IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to the Fourth Quarter and Full Year 2021 Financial Results of IHH Healthcare Media Briefing Conference Call. [Operator Instructions] I must advise you that this conference call is being recorded today, 24 February '22. I would like -- 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 morning, and thank you for joining us today. I'm Penelope Koh from IHH Investor Relations. With me on the call this morning are Dr. Kelvin Loh, our Managing Director and CEO; Mr. Joerg Ayrle, our Group CFO. We also have our colleague, Evren, who's the Head of Strategic Planning and Investments from Acibadem, with us on the call today. So for all of you -- those on the webcast, you will be able to view and download our presentation slide, press release as well as our audited financial statements. These materials are also available for download on the IHH website. As for the sequence of the event, Dr. Loh will first touch on key highlights for the fourth quarter and full-year 2021. Joerg will then take -- share more on our financial performance before Dr. Loh closes with the operational highlights, strategy and outlook for the group. And then thereafter, we will move on to Q&A after the presentation. So with that, I'll turn the call over to Dr. Loh. Dr. Loh, please.

We had a strong year. I want to thank our frontline staff who have worked so hard to keep patients safe, treating both non-COVID and COVID patients through another challenging pandemic year. I thank our leaders who have delivered on operational synergies and steered the group through a turbulent time. And most importantly, I'm very grateful to our patients who continue to trust their lives and health with us. Because of them, it's been possible for us to deliver strong financial results. You can see here on Slide 4 we had a very strong Q4 and also a full-year 2021 performance across all key matrices. For the quarter ending December, the group's net income and net operating income increased 8% and 19%, respectively. For the full year of 2021, net operating income more than doubled to MYR 1.6 billion on a strong -- on the back of a stronger EBITDA and lower finance costs. And as we head into our 10th year as a listed company, we will deepen the trust that we have built with our patients and community. We will embark on a new chapter in our journey, which I hope to give you a sneak preview about later on. For now, let me hand over to first Joerg, take you through our financial highlights.

Thanks a lot, Kelvin. Welcome, and good morning, everybody. We had a great Analyst Dinner yesterday evening. For those of you who couldn't join, we'll be back here in KL and also in Singapore and organize more of that. It was a great information sharing with the team there. So always good to be in touch. Thanks. Thanks a lot for joining. Financial performance, Q4. Look, we had a strong year. That's very clear. We have 19% growth quarter -- year-over-year in Q4 to MYR 4.5 billion in Q4. That is a 19% growth for the year. We have a whopping 28% growth to above MYR 17 billion in revenue for the year. EBITDA is about MYR 1.1 billion, a 25% EBITDA margin. That is a 7% up. For the year, we are now well above USD 1 billion in EBITDA. That's a really new basis for the company to grow from, and you will see a lot of what Kelvin is going to present around the strategy going forward that is really based on this very solid, very strong, new level of performance. If you look here at the EBITDA margin pre-COVID, where we are '21, '22, and it was a bit choppy, and we're now pretty consistent 200 bps above that in the range of 24%, 25%, and I think this is a range we feel pretty comfortable with. 10% net income, operating income at MYR 440 million, 19% up. For the year, we have MYR 1.6 billion operating net income, and we have MYR 1.9 billion reported net income. That is an amazing growth from prior years and signifies strong return on equity. If you go to the next page, you see there's a little bit clearer quarter-over-quarter on Page 7. I think everybody has the documents, right? So on this page, 19% growth to MYR 4.5 billion, MYR 453 million net income reported. I guess performance is strong across all markets. Especially, Europe continues to really outperform, us a very clear signal that during a time of crisis, the organization is able to manage this very well and gain market share and gain quality of earnings in their markets. We see very strong Singaporean business, especially around working together with the government to fight the Omicron surge in Q4 during this period. Patients are coming back. We see that especially in Malaysia, where we have a clear uptick in better occupancy rates and inpatient visits. Singapore is a bit lower. So we are still waiting for the market to open up. FX has been managed very well. The FX cross-currency swaps are efficient against the interest-bearing debt. The only open point we have is one particular rent contract in a hospital in Maslak in Turkey that is still denominated in U.S. dollar that we have not protected against. So we still have some FX headwind, but that's the only leakage we have here. I'm super happy to announce that our financial reports here in Q4 are audited financials. This is a first for the company to come out end of February with that. I think we're one of the very few companies here in Malaysia and Singapore who can do that, and it's a really great sign of collaboration with the team and to bring out quality, transparent reporting at an earliest time. If you look at the net debt page, very, very clear signal of further deleveraging. We have now a net debt of MYR 5.8 billion, very strong cash performance, capital expenditure fully under control. I think we'll see in the coming year a little bit more relaxing on CapEx. I think we have a couple of things we need to do more on this, and you will see the dividend page in a minute. If you look at the next page, capital efficiency, return on equity is now at 8.4%. We have ROCE of 8%, a very strong uptick with the improvement of our underlying EBIT. Net debt-to-EBITDA further deleveraged, 1.37; net debt-to-equity, 0.21, and I think you all recall the messaging we make out of this -- the perpetual that is upcoming. We will refinance that with basically cash on hand and a couple of credit lines we have. So that is going to bring net debt up a little bit, but would reduce and save us around USD 15 million in cash outlays for perpetual cost. And I think it also shows that we have a really strong balance sheet for growth, not only organic growth, that is the key focus areas around our clusters, drive better occupancy rates, expand organically, a very important factor, but also to drive a new M&A strategy that we're gradually guiding to. Dividend has seen a clear up -- step up from MYR 0.04 to MYR 0.06. That's a 50% increase in dividend, and it's a sign that we do believe that we've reached a new level of performance. It's a 28% payout. So we are not selling the house away here. We are still very prudent in terms of the payout ratio, but we really feel that the underlying earnings are -- have improved. So we are now at MYR 0.06. We believe this is a very sustainable dividend, and we did want to let shareholders participate in the success that our healthcare colleagues in the frontline have done for us and provided for us over this period. Now looking a little bit ahead on the next page, 11, and you've heard me say that before. I think it's important to note that we are really happy with the performance. We really feel very confident that things will develop smoothly and will continue to grow. But there is inflation, there is a tight labor market, staff cost pressures are there. Retention of healthcare professionals is not as easy as it used to be. And we see that the COVID-19 impact is gradually going away in Malaysia. You already saw from 28% of revenue down to 8%. I think Singapore still has a strong COVID contribution, but we see that there is a slowdown in that. And of course, the foreign patients will come back, and we believe this will overcompensate any melt-off, but whether the timing is really synchronized is another question. So I think while we are positive for the year 2022, we still want to be cautious and say, "Okay, we need to manage through the challenges and issues." And with this, I'd like to pass back to Kelvin.

We have patient volume growth. Recently, after almost 2 years, I had a chance to now restart my travel. I visited Malaysia. I visited Turkey. What really amazes me is that our staff on the ground in different markets far away from us, maybe disconnected because of travel disruption, but continue to work hard, keeping patients safe, building up their trust, and therefore, I think that's why you can see that continued, persistent recovery through the pandemic. Some of these volumes are still COVID-19 volumes, but I think it's fair to generalize and say that the return of non-COVID patients or business-as-usual has continued to persist and be strong because of what our staff do. Now in Singapore, you can see that it appears that the volume has dropped, and that actually is on the back of the -- in Q4 '20 when there was a fair bit of COVID as well as non-COVID-19 admissions. At that point in time, the government policy was to admit COVID-19 patients who were not actually severely ill. And that's why the revenue intensity wasn't that high as well. Now conversely, coming into Q4, Joerg had mentioned that there was a spike in COVID-19 patients in Q4 '21. But at this point in time, the admission policy has changed, and it was really on the sicker patients, for example, those who are breathless or those going to ICU who are getting admitted to hospitals to conserve hospital beds, and that's for -- that's why you can see the volumes not so high, but instead, the revenue intensity is much higher, growing by 17.5%. So as we go forward, I expect that this -- it may be bumpy, the ride, but this continued recovery of non-COVID-19 volumes will continue. We have high vaccination rates, and we are hopeful our domestic volumes will continue to grow, and we're hopeful also for foreign travel to return in markets that it has not yet. On Slide 14, going to Malaysia. Malaysian operations saw good recovery on higher inpatient volumes. You can see from the strong growth from Q3 going to Q4. There was some easing of movement control towards Q4, but also, again, kudos to the team for keeping in touch with patients and for having that elective patient loads come back in. EBITDA grew 28% to MYR 223.2 million. Inpatient admissions increased 12%, revenue intensity grew 8.3%, and occupancy also increased to 52%. On Slide 16, Singapore. Overall performance was still resilient despite that lower inpatient admissions I had mentioned. There was a spike-up in Q4 '21 of COVID-19 cases, but because of the policy, there were smaller numbers of COVID-19 cases, as we said, about the most sicker ones. On the flip side then because of the COVID-19 base in Q4, the elective patients saw some deferment as well. The average occupancy was at 53% for Singapore. Now in Singapore, as we go forward, we expect COVID-19 services to actually fall off going -- Singapore is going towards a full endemic-type situation. There'll be lesser social distancing controls. We also expect more travel to come back. And therefore, we expect there will be some inflection in the revenues for Singapore in Q4 over the course of Q1 and Q2 this year. But we do expect that the non-COVID-19 businesses to come back over the course of this year. We're also expanding beyond our hospital business to announce that we are building a one-stop ambulatory medical center at Woodleigh Mall, and we expect to open that in 2023. Next slide, on Turkey and the European operations. You can see here daily profits being maintained. Revenue improved 17% to MYR 1.1 billion, EBITDA increased 14% to MYR 318 million, and volume growth, inpatient admissions increased to 21%. So in Turkey and European operations, clearly, the continued growth. When I was in Turkey just a few weeks ago, I can see our hospitals really full. Average occupancy is running at 80-odd-percent, which means that on a weekly basis, we are close to max capacity, often running at 100%. So because of that, very timely, Istanbul is one of our great clusters, and we, therefore, will expand in that cluster. We are looking forward to our opening of our next hospital there, which is in Atasehir on the [indiscernible] side to complement our already very successful Altunizade Hospital, that's 180-bed hospital that we should open by Q3 this year. Slide 19 gives you more color with regards our currency mix of the revenues in our Turkey and European operations. In -- for the whole year of '21, non-lira currency, largely euros, made up 41% of Acibadem's total revenue. That was comprising 13% from foreign medical travel to Turkey and 28% from our European operations. So because of this, with the rising inflation, we expect to mitigate higher costs for our operations. We expect to be able to put in the pricing adjustments, and we attract more foreign patient revenue, et cetera. On Slide 21, you can see a healthy recovery of COVID-19 inpatients for India operations. Revenue grew by 19% to MYR 948 million. Particularly, it was the non-COVID-19 admissions that drove this. In fact, there was really a relatively small contribution of COVID-19 during that time. Now of course, as we got into Q1, then the Omicron wave came about in India, and it created a new dynamic, but as always, our team in India are able to pivot and switch between the COVID-19 base and [indiscernible] as well. So Q4 inpatient admissions increased 15%. Revenue intensity increased by 3.4%, and for the quarter, average occupancy was 68%. On Slide 23, very happy to announce Gleneagles Hong Kong maintained its positive momentum in the past quarter after achieving EBITDA breakeven in May 2021, and revenue increased 23% to MYR 195.2 million. The EBITDA was -- positive EBITDA was sustained, and in fact, improved to MYR 2.4 million. And inpatient admissions increased 16%, while revenue intensity also increased by 6.5%, and average occupancy was at 65%. For our China operations, happy to share, Parkway Shanghai is slated to open also in Q3 of 2022. Since I came on board, I've been sharing about our vision to become the world's most trusted healthcare service network. We have held on to that vision across the whole COVID time. Our staff have taken the whole pandemic in their stride, helped governments fight the war, and also continued to deepen clinical capabilities, whether it's separating conjoined twins in Acibadem or doing hand -- bilateral hand transplants in India. We continue to build that trust with our patients. We'll stand firm to our purpose of touching more lives and transforming care for the better. So our steadfast anchoring to our vision has stood us well, has delivered here our financial -- improvement in our financial metrics, return on equity, strengthened our balance sheet. Cash flow is very strong now. Our net debt-to-EBITDA has reduced. In fact, our return on equity has tripled from 2.8% to 8.4% from March 2020 to December 2021. Now of course, if you say -- even if we try to normalize it and we move for some COVID effect, that's still strong, we think is probably still in the region of 5% to 6%. So we are in a very strong position. I see this as a springboard year as we enter into 2022, positioning us for our new growth journey, where we all have 5 growth engines. We'll recover from COVID-19. Beyond that, we will have strong organic growth. We have bid to build in all the clusters that we are in, and that is capital-efficient growth. Now beyond that, our balance sheet now positions us for a new phase of -- for M&A. We will acquire more strategic assets. We have developed our laboratory platform and grow that strongly. We will innovate and drive digital transformation. And even as we do so, our purpose will remain the same to touch lives and transform care. And in 2022, as we celebrate our 10th year anniversary, we have embarked on a journey to do this even better so that the choices we make for the growth that we seek will continue to be guided by the same true north, to build trust by doing good for our patients, planet and the communities we serve. We will always provide care for good. Care means we will double down on the care and health care, and for good not only means doing good but forever because we will always anchor our journey on trust building. For patients, we will provide excellent clinical care. We will provide excellent service. We will step up our ability to be more transparent in pricing and the value that we provide to our patients. We'll continue our synergy journey, leverage our operating scale. For example, in IT, we introduced a common HIS platform, intellectual property that we own across Turkey and Malaysia and soon to be now for Singapore. Our group procurement savings surpassed our MYR 100 million target that we set last year, and this year, we will set another MYR 100 million of savings as our target. We know also we will deliver strong growth. I talked about our growth strategy, not just the 1 or 2 but all 5 growth engines that I had mentioned. And most importantly, the fourth pillar here, this will be all sustainable as we double down on cash with a compelling sustainability agenda: the care for patients, the care for people, the care for public, and care for our planet even better. So in summary, our focused execution on our previous strategy has allowed us to drive a strong recovery from the pandemic. We built trust in the markets we are in. As we recover, there clearly will be some short-term headwinds. We talked about the COVID-19 services taper-off, and because of that inflection, while we build -- continue the domestic recovery and foreign patients returning, there could be some inflection point as we go through Q1. But clearly, the long-term megatrends driving our business remain intact. We will ride this trend. As we mark our 10th year anniversary as a listed company, we will enter into a next phase of our journey, a new phase of growth. This growth will be strong and sustainable because we will provide care for good. Our growth strategy, we have 5 growth engines anchored on the same true north to build trust. We will continue using our operating scale and synergy of our global network to make healthcare better, and all of this will be underpinned by a compelling sustainability agenda. I'm very excited to look forward to share more with you over the coming quarters on this new strategy. For now, thank you so much, and we'll take your questions. Penelope, please.

Thank you, Dr. Loh. We'll now take your questions. [Operator Instructions] With that, operator, please proceed with the Q&A. Thank you. Operator, would you like to prompt the participants to ask the questions? Thank you.

[Operator Instructions] First, we have a Sean Chew from RHB.

Congratulations on a good set of results. Yes. My first question is on the inpatient case mix. With regards to that, are you still seeing a high proportion of severe cases? Or could we expect the revenue intensity we see right now be the new baseline going forward?

Thanks, Sean. I think that you're referring to the Singapore experience in Q4.

Not just in Singapore. I understand that's mostly COVID, yes, but generally.

I see. Okay. Well, the broad answer to that as we look across all our markets is all -- the experience is all different. In India, what you see is a really largely business-as-usual for Q4, for example. Even in Malaysia as well, the COVID admissions were really relatively low, but that's already coming back towards the usual. Now it is true that in this market where there already was that follow-up of COVID-19 admission, there could still be a deferment of the smaller elective cases. So I could argue that, that higher revenue intensity in some of this situation is still because there are sicker patients who come, right? So if you do see that there are -- in Malaysia, for example, for quite some time, through the COVID-19 period, where the smaller elective cases were deferred, we saw a high intensity that may start to normalize somewhat. But I would also say that it's been 2, 3 years now since -- okay, it's definitely more than 2 years since COVID-19. Over this time, as a general point, our hospitals, in any case, [indiscernible] clinical capabilities. So you'll see that contra effect come into play as well. Now in Singapore, I mentioned that a normalized effect of Q4, I think that is unlikely to be sustained in that way. That was really due to a spike of very few COVID-19 patients being admitted. Does that help?

Yes. That's great. Second question, could you elaborate further on your ambitions to grow your Diagnostics segment, as you mentioned? And can we expect separate disclosure in your upcoming annual report for future quarterly financials?

Thank you so much. I'll answer the business question. I'll ask Joerg to talk about how we want to report it. So absolutely a very exciting book of business, and actually, it's not a new business for us. We have operated laboratory business for more than 30 years. Easily, we have the largest lab business by revenue in Malaysia, Singapore and Turkey. And via Fortis, we own SRL. Fortis owns SRL, which is one of the largest lab players. We see phenomenal growth for laboratories going forward, partly driven by the trend -- that industry-wide trend that medical science is simply providing more and more tests, which are noninvasive and yet able to help people, all of us actually, to manage our health better, diagnose illnesses earlier, more accurately diagnose ourselves such that we can get the precision medicine so that the explosion of such tests, I'm sure, will drive growth. Plus, of course, the heightened desire by the healthcare consumer to understand more about their health. And of course, given our deep capability, we see ourselves not just as a routine laboratory service provider, but really one with the critical know-how and capabilities. We think we are extremely well-positioned to then develop, grow this as a global business. And we do expect strong growth. In fact, it's a lower capital -- it has lower capital requirements, higher return on equity, and actually is probably even stronger growth trajectory than business within hospital. Joerg?

Yes. Thanks, Kelvin, and we've guided to this topic on segment reporting before. I guess the question that we are debating at the moment is whether we report this as purely an overlay to our existing segments so that -- because this is a matrix, right? The businesses are in -- currently embedded in the respective segment [indiscernible] in Singapore, Malaysia, Turkey, Europe and India. So do we report an overlay, but leave these -- leave the underlying numbers in the existing segment? Or do we completely take them out of the existing segments and report labs as a completely independent, standalone segment? I want to have a look at how it would look and if it would be good in explaining. I would be very happy to get inputs from the analysts of what you would like to see. I'm sure any we would be happy to get input from you. What I can tell you is that we had MYR 2 billion in revenue in 2021. MYR 510 million of that was in Q4, very strong margins above what our average margin is. So we'll get to that disclosure in Q1. But yes, we will have a segment disclosure.

Next question is from Rachel Tan from DBS.

Congratulations on a very good set of results. I have 2 questions from me. I think firstly -- the first is on inflationary pressures. What are your thoughts about price adjustments? And could you give us some color across the different markets? That would be great.

So indeed, the inflation is -- I think it's a key topic for, not just us, but most businesses as we enter into 2022 against the headline inflation for many of the countries that we operate in are high for -- highs, which we have not seen for many years now. In Turkey particularly, it's high inflation environment. I think inflation was something like actually 40% in Turkey. Rest of the market is also clearly higher than what it was before. We do see cost increases in cost of goods. We will mitigate that by our global procurement initiative. As you can see, we've been delivering on cost savings even as we go across time, and we set ourselves up for a target of another MYR 100 million of cost savings regardless of the inflation. So I think we will do some mitigation. I'm not sure we can get to all. The other part of it, actually, is a salary or medical wages inflation that I expect to also be significant, and there will be some present for us. And at the same time, we are entering -- we will do more business, which is business-as-usual or not COVID-19-related work, which therefore really means we have to bring back more clinical staff online to service our patients well. So we have to take all this in stride in 2022, and that's why I guided to that transiently. As the COVID-19 revenues fall off and we get into this inflection, I think we'll see that -- I guess, that change to the next 1, 2 quarters. Will be able to overall continue to grow despite -- grow our earnings despite this, my answer is yes because in the end, as volumes come back, as the more complex cases continue to come in, elective, all the surgical procedures come back in, then you see our revenues grow strongly organically. And in the end, we do see -- in the end, we do see that we will be able to more than compensate and grow. But yes, it will be some bit of a headwind in the coming 1 or 2 quarters.

Would you be able to give us some sense on the potential crisis as well?

In Turkey, maybe I'll make a mention of that, we're very proud of how -- what our team has been able to achieve operationally despite that high inflation in Turkey. Firstly, they have been able to make the appropriate price adjustments on a blended basis as we probably came out about 33% price increase in Turkey. And most importantly, the team has been able to keep bed occupancies high, serve patients well, take on complex cases, both domestically and overseas. And the net result, as you can see, is that we have more than -- through the years, we have been able to more than compensate for inflation, and I expect that to be the case as well in 2022 for Acibadem.

Okay. Got it. And my second question is on your ROE. I think ROE has been very strong even on a sustainable basis. I think that is above -- already above your 5-year target. So I'm just wondering what's next for you in terms of ROE and in terms of hedging dividend policy versus [indiscernible].

Yes. Look, I think, [indiscernible] may see a major recovery back to here 8%, above 8% ROE. That's very strong. We've said during the year that the doubling ROE is a way mark, and it's not like where we want to end. We've achieved this. I guess if you look going forward, you might see maybe a little bit of a softening of the ROE. I think the underlying ROE is not 8.4% or a bit less if you take out some of the extraordinary items and other things. But look, it's clear once you are at this level you need to think about what do other great companies perform at, what our competitors' benchmarks performing at in terms of ROE, are we already prepared to commit to you that we will achieve double-digit ROE at a certain given time? I don't think we are ready yet to say that. But I think the target is clear, double-digit if possible, and I think that's the pathway going forward.

Next question is Nicole Goh from UBS.

Yes. Congratulations, Dr. Loh, Joerg and Penny, and great catch-up yesterday. Just 2 questions for me. I think first of all, Dr. Loh, you mentioned just now about acquiring strategic assets as one of your 5 growth engines going forward. Maybe you could share some color on what you consider strategic assets and where -- in which geographical location. And I think -- following on from that, I think when you took over in early 2020, there were some talks about how you're going to try and clean up the company by also disposing off some of your nonperforming assets or assets that are not performing as well. Is that still on the cards? And how soon can we expect that to take place?

Thanks so much, Nicole. So yes, you're right. I had announced that portfolio strategy, I think, about 2 years ago now. We called it a cluster strategy, and what that meant was that we look for growth that's more capital efficient and so that we can improve our return on equity. I made the case that if you operate more than 1 hospital, 3, 4, better still 5, 6 or more hospitals in any 1 metro, it's more efficient simply as synergies of scale of capital. You can invest in the capital-intensive medical equipment and then spread that volume across multiple hospitals, the supply chain efficiencies, your revenue efficiencies because you get to know the doctors well and connect with the insurers well. So it's very clear, and every time we open a -- even if you start a greenfield in a cluster, we are strong. We get to breakeven typically in less than 12 months. So the logic, therefore, is to -- when we say what are strategic assets, strategic assets are assets which strengthen our clusters. I think it's not difficult to figure out where these are in our home markets, for example, around Klang Valley, around Northern -- the NCR region in India, around Istanbul, around Singapore, all examples of strong clusters. And so we are looking for acquisitions that strengthen that. Beyond that, is it possible for us to look at acquisitions in not clusters -- maybe even countries we are not in? I'd say, yes, but the same logic applies. We would want to see our ability to operate well in those markets. Probably they are ones that are adjacent, for example, some of the European cities where Acibadem has proven to operate well. For example, possibly China markets close to our core markets in Asia and close to Malaysia and Singapore, I think, are possibilities. But again, we look for something that already -- where we can see line of sight to having a strong return on equity. Now the same logic then applies with regard to divestment, right? If you find that we have assets which are not in a cluster that are strong or maybe stand-alone entities that have lower margins because it simply doesn't have a scale, and we don't see ourselves as having a strong precedent, we will continue to look at opportunities to recycle the capital and divest that -- those assets and make better returns on that same capital. Hope that helps.

I think my second question is on dividend. So just as a follow-up from Rachel's question earlier. I noted that you have actually increased your dividend payout to 20% this year. Any -- I guess, as ROE has actually improved, any chance of that -- maybe committing to a higher payout in the near future?

Sure. We want to get -- have our shareholders participate in our returns. And as we do better, of course, we will look towards announcing even better dividends, and I think that this year is exactly a reflection of that. I think we are a growth company, and you can see with our 5 growth engines we will continue to have strong growth. We will embark on a strong, strategic acquisition journey as well. But at the same time, I think this is a good way, a good signal of share -- of sharing our returns with our shareholders.

And I think you should not expect that we are jumping around now up and down with dividend payout. I think we've made a step change from MYR 0.04 to MYR 0.06. That is a responsible move. We could have gone probably slightly higher, but we felt it's probably prudent during this time to say, okay, let shareholders participate, but let's still keep the house in order. Discussion on a revised dividend payout strategy, look, ultimately, the actual payout counts, right, not so much what the strategy is. Payout over the last years was very strong at -- yes, even much higher than 30%, close to 50% in some years. So I think you should look at the actual cash that goes back to shareholders. We've increased that from MYR 0.04 to MYR 0.06. That's a pretty hefty step up, and look, for all incentive purposes, we're going to stay on that level or increase it going forward.

Next question is from Amanda Foo from Credit Suisse.

Congratulations on a good set of results. My first question is related to Acibadem. If we look at occupancy and EBITDA margins, they were very strong in the fourth quarter, exceeding 80% occupancy and a margin of 28%. Could you help us understand how sustainable is this going forward? I understand occupancy of about 80% is probably a little too high, but what about margins as well? It would be great if you could give us some color on that.

Sure. I'll kick off and then maybe I'll...

I'm sorry. I [indiscernible] Acibadem. Given the strong depreciation in lira, are there plans for you to lower debt in Turkey? And if yes, the company has hedged with cross-currency swaps, but it will still help bottom line if finance costs were lower. Sorry, Dr. Loh. Go ahead.

Yes. Yes. I was going to just kick it off and then ask our colleague, Evren, to give more color. So yes, occupancy is high. We expect to maintain that. In fact, we see -- because of that, we see strong opportunity for growth. We want to add more beds, add more hospitals. The EBITDA margin was relatively high at this point. Now from time to time, there will be a movement, right? For example, because of the inflation in Turkey, the costs have gone up substantially as of January. We mitigate some of that through price increases. But it's possible that for a certain period, at least transiently, you may see some margin fall off because of this transition. But overall, that still continue absolute growth in terms of EBITDA growth. We do expect our Turkey operations will continue to deliver on. Evren?

Thanks, Kelvin. Maybe just to respond to the question on the occupancy. If you look at the fourth quarter, yes, 81% is somewhat inflated, so it is also driven by the fact that we still take care of a portion of COVID patients. Typically, last quarter of the year is somewhat busier as people try to come in, they do their -- they complete their annual checkups. This additional volume comes from that. Medical tourism was also quite strong in the fourth quarter. I think that's something that we need to highlight. If you look at the trends in '21, last quarter 23% of our revenues were coming from medical travelers, and those are mostly inpatients. So that's also another drive that boosted the volume. So that's that. Regarding the margin sustainable, I think just to complement what Kelvin said. Of course, there's going to be an inflationary effect. Some of our fixed costs are increasing more than the inflation. To give you an example, energy costs. I mean it's a global trend. It's not only specific to Turkey. So that's something that will impact, but we were able -- we are able to reflect the inflationary effects to our patients through price adjustment, and when I say price adjustments, it's actually threefold. There is a price adjustment that we do to our private insurance patients, price adjustment that is done to patients coming through the public insurance stream, and then the price adjustment for foreign patients. So all those layers have seen a substantial increase. And then, when you look at how this was going to correspond to the volume, because our demand is inelastic, we don't see any decline in the number of patients coming to our facilities. And then lastly, like I said, we are really focused on medical tourism. Our Europe revenues, try to diversify our revenue base is also on our target. Our European operations are constantly ramping up. Our operations in Western Europe as well as Eastern Europe we see substantial increase. So that's also another item that we are monitoring through in '22. And then lastly, on the deleveraging, that's a very good point. We continue to delever our position. In fact, we will be repaying about -- our main loans. We will be repaying about EUR 50 million this year, scheduled payments. So that will also have a significant impact on our leverage position. Thank you.

Can I just clarify, did you mention that fourth quarter 23% of revenue came from medical travelers?

Yes. Turkish revenues. If you look at medical travelers, there are -- that is mostly coming through our Turkish hospitals. So if you look at the last quarter, substantially, yes.

And that's an uptick, right, because I believe prior to that, it was more closer to 18%.

So if you look at the trends in '21, in the first quarter, it was -- it started with 16%. Obviously, COVID was quite heavy in the first half of '21 in Turkey, but then gradually increased, and especially third quarter is a critical quarter for medical travelers. They tend to travel as much now with the summer season with the easing of restrictions and all that in their home countries, and then in the fourth quarter, it skyrocketed. So you see that it's a gradual increase starting from 16% in the first quarter reaching up to 23% by fourth quarter, which we are expecting and hoping that this trend will continue throughout '22. And we are very focused. We have a lot of strategic initiatives to ensure that we keep these levels going forward.

I think maybe I'll add to that. Besides the strong foreign patient revenue in Turkey, we also, of course, look at the FX business that we have in the Mainland Europe, in the Netherlands, in Eastern Europe. And we are, I think, already above 40% in total FX contribution to our Acibadem business, and the clear objective here is to get to a 50-50 or beyond level. And with that, there is then, of course, a very natural hedge in place, and the strong operations is then really standing on 2 legs, not only in Turkish lira business, but at least half or more on foreign currency business.

That's helpful. And my second question will be on capital expenditure. And given that IHH will be embarking on a growth journey once more, and there are some plans, ongoing projects such as the medical center for Woodleigh Mall and the new hospital in Acibadem this year, what's the projected capital expenditure that we should be expecting for this year? And how does that compare with previous years?

So I think as I said before we've been pretty prudent in the last 2 years. I think I'm not saying there's been a backlog. I don't think we've held anything back that was necessary, but I think there is a desire to resolve some of the things. You've mentioned it, in Singapore, we have clearly a need to invest in some of our flagship locations. We have Atasehir coming online. So I think there is capital expenditure happening, and I think if you look at this year, there will be an increase in annual CapEx spending. I guess, would it be 2.5? Is it 2.2? I don't know, but it's going to be clearly above where we are now.

Right. And is there maybe some -- a range of number that you can kind of give us, the increase in CapEx spending at least?

I think you will see at least the 20% increase in CapEx.

Okay. That's helpful. All right.

Maybe I'll just add to that as well. I talked about 2021 as a springboard year in the sense that we see ourselves positioned for that strong, sustainable growth over the mid and long term. The headwinds that we talked about Q1, Q2 is really a short-term effect of COVID fall-off. That has not changed the long-term growth trajectory of the business, and that's why those investments are prudent in adding to some capacity where we need to, for example, Atasehir in Istanbul and also some other areas, building our ambulatory centers. Also, we will invest strongly in our digital transformation journey, and we see ourselves setting aside about USD 100 million over the next 3 years in our IT infrastructure and driving the user transformation.

Next question is Divya from Morgan Stanley.

My first question is on the Singapore business. I'm trying to quantify the direction that you are guiding of the COVID tapering of revenue. So if you could just help me understand where are we in terms of foreign medical patient contribution to Singapore as of the latest numbers that you have, given that the VTLs have started. So just wondering if -- where we were probably pre-COVID was close to $85 million to $90 million a quarter. Where are we currently in terms of contribution from that, and, hence, how we expect the COVID-related revenues to be offset? A little bit more near-term dated question, but I think it would help us manage expectations for the Singapore revenue better, which seems to be something of a concern right now. Also, given the fact that the PCR tests on arrival have been withdrawn, I guess you would have a good sense as we speak now in February on how much of that COVID-related revenue would have already been dissipated because of this. So that's my first question, just getting a little bit more color on the Singapore revenue from the foreign patient contribution and from COVID tapering off.

Thanks so much. So first with regards the tapering off, yes, we do expect to see it quite quickly fall off in Q1. You already alluded to PCR on arrival testing being stopped in Singapore, and I imagine also that overall because of the easing, the move towards less testing or antigen testing, then the requirements, not just at the airport, but overall requirements for PCR testing will drop. I also see the Omicron wave, as we are experiencing now, to pass not long, maybe another 2 weeks to a month, in which case the COVID-19 admissions to Singapore will also drop off. Now with regard the foreign patients, how are we doing now? For the year, we probably had something like 5%, 6% contribution of revenues from foreign patients in Singapore. In the pre-COVID times, that's about 25%. So there's a long way to go. Will this come back? My resounding answer is, yes, it will. It will come back with big force and more as travel starts to reopen, as we hear announcements for vaccine travel lanes being announced. For example, a vaccine travel lane was just announced from India -- from Indonesia into Singapore starting tomorrow, actually. We are already seeing that bookings start to come. So my answer is that, that will come back, we are sure, come back with big force. The point, though, is that how long does that inflection take as the -- vis-a-vis the COVID-19 melt-off, my suspicion is that Q1 will still be a time where it is possible, maybe even likely that the COVID melt-off for Singapore is going to be bigger than the rest of that return, but that's likely to be transient.

Got it. Can I just clarify out of the 29% contribution from COVID in Singapore, roughly half of it is testing, PCR testing related or more?

You can say it's roughly half.

It's roughly half. Okay. That's helpful. And my second question is just on the margin outlook for this year. You have pointed out that you're happy with the 25% EBITDA margin, and you have time and again mentioned some inflationary pressures. But we're also cognizant of the fact that Fortis continues to see margin improvement. Gleneagles Hong Kong is ramping up. You will have the return of international patients as well. So just trying to put these 2 together and see that do you actually think that margins can improve further despite your cautioning on the inflationary cost pressures because of all the other drivers that you have?

So the answer is yes, do I expect it to improve over time. Firstly, there will certainly be absolute growth where margin come back and return over the long run because of all the factors that you have said, start-up -- locations starting to fill up such as Hong Kong, I think yes. Now the -- I guess the guidance and what you call as caution was with regards to the shorter term over the next 2 -- 1, 2 quarters, I guess that's where that situation or that compression come from. And again, I think we have to acknowledge that it comes off the back of a very -- and some of our geographies are seeing very strong margins in the last quarter for some reasons, right? Evren mentioned the specific reasons in Turkey, in Singapore. We mentioned the strong COVID-19 contribution. So I think some of that, which is transiently pushed up because of these factors, I guess, you expect some normalization. And then, of course, our long-term journey, as you called it, will [indiscernible] after this traction part of the journey.

Got it. So just to confirm, I mean, you do expect absolute growth in 2022, both at the top line and profit level despite these near-term headwinds?

We always hope for growth. I think it's a matter of how -- what's the degree of that -- how the inflection plays out. We could be far wrong, too. In the absolute worst case, new mutant comes out, and then we are back to where things were 1 year.

I would like that doesn't happen.

I think as a guidance, maybe, look, we're happy with 25%. 24%, 25%, we're really happy with. I think we have to be mindful in the near term, there are inflationary effects. There is cost increase. COVID is melting off. So, look, I think in the short-term, for the next 12 months, I think we do see 2022 as a platform year to then grow from there. Whether you see substantial margin growth in 2022 itself, I think I would be a bit careful. Range 24%, 25%, I think, is super good, and I think should be comfortable if we get there and achieve that. At least from our side, we feel it's doable. And I think just as a short-term guidance, I think that's a range to consider.

Thanks, Divya. I think we have some questions from the webcast, and so we'll take it from the people who have put it up. If I can start off with the first one. It's from [indiscernible]. Occupancy rate in India and Turkey have already recovered to prepandemic levels, but revenue intensity is still significantly higher than prepandemic. Is this sustainable? What were the government grants in 4Q '21? How much government grants there was in 2021? And is this expected to continue COVID-19 revenues? Any visibility with this? And with Omicron surging in Malaysia and Singapore, will COVID-19 revenues be strong in first Q 2022?

So a couple of questions. The revenue intensity, government grants and Omicron effect. With regards this revenue intensity, the effect that you see in -- I mentioned earlier that, yes, during COVID-19 times, there is a high -- potentially a higher revenue intensity because some patients get deferred out, and those are the softer electives, and therefore, the sicker patients come, and therefore, it creates a higher -- optically higher revenue intensity. As time passes, the normal cases start to come back or even the softer electives start to come back, and therefore, you start to see some normalization. Now you alluded to that in some cases, it appears to have -- that doesn't seem to have gone back down to prepandemic times, and that's exactly -- part of that is due to the reason that I mentioned, right? There is increase in revenue intensity. In any case, as a title effect, COVID or otherwise, year-after-year, we as a medical provider will deepen our clinical capabilities. We do more complex treatments. We do things, which save lives in ways that could not have been saved before. And therefore, all that contributes to a rising revenue intensity, and some of that will actually stick. So not all of that increased revenue intensity that you see during COVID-19 times is due to simply the effect of the pandemic. Some of it will stick, and I think you are alluding to -- you're starting to see some of the effects. My colleague, Evren, gave some specific reasons around that case for Turkey in Q4. So -- but again, as time passes, for all the reasons that have been mentioned, us doing more complex things, aging population, and, yes, in time to time, some inflationary pricing adjustments, I think we do expect that revenue intensity does have a progressive path of increase by itself. On this -- on the Omicron situation, well, we expect to see a lot more admissions. My personal view of it is unlikely. The Omicron wave in countries that experienced it appear to be short-lived, in most cases lasting about 2 months. That was true in South Africa. That was true in India. In India, while Omicron cost admissions spiked up in January, I think that wave is really passing off. So my -- I don't think so we'll see that much more Omicron, hopefully. And on government grants, there's basically -- there is hardly any government grant in 2021, actually, not material effect.

Sure. Thank you, Dr. Loh. And we have also several questions coming from [ Paul Chiu ]. In Singapore, what types of COVID-19-related revenue can we expect in full year 2022? I think you somewhat addressed it earlier, right? And maybe move on to the second one is, what is COVID-19-related revenue in Singapore as a percentage of full year '21 total sales?

For the whole year, it was 24% in Singapore.

And any -- so that's pertaining to Singapore specifically, the 24% of Singapore's revenue, yes. And any opportunity to adjust prices in other countries apart from Turkey?"

The answer is yes. We'll do so in a well-considered manner. I've made a very strong commitment that we will deliver care that's patient first, that's value driven. So as we deliver better, improve our service, deepen our clinical capabilities, while there are some inflationary prices, I think we will make appropriate adjustments, but, again, keeping to the same commitment to build trust and deliver value.

Sure. Thank you. For Parkway Shanghai, what will be the initial or teething challenges to attract patients?

So Parkway Shanghai, we expect to open by Q3. It will be a soft opening. The China regulatory environment is that you do get licenses in a very progressive fashion. So you cannot actually open that hospital and all its services all in one go. So we do a soft opening, opening progressively. We'll get doctors in, good doctors who can bring in patients. We have partnered with insurers, payers to bring that patient in. So -- we'll do all that is necessary, and the costs, we'll manage those costs as we progressively ramp up the hospital.

Sure. Thank you. The next question comes from [indiscernible]. Congrats on the strong results. He has a question on IHH plans for strategic acquisition. Is IHH trying to gain more market share in its existing geographies such as Malaysia, Singapore, India, Turkey and China and businesses such as hospital, lab via acquisitions or making acquisitions to go into new geographies and business areas in the healthcare sector?"

So the answer overall is yes. Thanks, [ Raman ], to all those questions. Almost in order of that priority with regards to our local markets first, strategic bolt-ons to strong clusters, yes, we are very interested, and yes, new geographies' potential, where we think we can do well, but roughly almost in that priority that you listed.

Thanks, Dr. Loh. Next question from [ Gerald ]. Hi, Dr. Loh, post the 33% hike in Turkey, do you see local inpatient volumes sustaining currently? And what about the foreign inpatient volume trends post price hike?

So thanks, [ Gerald ]. The answer is yes. We do see inpatient volume sustaining. In fact, we see potential for stronger growth, and foreign patient volume is certainly not affected. We actually continue to expect growth as well.

And the next question is from Kar Mei. Singapore is the only market, which saw stable COVID-19 revenue contribution. Would you be able to point us to what kind of services that were driving the COVID-19 revenue in 4Q versus 3Q? Was there a large change in mix of services Q-on-Q and year-on-year?

I think by and large, it's really a laboratory testing and then some admissions. The admissions may go up and down with time. In Singapore, it is -- you can say that in Q4, there was a larger contribution from admissions than in Q3. But I think the main point to think about, and I think it's something that's good, is that really as we go forward, we expect both to start to taper.

Sure. I think that's all the questions we have from the webcast. Operator, I hand it back to you to see if there's any other questions from the participants on the call.

Right now, we don't have any further questions. [Operator Instructions].

And if -- operator, if there are no further questions, I think we are ready to also conclude the call. All right. So if there are no further questions, now we will conclude the IHH Healthcare Fourth Quarter and Full Year 2021 Financial Results briefing. Thank you for joining us this morning, and if you have any questions, please do contact us at [email protected]. So with that, operator, you may disconnect.

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