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Edited Transcript of CLHO.C earnings conference call or presentation 9-Sep-19 3:00pm GMT

Q2 2019 Cleopatra Hospital Earnings Call

CAIRO Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Cleopatra Hospital earnings conference call or presentation Monday, September 9, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ahmed Ezzeldin Mahmoud Abdelaal

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

* Hassan Ahmed Hassan Fikry

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

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Conference Call Participants

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* Ahmed Hafez

Renaissance Capital Limited - Head of Mena Research

* Aly Adel

Beltone Securities Brokerage S.A.E., Research Division - Analyst

* Mohamed Hamza

Pharos Research - Analyst

* Shankar K.P.

HSBC, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Cleopatra Hospital's Group 2Q '19 -- I'm sorry, the Cleopatra Hospital's Group 2 Quarter '19 Results Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, Aly Adel from Beltone Financial.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [2]

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Thank you, John. Good morning, and good afternoon, everyone. This is Aly Adel from Beltone Financial. I would like to welcome you all to Cleopatra Hospital Group 2Q '19 results conference call.

From Cleopatra, we have with us, Chief Executive officer, Dr. Ahmed Ezzeldin; Chief Financial Officer, Khaled Hassan; and Corporate Strategy and Investor Relations Director, Hassan Fikry. The conference call will begin with a presentation of the period's highlight and then will be followed by a Q&A session.

I will now hand the call to Dr. Ahmed.

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

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Thank you very much, Aly, and thanks to Beltone for hosting the call today.

I'm just in London now, I'm talking to you over a speakerphone, so I hope that everybody can hear me well. And definitely you will be -- it will be my pleasure to receive all Q&A after the call.

Good morning, good afternoon, good evening to whatever your location is. Thank you very much for joining us. I have here with me, Mr. Hassan Fikry, our Investor Relations Director. And I will just -- I would like to start the brief of today with a very good news from the performance that we have on either side, the second quarter performance or the year-to-date results.

On the second quarter performance, as you may have seen the results, we were able to deliver EGP 409 million, with a revenue growth of 25% versus the same quarter of last year. And please allow me to remind you all that we said that we are walking the talk, since we start working together, we are walking the talk. And we have been asked every time, what is the performance of the company going forward? Can you still continue delivering the -- more than 20% growth? Can you still able to deliver 25% growth? The great -- the good news is, we are walking the talk. We told you that 2019, it's a transformation year, it'll go for another paradigm shift in 2020, and we are going to convert the number of assets that we are managing from 4 assets, organic hospitals in 2018, into 8 assets in 2019. And we are really -- I would like to thank all the team working with Cleopatra Group, we are able to exceed our plan, improve on all the parameters and this is what I'm going to discuss with you now. In addition, we already integrated the asset #5 and #6 and #7. And very shortly, we're going to announce the integration of the asset #8.

Going back to the revenue, we said that we grew the business by 25% on the quarter per se. And at the same time, we able -- on a year-to-date basis, we were able to grow -- to deliver EGP 824 million or 22% growth year -- versus prior year, although we already have the asset #5 and #6 and #7. And definitely, you know that, those assets just like a small baby, they are growing and they are picking up, very good performance to start with, very good planning to start with, but it did not affect our gross and revenue. In the contrary, it's also maintain -- and help us to maintain and to improve our commitment and deliver the same percentages that we promised from the percentages growth at all levels, at the level of the revenue or the GP or the EBITDA.

Say that, let's go down to the GP margin, we realized that our gross profit for the quarter is EGP 131 million, with 24% growth per year and with 32% margin. Keep in mind that on a year-to-date basis from, again, from the gross profit point of view, we are growing the business now with a 28% growth versus prior year and our margins reached 35%. Again, I would like to remind you that, said that all, may be by 2020 we'll be 35% -- no, now I would like to inform you that the 4 organic assets by itself is delivering up to 37% GP margin. And because of the new acquisitions, it's slowing us down slightly in the next 2 quarters to reach -- to work on the level which is very high of 55% waiting for the leapfrog and the paradigm shift of these assets, be on the right track and fully integrated to give us the massive expected results in 2020.

If you go down to the -- before I will talk about the EBITDA level, I would like to share with you the great news from our point of view that our number of cases served in the second quarter, and I'm sure you know that in the second quarter, in Egypt and the Middle East, it is the weakest quarter of the year because of the month of Ramadan, 6 long weekends, in addition to so many that the feast and the -- all these religious occasions. But to keep all that in mind, we were able to serve 231,600 cases, thanks to the new polyclinics. Thanks to the [Queens Hospital]. Thanks to the great job done on the ground to maintain the performance at the organic level over the hospitals. So consequently now, we've severed almost 476,000 cases in the first semester, with 7% growth year-over-year. So actually we -- on the quarter basis, we showed 15% growth and year-to-date basis was 7% growth. So actually, I believe that we have really the right number of patients, and that we're here to accept and to deliver and to serve much more patients going forward. And please keep in mind, before I will go further that the second semester of the year, like every other year, represents not more than 45% from the total year. And actually, this is the way we're pacing our budget for the year.

And please, you have all the data since we started the business together, go back to 2016, '17 and '18. And you realize that the best semester always, not more than 45%, 46%. By keeping in mind that's what we deliver, it represents only 45% of our performance for the year, you can definitely make the math and calculate that we're going to deliver a fantastic result for 2019 and going forward.

Regarding the last point, the numbers before I will give an operational update, it is about the EBITDA. We delivered almost EGP 96 million EBITDA for the quarter, with 23% margin and 24% growth versus prior year. Let's talk about the EBITDA on a year-to-date basis for the first semester. We will -- we delivered almost EGP 220 million, with a 27% growth and 29% growth versus prior year. I am sure that this number is confirming that we're hoping to grow, and definitely I will be able to answer any questions that you would like to have going forward. Keep in mind that we delivered both the levels of GP and the level of the EBITDA, 200 business -- 200 points improvement from efficiency point of view, okay?

Now let me give you a quick update on the business and going forward. As I mentioned, when I was very excited at the beginning that we already have the first polyclinic up running with amazing performance in the first 4 months in -- which -- let me remind everybody, it's a set of clinics serving 32 different specialties, with a 24-hour service for emergency, with a laboratory service, with radiology service and a pharmacy also serving 24 hours. Also we delivered for the first time ever, a home visit services. And also we have a mobile ICU as an ambulance standby -- stand in front of the hospital of the polyclinic to serve the patients anywhere.

Not only that, part of the success we have from a number of patients served and maybe if I touch ways on the surgery, you will come to know that the surgery segment for the first time ever grew by 41%, versus prior year recent time, which is an amazing result partially due to the new CapEx and the new improvement in the organic hospitals, but also the new polyclinics help big time in the conversion rate and the shifting of patients from the polyclinic to the hospitals. Because now we're in new suburban areas, where the people may be used to go to any other places, now under the name that they trust as Cleopatra, we're able to regain those patients and also increase the referral to our hospitals, okay?

Let me add here that this first polyclinic was inaugurated on the 17th of February this year. And then the second polyclinic is inaugurated as a soft opening during -- end of July, but definitely it started just in the summer. But I was expecting to discuss more results of that new second polyclinic in the third quarter earnings.

At the same time, Queens Hospital, where the small sector that we -- that joined the big family, they are now in the renovation phase. And as I mentioned before, it will not only serve maternity, but also it will serve 1 case surgery and radiology and also to serve as a woman wellness center something that really, that the woman living in that neighborhood is looking for. In addition, definitely to, like 15 beds of intensive care unit, half of them will be for the adults and the majority, the rest -- sorry, 40% of it will be for adults and the rest will be for the units of ICUs for the babies.

The other good news I would like to share is El Katib Hospital. As you know that we acquired the asset and we acquired the license and everything, the renting company will finalize with them everything. We have their OGM to finally approve the contract and all stuff. And the good news is from October, first week of October, we'll be managing the hospital fully operational under the name of Cleopatra. And definitely, we will be ready to have the results of this additional 108 beds to our consolidated revenue performance in the fourth quarter and the quarters to come.

Also on Beni Suef Hospital, we already signed -- with Al Nahda Medical School we signed the joint venture agreement. We have lots of cities there. But everything is ready for once the cities over, we will start the building of the place. The good news is, where that the consultant engineer department is giving us an early news that may be before the end of 2020, we'll be able to have like 90 beds up running where we can start to see the results in the fourth quarter of 2020. I may be forgot to mention that Beni Suef total project now, as mentioned in the announced before, is 198 beds, say 200 beds. The 200 beds, 90 of them may be fully operational in the fourth quarter of 2020.

In addition to that, we have the IVF project, which you know that there is a very high demand and tendency and that's done all for -- to help the -- getting babies through the IVF procedure. And we already started the due diligence on the center which is considered the best in town, doing the IVF center. And we are going to go with them, if all the due diligence went fine into a joint venture agreement, where definitely we'll have like 60%, 70% of the entire business. And definitely, we're going to work together on enhancing the work together through opening different centers, and even giving them satellite clinics in our existing locations.

Before I will talk about the other 2 projects and open the door for any questions, we have also the Brownfield project in New Cairo area. We're already in the due diligence. We reached our final agreement on the total amount of money as an in-principle to start the discussion. But we are working for -- we are waiting for the contract to be signed, hopefully during the months of September in order to start the process and announce before the end of this year a very good news about this additional 200-bed hospital in New Cairo area.

There is other 2 points I would like to talk about, which is the revenue cycle management and the private sales team, which is an invention in the industry here. Before that I would like to give you also an additional good news that many of you raised the issue of the employment in the last quarter. The great news is, as I promised you last time, the employment has reduced tremendously from 30 million to only 9 million during this quarter. And with the revenue cycle management in place and all the team for the auditing process before and after, you have my commitment that that line of impairment will be to go down quarter after another, until it will be diminished forever, starting from 2020.

If I would like to shed the light on the private sales team, we created full-fledged sales and marketing team from doctors and pharmacists and people with medical background, and those people now will start working on 3 different lines, a cardiology line and all the related diseases related to that. The orthopedic line and all the neuro and orthopedic diseases and surgical procedure related to that, and the third is surgical procedures.

Those 3 teams, their main job is to increase the referral and improve the image of the group, make customer-intense relation of the state and the international and scientific activity, and keep doing and improving on the image of the group, being the biggest group in the country that not only focusing on the revenue and the profit and the patient improvement, but also working on upgrading the quality of doctors, giving them operating information, work with them in partnership agreements. And I believe this will be a very strong advantage of the group that we already start to see signs of appreciation from the doctors and increased referral and increased loyalty towards our group.

With that, I would like to open the floor to discussion. And definitely, later on, I need to give another quick summary about the expansion programs and other projects we're working on currently. Thank you.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [4]

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John, can we start the Q&A session now?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We don't have anyone queuing up. (Operator Instructions) And gentlemen, we have no questions in queue at this time.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [2]

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Ahmed, actually, I have a question from my side. This is Aly Adel from Beltone. Just can you give us more color around the new IVF center? And what's the advantages in the market and the market share and the competition in this market? This is my first question. And my second question is regarding the long-term incentive plan, the LTIP in the SG&A expenses. What should we expect going forward in the second half, given that the number increased dramatically in 2Q '19 as it reached around EGP 50 million compared to EGP 5 million in 2Q '18? So that's mainly my 2 questions.

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

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Okay. I will take the second one. And I will leave the floor to Hassan to answer the first one. Regarding the issue of the long-term incentive plan, as you know, Aly, this is a very important step that the company took from the beginning in order to reward the management and the executive team and to keep them on the track. And this plan is mainly dependent on the performance of the shares. And with that performance, and consequently, we are not only taking the price of the shares on the day of the earnings, but actually the Finance Department is working with a formula to take a view of the performance of the share per day, per transaction, to come up with an average price over the course of the last 6 months. And as you know that during the last 6 months, thanks to the investors and the market, they are really -- the share was really appreciated and the price is increasing. But you keep in mind that we cannot really give you a number of exactly how much of the number will be going forward. But the good news is, we are now because -- the plan of the LTIP is going to be cash and distributed to everybody by June 2020. And we already with the Board of Directors, we are working on a new ESOP plan, which is not like phantom shares like this one, it's more of a share allocation. And not yet approved economically really in a more details because they are under discussion and review by the management and the Board. But we are testing of different options that in the near future, we may be able to reach the LTIP in a different ways and means to maintain the people motivated, to allocate the new ESOP plan to them. But at the meantime, also reflect immediately on the financial statement, the real EBITDA of the company.

Just please, it is something extremely positive for the team. That is one of the reasons that the people is really excited and motivated to continue delivering the commitment that we are going through. We as a management, we're fully aware. We are working on different procedures and different approach to handle the future aspect of the ESOP plan. And if we feel that this will be more appropriate and better for the financial statement and the employees, we'll definitely go back to the LTIP and adjust accordingly. And you will -- these numbers will be not existing in the P&L. It's not in 2020, which will be by anyway, by June 2020, it will disappear. But from now till June 2020, we will keep you posted. And hopefully in the very next quarter, I will have an update of what is the final decision from the Board.

Regarding the IVF, I will leave it to Hassan. Hassan is really very excited about it and he would like to give you a snapshot about this process.

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

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On the IVF, it's one of those segments now in Egypt that's highly demanded. The good thing about all the IVF scope is that it's not yet institutionalized. So most of the IVF space is controlled or it's managed through individual doctors, individual name. There is no yet strong brand name per se in IVF services. So the idea of acquiring an IVF center with an existing volume or in an existing reputation to come under the brand of Cleopatra will definitely benefit the group. As you know, this -- that sort of segment in health care has very high margins of 40%-plus, I guess.

And the other thing about IVF is that it's not segment specific. So it's not targeted towards Segment A or Segment B or Segment C. It targets all segments on the same pricing. The reason is clear. Whoever is demanding the IVF is demanding the IVF regardless of who's going to pay. It's a cash pay. It's mostly cash. It's mostly private. Compared to other markets, we are fairly priced. We have good

expertise in Egypt in general. And in the IVF Center, we're targeting to be specific with around 45%-plus success rate. So I guess the demand is extremely high. The number of IVF Centers is not up to the demand. There is potential to increase the pool or increase the referrals coming through IVF through this acquisition. So I guess the potential to expand from IVF Centers will not only be through that acquisition, but could potentially be from that acquisition, from referrals to that IVF Center and through our polyclinics and through our hospitals. And moreover, to open the door for us to perhaps expand and add in more facilities such that we have a network of hospitals, a network of general hospitals, a network of polyclinics and maybe a network of IVF Centers.

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Operator [5]

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We do have questions in queue now, if you like.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [6]

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Do we have questions, John?

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Operator [7]

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Yes. We do have questions in queue, if you like to go to the queue?

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [8]

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Yes. Yes. Okay. Let's start the questions.

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Operator [9]

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Okay. And our first question comes from Mohamed Hamza with Pharos Holding.

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Mohamed Hamza, Pharos Research - Analyst [10]

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Dr. Ahmed and Hassan, I also have 3 questions, if you can answer them. So the first one is, can you tell us how much of sales growth is price driven? The second is regarding the long-term incentive plan, we know it's going to be expiring in June 2020. So -- I mean, regarding this, I mean, what's the future plan for it? And my third question is are there changes to FY '19 expectations? Because as you know, in Q1 '19, you said that Cleopatra will record similar margins to FY '18 due to the synchronization of new assets in your portfolio. So are there any updates regarding that?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [11]

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Thank you, Mohamed, very much. Three questions up to the point, and I would like also to be up to the point. The first one, regarding the price. As you -- I'm very glad to inform you that we decided this year, and we mentioned that before that our price increase this year is in the range between 11% to 14% max. So in certain hospitals, in certain services, it reached up 14%, but the majority is in the level of 11% because actually, we try to go along with the inflation at that time. But keep in mind that we have, in certain departments, 14% growth in volume, other 7% growth in volume. So actually it is, like, 11% to 12% price increase. And the rest is a mix and a combination between volume and mix -- change of mix. What I mean by change of mix, again, for any of the colleagues on the call, that you are working on improving certain surgical procedures or certain intervention that it's more time efficient and more revenue generation, and improve the patient quality of life. And this actually what we are doing. This is regarding the -- your first question.

The second question, regarding the LTIP. Exactly as you mentioned, Mohamed, it will be expired in -- or vanished or distributed and mature -- fully vested by June 2020. As I mentioned to Aly before, we are going to announce in the near future, I mean by the near future, maybe next -- that will end next quarter that we are going to have an ESOP plan. Instead of long-service incentive plan, using phantom share and cash, it will be like a stock option program, where -- for a longer period of time. So we can keep everybody on the plan and expand the number of the employees enjoying the plan for the future. And consequently, this will not affect the GP level or affecting the EBITDA going forward.

We -- and even if we find that this plan will be accepted financially, accepted by the stock market, accepted by the Board of Directors, we may even go and readjust the long term -- the existing long-term incentive plan, so even you can see the EBITDA with a more clearer picture and more healthy picture before even June 2020.

The last point is about 2019. I am committing myself, I'm committing myself, I'm committing myself. We said that we are going to deliver 25% to 30% growth. And we actually want to direct currently, although we have and -- 4 new assets. But as I mentioned at the beginning of the call, their impact and the results we'll start to see is really encouraging that we are going to deliver the same percentage as we promised in the years before. Keep in mind that these are organic businesses from the 4 existing hospitals is already above the plan, and they're providing better margins than last year already. We're going to have consistent process, efficiency in place. Consumables and pharmaceutical is improving from a pricing point of view. Doctor fees and stock cost is well managed. Overtime extra is reduced tremendously. I believe we're on the right track to deliver our commitments for 2019 and beyond. Thank you.

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Operator [12]

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And next, our question comes from [Adi Singh] with [Dare Investment].

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Unidentified Analyst, [13]

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I just wanted to know if you can share some operational efficiency parameters by individual assets, and also for polyclinic?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [14]

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Actually -- thank you very much for the question, and it gives me an impression how much you are really interested in the group. But actually, we need a very long time -- period of time to answer the question. As far as I understand, if I can summarize your call, you need to know what is the key activities and tactics that took place in order to deliver high margins and continue showing efficiency. Am I right?

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Unidentified Analyst, [15]

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Yes.

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

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Yes. Thank you very much. And also, you said about the polyclinics. Am I right?

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Unidentified Analyst, [17]

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Yes.

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

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Okay. Fine. Regarding the hospitals, generally speaking, without going into very specific -- the hospitals, please remember, keep in mind that we are talking about our fully integrated hospitals. So actually one tactic, if they successfully accepted the [known] place, it will be a direction from the front office. And consequently, it will be implemented across the group. I will give you just one very simple action that took place at the beginning of this year, which really there is a very good result. And I will give you another case here for example. One of them is, we have said that the nursing used to -- the nursing services, they used to cover -- to come for a certain number of shifts per month. And we realized that a majority of them is coming for what you can consider like 40% to 50% of their entire free time for work. And this is actually like the law in the country here. So we increased the price per shift. And consequently, we asked them to -- if you like to take a higher price, a higher reward per shift, you need to work additional number of shifts. And consequently, it will be as if she's working exclusively for us.

By doing that, we increase the number of shifts. The number of nurses are very happy to work on that new system. And consequently, in total, we saved a big chunk of our overtime that we used to pay for people that were not that much loyal to us before, as a very simple example of a proper analysis to how we are paying our nurses. A turnaround to reflect on a very positive outcome.

The second that we included the orthopedic services and other item to our tender list where I used to be very proud all the years of how much we are saving from the consumables. But still one area, which was really in the gray zone, which was the orthopedic services and advices. Now we have a tender for that, which also help us a lot in doing that. Third was the area, for example, with the doctor fees. When the doctors now start to give them additional slots in the polyclinics, we're able now to negotiate with them a better margin -- overall margin. Saving partially from the doctor fees from the consumables and pharmaceuticals, new tenders, the shifts for the nurses. This also deliver -- help us a big time to improve our GP margins to the extent that Cleopatra is a standard hospital is now delivering more than 42% GP margins. But definitely, the other is still -- is slightly lower than that, but we're on the right track. The same way we took Cleopatra from 28% in 2015 to 42% now. I believe that we can take the other to reach the same level and definitely is -- 1% to 2% every year.

Regarding the polyclinics, I cannot yet talk about efficiency but I can talk about a smart introduction, proper marketing, aggressive marketing campaign, better selection of doctors, a well-trained staff. The pickup of the project is very good. But I believe it's too early now to talk about efficiency in the polyclinic so far. But I believe we're on the right track, and we are spending nicely. We're delivering a very good message and the future for the polyclinics is very clear as it will be very, very good.

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Unidentified Analyst, [19]

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Okay. If I can ask one follow-up in terms of the guidance for the number of polyclinics for this year and the next, if you can?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [20]

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Thank you very much. We already -- as we mentioned, we migrated the first 2. One is already picking up very nicely. It was opened in February. The other one just opened last month. So it's early to communicate on that one -- comment on that one. We already selected the location for the third polyclinic and the fourth polyclinic.

From a planning point of view and fresh point of view, we are supposed to sign for those 2 polyclinics before the end of this year. So the -- we can enjoy migrating them in 2020 in the current -- before the first semester, the 2 -- the new 2 clinics will be up running. And consequently, we need to go for an additional 2 every year.

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Operator [21]

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And our next question comes from Shankar Kada with HSBC.

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Shankar K.P., HSBC, Research Division - Analyst [22]

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I have 2 questions. Can you give us an idea about the gross margins at Queens and the polyclinics for Q2? And what is your outlook for the full year in terms of profitability for these 2?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [23]

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Thank you very much. But I believe I answered that. You have -- and generally speaking, if we talk, Shankar, about -- for example, if I deliver last year a 35% or 37% GP margin, if I remain with the 4 hospitals, as is, I would have come this year and tell you, I will deliver 38% or 39% addition to 200 points. But because you are spending this year, you are maintaining the growth of the assets and also you are integrating 4 new assets, 2 polyclinics and 2 hospitals, El Katib and Queens. Based on that, these definitely 4 new assets is not performing with the high 30% that we are talking about here. So we are working with either negative margins in the first 6 months, then we will peak slowly and surely. This what you start to see in the polyclinic -- in the first 2 polyclinics. Because the -- in the first polyclinic -- because the second one, as I mentioned, was integrated last month. But definitely, we not yet -- we have -- and a full P&L for the second quarter for our polyclinic that was just integrated in the second quarter. In a nutshell, we will have minimum of the same margins that we delivered in the year 2018. On a definitely a very high volume, more than revenue, more than 25% to 30%, higher than last year.

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Shankar K.P., HSBC, Research Division - Analyst [24]

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Okay. I had one more question. This is regarding your adjusted EBITDA. So when I look at your adjusted EBITDA and if I calculate EBITDA based on the reported numbers, there is a difference of around EGP 76 million. We have EGP 31 million of long-term incentive program, and then around EGP 10 million of impairments. But there is still a GBP 35 million, which is still -- there is a difference of GBP 35 million still left. Any guidance on what that is exactly?

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

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I mean it's -- we have the sheet in front of us here. And the number of GBP 95.7 million or -- this I mentioned on the call, GBP 96 million, this is the adjusted EBITDA number. And we have the breakdown here of the long-term incentive plan. And Hassan, please.

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Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [26]

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Shankar, I mean that's normal EBITDA. So a depreciation, cost of acquisition, impairment, LTIP, other income. You should land -- and 3 operating expenses, you should land on the same numbers that I have. I'll send you the analyst sheet.

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Operator [27]

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And we have no additional calls in the queue at this moment. (Operator Instructions) And we have a question now from Ahmed Hafez. This is with Renaissance Capital.

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Ahmed Hafez, Renaissance Capital Limited - Head of Mena Research [28]

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I just have one quick question on the margins. I mean how much do you attribute the growth in gross profit margin for the 4 original hospitals? The sequential drop between the second quarter and the first quarter to seasonality? And is there any other reason as why the margins have dropped that much between the first quarter and the second quarter? Looking back at the 2Q '18 versus 1Q '18, we're definitely seeing some drop, again, maybe on seasonality, but it wasn't as extensive as this year. So any insight would be helpful.

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [29]

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Go ahead.

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Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [30]

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Excuse me, Ahmed, you said extensive decline. Can you explain in which area, please?

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Ahmed Hafez, Renaissance Capital Limited - Head of Mena Research [31]

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I mean, in Cleopatra hospitals, the hospitals between the first quarter and second quarter, on the gross profit margin, we've seen a drop from around 43% to 36%. Cairo Specialized Hospital also dropped from around 35% to 33%; Al Shorouk, maybe from 31% to 26%; and Nile Badrawi was not that much of a drop when it comes to the gross profit margins. So just, why this happened? I mean it's understandable that maybe with the lower volumes Q-on-Q due to the seasonality, there could be some margin pressure. But it is more aggressive than what we saw last year. So my question is, how much of this is abnormal or one-off? How much of it is attributed to maybe the inclusion of Queens Hospital in the gross profit of Cleopatra Hospital? And what to expect physically in the first quarter of the year?

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Hassan Ahmed Hassan Fikry, Cleopatra Hospital Group S.A.E. - Corporate Strategy & IR Director [32]

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Okay. Ahmed, it's Hassan. Ahmed, I think, the best way to look at it is year-to-date. So if you look at year-to-date, the reason why I'm telling you look at it year-to-date is because, as you said, the seasonality in Q2 versus Q1 in health care, you cannot compare to the 2 quarters. And if you look at last year, you'll also see that same trend. One thing to comment on margins per hospital. The GP in Cleopatra Hospitals, for example, or the margin in the Cleopatra Hospitals stand-alone included Queens. So that's another reason.

But on year-to-date, you actually did 2 basis points -- 2 percentage points better than last year. So we think that we are maintaining, if not improving, our margins organically by at least 1% to 2% as promised last year -- by the end of 2018, we said that in 2019, we are still going to show organic enhancement in margins. Yes, this is -- this might be eaten up a little bit, 0.5% to 1%, coming from the polyclinic, coming from Queens, as Dr. Ahmed said. And quarter 2, to be specific, is a quarter that you cannot really reflect the margins of December using Q2. So you really have to look at it year-to-date as you go -- to in order for you to understand what sort of margins you can land on. So as Dr. Ahmed said, the margins that we're going to end 2019 with or on the consolidation, which includes organic enhancements and maybe a little bit of offsetting coming from the new expansions will be, if not, 2018 margins a little bit better, which is already overachieving or we'll consider good at this stage of the company.

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Operator [33]

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And again, there are no further questions in queue, sir. (Operator Instructions)

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [34]

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Okay. So if you don't have any other questions, maybe, Dr. Ahmed, if you want to end the call? Final remarks?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [35]

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Excuse me, Aly. Sorry, I cannot hear you well.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [36]

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There are no other questions. Do you want to end the call now with any final remarks?

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Ahmed Ezzeldin Mahmoud Abdelaal, Cleopatra Hospital Group S.A.E. - Group CEO & Director [37]

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No. Thank you very much. I would like all -- I would like to thank you and I would like to thank all the participants. We believe we are -- delivered what we committed for. We are going to deliver the same and even higher margins, although we are doubling the number of assets with the renovation plans, and all the expansions we are going for. The company now will be talking about 8 assets, not 4 assets. And going to be 9, 10, 11. Number of beds increased from 600 beds to 800 beds before the end of this year. And as I mentioned, El Katib Hospital will be joining our fleet -- our group very soon. So hopefully, we're looking forward to better results at all levels and all margins. And we'll be very happy to answer any questions in the future. Thank you very much.

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Aly Adel, Beltone Securities Brokerage S.A.E., Research Division - Analyst [38]

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Thank you, Dr. Ahmed.

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Operator [39]

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(Operator Instructions) Ladies and gentlemen, this conference will be available for replay after 1:00 p.m. Eastern today through September 16, 2019. You may access the replay at any time by dialing 1-800-475-6701 and entering access code 471672. International participants dial (320)-365-3844. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.