IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Second Quarter and First Half of 2023 Financial Results of IHH Healthcare's Analyst Briefings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 30th of August, 2023. I would now like to hand the conference over to your first speaker for today, Ms. Penelope Koh from Investor Relations at IHH. Please go ahead.

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 second quarter and first half of 2023 results briefing, where we're doing it live via the video vodcast, which is also available on our webcast. So with me today are Mr. Joe Sim, our Group Operating Officer; Mr. Joerg Ayrle, our Group Chief Financial Officer; Mr. Ashok Pandit, our Group Chief Strategy and Business Development Officer. And I also have the pleasure to invite Mr. Evren Gence, Deputy CEO of Acibadem. The results materials are available for download on the IHH website. As for the sequence of event, we will have Joerg speak on the key financial performance and Ashok to cover the labs and highlights. And of course, Joe to speak on the operational highlights for the second quarter and the outlook for the year ahead. And then thereafter, we'll 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 thank you for joining this very early morning call. As Penny has mentioned, we will start with the financial highlights, which Joerg will present, and then I will share with you the highlights of each country before I pass over to Ashok to talk about the labs, then we come back together to do the summary and then the Q&A. So with that, Joerg, please?

Yes. Thanks a lot, Joe. Good morning, everybody. It's a bit early in the day. We have still continuing Board meetings today. So, apologies for having brought you in out at 8:30. This is a fantastic earnings release today. I have to say real -- some great news that we have. Number 1, we have a new CEO, Joe is going to talk about it a little bit later. I think that's a really good development and shows the strength of the company. We have, again, continued very strong financial results, and I'll share a little bit about that. But yes, it's also sad to have a colleague of ours leaving us, but he's leaving to a fantastic new role in the public sector in Singapore. And I think we should all be happy and proud. I thank you very much, Joe, for these last couple of years and all the best for your new journey ahead. Let me start very quickly with an overview on our operations. We have a bed occupancy of 67% for the group. So look, we are in normal operating mode. Of course, we want to get to a 70% plus, but very strong underlying business as you will see that in the individual presentations. We have now close to 221,000 inpatient admits for the quarter, 12,200 operating beds, and we have some further great news in terms of growth. We talked about organic growth and cluster-driven growth. We have now very solid plans for the next 3 years to add 25% capacity to our footprint that is organically by organic bed expansions in Malaysia, India, Turkey, Europe over the next 3 years to meet growing healthcare needs. And as we all know, organic growth is the most capital efficient growth that adds a lot of EBITDA and net income to our books. Another great news, as you are aware, we always explore value-accretive M&A. We have signed and you saw the announcement, we've signed the acquisition of Timberland Medical Centre in Kuching, Sarawak and this will add another 200-bed hospital. We are building a 200-bed hospital in this new location, completed then up around 2026 is MYR 400 million that we put into this important growth market for us and it strengthens our footprint in East Malaysia with the bed capacity to then together with Gleneagles Kota Kinabalu to a capacity of around 500 beds. We also just now closed the acquisition of Medeor in Fortis. I think that's good news. We signed it a little bit earlier this year. And we've announced the buyout of a minority owner in our own India operations in Global India. This resolves a major overhang that we had in operating this asset over the last couple of years. We had very good and successful negotiations and it's a very positive resolution to this situation. And we'll continue to own this asset nearly almost 100% of this. Lab results, Ashok is going to talk a little bit later about it, 23 million lab tests done in Q2. So look, we are on a very strong growth trajectory. Can we go to the next page. I think we need to go much earlier. There's a Q2, 2023 page, please. Yes. Exactly. So, these are the headline numbers, double-digit revenue growth. I always look at green box here, the pre-MFRS 129 numbers, it's the hyperinflation accounting. Everything you see around -- even though these are the reported numbers is basically noncash impact from hyperinflation. So, let's look at the underlying performance, 18% growth, MYR 5.1 billion in revenue, MYR 1.1 billion in EBITDA, that's up 10% EBITDA. Yes, net income is dropping by 10%. Operating net income, that is a result of 2 effects. One, we had a very, very strong Q2, 2022 with some large onetime gains that we had been able to account for last year financial gains on hedging that we had and we have, of course, a little bit higher interest expenses this year. So net income, including extraordinary items, there were some deferred tax assets that we had in our books last year as well. Yes, there's a drop, but we should look at the underlying performance, 18% growth, 10% EBITDA growth that is really a strong performance. If you go to the next page, you see this replicated in all our markets, double-digit growth, top line growth in every single one of our markets. Even in Singapore, plus 10%, which is fantastic for a very well-established franchise. Malaysia, 19% growth. Turkey, Europe, plus 40%. And India, plus 11%. And for the labs, we've grown 13% underlying if you exclude the onetime favorabilities around COVID. And also for EBITDA, double-digit growth. All markets are growing very strongly and very strong growth in Hong Kong. You don't have it on this page, we will talk about it later. Hong Kong is at 15% EBITDA margin, what we had promised you. And we are ahead of our recovery journey on EBIT. Hong Kong, our Hong Kong operations is EBIT positive for this year, 2 quarters ahead of our original plans. So, very good operationally in terms of growth and recovery. Key financial highlights. I think this is just a summary for all that strong quarterly revenue. Let me just quickly address the difference between underlying or pre-MFRS and post-MFRS revenue. As we shared before, the MFRS accounting standard requires us to use quarter-end rates to convert Turkish lira revenues into Malaysian ringgit, while our pre-MFRS accounting uses average rates for the year. Now in June, we had unfortunately a very strong weakening of the Turkish lira which then affected a larger variance between this average yearly rate and the quarter-end rate. That's the difference between the MYR 5.1 billion and the MYR 4.7 billion. So, if you look at underlying operational growth, 18% year-over-year, that's what we look at and that's what we focus on. ROE trajectory on track. We are at 8% return on equity as of June. If we exclude the hyperinflation, accounting effects were at 9%, of course, this includes the onetime gain out of the IMU sale, but we continue to see a very strong ROCE and ROE trajectory. If you go to the next page, our long-term tracking. You see the stellar growth development since early 2020 coming through and out of COVID with continued growth. And our clear intention is that we continue on this growth path and now with a new CEO on board, who comes from the business and it has been one of the engineers in some of these strategic drives on growth. And through and out of COVID, we are pretty convinced we will continue on this. Now on the next page, of course, we see a little bit of a softening of the EBITDA margin. I think we do see, especially in Turkey and in India that we need to do in India more to get close to the 20% EBITDA margin that we plan. And in Turkey through the hyperinflation through a large number of holidays, the election, the earthquake, we do see some margin compression. We have Evren with us, who will later on talk a little bit about the Turkish business. And in Malaysia, we have a little bit of a softness on EBITDA margin. That is purely temporary and it's the result of a much lower number of working days in Q2 due to long holidays that happened in Q2. Every other market is EBITDA growing or EBITDA margin growing or confirming the strong performance over the past. Next page. This is our net income bridge and you can see the gray bars that go down and they are all related with onetime effects and with extraordinary items that we have and it shows our underlying performance continues to grow. Please recall 10% EBITDA growth year-over-year. Our net debt, we've paid out next page, we've paid out the special dividend. We've paid out the regular dividend for last year. So, a very strong contribution of shareholders in our cash generation. That leaves our net debt position to be on a very similar basis than end of last year. Next page, capital efficiency ratios. You see our ROCE numbers to really grow continuously. A year ago, 8%. Now, we're at 8.9% ROCE. And look, I always look at without MFRS. That's the real cash relevant number. MFRS is a noncash item. I think on the return on equity, you see that while we have I think still more work to do on the underlying return on equity expansion, we do, together with the one-off effect of the IMU gains show a very strong 9% for the last 12 months trailing. And with strong quarters ahead, we believe our trajectory on return on equity improvement remains intact. And then Joe, maybe I'll pass over to you to talk more about operational highlights.

Okay. Thank you, Joerg. And now we move to the operations highlights. And as you can see, our inpatient volume has actually increased quite significantly over last year. And this is a strong recovery from the COVID period where we see the return of patients, both locally and domestically. And at the same time, revenue intensity. The inpatient revenue per inpatient day has also increased due to the return of the complex works and the case mix that comes to us. And that is a very good sign, which shows the strong underlying business is actually recovering and has recovered. So, I think from now on, we will not be talking about COVID anymore. Okay? And that's a good sign. Our next focus on Malaysia, one of our key markets. And Malaysia has been one of our key performers. And you can see from the slides that you see very strong increase in revenue, EBITDA and so on over the last year. Inpatient volume especially has been very strong. In fact, for most part of the week days in the middle of a week, we can see at least half of our hospital with more than 90% occupancy rate. And that is a sign of the strong underlying demand in Malaysia and also a testimony to our Malaysian hospital in the ability to capture this market share. I think that's something which we are very confident of. And at the same time, if you look at the inpatient admissions numbers, it is 16%. And as Joerg has mentioned, we are also in the constant look up for good assets to acquire and the acquisition or the signing of the deal to buy Timberland Sarawak is actually a very important big true because so far, until now, we do not have any presence in East Malaysia, and this is actually in Sarawak. And this is actually one of the key areas for us, so we should tap on to the very big markets there. Next slide, the next one. Okay. Now, we talk about Singapore. Singapore has been a consistent performer. You notice that quarter-on-quarter and also year-on-year, it has been growing steadily. And the revenue has grown by 10%, with EBITDA growing at 3%. And one of the key drivers is the return of medical travels back to Singapore and the introduction of also new offerings, such as Proton Therapy Center. Our Proton Therapy Center was open. And so far, it's ahead of our pro forma in terms of the projected volume and also the revenue. So, we're actually quite excited about it because it really gives us the edge for a comprehensive cancer service in the whole of Southeast Asia. Next. Okay. For Turkey, the revenue has increased by 40%. And for Turkey is actually also a period where we see 2 major festive holidays and also election in between in the second quarter. So despite this, the team has actually achieved very strong to make sure that the services and the revenue maintains its momentum despite all these long holidays. And the -- we are continuing to manage the cost inflation through streamlining the operating expenses and also to look at ways in which some of this can be passed on to the patients and the people itself. And I think those are the areas which we are looking at. And there has been a new hospital acquired between Q2 and -- Q2 last year and Q2 this year with the acquisition of Acibadem Kent Hospital and also this Ortopedia Hospital in Turkey. And next area. Okay. Yes. next country. India, okay. India, we have seen a strong revenue intensity growth and it's actually contributed by both our Fortis operation and our global operations. You see that our revenue has grown very strongly by about 11%. There's a little bit of a squeeze in EBITDA, down by 6%, mainly because of onetime expenses, which later we can drill more, if you want to add the Q&A session. And the revenue intensity continued to increase steadily as we improve the case mix. And more importantly, I think for our Fortis group hospital, oncology has been growing strongly. And oncology is actually a high-ticket item, which with very high revenue intensity. And that's something which I think is a very important and strategic development because one of the key major acute disease burden is cancer. Okay. Next area, Hong Kong. Hong Kong has seen steady increase over the last quarter and also over the course of the last 2 years, we have seen a steady growth and improvement in terms of this revenue, EBITDA and EBIT. In fact, Hong Kong is now EBIT positive. We expect it to be EBIT positive in the fourth quarter, by consistently showing that it is able to actually achieve the positive way ahead of time, which is a very good this development. Okay. Next page. Okay. Now we come to IHH Labs, which I'll pass to Ashok.

Thanks, Joe. On the laboratory side, we've continued to see strong performance. As you can see in the slide, revenue, excluding COVID, was up 13%. This is quite sort of important. Even in Q1, we saw strong double-digit growth of our non-COVID revenues. We essentially are not seeing any COVID-related revenues in our business going forward. Our focus remains on profitable growth. And therefore, if you look at our EBITDA, EBITDA has grown up about 14%. But more importantly, our margins are up over 200 basis points. Test volumes are flat. So basically, the growth in revenue is coming through a mix of test volumes, case mix and some price increase. I think we remain sort of optimistic around the trajectory for the core business going forward. And the profitability and EBITDA margin expansion is largely coming through test, which give us higher in test and also through some of the core tests that we perform in our laboratories. If you go to the next slide, our model remains the same, but the key focus for us now is essentially combining organic and inorganic growth and with a very, very big focus on technology. I think as we mentioned in the last results briefing as well, the core is to get our platform, which is our reagent management system, our lab information system and the information system or technology connecting us with the GPs and specialists are upgraded and that process is going on quite well. With that, I pass it back to Joe.

Thank you Ashok. I'll now talk about the long-term outlook. Just a few key points. Number 1, the underlying demand for healthcare and for good quality healthcare remains very strong in all the markets. And that's something which you can see year-on-year. Despite the second quarter, we see a lot of holidays, we can see that the momentum is still positive and upwards. Number 2, we are confident of the growth that we are also looking at expansion of beds by 25% of our current capacity over the next 3 years. And you can see from the slides that this expansion is actually evenly spread across all our markets. And it's something which I think it speaks very well because it also shows that the growth is actually well spread out and also is across all the markets that we are operating in. And next slide, our strategy remains consistent. You see this slide almost in the briefing in the past few quarters. That's because it's something that we are executing very diligently and something that has brought us very good results. So, I'll just highlight again a few key areas. Number 1, organic growth, where we seek to expand our current operations in current markets and more to rip out the synergies and also the advantage, competitive advantage that we have that we already established in this market. Number 2, we're also expanding our reach and services across different service dimensions, expanding across the healthcare continuum. For example, in Singapore, we have started the ambulatory care center, which is something that's totally new from our pre-existing or existing acute hospital services and also GP services. So that is something which you want to tap on and ride on the Healthier SG and also the efforts to actually make healthcare much more affordable in Singapore. Number 2, we are expanding our value chain vertical, particularly in the lab and diagnostic business. And number 3, we're also going into new services like the digital growth area, like our MyHealth360 has been rolled out in Malaysia and we will continue to actually work on more service offerings on this digital platform. And last but not least, we expect this continued growth in revenue and ROE. And it's something which we hope that -- and we are actually working towards improving that beyond the very good improvement that we've seen over the last few years. So, these are the 3 key areas, which we will continue to work on. And before we move on to Q&A, maybe I'll touch on some questions which may be very hot in your minds, which is the transition. First of all, I'm leaving to join back the -- this public sector. I come from the Singapore public sector. And there was an opportunity that came up for me to play a role to transform the healthcare this sector in Singapore. So, I thought it's quite a good opportunity because opportunities at this level don't come any other day. It's only this window or it will be the next 6 years or 9 years before the next renewal pops up. So that's something which I thought is a call when the government calls you, you can't really refuse. But if you notice, the company has actually planned this and calibrated this very carefully so that we time it with the appointment of Prem as the GCEO, which is both an end to a long, long and very high search for both external and internal candidates to find the best person to lead IHH. And I'm very glad with Prem's appointment. He is a veteran in the industry. And all of you, I think Prem is not a new name. He has been with the -- he started with the Singapore public service in the government service before he joined Raffles for 25 years, and he has been leading the operations of Raffles for many years before he joined us. And Prem is very well respected in Singapore, Malaysia and beyond. And even I think in terms of experience, he has many more years of experience in the private sector than myself. So, I'm very confident that with Prem's appointment, we will continue to execute even better on our strategy that has seen us grown very well so far and at the same time, continue to develop our people. As you can see, with Prem's appointment, there is actually a lot of strength and also the bench strength in our succession planning. In fact, since I'm talking about my moving on, I am also very confident to say that in every key position, we have actually worked to have 2 persons ready to take up the appointment anytime and Prem's appointment is a testimony to that. So with that, I will pause here and open it up for the Q&A.

Thank you, Joe. Before we start, first take questions from the participants on the call before moving to the questions from the webcast participants. [Operator Instructions] So with that, operator, please proceed with the Q&A. Thank you.

[Operator Instructions] Our first question comes from Xuan Tan with Goldman Sachs.

This is [ Su Chen ] from Goldman Sachs. My first question is on EBITDA margin. Can you walk through in terms of each country, why are the EBITDA margin weaker in first half? What are the measures that IHH has implemented and expectations going to second half? And overall, I do recall the guidance was for EBITDA margin to be 23% to 24%. Does that still stand?

So yes, thanks a lot. Of course, that's the standard question. If you look at our EBITDA margin, it's, of course, a mix of many countries. And if you looked at what Joe presented just now country by country, maybe we just zoom into Turkey again, and we have Evren here with us -- and maybe Evren, you can help us a little bit share a light around Turkey and what's happening there.

Sure. Thanks, Joerg. I think it's important to give you a little bit background of what happened during the quarter because to me, it's quite eventful for a lot of moving parts. But maybe before I give you some background rationale, the reason every call that I participate, I always talk about for Acibadem, we -- our clientele is A+ segment of the market, which means 90% of our patient volume is private patients. So, we have very low dependency on public and that's why our clientele has different dynamics. The price elasticity, for example, is very low. So, I'll give you some data points on how to interpret the second quarter results. So, when you look at -- and 2 key operational points are a number of surgeries and number of exams. So, compared to last year's second quarter, the surge fees went down by 5%. Same goes with the exams, outpatient exams in our clinics. But compared to last year, as Joerg and Joe mentioned, we have some -- we had some additions. We acquired Kent Hospital in first quarter this year and also acquired Ortopedia Hospital during 2022, as well as we shut down our [indiscernible] hospital during the first quarter because of earthquake issues. So, if you exclude all these additional items, the volume was actually down 15% in surgeries and 11% number of exams. So, there's a reason why these declines is much higher. I group it into 3. The first one is, I think both Joe and Joerg mentioned the festive holidays, the long extended 10 days because in Turkey, when the festival they lapsed during the week, people take both the weekend before and after, so there's whole 10-day block. So, if you talk about 2 festival days, that's like 20 days out of 91 days in the quarter. So that's something that we were kind of expecting, but then there were 2 other extraordinary things. One is the earthquake unfortunately happened during the first quarter. I think that had an impact -- significant impact on our operations throughout at least a good part of the second quarter and both local, but more so on the foreign patients. So, I think maybe to also answer your foreign patient volume question, what happened is typically in our system, about 23%, 25% of our revenues come from -- for our Turkey business, foreign patients. So, 5% of our volume, 25% of our revenues comes from medical tourism. But because of this earthquake, obviously, the impact of the aftermath and all that, we also have seen tourism -- tourist numbers coming down in the second quarter in Turkey. That also impacted the medical travelers. So that's why during the second quarter, we had only 17% of our revenue. So, we saw a decline. We saw a volume decline, 20% volume decline versus last year. So that was also an important impact. And lastly, the elections. We had 2 rounds of Presidential Elections, May 14 and 28. I mean because of the uncertainty in the country, that also affected electives being pushed through this uncertain period. So, to sum everything up, what I would say, I mean there is, right now, the inflation in Turkey again went over 50%. So, there is high inflation in the market. And then when you talk about the cost inflation and how that impacts our margins, I mean, when I talk to you about all these 3 items, it's actually a revenue problem. Our revenue was lower than what we expected. So, when you have lower revenue, obviously, your fixed costs, your salaries, your utilities, as Joe mentioned, that has an impact -- that has a margin erosion impact. So that was how second quarter played out. And then maybe the outlook, the third quarter, what I can tell you, I'm pleased to tell you that we had a very strong July. We saw recovery coming back, especially what I can tell you on the medical tourism, we again saw the plus 20% levels, which was similar to what we had previously. And again, so far, the last day of August, we're seeing a very solid. So, maybe guidance-wise, what I can tell you because typically, Q3 in Turkey being the summer season and cyclicality is the lowest performing quarter for Acibadem but what I would expect, the margin expectation probably will be higher than second quarter.

Maybe I can share more on Malaysia and Singapore. I'll start with Singapore. Singapore, you see that compared to the same quarter last year, margin has slightly eroded. That's mainly because in last year, in the second quarter, we still have some of the residual business from the COVID, but you can see Singapore has been consistent. It's actually on the high-20s, close to 30%. And that's something which actually has been very consistent over the years. And for Malaysia, it's a question of timing because in the second quarter as what we have seen, we had long holidays and the volume is expected to be lower, was expected and it was lower. But at the same time, the good thing is that Malaysia team has managed to catch up on the nursing recruitment, which is a good thing because nurses are very rare resources. When we grab, we grab whether the quarter is a high quarter, a low quarter, we grab it. And that is actually something which is very good because that means that for the organic expansion, we are even much better positioned. So having said that, I think one of the key things which you see the seasonal fluctuation is that if the people don't just went to foresee and people have to get the illness treated. If there has been some delay in the treatment, we do expect a backlog to be filled. And in fact, I'm speaking ahead of time, but having looked at the July and August figure across all our markets, I think next quarter when Prem is sitting here to share with you the results together with Prem, Ashok and Evren don't be surprised that it will be another level that is markedly improved from this quarter. So, it is always ups and down. But the key thing is that even though up and down, the trend is going up. And that is actually much more important. And whether the question, of course, is whether we are in a position to capture on that. I would say that for Singapore, for Malaysia and for many of our markets, we have actually been quite successful in the recruitment of nurses. And that is actually a very key factor to position ourselves to capture this very strong latent demand for good private healthcare.

Su Chen, just to then compile all this together and look at the outlook, I think answer is yes, we totally confirm 23% to 24%, maybe we are at the lower end of the range. But we continue to feel positive about the year. Yes, I think some of these effects that we saw in Q2 are something we have to take note. But I also look at some positives. We've closed Arcot Road in India that gives us 0.5 margin in the Fortis parameter. We have a very strong cost reduction program in our labs business in India that should give us margin uplift, but occupancy rates in India have also improved. So I think we see some topics there. Evren has well explained how we do see Turkey to clearly edge closer in the range that we see for the whole year. And look, if you look at July, as Joe has mentioned, also, for example, here in Malaysia, we see no surprises, and we are clearly on track, where we had been in the year. So I think we will still for the year remain in that bandwidth.

Yes. And yes, I missed out India. So if I can share about India. India, I think one of the key things that we are growing very strongly in oncology. And as you know, onco drugs are very expensive. And its high-ticket item, and we can't expect to charge 25% margin for onco drug patients, who will not be able to pay. And there's actually some -- some of the things, which we have to recognize that while margins are important, we also have to look at the quality of the case mix. And to me, oncology business is actually a very good, high-quality kind of business, even though margins may be lower, but the average high-ticket is high, and oncology involve not just a chemo treatment, it also involves the surgical treatments and so on. And so far, we are very, very encouraged by the strong growth in oncology in India. And that's actually something, which we support the management team in India and in both our global and also our this -- the Fortis Hospital. And do expect that while we always focus and keep our eyes on the margin, sometimes the quality of the growth may involve some high-ticket item, but maybe with lower margins. So these are some of the things that will actually be actually qualitatively making a difference to how we view the business.

That's very helpful. My second question is on the bed increase of 3,000 beds, right? Roughly half comes from India. But is it fair to assume that the flow through impact to IHH bottom line will be much lower given that you only own 30-ish percent stake in Fortis? And follow-up is what the latest update on Fortis?

Okay. Ashok? Yes.

Yes. I think that's true that the flow through is -- represents our shareholding. But I think it's an important market for us. We see strong growth in India, and we stay committed to India. In terms of growth of beds, there's another information that we've shared earlier. We have now increased our stake in RGE, which is the other vehicle we have in India, and we're going to see some bed growth coming from there. That is majority owned or 98% plus owned or will be 98% plus owned by IHH. So that will contribute more directly to our margins going forward. In terms of other issues relating to Fortis, I think we've updated you in a very regular basis that we are still waiting for an update from the courts and from the regulators. But as a market, we remain very committed and very positive to the growth in the healthcare sector in India.

Will you be able to split up the 1,400 into Fortis and non-Fortis.

Okay. Okay. That's the question, we always challenge the management also. And much as we want to speed up, there is always a time to do the construction and even before the construction, the regulatory approval and so on. So I think those are the plans, which we have laid out, and we will be pushing the timeline as much as possible. But also, I need to manage the expectations because physically, when you build new buildings and app based, that is the physical timing both to have -- actually have all this done.

Joe, if I can just step in.

Yes.

I think the large majority of that increase is going to come from Fortis.

Yes.

We standby for our next question. Our next question comes from the line of Pooja Bhatia with Morgan Stanley.

My first question is on the M&A side. So we've seen good traction with Turkey, Europe in the last 2 years, 3 years, and now in Asia, we've seen Gleneagles, Kuching also this quarter. But it looks like these are fairly small acquisitions, 200, 300 beds each. Given a strong balance sheet and net cash position, are you considering bigger hospital chains in the near future?

Thanks for the question, Pooja. I think we -- if we look through the history of IHH, we have grown through acquisitions. I think one of the commitments we made to the investors is we want to look at accretive transactions and with a focus on ROE. So we continue to evaluate small, medium and large deal sizes. But we will only action transactions, where we think: a, they complement our current strategy in terms of growth in our key markets; and second, the valuation needs to make sense from our financial point of view. But the short answer to your question is, yes, we will look at larger transactions as well.

And does that include Ramsay?

I think no comment on any specific transactions. As and when there is a development on a particular trade, we will keep the investor community updated.

Okay. Understood. On new hospitals, which have been added, especially the Turkey one, what's the progress there? If you could just talk about occupancy levels and intensity and margins. So top 3, which have been added recently Kent, Ortopedia, Bel Medic, some of these?

Sure. Regarding the Kent Hospital, as you know, it was already a working hospital, same goes with Bel Medic in Serbia. Ortopedia is a relatively smaller one. We are doing a lot of stuff with regards to the Kent. It's already -- it's the largest private hospital in Izmir, which is the third largest city in Turkey. It's got a capacity of almost 300 beds. So now we are also considering a possible expansion of the outpatient capacity in the hospital. We are doing some renovation works in order to convert. So Kent is in the integration phase. We are also looking at potential efficiency improvements by adapting it to Aberdeen standards. So I think that is progressing really well. Bel Medic Serbia, Bel Medic is a 4,000 square meter hospital. It's a relatively small asset, but Belgrade, Serbia is a very key part of our Eastern European strategy. It's a very livid market, a lot of good potential. So we are considering additional investments. So Bel Medic was a good entry into the market, but we would like to better understand and also grow in this region via both M&A and greenfields. And there are a few opportunities that we are entertaining for the time being. And Ortopedia is a small one. We already integrated. It's actually next to our Adana Hospital, which is in the south side of Turkey. And with Ortopedia acquisition because it's literally right next to our Adana hospital, we will be able to merge 2 buildings and then operate more efficiently. So that would be highlights for our growth story regards to those 3 assets.

In the earlier commentary, 23% to 24% guidance on EBITDA margins, which period is this for?

Well, I guess, the second half of the year is very likely going to be quite a bit better than the first half. So I think for the year, it is possible to reach into this range, maybe not at the upper end, maybe at the lower end of this range. But I think we want to keep the guidance of 23% to 24%. And look, that's our long-term trajectory. We need to get back to a 24%-plus EBITDA margin to achieve our ROE trajectories and our net income development. So this is all quite in line with where we see developments going.

Understood quite clear. And just one last from my side before I join back in the queue. In Singapore, how's the progress on the nursing staff, given that occupancy levels are still 59%. So there were earlier, I think, 60 beds, which were kept aside because of aside and vacant because of nurse shortages. So any update on that side?

Yes. In fact, we have been very successful in the recruitment of nurses and the number of what we call blocked beds, meaning that beds we closed for safety reasons, has actually been reduced by more than half throughout the course of the year. And we'll continue to work on that. If you have been following the press, we have been coming out very innovative ways to make sure that nurses stay with us and that we continue to attract nurses. For example, there is this daily transport that we provide for nurses working in Singapore, but they stay in Jeram. And we actually ferry 300 of them across the crossway every day. And there has been actually something, which the nurses appreciate, and which allows us to also offer our jobs to Malaysian nurses to come over to Singapore to work, and that has been proven very popular. And we are even now, as we are speaking, talking about even other areas like increasing the number of trips that we make across the crossway and also maybe perhaps buy over entire blocks of unoccupied condos to house our nurses. So these are some of the things, which we are ready to fight in this very competitive -- this nursing market, which is all over the world people are fighting for them. But so far, we have been very successful, and we have to continue to innovate and also find new ways to make it worthwhile for nurses to come over to Singapore to work. And when they are here, we provide them with the right opportunity to have this professional fulfillment and also development in the professional careers. So these are some of the things that we are doing and we will continue to do.

Please standby for our next question. Our next question comes from the line of Rachel Tan with DBS.

My first question comes from India. I think you mentioned that there's a one-off expenses, and can I check if that's also related to Global Hospitals? And if so, what's your reason of acquiring global hospital this quarter?

Yes. Look, the Q2 is affected by various things in Fortis, but also in our own business, lower bed occupancy, I think beds, in-patient admits didn't grow as anticipated. There are some expenses that had been booked in Fortis, but also in the name change discussions with our labs business, Agilus. Now look, when we invest in a business, we, of course, would like to run it and own it. We have invested into RGE many, many years ago. There is a minority partner, the founder of the business. I think the relationship developed to a point, where at one stage, as a majority owner, you need to say, okay, I want to take this over and run it and make it successful. I think there are some challenges with some hospitals in Hyderabad especially. So I think we want to take over here the full helm and control this business and bring it to the glory that it can be. Margins are not where we want them to be in Global. Let's be very clear. And I think now that we have full control of this and full ownership, I think performance will improve. We will grow the business. EBITDA will grow back and look at -- signifies our commitment to the Indian market and our continued growth there.

Yes. I think if I could just add, this -- we like the underlying business, the highly specialized operations, especially when it comes to transplants. I think this is an asset, which can be very accretive to our earnings going forward. And I think once we complete the transaction, going forward, we will be providing more details on this particular asset as well.

Just curious, would you eventually think about injecting this asset into Fortis Healthcare because I think this is probably the only standalone asset in India right now?

Yes. Look, I think we've been rather transparent around that. We -- our commitment as a Fortis, we see that as our single platform in India. There was a very clear plan in -- or is a very clear plan and saying, ultimately, these various platforms need to be combined. Now at the same time, let us own this asset, let us improve it. We also want to get the valuation for it that we've earned. And we still need to go through our MTO. There are still a couple of homework need to get done with Fortis in order to ultimately land at the future state of our Indian parameter. So give us a little bit of time to really figure out the next step. The immediate next step must be Global needs to reach EBITDA margins that are where we need to have our operations, and we really want them to be on par or even better than Fortis itself. So look, let us work on this. Ultimately, you're absolutely right. We need to find a longer-term solution for our India engagement.

Okay. Sorry, I just want to follow up on the one-off items that Joe mentioned earlier of the call in India, what is it related for and what's the amount?

It is more on the regulatory compliance to fire codes and all that because we wanted to improve the fire standards in some of the hospitals. So that's mainly one -- once you do it, and that's it.

Okay. Got it. My next question is on your interim dividend. I think this is the first time you are declaring interim dividend, if I'm not wrong. Are you considering doing half yearly dividend from now onwards? And how should we look at your full year dividend? Is this -- is the full year dividend still the same as last year?

Yes, Rachel, thanks a lot for that question. But on -- I was wondering when the question on dividend comes. As you know, we have started dividend enhancement strategy a couple of years ago. We have nearly doubled our dividend payout. We've given back all our capital gains on the IMU transaction to shareholders, and we've implemented an interim half yearly dividend payout strategy effective this year. We have discussed this very extensively with the Board. I think shareholders do have a right to participate in the strong cash generation, and we want to share this. So yes, our dividend strategy does move from an annual to a half yearly payout plan. Now look, the MYR 350 million was chosen, of course, with some thought behind. I think it clearly indicates that we see full room to pay the MYR 0.07. Now does it increase to MYR 0.08, let's see how the second half year goes. We have a strong first half year equal to last year. We are very confident about our cash generation and whether we land at [ 7, 7.5 or 8 ] for the full year, let's discuss this a little bit later in the year when we discuss back with the Board on sharing earnings with shareholders. The 50% payout for this year -- for the first half year, the MYR 350 million is a strong signal that we do want to continue our dividend enhancement for shareholders.

Okay. Great. I'll jump in the queue. But if I don't come back to the queue, all the best to you, Joe. I wish I could meet you before you leave.

Thanks so much, Rachel. I visited Singapore. We can always catchup.

Thanks, Rachel. I think we had follow-up questions on the webcast, and I think let's quickly move on to the webcast questions. Okay. The first one that we have from Raymond from Kenanga. I believe that Sime Darby has mentioned that they're looking to divest Sime Darby -- Sime Ramsay following its offer to buy UMW. Will Sime Ramsay deal be back on the negotiation table.

I think like I mentioned earlier, I think we look at all the transactions. And if there's a material development, we will update the investor community. I think that's what we can say at this point of time. And if I just continue and look through the second question as well, yes, I think Timberland was -- is a good acquisition for us, our first in Eastern Malaysia. I think you're right to point out that we do believe in our cluster strategy, as our long-term strategy plan. So, we need to first go and digest the Timberland transaction, make sure that it's going at a pace that we want. And then from there, we can then decide how to build our strategy going forward in the Eastern part of Malaysia.

Okay. I'll take on the other question. Before that just a mention on Timberland. Timberland besides the existing facility, that is actually, as part of the acquisition, the piece of land for us to build a new hospital that we can actually build at least a 200-bed hospital or even more. And so actually there is a lot of room for growth. And it is actually much better if we focus on growing it and making sure that the foundation is strong, and we are actually quite confident of that. Number 2, what is the main driver that accelerates the improvement in Gleneagles Hong Kong. I think in Gleneagles Hong Kong, there are many factors. I think one of which is COVID is finally over in China and Hong Kong, and that means that the momentum is back. And a lot of the growth comes from the domestic sector. The government sector is overwhelmed in the health authority. And the team actually done a very good job in providing good quality service to the patients and to the doctors, who operate with us, they also find that the things they want can be get -- can be done very fast and very efficiently. And to any doctors, who come, and they have multiple points of practice. The key to them is really how fast can the hospital be responsive to their needs, so that they can take care of patients in the best possible manner. So that is actually one of the key things that happens in Hong Kong. And there's also when you look at, say, for Zumba, Singapore, who have -- doctors, who have practices in multiple sites, why do they always send the patients here. This is mainly because we are able to actually provide that edge in actually making the operational turnaround for the doctors and better service for patients. Number 3, yes, interim dividend.

Interim dividend. Yes, we move into interim dividend [indiscernible].

Okay. The next question from Juliana, Eastspring, [indiscernible]. Thank you for the call and congrats on the good set of results. And you've mentioned that EBITDA margin squeeze because of one-off expense, how much was the expense? I think earlier, Joe Sim had already addressed that. So I think we can move on to the next question. Huan Gan from Macquarie. What was the rationale behind increasing the IHH stake in RGE? Is it core to the India IHH India ops. Ashok, if you wanted to talk about that.

Yes. No thanks. It's absolutely core to our India ops. And I think as we mentioned earlier as well, this is covered by Joe and Joerg, this helps us own the asset and then we can deploy capital to and bring the operating standards and the facilities to IHH standards going forward.

Thanks, Ashok. The next question, RHB, Chun Sung. With Greater China segment posted robust top line growth, coupled with improved ops efficiency, the disposal plan of China units still on the card. Joerg?

Look, I think we need to separate Hong Kong from China, right? These businesses are managed separately. They are different joint ventures. So Hong Kong is doing super well. And of course, we collaborate between our Shanghai hospitals and the Hong Kong hospital try and capture and maximize patients there. But I guess, we need a little bit more time on addressing the China challenges. Our intention to de-risk this business is still intact. We have sold Chengdu. We are working very heavily around clinics, around finding a solution and the future for our hospital in Shanghai. But look, as long as we own it, we own it, and we will run it as good as we can. So the de-risking in itself stays intact. But as you see, there is a lot of motion in the Chinese market. You see a lot of politicians commenting about the Chinese economy, GDP development and so on. So I think we need to really ask for a little bit more patience to [ have the ] resolutions around our de-risking strategy for China.

Okay. Thank you, Joerg. And another question from Chun Sung, which I think Joe has also addressed earlier about the recent development in resolving nursing shortage. Perhaps moving to the next question is, can you share what are the methods, IHH adopted to streamline operating expenses.

Okay. Maybe I can share on that. That's -- not my alley. Okay, a few areas. One is both at the global level and the other one is on the -- at the hospital level. At the global level, we're actually working a lot on synergy projects. I give example like IT. For IT, if you look at it, we're actually rolling out C Plus, our Cerebral Plus platform across our different operations. It has been rolled out. The hospital information system has been a lot in Malaysia. We have actually gone live with the first site on the EMR system, and that's actually very significant. In fact, when I was working on some of the builds of how different healthcare organizations spend on IT, typically, top end EMR will cost at least 3% to the operating -- or the build size of the cost that we provide. By adopting our own Cerebral Plus, we actually save a lot of cost. You can do your research, if you compare, say, the price of Allscripts or Epic or the top systems with what the prices they charge. And if you look at the prices that we -- or the internal costs that we already amortized in the rolling out of C Plus to our hospitals, the saving is enormous. That's one. Another example of group level is procurement, where we buy big equipment and all that, that is an advantage for us in negotiating with the pharmas, with the equipment companies, and that has actually allowed us to give what we call the parenting advantage to our operations in the different countries. At the local level, we have actually a lot of improvement works and all that to make sure that we streamline the operations by doing, say, for example, Kaizen project is by applying Lean or 6 Sigma, 2 problems that we see to see how we can cut down wastages and how we can actually improve turnaround times and so on. And all this actually helps to improve productivity, and that cuts down the operating expenses. So there are many things that actually are going on every day in all the different operations at various levels, which is something, which we pride ourselves, as an operating company because those are the call -- so called IP that we possess that will allow us to pass on the parenting advantage to the subsidiaries.

All right. The next questions, Chun Sung, again from RHB. What are the specialty that Timberland has to offer that attracted IHH to acquire? Ashok?

I think the biggest is the -- it's a new area going to East Malaysia and expanding our footprint there. That is the biggest attraction of this investment.

Yes. Maybe I can share on that. I think timberland is a -- is one of the established hospitals there. But when we acquire an asset like Timberland, we are not just looking at existing specialty. What we look at is the disease burden in East Malaysia, in Sarawak, in the island of our best -- big island of so-called Borneo is actually -- is very big and there is a lot of medical tourism also going on. So I think the key thing is not so much just about the existing specialty, but what we will build. And definitely, if we look at what we will be building oncology, cardiology, these are the big acute disease burden that will be also, be growing and very -- growing very strongly in.

Thank you.

Yes. So [ Nicole ], I think we shared the earnings in some markets. I think it's really a mix effect. Then and look in Singapore, we are smack right around 30% and stay there. So it's a very strong development. And given that we have a lot of room for growth in terms of bed occupancy rate in Singapore, I'm actually not concerned as much in some of the key markets. Malaysia, as we said, is coming back. Turkey, Evren has shared a clear improvement plan. So I think we are quite okay on margin development. Higher interest rates is a reality. This is not going to go away. You've heard the recent discussions in the U.S. So I think we need to accept the interest rates are where they are. Now look at our net debt to equity, net debt to EBITDA, we have hardly any debt. We are very well hedged. We have implemented our financial services treasury pool with which we continue to pay down existing debt and exposure. So I think we are able to manage the higher interest rates, but higher interest rates are [indiscernible].

Thanks, Joerg. From Am Research, Kok Siang. First question, given in-patient admission drop Q-on-Q across the board, can we presume the in-patient admission to continue downtrend in Malaysia, Singapore and Acibadem in 3Q onwards? And if I use quarterly report to calculate Acibadem's revenue in second quarter, the second quarter revenue was only about MYR 982 million. Can you shed light on why the Acibadem's revenue and EBITDA margin dropped Q-on-Q despite Acibadem raised price aggressively? And what other risk investors should take note in Turkey other than the high inflation rate?

Okay. I think the first question is very straightforward. The answer is no. We don't expect that because we've already seen in July and August is very strong. So I think overall, the trends are worth. There may be occasional ebbs and peaks and troughs in the upward trend, but it's going upwards. And in fact, if you ask me, I think the demand for healthcare is only going to rise. And the question really is how well we are positioned to capture the market share. And for the third quarter onwards, in fact, the third quarter, we expect it to be very strong.

So [indiscernible] maybe...

Yes. Maybe on the second question, what I can tell you, I think I already listed out all the issues that we had during the second quarter with regards to the revenue decline, which kind of triggered the margin erosion. And we believe that this will start to reverse. It did start reversing out beginning July, and we expect that momentum continues throughout the second half of the year. I think, in regards to the question, what other risks should take note in Turkey other than the high inflation rate, yes, we are in high inflation. But what I can tell you is now that the presidential elections are over, we see some stability in the market from a macroeconomic perspective. There's a new cabinet, new Minister of Finance, new central bank governor. They just increased the rates, I think, 3 -- 3 months in a row. So now we're at 25% interest rate, the market interest rates, which are more within the expectations on the market. So based on the stand taken by our government, I think we expect the risk. I mean, it's more the uncertainty kind of like diminishing, so which will probably give a boost with regards to the outlook in Turkey in the short term?

Yes. I'd like us to think when we talk about Turkey, I'd like us think a little bit more about the opportunities we have there, and I think there are a couple of areas. One, strong companies typically attract great acquisition opportunities, which we have implemented in Turkey. We continue to see very strong revenue growth. If you look at the longer term, yes, Q2 was certainly a little bit of a ditch. But if you look at the changes the government made after the reelection, with the Central Bank, I guess, gradually aligning back to market forces to establish interest rates and to establish FX. Yes, I guess, there was a bit of a bumpy ride that was expected. But I actually see the development is positive in terms of coming back into the fold. And if you look at all that together, I think the outlook on Turkey is rather optimistic and positive going forward.

Okay. Another question. What is the reason behind the hike in finance costs in second quarter? I saw [ there are ] certain loans in Acibadem is not lira denominated. And of course, what's the net gearing target for all the organic and inorganic growth over the next 3 years?

Well, I think the hike is not actually in that sense, a hike. I think you have a couple of impacts in Q2, 2022, we had a fairly large financial gain from some hedge contracts that we had against the redemption of our MYR 500 million perpetual bond redemption. So in Q2, we had a fairly large financial result in that. And I think we couldn't repeat that again this quarter. And I think the delta is now showing as an increase in costs, but actually, it's not an increase in cost, it's just the drop-off of the favorability in 2022. And I think the second part is, of course, linked to having internalized the perpetual bond refinancing, perpetual bond didn't show up, as an interest cost. So you have some element that moved from a perpetual bond dividend into our cost of interest in Q2 this year, if you just compare quarter-over-quarter. And then we have in Hong Kong, a fairly large shareholder loan situation that comes from all to the minority shareholder, and that is, of course, following market interest rates and increases our cost of interest in Hong Kong in our books.

Thank you, Joerg. Perhaps I think this is the last question that we'll probably take from the webcast, as the management needs to run off for a Board meeting. So it comes from Amanda, Credit Suisse. With the organic growth plans laid out and potential M&A opportunities, what's the CapEx that we should be expecting for the next 3 years? And would this affect the ROE trajectory that you've been guiding?

Yes. I think let's separate the CapEx plan. If one part is the underlying CapEx, our ongoing renovation expansion, bed expansion. And I think we've guided to somewhere between MYR 1.5 billion to MYR 2 billion a year in ongoing CapEx, and that is what we continue to plan with going forward to really fuel and feed our organic expansion. On the M&A, as Ashok mentioned earlier, our ROE trajectory is intact. We do plan to expand ROE, and that basically means that acquisitions need to be value accretive. And that means, they need to be EPS accretive after a couple of years. And the EPS accretion, where does it come from? It comes from operational improvement from synergies, from cost savings. So I think once we look and focus on value accretive M&A, I'm not as worried about the ROE trajectory.

All right. Thank you, everyone, for all your questions and joining us this morning. Thank you to management, and in particularly, thank you, Joe, for all the years of contribution to IHH from all of us the staff that's been working with you. So with that, we will now conclude the IHH Healthcare Second Quarter and First Half of 2023 Financial Results Briefing. Thank you for joining us again. And if you have any questions, please contact us at [email protected]. So with that, operator, you may disconnect. Thank you.

Thank you.

Thank you.

Thank you.

All right. All lines have been disconnected. You're connected back into the pre-call lobby. Everyone, have a wonderful day.