MLP Saglik Hizmetleri A.S. (MPARK) Earnings Call Transcript & Summary

Welcome to the MLP Care Full Year 2019 Results Announcement Conference Call and Webcast. I now give the floor to Mr. Deniz Can Yücel. Please go ahead.

Hello, everyone. Welcome to our conference call and webcast. I would like to remind you, as usual, our disclaimers and forward-looking statements. It's available on the second page of the presentation. And as you know, financials with footnotes are also available on our website. Now I'm leaving the floor to our CEO, Mr. Muharrem Usta.

[Interpreted] Hello, and welcome. 2019 is now behind us. And we closed the year by growing our revenues by 18% and growing our EBITDA by 33%. And in Q4, we deleveraged our balance sheet to a certain extent, and we were able to achieve significant improvements in our cost of debt. And again, in this last quarter, we improved our cash flow. And recently, there's been slight changes in our portfolio as well. We sold 3 smaller hospitals that had a smaller square meter area, and we increased our ownership to 100% in another hospital, which was profitable. So this change in the shareholding structure brought about a revenue of TRY 17 million. Throughout the year, we had good control over our CapEx. And at the end of the year, we were able to conclude an acquisition from which we have a high expectation of profitability. I will mention this hospital in the upcoming slides. All in all, we closed the year 2019 with a net profit. So let's have a short -- a brief look at our group. We have 29 hospitals in 16 cities. We continue to serve our patients with approximately 6,000 beds, 20,000 employees and more than 2,000 doctors. I will now say a couple of words on our growth strategy. So our growth strategy is based on 4 important pillars. So the first of these pillars is to optimize our existing capacity in the larger capacity hospitals that we opened in recent years and to grow through this. And our second pillar is based on revenue diversification. We were able to achieve a significant growth in international medical tourism and the segments where we have the PMI and the top-up insurance policy. And there is yet another pillar, which is probably one of the most important pillars. We introduced a new model just like in the example of the hospitals that we acquired in Istanbul as I mentioned before. I would like to tell you about this hospital that we recently acquired because we will see similar examples in the upcoming period. So the hospital that we have taken over in Istanbul has an indoor capacity of 20,000 square meters, and in the upcoming 3 years, its annual EBITDA will be TRY 25 million to TRY 30 million per year. When we took over this hospital, we didn't have to pay any CapEx or acquisition costs. So in 3 years' time, this hospital will reach a level that would be similar to the Ankara Medical Park Hospital that we already have in our group. We're taking over this hospital through leasing. The building, the medical equipment and the furniture within the building will be leased completely. Therefore, it will have no impact or no debt impact on our balance sheet. It won't have any financial risk or FX cost risk that will be associated with it either. So if we were to compare the rent that we will pay for this hospital and the rent that we would pay for a hospital if we were to build it from scratch, the amount that we're going to pay now is much more efficient and much better than the other option. I want to explain this a bit further for you to better visualize it. So we're talking about the hospital that will have a 20% EBITDA after 3 years once we add the rent, including building, devices and equipment to our operational costs. So if we were to make this investment from scratch, then this would have a big impact on our balance sheet of about $7 million, $8 million or $9 million, and a significant part of this amount would be in FX denomination. So why does the owners of the hospital decide to rent it to us? This is yet another win-win rule. The reason behind this takeover basically is their bad cash flow. So with this contract that they will sign with us, a long-term 10-year contract, they will be able to use it -- the security, vis-à-vis, the bank and they will be able to secure their finances. As I explained before, we will be using this hospital model very frequently in the future and we already use this model to take over a similar hospital in Ankara. We signed the necessary documents, but the procedure at the Ministry level is still ongoing. It will be complete in 3 to 5 days' time, I assume. And this is almost exactly the same hospital model that we have in Istanbul. This is a very good growth model because you don't incur any debt. You just lease. There's a good EBITDA and the hospitals are located in ideal neighborhoods. And I will be holding negotiations for another similar hospital next week as well in 1 of the 3 major cities in Istanbul, and I hope that soon we will be able to add that to our network of hospitals as well. And of course, our digitalization projects play an important role in our efficiency work. So we now started digitalizing our processes and carrying out these processes through robotic software. Some of these projects have already become operational and they had a good impact on our efficiency, effectiveness and overall results. So as of yesterday, one of these digital projects became operational. That is the digital procurement projects. And through the digital procurement projects, all our procurement that is worth TRY 1.5 billion per year will be carried out through our E-tender system. And so from a closed circuit system, we will move on to a full open competition system that will be open to all of the suppliers in Turkey through E-tenders, and we announced our first E-tender yesterday. We expect significant savings from this project. And even if we were to save only 5%, that would equal a saving of TRY 75 million. There is yet another digital robotic project that became fully operational, and I would like to say a couple of words on that as well. We digitalized the invoicing of our health care services to other institutions. This has become fully digital as we speak. So there's no paper involved, no delay in invoicing and no delay in collections as well. This brought about the revolution in the health care industry and other operators in the market are following suit. So let's have a look at our revenue diversification. Our medical tourism segment grew by 34% in 2019. In the SSI segment, there hasn't been a price increase for reimbursement for many years and we grew by 4% last year. And in the PMI contracted institutions and top-up insurance segment, we have been growing significantly for many years now. And you must have heard that a couple of days ago, SSI finally increased its reimbursement prices. So while we were preparing our budget for 2020, we haven't taken that into account. Yes, we were expecting such an improvement, but it wasn't clear yet, and therefore, we didn't make it a part of our projections. So these prices will become effective as of next Tuesday. And our CFO, Burcu, is going to share with you the revenue contribution and the potential EBITDA contribution of this price improvement with you in a couple of minutes. And our revenue from the management consultancy services that we provide to university hospitals grew by 58% and reached TRY 60 million. I mentioned medical tourism before. Our revenue from medical tourism was TRY 113 million in 2016 and now it reached in 2019, TRY 435 million. And the share of medical tourism in our overall revenues is about 12%. And in 2019, we grew by 32% in this segment. Of course, due to the coronavirus, we now have a process that is ahead of us that is not fully predictable, but we started seeing some impact because flights from Iraq have already been canceled. However, due to the fact that we have operations in many different countries, we started to restructure our diversification already. So let me -- another small note on international medical tourism. Our group EBITDA profitability is 18%. However, in the medical tourism segment, our medical tourism EBITDA profitability is 3 points higher than this, which is about 21%. Of course, our revenue per international patient is higher. That is why, in nominal terms, our procedure prices are higher and profitability is higher as well. Another small note. This is -- this has to do with something that we experienced in our Libya operations before. Whenever there is a shortcoming or deficiency in a certain revenue group due to the nature of our business, that gap is filled by another revenue group. So we may be affected by the developments in Iraq or other similar markets, but this doesn't mean that there's going to be a definite gap in the hospitals. Our CFO will also explain what kind of an impact this may have on -- the Iraqi market may have on us finally. There's been an enormous growth in the top-up market in Turkey, as I explained before. From 2016 up until the end of 2019, there has been a more than 3x growth. So in 2019, the top-up policies grew by 47%, which means that 1.4 million people have now top-up policies. And we also signed a contract with Bupa Acibadem Sigorta or insurance in April 2019, with whom we didn't have a contract before. And our revenue with them in 2019 was TRY 40 million. And our revenue in the fourth quarter of 2019 was TRY 18 million. In the last month, that is in December -- in the last month of the year, that is in December, their contribution was TRY 8 million. So we believe that this growth will be sustained. The Bupa Acibadem group is the second largest insurance provider in Turkey after Allianz, and we had an TRY 8 million contribution share from them in December. This means that our monthly revenue from this contract this year will be about TRY 11 million to TRY 12 million, which will bring about an additional revenue -- annual additional revenue of TRY 120 million to TRY 140 million. In 2020, we already leased and added certain hospitals to our group. There are others waiting in the pipeline and there are 2 more hospitals that we had already planned. One of these hospitals is located in Gaziantep, and it will become operational in May. The capacity of the hospital is 36,000 square meters with about 200 to 250 beds. So with this magical formula, we will be opening this hospital also in Gaziantep. And in spite of the fact that this is a greenfield hospital, we didn't have to invest in the building or the technology of the hospital. Therefore, it had no impact on our balance sheet. The equipment and the building costs were covered by an investor in Gaziantep and we already use leasing for this hospital. So this is a very good model that we use at this hospital because, of course, as you know, it takes time for these hospitals -- for the revenue of these hospitals to ramp up. However, for this hospital, we don't have a fixed rent to pay, at the beginning especially. The rent will increase proportionally to the revenue and the share of the rent in our total revenue in this hospital will be about 12% to 12.5%, which means that at the initial phase, when the hospital hasn't ramped up yet, our risk will be low as well. And there will be yet another hospital that we will open in December this year. It will be another Liv concept hospital in Istanbul -- Liv Hospital in Istanbul. So the Liv Hospital in Istanbul had an EBITDA of TRY 75 million in 2019. So the Liv Hospital that we have in Istanbul is a 30,000 square meter hospital. This new Liv Hospital that we will be opening is a hospital of 37,500 square meters. Including the parking lot, it's 50,000 square meters. And we expect at least the same efficiency that we have at the Istanbul Liv Hospital in 4 years' time. So when we opened our first Liv Hospital in Istanbul, the total CapEx that we spent for the building and for technology was quite high. For the technology alone, we had spent $15 million. So all in all, the impact of this CapEx on our balance sheet back then was $35 million. So the EBITDA of our Ulus hospital is TRY 75 million and the monthly rent of this hospital is TRY 2.8 million. But as we were paying -- or we are paying a rent of TRY 2.8 million and on top of it, we had an initial medical device CapEx of $15 million. However, with this new hospital, the total CapEx investment that we will make as MLP will be TRY 10 million only. So this new hospital that will be similar to our existing Liv Hospital will be invested in CapEx-wise -- in terms of building and in terms of the devices by our counterpart. So the rent that we will pay is TRY 1.95 million. So this new hospital that we will open will have a rental of TRY 1.95 million and its total debt impact on our balance sheet will be a CapEx of only TRY 10 million. This is almost miracle. And I've been saying this for months actually because now our brands are so strong that we don't have to pay any CapEx to add new hospitals to our network, which makes us very happy. I've taken a long time because I focused on our strategy a bit, but now I leave the floor to our CFO, Burcu Öztürk, and I'm sure that she is going to wrap up much quicker than I did.

Thank you, Muharrem bey. That has been such an exciting news update from our end as well. So let's move on to the financial side. And on Page 14, you'll see the details of our revenues. In 2019, our revenue growth rate exceeded the inflation rate, and we successfully realized yearly revenue growth by around 6%. And in full year numbers, our revenues grew strongly by 18%, and primarily, this comes from the top-up insurance in the local market as well as the continued ramp-up of our developing hospitals and strong medical tourism revenue growth, and they all supported our successful revenue growth numbers. We see also consolidated revenues of our managed hospitals, our revenue growth number even increases to 20% for full year 2019. Our EBITDA without the operational FX gains and losses grew by 45% within the last quarter of 2019. And for the full year numbers, we achieved a growth rate of 33% from an EBITDA perspective. Our EBITDA growth was achieved basically through our operational efficiency studies, smart cost controls and continued growth of our mature hospitals. And also, the positive contribution of our hospitals, which were opened in 2018 helped us grow our EBITDA numbers. And we recorded a positive TRY 6 million of EBITDA from the 2 new openings of 2018 and against a negative EBITDA number by TRY 26 million in 2018. So we had a very successful ramp-up profile for these 2 openings. And our EBITDA number, including the impact of IFRS 16, grew by 28% in 2019. We did recognize revenue growth across all of our 3 revenue channels, including the domestic, medical tourism as well as the ancillary business revenues. Our domestic revenues increased by 18% in 2018 and our revenue growth above inflation was basically a result of both the out and inpatient revenue numbers. And our strong pricing growth for our outpatient revenues continued in 2019, and this was again supported by the slight volume growth in our outpatient numbers. And regarding the inpatients' unit pricing strategy, for the first time in the past 5 years, we could realize the unit price growth by 12% against historic annual growth by 5%. So we almost tripled our revenue growth numbers in our inpatient strategy, and our unit price increases were also supported by the volume growth regarding inpatient numbers. If you look at our foreign medical tourism, we continued to increase our revenue growth with the realization of 33% growth rate and such successful growth was a result of the price and FX impacts by around 20% and the patient volume growth was also -- coupling this growth by around 12%. And also, if you look at last quarter of 2019, the revenue number is flat. This is basically coming from the 3% price increase, which was offset by the 3% decline in patient volumes due to the regional political risks regarding the 2019 year-end numbers. If you look at our other ancillary business revenues, there was a growth by 6% in 2019. And the last quarter, we had a decline by around 30%, and we increased our management fees from the University Hospital due to their successful revenue growth profile. On the other hand, in total, 3 managed hospitals brought a total of TRY 60 million of EBITDA as well as revenues for 2019. On the other hand, our laboratory business revenues declined by 13%. This was basically due to a particular decision of our management to not to renew the lab tenders and that's why our overall revenue declined but our EBITDA profitability and -- as well as the overall growth trend still continues in our numbers. In 2019, we successfully achieved strong pricing growth for both out and inpatients. In the meantime, we could continue to grow our outpatient volumes and patient volumes basically in both segments. In total, our total domestic revenues grew by 18%. Again, this represents around 6% yield revenue growth rate, and our outpatient revenues grew by 20% basically, thanks to our strong growth in our outpatient unit prices, besides the unit price growth also continued and around 3% growth was realized in the volume side for outpatients. If you look at our inpatient revenues on the right-hand side, our inpatient revenue grew by 17%, and this was basically coming from the higher unit prices as well as the higher patient volumes. Compared to the -- as I said before, compared to the last 5 years compound growth rate, which was only 5% in the past, this year, in 2019, our unit prices recognized the biggest success growth rate, which was realized at 12%, and we expect to continue our strong pricing policy for 2020 as well. We do have a well-managed cost structure in place, which also continues in 2019. Despite the high inflationary environment in Turkey, we could almost see par EBITDA profitability in comparison to 2018. And on a cost basis, on a cost breakdown basis, our material consumption as a percentage of total revenues decreased by 21 basis points in 2019. This was basically, again, due to cost control and efficiency initiatives we adopted in 2019. You may remember that drug costs were inflated by 26% at the beginning of 2019 by the government. And despite such high unit price increases, we could still keep our material costs as a percentage of revenue flat within 2019. In 2020, the unit prices were only increased by 12%. So this represents a good news on the unit cost price increases, and we have almost better unit price increases in comparison to last year for 2020. If you look at the doctor costs, doctor costs as a percentage of total revenue, again, has a declining trend, and it decreased to 21% in 2019. This is a similar explanation, efficient revenue growth as well as the doctor efficiency studies that we initiated in 2019. Personnel expenses, again, as a percentage of revenue declined in 2019. This is related to healthy revenue growth within our mature and developing hospitals as well as the efficiency studies, especially that we recognized as part of our digitalization study. If you look at the rent expenses, as the adopted revenue growth above inflation rate, rent expenses as a percentage of revenue has a declining trend because currently, all of our rent expenses are denominated in Turkish lira and they are fully escalated based on inflation. As long as we continue to grow beyond inflation rate from a revenue perspective, we will continue to have some operational leverage from our rent expenses. If you look at our offshore services purchase, this has a little bit increasing trend in 2019. Basically, this expense represents regulatory imaging type of services that we outsource from third parties and the slight increase is related to the volume of increasing those types of services purchased. If you look at the all other expenses, which include energy, foreign and domestic marketing expenses, you'll see an increased trend in that expense side. This is basically related to the growth of medical tourism revenues in total, which has a high marketing spend for -- in comparison to the local business. In 2019, our open net debt position declined to EUR 65 million only and our net debt increased to TRY 1.5 million as of year-end 2019. This increase in comparison to 2018 was primarily related to the increased interest cost by around TRY 130 million. And -- but on the other hand, since August 2019, there is a declining trend in interest rates in the market, and this declining trend will be reflected to our interest costs going forward as a declining trend in our numbers as well. I'll explain this later in detail. Our gross debt, including bank loans and financial leases that are denominated in FX, in total amounts to EUR 92 million, and for 2020, we had 65% of this FX-based debt service. And on the right-hand side, you'll see that our annual medical tourism revenue corresponds to around EUR 70 million. Even 1 year annual revenues that is FX-based, fully covers our full open position, which is around EUR 65 million, and this will be fully amortized within the next 4 years. So this proves that we do have enough cushion in our P&L numbers as well as balance sheet to cover our open position from a net debt perspective. In 2019, we reached our target to keep net debt-to-EBITDA number at 2.5, and as a side note, the leverage ratio doesn't change with the assumption and application of IFRS 16. It is still at 2.5. For 2020, with the declining trend in interest rates, coupled with our EBITDA growth, we will be decreasing our net debt-to-EBITDA number below 2. So this is our overall guidance and expectation for 2020. Central Bank of Turkey has been decreasing the policy rates over the past 1 year, and this decrease has a certain positive impact on our interest cost in Q3 2019 as well. And also, this will be decreasing our overall interest cost. On the other hand, based on the recent regulatory update by the Banking Regulation and Supervision Agency, limitations on refinance options of bank loans have been removed by law, and this is effective from April 2020, and we will be definitely utilizing this regulatory update. And additionally, certain maximum caps are introduced by governments for the early payment penalties regarding the bank loan closures, and this gives us opportunity to refinance our existing bank loans with more attractive rates in the market. We already completed 2 refinanced transactions so far within 2020, and this totaled -- total of TRY 130 million. And currently, we realized a 10% decrease in our interest rate and this pertains to TRY 15 million already to 2020 interest costs. There are [ further ] bank loans as well as financial leases that will be subject to our refinancing transaction. Currently, we are working on a big refinancing transaction regarding the syndicate loan facility, and that will definitely bring down our interest cost for 2020. All in all, we expect to decrease our finance expenses by around TRY 100 million in 2020. As a reminder, our interest costs, including financial expenses for 2019, amounts to TRY 350 million as of year-end, and for 2020, we expect to have this number by around TRY 250 million. This will definitely decrease our leverage ratio as well as the nominal leverage numbers. Our FX-based price foreign medical tourism revenues helped us to have a long position in our P&L. Appreciation of FX against Turkish lira positively impacted our operational results above EBITDA level. On the other hand, such appreciation has a negative impact on our financial expenses, but all in all, on a net basis, we are fully protected from the fluctuations in FX against Turkish lira. We do have an efficient CapEx management in place, and this continued in 2019. As explained also by Muharrem bey, our greenfields and M&A transactions do not have any material refurbishment or greenfield-related CapEx spending. So for 2020, we will have maintenance CapEx only. And maintenance-related CapEx as a percentage of revenue decreased to 1.6% in 2019. Our efficiency studies as well as initiatives in CapEx management minimized our CapEx spending for 2019. And if you look at the operating cash flow, operating cash flow to EBITDA, as we declared in our last quarterly results, was expected to increase within the last quarter of 2019. This is successfully already realized. If you look at the last quarter of 2019, we have a cash flow-to-EBITDA ratio by 120% already, and in full year numbers, we have a total number of 70% conversion rate. In 2019, due to the liquidity problems in the market, we had to pay our vendors around 20 days earlier than the historic terms. And if we didn't make this early payments to small suppliers, our operating cash flow-to-EBITDA number would be around TRY 150 million higher, and this implies a cash conversion of 80%. Due to the declining interest rates in the market and also due to the E-tender process that we will be adopting in 2020, we don't expect to have big cash burns from the working capital cycle and that's why we will be keeping around 80% cash conversion in our numbers for 2020. Now I will hand over to Muharrem bey for outlook and prospects.

[Interpreted] Thank you. I will share with you our 2020 targets, and then we'll move on to your questions. We have an 18% revenue growth and an EBITDA growth of 25% expectation from 2020. Our target is to keep maintenance CapEx to below 2%. And we have a target of TRY 200 million to TRY 300 million improvement in our net debt levels. And we plan to drop our net debt-to-EBITDA ratio to below 2. Last but not the least, we will at least be adding 3 hospitals to our portfolio that I have already mentioned. That is the Istanbul Liv Hospital, the one in Gaziantep, and the one for which we already signed the documents but that is undergoing the ministry process in Ankara. And we will probably be adding 2 more hospitals similar to these 3 hospitals that I've already mentioned. So we will probably grow our portfolio by 5 hospitals in 2020. And most importantly, for these 5 hospitals, these 5 hospitals will have a CapEx impact of only TRY 10 million to TRY 20 million on our balance sheet, which equals $3 million to $4 million. But of course, the debt will be in Turkish lira. This means that we will -- with a very low debt level, we will have taken over these 5 hospitals. So this means that these 5 hospitals will contribute about TRY 150 million to TRY 175 million of EBITDA to our total revenues in 3 to 4 years' time. Of course, with this EBITDA level, they will also be generating cash. This will be the most important opening that our group has undertaken so far. So in summary, we will continue to grow with efficiency and with these significant investments that I have just mentioned. So 2019 is now behind us. And for 2020, we have all these substantial and ambitious targets that excite us ahead of us. Thank you very much.

We have already compiled some of your questions. Our CFO will answer them for you.

Sure. And also, on top of Muharrem bey's guidance for 2020, these numbers do not include any impact from the SSI tariff improvement. That's why, let me first start explaining that. So currently, there is a big tariff improvement as we've been discussing with our investors for the past maybe 2 years.

[Interpreted] So the total tariff improvement is 14%. However, due to the specific procedures that our group carries out, its impact on us will be 17% growth.

So all in all, we expect to have around -- on a monthly basis, around TRY 8 million net revenue. So this corresponds to around TRY 80 million additional revenue on our numbers, and this doesn't have any associated costs because it's just pricing adjustments. We -- to be conservative, we've included some doctor costs, especially in some of the Anatolian hospitals, the doctor costs, some of them being fixed. So there will be more upside to that. But overall, we expect to have additional TRY 65 million of EBITDA on the SSI tariff adjustment on our numbers. And as explained by Muharrem bey on the guidance side, these numbers do not include any SSI tariff adjustment. So you need to add that on top of it. On the other hand, there is this coronavirus effect on the analysis as well as the methods. They've been asking me on the potential impact of that. As again, we discussed the border line with Iraq has been closed, and that's why we did an analysis on the downside regarding that. Currently, our revenues from Iraq regarding the medical tourism doesn't exceed around 15% of our total medical tourism revenue. And all in all, if we shut down the whole Iraq over the next 10 months, then we will be moving around TRY 70 million of revenues. As explained by Muharrem bey...

[Interpreted] As a doctor, I have to interject here. SARS, MERS and corona are the types of the same virus. So the best eradication or the prevention for the virus is for the temperatures to go up. That is for summer months to come. So we expect the problem not to get any more severe from this but to get lighter. So the riskiest country in our region, as we speak, is Iran. And our medical tourism revenue from Iran is 0 anyway. Another risky country is Italy, and we don't have any medical tourism revenues coming in from Italy either.

And one more side note on that. As you may remember, our patients are basically coming from -- for very, very complex treatment. It's not that aesthetics or anything like that. So they wouldn't be preventing them from traveling because they definitely need those surgeries. That's why we don't believe that it's going to be impacting the whole countries in terms of traveling across Turkey or into Turkey. So overall, the risk is currently on the Iraq side only. And as I said, in total years, if you move to the next 10 months, which we don't believe that it's going to happen due to the increasing temperatures in Turkey and overall world, and it will be TRY 70 million of full impact which is the highest risk that we see right now. And as I -- as we just discussed, this is not going to be fully moving the revenue numbers because, in any case, the hospital will be filling up the capacity and occupancy rates will be at similar levels. Yet, even if you lose the medical tourism revenue, it will be filled up with the local tourists in Turkey. So all in all, that will be a risk of around TRY 50 million of EBITDA losing or decline. And this will be definitely offset against the SSI tariff improvement. So that's the whole risk that we see regarding coronavirus.

[Interpreted] So in January and February, these last 2 months, the coronavirus was very topical. And in January and February, compared with the same period of 2019, we grew by 35% in medical tourism. And in March, so far, if we were to compare March this year up until now with those figures last year, our growth, as we speak, is 30%.

The second question is on the interest cost on the financial expenses. Our current interest cost is highly variable expense, the primarily variable expense linked to TRLIBOR and currently our interest costs stands at 15%. For the rotating loans, it even goes back to 12% to 11%-ish. So we are currently refinancing our interest costs into -- at an interest cost of 12%. So we expect to close the year within the next 1 or 1.5 months. So from 2020 half year-end, our interest cost will come down to 12%. So as a side note, again, we are not planning on any additional euro-denominated loans. We were discussing around the euro numbers or dollar numbers, but just for illustration purposes. So over the past 2 years, we have not been withdrawing any euro- or dollar-denominated loans. So that policy is still continuing. We will be withdrawing all the bank loans in Turkish lira-denominated numbers. Definitely, it will come down to 12% interest costs all in all. And the foreign medical tourism EBITDA ratio, so I think I answered this question. There is only risk regarding the Iraq and the total number is only TRY 50 million. And that will be offset against SSI tariff improvements by around TRY 65 million of positive impact. And CapEx doesn't have any new hospitals. The new hospitals do not require any new CapEx because it's fully leased or refurbishment is very, very minimal. As a guidance for full year of 2020, we expect to have some spending regarding IT, especially for digitalization processes. All in all, in nominal numbers, we expect to have our CapEx by around TRY 240 million as a fixed number, and this includes maintenance as well as the ramp-up of our existing hospitals, that's the number that I can give regarding 2020 on CapEx. Any other questions?

Operator, could you please ask if there's any audio question or make an announcement for this?

Yes, of course. [Operator Instructions] So we have a question from Baris Ince from Garanti Securities.

[Foreign Language]

[Interpreted] First of all, let me translate the questions. I joined in the conference a bit late. And my question will be about the Ankara hospital that you mentioned that you acquired recently. Is it going to be similar to the Maltepe acquisition? That is in the first quarter, will we again have an advantageous acquisition revenue from the hospital? And the second question was about TRY 129 million. This seemed more like a licensing fee, can you quantify the valuation criteria that they use? Well, you may consider the Ankara Hospital to be almost exactly the same with the Maltepe Hospital. So these hospitals resemble the Ankara Medical Park Hospital that we already have in our group, with an annual EBITDA of TRY 25 million to TRY 30 million. And these hospitals will not add any debt to our balance sheet.

Regarding the licensing and the valuation of that, we have KPMG do an independent evaluation of the licenses. So because there is no exchange markets regarding the licenses, so it needs to be validated based on either income approach or either based on the discounted cash flow method. So they applied both of the matters and looked at the numbers. So overall, based on the expectation of TRY 30 million of EBITDA, it's a terminal value number. So the number made by KPMG calculated the value of the license based on the cash flows that will be flowing from that license. So all in all, that's how we did it. Also, we had the machinery that we leased out is also evaluated by [ Abant ] and the panel of advisers they got. So we adopted a purchase price allocation methodology and we didn't have methodology. The licenses are included to the balance sheet based on the discounted cash flow numbers. That's how we did it. You have all the details, by the way, on the end of the audit report. It shows how much license there will be attributed to the purchase -- the amount of the machinery and equipment and the impact on the P&L as well as the balance sheet.

[Interpreted] So I have one more brief question, and this will be about China because recently, we heard that Germany planned all the incoming medical equipment and materials from China. So I was wondering whether we are also dependent on China when it comes to medical equipment or materials.

[Interpreted] Among our expenses, the 2 biggest items are medicine, drugs and disposables. And when it comes to drugs, we have almost 0 dependency on China. And when it comes to disposables, Turkey and China are 2 competing countries. Turkey is a big exporter of disposable medical materials as well. Therefore, in these 2 big expense items, the China situation so far had no impact on us. And in the future, too, it will have no impact either. And when it comes to medical devices, of course, recently, Turkey has switched to using some Chinese products as well to a certain extent. But now that we have almost no CapEx expenditures, the prices -- even if the prices increase, we will not be affected by this. And they're not increasing actually because Turkey is not making any huge investments in health care anymore.

Thank you, everyone. Now I'll hand over to Muharrem bey for closing remarks.

[Interpreted] Distinguished investors and analysts, in spite of the fact that 2019 was economically a challenging year, we were able to close this year, keeping our targets, working very hard and improving our efficiency. And in the future, our target will be to improve our efficiency and to grow with minimal CapEx investments or no CapEx investments. So we will continue on the same path with hospitals that will contribute positively to our profitability and efficiency. And now starting with the second half of 2019, the interest rates as well as the FX rates drop to -- and this process to a normalizing economic situation. This atmosphere, of course, brings about a more positive outlook towards future -- towards the future, and we have started 2020 with this positive outlook. And I would like to conclude this meeting by saying that I firmly believe that we will achieve good results and a high profitability at the end of 2020. Thank you for your time and attention.

Ladies and gentlemen, this concludes today's webcast call. Thank you for your participation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]