U.S. markets close in 39 minutes

Edited Transcript of CLHO.C earnings conference call or presentation 16-Mar-20 1:00pm GMT

Q4 2019 Cleopatra Hospital SAE Earnings Call

CAIRO Apr 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Cleopatra Hospital SAE earnings conference call or presentation Monday, March 16, 2020 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ahmed Ezzeldin Mahmoud Abdelaal

Cleopatra Hospital Group S.A.E. - Group CEO & Director

* Ahmed Gamal Eldin

Cleopatra Hospital Group S.A.E. - Group CFO

* Hassan Ahmed Hassan Fikry

Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director

================================================================================

Conference Call Participants

================================================================================

* John Robert Niepold

SQM Frontier Management, LP - Managing Partner & Portfolio Manager

* Michel Said

CI Capital Research - Junior Analyst

* Nikhil Arora

Franklin Templeton Investments (Middle East) Limited - Senior Research Analyst

* Shankar K.P.

HSBC, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to Cleopatra Hospitals Group Fourth Quarter 2019 Results Conference Call. I will now give the floor to your host, Mr. Michel Said. Please go ahead, sir.

--------------------------------------------------------------------------------

Michel Said, CI Capital Research - Junior Analyst [2]

--------------------------------------------------------------------------------

Good day, everyone. Thank you for joining the call. This is Michel Said from CI Capital Research team. We are pleased to be hosting today Cleopatra's 2019 full year results conference call. From the management team, we have with us Dr. Ahmed Ezz, Group CEO; Mr. Ahmed Gamal Eldin, Group CFO; and Mr. Hassan Fikry, Group Corporate Strategy and IR Director. As usual...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [3]

--------------------------------------------------------------------------------

Hello? Hello?

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [4]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [5]

--------------------------------------------------------------------------------

Hello? Hassan?

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [6]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Mr. Michel, we cannot hear you.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [8]

--------------------------------------------------------------------------------

Hello? He got dropped, I think. We couldn't hear for like a minute.

(technical difficulty)

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Dear speakers, the floor is yours. You can start with the presentation.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [10]

--------------------------------------------------------------------------------

Okay. So I guess he's not with us. Is everyone else on the line? Can we start?

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Yes, please go ahead.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [12]

--------------------------------------------------------------------------------

Okay. Dr. Ahmed, please.

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [13]

--------------------------------------------------------------------------------

Okay. Good afternoon, good morning, ladies and gentlemen. Thank you very much for joining our call for the Cleopatra Hospital Group Full Year 2019 Results.

I would like to thank first, Michel, from CI Capital for hosting the call, but maybe his line disconnected. So he'll maybe join us in any minute or so. With me on the call, as usual, our CFO, Mr. Ahmed Gamal Eldin; and also Hassan Fikry, our Corporate Strategy and Investor Relations Director.

First of all, I'm sure that hearing the results of a medical group, so definitely you would like first to know about an update about what's happening in Egypt with regard to the COVID-19. First, I would like to assure you that the Ministry of Health and following the track of WHO, and I think we believe that we took all the measures so far to contain the disease, and so far, the spread is considerably one of the very limited countries so far in the region. But we have -- it's covered so far, like 126 cases, 26 out of them is already out of the quarantine. And already, we have -- we lost 2 cases so far out of 126. We took all the measures regarding the schools and universities, now it's off for a couple of weeks to ensure no more spread of the disease to a great extent.

Also in our hospitals, we are taking all the measures, and we are sticking to our agreement to the Ministry of Health. So actually, in our private hospitals, we are not managing corona cases. If there is any suspected cases, we will refer them to the Central Lab in the Ministry of Health, where they have the new kits related to the discovery of the virus. And consequently, the patient will take instructions either to stay at home and start his isolation mechanism or he can be under the control of the Ministry of Health if, God forbidden, he's an old age or he has deteriorated and he has developed a pneumonia infection.

Consequently, we are following the track on that cases daily and day and night. We are taking all the precautions with infrared, measuring the blood pressure -- the temperature of every patient at the emergency level. Even we contained and we eliminated the number of the visits inside the hospitals. So actually, we believe with the continuation of those measures, we may go through this crisis in a very good shape. Even today, the WHO was just making, and we were appraising the steps taken by Egypt today morning, and it was on the news. Particularly Egypt and Jordan, we believe that all -- that we took all the early measures because frankly speaking, we did not treat it as what happened in certain European countries and considered it as a regular flow and let go. No, actually, we believe that it's something serious that we needed to focus on from the beginning. We took all the precautions for everybody coming to the country, either through sea or airport or whatever. And we, hopefully, will continue on that trend and we will -- every country all over the world who will go through this crisis in the very near future. And definitely, during the Q&A, if you would like me to highlight on anything related to that issue, definitely, I will be very happy to answer after delivery of my information, definitely.

Regarding the impact of that disease on the business, so far we have no impact at all. On the contrary, our performance in the beginning of 2 -- first 2 months is great performance. We have revenue growth more than 50%. We have increasing in the number of cases by 10%, 15% across all the segments. And you will see that in the results of the first quarter definitely. Meanwhile, from a supply chain point of view, we have like more than 2 months of stock from all the imported items. And also, we will continue building our inventory in order to ensure that we have enough stock to meet the demand of this emergency case.

With that update on the corona status, I would like first to give you a snapshot, before the numbers, to the latest mergers and acquisitions just for what happened in the last quarter and so. So as you may be aware that El Katib Hospital already became part of the business. And part of the results you have seen in the fourth quarter is the performance of El Katib for the month of November and December, where we completed the staff, we completed all the manpower required over there. We started the change management process with the teams and the beginning of the hospital in November and December, and also the performance in the first couple of months is very promising that we choose the right asset and we're expecting a very great performance from this company and it will really add value to the group performance in general.

Also, one of the actions we took during '19 -- 2019 is the inauguration of the 2 polyclinics. We would like to inform you that the ramp-up of the 2 polyclinics is doing great, with one in the east of Cairo and the one in the west of Cairo. The one east of Cairo already now is converted into positive GPs and positive EBITDA level, and they already exceeded our expectation from the number of patients and also from the performance coming from the laboratory, radiology and the pharmacy, in particular. The ramp-up of the other one, which we inaugurated in the month of August which is in the west of Cairo, is delayed for a few months because actually it was started during the summer. That started from the month of November with all the working plans in place. We'll start to see a very good ramp-up and then again, the performance in the third quarter of this year is really very, very promising from the 2 polyclinics, and this is very encouraging for us to consider the model to be expanded even further in the future.

One of also the projects we discussed in 2019 was the Beni Suef project, which is the university hospital and the educational hospital that we are going to integrate in Beni Suef governorate, 100 kilometer away from Cairo. The civil structure work has started already, and we are expecting to integrate 70 beds out of this hospital toward the fourth quarter of 2020, as we promised before.

Still, our expansion strategy for 2020 is in place. We are evaluating so many options, so many opportunities. One of them is the IVF center, which we are in the final stage of drafting the SPA for that center, which will give us like EGP 30 million, EGP 40 million or EGP 50 million additional EBITDA every year. In addition to the other mega projects that we are starting in Cairo, that still is not finalized as yet.

By saying that, that's not short about the COVID-19 and about the major, major acquisition took place in 2019. Now let me go back to the results, the financial results of the performance in fourth quarter first. During the fourth quarter, I'm glad to inform you that we delivered a record high of EGP 511 million, which represents 30% year-over-year and it is actually at 20% -- more than 20% coming out of the organic growth -- 21% from the organic growth and 9% to 10% coming from the new acquisitions. Actually, it's very good results to grow the business with such a very high amount of performance and the growth here primarily.

Also on -- our gross profit grew by 17% versus last year. We have a performance for the fourth quarter of 34% GP margin. And definitely, as you know, we -- in the fourth quarter, we completed the hiring of El Katib, Queens, the polyclinics and the staff. So actually, the staff cost increased in the fourth quarter. That's why the GP is marginally affected but is compensated by a 36% from the organic performance landed together to the 34% for the fourth quarter. But when we will go to the full year performance, you realize that we have a GP margin of 35% and with a 22% growth versus prior year.

On the back of more to tell, I'm very happy to tell you that our number of cases in the fourth quarter increased by almost 15% versus prior year. And the first time, I'm very happy that you can see that we exceeded for the first time ever 1 million patient visiting our facilities and is under our -- within our group. We have like 1,015,000 patients treated during the course of 2019, and we are expecting here to hit at least 1.1 million or more patients during the course of 2020, particularly with the 10% to 15% growth we are seeing in the first couple of months of 2020.

From an EBITDA point of view, our adjusted EBITDA, after the noncash items, we had like 27% for this quarter, which is a very strong 30% margin, which I think is a great achievement for the group, although again, the new 3 integrated facilities were added. Remember that in 2018, when we delivered such a margin and we received questions, are we going to ease off -- can we continue this margin? Are -- you guys can continue delivering such a performance. And we told you and we are walking the talk and we are confirming with the results that we are able to still show efficiency and better GP margin and better EBITDA margin from the organic level, not only that, but also absorbing and make a quick turnaround when we have -- when we acquire a new business or integrate a new business and let this new business run with the same speed like the big brothers or like the organic business.

By saying that, I would like to tell you that also the results that we start to have in the first quarter and the beginning of this year is driven from the new initiatives we took, like the revenue cycle management approach, like the commercial team that we are working on increasing the reality of the consultant towards our group by generating more complicated surgical procedures and more advanced procedures. That's why the impact of the revenue cycle management shows a very good improvement in the impairment. The impairment is -- maybe this is the last time we are going to discuss this terminology in our calls from now on, and it will be vanished from our statement. Starting from 2020, it will go back to its very normal ranges of mainly 1% of the revenue or even less.

And let me remind everybody on the call that all the impairment took place during the course of 2019 were like the corrective measures came up on the surface when we have our full-fledged revenue cycle management team, and if we remind ourselves that this impairment is going back to 2016, '17 and '18 and already, it was done. And if we go back and try to allocate this impairment in the same year where it took place, it will not represent more than 1% to 1.5% of the total revenue for a given year. It is a history now. From 2020, as we promise you, we will have clean statements, and the impairment will not represent more than 1% at any given quarter, going forward.

And now if I would like to give you a very quick snapshot on the total year performance, we delivered, from a revenue point of view, a 22 -- 23% performance growth in the revenue versus 2018. We delivered EGP 1.8 billion with a gross, as I mentioned, of 22% year after month (sic) [year after year]. Our gross profit grew by 17%, and we have ended at the 17 -- at, sorry, 22% and we have ended at 35% for the total year, although the organic hospital hit a 38% alone, so 38% for the organic business and 35% for the consolidated performance because of the 4 new assets. In 2020, I would like to tell you that the organic will exceed the 40% performance and definitely will be slightly reduced due to the impact of the 4 new assets, but it will be improved during the course of the 2020 going forward. At the same time, if we look at the adjusted EBITDA, we landed on a 28% EBITDA level, which is EGP 0.5 billion -- more than EGP 0.5 billion, a 28% and with a 24% growth year after March.

With these results and more than 1 million patient -- number of patients, I would like to conclude that our consolidated performance for the year, although we doubled our assets, although went through so many mergers and acquisitions, we will be able to walk the talk and deliver above the 20% growth. We cleaned all the issues related to the impairment. We integrated the 2 polyclinics and 2 hospitals. And also, we set the stage in a very good shape to go in 2020 in a very good performance. The recent results of 2020 that the revenue is about 30% growth and as I mentioned, there is a great improvement at both levels, at both the GP margin and the EBITDA level. Consequently, we are expecting the net income also to show a great performance going forward in '20. Merger and acquisitions are on the right track in order to study all the options available, and we may come back to you once everything is clear and matching our standard and announced in the very near future any future acquisitions that would be materialized. In addition to that, our volume is increasing. Renovation plans are there. CapEx plans are there. And we have -- and I'm sure that will -- so I'm sure with that results, we'll continue walking the talk, and we'll continue to exceed your expectation at all levels, the GP margin, the EBITDA and also definitely the revenue growth and the increased number of patients.

With that, I would like to open the floor to -- for any questions after the snapshot of the revenue, please.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Shankar Kada from HSBC.

--------------------------------------------------------------------------------

Shankar K.P., HSBC, Research Division - Analyst [2]

--------------------------------------------------------------------------------

I have a few questions. First of all, regarding your guidance for revenue, is it 30% for 2019, which is it, or 20% plus? Can you confirm that?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [3]

--------------------------------------------------------------------------------

Yes, my guideline for 2020, not '19.

--------------------------------------------------------------------------------

Shankar K.P., HSBC, Research Division - Analyst [4]

--------------------------------------------------------------------------------

For 2020, yes.

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [5]

--------------------------------------------------------------------------------

Yes, for 2020, yes, I'm talking about 30% growth, yes.

--------------------------------------------------------------------------------

Shankar K.P., HSBC, Research Division - Analyst [6]

--------------------------------------------------------------------------------

30%. Okay. Okay. Now regarding the impact of coronavirus, what is the share of international patients that you have in your revenues? If you can tell us that?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [7]

--------------------------------------------------------------------------------

We have very, very, very limited number of international patients. And actually, we used to receive patients from Yemen, from Libya, from some African countries. And like 6 months ago, the government started to manage the chaotic situation with the Libyan patients and that stuff, and we are taking all of them to one of the military hospitals to receive their treatment over there.

There is a very big project going across the country, and there was a conference under the auspices of the President, was supposed to take place on the 26th -- 25th of June 2020 to launch Egypt as a medical tourism hub using the nature and the quality of the hospitals we have and all that stuff. And the major sponsor for that particular event is Cleopatra Group. We are the only representatives from the private market that's playing a big role in the executive committee of that conference. So far, there is no impact from the international patients at all. But if things, by the month of June, is settled down, so please mark your calendar. There is a very big bang conference and activities, and media plans will take place starting from 25th of June, and this will be including Cleopatra as participants with the minister -- with the whole country campaign to push for medical tourism plans across Africa and across the neighboring countries as well.

--------------------------------------------------------------------------------

Shankar K.P., HSBC, Research Division - Analyst [8]

--------------------------------------------------------------------------------

Okay. I have 2 more questions, if I may. One is regarding your CapEx guidance for 2020 and how much you have spent already on the Beni Suef of the EGP 360 million. And the second one is -- and how much are you planning to pay for the IVF acquisition? And the second one is, what is the price increase that you have already got for 2020 in terms of insurance coverage?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [9]

--------------------------------------------------------------------------------

Okay. I will answer the -- I will answer from the end. And maybe Mr. Ahmed Gamal, our CFO, may add more about the -- detail about the CapEx. For the pricing increase point of view, we are -- while we grew our prices -- we increased our prices in 2020 in line with the inflation, so something like 10% to 11% different from one hospital to another. So actually, if you hear what I was saying that the impact of the commercial team, the new commercial team we have in place is doing a fantastic job in attracting more doctors, attracting more complicated cases.

The 30% that I'm talking about as an additional revenue growth is coming from like 10% to 11% only pricing, then 5% to 6% is like change of case mix and then increasing volume with something like between 12% to 15% as well. This is to answer you about the price increase. But definitely, the price increase is not flat. Maybe you would increase in the cath lab by 5%, but you will increase in certain surgical procedure by 20%. What I'm giving you is the overall impact.

Regarding the CapEx plan, we have like a EGP 600 million CapEx plan, but I don't have the number now or the exact amount we spent, but maybe my colleague, Ahmed Gamal, can give us a more clear guidance about this point because you know that we have the CapEx plan divided between the quarters. Go ahead, please.

--------------------------------------------------------------------------------

Ahmed Gamal Eldin, Cleopatra Hospital Group S.A.E. - Group CFO [10]

--------------------------------------------------------------------------------

Thank you, Mr. Ahmed. This is Ahmed Gamal, the Group CFO. For the CapEx plan expected in 2020, it would be around EGP 500 million to EGP 550 million. This will include nearly -- almost 50% of this budget will be for the renovation and for the hospital as well for the -- as well as for the renovation of Queens, the newly acquired hospital. The other items are other medical equipment required for the business. The current -- the spending expected to be in the end of quarter 1 this year will be around EGP 40 million. And most of the CapEx actually are committed and part of -- the CapEx are already awarded to contractors. So we expect the phasing will be materialized during the other third quarters through the year -- throughout the year.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question comes from Nikhil Arora from Franklin Templeton.

--------------------------------------------------------------------------------

Nikhil Arora, Franklin Templeton Investments (Middle East) Limited - Senior Research Analyst [12]

--------------------------------------------------------------------------------

A couple of questions, if I may. Number one is on the provisions and on the impairment of receivables. I think we saw like a small uptick again in the fourth quarter. So if you could please comment on when does this end. And what should we expect for the first quarter and the rest of 2020? And my next question is on the long-term investment plan. Once that is over after, say, June on an ongoing basis, how much expenses should be budget for, let's say, the new ESOP plan?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [13]

--------------------------------------------------------------------------------

Okay. Actually, I will -- with regard to the provisions, as I mentioned, and if you recall, 2016, '17, '18, there was almost nothing there. And then it came after the new revenue cycle management decided to clean all the pending issues and the companies that bankrupt and all that stuff, so cleaned everything in 2019. And if you take any -- the total amount that we encountered for during the course of '19 and divide it back into '16, '17, '18, it will represent only 1% to 1.5%. Going to international standard and we seek actually, like 2 weeks ago, a feedback from all the international medical insurance companies about the minimum expected rejections or a change in invoices or provision that we should encounter. And we said that the minimum is 2.5%. So actually, with all this big amount, which really was not nice to have it in 1 year, like 2019, and we're really sorry for what happened, but we cleaned each and everything that may hinder us. The remaining amount, which we're going to encounter in -- and they started from 2020, will be with the normal trend of something like 1% to 1.5% max every quarter. And definitely, I may invite also Ahmed Gamal, our CFO, if he would like to confirm what I'm saying or to adjust the statements.

Regarding the long-term incentive plan, it is 70% driven by the share price. So definitely, with what's happening now with the share price and all the stock markets all over the world, we are not expecting that the amount of money, which would be reflected in the first quarter and second quarter, will be definitely less than what we booked for 2019. Once the second quarter is over, we are planning now to launch. But after we're getting the approval from the FRA, another program called ESOP plan, and this ESOP plan will not be like one big lump sum like this, it will be like a plan divided over the course of 7 years, and the exact amount that we can -- we will need to calculate every year, definitely, with the changes in the price now, it will be tremendously going down. So if you can allow us to go back and calculate exactly the impact and maybe we can refer back to you or Hassan can e-mail to you our plan numbers going forward. But I don't want to give a number now which will -- may be different after the proper calculation. Ahmed Gamal, if you would like to comment on the provision? Hello?

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Mr. Ahmed, your line is open.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [15]

--------------------------------------------------------------------------------

I think Ahmed got dropped from the line. But I think I can answer that until Ahmed comes back. The reason why the fourth quarter was slightly, slightly higher than Q3, it's just a matter of closing all the impairments by year-end as promised. So there was nothing significant, or there was no changes in Q4. It was just following the same trend, and we took the most aggressive approach in finalizing all those impairments by year-end so that we get into a cleaner 2020, as Dr. Ahmed said, so nothing to add here other than that. Can you please try contacting Ahmed again?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [16]

--------------------------------------------------------------------------------

We will come back to you. Excuse me -- go ahead.

--------------------------------------------------------------------------------

Nikhil Arora, Franklin Templeton Investments (Middle East) Limited - Senior Research Analyst [17]

--------------------------------------------------------------------------------

Sorry, but you're saying -- I mean on the -- let's say on an ongoing basis, 2.5% is kind of, let's say, the rejection rate that you're expecting?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [18]

--------------------------------------------------------------------------------

No, no, no. I said this is the international trend in the market. This is what is MetLife, ALICO and AXA and [PEBA] and those -- Allianz and those people is giving us as what's accepted by them as a reference. But we are saying that we're already going with even a much lower trend like that. So what we are saying that for your own calculation, do not encounter for more than 1% to 1.5% max from the entire business that we are [definitely going]. This is my commitment to you, as I mentioned, 30% growth in revenue. I am saying that impairment was more than 1% to 1.5% max during the course of 2020 based on the new structure we have, based on the new financial control that we have, based on the new audit team that's reviewing all the transactions and all the collections with the insurance companies, 1% to 1.5% max.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Your next question comes from [Hakim Marti] from Arqaam Capital.

--------------------------------------------------------------------------------

Unidentified Analyst, [20]

--------------------------------------------------------------------------------

(technical difficulty)

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [21]

--------------------------------------------------------------------------------

Excuse me, I can't hear well. I can't hear you. Can you please -- hello? Hello? Hello? I'm sorry, I can't hear. Hello? Hassan, can you hear the question?

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [22]

--------------------------------------------------------------------------------

No, I couldn't hear it. Can you please repeat? I think your network is bad.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Your next question comes from [Aman Sari] from Morgan Stanley.

--------------------------------------------------------------------------------

Unidentified Analyst, [24]

--------------------------------------------------------------------------------

I had a question around the M&A that was announced and especially given what's kind of happening with Finablr and NMC and given the shareholder overlap, what your plans are there and how you think you're going to keep that separated from the transaction?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [25]

--------------------------------------------------------------------------------

Okay. Thank you very much. Regarding the acquisition that you're referring to, we are still discussing the matter. And we send -- we released a press release that we did not sign anything yet with the other party because the lawyers are still in discussion on so many fronts. And 100%, if this transaction will took place, any shareholder, which has -- in relation with NMC, will never be part of the shareholders for Cleopatra Group. Take this -- take it from me as a commitment. So as a clear commitment, such a deal, if this deal will took place, it has to be very positively impacting the share price of Cleopatra. The shareholders, like you guys, should be very happy with that transaction and feel that really the company invested in the right direction. No shareholder that has in relation with NMC, or something like that, will be even ever a part of the shareholders of Cleopatra Group.

Number four, we have our rules and regulations inside the country that we must respect very carefully. So even prior to signing any, any document or anything like that, we have to go to the securities, the Ministry of Health, the FRA or the regulators inside the country here and get their clearance and their blessings that we're on the right track, and this will be the right investment for the country and for the investors. And then we'll sign and release the information, where we'll make everybody happy and everybody feel that the company they trust over the course of the last 4 years is the same company that they have to trust for the future. So please take my word about that. And nothing -- but what I'm telling you as a minimum expectation will take place within our group.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from John Niepold from SQM Frontier.

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [27]

--------------------------------------------------------------------------------

Thanks for having this call in the midst of this crisis that's going on in the world. Just talking about that, is it...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [28]

--------------------------------------------------------------------------------

John, please, are you wearing your mask or not?

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [29]

--------------------------------------------------------------------------------

I have no mask, but I am at home. With everything going on, you were saying that you're not treating coronavirus patients at all. You're just sending them to the other government hospitals? Is that right?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [30]

--------------------------------------------------------------------------------

What happened at the Ministry of Health, in order to contain the disease, they came up with the following strategy. They said, "Guys, if you have any patients suffering from cough with high blood -- with high temperature, okay, send us first to do the lab test." So in order to contain all the patients suffering from corona within the same location or the same hospitals. There, we have hospitals and the facilities to manage corona across all the country in every government. We have like 3, 4 different locations to do that. And we said that, if God forbidden, it became like a pandemic occasion and it will be a big bang, either like Italy or whatever, so in this case, they will take all the COVID inpatients -- the COVID-19 patients or the corona patients into their own facilities, and then they will send us the government and the health insurance patients suffering from orthopedic diseases, suffering from cardiac diseases and that stuff. But definitely, by doing that, they would like to keep the disease under their own control and to keep the private hospitals to manage the rest of the cases.

If worse came to us, definitely we are going to accept the cases. And we just today submit to the Ministry of Health the number of ICU beds that we have, number of ventilators we have, how many isolation rooms we have just in case they need to use it. But so far, we are containing the situation with 126 patients. But John, let us be realistic, and let us be also -- and speaking the truth and reality. You cannot avoid it 100%. So from time to time, you will have a patient already hospitalized and he came to the hospital without proper symptoms. And then he became acquired inside the hospital and the symptoms start to appear.

And just a few days ago, we have a similar case in one of our facilities and what we did exactly was we moved the patient immediately into the isolation room then we sent the sample to the central lab in the Ministry of Health. They discovered that this case is positive. They sent an isolated ambulance car and they took the patient immediately to the isolation, then we isolated all this hospital -- the beds, that room. We cleaned it completely. We sent the patient -- the nursing staff that dealt with the patient to the central lab Ministry of Health. We took the samples. Whoever got free, go back to work. Whoever is still under precaution, they will be home for 14 days under observation. But this is again a very rare case, but the standard within the country is if you suspect the case, send it to the central lab. Ministry of Health will deal with all the cases. And then if they are flooded with cases, God forbid, they will give us all the rest of the cases to manage locally into our hospitals. This is the standard regulation that we are following so far.

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [31]

--------------------------------------------------------------------------------

But do you -- I guess, do you think that it's realistic in that everything we read and one of the attractive things about Cleopatra is that there are so few hospital beds in Egypt as a whole. And from what we see, this thing kind of starts very slow and then when it ramps up, it really ramps up. And if not taken care of very carefully, then the hospitals are sort of overwhelmed. And with so few beds, just in general, in Egypt, it's hard for me -- or I don't know us, I don't know who else is on the call, to see that somehow hospitals wouldn't be overwhelmed. I mean what would they -- what would the government hospitals do with the extra patients? Are they building extra facilities? Are they ramping?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [32]

--------------------------------------------------------------------------------

No, actually, as I mentioned...

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [33]

--------------------------------------------------------------------------------

Actually, this would end up at your door and...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [34]

--------------------------------------------------------------------------------

Yes. But as we know...

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [35]

--------------------------------------------------------------------------------

And something about people not paying, et cetera, it's hard for me to also see how in a real, true country-wide emergency that people would be able to pay and that you would have a few...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [36]

--------------------------------------------------------------------------------

Okay. First of all, you need to follow -- I'm sure you are following the news, especially you're sitting at home nowadays. We -- more than 80%, 85% of the cases doesn't need hospitalization or admission. So consequently, the best thing to do is to stay at home if you feel any symptoms. And just a few days ago, again, one of our friends, he suspect that he got something and then he went to improve, just H1N1. So actually, during this time, people is mixing flus, H1N1 and corona that everything is over the place.

First, what we need to do and what the Ministry of Health is saying and doing and what we are communicating with our patients, day and night, guys don't panic, stay at home, symptoms may go by itself. You may be okay within the first 1 week to 14 days, start to work from home, they stop these patients from the 25 million students that we have between university and schools, they are already at home for 2 weeks in order to really to stop the big invasion and the spread of the disease. Just a couple of hours ago, they announced, also at the airport, they will stop receiving and sending the people starting on next Saturday. So they are taking all the measures to limit the occasion.

Eliminating 85% of the people that they don't need hospitalization, this will limit the number of cases that you're going to have as suffering from pneumonia and suffering from a deadly disease and the conditions. And they are going to avail the 100,000 beds we have between the military, the police, the universities and the Ministry of Health and the health insurance for that occasion mainly. If, God forbid, the flood that will be flooded with more than that and it's really going viral, then they will send the regular patients, cardiac, gastro, orthopedics, all these normal cases to our hospitals to take care of. But if we receive any such interference and we need to interfere and we get instructions from Ministry of Health to do that, so we are ready definitely with our beds, but I'm sure that we will not reach that state because our hospitals is already occupied with the number of patients. And we are following the track and sending the people to the main -- to the central lab. We are assuring the patients they are okay or not. If they are suspecting something, we will keep them under observation for 2 weeks. Otherwise, we are sending them home. I believe the process so far is really okay, and we will -- it will change as we go forward. But I think we are taking all the precautions to control it so far.

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [37]

--------------------------------------------------------------------------------

And if you -- under that scenario, if you then take a patient from, say, a government hospital that has some other kind of situation, how well you then get paid? Will the government pay you your normal rate, do you think?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [38]

--------------------------------------------------------------------------------

Yes, yes, yes. The Minister of...

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [39]

--------------------------------------------------------------------------------

Obligation or...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [40]

--------------------------------------------------------------------------------

No, no, no. I will tell you exactly. I will tell you. Maybe I did not mention that before, but I'm already representing the private market within the Ministry of Finance Committee to set the best prices for the new health insurance program in the country. The latest price list that we have so far is -- we can say that it is 20%, 25% less than the regular prices that we have. And their commitment, if any case will come from the health insurance and we'll be asked to treat it, at least, they will pay us for the existing prices now. There is another committee that we send our doctors to participate in that committee, but studying the actuarial science of all the prices and the new prices for the health insurance will be nominated by July 1. And the price that will be issued in July 1 will be even much closer to our prices this time. The Ministry of Health instructions that they will pay us currently, if any case will come to our facilities, with the prices of the existing health insurance program, which will even be better improved by July 1.

And in order also to work with our contingency plan, we spoke to the cardiologists and to the surgeons, and we told them that we may have an additional flow of patients or surgical patients and cardiology patients. And they said that they're willing to reconsider their fee to treat this number, this extra number of patients at a very low price range, which means that the prices will be almost at the same level or with a very minimal discount. It will be obliged or -- to treat those cases.

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [41]

--------------------------------------------------------------------------------

Okay. And do you have any issues if this virus -- you have a lot of things going on this year in terms of redoing hospitals, et cetera. Can some of those things -- if some of those things get delayed, will that be a problem for you if...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [42]

--------------------------------------------------------------------------------

No, actually, as my colleague, Ahmed Gamal, the CFO, mentioned, we already launched our new Clinisys system for the IT. And maybe -- I'm sorry, I forgot to mention that during the call, but our East Cairo now is green. So our 2 hospitals in East Cairo Cleopatra and Cairo Specialized Hospital and the polyclinic in East Cairo are all aligned and linked and working all with the state-of-the-art system called Clinisys. And West Cairo will start the implementation starting from next month. So actually, the renovation we have is -- CapEx plan is in place. Renovation may be -- definitely, if they will -- the people working from the constructing company will work with a slow pace or something like that, maybe delayed by a few months' time. But so far, we have no indication of doing that.

The main issue actually we considered is the supply. That's why we ensure that because many of the medical supplies are imported. So if the supply will be delayed from China, supply will be delayed from Europe, this may be affecting our performance in the future. But so far, as I mentioned during the call, we have like a minimum of 2 to 3 months of stock, and we are building up our stock to guard against any issue in that direction until this crisis will be over hopefully soon.

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [43]

--------------------------------------------------------------------------------

Okay. And any indication that the pharmaceutical companies are having issues? Issues with their price or...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [44]

--------------------------------------------------------------------------------

No, pharmaceutical company, no. Pharmaceutical companies is not an issue because actually 80% of what we are consuming in our pharmacies are locally manufactured. So actually, at least we are ensured that there is...

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [45]

--------------------------------------------------------------------------------

But they have most of the active ingredients...

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [46]

--------------------------------------------------------------------------------

Absolutely, absolutely. They have to...

--------------------------------------------------------------------------------

John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [47]

--------------------------------------------------------------------------------

Because they have [problems] importing that?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [48]

--------------------------------------------------------------------------------

So far, no. From a dollar and importation, there is no issue but -- and our information from a meeting took place with the Unified Purchase Committee 2 weeks ago that we have like, at least, like 6 months of stock across all the pharmaceutical companies in the country. We cannot see any issue. Maybe there will be an issue if there is a drug like a chemotherapy, which is out of stock, and we don't have enough inventory. But overall, for the vast majority of medical or pharmaceuticals, it is existing with at least 6 months of stock in the pharmacies and in the country.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

(Operator Instructions) There are no further questions in the conference call. Mr. Michel, the floor is yours.

--------------------------------------------------------------------------------

Michel Said, CI Capital Research - Junior Analyst [50]

--------------------------------------------------------------------------------

That's right. There's no more questions. Do you have any closing remarks?

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [51]

--------------------------------------------------------------------------------

No, actually. All what I would like to say that Cleopatra Group is continuing to delivering our commitments, and we'll continue walking the talk. And as I mentioned, 2020 will be a repetition to the performance of 2016 and '17. We'll super exceed the expectations at all fronts. And definitely and sincerely, I wish all the globe a safe recovery from corona and for us and for our families that this crisis will pass smoothly. And we wish everybody a safe recovery from this crisis. Inshallah, we'll -- by the time, we'll talk next call. We'll -- this subject and this crisis will be over. And thank you very much, Michel, for you hosting the call, and thank you Hassan and Ahmed for joining me.

--------------------------------------------------------------------------------

Michel Said, CI Capital Research - Junior Analyst [52]

--------------------------------------------------------------------------------

Thank you, Mr. Ahmed. Thanks, team, for your time, and thank you, everyone, for dialing in. Thank you.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [53]

--------------------------------------------------------------------------------

Thank you, Michel. Thank you, Mr. Ahmed, also.

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [54]

--------------------------------------------------------------------------------

Thank you. Bye.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.

--------------------------------------------------------------------------------

Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [56]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [57]

--------------------------------------------------------------------------------

Thank you.