IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the First Quarter 2023 Financial Results of IHH Healthcare's Analyst Briefing Conference Call. [Operator Instructions] I must advise that this conference is being recorded today, 1st of June, 2023. I'd 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 this morning. I'm Penelope Koh, from IHH Investor Relations. Welcome to joining us for our Q1 2023 results briefing, whereby we're doing it via a live video broadcast, which is also available on our webcast. With me today are Mr. Joe Sim, our Group Operating Officer; Mr. Joerg Ayrle, our Group Chief Financial Officer; and Mr. Ashok Pandit, our Group Chief Strategy and Business Development Officer. The results material are also available for download on the IHH website. So as for the sequence of event, we will have Joe do the opening remarks and then pass over to Joerg to speak on the key financial performance, Ashok to cover the lab and innovation highlights, before passing back to Joe to speak on the operational highlights, and then to wrap it up with the outlook for the first quarter and the year ahead before we will move on to the Q&A. So with that, I'll turn the call over to Joe. Joe, please?

Thank you, Penny. Good morning, everyone, and welcome to today's briefing. As Penny has mentioned, today, we will start with the financial highlights, which will be presented by my colleague, Joerg. And then I will touch on the country highlights before I pass on to Ashok to talk about our lab business, and then I will summarize with the outlook for the moving forward. And after that, we can take the Q&A. So without further ado, I'll pass the mic over to Joerg to start the financial highlights.

Okay. Great. Thanks, Joe, and Good morning, everybody. Great to be here today with all 3 of us. Before we go into the numbers, let's go and look at the operation of a glance. We have achieved one of the key indicators we are presenting on a quarterly basis, 71% occupancy rate throughout all our hospitals. We have nearly 230,000 inpatient admits growth continues, and we have 23.3 million lab tests performed in Q1. We've added [indiscernible] hospital to our network, so we are now 83 hospitals. It is the new acquisition in Izmir, the Kent Hospital in Izmir in Turkey. And as you know, we're a very strong global brand of healthcare assets. Let's move to the financials, and I have very little to say this quarter, except for a fantastic growth as a CFO. This is an easy quarter to present. We have extremely strong growth, 24% top line compared to Q1 2023. And as you see, we have here, again, the 2 series of numbers, one post IAS 29. This is the upper column, but the real underlying cash relevant performance is in the green bar. So 24% top line growth, a 15% growth in EBITDA to 22.5%, MYR 1.1 billion. We are now clearly on a quarterly run rate above MYR 1 billion -- above the MYR 1 billion EBITDA margin level. We have increased our net income from operations by 11% to MYR 452 million. So you see a very, very strong flow-through, which is a sign of being able, on the one hand, to manage pricing, manage case mix, but also manage our cost, our cost of goods sold and throughout our whole cost structure, a very strong flow-through, 9% operating net income. And then, of course, and you've all seen that, we had an extraordinary return of MYR 850 million from the sale of the IMU Hospital. We've completed the sale and this has led then later to a special dividend payout, we're going to come to that in a minute. If we look at the key financial highlights, record growth, record revenue, and it's really throughout all markets that we see this, led by Malaysia. Malaysia continues quarter-over-quarter to be really, really doing well. So something very good is happening here. We are continuing our bed increase in Malaysia. We're continuing other organic growth measures also in Fortis in Turkey. So growth will remain a key focus for us going forward, and with 24%, that's a great achievement. Strong earnings growth coming then as a flow-through from this top line growth, 15% EBITDA increase. And I really want to highlight here Hong Kong, we are nearly a 10% EBITDA margin. So we are absolutely on track, actually a little bit ahead of the plans, which is great. So bed increase continues, in-patient increase continues in Hong Kong, and we are really eyeing the EBIT breakeven for either end of this year or early next year. Return on equity, 9.1% with the extraordinary income from the IMU sale. If we strip that out, we're at 6.8%. So the ROE enhancement path is fully intact, and it's a very important focus for us. Cash, excellent cash conversion rate, we have a MYR 661 million net cash generated from operating activities, and we have reduced our gearing further to 0.2x. If you go to the next page; this is the long-term tracking, and you see how resilient we have kept the margin levels, the COVID dip in Q2 2020, but then with a very fast recovery, pivoting to COVID revenues that for a time being contributed a lot to our earnings and top line. But then even coming out of COVID without any real glitch, without any surprises, while continuing an extremely strong growth of our top line. So I think for Q1, we can be really excited with the results. If you go to the next page, just a quick browse through all our markets. All markets have increased and you see here the new line for labs in Q1 '23, it's the first time that we've changed our segment reporting and stripped out all the labs from the country units and put it under a lab segment, which is now led by a unified leadership team. We see that the lab business is also growing with 26%, if you strip out the COVID effect. So basically, all our operations have strong top line growth and strong EBITDA growth. Go to the next page. And here, you see the strong EBITDA creation, MYR 151 million from operations. And then we have MYR 907 million increase from extraordinary items. That is one, the IMU sale, and second, the results that we have achieved from selling and closing the Chengdu transaction. On the next page, I don't think we have to go through that. You see quarter-over-quarter. What you actually see on this page is quite nice. You see the with and without MFRS 129, and you see how this is more or less stabilized on EBITDA and revenue, and not a lot of difference between pre and post MFRS 129. The only real difference is that once you go into the net operating income, you include the roughly MYR 60 million increased depreciation from the reindexed property, plant, equipment in Turkey. That's the only effect. And as we all know, that's a noncash event. If you look at the next page, capital efficiency ratios, of course, with the increase in earnings, a strong increase in return on equity, further net debt-to-EBITDA improvement, further deleveraging on net debt to equity and our ROCE keeps increasing. Now that is probably the only little flag. If you look at MFRS 129 and hyperinflation, it does lead to a larger divergence in the ROCE performance. So while the actual ROCE is improving with the increased asset base in Turkey, it looks somewhat depressed compared to the pre-MFRS 129 numbers. But as we all know, this is a noncash item, that's why we keep continuing to report this. On the next page, special dividend, and this was not even a large discussion here among the management or with the board. People were very happy to share 100% of the gain that we made on the IMU sale with our shareholders. We sold IMU for MYR 1.3 billion. We made a gain of roughly MYR 150 million, and that is exactly the special dividend of MYR 0.096 that we are giving back to shareholders. It enhances our dividend yield to 2.8% for the year. We have now paid MYR 0.166, and I think the ex-date for the special dividend was yesterday, and we're going to pay out end of June. The declared dividend also increased from MYR 0.06 to MYR 0.07 -- has already been paid end of April. So a very strong dividend policy. I think a lot of investors have asked for us to enhance our dividend policy, and you see we do deliver on what we have committed to the market. And with that, I give back to Joe to talk a bit about the operations.

Thanks, Joerg. Okay. I will start off by sharing that, we are very pleased to share our sustainability effort in the standalone report. This is the first year we are publishing it, and it's actually on our website. Please, if you have time, read it, to find out more about the activities and outcomes that we seek to achieve in our sustainability effort. But suffice to say, I think this sustainability efforts is something that we truly believe in, and it's encapsulated in our care for good -- overall kind of mission vision statement for sustainability. And we have set time bound, measurable targets to show that we are really serious about putting this into action. And all of these targets are actually part of our balanced [ scorecard ]. Next page. This gives an overview of our performance. Even though I must say that we have officially moved out of COVID and COVID is something that's endemic now. Unfortunately, because we are comparing quarter-to-quarter, I still have to make some reference when we compare the performance between this quarter and the same quarter last year. But overall, you can see that as a Group, our inpatient numbers have increased between this quarter versus the prior year quarters. And at the same time, the revenue intensity, inpatient revenue per patient day has also increased from overall, with the exception of Malaysia, which has a slight decrease. We'll touch a little bit more about this later, both from Malaysia in terms of the revenue intensity, and also for Singapore in terms of the slight drop in terms of inpatient admission. Okay. Next slide. Okay. We will touch -- start with Malaysia first. And Malaysia, you can see that there's a very strong growth over the last 4 quarters. Our Malaysian operation is the first, that is actually the most ready to bounce out of the post-COVID transition. And I'm very happy to say that, compared to our competitors in the market, we're actually coming out very strongly. If you can see from our numbers, our revenue grew by 31% quarter-on-quarter. EBITDA grew by 43% and EBITDA margins also increased by 200 basis points. And this is something, which I think is due to a very strong demand, underlying demand for domestic patients and also the return of foreign patients, which after the borders have opened, we are seeing them coming back to Malaysia. And over here, a question may be asked, why is the revenue intensity dipping a little bit? I think -- if we look at Malaysia, last year -- first quarter last year, we are still in so-called COVID mode, and many of the patients were delaying their treatment. So when they come to a hospital last year, many of them, the case mix is much more intense. But as we recover from COVID, people are starting the regular health-seeking patterns, and we see the usual range of the mix that we see before COVID. So the revenue intensity comes down by a little bit. But suffice to say, I think if you look at Malaysia, it's a very strong growth, and we are actually very positive about the underlying strength of the operations team in delivering these consistent results. Next. Okay. We have some highlights also. You can read about it. Over here, I will just highlight the antimicrobial resistance stewardship program. Just now I mentioned about sustainability report, And one of it is that, we believe that as a healthcare operator, so one of the things that we can do, and only the health care industry can do, is to actually play our part to reduce the superbugs in the community that we serve. And the antimicrobial stewardship is actually one of the key pillars. And in Malaysia, we have actually a very strong support from our doctors, who rally around us to say, yes, this is something we want to do, and we have actually started the program, not just in Malaysia, but also across all our operations. Next, we turn our attention to Singapore. Singapore has recovered from COVID, and we see a strong return of foreign patients back to Singapore. The foreign patient revenue is now contributing 22% to the overall revenue of Singapore operations. And if we look at the performance compared to the last year's first quarter, our revenue has increased by 13%, EBITDA by 6% and the margin dropped slightly to about -- by about 2%, mainly because first quarter last year, we were still housing COVID patients from the government. And as we know, when we house the COVID patients revenue, you can see much lower than, say, the elective surgery. And the other factor is also because now that foreign medical tourism is fully recovered, the foreign tourism ticket size is always much bigger compared to the usual ticket size. So the revenue intensity has actually helped and being cushioned by these foreign patients. So that's something that helped Singapore, even though inpatient and mix has come down a little bit, but the intensity is going up. Okay. Next page. Over here, we are very pleased to announce that we are the first in Southeast Asia to offer the proton beam therapy. It has been a long-awaited arrival; because of COVID, the construction was delayed. And finally, we are the first ahead of our competitors in the region, and in Singapore we have commenced operations. And up to now, we have at least 7 patients who have actually started the treatment on the proton therapy machine. And we are very happy because with this, it truly anchors Singapore as the center of excellence in the region for high-end advanced cancer treatment, and that's something which we look forward to, to even deepen and strengthen our position in this area. Next page. Next, I turn to Turkey and Europe. Over here, Turkey has performed very strongly. If you look at the revenue, it has increased by 45%, EBITDA by 15%. The margin has dropped by about 5%, mainly because of this severance -- one-off payment on the severance payment for closure of Kocaeli Hospital, which was closed in first quarter 2023, and also payments related to the aid that we gave to earthquake victims. Remember earlier in this year, we have this earthquake happening in Turkey. And our Acibadem has actually been very active to provide relief and also help to the victims of the earthquakes, and that's something which affected the EBITDA margins. Next page; Turkey remains very strong. In fact, Acibadem remains very strong in terms of foreign patients. And foreign patients, if you can see from the chart here, currently forms 12% on of the total revenue of the Turkey business, and it forms 27% of the total business of Acibadem, primarily from the European operations. So this is actually something despite the hyperinflation and [ all that ]. One thing about our Turkish operations, it remains resilient. We are able to pass on much of the cost of the inflation to the patients. So that's one of the things which have cushioned us from the hyperinflation. Next slide. Here are some of the highlights for Turkey in terms of the events that were happening. You can see that, again, consistently, we are bringing in the latest technology, the latest treatment, so that we continue to make Turkey a center of excellence, particularly our Istanbul hospitals are for patients around the region to visit the Acibadem hospital for treatment. And last but not least, we turn to -- not yet. India first. Okay. Next slide, India. Okay. India covers both Fortis as well as our global hospitals, and our revenue has increased 19%, EBITDA, 36%. The margins has also improved by 2% and inpatient numbers have all increased. You can see India, the story is that the demand has remained very strong. And both our Fortis Hospital and our global hospitals have been actually rising to meet the demands. And we are looking at a very strong performance in the first quarter, with the higher case mix and also much of the complex work returning back to our hospitals, and on top of the increasing patient volume. Next page. Next one Okay. Last but not least, Gleneagles Hong Kong. Momentum continues to build up. We now have 230 operating beds, and the EBITDA is 9.7%, close to 10%. And we are very optimistic and very confident that this year will be a year, where it will actually break this EBIT breakeven. And the EBITDA for this quarter is actually all-time high at 9.7%, and the momentum will continue. Okay. Next page is some of the highlights on the Hong Kong operations. So with this, I've covered the operational highlights. We can take more questions later. And now I'll hand over the mic to Ashok to talk about lab segments. Ashok, please?

Thanks. Thanks, Joe. As Joerg mentioned earlier, we will now start reporting the labs as a separate reporting segment. I think some of the key highlights coming from the lab results, what we've seen since Q1 2022 is a sharp drop in COVID-related revenues. Q1 2022, COVID-related revenues were around 33%. They're now down to less than 3%, 4% in Q1 2023. Our core businesses, which is excluding COVID, has actually registered a very strong gain of 26% in Q1 2023. EBITDA, although marginally down over Q1 '22, is also reflective of essentially the COVID revenues and impact on the EBITDA as a result of that. A key focus through the year has been improving our margins. As you can see, we've now got 100 basis point increase in our EBITDA margin, and that will remain a core focus for us as we go into 2023. Our test volumes remain flat. Although the focus now is on more higher-end tests rather than our core -- the generic test. In terms of key drivers for 2023, we continue to focus on growth on the top line, a very strong focus on driving margins at the EBITDA level. We want to transform our core operations by digitalizing our platforms and also improving our core efficiency in the labs itself. And to the end, essentially delivering better solutions for our patients. If you go to the next page, it highlights our focus on quality. A lab in Singapore has now got another accreditation by CAP earlier in March 2023. And in Turkey as well, we've now got our first ISO 15-189 accreditation very recently. We continue our work for our patients in Malaysia and in India, we've recently had a change in our brand from SRL to agilus. Next slide, please. I think in addition, what we also wanted to highlight, something that we have not highlighted so far is, what are we doing in terms of learning from the developments on the health tech side. Over the last few years, IHH has been making very selective, small investments in health tech companies, which will essentially provide us knowledge, provide us with synergy and essentially better outcomes for our patients, which is essentially core. And to that extent -- we have made investments in 4 companies so far, which are presented on this slide; intellect, which is into mental health. Lucence, which is essentially a company into -- which is making -- we're doing very, very good work in terms of diagnostics and liquid biopsy. We've got investment US2.AI, which is an AI-driven platform to detect early scans -- impact on the heart. And the last investment is DA, which is a digital platform. If we go to the next slide, I wanted to highlight 2 of our investments here. One is essentially Lucence. Now Lucence is a company which is focused on precision oncology. This is very important because oncology and cancer is actually a very important vertical for IHH itself. And Lucence this year in Q1 was able to get U.S. Medicare approval, and it's the first Asian company to actually obtain that approval for liquid biopsy for lung cancer. Intellect, another company is focused on mental healthcare. As we're all aware, this is a subject of acute importance and this is another area where IHH wants to play an important role. So through these investments, we -- what we want to essentially do is, get new learning because there's incredible work being done in the region, in the health tech space, see how we can learn from these investments that we make, and essentially provide better outcome for our patients. With that, I'll hand it back to Joe.

Okay. Thank you, Ashok. So I'll sum up by sharing the outlook. The outlook remains very strong, primarily because the demand for healthcare is still very strong, and we do foresee that with growing population, aging population, the demand for high-quality, good private healthcare will still remain strong. And in IHH, we are very well positioned to capture these opportunities. In terms of growth, we are looking at increasing our organic capacity through our operations in India, in Malaysia and also in Turkey. And inorganically, we are always on the lookout for M&A opportunities. So these are natural growth, which we actually expected to continue to stay on course, to make sure that we continue to keep up with the rising demand that we have. But in addition to that, we're also looking at how we can actually look into space, horizontally across the health care continuum, in line with the developments of the country or markets that we operate in. For example, in Singapore, the government is actually encouraging a lot of preventive health, primary care and so on. So we are also moving into the ambulatory space. We are moving into the primary care space even more strongly, and also the preventive health space. So these are some of the areas which -- what I mean by expanding horizontally along the healthcare continuum. At the same time, we're also looking at the vertical chain, where we look at -- are there any other areas which we can actually participate in the healthcare space? For example, we talk about having bought into Lucence, where we provide liquid biopsies for cancer. And this actually adjacent, but actually along the vertical value chain, where doctors now are able to make more precise diagnostic and plan a much more precise kind of treatment modality for our patients. So these are areas which we believe that when we make the right investment as what Ashok said, we should be well positioned to tap on the latest technology to avail the best treatment to our patients. And last but not least, we are looking at other emerging trends like digital growth and all that. And recently, we launched our MyHealth360 apps across the hospitals in Malaysia. We have done that last year in Singapore, and I'm also happy to share that the MyHealth360 app recently won the award for one of the best introduction of the healthcare app for the patients in Singapore. So these are some of the areas where we remain firmly on cost to tap on the growth, and we are confident that with the strong underlying demand, and the team that we have in each of our markets and in the Group, we will be very well positioned to capture all this. So with this, I'll conclude our presentation, and we'll be happy to take questions from all of you. Thank you.

Thank you, Joe. Before we start, we'll first take questions from the participants on the call, before moving to questions from the webcast participants. And I would like to request for each participant to keep to 2 questions, and then you can rejoin the queue thereafter. And with that, operator, please proceed with the Q&A. Thank you.

[Operator Instructions] First question comes from the line of Rachel Tan from DBS.

Congratulations on the very strong results that you have delivered and provided a good dividend -- special dividend as well. Maybe just to kick off the Q&A session. I think for Singapore, could you give us an update on the closure of it, due to the lack of nurses? Has that already been resolved? And what kind of pipeline are we seeing in terms of elective procedures and also medical tourism in Singapore?

Thank you, Rachel, for the question. I suppose this shortage of nurses is a concern for almost every of the analysts who I come across. And in fact, it is a problem that has existed. It's not a recent phenomena, it has existed over the past 20 years. And over here, we are very happy that the efforts that we are putting in bearing fruits, I think at the last briefing last quarter, I shared that we have introduced patient care associates to help nurses to deal with the workload that they have, so that we can actually keep our nurses and also make them more productive. And this is actually delivering very good results now. What we talk about is really to allow nurses to practice at the top of the license. And with the PCAs taking over the daily activities of these patients like bathing, feeding and so on, the nurses are able to focus really on the nursing task, and that helps a lot to actually ease some of the pressures. And with this and also with our strong recruitment efforts that we have stepped up over the past couple of years, the number of beds that we blocked is -- we say blocked, because we don't have enough nurses last time, it has actually reduced by 50% and we'll continue to chip at it. And recently, I was quite happy that the Singapore team even introduced a shuttle bus to ferry nurses from Johor, all the way to Singapore every morning, at about 5 plus AM. And that's something which our nurses really like, because they want to actually still go back home every day. But for our nurses to come here and report in time for work at 7:30, 8 o'clock, they have to wake up very, very early. So with this transport, it helps them a lot. So we are seeing that the morale has improved. And we are hopeful that with all this -- even more nurses, hopefully from our neighboring states, across the causeway, we will find that it is very attractive to come across here to work in our Singapore operations.

Great. Joe, to listen to all the initiatives that you have done. Just let me clarify that reduced by 50% as a percentage of total base, how much is still blocked by now? And when do you expect it to unravel eventually?

Okay. If you look at our total bed capacity and all that, the 50% is actually -- translate to about 50-plus beds. So we still have about another 50 to 60 beds that we have to actually open up. I say that with a caveat, because the blocked beds looks -- is 50, 60, but it's also partly because we're able to shift some of the nurses from Mount E. Orchard to some of the other hospitals like Mount E. Novena, because we are actually now renovating this Mount E. Orchard. And some of the awards are being closed. So we are able to move the nurses and flex them across the different hospitals in Singapore.

Got it. My next question is really on your proton therapy center, I'm really excited being the first one in Southeast Asia. I understand that the investment is actually not cheap. So when did you expect any breakeven, and what's your projections in terms of the kind of ROI, ROE? Or in fact, any contributions to your diagnostics that will be quite helpful?

Okay. First of all, I must say that the -- while we have the latest proton beam, the use of the proton beam is actually highly regulated. There has to be the right clinical indication. So not any cancer we say, okay, [ let's just go ] for proton beam. It has to follow very strict criteria set out by the ministry. So appropriate care is there. But even with this, we expect that it should be actually very accretive to us, and I don't have the numbers now, we can get back to you on the exact breakeven, payback time and all that. But we are on course to actually meet with our pro forma -- internal pro forma projections. But actually, one of the key things which I must highlight is that, the proton being per se, if you look at it, is actually positive. But on top of that, with the proton beam therapy, it adds a different dimension to the offering that we have for cancer care across the region, because it's not just about the effects of having a proton beam and the profitability of it. But because of that, it makes us a very comprehensive center in Southeast Asia to provide treatment for very complex and very sensitive kind of treatment for cancer patients, that elevates the entire ship, because now even more patients who actually know that, if they want to have such advanced treatment, they can come to Singapore. And that actually elevates the entire oncology offerings that we have in Singapore. So that is actually the more important strategic kind of effect that we are looking for from proton beam investments.

Sounds very exciting. Just to follow up, do you expect to roll out to some of your bigger diagnostic market like India and also Malaysia? Or would you rather Singapore be the premium first and allow Singapore to mature, before you roll out to the other key markets?

Before I answer, I think, Joerg, you have something to share?

Yes. So just to add to this. I think the important thing, Rachel, on this proton beam center is -- on the one hand, of course, the standalone business case, and there is an investment case, and we have a ramp-up schedule and we have invested money into it. But I think it really needs to be seen in the context of elevating Singapore even further in this super specialization. And you've seen this over the last quarters with our average check size for the revenue intensity, and why can we do that? Because there is always something more we can do. We are staying at the edge of science and the edge of clinical care, and it enhances the whole image of Singapore as this icon -- not only for oncology, but of course -- also in oncology, where patients come because they know this is the best place to get treated in Asia.

So Rachel, you asked about whether, are there plans to have proton therapy in other markets? I think that really is a question that we are also asking. For now, we believe that we will have it in Singapore first. As for the other countries, definitely, when we look at the investment, if we have -- it's a very expensive investment. If we can optimize it, we will optimize it. But should the demand in the other countries also show that there's a very strong trend, upward trend, we will be open to that. But having said that, proton beam is just one of the many high-end treatment or high-end kind of equipments that we can have. And the good thing about being in private healthcare is that, we are there and we can be very nimble to meet the demand, if there's market demand, we will be able to actually roll it out quite fast and quite decisively. So definitely, yes, if there's opportunity, why not, if it can be revenue accretive and also margin accretive, we're always looking out for not just photon beam, but any other advanced treatment that will benefit the patients.

Our next question comes from the line of Pooja Bhatia from Morgan Stanley.

Just on the China business, I would like to know what's the strategy going forward, given that now Chengdu transaction is closed and Shanghai impairment has already been taken in 4Q? Currently, I believe there are 5 to 6 clinics, which are operational. So how do we see this business going forward?

Look, first of all, I think it was a great progress in our continued effort to derisk our investment in China to close the -- or basically sell our Chengdu Hospital. We've done that at financially attractive terms. I think you've seen in our reports, financial gain. Part of that is from reversal of 2 high impairments in the past. But part of it is from a good equity value that we've got for the asset. We're not disclosing details, but I think we are quite satisfied with the transaction as it went. We have since opened the hospital in Shanghai as per plan. Patients are coming in. We are getting more and more doctors. We're working with doctor groups. So there is a ramp up, not as fast as we'd like to, but better than we had anticipated in the worst case. We have started a much more intense turnaround program for the clinics, and we are now working a lot more intensively with the government in Shanghai and with government authorities. Because look, you can't be successful in China without having a close relationship with authorities and with the government. So we work on that. Now does that change our overall direction that we do plan to derisk our investment? And I think you all understand what derisking means? No, it doesn't. It just means that we need to segregate 2 things. One is, we have to run a business and we have to maximize that business while we run it and we own the business, so we need to run it. And in parallel, we do work on strategies to derisk our activities there. And look, you need to give us some time, this is not always easy in a market like China. China has just opened from COVID, has moved from a radical zero COVID policy to a complete open policy. So I think we have to adjust. We have to see the opportunities to derisk, but we are on track, and we do plan to continue that.

Do you expect margin breakeven in this business any time soon, say, end of the year?

No, I think we need to be realistic. This is going to take a long time.

Understood. My second question is on capacity expansion. Very delighted to see that 2,000 bed additions are planned over the next 3 years. It would be great if you could chalk out the plan, how many expected this year versus the next 2 years and in different markets, India, Malaysia and Turkey?

Okay. I can take that, Pooja. So when we talk about expansion, organic expansion, we are actually looking at around 600 beds more from our organic hospitals in Malaysia in the next 2 to 3 years. In India, we are expecting about 1,500 more in the near term, next 1 to 2 years from the organic expansion, mainly from brownfield expansion. And that excludes this M&A that we are always looking for. And in Turkey, we are mainly looking at the acquisition and potentially consolidating our footprint, both in Turkey and also in Eastern Europe areas. So these are the areas where we look for expansion, in terms of our capacity.

And with these new beds coming in, is it right to expect occupancy to dip a little in the initial few quarters?

I think this will be -- I don't expect the occupancy to have any abrupt changes; because, as you know, in many of these expansion, there is a continuous function. We keep on adding beds, if we don't need to have, say, for example, erect a new building or reconfigure some of the existing space. That will come sooner. There will be other hospitals where we need to actually have a new block, so that we can add beds. For example, our FMRI in Gurgaon in Delhi, we are actually digging and doing the [ piling ] now to build up a new building. So that will take another maybe 24 months before it's up. So we do expect that as we build all this up, patient volumes continue to go up, but it won't be like a spike or dip very certainly. And occupancy won't happen that way as well. I think there may be certain areas where it may be a slight dip and then you go up again, or maybe very high then, when the new floor is up, you actually ease off a bit; because every time we add this capacity, particularly for a new block, it is what we call a step function, in one shot add 100 beds. It's quite a lot. So I think those are areas where you see that the big crunch in this hospital will be eased, maybe on the peak of the weekday from, say, 100% down to maybe to about 80%-odd. And this is actually a very real challenge for us. Let's say, for example, use for example, Pantai Hospital Penang. On the -- if you go to Pantai Hospital Penang, Tuesday, Wednesday, Thursday, chances are, occupancy are above 95%. And now we are adding another 117 beds in the next 2 years. And when we -- before we add this, it will still remain 90% over the middle of the week. But after we added, it will come down -- ease somewhat. While we do expect that it will continue to fuel our gain. As I mentioned earlier, the underlying demand for healthcare is really, really very strong, with an expanding population and also with an aging population.

That's very helpful. Just a follow-up, the Ramsay acquisition, just wanted to know if there's any update on that? Is it back on the table?

Yes, look, I think, look the deal fell through a couple of months ago, let's give it time. Some deals come back, some deals don't come back. Look, these are great assets. This is -- that's why we had been interested. But of course, the terms need to be right and we're not desperate to buy anything. At the same time, if there's an attractive deal available, and we are ready to engage. I think let's give it time and see how it goes. There are many other targets and opportunities available, not only in Malaysia, also in other markets, let's not get too fussed about one particular asset.

Our next question comes from the line of Xuan Tan from Goldman Sachs.

My first question is on EBITDA margin. Is first quarter a good base, or could you maybe share like for the rest of the year, where should we expect a real cost increase in savings? It would be also great if you can share more the individual country EBITDA margin as well?

Yes. Thanks a lot, Xuan Tan. Look, I think Q1 is a good basis to understand that the year has started with some headwinds that we have completely overcome through this extraordinary growth that we had. So I think if we put the growth into the mix and continue on this trajectory, then margins are important, but actually, absolute EBITDA becomes even more important and more relevant. And if you look at our absolute EBITDA and net income improvement, that's quite impressive. So I don't deny that margin is a topic we should look at. And we do still feel that 24%, 25% midterm trajectory is the right area where we will land overall. But let's peel the onion around our EBITDA a little bit. You have markets like here in Singapore, where you're close to 30%. We are -- in Malaysia we are close to 30%. We are in Turkey where the average margin is, of course, somewhere between 24%, 25%. Let's not get irritated by one quarter or the other that is a bit misaligned with hyperinflation accounting. And don't forget, we had in Turkey, an earthquake. We had a reduction in travelers. We did help earthquake victims. We donated in cash and in-kind MYR 25 million into this. So look, there's a lot of moving pieces in Q1. And one major topic, we shouldn't forget. One of the factors in our EBITDA buildup is, of course, India. And India, historically, for us, had comparatively low margins. We have started now with Fortis, a very aggressive EBITDA recovery program. We plan to get beyond 20% in the next 12, 18 months, and that is achieved primarily by divesting underperforming assets. And you'll see some progress on that in the next quarters, so we are very aggressively working on improving the mix. But let's also focus on those markets where margins are extraordinary here in Malaysia, here in Singapore, we're performing on the top of benchmarks. So I think, look, let's take this quarter-over-quarter. We do believe that in the course of the year, margins will gradually improve. And with the midterm direction of 24%, 25%, I think we are where we need to be.

I just want to emphasize the point which Joerg made. I think EBITDA is -- margin is very important. Particularly, it's an indication of how well we are managing our cost as well as how we are able to pass on some of the inflations to our patients. But I think much as it's important, we should also look at the absolute growth because, let's say, for example, if I introduce a more advanced cancer care, its ticket size is very big. But because the consumables or the chemo drugs and all that is also a high part of the variable cost, the margin may come down. But the question is, do we do it or do we don't do it? Of course, we do it, because it's extra earnings, and these are something which will serve our patients better. So I think while we watch very closely on our margins, particularly on our discipline to control costs and also to make sure that we actually look at ways to actually reduce the inappropriate kind of consumption of resources, we also looked at where are the growth areas and which are the areas that are really in demand. So I think that our multi-lens approach will be needed here. And I would say that Joerg is more modest about it. I'll say that in the countries we operate in, we are actually one of the top performance on EBITDA margin. If you look at Malaysia, at close to 30% margin, it is actually the highest -- or if not, I think the next competitor maybe come 1, 2 percentage lower. So I think those are the things that we bear in mind. Each country has its own health care economic factors to consider, the ability to afford and all that. So I think what is more important is that, in the country that we're operating in, are we ahead of the pack? And in India, we do see that the margin should improve, because when we took over, say, for Fortis, under the previous promoters' hand, it was not so well managed because of the troubles they have. But since the new team has taken over, we have invested in. Fortis has moved strength to strength, and now it is in high teens in terms of EBITDA margin, and we continue to grow from there. So we actually are quite confident that if we do the right thing for the patients, we do give the appropriate care, good outcome, good patient service experience, I think all this will come naturally.

Just a quick clarification, midterm 24% to 25% target, is that 2024, 2025? Can we get some sense there?

Yes, I was afraid that, that question comes when I put such a framework in place. Look, I think earlier than later is probably the right answer. Let's not ignore. And of course, that's not EBITDA that's then going down to net income. Let's not ignore inflation is there. There are geopolitical topics to address some of the exits that we plan in the portfolio in India do require regulatory approvals. So you're not always a master of your own time plan. But I think if you've seen one thing, then it's -- we do plan to execute, we do plan to execute quickly. So if we can get to that range earlier, then that's, of course, preferred, and you can be assured we do everything we can to get to that range in a reasonable time period.

And my second question is on medical tourism. Can you share what's the contribution now versus pre-COVID level? And what are the efforts on this -- on an individual country basis?

Okay. So I go country by country. Singapore, currently, we are at 22% of our total revenue from foreign patients. It's actually almost at the pre-COVID level already. And Malaysia is also at the pre-COVID level, of 5% of this foreign tourism receipts. And I would say that for Malaysia, if you look at foreign patients, it's 10%, but 5% is actually the [ local foreigners ], but the true medical tourism is 5%, which is same as pre-COVID. Turkey has returned very strongly, 12% of these receipts comes from the medical tourism. So I think in these markets, we're seeing very strong growth. Likewise, for India, we're seeing the return of patients from Africa, Middle East and also Central Asia coming back to our global, and also Fortis hospitals.

We will now take questions from the webcast.

Well, we have quite a number of questions on the webcast. So I'll just read it out for the benefit of those on the call as well. So the first question is from Maybank, [ Ayman ] what are the plans to find replacement to the management? Should we expect a lot of corporate reshuffle in the near term?

Look, I think first of all, I'm not aware that management has been replaced. There was a board meeting yesterday, at least we have not been informed about anything. But so management is in place. We have a strong management team. As you can see here, we run the business, we execute on our deliverables. I guess what you're referring to is that we are looking for -- the Board is looking for a new CEO, and that process has started. And I'm sure with the right time and with the patients involved, there will be a great result out of that. In the meantime, management is in place. We are running the company. We're delivering on our plans and objectives, and we will continue doing so going forward.

All right. The next question is from CIMB, Wee Kuang. What is the basis for recognition of the MRY 122 million in deferred tax expense in first Q '23? And do we have visibility whether the amount will reoccur?

Okay. Wow, that's a super detailed question. I'd probably defer and we need to get back.

Maybe I can just quickly jump in, because someone had asked me the same question yesterday. So in terms of the visibility, it's not onetime. And I think we do expect it to reoccur in the coming quarters. But of course, the quantum will essentially depend on the inflation rate for that quarter itself. Yes. So with regards to the basis of the recognition, I'll come back to you, because it's actually quite a long reply that I have. So I will come back to you on that. The next question, also from Wee Kuang, what is the strategy to attract foreign patients in Malaysia coming along? How much of patients are foreign patients now in Malaysia versus pre-COVID levels. I think Joe had addressed it earlier, but if there's anything that you want to add, Joe before -- if not, I can move on?

I think Wee Kuang, you have 2 questions. Second question has been answered. I'll answer the first question. How is the strategy to attract foreign patients in Malaysia coming along? I think it's been coming along very well. I would say that for foreign patients, when they [indiscernible] the trouble and pay the cost to go all the way to a foreign land for treatment, what are they looking for? They're looking for effective treatment, and they are looking for cures, which are not available in the country. So the fundamentals have to be right. And in Malaysia, we have actually a very strong fundamentals. Our flagship hospitals, Prince Court, Gleneagles KL, Pantai KL, [indiscernible] as well as Gleneagles Medini. We have a very strong team, medical team as well as our clinical and nursing team are all very strong. And we are able to provide a lot of tertiary and quaternary treatment, which are not available in the target markets that we have. So far, because of all this, when the travel restrictions are lifted, the patients are coming back. And the plan so far has been coming along very well. You've seen our data. We have already gone back to pre-COVID levels of 5% of total revenue. And it will continue to actually grow, in terms of absolute value. And so far, we are very happy that the Malaysian government, MHTC is also working very closely with us to promote our centers of excellence to the target countries, to also make Malaysia a destination for health tourism. So it's coming along very well.

To the next question with regards to IMU, we see there was still a P&L impact during Q1, '23. The question is, is this a residual P&L impact and should we expect more contribution from IMU? This is purely a residual impact. IMU was part of the IHH consolidated scope in Q1. The deal closed sometime end of Q1. So what has been accounted therefore in revenues and profits, is purely -- [indiscernible] the numbers up until close. IMU from now on is no longer part of our consolidation and financial reporting.

Okay. From [indiscernible] Bank of America. Could you give a breakdown of labs' revenue and EBITDA from each country?

Yes. I guess, I guess, I am afraid of that question. Look, let's take it from where we are. We've set up a lab segment. I think that gives increased transparency, which I think is good. At this stage, we do not plan to disclose within a segment, additional segments, I think that would start to create some granularity that is probably in the grand scheme of things. Not helpful. So we won't start revenue and EBITDA segmentation within the lab segment anytime soon.

Ashok, if you can...

I can just add here. I think if it's helpful for the analysts and investor community going forward, we will definitely get some more color around what are the trends we're seeing in each of our markets. And I think that should be able to give you some guidance around which market is doing well and where are we seeing some challenges.

Thanks, Ashok. Again, another question from Wee Kuang. Are we looking to open more beds in Hong Kong for this year?

Okay. Wee Kuang, this is quite easy to answer. Yes, of course. Gleneagles Hong Kong has a big capacity of 500, and currently we're operating at 230. And this year, we expect to increase another 50 to 100 beds, depending -- the pace depends on how fast the demands continue to ramp up. And we're actually on track to actually ramp it up fully according to our timeline.

Okay. The next question is from UBS, Joseph. How much was the severance package and earthquake being accounted for by Acibadem this quarter? On a separate note, are there plans to further increase Gleneagles Hong Kong's operating beds? How many operating beds was there in Q1 '23 versus Q4 '22. So I guess the Hong Kong question has just been answered by Joe. Perhaps Joerg, you can take the question about Acibadem.

Yes. So the overall donation that we did, and that was in kind and in cash is around MYR 25 million for the earthquake. I think there has been great progress made in [ health ] victims. We've built -- the Acibadem team has built temporary housing for many, many people, and it is very well regarded in the community there. So I think this was a very important support, and the support is ongoing. As to the severance costs for Kocaeli Hospital shutdown. Look, this was a very small hospital. These are not material effects overall. But of course, there was a little bit of a depression in the Turkey numbers in Q1. So some of this is going to come back. But overall, for IHH, the impact is not very material.

Thanks, Joerg. Next question, Chun Sung from RHB. So there are a couple of questions here. First question, how much of your patient admissions are coming from newly consolidated hospital, and how much coming from organic growth of your existing hospital? Question two, how is IHH revenue recovery trend in health tourism segment this quarter versus Q4 of 2022? Any strategy you would like to share to drive growth in the health tourism segment? Question three, house nursing shortage in Singapore so far, how IHH cope with that? Question four, has the easing of natural gas price reflected in better cost structure this quarter? Moving forward, how will IHH cope with inflationary pressure? How often does IHH raised price to pass on incremental cost to patients? I think some of the questions have been answered earlier. Maybe one, we could go up -- and question one. I don't think we have exactly done that split between patient admission coming from newly consolidated hospital organic growth at this time, not that I'm aware of. So we don't have that breakdown. Number two, the revenue recovery trend in medical tourism, I think Joe had earlier given the breakdown. If you need more clarity, I think Chun Sung, we can come back to you again as well as to how he wants to drive growth in healthcare segment, I think particularly for Malaysia as well, I think Joe has addressed it. Nursing shortage, we have talked about it earlier. I think we had...

I can add a note on the first question, about newly consolidated hospitals. As Penny mentioned, we do not do the split that way. But I will just use an example to illustrate the underlying operating capabilities that we have. We acquired Prince Court in 2020, the transition was completed then. At that time before we acquired, the EBITDA margin was actually quite low. And today, Prince Court is one of our top-performing hospitals, the EBITDA margin is 27%, 28%. And as of yesterday, when I look at the census, it's already 85% BoR. So that is actually a typical kind of example of when we acquire something, we really synergize and turn the performance around. And while we don't have the consolidated hospital numbers breakdown of that, but I would say that for most of the new consolidated hospitals, we acquired because we are confident that it will be accretive to the overall growth and profitability of the company. So Prince Court is one good example.

Yes, we can take that question on the -- has the easing of natural gas price reflected in better cost structure this quarter?

So I think absolutely correct. So if you look at -- compared to Q4 2022 and then Q1 2023, there has been some softening of energy prices and energy costs now. Year-over-year, so if you compare to Q1 2022, of course, there still has been quite substantial inflation and costs have gone up. But you're right, there is a softening. It appears we have exceeded the peak of inflation in energy prices. Some prices actually come down. We see this in Turkey. We do see this a little bit in Singapore. So I think that that's good news, and it will certainly help us. Now look, as to inflationary pressure, we believe that we've done some price adjustments that just about adjust the inflation. You can't do this too often. I think once a year, maybe twice a year, maximum. Of course, in a country like Turkey, this is, again, very different. There's a very specific price management system in Turkey. But look, whenever there is inflation, we also need to look at ourselves and say, can we compensate this through cost reductions and cost measures. And we've started a cost management plan for our overhead cost. We look at productivity measures throughout the network, and that is how we try to manage inflationary trends.

Joerg is right. I think one of the key things is, looking at ourselves to see how we can actually be very disciplined about cost control. And as far as possible, we also looked at other areas. For example, we have this initiative called value-driven outcome, where we measure the clinical outcome and also the resources consumed by our medical team to deliver those outcomes. And this is the area where we actually have managed to keep the build size in control, to make sure that the care that we deliver to the patients is appropriate to the clinical indications, and also that they're effective to deliver the health outcome that we want. So even though much of the inflationary pressures, we may not be able to avoid it altogether. But at least I will say that through all these initiatives, we are able to bend the curve quite successfully. And in fact, just to share a snippet is that, the price increase in Singapore in our hospital is actually very much less than the public sector. So I think that actually gives a strong statement of how we have been very serious about the cost discipline, and also the discipline that we actually deliver good value to our patients by controlling the kind of resources that we consume, in delivering the best outcome for them.

Thanks, Joe. The next question is from Kenanga, Raymond. In Malaysia, Singapore and Acibadem drive bed occupancy -- how does IHH intends to drive bet occupancy in all the 3 markets mentioned?

Okay. I'll take this. Okay. Bed occupancy, I think there are a few ways to drive it. One is, of course, through the kind of flow that comes in. In Malaysia, we have actually looked at our hospitals. We have a hub and spoke cluster strategy. The hub hospitals will be hospitals like Gleneagles KL, Pantai KL, where we offer very high-end tertiary and quaternary services. But we also have the regional general hospitals in the community like Pantai Ampang, Pantai Cheras where they serve the immediate needs of the community that they have. And in those areas, what we did was actually to improve on the access to care, particularly access for emergency care in our A&P. So we have seen that over the past 2 to 3 years, our A&E load has been increasing in those regional hospitals as well as our hub hospitals. So that's one avenue where we actually increased. The other areas of course to look at, what are the other new treatments or modalities that we can provide to patients, to which other hospitals or other countries cannot provide, that will help to drive up the bed occupancy. But having said that, I must say that it's a very tricky kind of thing, much as we want bed occupancy to increase. We are also very cognizant that it must increase for a good reason. If we increase because we want to increase the occupancy, then that's wrong, because that's not fair to the patients. And if a patient can stay for a length of stay, of, say, for example, 2.5 days for a knee operation, we make sure that we do our best to make sure that they don't exceed the 2.5 days. That is our commitment to our patients. So if you look at the total knee replacement, we used to have an average length of stay of 5, 5.5 days. And we managed to reduce that to now 3.3, target is 1.5. But despite this, then the question is, how do you grow? We don't grow by just bumping up BoR at the expense of patients. We grow because we provide value and patients come to us because they know that they get value from that. So our BoR is an important driver. We want to make sure that every bed that is utilized by our patients, delivers good impact to them and good value to them.

Thanks, Joe. Next question from Shawn, BNP. Could you elaborate the seemingly lower contribution from foreign and European operations for Acibadem? Was that due to the earthquake or other factors?

Yes. I think one big factor clearly was the lower medical tourism. I think trips were canceled, the earthquake situation was very difficult in Turkey, and some of the traffic did not come during this period. So that's certainly a key contributor.

Okay. Next question also from Shawn, was the acquisition of Kent Hospital earnings accretive? Notice that it was a net liability asset and you booked a sizable goodwill for it?

Yes. The acquisition is a great acquisition. I think we've got a very good valuation for it. PP, the purchase price allocation is still in place. We've not done a final purchase price allocation. So I think you should not look necessarily at the Q1 goodwill entry, we will revise this by the end of the year through a proper PPA, but this acquisition is earnings accretive, yes.

Okay. Next question from Kok Siang from AmInvest. First question, how much is the one-off severance payment made by Acibadem in Q1 of '23? Part B of it is, I believe, the deferred tax expense recognized on the uplifted carrying value of the reindexed assets are, to a certain extent, linked to inflation rate in Turkey given the inflation rate in Turkey is moderating in Q1 '23 compared to 4Q '22 how come the tax expense will be relatively higher in Q1 than Q4? Can you provide some guidance, what quantum of deferred tax expense we are looking at in coming quarters? Last, can you share with us the rationale to separate out the labs to a standalone segment? Can we expect some strong growth from this segment? Can you also elaborate lab segment's revenue is mostly expected from which regional operations?

Okay. Let's go back to the top. Look as I mentioned, this was a very small hospital. Yes, there have been some severance payments in the grand scheme, they are certainly not material. We're not going to disclose individual accounting entries. Sorry for that. The deferred tax expenses are -- yes, on a result of hyperinflation. And you're right, the inflation rate has reduced, so the speed of reindexing has slowed down, but there is still reindexing. So there is, with every nonmonetary gain on reindexed property plant equipment that we have, I think there was...

MYR 122 million.

MYR 122 million net monetary gain that we booked this year. There is, of course, again, a deferred tax asset that is going to be booked. Also previous deferred tax assets need to be re-indexed. So you will continue to increase this with the speed of inflation. Now you asked what is the quantum or any guidance, I would be very happy if I'd be able to give you a guidance on inflation rates in Turkey, that's really beyond me. We've just seen the outcome of the election. There were signs that there could be a change in government, then there were signs that the current government stays in. So I think let's not try to predict something we really have too little visibility into, we need to take this quarter-over-quarter and then deal with it. Yes. Look, rationale for the lab segment. Maybe Ashok, I invite you to...

Thanks, Joerg. I think what we want to just highlight to the investor and analyst community is, what do we extract from our labs as a stand-alone sort of business, very focused around our hospitals, but we will look to do more outreach business as well. We have established leadership position in our core markets, and we will look at growth, both from an organic and inorganic point of view, at least in our core markets of operations. And I think as I mentioned earlier, we will -- as we continue through the updates through the year, we will certainly provide some more color around where we're extracting the revenues and our margins in each of our core markets. At present, we have 4 markets, which are Singapore, Malaysia, India and Turkey.

Okay. Next question from Shawn, BNP. I understand you made your intention of coming up with a corporate venture fund. Can you elaborate how the idea came about and where will the future funding source come from? Does this mean potential changes in management's approach towards cash utilization and ROE enhancement strategy. Perhaps Joerg, do you want to take this?

Yes. Look, Ashok has shared our portfolio of corporate venture investments. I think this has started many years ago with Doctor Anywhere, a fantastic telemedicine platform and digital health platform. And we've added to this, I think there are many aspects around corporate venture capital. And one of it is outside in innovation and staying on top of trends in innovative technologies that we want to participate in. So this corporate venture capital fund has taken shape, I think it was 3 years ago, 4 years ago when I think SGD 70 million was earmarked for innovative or innovation type, venture type investments, and we continue that. So there has not been any change. We just continue around this, and speak a little bit more openly around the great things that we're doing, and the great things that these companies are doing. There's absolutely no change in the ROE strategy. Our enhancement strategy, no change in the cash utilization for the company. Every single investment we make needs to earn money and on exit, we expect to get fantastic financial returns on this. That's, of course, the underlying hypothesis. But maybe, Ashok, you want to...

I think just to add, like financial returns, obviously, are important to us, and one of the key reasons of going into this is, one is enhance our own learnings. There's a lot of good work being done across the region by a lot of these health tech companies and ultimately provide better patient outcomes and solutions for our patients. That's the reason -- that is critical for each of our investments that we've made.

Okay. Next question from Huan Gan, Macquarie. Could you provide more details on the rolling out of the 2,000 beds over the next 3 years? How much spare capacity is there currently? And will this involve new hospital acquisitions? Any updates on the RSDH acquisition with the new CEO, what strategy will IHH pursue?

I think we have covered the...

Yes, we've covered the 2,000 beds...

RSDH, we have covered.

Yes. What about with the new...

The new CEO strategy, we don't know. We are not the new CEO. I think we'll let the new CEO whoever it is, to answer that.

I guess also Joe, you -- and you have covered, I think the financial performance of the organization remains strong through the Q1 results. And I think that remains a focus of the senior manager to deliver better outcome for the organization and for the shareholders.

Yes. I think jokes aside, I think more importantly, the strategies that we have articulated and shared with all of you earlier, remains intact. And it has worked for us. You can see from our Q1 results, and we actually committed to actually deliver that and to improve ROEs and improve the returns for our shareholders. So it is very much still on track and very much in place and firmly entrenched in the entire management team that we have from the Group to the countries.

And let me quickly comment on your -- on the bed expansion that we have. So if you put this into perspective, we have 12,000 beds, we want to add 2,000 plus beds. It's a little bit more than 2,000 in the next 3 years. It's 15% to 20% increase in bed capacity organically in our existing footprint without M&A. It is just out of the existing network, that is a 15% to 20% growth right out of capacity increase. On top of that, we have the continued efforts to increase case intensity and case mix. The proton beam is a very good example on how we continuously drive added value and increased acute care for patients that then drive our case mix upwards. And of course, we have regular inflation. And if you then on top of this, add smaller acquisitions that we can make in individual places like -- we are talking in India about smaller acquisitions. We have other transactions that we work on. You see how strongly we are committed to the growth of the company and the top line growth, and this will ultimately turn into earnings accretion and supports our ROE enhancement strategy.

Next question from Kok Siang, AmInvest. Is your number of nurses lower as at May compared to January this year? How much nursing shortage in -- shortages in percentage terms? B, why India's EBITDA margin dropped from average 17% to 15%? Any improvement ahead seen? Normally, what is the time difference between front-loading of cost and revenue generation for expanded hospitals in Malaysia and India? Joe, you want to take...

Yes. Definitely, the numbers in January this year is much higher than the May last year. We have actually been very aggressive in the recruitment of nurses across all our markets, particularly in Malaysia and in Singapore. That's how we are able to actually continue to meet the rising demand. As to how much nursing shortages in percentage is fluctuating numbers, because every month, of course, when you have bonus months and all that, numbers will come down, then you recruit [ again ]. I would say that the shortage as much as it exists, we're still able to cope with the heavy workload and also the demand that we have. And I will not be comfortable to disclose the percentage, because I think it's quite sensitive numbers. And it's a very competitive market out there. It's not just Singapore and Malaysia recruiting. Countries like U.K., New Zealand, Australia, they are also recruiting and we meet them everywhere, in the Philippines, in all the markets that we are targeting. So I think these are some of the more sensitive information, which we would rather hold closer to our chest.

But let's bring it back into perspective, as we said before, right, this is not something that is new. Nurses are in demand, and I think it is good that during the COVID crisis, we have learned that frontline workers who actually perform the care, are really in demand and do get their due focus. Now does this affect our business? I think we've shared this now repeatedly, it is not really affecting anywhere else than in Singapore. In Singapore, we did have a couple of quarters where this affected growth in beds. As Joe shared, we are massively working to reduce this. We've already basically bridged 50% of the way. We said, by the mid of the year, we want to resolve this problem. And I think we are on a good track with the many actions that we do. So let's not focus too much on it. It is something that we have to resolve. We have to continuously look for talent, and that is what we do. But as I said, it doesn't really going forward, seem to affect growth or our earnings accretion in any material manner. India EBITDA margin, look, Q2 2022 was a COVID quarter. So I think there was a lot of COVID business in India, which led to a substantially improved utilization of the hospitals and to incremental income. So the drop to 15% is not a reduction, it's a normalization. As we discussed, we need to work a lot harder on eliminating loss-making entities and underperformers. You should not be surprised to hear steps in this direction in the next coming months. So we are working strongly on getting this into a 20-plus percentage for our assets in Fortis.

If I quickly move to the next question from Shawn again, BNP. What's the current cost of financing for Acibadem right now? And how has that impacted your working capital requirements?

So look, of course, with inflation, cost of debt is growing. But I think we should focus a lot more on the Group. We have extremely low leverage. We have hardly any debt on the balance sheet, and our cost of debt is still in the range of 4% to 4.5% even with all the increases. So I think -- while Turkey is contributing to an increase of cost of debt, I think let's look at the blended rates for the Group. We have in 2022, an average of around 3.5%. We are now a little bit above 4%. I think with the measures fed in the U.S., and also a bit more caution of central banks here in Asia, I think we should see some easing. Will this drop down to the ultra-low interest rate levels that we saw in the past 10 years? I doubt that we should be able to assume that. But I think pressure on interest rates will gradually reduce, and I think if you look at some of the forecasts, people do see some softening over the next 18 months, which is also our outlook.

Okay. Next question from Sue, CLSA. Any updates on the case with Fortis, when could you likely proceed with the transaction or get a release on the cash from the escrow account?

So we're in very close discussion and exchange with the regulator with SEBI. We're working with Fortis, who is also approaching the regulator. So I think there are intense discussions. We did reach out the Reserve Bank of India to potentially make use of a specific regulation around the escrow monies. So I think we're working very hard on it. Progress, as you've seen, is not always very fast when it comes to regulators, especially when you work in a judicial system and a very protracted legal case. Now I think what we should not forget is, we have come out of the Supreme Court process with an absolutely clean sheet. We have been -- there are no pending cases against us. Nothing has been found against us or Fortis. And all these wrongful and bad allegations and assertions by some Japanese disgruntled people, have been found as having no substance. There has been no single instance where we have been found guilty on anything. And we do want to continue our commitment in India, and we do want to continue our investments and the growth plan that we have with Fortis, and we'll do everything we can to get the regulators, to help us pave the way and overcome this.

Okay. Next question from Rachel. Some follow-up questions from her. So for the diagnostic business, how has revenue against EBITDA is compared to pre-COVID? Have we surpassed pre-COVID levels? And post the divestment of Gleneagles Chengdu, when do we start consolidating Gleneagles Chengdu numbers? And last, would you be interested to bid for the new TCF facility in Singapore?

So I think on the first point, yes, I think we are well ahead of pre-COVID numbers in the labs, if I look through our 2019 numbers to how we're trending in 2023. And also, that was pretty evident, if we look through the last 2 quarters of '22 as well.

Divestment of Chengdu?

So post Chengdu investment, we did consolidating in Q2 -- sometime in the middle of Q1 when we closed the deal. So from Q2, we have no Chengdu numbers now.

Okay. Third question, maybe, Joe, on the TCF...

The TCF is a very important initiative by the government to create the surge capacity when Singapore needs it. And as one of the major players in the market, of course, we will be interested. And definitely -- we are looking at it very closely now.

Okay. And the last 2 questions, that comes from Jack from CLSA. On Turkey’s Kent hospital acquired, what are the operating metrics and financial performance? What quantum or magnitude of cost savings that IHH projects through synergies with Acibadem? And also with Singapore and Malaysia operations navigating towards maturity, any plans in motion, discussion to penetrate or acquire new assets in new markets, other emerging countries? And the third question on derisking plans for other China operations after Chengdu, are there any updates of potential buyers approaching IHH to discuss?

So in Kent Hospital, this is a great acquisition. It adds fantastically into the Acibadem network, that opens a new interesting market. It adds a substantial size of number of beds, and we have just been informed by the management in Turkey, that they've been able to expand the plot size where they can build and expand that hospital, so there are really great growth opportunities from this acquisition and savings that we can see. It's not only savings from tapping into the supply network of Acibadem, but it's, of course, also a potential to improve costs, but also price premiums in the market. Maybe in one of the next meetings, we give you a more deeper profile on Kent, so that this is something we can add in one of the next meetings.

Yes. I can take on the second question. Second question is, with Singapore and Malaysia operations, navigating towards maturity, any plans to penetrate or acquire assets in new markets or other emerging countries? I would say that it's not navigating towards maturity. Our teams in Malaysia and Singapore are actually very mature. And we are actually able to leverage and tap on them to expand. And I would say that even in Malaysia, there is a lot of opportunity, a lot of good assets or potential assets where we can acquire. And because we have a mature team in our Malaysian operations, we are able to add the parenting advantage to the acquired targets. For example, just I shared about Prince Court, right? Because of our ability to turn it around, our ability to synergize and drive much more value out of underperforming assets, we're actually able to make it a very good and accretive acquisition. Likewise, there will be many other hospitals in Malaysia, which we believe that if we do find them and actually have a great attractive price, we should be able to turn them around and also add a lot of the parenting advantage through these hospitals to make it even much better. So yes, definitely, we are looking for it. As for new markets, other emerging countries, we are always on the lookout. But of course, we are also very cautious to make sure that before we enter any markets, we do our homework thoroughly to make sure that we do not just understand healthcare operations, but also the local conditions and the local networks that we [ need ]. So these are always a work in progress that we are embarking on.

And look, maturity always sounds like low growth. Malaysia grew by 32% top line and about 42% EBITDA, this is not low growth. I think we should not mistake the word maturity for low growth. These are 2 strong and really fast-growing entities, of course, Singapore a bit slower than Malaysia. Malaysia at this moment is just like gangbuster, and we're really happy that it is not a mature market, but a fast-growing entity for us.

But actually, really as operations maturity, rather than market maturity. So it's a [ bit different ]. So your interpretation, as the markets mature, which I don't think I agree with. The Malaysian market, there's still a huge growth potential. And if you look at the demand for private healthcare and even the recent white papers, which was actually discussed by the new health minister in Malaysia, she is also encouraging that more and more public-private sector partnership happens, because I think the government also appreciate the contributions of private hospitals during pandemic time, and the importance that private hospital play in the entire healthcare system in Malaysia, and the demand is growing. So I wouldn't say that the market is mature. I would say that there's plenty of opportunities. But yes, operations is mature.

In China -- look, we are in discussions, we have an investment bank who's helping us. There are several leads, and we are working to progress these discussions. As I said, these are not fast processes, especially in China. So I think we have to take our time, let's better be sure we're doing the right thing than being over quick. There are discussions. We are on it, and we'll update you once [ we get the news ].

Okay. Thanks, Joerg. So thank you all for the questions. And we will now conclude the IHH Healthcare First Quarter 2023 Financial Results Briefing. Thank you for joining us this morning again, and if you have any other questions, please feel free to contact us at [email protected]. So with that, we can end the session. Thank you, operator. Thank you, everyone.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.