and primary care operations in Saudi Arabia as well as a few newly opened day surgery centers and medical center in UAE. To summarize, while the first quarter was challenging from a revenue standpoint, we remain disciplined on our cost and investment. We are already seeing early sign of stabilization in operational cost heading to Q2. And coupled with the revenue rebound we observed in April, we expect to well position in margin recovery through the rest of the year. Moving on to the cash flow. As we committed previously, we remain on track of improving working capital management. Operating cash flow increased by 23% year-on-year in Q1, reaching AED 142 million. This was driven by a gradual improvement in receivable collections and a greater flexibility in payable management despite the revenue pressure we experienced -- what we experienced in March. Maintenance CapEx remained in line with our guidance, totaling AED 23 million for the quarter. At the same time, the growth CapEx stood at AED 178 million, fully aligned with our announced expansion plan in UAE and Saudi. Lastly, let me say a few words about our current financial position. We maintained a disciplined balance sheet in Q1. Our net debt-to-EBITDA ratio is 1.5x, up slightly from 1.3 at the year-end, reflecting a lower Q1 EBITDA and continued growth in investment. Looking ahead, we are planning to issue the AED 500 million Sukuk subject to the shareholders' approval and market condition to optimize our capital structure and fund our future growth. Overall, we remain conservative financial position that support our long-term strategy. In terms of guidance, we are currently reviewing our full year guidance in light of the Q1 performance. At this stage, it's still too early to reach a firm conclusion, but we are committed to keep the market informed as our review progress. While Q1 came with some short-term headwind, we remain confident our midterm target and strategy priorities are still the same what we communicated. Underlying demand for the high-quality specialized health care remains strong demand in GCC. We are quite confident of achieving our guidance what we indicated to the market. Our recently launched assets are building momentum. Our investment in complex care services, referral pathways and well-invested infrastructure are expected to support the stronger utilization. Operational priorities stay firmly focused on maximizing our capacity at the key hubs like Burjeel Medical City, advancing high complexity procedure and driving the margin improvement through the cost discipline and focused execution. We are also continuing to optimize our workforce, enhancing the procurement efficiency and sharpen our marketing approach, which all is going to improve my bottom line as we go. Now I'll hand over to Ms. Sergei for Q&A session.

Thank you. That concludes our brief introduction. We are now ready to take questions. So I will hand over the call back to operator.

[Operator Instructions]. Okay. We have a text question from Jithin John from Abu Dhabi Capital Group. The question is about receivables continue to steadily increase. Incremental addition to receivables was at 10% of 2024 revenues. Similarly, addition to the receivables in Q1 '25 was nearly 50% of the Q1 2025. This is leading to a steady rise in working capital, which now stands at over AED 2 billion. While we understand the receivable days for hospitals and GCC is higher, the receivables trend for Burjeel has been escalating. What is the reason? And do you expect receivables to rise going forward as well?

Thank you, Jithin. With regards to the receivable, basically, like you are seeing in the financial as a growth receivable, which include trade receivable prepayment advances and deposits is a combination of all. So as you rightly mentioned, is obviously is increasing from the last disclosed period basically. But if you further slice it down basically on the trade receivable, when it comes to the trade receivable growth, it is only 6.5 percentage. Obviously, we understand that basically like when we compare the past, there is an improvement on collections. There is improvement on receivable, which is not -- like as you mentioned, it's not 15 percentage or 20 percentage. So now we improved our collections. This quarter, it is around 6.5 percentage growth. We are working aggressively with the insurance companies, including the RCM, we believe that like in the coming quarter, it will be further improved basically. So it is a journey. We are working towards that.

[Operator Instructions] Okay. We have received another text question from Nikita Gupta from Franklin Templeton. Regarding the higher marketing and advertising spend, did it still continue in Q1 2025 or noncritical activities were suspended after the fourth quarter of 2024.

See, first of all, we are into the health care and we are in the form of establishing the super specialty among the GCC basically. So some of the essential marketing spend what we spent historically, it wasn't necessary and critical to establish the program. So as you know that like in all the region in demand of super specialty, there were historically for long years that depending the Western facilities, pulling them back and sustaining within the country without effort is not possible. So we were having a two choice. one, establish the reference site among all these countries like a hospital where it will act like a feeder to my BMC or just spend on a profile building basically, expressing, demonstrating what we have done in the BMC, which will help the people to understand the capability of the group and the system and gradually, they'll move to in country or in the region. So that was an effort basically. We spent quite a good amount for that. We are seeing the result also, but it is a journey. It is not like today, I publish tomorrow, I can get everything no. We are continuing to do that. But in the last Q4 2024 onwards, we are very much cautious about what we spend for the noncritical items, including the marketing spend. We are controlling -- we are minimizing as much we can, but necessary spend has to continue basically because it is a journey. So if you take any Western facilities, they are not established in a short period of time. They spend a lot. They spend a lot to attract all these crowd what it is happening there now, right? So it is an effort we are putting, and we are minimizing spend as much we can, but we have to keep some provision of spending. So you can see the improvement, Q-to-Q improvement will be there on a spend. Even Q2, we are very much conservative in spending because we know it is the summer, it is a holiday season. So we are very much cautious. We don't spend unnecessarily. Only necessary spend will be there, and we'll be controlling, and you'll be seeing that improvement in our upcoming results as well.

[Operator Instructions] So we have a next question comes from Asjad Hussain from International Securities.

I have one question pertaining to outpatient utilization. So we see that in first quarter 2025, outpatient utilization is around 65%, which is almost 4% decline. compared to last year. So mainly, I think it would be attributable to the increase in the number of doctors, which were hired by the group. So can you please highlight that how long will it take for the new doctors to operate at the utilization where the existing assets of the company are operating?

So normally, basically, like if you introduce any doctor, it is all about based on the specialties. For example, if I introduce a doctor for internal medicine and a family medicine, that doctor will be ramping up as early as possible because all family medicine patients will go. And as you may see that my volume is increasing. So the doctor is getting busy day by day. But the way which we introduce the doctors into the system is a specialized doctors. It may take time. I'll tell you an example. For example, if somebody got a gastric problem basically, he may see initially with the gastric specialized doctors or maybe internal medicines. Then they have to refer in case of any disorder, he has to refer to a consultant basically. So no patient will go directly to the consultant on the specialties without any reference. So -- but it is all about like what we are offering, how competent we are on that. So that is the whole reason we inject all these doctors, specialized doctors in the system. It's a matter of time, it is going to be picked. But in between what happened basically, all these doctor addition majorly happened in Q4 and Q1, I can say Q2 onwards basically. But in between like Ramadan came, very much conservative approach happened. But it is picking up basically. So I would say, normal scenario, if it is medical specialties, it will take around 6 to 8 months' time. But if it is a specialization, it may take around 12 months' time for stabilizing these doctors. But we are on track. You can see that improvement in the upcoming months.

[Operator Instructions] So now we are moving to the next voice question from [indiscernible] from Morgan Stanley.

Apologies, I joined late if you covered this question. So I have three questions. So first, in your press release, you mentioned January and February is strong and then there was a huge drop in March. So what was the margin in terms of January and February? And then related to that, when do you expect to go back to that 2023 run rate in terms of profitability? So that's my first question. Should I continue or should I ask one by one?

We are fine the way which you want, so I can answer for this basically. With regards to my first 2 months, as I mentioned, that basically, we are seeing the -- we saw the revenue growth, which is on a mid-teen, basically, it is a positive sign. So if I slice down my profitability on these 2 months, it was in the range what we indicated. So the symbol is that basically in health care, 70% to 75% of the cost is fixed cost, almost fixed cost, I would say. For example, if internal medicine has five doctors or even a lab department has a five pathologists basically, I have to maintain them irrespective of the patients 2% less or 2% up, I have to maintain the minimum. So in that sense, basically, any ramp-up is happening on my top line, that is going to support me my bottom line growth aggressively. So when my top line has grown at 15 percentage, obviously, my -- I'll be in the range of 20 percentage, 21 -- 21% maximum EBITDA range basically. But unfortunately, what happened basically in March, we got hit of AED 100 million top line, which has dragged us down to the level of -- I lost around AED 70 million to AED 80 million additional EBITDA. So -- but it is a system. I cannot exactly meet the EBITDA margin Q-to-Q or month-on-month because it is a service segment, right? And it is very much a sensitive service segment. So it may move. But overall, basically, if my revenue is able to maintain on a mid-teen, I'll be seeing that the EBITDA margin as what I indicated. We are thoroughly reviewing that month-on-month performance basically. And we'll come back to you close to the Q2 basically, and we'll indicate you what we are expecting for this year for sure. The next question was like when we can see 2023 EBITDA margin level basically. It is going to come basically. As we said that like my surgical specialties get improved, my EBITDA margin is also going to improve. Like, for example, BMC, now I'm reaching 19 percentage, close to 19% EBITDA margin basically. So I expect this year, if BMCs perform very well, basically, BMC EBITDA margin drastically will grow. That will help me to grow on an overall level also. So obviously, when my service mixes get changed, my profitability also drastically will change.

Yes. But when do you expect that?

It is a part of the journey, right, because we are bringing multiple assets also along with that. So if I take a mature asset per se, for example, Burjeel Hospital Abu Dhabi or Burjeel Day Surgery Al Reem, I am already on top of or more than what I achieved 2023 on a group level. So it is all about like when we are ramping up, how quickly we are ramping up. If I stop all my growth assets and only assuming that my existing asset will get ramped up and EBITDA margin to be achieved like a 2023 level, then I can easily achieve even 2026, I'll be there in that ratio. But I cannot stop my growth basically. It's a part of the journey. I should.

That part is clear, but my point was more in terms of the existing without the growth one. It's that part, the growth part is of this year.

Absolutely. So if I see my -- within my existing assets, some of the major assets, if I take Burjeel Hospital, Abu Dhabi, Burjeel Day Surgery, they are achieving 24%, 25% EBITDA margin only. Some of the assets are ramping up. So if I just slice down only the mature assets or existing assets basically, they're almost there. So my new assets and plus the high-growth assets are giving it up time, but I have to bear with. I have no choice because I'm building a system. It's not like one hospital like a multi-specialty hospital. It is a network.

That's clear. And then the second question is that which relates to the first one. In the press release also, you mentioned competition, increasing competition. So what changed versus, say, last year in terms of competition? Because you have mentioned it in your press release that there's increasing competition.

First of all, I got out, maybe you may be wrongly read basically. I didn't say that there is an increase in competition. And you can watch yourself, right? Like if you read our competitor presentation also, I didn't see that the major growth is happening in health care segment, what they resulted. And if you take the macro view on UAE per se, UAE population is growing, but can you tell me which new provider came to UAE to eat the competition? It's not happening. The same would be...

I'm referring to the press release yesterday you released that you mentioned due to competition also. So that's what I'm asking about on your press release.

Not a competition basically. No, I didn't mention reference like that. I can read out. But obviously, this is a market. There will be healthy competition always basically. And healthy competition is always welcome also because this will improve my efficiency. And I can manage that. But otherwise, I couldn't see that like a major competition is putting a pressure to anyone. No, that is not the case.

Okay. And my last question is, could you please provide an update on the Saudi market in terms of both digital therapy and 1-day surgery?

In Saudi?

Yes, Saudi.

Yes. Saudi, our first project is almost in a good form of completing. Basically, we are going to open in November, maximum by December beginning in our first day surgery center, basically, all are in progress basically. And second, we identified the location, which is also -- we are going to conclude as early as possible, then we will take the project up. So initially, we will be focusing our two major projects, day surgery center in Saudi, along with the primary care network, which we are creating in Saudi. That will be our project on track.

[Operator Instructions] Our next question comes from [ Saikat ] from HSBC. Two questions from my side.

Two questions from my side. One is on the ECL provisions. So I see that, that has increased from AED 22 million last year Q1 to AED 39 million and which is a bit more if you take a percentage of EBITDA, right? So I just want to see what is your view on this particular line item increasing for the rest of the year? Because I see in your accounts, you have increased your receivables more than 300 days due from AED 40 million to AED 87 million. So that's my first question. And second one is just I want to know the AED 45 million extra overhead, other expenses that you have booked in Q1 versus last year Q1. Can you give me a segregation or split of these in different buckets?

With regards to ECL, like we are taking an aggressive provision logic basically. But even we are running an independent ECL, which is guided by our external auditor. So this time, basically, like we run, I would say, like upgraded version of the ECL engine by the auditor by looking into our own historical data and all these things like 5-year debt and all these things. So which is guided by external auditor, and we didn't object it much basically. So we feel like in any way, it is a provision basically. So that is why like we are not -- we don't want to take a very conservative provisions and tomorrow end up in a dicey situation. That's why like we accepted the view of an auditor, and we moved ahead basically. So -- but you can easily understand that this is a provision basically. So we will update according to the actual rejection in the coming months or years when it has got realized. When it comes to an overhead, basically, like you rightly point out, there is a AED 41 million Q-to-Q increase. There are four buckets majorly contributing this. One is advertisement and marketing. Secondly, maintenance cost, which Sergei mentioned already in the presentation as well, basically. These are the two major contributors. One, advertisement, as I explained, basically, we are spending to build a profile within the region. We are spending quite heavy if you compare 2024 and Q1. We are minimizing as we speak because any industries, if you take pharma or health care basically, initially to build the brand, to build the product, I have to spend quite some amount. Once that has got established basically, then it become a routine and process, then we'll minimize these expenses. You can see in my Q2 also, this cost will be coming down and will be spending less. As we speak basically like now I'm majorly spending for Burjeel brand and Burjeel -- Burjeel Medical City, that is a necessity now. In Lifecare or LLH, I'm not spending anything on marketing because that has become a routine or part of the culture in the country. But BMC is a little bigger, and we have a bigger ambition about the BMC. So I need to spend. If I quite simply sit, then this whole project at risk. We don't want to take that risk. So that is the whole reason we are spending. So, and secondly, last year, we changed our methodology on the maintenance. Initially, it was AMC. The parts for the technical or software upgradation was not part of the contract. But last year, we changed that contract into a CMC comprehensive maintenance contract, which includes any upgradation, any replacement since the parts replacement or critical part replacement, everything is included in that. So in that sense, basically, what is happening basically like our replacement cost in future can be minimized. So I may be booking as a maintenance cost in the P&L, but there will not be any major replacement cost as aggressive if I would have been gone as an AMC. So this was a conscious call by consulting with our biomedical team considering the life of assets because the technology is getting upgraded year-on-year. If I just follow that path, then every second year, I may have to change my equipment. For example, I'll tell you a recent example like a Cerner implementation. We implemented a Cerner into our three major hospitals. We have successfully completed that project. We are seeing the improvement in terms of documentation and all these things. But what happened basically the Cerner, I have to come back with all my equipment. Some of the equipment has not competent enough. If I would have -- I was not going into a CMC contract, I have to replace all this equipment, that is a much bigger investment. So CMC is helping me. So we are evaluating like in the coming years, we will be seeing our replacement cost also is getting controlled basically in terms of replacement of equipment. So it is in a way of management, I can say.

[Operator Instructions] Okay. It looks like this concludes the call for today. So we'd like to thank you, every participant, and see you next time. Thank you, and goodbye.