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Edited Transcript of BH.BK earnings conference call or presentation 14-Aug-19 3:00am GMT

Q2 2019 Bumrungrad Hospital PCL Earnings Presentation

Bangkok Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Bumrungrad Hospital PCL earnings conference call or presentation Wednesday, August 14, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aniello M. Sorrentino

Bumrungrad Hospital Public Company Limited - Chief Global Strategist

* Artirat Charukitpipat

Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital

* Daniel Kastner

Bumrungrad Hospital Public Company Limited - Senior IR Manager

* Kenneth Beasley Love

Bumrungrad Hospital Public Company Limited - Corporate CFO

* Oraphan Buamuang

Bumrungrad Hospital Public Company Limited - Hospital CFO

* Tanee Maneenut

Bumrungrad Hospital Public Company Limited - Chief Business Development Officer

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Presentation

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [1]

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Good morning. (foreign language) Welcome to Q2 2019 analyst presentation for Bumrungrad Hospital Public Company Limited. Thank you for coming, and thank those who are calling in on a listen-only line.

Getting right into the quarter. We would probably characterize it as a one-off outlier quarter. And the reason being is that we have the THB 200 million in onetime expenses that will not repeat itself in the upcoming quarters. The first piece of that, the largest piece of it was the Thai law-mandated severance law that requires all companies in Thailand to increase their mandated Thai severance for employees who have served 20 years of service and retire. For us, the mandated one-hit accrual amount was THB 150 million for the quarter, which we took in the quarter. The other THB 50 million of the THB 200 million related to onetime expenses associated with prior period adjustments regarding our new HIS system, some inventory management issues and some bonus issues, which we took in the quarter. So we do not expect that THB 200 million to repeat itself in the upcoming quarters. But be mindful that it'll be in the base for the remainder of 2019 until it, comparatively speaking, washes out against 2020 performance.

So when you -- and when we looked at the quarter, there were a number of the same type of outlier one-off issues that occurred in the quarter that we haven't seen and don't expect to see in upcoming quarters, one of which, normally speaking, is our Songkran and Ramadan impact to an organization like ours that 65% of our revenue is international, and 20-plus percent of our revenue is from the Middle East. And that impact, again, occurred but with a little extra difference associated with revenue intensity. The revenue intensity from the Middle East was down for the quarter. You would expect that because the very, very sick patients would not be traveling to Thailand especially during Ramadan. But it was a little bit more impactful this quarter than prior quarters. And in the same way, the Thai revenue intensity was down in addition to the Thai inpatient admissions being down 6% year-on-year.

And we expect and we suspect that, that Thai revenue change and the Thai inpatient changes were associated with some very unusual things happening in Thailand in Q2. Obviously, there was a stalled, delayed election. The results of that election, as you're well aware, took 3 months for those results to be known. There were some protests in the market about that. The strength of the Thai baht was also a considerable condition relative to those of us that support international business. The strength of the Thai baht appreciated against the U.S. dollar in Q2, 8%, the highest appreciable amount in any emerging country. That affected international business to all of Thailand. Phuket, Chiang Mai, Bangkok, all businesses were affected.

According to the AOT, Chinese arrivals to Suvarnabhumi were down 8.2% in the quarter. That's highly unusual, that's 8.2% year-on-year. And we, the health care industry; we, the business community, felt that in Thailand for sure. However, for us, our China revenue was up 8% for the quarter, THB 58 million to be exact, generated in the quarter. And when we look deeper into that number, that was really affected by self-referred higher-income patients who were coming to Bumrungrad for higher-revenue intensity care. So against the background of what I've been talking to you about up to this point, that was a variation, a positive variation for us.

But the currency risk, the political risk, the economic risk that Thailand saw in Q2, which impacted our organization, you can't deny that. That's something that occurred, and we saw the impact of it especially on Thai business. Thai and expat business were down 6%. I'm not exactly sure on the expat side, but it also was down principally because the appreciation of the Thai baht.

The Middle East business, although it was during Ramadan, our revenue was up for the Middle East. And Ken is going to talk in detail about each one of these markets for you, the ups and the downs, what occurred in the quarter. But as you look at it in overview, Thai and expat business was down for the quarter for the reasons that we believe that I had mentioned to you.

Our referral office business was up for the quarter especially in the non-Islamic, non-Muslim countries. 2Q '18, it was 12% of our total revenue. 2Q '19, jumped to 15% of our total revenue. For those of you that come to these regularly, you know that we have been on a repricing promotion program and especially so in our international markets, where we look at the market, we look at the margin contribution from that market and we say, what can we do to maintain our market share but also to promote business back to Thailand? Of course, there's pressures everywhere in the world today absent the U.S., and even they are having issues with the trade war with China. But every market has had economic risk going on, although I will say that in Indochina, for Q2, we saw improvement and a relaxation of how they looked at spending money and how they looked at traveling. Myanmar had improved in the quarter for us, which is our biggest market in our Indochina sleeve of countries that refer to us. So we were happy about the RO business piece for the quarter. That's quite a jump, 3% on -- off of 12% against the total revenue.

The Middle East revenue as a total percentage of revenue, I think, Ken, remained at around 22%?

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [2]

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About 20%.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [3]

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20%, which was -- it typically drops lower during Ramadan period. So it stayed at 20%. Our overall revenue growth relative to our guidance was 1%, 0.9%, call it 1%, during a slow Ramadan/Songkran period, which was at the high end of my top line revenue guidance. And we'll keep that guidance for Q3. We were at the high end of it for Q2, and we'll keep it at flat, plus or minus, 2% for the Q3.

We also had a number of holidays that won't repeat themselves in the quarter. Our new king was coronated in Q2, which affected the way that holidays were celebrated for the quarter.

For us, meaning us, those entities that run a 24/7 business, our overtime, you would expect, increased because we had to allow people to go off and cover the shifts with overtime. Overtime was up for the quarter principally because of the holidays. We don't expect that to continue to occur in subsequent quarters.

And as it relates to our EPS, which, when you consider the THB 200 million hit we took in the quarter, you would expect it for Q2 and 1H to be down. But as it relates to dividend approved by our Board last Wednesday, our Board approved -- because remember, we are a value balance sheet-driven stock company, our Board approved a record first-time 9-year high of 46% of 1H EPS for the first half of the year. And you may say, "Well, 46%, how does that relate to the absolute amount of Thai baht, and how does it relate to 1H Q2 '18?" In 1H Q '18, it was 39% at EPS. In Q2 -- in 1H '19, was 46%. But more importantly, how much money was pushed out to the shareholders by our Board for 1H '19. And that number is THB 839 million versus THB 803 million in 1H '18, also a 9-year record, as approved by our Board last Wednesday. So they're recognizing the support of our shareholders, especially our long-term shareholders.

I'm going to stop there, and I'll turn it over to Daniel. He's going to go over in more detail with you what we saw to be the principal threats in the quarter, some of which could continue but most of which, like 7, 7 will continue. The impact of the trade war, my own personal opinion, that's going to go on for a long time. The structural changes that are required in China are such in terms of what the U.S. is demanding. In terms of structural changes in China, I would expect that, that will continue for a while. And Southeast Asia countries will be the unfortunate negative benefactor of that trade war.

You know that the government just got seated. Not much has been done yet, although infrastructure spending is being promised by the new government. But the Bank of Thailand, as you know, dropped the interest rates 25 bps. But as I talk to business leaders in Thailand, they strongly feel that 25 bps isn't near enough to get the economy stimulating and going again. So hopefully, that will change in time. But remember, we're almost at September now. We only have a few months left for 2019. So it's the business community's hope that we as a community and we as a government get this economy moving again in Thailand.

So with that, I'll stop and push it over to Daniel. Daniel, for those of you that haven't met him, who don't know him, is our Director of Investor Relations.

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [4]

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Thank you, Neil. So would like to run through a few numbers with you. And as Neil mentioned, Q2 isn't a surprise on the macro front, that it was relatively soft. I think most people are aware of that. But to put it into a bit of -- into some key numbers for you, I would like to just dig into that. You can see that consumer confidence, if you compare it over the last year, has decreased quite significantly.

And there are a number of factors that Neil touched upon during the introductory commentary. And that is the high Thai baht, which has affected exports and hence also businesses. And the resulting issue was then the spending power of those businesses and business owners in Thailand. Moreover, the government, as Neil mentioned, was not formed, and a number of disbursements, which were pushed through before and up to the election, did not occur during that time due to the hiatus of the government forming.

The exports, as you can see, were down 3%. Now exports, as you may be aware, is a major growth engine in Thailand. It's approximately 60% to 65% of GDP. It is therefore quite a worrying number given the strength of the Thai baht, which continues to this day. With the trade war continuing, some people have mentioned that the U.S. may decrease the interest rate further. And as a result, perhaps the Thai baht, the Bank of Thailand would also need to act in reciprocity as well. You can see the Thai baht on the year-to-date basis is around 4.8% as of June numbers, which is a significant amount if you consider we increased our prices earlier this year by around 4.6%. So for people who are paying in dollars, that is amounting to nearly 10% in hit to their purchasing power in a way.

For tourist arrivals, Neil mentioned that Chinese arrivals were down. And actually, overall, also growth was very low, 1.1% overall. If you compare that with the second quarter of last year, it's around 6.2%. Business sentiment overall also was impacted. It hit 49.6%, so below the 50% level, which indicates that businesses feel that business is slowing down, and that is impacting future investment, future outlays and also confidence in spending. And that would also impact overall business in the country in the near term as well.

The public holidays, as Neil mentioned, of course, an impact to us, not only for part-time costs but also as they were long weekends. A lot of our clients obviously in the upper middle to higher-income range, they can afford to take a lot more holidays. And hence, the long holidays do impact volume numbers as well.

And that pretty much wraps up the numbers. So I will then hand it over to Khun Oraphan and Khun Ken to run through the financial performance.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [5]

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And let me make a comment about Q3 while they're organizing their thoughts. These are -- obviously, we don't have any official numbers for Q3 because we're only halfway through the quarter. But the Middle East business has bounced back very nicely, which is what you would expect during Ramadan. And if you go to our other non-Thai markets and our own markets, that too has bounced back very nicely. So we'll see what Q3 produces for us. We'll report that to you in first week of November, I think, is our next analyst presentation, something like that. But I'm relatively pleased the way we've gone into Q3 and out of the one-off outlier Q2 sentiment.

Ken?

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [6]

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(foreign language) Good morning, everyone. Good to see you again.

As you may remember, this is going to be my last analyst meeting. I'll leave Bumrungrad this Friday, my last day. So with that, we need some more visibility here to Khun Oraphan. She's going to be taking over from here on. And so we're going to do the tag-team approach again. Khun Oraphan do the quarter, I'll do the first half. The harder questions will go to her, the easy ones to me, right? Okay.

Khun Oraphan?

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [7]

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Okay. For this quarter, as you know, we have extraordinary theme on the Thai severance pay. So in this slide, you can see we have the exclude and including the onetime expense for a better vision to you. So far in second quarter of 2019, the revenues slightly go up by 0.9% mainly because of the 4.1% non-Thai business increase plus the 0.6% increase in Thai business.

I will go down in the next slide to you. For EBITDA, in second quarter 2019, down by 21.5%. When we exclude onetime expense, it's still down by 11.6%, with the EBITDA margin 30.5%, still dropped off from 34.7% in second quarter of 2018. I will go down and explain you more on this one. And for the net profit, also down by 25.4%. When exclude onetime adjustments, still down by 13.3%, with the net profit margin 19.4%, still dropped off from 22.5% last year.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [8]

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In this number now, so mind you, all we've done is normalized the THB 150 million -- that'll wake us up. All we've done is normalized the THB 150 million. The THB 50 million is in these numbers without normalization, but they won't occur again. So you'll -- for those of you that have your models that you're going to put numbers into, be mindful of that.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [9]

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All right. Going to the first half, a little bit better than the quarter. Revenue growth, the same, 0.9%. And if you look at the EBITDA growth, 10.8% unadjusted but adjusted 6.2%. And the profit, up 11 -- or down 11.9% unadjusted. But if you adjust for the onetime, it'd be at 6.2%.

Looking at the margins, 30.9%, adjusted 32.6% versus 35% in the last quarter -- prior year quarter -- I'm sorry, first half of 2018. That was, I think, pretty much a record right there, the peak, 35%. And then on net profit margin, 19.9% unadjusted, 21.2% adjusted versus the 22.8%. So a slight difference in the net profit margin for the first half. But overall, if you look at it, like Neil said, we had those extraordinary events in the second quarter, the first quarter was a little bit better. So if you look at the first half, the results are not so bad. And when we get to the details, you'll see there are some bright spots on the numbers, quite a few actually. Okay.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [10]

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Okay. Move on to see the revenue. Can you continue? Okay, all right.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [11]

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I'll make the other comment that on the margins issue, if you look all the way to the right, the margin differences at the NOPAT line are almost a push period-to-period. But we had intentionally -- since the end of Q3 '18, as I mentioned earlier, going out through this pricing promotion. And I think I promised you that the way we're doing this strategically, it could and it does have an impact on EBITDA margin because you can't keep running at 35% EBITDA margin. Nobody can do that. But as these markets have had their economic and currency issues and political risk issues, we have been sensitive to that and priced our product or repriced our product in terms of package pricing, in terms of promotion pricing, in terms of discount pricing to compete for the kind of market share -- not just any market share but for the kind of market share we wanted to keep that high-revenue intensity business coming here.

But that will -- that level was proposed to. It would and it has had a slight impact on margins. And we'll expect that in a very, very slight way to continue until the world changes in these markets because we're not permanently changing our pricing. Don't misunderstand, we're doing different, temporary promotional pricing tactics in different markets to keep the kind of business we want. Every business does that.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [12]

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Okay. So move on to see the revenue. In the second quarter, slightly up by 0.9%, Thai business slightly up by 0.6%, pretty much flat. This is because of the soft economic, as we already mentioned. For the non-Thai business, increased by 4.1% mainly because of a few area that we have increased. For the Middle East, revenue increased by 5.3%, mainly came from the UAE increase by 45.5% up. Qatar is increased by 30.2%, and Yemen 40% up. And also the Bahrain is up by 79.6%. There is one significant detail is Oman, 31% decline because Oman had a big increase in last year.

For the second area is Indochina. We also have the increase in revenue, 5%, mainly came from the Myanmar, up by 4.3%; Vietnam, up by 72.3%; and Cambodia, up almost 12%. And there is one significant detail. Bangladesh reduced by 11.3%. This is the same reason that Bangladesh has a big increase last year.

And other area also increased, like U.S. increased by 23.4%, China increased by 8%, and Mongolia also increased 9.7%.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [13]

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The first 2 markets, as she mentioned, are a good example to what I was talking about earlier regarding price promotion. We have targeted those 2 markets, mainly in the Middle East and Indochina markets, because there is price sensitivity, just like there is in Thailand. There is price sensitivity in those markets given what I have explained to you in the past. Remember, we're dealing with a world volume set of countries, so we have to look at it individually.

And those 2 markets are 2 very good examples where Khun Tanee, who's in charge of international business development, has worked on those markets to create additional volume especially from the UAE. Our UAE volume in 2019 is at the highest it's ever been. And I'm talking about before 2015 when oil was $100 a barrel. But we have primed that pump to effect that positive benefit for us. And we see positive signs for the remainder of the year in the UAE market and in the Kuwait market, the same thing in the Kuwait market. The Kuwait market, I would expect before the year is up, if it won't be the highest country, it's going to be darn close to the highest country that we have.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [14]

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And for the first half, the same percentage of revenue growth, 0.9%. And what I'll mention here, I'll go through the different markets, but think about what Khun Oraphan said about the ones that are up because they're up on a sustained basis, not only for the quarter, but they were also up for the first quarter, second quarter both. And at both -- and all these markets are up significantly.

So running through the different markets for the revenue growth. The Thai market was down 1.8%, expats down 1.3%. After that, it's all up. All right. So if you look at the Middle East, for example, up 5.4% for the first half. If you look at Indochina, up 3%, 3.1% for the first half. If you look within those markets -- oh, one other, Mongolia, up 9.3% for the first half. If you look at the individual submarkets within the major markets, again, you have UAE, up 40% year-over-year. You have Qatar, up 43% year-over-year. You have Saudi Arabia up 18% year-over-year. And going into Indochina, you have Vietnam up 28% year-over-year, Cambodia up 18% -- or 13% year-over-year. And you also have Myanmar coming back at 2.2% year-over-year. China, up 8% for the quarter, up 7% year-to-date and is coming back to Vitallife. Vitallife was up 12% for the first half on China business. So -- and I mentioned the U.S., 22.5% growth.

So what I want to bring out here is all the markets that were up for the quarter are also up big time for the first half of the year. So these initiatives toward trying to be price sensitive are starting to pan out in some of the markets. It's not going to be an overnight return on investment. Some will take longer than others, but it's starting to take -- come to fruition.

So that's the revenue growth. Let's move on.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [15]

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For the revenue contribution for the international segment, slightly go up from 64% to 65% as the Middle East business and Indochina go up.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [16]

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And then you have pretty much the same increase for the first half of the year, 66% versus 65% on the international. So that reflects the Thai business being down, the international being up.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [17]

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For revenue contribution by service, slightly up on OPD from 53% to 55%. This is because of we have higher OPD volume in this quarter.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [18]

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And a slight change for the first half, down from 47% to 46% on the inpatient; up slightly on the outpatient, 53% to 54%.

All right. On the payer, revenue by payer, it has been a little bit of a change going from the self-pay into mostly the government third-party payers. And a lot of that has to do with a lot of the local residents of the Middle East, for example, are piggybacking on to the contracts with the embassies, the governments that are getting a discount, too. So they're coming in not as self-pay but as third-party payers on the government side.

Slight increase and there's slight change in insurance going up 13% from 12%. The corporate contracts remain at 2%, same. So mostly just a shift between insurance and pretty much the embassies, the third-party government payers. Next.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [19]

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For the EBITDA, in second quarter, down by 25 -- 21.5%; when we exclude onetime expense, still down by 11.6%. This is mainly because of a few things. The first one is, as Khun Neil already mentioned, we try to promote pricing. So we have a big increase in discount that mainly to the third-party payer. Mainly, it's Middle East. And this discount -- percent discount to revenue is slightly up in this quarter. And secondly, we have the prior year adjustment on the bonus. First half 2018, we find out that the performance is not meet the budgets, so really, word is out in the second quarter of 2018. And secondly, we have the prior year adjustment on supply expense due to the system implementation last year with our inventory, physical and [5 other], the supply overspace, so we collect them in second quarter of 2018. So those are the favorable adjustment in last year, but we don't have in this year.

And the third one is the consulting fee. We increased the improvement service on this IT and contact center where we have the consulting fee on that. And the third one -- and the next one is marketing expense that will slightly go up a little bit because we try to stimulate the market and volume due to the soft economy. And the last area is IT support maintenance. Prior year, we don't have the support maintenance for TrakCare because the first year support maintenance already includes in purchase cost. But this year, we have to pay the support maintenance for TrakCare and a few new software that we don't have last year.

Those are the key thing that's why the EBITDA dropped down in this quarter.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [20]

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All right. For the first half, a lot of the same stories on the EBITDA. It grew 10.8% before the adjustment; 6.2% -- or drop, and 6.2% drop when you adjust for the onetime hit of THB 146 million.

I will add something to what Khun Oraphan said, and this is something Neil referred to earlier. Our deductions from revenue went from 8.4% for the first half to 9.7%. And that reflects some of these price sensitivity initiatives we've been doing. So the impact on that for the first half was THB 132 million. So if I look at the difference from year-over-year first half on the EBITDA is THB 193 million total. Now you've got THB 132 million coming from that net revenue decrease from the impact of the price sensitivity initiatives I just mentioned.

The other is the same thing that we had in the second quarter, with consulting fees, with actually doctor fees. We don't -- when we do discounts or promotions, the doctors don't get hit with that. It's all the hospital. So the doctor fees went up in proportion to the ratio because we have the discount full impact that doctors don't. So we had an increase in physician fees for the first half. We also had an increase in marketing, about THB 46 million year-over-year first half. And that is again trying to do these promotions, trying to stimulate, embed some of our margins into volume growth.

So another area that Oraphan mentioned was IT. We didn't have the support maintenance last year with TrakCare. The first year was part of the purchase price. This year, we have it. We also have a couple of other items that were mentioned before by Khun Oraphan, the IT help desk and the consultants, as I mentioned before.

So if you look at that, I've got the detail for all THB 193 million difference between the EBITDA year-over-year. We got it down to the baht. And it's really those items I just mentioned, the increase in deductions from revenue or the decrease in net revenue that resulted from that and then those 5 or 6 items I just mentioned: consultant fees, doctor fees, marketing, IT and IT support.

So that explains the difference between the EBITDA year-over-year.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [21]

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And we're going to continue to spend the smart money internationally with respect to marketing because it's beneficial to the company. And we're in the midst of probably 40% along the way, maybe 50%, well, maybe more than that, 50%, 60% along the way in the digital transformation of the company inclusive of the electronic health record we implemented March '18 to our customer relationship management, to some other digitalization and transformation techniques, applications, software that'll get us ready for the next 10 years, starting with our electronic health record with TrakCare. We will continue to do that until -- that's a project planned approach. We'll continue to do that with CapEx and money supporting that as they go from their one-off year warranty to where we have to pay for support and maintenance like TrakCare occurred in Q2 versus Q2 '18.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [22]

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Net profit margin.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [23]

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Okay. For EBITDA margin in second quarter is 27.1%. Once we exclude onetime adjustment, it's go up to 30.5% but still dropped off from 34.7% in second quarter last year due to a lot of information that we already mentioned.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [24]

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Yes. And same story for the first half, just not as dramatic, going from 35% to 30.9% unadjusted, 32.6% adjusted. And it's the same things I just mentioned on the EBITDA growth: consulting fees, the deductions from revenue, et cetera. Net profit.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [25]

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For the net profit, in the second quarter, down by 25.4%. Once we exclude onetime adjustments, still dropped by 13.3%. This is the same story as EBITDA except for 2 things. First one is financial cost decrease because retiring bond THB 1 billion in December 2018. And second thing is we have the increase on the tax benefit from training. So this bring down the effective tax rate from 17.9% to 16.1%.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [26]

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And this is really the same story for the first half. We got the reduction or the decrease in interest expense from redemption of the bonds, and we also have a lower effective tax rate due to the training expense.

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [27]

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For the net profit in second quarter is 16.7%. Once we exclude onetime adjustment, it's improved to 19.4% but still dropped off from 22.5%.

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Kenneth Beasley Love, Bumrungrad Hospital Public Company Limited - Corporate CFO [28]

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Same story for the net profit for the first half.

And going to some of the other key indicators. The net debt to EBITDA remains the same year-over-year if you do the adjustment. Going to the next, net profit margin -- no, it's going the wrong way. Okay. Net debt to equity, same story. We have a net cash position. Go ahead. Interest coverage improved slightly mostly due to the retirement of the bonds in December of THB 1 billion.

And that wraps it up for the financial highlights.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [29]

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The free cash flow position increased to THB 9.5 billion from around THB 9 billion. And that was certainly one of the other reasons why our Board issued a 46% dividend of EPS for 1H.

And for those of who don't know, that lady next to Khun Daniel is Khun Artirat, who is the CEO of the Bumrungrad International Hospital. (foreign language) Khun Tanee, and -- do all of you know Khun Tanee? I think I've introduced him in prior -- I think at the last analyst meeting. Khun Tanee is the Head of International Business Development, Chief Business Development Officer. He's done a really nice job on the international side, both he and his organization. Khun Tanee?

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Tanee Maneenut, Bumrungrad Hospital Public Company Limited - Chief Business Development Officer [30]

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Good morning. (foreign language), everyone. So my name is Tanee. I'm doing the business development of Bumrungrad International Hospital, mainly focused on international business.

So as Khun Neil mentioned, one of the key referral channels of the patient to a hospital is from our international referral office, which we have all over the world. So currently, we have 51 office in 28 countries all over the world. So from this slide, you can see the -- demographically, in the green color is the area that we have the coverage of our referral office. And for first half in 2019, we have add 4 more to increase the market expansion in Egypt, Eritrea, Kuwait and Palau.

So the second thing that we have done on the first half is we also increased accessibilities of our existing market. So we have built our micro site, which we call the referral office website. So this is 10 website that we have developed and launched at beginning of the year. For this referral office website is we customized the content, the accessibilities, the language per each market need. So for this way, the patient in every countries that we have targeted, they can access to the content, to the language that they're familiar, to the disease that they are really familiar in their countries, and they can fill in and refer, and they can do self-check-in to our website and ride straight away to our hospital. Our hospital will be the administrator to help our referral office to manage our website. Another 10 website is still underdevelopment and we target to be launched by end of this year.

The last thing that we have done, we have the [HOBs], the partnership with another third party, which is they call themselves as online platform. So we call the virtual RO. So we have contact with 6 different referral virtual RO, and they are inactive right now. So for this virtual RO, they are all over the press, and they don't have the physical location in any countries. So we call it the online platform. So the patient from all over the world can access to the virtual ROs, and they can find out the disease, the information about our hospital. And they can book the doctors, they can see our specialists online, and then they can book through the virtual ROs. So for this way, we can expand our market to have the more coverage.

This is the activity that we have done on the first half. And then we have a few more activities on the second half, which is I can update to you again at the end of this year. Thank you.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [31]

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We're very mindful that there are 2 new hospitals coming onboard in Thailand over the next 1.5 years or so. We are pressing our efforts because we are an international medical tourism destination location. And we're very mindful of how business can move in the short term from Hospital A to Hospital B even though new hospitals do not attract sick patients because doctors do not take sick patients to new hospitals. They take low-revenue intensity patients that can be trusted to go to a new hospital because why? They don't know about the OR. They don't know about the nursing care. They don't know about the ICU. It takes time for a new hospital to settle in to where a physician will trust the care. So what we're doing here strategically is playing to our strength, which is international business development.

I think we'll keep whatever it is, 35%, 37%, 33%, 34% of Thai revenue for those sick Thai people who want to come to a premium-brand hospital. Our revenue for Thai business was 35% of the total in a slow Q2 Songkran quarter. But these areas here are the areas where you can call it growth by revenue, you can call it growth by earnings, you can call it growth by revenue intensity. But these are the areas we are focusing on going forward, very important to us, especially these micro websites we've developed for each one of these ROs. The first 9 that we did and a couple in specific have been extremely productive for us especially the one in the UAE.

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Tanee Maneenut, Bumrungrad Hospital Public Company Limited - Chief Business Development Officer [32]

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(foreign language) The next one, I will hand over to Khun Artirat.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [33]

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Khun Artirat.

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Tanee Maneenut, Bumrungrad Hospital Public Company Limited - Chief Business Development Officer [34]

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She will present on the [partnerships].

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Artirat Charukitpipat, Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital [35]

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Thank you. (foreign language) Good morning. So today, I would like to update about our network hospitals. We have another 6 hospitals that signed MOU with us. So in total, there's 57 network hospitals right now. We started approaching new strategy to cooperate with them. These pictures show an event on 5th of July. We still focus on doctor-to-doctor referral business by introducing the key excellence centers, such as the cardiology, neurology, oncology, orthopedic spine and joint, robotic surgery, including ICU referral systems.

So in Q2, we have revenue growth of 37% from Q2 last year from our network hospitals. So we will continue strengthening our partnership with them. In addition, we also strengthen our partnership with the medical assistance, the insurance, both local and international insurance. And we hope that we will gain more volume from them. So this is the network hospital.

So the next slide is about Bangkrajao project. This is the Vitallife wellness project partnered with MK Property and Minor Group. So in this space, we will build 66 villas, and this is under the construction.

So the next slide, this is the facilities of the Bangkrajao area. And we have the room that already declared as the mockup room.

So that's all update from me.

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [36]

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Before we head into a Q&A session, I'd just like to add a few things. So we touched upon a number of things that we've been doing to grow our business, including RO and engagement on the Thai side with the network hospital and also insurance. But it is good to take into account a bit of context about the growth of our business internationally as well. I looked at several of our markets over the last 4 years in the first half of this year. In comparison, Kuwait is actually growing significantly, 87% over the last 4 years. So despite us talking about it growing and declining, overall, it's been growing very well. As well as in Qatar, which we saw about 40% growth over the last 4 years. Vietnam, which we've always flagged as a country of very high potential, has grown 67% over the last 4 years. And we will continue to mine that market.

Other countries that have challenges, for example, Saudi Arabia, where there were travel restrictions, actually grew 95%, albeit from a low base. It is a very encouraging area where we see good growth. Indonesia, which is in closer proximity to Singapore; Malaysia, which are also medical tourist destinations, actually grew 58% in our hospital; as well as China, which grew 75% over the last 4 years. So we are very encouraged by several developments in the markets that we're mining.

And we mentioned about costs related to consulting fees. So service improvement, as we mentioned last quarter, is always primary for us. We always look at improving and enhancing our draw factors. Our contact center, how we can reduce response times, which are our gateway to our hospital as well as where we can improve patient experience across the hospital, these are things that we have to continuously maintain to draw our patients to the hospital and increase the pull factors.

So without further ado, we'll head into a Q&A session.