IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to the Fourth Quarter and Full Year 2019 Financial Results of IHH Healthcare Berhad Analyst Briefing Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 28th of February 2020. I would now like to hand the call over to your first speaker today, Ms. Penelope Koh from Investor Relations at IHH. Please go ahead, Ms. Koh.

Thank you. Good evening, and welcome to IHH fourth quarter and full year 2019 earnings call for the period ended December 31, 2019. Thank you for joining us today. I'm Penelope Koh from Investor Relations. With me on the call today are: Dr. Kelvin Loh, Managing Director and CEO; Mr. Low Soon Teck, Group CFO; and we also have our colleague, Mr. Evren, who is heading -- who is the Head of Strategic Planning and Investments from Acibadem with us on the call today. For those of you on the webcast, you'll be able to view and download our presentation slides and press release. The materials are also available for download on the IHH website. As for the sequence of event, Dr. Loh will bring us through the key highlights for the fourth quarter and full year of 2019. Thereafter, Soon Teck will provide the financial performance before Dr. Loh wraps up by discussing the operational performance and key takeaway and outlook for the group. We'll have a Q&A session after the presentation. So with that, I'll turn the call over to Dr. Loh to bring us through the group key highlights. Dr. Loh, please.

Good evening, ladies and gentlemen. Thank you for joining us. 2020 is a year of change. And I'm pleased to introduce our group's refreshed strategy on a sharpened focus on improving returns while delivering on growth. Let me first start our call by talking you through our strategy for the next phase of growth and our group performance on Slides 3 and 4. After that, I'll pass the call to our group CFO, Soon Teck, to share more about the group's financial performance. As a health care provider, trust is the quality that remains top of mind for all our stakeholders. IHH, as I'm sure most would agree, is one of the most trusted health care operators. But this is something we do not take for granted. And we continue to set our eyes on becoming the world's most trusted health care operator. We already have leading brands in our various home markets, underpinned by an outstanding reputation for clinical outcomes. We will build on that and make health care services more convenient and more transparent to our patients. With this said, let me explain our refreshed strategy to bring about sustainable returns. We will sharpen our focus on improving returns on capital while delivering growth and achieving stronger synergies. This will be done through a three-pronged approach to help us transform the way we deliver care. Firstly, to enhance our returns on capital, we will focus our growth by expanding within IHH established clusters, that is the tertiary and quaternary hospitals in metropolitan areas. One such example is in Klang Valley in Malaysia, where we already have hospitals like Gleneagles Hospital Kuala Lumpur and Pantai Hospital Kuala Lumpur and a network of other hospitals. Our recent acquisition -- recent proposed acquisition Prince Court Medical Centre allows it to get the efficiencies that Prince Court would never have gotten as a stand-alone hospital. Together, as a cluster, we will get better brand recognition, patient recognition and payer recognition. So this is -- this makes it easier for us to attract more patients. We'll have greater economies of scale and be able to deepen our clinical capabilities for us to be able to serve our patients better. Secondly, we will increase capital discipline, which involves reviewing our portfolio of assets and making divestments of any underperforming assets outside our focus clusters, where necessary. Thirdly, we will ensure stronger synergies across our international network. We will do it by pulling together best practices, building key deep capabilities and at the same time, amortizing the cost of doing so over a large international base. This will enable us to make health care better, faster, more convenient and more cost-effective. So our patients will trust us more and will give us strong, sustainable growth. For example, through our global procurement office, we recently called for tenders for 30 cardiac angioplasty machines across the globe. And we can expect to save about USD 10 million over the next few years. Please now turn with me to Slide 4, where I will take you through the group's performance of 2019. Stripping out exceptionals, IHH's core operations continued to perform well in quarter 4 2019. Our revenue and EBITDA grew strongly by double digits, 21% and 25% year-on-year, respectively, as we sustained organic growth at existing operations. This was also from increased contributions from Acibadem Maslak Hospital, which completed its expansion during the quarter, as well as the continued ramp-up of Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospitals. The consolidation of results from Amanjaya in Malaysia and Fortis India acquired in Q4 last year also contributed to the increase. On a constant currency and a positive EBITDA impact from MFRS 16 on leases, revenue and EBITDA were up 22% and 13%, respectively. Our net profit was MYR 40.6 million as compared to MYR 509.4 million a year ago. But this is in a context that it decreased from a high base last year, where we recognized about MYR 457.4 million of ForEx gains on Acibadem's non-lira borrowings on a rebound of lira in Q4 2018. In Q4 2019, we also made an impairment loss of MYR 200 million due to Global Hospitals. Operational PATMI was down by 15% on higher net interest expense, mainly a result of additional loans taken for acquisition of Fortis, working capital and refinancing of Acibadem's non-lira loans. The group's balance sheet remained strong. We have a cash balance of MYR 4.7 billion as at December 31, 2019. Our Board is, therefore, pleased to declare a dividend of MYR 0.04 per ordinary share for 2019. This represents a 33% increase compared to 2018 and is payable on 30 April 2020. Now let me turn the call over to Soon Teck to share the financial performance. Soon Teck, please.

Thank you, Kelvin. Let me start with a summary of IHH's consolidated financial performance for the fourth quarter on Slide 6. Revenue and EBITDA increased 21% and 25%, respectively, in this fourth quarter. On constant currency terms and excluding the effects of MFRS 16, revenue and EBITDA increased by strong double digits at 22% and 13%, respectively. These were due to sustained growth across all our existing operations; increased capacity following the expansion of Acibadem Maslak; continued ramp-up of Gleneagles Hong Kong and Acibadem Altunizade; and contribution from Amanjaya and Fortis, both acquired in Q4 last year. Headline PATMI stood at MYR 40.6 million compared to MYR 509.4 million from a year ago. The decline of PATMI was due to the impact from MFRS 16; the impairment loss of goodwill, which I will speak briefly about in the next slide; FX losses; higher interest costs; and higher depreciation from new hospital projects. On Slide 7, looking at the exceptional items. In the fourth quarter, we recognized an FX loss of about MYR 113 million from the mark-to-market of the non-Turkish lira borrowings and a fair value gain of MYR 18 million on its cross-currency interest rate swaps in relation to the same non-lira borrowings. This compared to Q4 2018, when we recognized a MYR 457 million unrealized FX gain due to a rebound in the lira last year. For the full year, we recognized an FX loss of MYR 236 million in 2019 as compared to MYR 644 million loss last year. This was the result of our continued management of our FX exposure. I would also like to mention that we recognized an impairment loss on a goodwill of MYR 200 million. This is related to the Global Hospitals investment. This impairment loss was undertaken due to the loss of a key doctor in the second half of 2018, resulting in the underperformance, in particular, of the Chennai hospital. Moving on to Slide 10. As at December 31, 2019, net debt-to-EBITDA stood at 1.3x. Net debt-to-EBITDA increased on higher loans and borrowings taken to finance working capital, capital expenditure, acquisitions and the consolidation of Fortis. Our balance sheet show a cash position of MYR 4.7 billion, which includes MYR 2 billion placed in escrow for the pending open offer for Fortis. If you could please turn with me to Slide 10 on CapEx. From 2020 onwards, we expect to invest about MYR 1.8 billion on the group's hospital projects over the next 2 to 3 years. Other than ongoing committed projects in China and Malaysia, we have not added any greenfield projects to the pipeline. We have also included expected CapEx for Fortis of about MYR 80 million. This will be funded at the Fortis level. On other updates related to Fortis transaction. Firstly, you may recall, we have released an announcement on Bursa on 1 April last year. The announcement includes that the independent auditors' qualified opinion on IHH's 2018 FY -- sorry, FY 2018 audited financial statements. The basis for the qualified opinion then was because the external auditors of Fortis were unable to determine if there were any regulatory noncompliance and additional adjustment due to the ongoing investigations. Since then, the Fortis' Board had initiated additional control procedures. Further, we had appointed an independent global auditor to conduct further inquiries into Fortis to see if there were any further impact by the issues raised by the qualified opinion with a view of closing them. Now as Fortis' financial year ended at 31 March 2020, these findings from the audit firm are being reviewed and will be discussed at the next Fortis Board Meeting in May as part of the closing of the Fortis financial year. Given the difference in timing, IHH is required to continue to make a separate announcement on Bursa on the same issue this year at the end of March 2020 as this is before the Fortis Board Meeting in May. Secondly, on the status of the Supreme Court hearing. SEBI has intervened into the proceedings to ask the court to allow the MTO to proceed. We view this as a positive development in the case. Based on the hearing of 3 February, the judges asked all parties concerned to file their appeal and has now adjourned the matter for hearing to the 16th of March. We would like to assure all of you that Fortis is making all efforts and spending considerable amount of resources to ensure that they resolve this matter at the earliest. We remain confident of a favorable outcome in due course. On Slide 11, I would like to share on what we have done to deleverage the non-lira debt for the Turkish operations per the plan we outlined a year ago. We have significantly reduced the non-lira gross debt from EUR 583 million as at December 2018 to EUR 267 million as at 2019. Since the beginning of this year, Acibadem has refinanced another EUR 50 million debt and further swapped EUR 37 million into lira-denominated debt. Today, excluding the European operations, the total non-lira debt stands at about EUR 190 million, which is substantially lower than the gross debt as at December 2018. This amount includes medical equipment leasing and the financial leases of about EUR 82 million. As Acibadem continues to drive its operation, we will utilize this cash flow to pay down its foreign debt, thereby further reducing its FX exposure in the course of the year. I shall now pass the call back to Kelvin to share the operational updates and prospects for the group. Kelvin?

Thanks, Soon Teck. So going on to Slide 13, the header of the slide says Q4 2019 Operational Review. We continue to report healthy operational metrics across our home markets. Singapore inpatient volumes grew 1.6% year-on-year. More revenue intensity grew 4.3%. We are very pleased with that because we saw growth in revenue from foreign patients, especially from Indonesia, Vietnam and the East. And now foreign patients account for about 25% of Singapore's revenue in the fourth quarter. Foreign patients, of course, contribute to the higher revenue intensity as well. Malaysia's inpatient volumes and revenue intensity also grew 3.2% and 7.7% year-on-year, respectively. Foreign patients revenue for Malaysia operations also increased as our hospitals saw more patients from Indonesia. In India, inpatient admissions more than doubled with the consolidation of Fortis. Revenue intensity was down 6.2% because Fortis with its larger and broader base has a lower revenue intensity currently than Parkway Pantai's existing operations in India. Acibadem's inpatient volumes remained almost flat, but revenue intensity increased by 5.4%. We see an increasing number of foreign patients from North Africa, the Balkans and the Russia regions traveling to Istanbul to seek medical treatment. The reputation of clinical excellence in Acibadem has been spreading. And we see more and more foreign patients over time. In fact, foreign patients now constitute about 16% of Acibadem's revenue compared to 8% in 2017. We expect this trend to grow. And we have a deliberate strategy to continue focusing on bringing foreign patients to our Acibadem hospitals. In Gleneagles Hong Kong, the hospital continues to see a steady ramp-up of operations. However, EBITDA losses increased slightly to MYR 49 million for the quarter due to higher cost of operations and staffing costs. We have expanded the staff strength to increase clinical services so that we can serve more patients in the future. We are now running at an average occupancy of 50% based on 160 operational beds. In view of the demonstrations in Hong Kong since the second half of 2019 though, Gleneagles Hong Kong did experience some deferment of nonemergency and nonessential procedures and services, but operations have remained stable so far. In the next few quarters, we expect the COVID-19 outbreak to have an impact on the global economy, including the markets where we operate. And we expect some slowing-down of medical tourism as patients delay nonemergency and nonessential treatment. The extent of this impact depends on how long the outbreak lasts. But we're confident that they will not be a long-term impact. Turning to Slide 14, our hospital's expansion pipeline. Over the next 3 years, we are focused on delivering on the expansion projects in Malaysia as part of our cluster growth strategy and one greenfield hospital in China, which should add about 800 new beds to our stable. The COVID-19 outbreak has affected China the most. As for Gleneagles Shanghai, the construction has been halted as instructed by the Chinese government as part of managing to control the virus spread. We are currently awaiting the authorities' permission to restart work. Thus, the date of opening for Gleneagles Shanghai will depend on when Shanghai can return to normalcy. Nonetheless, we remain positive on the long-term fundamentals for China. I would like to summarize our key takeaways, so please turn with me to Slide 16. We are pleased to report another solid operating quarter in Q4 as we prioritized integration and operational synergies. Excluding exceptionals, our core operations have continued to perform well. In terms of outlook, I'm sure most of you have on your minds the impact of the COVID-19 outbreak. Ensuring the safety and well-being of our patients and staff is our highest priority. The coronavirus epidemic will certainly pose challenges on the global economy, particularly in Asia. For IHH, this means the markets we operate will see a slowdown as medical tourism declines and patients delay nonurgent treatments. However, many of our patients with essential treatments and critical conditions will continue coming to us. Amidst this challenging environment, we believe the long-term fundamentals of our business are strong, and we will continue to grow and deliver sustainable value. With our refreshed strategy in place, IHH is well positioned to grow and navigate these uncertainties so that we can unlock long-term sustainable value for our shareholders. I would like to take you through my thoughts for IHH here on Slide 17. IHH is built on a strong foundation, and we are doubling down on that. That is building trust with our patients. As outlined in our refreshed strategy, we will now focus on improving returns on capital while delivering growth and achieving stronger synergies. This will be done through 3 pathways. First, we will pursue a cluster strategy for growth by continuing to expand in IHH's established clusters in metro areas to enable to achieve greater economies of scale, deepened capabilities to serve our patients better and more cost effectively. Concurrently, we will review our portfolio, which will include divestment of assets outside of our focus clusters so that we can redeploy capital for higher returns. Thirdly, we will leverage on our international network to achieve stronger global synergies. We've also consolidated on our successes, leverage on our scale of 80 hospitals across 10 countries. In the end, we will make health care better, faster, more convenient and more cost-effective. This is what patients need and want from us. And this will give us strong, sustainable growth. Thank you. And I shall pass the call back to Penelope.

Thank you, Dr. Loh. We will now take your questions. Just a quick note before we start. We will first take questions from the participants on this conference call before moving to queries from our webcast participants. [Operator Instructions] With that, operator, please proceed with the Q&A. Thank you.

[Operator Instructions] Your first question comes from the line of Nicole Goh of UBS.

And thanks, Dr. Loh, for sharing your strategy and vision with us. I just wanted to clarify. I think with your first goal, you mentioned that basically you want to pursue a geographical cost strategy of growth. And here, you've given an example of Malaysia. Apart from Malaysia, where, I guess, we already have the cluster model in place previously, what -- where else do you see this cluster strategy working? And I guess, secondly, with regards to your second goal of reviewing the portfolio investments, again where do you see the returns being not as ideal?

Sure. Thanks, Nicole. So firstly, to clarify, when we speak of a cluster strategy, it cannot be taken at a country level. We must make it at a sort of a metro level, a tighter geographic region within the country. So in Malaysia, for example, the 3 clusters that we are going after is Klang Valley in the North that is around Kedah and Penang as well as in the South. And I'm almost giving that in our order of current state of development. But therein lies the opportunity and example of how we will continue expanding and strengthening clusters. Other in Malaysia, in Fortis, as you know, we have -- Fortis has a broad presence. But even Fortis -- and I just give one example, it's quite clear that in the northern -- in the NCR region or the northern capital region, that's where Fortis has a really strong cluster level, and we'll continue to expand it. In Singapore, too, we clearly have a strong cluster, meaning to say we have a strong network of hospitals and even primary care in the case of Singapore. Still there's certainly room to expand. And I'd say that in Singapore, there's room to expand health care services even beyond the hospital walls. Why is that important? The often-mentioned hub-and-spoke is one effect. I think by that, we mean to say that there could be referrals from the smaller hospitals into larger tertiary hospitals. That is true. But what is also quite clear is that as we focus our growth in this manner, we get better coverage for patients and the community in that metro area, which enables us better and faster patient acquisition, right? Secondly, you'll find that our costs come down very quickly as we add more and more hospitals. The more we add, the faster our cost comes down, so management costs, purchasing costs, marketing costs, et cetera. And the result of that is that we can get faster returns on capital. I'll give you an example -- I'll give you clear examples of that. Every time we build a hospital in our cluster, Mount Elizabeth Novena, for example, in Singapore, we got to breakeven -- EBITDA breakeven in about 18 months. Altunizade, which is our newest hospital in Istanbul -- by the way, Istanbul, of course, is a great example of a cluster and a cluster where we are focused. Altunizade as a hospital had an EBITDA breakeven of less than 12 months and so on. So that's the idea of where we prioritize our growth.

Okay. So sir, just a follow-up. Does that mean that it would require, I guess, a lot more CapEx in order to build up the cluster where you want it to be? Or are we talking more about smaller, like clinics, for instance, or primary care or specialist centers?

Yes. So the first clarification to respond to that is that it actually brings down the overall cost of investments. We already have familiarity. So definitely, it's faster to build. Typically, our other operating costs also quickly come down. We share management costs and so on. We have reduced the speed to patient acquisition because we are already well-known by payers, patients and doctors in those -- in their cluster. So all this means it makes the returns much faster. Does that explain it? And with regards to what kind of capital and what kind of facilities, it really depends. If we need to add more hospitals, we add more hospitals. If we find an opportunity to expand ambulatory care, we'll do so. So that depends. In every cluster, the need is different.

Okay. And I think, sorry, with regards to my second question on the review of the portfolio of investments, where do you see potentially some assets that are not really bringing in the returns that you find ideal?

So where we find that they are underperforming and they're outside our focused clusters, those will be the ones that we reduce. And when we have identified and done so, we will -- and then we'll announce that.

Okay. All right. I've got another question for Soon Teck. Basically, if we look at your EBITDA in the fourth quarter, and for Singapore, for instance, on a year-on-year basis, it's grown by 32%. And then I think for Acibadem, that's also a very strong growth. Is that purely driven operationally? Or is there some element of MFRS 16 in there? And if so, how much?

There's a bit of MFRS that operationally is very strong. And then when you consider that actually in Q4 last year, there was some one-off in Singapore as well, we wrote back some bad debt provisions. So if you go to Slide 20, we have in the appendix the effect of the MFRS. We have tried to break down the impact at the EBITDA line.

Okay. All right. Okay.

And then for Turkey...

So that's moving up?

Yes. And for Turkey, Q4 is typically the -- they are peak season. So it's always been strong. If you look at '18, it's also been very strong.

Your next question comes from the line of Yi Sin Ngoh of CIMB Research.

I have three questions here. Firstly, on COVID-19, just wanted to get some color on the extent of impact that we are focusing across other country operations? And if you can quantify the kind of impact, it would be really helpful. And also, when is a good time to tackle this near-term disruption? Secondly, for North Asia, particularly China, any updates on the Chengdu ramp-ups? And I understand you guys are waiting for some China, Turkey to restart the work. Is there impact on the clinics that you guys have in China as well? And lastly, on the non-lira debt, I just wanted to confirm that the amount that we have as of today is about MYR 190 million, not sure if I got the number correctly.

So maybe just quickly to maybe the last question because the answer is, yes, that's correct. Then on the first two. So on COVID-19, firstly, the well-being of our patients, visitors and staff is the most important thing at this point in time. We have been practicing our pandemic procedures over the years and so we are well prepared. I'm happy to let you know that we have no significant disruptions at all as a result of infections coming into our hospitals. So we've been very effective in screening cases, picking out suspect cases and then referring them to the national centers as required. Now there is, of course, some impact in the sense that the patients are expected to defer some nonessential treatments. But as you are aware, our hospitals are largely focused on tertiary treatments, which often means that these are essential treatments, critical treatments. And those patients continue to come. I'd say that the biggest impact will come from some reduction in medical tourism, particularly in our Asian markets, such as Singapore. But we don't see that impact in our operations in India or in Acibadem in Turkey. Meanwhile, as we focus on safety, there are also other services that we have started to do, which wasn't there before. In Singapore, for example, we are helping out to do broader screening. Even in Hong Kong, we are providing some diagnostic and screening services, which wasn't there before. So the situation is evolving. While, as I mentioned, we are cautious, we are a bit careful, but overall, I'd say that being in health care, the impact on us, I suppose, is not akin to any kind of impact that you'd see, for example -- you might see, for example, in retail and hospitality for the reasons that I already mentioned.

Okay, got you. How about the North Asia part?

Yes. So in China, it is regulatory for most part. So there is impact in our China operations. But as you know, China -- our China operation is relatively small operations compared to the rest of the group. So our hospitals continue to operate, but the clinics, for example, has been affected by closures. Clinics in Shanghai, for example, has been affected by closures. We are looking forward to them starting up operations currently. In Shanghai -- Gleneagles Shanghai, there is a stoppage of construction due to, again, as a regulation. So therefore, currently, there is no construction going on. This -- depending on how long this goes on, it may actually affect our scheduled completion and opening.

Okay. So then, was it scheduled to open this year, second half of this year? So...

Yes. So because of this, we may indeed get impacted.

Okay. Can. And also, maybe to follow up on the Chengdu portion. How's the ramp-up been there?

So we soft opened on October 26, 2019. We have 30 operational updates. We have cardiovascular, gastrointestinal, orthopedics, surgery, GPs, ophthalmology, ENT. So quite a wide range of services now. We have 25 doctors. We have our ramp-up -- our outpatient care as typically is the case when we start a hospital, especially in China. Our main focus right now, given the current COVID situation, is to be prudent. We are keeping our ramp-up costs as tight as possible. And so you'll find that the preopening costs or the operating losses are actually CapEX extremely.

Okay. So we can maybe assume that the 4Q run rate would be kept within this. I think going forward, if run rate could be kept within the range after 4Q one?

I think that it will be there, but I think it's still very early days. We are seeing how this COVID thing pan out, and we're working with the regulators or so to ramp up at a pace that beyond that would be commensurate with the policies and government.

Your next question comes from the line of Rachel Tan of DBS.

Dr. Soon, thanks for sharing your strategy. Just a follow-up question on your strategy. Maybe it's a bit too early to share your identified list of your noncore assets. But just wondering, on a very broad base, do you see, particularly in which country that you see more opportunity for you to divest asset or whichever areas that you can probably highlight?

I think we are reviewing those portfolios. I wouldn't say any particularly one country. But as outlined, as you can tell, our focus areas and basically, the whole idea is that we feel focused on returns on capital. Then if that's an area, which we are not going to become a strong cluster, then we should consider. Sometimes, it's not a decision that we tick all the regions straightaway all in one go. When I say that there is a strategy, it means there is something that unfolds over the next few years.

Okay. Okay. And maybe just to follow up on the targets for return on capital, are you looking at per hospital? Or do you have a target for like a whole group basis on how much you would drive your return on capital?

I think it's us on the group and then it drives down, Rachel. But in order to achieve the group, obviously, we need to work up for each individual business unit up. Does that makes sense? Yes?

Yes. Would you be able to share your target, the number?

Not at this stage, Rachel.

Okay. Okay. All right. For my next question is probably on the China operations on Gleneagles Chengdu. Just wondering how -- I know you have opened for one quarter and then you are being hit by the COVID-19. Just curious, how are you looking to draw some of the patients to Gleneagles Chengdu site?

So we are working through multiple channels. The first, of course, is that we are working on getting the ramp-up in terms of number of doctors. We are working our partnerships with various doctor groups, corporates, various other health care-type companies, which may collaborate with us and will send patients in. In fact, we also got the Yibao in December, which will be another channel of patients as well. But indeed, because of the COVID situation, I think we have to be prudent and careful in terms of ramp-up. And therefore, that is one of the key strategies to make sure that we keep the burn rate low. And in fact, because of that strategy, we don't anticipate that it will have -- it will be a -- much of a drag as we ramp up.

Okay. Okay. And just on COVID-19, how have you seen the patient sort of trended in January and February? And what are your take about this whole COVID-19 situation? Would it drag on for a longer period since you're on the medical profession?

Yes. But Rachel, we can't comment on specifics of January and February. That's something for the March Analyst Call. Otherwise, we have nothing to report at that call.

Okay. Okay. Just my last question is probably on the tax for Soon Teck. I think if I'm not wrong...

I would say that -- maybe, I guess, I agree with Soon Teck, of course. But I would say that this advantage of being a global health care network, right, it gives us a diversified revenue and earnings base. And as I've pointed out, some of our large home market, for example, in Turkey and India, we don't see an impact.

Okay. Okay. Yes, just one last question on the tax. I'm not too sure that I got it correctly, but if I were to strip out the deferred tax asset that you have included, I think this year, the tax rate seems to be a bit higher. Just wondering -- yes.

Yes. I was expecting that question, so thank you for asking and giving me a chance to clarify. The reason is because for reporting purposes, when we report the tax rate, the nominator includes the losses. So as you take the base, the profit then -- profit before tax is lowered by the losses in the start-up. So when you look at truly the real base, that means the taxable income, then the tax rate is not that high.

Your next question comes from the line of Shyam Srinivasan of Goldman Sachs.

My first one is on Acibadem. I remember, we had certain weakness related to SGK patients last quarter. This quarter also, I think volume growth is like largely flat. Can you just walk us through the strategy to kind of gain back volumes? Because Turkey, we typically expect higher volume growth. So that's my first question.

Maybe I'll invite our colleague, Evren, to answer your question. Evren?

Evren from Acibadem. I think regarding the patient profile of Acibadem, it's important to look at 3 pillars. We have this thing called private insurance. If you look at Acibadem, most of our revenue is coming from private patients. Our exposure to public SGK system is only 16% of our revenues, as Kelvin highlighted. And because we mostly cater A+ segment of the market, we have seen a decline in the SGK patients. But as far as our most important patient profile goes, which is the private insurance and medical tourism, we have seen quite good contribution in 2019, especially in the fourth quarter. So like foreign patient figures, for example, we have a volume increase of 12% in terms of people coming into Acibadem facilities outside Turkey for treatment. So we have seen a decline in the SGK, but keep in mind, revenue intensity is relatively lower than our private insurance patients and foreign patients. So the impact would be an increase in our overall margins, which you can easily see from our bottom line numbers.

Got it. So just extension of the question. So these SGK patients will continue to decline in 2020? Are we deemphasizing that entire patient segment?

I don't think I can comment on the 2020 figures, but that's something that, like I said, I mean, it has seen a downward trend in 2019, kind of related with the economic areas. But what is also important to highlight is, if you look at, again, our operations, we have hospitals in Istanbul, where as Kelvin mentioned, one of our main clusters for Turkey operations. And then we have hospitals in non-Istanbul with more SGK patients coming to our facilities. So the trend is basically, we don't see that much of an impact in our Istanbul hospitals, where our main revenue drivers are hub hospitals. So then with that being said, I mean, we don't expect to see much of a further decline in SGK patients coming in.

Got it. My second question is on the Indian operations, excluding Fortis. We have seen several quarters of lackluster performance, low single-digit EBITDA, maybe even negative EBITDA. You've taken MYR 200 million write-down for Global. So what's the strategy here long term? Are we, at some point of time, going to merge this into the Fortis operations? If you can just walk us through our India kind of a turnaround plan.

Yes. Shyam. So first of all, I think we need to do with the Global issue, and that has to do with the departure of one of the key doctors in the Chennai Hospital, in particular. So I think our priority, at least in the next couple of months, is to fix that. I think, as Kelvin said earlier, when we looked at the portfolio, we will really drill down to business units and even specific assets like hospitals and sub-hospital units. So I think we'll fix on that. I think when we looked at the Continental, for example, I think that has seen a big improvement in the second half of last year, in particular. And that, I think, will continue to drive up. I think on Global, we need to fix some operational issues. While at the same time, we will be taking a review, as Kelvin said, about the whole portfolio as a whole.

Just to add that in Continental, I'm not sure if the detail was available previously, but we have regained our transplant license in Continental. So looking forward to internal growth going forward.

Yes. Just Soon Teck, this doctor, departure was earlier in 2019, right? So we are now taking an accounting put on in place?

'18.

Yes. 2018, right? Yes, exactly. It was not a 2019 issue also?

Yes. So during '19, we said that I think, in the first half of Q2, we said on the call that we have found what we thought was replacement. Unfortunately, those, for various reasons, didn't work out that well.

Got it. And there's no plan to put this as part of -- these entities will be independently run. There is no plan to merge it into Fortis?

Too early to say this, Shyam. And I need to be very careful, right, because I sit on Fortis' Board as well, so...

Fair enough. No, no. No problem. Last question, just on the legal side. There has been -- the Indian regulator has put out a detailed discussion paper, which talked about pay for delay, in terms of the deal closure of Fortis. So there's a talk of a 10% extra that you may need to pay for a bit. Just your thoughts on the bid price.

No. That was more our minority shareholders putting it up. I think in the discussion with SEBI so far, there's been no indication on that.

Your next question comes from the line of Yen Ling Lee of Maybank.

Just a few questions. Firstly, Singapore. Soon Teck earlier mentioned that there was a write-back in this quarter. Could you share how much is the amount? And what was the provision for?

Yen Ling, sorry. It was a write-back in 2018, not -- yes, not this year. I think the amount of bad debt provision was about 20 -- let me just check. SGD 20 million.

Okay. So -- but Q-on-Q, it still look very strong for Singapore division. EBITDA is up 19% Q-on-Q. So even when we look at revenue, intensity is only up 2%, and then volume actually declined a bit. So where does this growth come from?

Yes. On -- you're talking about EBITDA level, right?

Yes.

Yes. So there's also IFRS impact.

I see. Would you be able to quantify what is this IFRS?

Give me one second. We don't strip down by the country, but if you take the impact on Slide '20, I think if we're buying pro rata across the EBITDA as well as the countries, I think you can roughly get the number. I'm sorry, I don't have the big amount here.

Okay. Okay. Okay, that's fine. GHK EBITDA loss for 4Q, how much was it?

Yes. It's around MYR 50 million.

I see. Okay. For Gleneagles Chengdu, from my old record, it was supposed to open with 100 beds. But you only opened with 30 beds. Is there any reason for this? Or it's just I have the wrong record.

No, you didn't. I think that when we go for licensing, we usually will apply for a higher number. But we will just operationalize a smaller number, meaning that we'll only hire staff for the 30 beds -- take out 30 beds and 130 beds as a start. But when we apply for license, we obviously will go for a higher number.

And this Gleneagles Chengdu EBITDA loss looks to be quite low. Would you be able to share how much of the loss?

I think it's running at less than MYR 20 million per quarter.

Yes, I see. Global doctors on the impairment is very substantial this quarter. Would you be able to share what's the basis for the impairment? And do you look at the earnings estimates for this division? And if also -- is there also a possibility of write-back in future?

We do. We do the discussion. And obviously, with the auditors, we apply for a number of matters. And as you know, when you do impairments, there are a number of choices for you. We have taken a conservative one. There was a recent valuation done a while back, but then we marked it down a little bit more. And then we checked that against the DCF going forward. So that roughly was the methodology.

Okay. Okay. I understand. Just last question for Malaysia division. foreign patient contribution to the revenue, how much was it, roughly?

It's roughly about 5% to 6% now. 6% now.

Your next question comes from the line of Amanda Foo from Crédit Suisse.

Dr. Loh, Soon Tek and Penny. I have a quick question on Fortis. Given that management is optimistic of a favorable outcome from the court case, can I ask, in the event Fortis does trade above the open offer price, would you still go ahead with it?

Sorry, Amanda, I missed your -- it's Fortis?

So in the event the favorable outcome does materialize, and I just want to proceed with the open tender -- open offer, at least. So if the Fortis does pay above the price of INR 170 as per share, would you still go ahead with it?

If we -- no. I think that's highly unlikely. But if it is, then I'll be very happy because then at least we'll have a gain.

Okay. So if the share price does go above INR 170, then are you saying is a chance that this increases...

I think that -- Amanda, that's quite unlikely. Given that the offer is out there, I don't see that the markets will trade above that level. So with that, I think then that's good for us because then we are purchasing at a cheap offer.

Okay. And one more question on, I guess, Acibadem and the Turkey operations. I mean, first of all, good job on really deleveraging your non -- your foreign-denominated debt on the company level. But given that the recent depreciation of the lira, how should we look at the potential impact to the group level? On one hand, the weaker currency -- foreign patients will continue to come, yet we may also see a translational loss. So on a net-net basis, how should we look at it?

I'll just comment briefly on the translational losses first, and then my colleague, Evren, every may want to supplement. So I think very briefly, on the earnings side. I think that given the growth -- strong growth in Acibadem, please remember that the growth has all been in the 20-plus percent. So on that basis, I think, overall, we are still very positive. The track in our part has been the foreign currency loan. And with that now deleveraged, we are quite optimistic about the contribution of Acibadem going forward, especially as it's now ramping up. I'm not sure, if Evren, you want to comment a little bit more?

Yes. Just a couple of things, Soon Teck, thank you. I mean other things that we do in order to deleverage the company, I mean, obviously, we're trying to paying down our FX debt. That's one side. In other strategy, we're also trying to hedge our open exposure to the extent that we can -- if the market conditions are favorable to do so. And also, in the meantime, as part of our CapEx, we have done significant investments. And then now that we're in a maturity stage that we don't have much of the CapEx. So companies in a cash generation -- positive cash generation position. And then, as you know, we have receipt coming in from our medical tourism patients, which they pay in foreign currency. So in another pillar to add that what we're doing trying to deleverage the company, we hold on to those hard currency receipts that we collect from our patients as a natural hedge mechanism. So that also helps out in order to reduce the FX exposure.

Yes. Just to -- sorry, just to add on to Evren's point also. With -- Acibadem also has operations in Macedonia and Bulgaria, and those earnings are in euro.

Your next question comes from the line of Divya Gangahar of Morgan Stanley.

Three questions from me, but first is just a clarification on the Singapore margin. I understand the year-on-year growth in fourth quarter is higher because of a low base, but just stand-alone margin in fourth quarter at 38% looks extremely high compared to the trend in the first 9 months, even including the MFRS. So if you could just comment on if you've seen any changes in the business or any other one-offs that have boosted the margin in Singapore. And on the same account for Malaysia, we've seen the margin actually decline year-on-year in the fourth quarter. So that's the first question on just the fourth quarter margin for your Singapore and Malaysian businesses.

Yes. Divya. Actually, Singapore's EBITDA margins has been around that. I mean, although it's a little bit within a range, depending also on the case mix. So in Singapore, you do have that lever that we can also pull in terms of the case mix.

If you're comparing against prior year, clearly, there's an MFRS impact, but I'll also add that the higher revenue intensity is helping. As we had mentioned, we have seen growth in foreign patient revenues. And then foreign patients come for medical treatment. They come for complex conditions, which means that bed day per bed day, the revenue actually is higher.

Right. And on the Malaysian margin, like on a year-on-year basis in the fourth quarter, it's lower -- it's also slightly lower compared to the trend we saw in the first 9 months.

So last year, there were -- it's off a higher base because last year, we wrote back -- there was tax provisions and there was a penalty that we wrote back in Malaysia. So that was also higher base. So the major EBITDA looked lower. So there were one-offs in 2018.

Which were booked in the fourth quarter, is it?

Yes. Fourth quarter of 2018.

Got it. And do you have that number or even when I look at like compared to the previous 2, 3 quarters, that's been in the 29% to 30% level, the margin. And this quarter, it's like 27.6%. So I'm just wondering, is there some sort of seasonality in there or the revenue patient mix was in favor -- I mean, the intensity was lower?

No. No. In Malaysia, it was really one-offs. Just give me one second. Yes, Malaysia was -- the impact was about MYR 17.5 million in 2018.

This is in the basis -- okay, in 4Q '18?

Yes.

Okay. The second question I had was on Hong Kong, just with the losses having widened and clearly, what's going on over there, you've had a plan to add another 30 beds, but we see that occupancies have also come down. So could you give us a sense on how you're thinking about that for the next 12 months? And how should we also kind of...

Yes. What happened in Hong Kong was the first quarter of 2019, actually, we saw really strong growth. In fact, the growth was so fast that we actually had a supply-constrained situation, i.e., we didn't have enough nurses to open to keep up with the demand. And so, therefore, we pushed very hard to expand. We indeed... those 30 beds that you talked about, we got more staff through in anticipation of that business continuing to grow, which, frankly, I think we fully would have done so. But as you are aware, in the second half, especially with the last quarter of 2019, there was a social situation in Hong Kong. That impacted growth in terms of patient loss. But in health care, we -- of course, we value the clinical staff that we have. We have positioned ourselves for that strong growth that we anticipate should happen. We are prudent in Hong Kong. I must say that the -- of course, the COVID-19 situation, of course, does not help. So that sort of creates a -- gives reason to be extrapolating this year.

So I mean, should we be expecting losses to maybe widen versus steeper, which was the earlier guidance? Or how should we think of it -- or stabilize?

I don't expect it to widen. I must say that our Hong Kong operation has been pretty resilient even despite the social situation earlier or even the current COVID situation. While -- what I'd say is that the -- it has tapered off the rapid growth that we were seeing initially, but we're not quite seeing any sharp contraction.

Divya, Soon Teck here. Just to add on. I think what Kelvin is saying is that the trajectory of growth is still there. It's just not as deep as it was in the first half of 2019.

Got it.

And coming back, sorry...

Yes. No. Go ahead.

Yes. Just coming back to your earlier point, let me correct myself. At the EBITDA level, the reversal for MOD in 2018 was closer to MYR 9 million. So without that, the EBITDA for MOD for the quarter would have grown about 4%.

Yes. So that's what I was wondering. It's still a bit of a slowdown compared to what we've seen in Malaysia. So I was just wondering, is there anything specific that happened?

Yes. No. So in Q4, there's always a bit of the seasonality as well.

Okay. So just one last question on the Singapore side, with 25% of the revenues coming from foreign patients, and that clearly has boosted margins quite significantly, how much of an impact are you already seeing in February? And if you can give some sense on how much is the average spend by foreign patients versus domestic patients for us to be able to gauge that would -- travel obviously be delayed. How much Singapore business could actually get impacted from COVID?

Yes. Unfortunately, Divya, I can't quantify for you on this call because that's a Q1 number. All I'd say is that the impact has been more in February rather than in January, because, as you know, it really hit us only in this month. So this month, numbers are -- is still a bit early days for us. But...

Could you give me the sense of the difference between the average spend by foreign patient versus domestic in Singapore?

I think we have put up last year's. The foreign patients made up 25% of our total revenue.

And in terms of volumes, would you have that? 25% of revenue and how much of volume?

We don't usually disclose volume.

There are no further question at this time. I would now like to hand the conference back to Penelope. Please continue.

Thank you. If there are no further questions, we will now wrap up the -- conclude the IHH Healthcare Fourth Quarter and Full Year 2019 Financial Results. Thank you for joining us today. And if you have any other questions, please contact me via e-mail at [email protected]. Thank you again. Operator, you may disconnect.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now all disconnect.