Dubai – MENA Herald: NMC Health plc (LSE:NMC) (‘NMC’), the leading integrated private healthcare network operator in the United Arab Emirates and one of the leading global providers of fertility treatments through its European and Middle Eastern subsidiaries, today announces its interim results for the six months ended 30 June 2016.
Reported revenues increased by 46.9% year-on-year (YoY, compared to H1 2015) to reach US$578.3m in H1 2016 (US$ 393.8m in H1 2015).
EBITDA reached US$115.9m (+68.2% YoY), resulting in a Group EBITDA margin of 20.0% (+254bps YoY)
Adjusted net profits attributable to shareholders increased to US$67.8m (+48.2% YoY)
Basic EPS reported at US$ 0.336 (H1 2015: 0.213); Diluted EPS at US$0.334 (H1 2015: US$0.213); Adjusted EPS at US$0.365 (H1 2015: US$0.246)
The strong performance of H1 2016 was underpinned by progress across the business and successful execution of our long-term two-stage strategy which has started to deliver significantly improved growth for the Group despite the more moderate UAE macro environment.
Our initial focus post-IPO was to organically expand our capacity to absorb market growth driven by population increase, insurance penetration, increased healthcare spend retention, delivery of increased complexity and thus higher value added care within our hospitals to the growing patient population of NMC. Today our healthcare network includes the first private sector advanced tertiary and quartenery care capable hospital, benefiting from NMC network cross-referrals and third-party referrals. All new hospitals and medical centres that opened in 2013 and 2014 achieved breakeven ahead of initial guidance and NMC Royal, which opened in September 2015, is on-track to meet the guidance EBITDA breakeven period of 24 months. Both DIP General Hospital and Brightpoint Hospital have ramped up operational beds from being around 50% of licensed capacity when they commenced operations to 72% and 100% respectively as of the start of 2016.
The second stage of our strategy which was initiated at the beginning of 2015 entailed a shift in focus from capacity to capabilities. NMC’s objective was to accelerate its expansion into higher medical complexity and thus higher value added specialty healthcare segments through the acquisition of leading global and regional entities and the subsequent establishment of new strategic multi-brand verticals capable of unlocking synergies within the enlarged group and act as stand-alone platforms spearheading the expansion beyond the UAE into some of most accretive healthcare market segments.
As a result, the Group healthcare asset and brand portfolio is today more diversified with significantly enhanced competitive advantages and substantially augmented strategic optionality allowing NMC to expand its growth horizons in what is an increasingly challenging market for static market actors. The combination of this progress with a more optimised resource allocation is leading to a substantially higher growth, margin and return profile.
During the period total patient visits to Group assets increased by 42.6% YoY to 2.1m and more importantly the Group healthcare services revenue per patient increased by 35% to US$170 despite very moderate price increases which are broadly consistent with recent trends. This growth was mainly achieved through the entry into higher complexity, less ‘commoditised’, and thus increased value added medical services segments (examples include advanced tertiary and quaternary care, specialised maternity services, long-term care and fertility services).
In fact, NMC’s H1 2016 top-line growth of 46.9% is the highest on record. In comparison, the five year (2011-2015) Group revenue CAGR stands at 18.7%. With most of this recent growth generated through the strategic initiatives undertaken in the healthcare division (higher margin business, which includes four out of the five verticals), NMC has delivered considerable progress towards achieving another very important goal; increased healthcare business contribution to Group revenues and thus the relative dilution of the lower margin distribution division. The healthcare division contributed 66% of revenue in H1 2016 compared to 55% in H1 2015 and 48% at the time of IPO in 2012. While the absolute growth of the distribution division (lower margin business, which includes one out of five verticals) continues to be good at 10.5% YoY, we expect the relative dilution trend will continue which should provide further support to higher future group margins.
As a result, Group EBITDA reached US$115.9m (+68.2% YoY) with a Group EBITDA margin of 20.0% (+254bps YoY) – a 412bps increase compared to the last financial year (2014) before NMC initiated the capabilities focused second stage of its post-IPO growth strategy. The healthcare division margins increased by 107bps YoY to reach 29.6% during the period. Meanwhile, margins of the distribution division remained almost unchanged at 10.2%.
Net debt increased to US$ 790.2m on expansion progress and remained in line with management expectations. Cash and short term bank deposits amounted to US$ 204.8m with a total debt balance at US$ 995.0m (Dec 2015: 730.3m). This increase in total debt position is mainly due to further drawdown of the acquisition loan facility under the syndicated loan.
Over the past twelve months NMC has complemented its initial organic expansion program by further leveraging its abilities and resources to form five strategic verticals within which it has completed five major acquisitions, entered into four new medical services segments offering higher value specialty procedures, rolled-out 1 organic asset (NMC Royal Hospital) and diversified into 2 new geographical markets (Italy and Denmark).
The multi-specialty vertical’s exceptional growth in H1 2016 was supported by the continued push towards developing and optimising NMC’s service offering, focus on increased asset utilisation, better than expected performance across all post-IPO organic assets, the faster than expected to roll-out of mandatory healthcare insurance in Dubai and the contribution of Dr. Sunny’s network of medical centres in Sharjah, which was acquired in 2015.
Revenues reached US$ 257.9m (+32.3% YoY), with all three legacy portfolio specialty hospitals delivering double-digit top-line growth coupled with strong performance from both the recently opened NMC Royal Super Specialty Hospital and NMC DIP General Hospital in Dubai.
Total patient visits increased to 1.97m (+35.2% YoY) with revenue per patient of US$131. The licensed beds capacity increased to 655 (+285 beds YoY) out of which the operational beds were 433 beds (+116 beds YoY) with an occupancy rate of 68.7% (-909bps YoY).
Maternity & fertility vertical
The maternity & fertility vertical delivered strong YoY growth across all its assets, with Brightpoint Royal Women’s Hospital exceeding management expectations with its outstanding performance during the period. Clinica Eugin reported strong growth compared to the first half of 2015. Fakih IVF was consolidated from February 2016 and has performed well.
Revenues reached US$ 86.2m (+412.7% YoY), with total patient visits reaching 135k (+541.5% YoY) with a revenue per patient of US$636.2. The licensed beds capacity remained at 100 out of which the operational beds increased from 60 to 100beds (+67% beds YoY) with an occupancy rate of 60.6% (+39 percentage points YoY).
Long-term & home care vertical
The long-term & home care vertical is comprised of Provita (long-term care) and Americare (home care), both of which were acquired in 2015. While Americare was consolidated in late H1 2015, Provita was consolidated in H2 2015. Both subsidiaries performed well during the period with Provita’s growth being supported by rising bed occupancy and a 30 bed capacity expansion in March 2016.
Revenues reached US$ 42.5m, with total patient visits reaching 4,900 with revenue per patient of US$8,611. The licensed beds capacity increased to 120 with all beds being operational and an occupancy rate of 85.6%.
Operation & management vertical
NMC continued to operate and manage the 205 bed Sheikh Khalifa General Hospital in Umm Al Quwain on behalf of the UAE ministry of presidential affairs since Q4 2012.
NMC has a five year contract to operate this hospital in return for an annual management fee based on qualitative metrics. This is the first such contract to manage a large Government healthcare facility awarded by a Government Department to a local UAE business, demonstrating confidence in NMC’s significant healthcare experience and capabilities.
The total revenue contribution from this contract reached US$3.15m in H1 2016 (+5% YoY).
Recent amendments by Health Authority of Abu Dhabi (HAAD)
NMC has consistently focused on contributing towards the rapid advance of locally available healthcare services hand-in-hand with the national strategy. This professional and moral commitment to our nation is unshakeable.
We will continue to work alongside the regulator and local authorities to achieve more constructive and sustainable long-term solutions for the well-being of patients, payors, operators and investors.
In the interim we have taken the necessary steps to mitigate and limit the impact of the above referred changes on the healthcare division – leading us to reiterate our guidance for 2016 and 2017.
Distribution division revenues grew by 10.5% YoY to reach US$ 205.1m. The distribution division’s growth was supported by new product introductions and increased sales effort with stock keeping units (SKU’s) near to 91,500.
The healthcare segment (pharmaceuticals and laboratory equipment) and fast moving consumer goods segment (FMCG) both contributed equally, in terms of total contribution to divisional revenues, at 42.8% each.
During the period sales staff expanded by 12% YoY to 1,163. We also added 25 (+11.7% YoY) new distribution vehicles compared to the same period last year, for a total of 239.
Dr B.R. Shetty, Chief Executive Officer, commented: “Our focus has consistently been on delivering a long-term strategy capable of enhancing our growth prospects in a diversified and sustainable manner. We have expanded our asset and brand portfolio organically and inorganically into additional healthcare services segments, extended our presence across the continuum of care, entered into higher growth and margin specialties with very favourable regional supply/demand dynamics and selectively entered into new geographies to position NMC at the intersection of multiple growth channels to the ultimate benefit of all our stakeholders. In H1 2016 we have just started to reap the long-term rewards of several years post IPO work on the two stages of our growth strategy. Despite record growth this year, we expect strong performance to continue going forward supported by the increased utilisation of our organic 485 bed capacity expansion over the past 18 months, recent acqusitions of businesses in high growth segments, very good performance at the major specialty hospitals and in particular Dubai based hospitals and medical centres as mandatory healthcare insurance penetration continues to expand.”
Principal risks and uncertainties
The Board considers the risks and uncertainties associated with its business, with the risks connected with the Group’s expansion program being some of the key risks faced by the Group.
The detailed list of the principal risks and uncertainties faced by the Group, and the mitigation of those risks, are listed on pages 9 to 11.
Summary and outlook
The general macro-economic outlook in the UAE remains stable with moderate GDP growth expected. The IMF forecasts a real GDP growth of 2.3% and 2.5% in 2016 and 2017 respectively. The ongoing insurance reform in Dubai continues to increase medical insurance penetration rates to expand the UAE healthcare market size and thus the prospects for NMC Health.
The management team will continue to assess potentially attractive and accretive opportunities for further business expansion and diversification.
The Board view the outlook for the remainder of FY 2016, and FY 2017, with confidence.