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Edited Transcript of NMC.L earnings conference call or presentation 22-Aug-19 11:00am GMT

Q2 2019 NMC Health PLC Earnings Call

London Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of NMC Health PLC earnings conference call or presentation Thursday, August 22, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Asjad Yahya

NMC Health Plc - IR Officer

* Michael Brenden Davis

NMC Health Plc - Chief Operations Officer of Healthcare

* Prasanth Manghat

NMC Health Plc - CEO & Executive Director

* Prashanth Shenoy

NMC Health Plc - CFO

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Conference Call Participants

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* Delphine Le Louet

Societe Generale Cross Asset Research - Equity Analyst

* Divye Arora

Daman Investments PSC - Portfolio Manager

* Hassan Al-Wakeel

Barclays Bank PLC, Research Division - Research Analyst

* Jamie David Clark

BofA Merrill Lynch, Research Division - Research Analyst

* Jonathan Milan

Al Waha Capital PJSC, Research Division - Analyst

* Marc Hammoud

JP Morgan Chase & Co, Research Division - Analyst

* Mathew Gomes Menezes

Citigroup Inc, Research Division - VP

* Michael Ruzic-Gauthier

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to NMC Half Year 2019 Results Conference Call and Webcast. I will now hand over to Mr. Asjad Yahya. Sir, please go ahead.

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Asjad Yahya, NMC Health Plc - IR Officer [2]

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Thank you, operator. Good afternoon, everyone, and thank you for joining today's call to discuss our 2019 interim results. Just to let you know, the presentation for these results is available on our IR page if you want to get access to it.

My name is Asjad Yahya. I'm Investor Relations at NMC. I'm joined today on today's call by Prasanth Manghat, our CEO; Prashanth Shenoy, our CFO; and Michael Davis, our COO. Following the prepared remarks, we will happily take your questions.

Before we begin, I would like to remind you that any statements made during this call that are not historical statements will be forward-looking and as such, will be subject to risks and uncertainties, which, if they materialize, could significantly affect our results.

I will now hand over the call to Prasanth.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [3]

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Thank you, Asjad, and good day, everyone. Since being appointed as CEO of NMC, the business has been evolving from a family-owned business to a FTSE 100 company with the structures, operations and governance framework to meet our business and shareholders' demand. I will talk more on this later but want to open by saying that although this transition continues, we have consistently hit and exceeded expectation, and H1 2019 is no exception.

I'm pleased to report that we have had another strong operational and financial performance in the first half of 2019. Trading is in line with our expectations. We have continued to deliver against our strategic objectives and made further investments to increase our capacity and capabilities and have expanded the geographies in which we operate.

I'll cover the strategic progress we have made in the first half before handing over to Prashanth Shenoy to provide a detailed review of our strong financial performance. Michael Davis will then provide an update on our operational achievements, and then we will go into the Q&A.

The strong first half is delivering a double-digit revenue growth. The successful application of our vertical space strategy has ensured NMC continues to deliver a market-leading performance in the UAE as well as the wider GCC. Our approach not only addresses the unique demographies of the population we serve but ensures we meet the demand for high-quality health care access. From these solid foundations, we have continued to enhance and invest in our verticals. As a result, we continue to deliver organic and inorganic revenue growth whilst integrating the organizations and importantly, maintaining the quality standards across the portfolio.

For the first time, we surpassed the $1 billion mark in H1, delivering revenues of $1.2 billion. We also improved margins and strengthened the balance sheet with improved net debt to EBITDA. You can hear more of that from Prashanth Shenoy later.

The continued successful execution of the group strategy in H1 2019 allowed us to demonstrate significant progress as we introduced higher complexities, evolving our Multispecialty vertical with nephrology becoming a key focus area among Centres of Excellence following earlier success in pediatrics; reinforced the fertility business position as a global leader by leveraging the unmatched knowledge base available from our relationship with Harvard Medical School; expanded the Long-Term Care business to provide outpatient rehabilitation care; leveraged cross referrals to other business segments, including the distribution business from our Operation & Management vertical.

Today, O&M has translated into substantially higher revenue generation in every aspect of other business that we have, therefore, reinforcing our leadership in the markets and services that we offer.

Moving to the next slide. There, we can see a good progress against the strategic growth drivers. In 2018, we delivered record revenues, which eclipsed $2 billion for the first time and represented a 5-year CAGR of 30%. I am pleased that in the first half of 2019, we have continued to deliver top line growth of over 30%. Michael will cover this in greater detail later, but at the heart of this performance has been our ability to differentiate our high-quality offerings from other providers. We do this by leveraging the international expertise from across our group, focusing the portfolio offering where we can and do stand apart, adapting our services to meet the specific demands of our customers.

We have an unwavering commitment to constantly improve our services and attain the highest possible quality standards. In March, I identified 4 growth drivers that I would focus on this year, namely, in NMC Royal, by increasing the acuity of treatment we provide, government initiatives, mandatory insurance and the Kingdom of Saudi Arabia's partnership. I am pleased to report that we have made strong progresses in all these fronts.

Let me start with one of the most significant milestone we achieved in H1 and in NMC's history, completing our partnership with GOSI or Hassana. This partnership provides us with the perfect platform in the Kingdom from which to establish the dominant position in the attractive Kingdom health care market. By leveraging NMC's medical expertise and the local market knowledge and strong reputation of GOSI, the partnership has the potential to transform the KSA health care market in a similar way to the impact NMC has made in its home market of UAE.

Second, we have made progress responding to the government initiatives. We are today well positioned to implement the DRG billing in Dubai this year, leveraging our experience in Abu Dhabi and be at the forefront of the positive reforms that are providing opportunities for growth in Abu Dhabi.

Third, at our flagship facility, NMC Royal, we continue to invest to grow capacity and further differentiate our offering. NMC Royal won the designation to offer emergency services in Abu Dhabi, the only private sector hospital to be awarded the designation. The introduction of this trauma Centre of Excellence that NMC Royal is attracting more complexities. We have progressed our medical tourism offering, where we are focused on elective cases. This has benefited NMC Royal DIP, and our affiliation with Harvard Medical School has enhanced and uplifted NMC's fertility platform. The net result is that NMC Royal is growing at around 13% year-on-year. There's more to do, and we will continue to diversify our offering, further increase the complexity of services we offer to drive both top and bottom line growth.

And fourth, mandatory insurance has started in Oman, the scale of which we expect to grow. We believe that Sharjah and Northern Emirates will do so imminently. With our local knowledge, I expect us to be the key beneficiary. We're well invested and well positioned to maintain high double-digit growth and further improve margins.

Evolution from a family-owned business to FTSE 100 company. In the 2.5 years that I have been the CEO, the management and Board have evolved from a family-owned and managed business to a business that is consistent with its position as a FTSE 100 company. There is still more to do. But as a Board, we are committed to balancing business growth, enhancing transparency, improving governance and upholding the high ESG standards. The Board and its subcommittees engage wildly with our shareholders and the investors community. In doing so, we are able to garner feedback and adapt our policies and procedures to maintain and promote high corporate governance standards.

Wherever we have got feedback from shareholders and the necessary authority to act, we have exercised discretion to more closely align management and shareholders. We moved rapidly to adjust management KPIs related to LTIP, both increasing the EBITDA growth performance and introducing an underpinned pulling EBITDA to net income.

So what is on our agenda? As we come towards the end of 2019, we near the end of our current remuneration policy. The Remuneration Committee's thoughts are now turning to the next remuneration policy. We remain committed to engaging with our shareholders and in this process, look to further align management and shareholders' interest. Under consideration will be the utility and selection of the most relevant KPIs for management such as a shift in focus from EBITDA to EPS, introduction of free cash flow generation and appropriate application of ROIC.

We are committed to further enhancing transparency, building on our already constructive interaction with shareholders. By increasing the frequency and depth of these interaction and disclosures, we can implement improvements. For instance, by setting up the related party committee.

We have made good strides in environmental, social and governance, as conveyed via a detailed report on the website, covering many of the improvements we have made with initiatives, which really are to key focus on conservation of natural sources of water and fuel, saving electricity, awareness on that connect between meat consumption and water conservation, a reduction on the use of plastic bags, improving efficiencies to minimize and reduce waste. We also have been focusing on improving the quality and standard of care of our patients, which is recognized by the prestigious awards to promote a culturally and gender-diverse workforce and invest in learning and ensure we have the correct and appropriate committees and policies to cover ethics, patients, employees and suppliers and the environment. I'm very proud of the progress we have made and shall continue to make.

Lastly, before handing over the call to Michael, I wanted to point towards the buyback announcement we made earlier today. During the recent months, we have seen a complete disconnect between the on-ground strength of our business and the share price movement in the stock market. We are consequently looking to get all necessary approval for a buyback of up to USD 200 million, which will be executed on an opportunistic basis.

I will hand over to Michael. Thank you.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [4]

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Thank you, Prasanth, and good afternoon, everyone. I'm Michael Davis, Chief Operating Officer of NMC Healthcare. I'll provide you with an update on the operational progress we've made, building on earlier comments that emphasize the strength of the core performance, which contributed to the continued sustainable year-on-year growth across the group.

We've had a strong half year across all regions and most notably completed the historic partnership with GOSI and the Hassana Investment Company, which I'll provide further information on later. What's important to realize is that the momentum we saw in 2018 has been maintained, and the operational actions we've taken position us well to meet the growing health care demands we continue to see.

Next slide. During H1 2019, we treated more than 4 million patients across our network, which represents a 16.7% increase over H1 2018 with revenue per patient growth of 17% year-on-year. This is a result of our earlier decision to increase operational bed capacity across the group, which increased by 26% in H1 of 2019.

As an example, in December of 2018, we had 120 operational beds at Chronic Care Specialist Medical Centre in Jeddah. And today, we have a census of 150 with an additional 15 beds planned by the end of September. This represents an increase of 45 beds in only 9 months.

Growth in the UAE and in particular Abu Dhabi, Dubai and Sharjah contributed significantly to this performance with a year-on-year patient volume increase of 7.4% for the region. I'll give you a more detailed overview of the operational performance in the following slides.

In our Long-Term Care vertical, we've increased patient count by 26% across the GCC. As mentioned earlier, our Chronic Care Specialist Medical Centre in Saudi Arabia continues to benefit from very high demand with occupancy levels currently at over 90%. We see further growth opportunities here and have secured the land next to the hospital for future expansion. I have previously spoken about the long-term care bed deficit that exists in KSA, and our success in Jeddah demonstrates our ability to build a successful long-term care and rehabilitation business from the ground up.

Our strength as the #1 and most diverse IVF business in the world continues. We're the brand of choice, as evidenced by the 55% increase in the IVF cycles. All of this would not be possible without the strength of our team and the operating structure we previously implemented that allows us to continue to scale the business.

Next slide. As illustrated here, we've delivered a strong performance across all parts of our Healthcare business. Our average revenue growth across Healthcare was 35.7%, where all segments reported growth, and I'm especially pleased with the strong performance in maternity and IVF. More on that later.

We would not have been able to meet this increasing demand for our services had we not continued to invest in increased capacity, our staff and the quality of our facilities. Demand remains high. We're winning market share, and therefore, we need to invest further to deliver on the many growth opportunities we see. In the bottom half of the table, I've illustrated the capacity we've added in H1 that has allowed us to treat over 4 million patients during the period. We saw nearly 17% more patients than in the same period in 2018.

Next slide, please. I want to take some time to focus on some of the key growth drivers in NMC UAE, in particular the UAE, Abu Dhabi and Dubai, which delivered phenomenal year-on-year growth of 6.5% and 6% in patient numbers, respectively. NMC Royal Hospital in Khalifa City, one of the busiest facilities in the UAE, delivered a staggering 13% year-on-year growth in outpatient volume and a 30% year-on-year growth in inpatient volume. In line with our cluster strategy to capitalize on health care opportunities through the development of specialized care verticals and centers of excellence, the facility has become the hub of centralization initiatives, including cardiothoracic services, laboratory and central sterilization department services.

Following our investment in 2018 to enhance emergency services at NMC Royal, in March 2019, the facility started accepting 999 emergency cases and is already yielding strong returns. This enhancement has resulted in NMC Royal becoming the only private sector hospital to be included in the list of hospitals in Abu Dhabi that can accept trauma patients. To date, we've received over 300 critical patients, leading to an increase of level 1 and level 2 patients per day being transferred to the facility. We believe this enhancement serves as a good reflection of differentiation by offering higher-value services tailored to local demand.

In addition, as the largest private provider of highly specialized pediatric services in the UAE, we've continued to focus on expanding the specialty and on strengthening our portfolio in the region. As a result, pediatric care at NMC Royal Hospital, Abu Dhabi's busiest private pediatric hospital, grew outpatient services an impressive 14.8% in H1 2019. And for the first time, patients can access world-class pediatric services from the #1 and #2 children's hospitals in the U.S.A. at a private hospital in Abu Dhabi.

In Dubai, NMC Royal Hospital and DIP delivered 32% year-on-year growth in outpatient volume and a staggering 11.5% year-on-year growth in inpatient volume. During H1 2019, we signed an exclusive memorandum of understanding with the Dubai Corporation for Ambulance Services for the transfer of patients from the Expo 2020 site to NMC facilities. This year, we also launched the Centre for Digestive Diseases and the Centre for Fetal Medicine as part of our commitment to introduce and strengthen new specialties across our facilities.

Finally, our preparations for DRG implementation in Dubai are well underway. Our Dubai facilities have been practicing shadow billing for the past 18 months and are now fully equipped to handle the upcoming DRG migration. Our corporate revenue cycle management team's experience in Abu Dhabi has helped to pave the way at addressing any additional discrepancies we might encounter. And we therefore believe we are well positioned to maintain and in some cases, improve our billing and collections process.

Next slide. I'll now take a minute to illustrate the strength and opportunity of our Operations & Management vertical, which continues to be associated with the highest margins in the NMC portfolio and has great potential for our future growth strategy. In H1 2019, we dedicated additional senior leadership resources to oversee the O&M vertical, which generated revenue of USD 15 million, including a 70% to 80% net profit conversion, and we believe we have the capacity and capability to continue to source O&M opportunities locally and across the globe.

But our O&M business is more than just a fee-for-service operation. Importantly, O&M contracts support substantial business generation in other health care verticals as well as the distribution business through referrals, cross-sales and in some circumstances, can allow us to try before we buy. An excellent example of this is the O&M contract we won to manage certain CosmeSurge facilities in 2017. We were very impressed with the great potential we saw. A year later, we acquired a 70% stake in CosmeSurge. And following its success, cosmetics is now a very important part of our portfolio. In this way, O&M contracts can serve as a valuable tool to complete market and capability evaluation prior to fully committing to a new geography or line of business.

O&M contracts benefit our procurement at a group level by allowing our partners to purchase medical consumables, equipment and pharmaceuticals from NMC at competitive prices. And this benefit is already reflected in our distribution earnings. As well as expanding our reach, O&M contributes to internal management bandwidth and data management through the use of our own IT software. We also optimize use of infrastructure by CapEx reduction at facilities here in the UAE and cost optimization and revenue enhancement in areas of cross-utilization of resources such as sharing physician subspecialties across the group.

Next paragraph. ProVita is one of NMC's most successful acquisitions, introducing the Long-term & Home Care vertical to the group. It continues to demonstrate the benefits of combining aggressive organic growth with M&A and remains a consistent and predictable performer for NMC. Previously focused only on inpatient services, the Long-term & Home Care vertical has now introduced outpatient services in the form of rehabilitation care. Without the expertise brought in by this vertical, NMC's multispecialty hospitals would have been less likely to introduce this service as seamlessly on their own. As a result, the vertical has seen a 19% year-on-year growth in patient volume in the UAE with 142 beds now operational, an increase of 14%, and the addition of more than 80 beds expected in the UAE and Oman in H1 2020.

In cosmetics, following the successful relaunch of the CosmeSurge brand and opening of 5 additional units across the UAE and Oman in 2018, we launched further 2 new facilities in Bareen Hospital and NMC Ruwais Hospital in H1 2019 with 3 more units expected in H2 2019 and 2 in 2020, including Kenya, a market we entered for the first time last year through the brownfield establishment of an IVF center. Of particular note is the new CosmeSurge Jumeirah hospital for cosmetic and aesthetic surgery set to open in Dubai this year. This state-of-the-art facility will offer inpatient and outpatient, high-end concierge services and will utilize physicians known across the world for expertise in their areas of specialty.

In 2019, we introduced additional highly sought-after technology that is new, innovative and extremely popular among patients seeking aesthetic treatment across the world. The success of CosmeSurge and our ability to transfer this knowledge, both regionally and internationally, is the reason we continue to feel strongly that CosmeSurge is well positioned to soon become a strategic vertical. Our efforts in CosmeSurge have resulted in a 6% year-on-year growth in patient volume across all facilities.

Next slide. Moving to our world-leading fertility business. Our venture into the IVF market commenced with the identification of fertility as a strategically important health care service and through the acquisition of Clinica Eugin, a European leader in assisted reproduction in 2015. As a result, a maternity center of excellence was formed and the seeds of a new vertical were sown. This was followed by the addition of Fakih IVF in 2015, creating specialist fertility hubs in Spain and the UAE and aiding geographic expansion as new capabilities were attached to our cluster model. Over subsequent years, the business grew rapidly, ensuring the creation of a Fertility business vertical.

As a result, the Fertility business is now a conglomerate of over 70 fertility clinics with a pan-continental presence across Europe, GCC, East Africa, Latin America and North America. Since 2018, we've been recognized as a top IVF service provider and the most diverse IVF service provider globally.

Building on our solid foundation, particularly in Europe, coupled with in-house resources, operational expertise and clinical research, we have the right ingredients for the group's continued global expansion. Our fertility services continue to go from strength to strength and now represents over 17% of our Healthcare revenue.

Next slide. We bring our full global network expertise to bear at a cluster level to ensure that we constantly deliver innovation, the highest quality and the best practice and standards of care. In particular, the work we do at Clinica Eugin, Fakih IVF and Boston IVF, which is an affiliate of the Harvard Medical School, to ensure we remain at the forefront of fertility through the addition of new innovative service lines and our pioneering approach. Our investment in research and development is changing the conventional manual processes in IVF to more automized and intelligent-driven applications, thereby improving the treatment, prediction and clinical outcomes and has a truly global impact across the business.

So what are we doing? Boston IVF is in collaboration with Harvard and LuminOva to noninvasively assess metabolism of embryos that will assist in predicting embryo viability. Similarly, our research teams in Eugin and Boston IVF are independently working on developing machine learning algorithms to predict embryo viability. Boston IVF has developed a dual-tiered embryo storage system, which is a big step forward from the conventional single-tier system to improve embryology lab efficiency. We have studies to identify novel markers of sperm quality. The objective is to look for mutations in sperm with specific paternal-related phenotypes such as failed fertilization after intracytoplasmic sperm injection and unexplained recurrent pregnancy loss. Boston IVF is researching with collaborators to establish a panel of sperm diagnostics, which will allow us to understand the source of male infertility and how to treat it in a more personalized fashion. We look forward to continuing to capitalize on our leading position in fertility to further expand our globally recognized offering.

Now turning to an area many of you have great interest in, NMC KSA. In May of 2019, we completed the formation of NMC KSA, which we view as one of the landmark events in the history of NMC and I personally view as the most significant transaction during my tenure as NMC's Chief Operating Officer. So what have we done since May? We started to implement the growth strategy, introducing a number of changes to realize the previously identified synergies of the partnership, which includes the formation of cross-clinical resource programs between facilities to aid integration and therefore improve operational efficacy by sharing and utilizing existing clinical resources from across the NMC KSA portfolio, deploying key support staff from the UAE to aid and expedite the integration process of our legacy NMC KSA facilities and now with the care facilities; centralization of procurement functions and standardization of suppliers to reduce the overall consumable and service costs, which is progressing very well, ensuring that best practice and quality standards are applied across the group; and also the introduction of NMC Trading to Saudi to replicate the cost optimization benefits that we enjoy in the UAE.

We've also implemented changes to enhance the corporate structure of the partnership, which include the appointment of key personnel, namely COO, CFO and Head of HR, all of whom have demonstrated success working in the GCC; ongoing centralization of all key functions, including HR, treasury, finance, marketing and RCM; and exercising our right to call for the restructure of the CARE Board. Despite our intense focus on closing the partnership at H1, I'm pleased to say that we delivered a strong performance in the legacy NMC KSA assets as well.

Turning to the highlights from our KSA facilities in H1 2019. The average occupancy rates across all our KSA legacy portfolio assets was approximately 70%, demonstrating strong growth as well as the opportunity for further growth. Chronic Care in Jeddah has continued to outperform expectations with greater than 90% occupancy, additional service lines and the licensing of additional beds. We're also looking at expansion solutions to increase capacity. And Al Salam Hospital Riyadh now rebranded to NMC Specialty Hospital, improved occupancy rates from less than 40% to 76%.

Next slide. Taking a deeper look into our operations in KSA during H1 2019. Our Al Salam Hospital, which was only opened in mid-2016, and as I mentioned, has been rebranded as NMC Specialty Hospital, Al Salam has seen phenomenal year-over-year growth of 31% in patient volumes. We've obtained CBAHI accreditation and therefore increased reimbursement rates for MOH services. We've also started new service lines in the form of Home health care and Long-Term care.

Chronic Care, which, as you can see, is an asset I'm particularly proud of, has delivered 176 year-on-year revenue increase. We've introduced Home health care services, which secured SAR 250,000 per month in additional revenue. And we're recognized as one of the safest hospitals in KSA through the national Essential Safety Requirements program. From the beginning, we were told that pediatric long-term care would not work in KSA. But earlier this year, we admitted our first pediatric patient and now peds represents approximately 10% of our Long-Term care business and continues to grow. Our partners at GOSI and Hassana believe in NMC and fully support our plans for continued growth and expansion across the Kingdom.

Next slide. In summary, we've made significant progress in the first half of 2019, demonstrating continued delivery against our strategic objectives to drive growth through increased capacity, the addition of subspecialty services and expansion across multiple geographies.

So what are my priorities for the second half of the year and beyond? Patients choose NMC for our commitment to excellence, our recognized quality standards and our leading facilities. Clinical governance, therefore, remains an important focus. And through our unwavering commitment and integrated structure, we'll continue to emphasize improved outcomes, patient safety and standardization of clinical best practice across the organization.

With the platform for growth in KSA now fully established, we're in excellent position to replicate our successful UAE strategy to deliver a full integrated continuum of care across the region. We expect our Saudi Arabia business to continue to grow rapidly in H2 2019 with the increase in bed capacity and the addition of more subspecialty services. I remain very excited by the opportunities in Saudi Arabia, and I'm confident in the NMC KSA team's delivery of these.

NMC will focus on specific areas of improvement for care with immediate emphasis on clinical services enhancement, infrastructure improvement and business enhancement leveraging group expertise. The partnership will also diversify revenue sources, improve quality of earnings with the introduction of NMC's model for clinical and business success, will grow IVF, Cosmetics, Long-term care and Rehab, Pediatrics, Obstetrics and Oncology services.

As I've said before, I feel confident that we have the leadership team, operational structure and as always, the enthusiasm and tenacity to continue to deliver on our many opportunities to maintain our historic track record of sustainable growth. As I look to the second half of 2019, I expect strong growth driven by sustained ramp-up, integration and expansion of our services and acquisitions and continued operational excellence across the global business.

Thank you all very much, and I'll now turn the presentation over to my colleague, Prashanth Shenoy to go over the financials.

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Prashanth Shenoy, NMC Health Plc - CFO [5]

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Thank you, Michael. Good afternoon. We've continued to make strong financial progress in the first half of 2019, building on our strong network. During the year, we have adopted IFRS 16. And in the following slides, you will see reference to pre-IFRS 16, which will demonstrate the underlying performance on a like-to-like basis within the first half of the previous year and the current period. We have also presented reported performance on a post-IFRS basis, which we will adapt going forward. All amounts are in U.S. dollars.

Revenue for the first half of 2019 was $1.2 billion, surpassing the $1 billion mark for the first time for the first half. This represents 33% growth year-on-year. EBITDA on pre-IFRS basis was $276 million, representing a growth of 23%. Similarly, net income was up from $117 million to $151 million. EBITDA post IFRS was $324 million and net income was at $138 million.

Turning to leverage. Our financial leverage ratios under both pre and post IFRS 16 are still within our guidance range for 2019.

Next slide, please. This slide demonstrates why we are confident in meeting the expectations for 2019 and our long-term track record of delivery. In each of the last 3 years, revenue, EBITDA and net income for the second half have been significantly stronger than the first half. Historically, the second half has been better than the first half due to highlighted activity due to demography of the region in which we predominantly operate in. We have seen a similar momentum driving this year. Most of the overheads are fixed in nature, and the increased activity leads to better top and bottom line.

During the current year, we have seen consolidation in the health care market, and NMC being a leading health care operator is poised to ride the benefits from the in-depth network we have set up in the last few years, both in terms of complexity and competency to operate in a tightened regulatory framework.

Next slide. Now turn to segmental analysis. Healthcare continues to be the biggest contributor to our revenues and has grown 36% during the first half. This has been driven by improved capacity utilization of existing assets and the full 6-month impact of acquisitions completed last year. Healthcare contributed almost 76% of the group revenue and almost 88% of the group EBITDA. In line with guidance, Healthcare EBITDA margins compressed in H1 2019 due to contribution from Aspen Healthcare, which is associated with lower margins and increased contribution of assets in the early stage of ramp-up, particularly in KSA.

Distribution division has done quite well. Revenues grew sharply by 19% during first half. The growth in revenues as well as margin improvement was supported by new contracts, including one-off contracts from government and private sectors. Additionally, referrals and cross-sales on the back of O&M contracts have translated into sizable revenue growth for the Distribution division.

Next slide. We continued to manage our cash flows well. The free cash flow adjusted for growth CapEx stood at the highest for H1 in the history of the company for the post-IPO period, reflecting the impact of continued ramp-up of existing facilities and integration of acquired assets.

Turning to free cash flow summary. Profit for the half year before tax was at $141 million. Following adjustments including working capital depreciation, amortization and CapEx, free cash flow was at $78 million. Adjusting for growth CapEx, the free cash flow for H1 2019 stood at $141 million. This translates into an EBITDA to free cash flow conversion of 51% versus 2% for the first half of 2018. As mentioned earlier, the cash conversion stands highest for the first half of the history of the company post-IPO period.

Importantly, around 31% of our operating beds remained in the ramp-up phase. With all the CapEx already incurred on these beds, improved utilization of these facilities should add substantial cash flow for the business in the coming years.

Next slide. And this slide reflects the substantial cash available to us. This liquidity provides us with a significant war chest to the company as there are a number of attractive investment opportunities for both short and medium term. These funds can also be employed opportunistically to enhance shareholder value, including buybacks.

Next slide. In summary, we are confident in our understanding of the markets that we operate in. We continued to focus in improving our utilization and efficiencies of existing assets while integrating the new ones. I'm confident in reiterating our 2019 guidance. Revenue should be in the range of $2.5 billion to $2.54 billion. EBITDA should be in the range of $665 million to $675 million. Net income to equity holders would be in the range of $297 million to $305 million. IFRS on lease liabilities should be around $680 million to $690 million. Net debt to EBITDA should be below 3.4x.

The table on the top reflects our guidance. You will see reference to pre IFRS 16, which will help demonstrate the underlying performance on a like-to-like basis given the first half of the previous year and the current period.

Our organic growth rate remains strong. Revenue growth from the assets that existed at the end of 2017 stood at 13%. EBITDA growth, excluding IFRS 16 impact from all the assets that existed at the end of 2017, stood at 15.3% year-on-year compared to the guidance of 15% we've given for the year 2019. We are also deleveraging the balance sheet with net debt to EBITDA, excluding IFRS impact, standing at 2.7x in 2019 versus 3.1x at the end of 2018.

The results of the first half have clearly demonstrated the strength of our business. NMC's unique positioning gives a tremendous vantage point to capitalize on opportunities in the target markets, particularly UAE and Saudi Arabia. As reflected by the improvement in key metrics like cash flow conversion, leverage, EBITDA to net income and working capital in H1 of 2019, NMC offers a substantial shareholder return potential. However, the question is whether is -- should the business continue to invest and accelerate higher revenue for the future or focus near-term shareholder returns with range-bound growth.

With that, I would like to thank you for your time, and now we'll take the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [2]

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I'd just like to add, we have an unusually high number of attendees in the call today. So if you can please limit your questions to 2 and if you have more, then you can get into queue again.

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Operator [3]

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Our first question comes from Jamie Clark, Bank of America Merrill Lynch.

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Jamie David Clark, BofA Merrill Lynch, Research Division - Research Analyst [4]

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I just had a question on your cash flow, please. I mean you basically said that your first half cash flow is normally weaker than your second half cash pay. Do you anticipate that being the same this year, so we can expect an even higher number in the second half? And my second question would be on the $300 million to $325 million in CapEx you plan to spend on your expansion projects, can you just say what's left to spend in 2020 and 2021, please?

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Prashanth Shenoy, NMC Health Plc - CFO [5]

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Sure. Thank you, Jamie. On the first question, basically, we expect a similar trend to follow in the H2 given the point that we are not doing any sizable immediate transactions, so we expect the same trend to follow for H2 as well.

Coming to second question, the total CapEx earmarked for the $300 million to $325 million, of which we have already spent $100 million last year, $60 million this year, so totally 160 has -- 50% of that has been spent. We expect to be under the guidance of we have given before the year. So another $40 million should be enough for us as far as 2019 is concerned. Regarding the balance amount of $125 million, that would be spent over a period of 18 months from 2020 onwards.

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Operator [6]

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Our next question comes from Hassan Al-Wakeel, Barclays.

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Hassan Al-Wakeel, Barclays Bank PLC, Research Division - Research Analyst [7]

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Firstly, congratulations on the strong results. I have a couple, please. So to follow on from Jamie's question, what is the potential revenue and EBITDA impact that we could expect over the medium term from these CapEx projects, these 7 or so projects? That's the first question. And the second question, maybe a general part and then a more specific part. So in general, are you aware of any institutions looking to take strategic stakes in NMC Health? Have you engaged with any? And specifically, do you know whether there is any substance to the reports that we saw last night on Reuters? And do you believe the Bin Buttis are potential sellers?

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [8]

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Thank you, Hassan. Thank you very much. We understand that we have not been providing granular information, how people can project revenues and EBITDA from CapEx. We are working on further improving our disclosures. In our next Capital Market Day, we will be giving ideas on how to look at revenues and EBITDA from those CapEx. And not only that, going forward, we will make it as a part of our disclosure when we talk about CapEx, how can people look at the revenue and EBITDA profile. So you may have to wait for a month or so, then we will come back with all of them.

Regarding the next question about the possible takeover, we do not comment on speculations. One thing is that the company and the main shareholders, for as long as the company has been listed, have regularly had investors demonstrating interest in buying shares in NMC. But any offers to buy shares is always considered on its merits. But one thing which we can definitely tell you that the current shareholders have been and are long-term holders of NMC stock and especially look at the valuation currently that is there for the stock, which is in completely disconnect to the bare fundamentals of the business.

We are very much excited on NMC's prospects going forward. The key parameters, which market has been looking at it in a situation when there is no M&A transactions or where there's no organic expansion on NMC, the key parameter is what Prashanth mentioned which is like conversions of EBITDA and cash flow, working capital and all those, deleveraging the balance sheet. We've clearly demonstrated in our first 6 months that in an environment when there is no such changes happening on either by acquisition or by opening of the new assets, NMC has an inherent potential to improve all those substantially. And we believe that trend should continue. We are seeing a strong demand in certain pockets of UAE and the regulators are looking at in improving the entire services of health care to make sure that the quality of health care is improved. Saudi Arabia we strongly believe is the game changer of NMC, which we have been telling for some time. Michael demonstrated that in the last 12 months how asset like As Salama, Al Salam in Riyadh and CCMC has changed. And we today look at Care Hospital, which came into our joint venture along with GOSI. We are putting a good plan to ensure that how we have been able to extract value out of our M&As in Saudi Arabia. Maybe a little more higher returns can be expected in Care, considering the fact that, that asset is an -- as an infrastructure can be considered as the top assets in the entire kingdom.

So we are very much excited, but on that particular question, we do not want to comment on speculations.

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Hassan Al-Wakeel, Barclays Bank PLC, Research Division - Research Analyst [9]

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That's helpful, Prasanth. If I could please just follow up on your comment around the disconnect between fundamentals and valuations. So the release mentions that you are benefiting from share gains in the UAE as well as tighter regulation that's also benefiting you. Could you please just elaborate on those 2, please?

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [10]

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Yes, for example, as a simple example is that what Michael has mentioned about DRGs in Dubai. DRG, there are a lot of pushback coming in from most of the providers, but NMC and a few other very big players are supporting this entire initiative because our mechanism that we have, which we haven't put into use for many years in Abu Dhabi and people like Michael, who have been exposed to DRGs from 1990s in American market, those knowledge and experience that both the people and the system has will definitely help us to make sure that we get the first rights in -- when they implement those.

Same with Abu Dhabi's concept of centralization. We have been thinking about this quite early, and that is why trauma came into centralized care. We have now moved into a centralized cardiac center, whereby the entire open heart surgeries happens in one center. So such initiatives are very well accepted and respected by the regulators who generally help us to move on, on that aspect. This definitely shows the benefit of being a large entity in the country which, by virtue of that, we are getting infrastructure that's at par with any global standard. We are able to attract and retain health care talent, both in the health care space of treating patients as does the management team which is a rare commodity today in the world.

So these definitely will help us to position ourselves strong, and we see it that over the next 12 to 18 months, that strength getting more and more momentum.

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Operator [11]

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Our next question comes from Jonathan Milan, Waha Capital.

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Jonathan Milan, Al Waha Capital PJSC, Research Division - Analyst [12]

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Congratulations on very good results. Just 2 quick questions. One, is it possible for you to provide the revenue growth, EBITDA growth, net profit growth and the utilization rate of the Saudi hospitals, excluding Care? Because there is sort of a concern with regards to Saudi given that there's sort of a slowdown there. And what's the breakdown of patients of Saudi versus expats? And with regards to the share buyback, now that the share has already re-rated at least 20% and at some point, 40%, does that mean that it is less likely for us to see the share buyback take effect right now, but it would -- if the share price goes back to where it was yesterday?

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [13]

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So I'll take the share buyback first. The company believes -- see, today -- I mean, this [RNS] was done pre the opening of the market. So if you look at it and we believe that the current share prices is undervalued and as a result, the company intends to deploy funds to make sure that we take advantage of the exceptional price volatility. We are mindful of the fact that there are a lot of prospects for NMC to expand in the market, as Prashanth mentioned, about $300 million that we are expanding inorganically in the region. We see that the opportunity is coming in, but you also have seen the cash splits where cash is increasing, which will also help us to ensure that sufficient cash is available to balance between both opportunities, and we are mindful of that process. But at the same time, we don't want to completely ignore when the share price disconnect to what it is on the business.

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Asjad Yahya, NMC Health Plc - IR Officer [14]

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On the Saudi side, we don't give individual assets numbers as such. What I can do is, -- this is Asjad, by the way, if one of -- if someone from your side or yourself, you want to get in touch with me, I can get you a broad idea of how the assets are working. Michael can speak a bit more generally about the asset performance, but we don't give individual asset numbers, which then means that we're not going to give you on this call individual revenue, EBITDA, and the income numbers for those Saudi assets.

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Jonathan Milan, Al Waha Capital PJSC, Research Division - Analyst [15]

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Aggregate for all Saudi, not individual hospitals, just aggregate for all Saudi.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [16]

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Okay. So aggregate, I'll come back to you with the details on that. We'll try to report Saudi as a geography going forward as the size goes up. So maybe 2020 onwards, we start looking at it, Saudi as a geography to start reporting on it. This year is mainly about the business. And we will be reporting Saudi-based numbers going forward.

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Jonathan Milan, Al Waha Capital PJSC, Research Division - Analyst [17]

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It will be very useful if you also report U.K. separate and just geographically speaking, revenue, EBITDA and net income, that will be very helpful.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [18]

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We are going to improve disclosure on geography wise.

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Operator [19]

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Our next question comes from Divye Arora, Daman Investments.

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Divye Arora, Daman Investments PSC - Portfolio Manager [20]

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My question is also linked to the Saudi business. I just want to get a highlight of what sort of margins you currently have in Saudi, the EBITDA margins or net margins, at least some guidance. And where do you see these margins progressing in next 3 years once the assets -- or the utilization goes up?

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [21]

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Prashanth and Michael highlighted in their presentations most of our assets are still in early stages of ramp-up. So the margins today are not really reflective of where they will eventually end up. What we've been saying consistently is that on the Multispecialty side, unless we start bringing in some of the more specialized services that we have, the margins that you see in the market, the general margins that you're seeing in EBITDA level, we should be able to sustain those on the long-term care side. We've said that once we stabilize with the utilization on a stable rate, it should be in the margins similar to -- on the Long-term care side as what you see in the UAE.

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Divye Arora, Daman Investments PSC - Portfolio Manager [22]

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But how much time it will take you to get to that maturity level of stabilization level in Multispecialty and Long-term? It will be 3 years from here or...

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [23]

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That's a good estimate.

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Operator [24]

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Our next question comes from Michael Gauthier, Berenberg.

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Michael Ruzic-Gauthier, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Congrats on a good report. A two-part question from me on both margins and the distribution business. So we saw a very good performance from your distribution both at the revenue and margin level in H1, and I was wondering how we can think about that going into H2. I understand some one-off contracts will likely run off. And if that margin does normalize, is there any risk to margin guidance for the full year given that the Aspen and KSA margin drag site in H1 are unlikely, in my view, to run off in H2? And I have one more follow-up, if I might, after.

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Prashanth Shenoy, NMC Health Plc - CFO [26]

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On the distribution, typically, we guide for a 10% increase in margins and -- I mean on the top line. And I would say the margins are typically in about 8% and 11%, and that's what it is. And typically, but what has happened is that is, I mean, we definitely get one-off contracts and CapExes and many things happen across the countries -- regions. So this would really add more value. But these cannot be predicted. So these are based on tendering projects which are there, and we expect, I would say, similar performance for H2. But I mean, nothing significantly different than now.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [27]

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And then O&M contracts, as Michael mentioned in the presentation also, has an influence because we are participating in multiple ways through our Distribution business. One is the pharmaceutical products that comes in. The second one is on the consumable division that we have in medical consumable division. And the third one, as [Michael] has mentioned, the turnkey projects that our medical equipment suppliers visit. All the 3 are having an impact. And that also has got some influence on the Distribution business.

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Michael Ruzic-Gauthier, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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And just one more for me. I've noted that mandatory insurance has come to a mine, and you guys are now allocating some CapEx to growing beds there. I know this has probably been a little bit out of the market focus. But I was wondering if you could highlight to us the opportunity that Oman might present and how you guys are thinking about that going forward.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [29]

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Oman market is having a population of 40-ish million, which is larger than Abu Dhabi Emirate or Dubai Emirate if you look at it. That market has got a very low supply of private and public beds. Government started working on it but definitely there are budget constraints. Oman is one market where we were -- again, government pays for the Omani nationals to go out and take treatment. There -- countries like Thailand has been beneficiaries of that medical tourism sent by Oman, especially the Royal Oman police. We have seen trends changing, government giving more priority for investments in the country. It is a market with a high potential of volume. It's not a high-margin business. But considering the fact that there are not much players there and our investment being smaller in size, it makes a lot of advantage for us. We -- Michael mentioned in his presentation that our model is actually to integrate NMC as a whole in GCC. So there will be patients flow between the facilities, doctors flow between the facilities, knowledge flow in health care facilities. So in that model, they're looking only as Oman or Saudi Arabia or UAE as a separate geography. In certain aspects, seeing them all in one basket will be more beneficial. And that is what we as a management is really focusing on.

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Operator [30]

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Our next question comes from Mathew Menezes, Citi.

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Mathew Gomes Menezes, Citigroup Inc, Research Division - VP [31]

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Two questions, please. First is around Aspen. Can you give us some color on what progress you've made there, a fairly substantial progress yet in terms of patient flow or doctor flow? And then secondly, I think you flagged about 13% growth at Abu Dhabi General on outpatient business. Can you just tell us how that's possible? I mean what you're doing to achieve that at a very -- as I understand mature assets, that would be helpful.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [32]

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I'll take the Aspen question for starters. We're very pleased with the performance of Aspen this year, and I'm happy to say that it's outperforming our expectations for 2019. In late last year, we chose to make management changes at the top. We brought in a new strong CEO with good ties for the U.K. with an entrepreneurial mentality and a great sense of the U.K. health care market. Aspen Quality Care and CQC ratings has a threshold for which Aspen never fell below. So we've always been really conscious of the quality of the care provided there. But I think coming in and putting some focus on cost optimization, additional ways to generate revenue, centralizing some of the back-office function and really just placing good, strong KPIs on the leadership team there with support from Abu Dhabi has proven to be very successful for this company. As Prasanth said, we'll start reporting in 2020 by geography, but I think that everyone who watched this transaction, we really -- will come a bit more to understand why we found Aspen to be attractive in the first place at the price for which it was acquired. But for all intents and purposes, I'm very pleased with Aspen, comfortable with the team we have in place now. We've seen our patient volumes increase. And we've also placed a very strong connection to the Middle East from London. We know that we have vast numbers of people from the GCC that travel to London and like London as a second home. Many come for the month of October, and we've put together processes for second opinions, executive physicals. We've also linked some of our Saudi partners with our Cancer Center of London here in the U.K. So again, I mean, I don't know how better to say it other than I'm very pleased with where Aspen is positioned right now.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [33]

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And second question on Abu Dhabi, Abu Dhabi, the mature assets also are performing well. But a key driver of Abu Dhabi's growth is NMC's Royal facility. NMC Royal facility, the traction that we get on superspecialists that we bring in, the number of players that it gets opened. That is helping us to grow the Abu Dhabi market.

As Michael mentioned, we also are starting to bring in specialized services, for example, like fetal medicine into our NMC Royal Women's Hospital. These type of offerings not only increases the value but also the profile of the organization. That helps us to attract patients from -- not only from Abu Dhabi but from other parts of UAE also.

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Operator [34]

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Our next question comes from Marc Hammoud, JPMorgan.

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Marc Hammoud, JP Morgan Chase & Co, Research Division - Analyst [35]

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One question for me. So you mentioned in the earnings release, 385 new beds under development in the UAE. If I counted well, I have 478 new beds in my model. So I'm wondering if you can break down this 385 and whether it includes brownfield and greenfield. Some of this expansion that I have in my model must have been delivered in H1 in '19, I guess. So if you can take us through the breakdown of 385 new beds in the UAE, please.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [36]

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Just give me 1 second. I'll tell you the slide number on the presentation deck. If you go to Slide #40 in the appendix.

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Marc Hammoud, JP Morgan Chase & Co, Research Division - Analyst [37]

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Yes. 170, 140. Okay. That's good enough. And I know the question has been already asked, on the profitability, because it's the reason why the Healthcare business margins got affected, Aspen and KSA operations. I'm going to repeat the question just in case. But if we can have a sense where the EBITDA margin stands for these 2 assets, Aspen and KSA operation as a whole. I understand that Care is in associates, so it would basically be the 5 assets that you run directly in Saudi.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [38]

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I'll come back to you on that question with the detail. I don't have it.

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Operator [39]

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(Operator Instructions) We have a follow-up question from Michael Gauthier, Berenberg.

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Michael Ruzic-Gauthier, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [40]

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Just one more for me, guys, a quick one on the DRG implementation in Dubai. I was just wondering if you could give us an update now that we're moving more into that process on -- if it will have any effect on your business from both revenue and the margin in the core UAE market.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [41]

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Thanks, Michael. As I mentioned, we've done shadow billing for the last 18 months. DRG is not new to us as a company. We've had DRGs in Abu Dhabi now for the last 6 or 7 years. We have a corporate revenue cycle team that's very skilled at navigating that. And in some ways, we feel like we could actually improve our business based on the DRG. Fee for service is a concept that in most parts of the western world no longer exists. In terms of the time line, Dubai has been talking about this as implementation in September of this year. We're ready, and we're prepared for that. Prasanth mentioned in his discussion that some of our colleagues in the UAE have really pushed back on it. I think they were a little bit concerned about how that would affect their business. But working in the U.S., we've been doing DRGs since the '90s. And we've had a huge focus in the company over the last 6 to 12 months on cost optimization, revenue generation, ensuring that we're using the right supplies and operating theater on other areas. We're fortunate to have probably the best operator in the Middle East, Umesh Bhandary who's working with us, and he's spent a lot of time looking at better ways to improve our cost. So I feel like we're poised and ready. DRGs is not what keeps me up at night right now. So I think that we're in a good position, whether the Department of Health in Abu Dhabi implements this in September or even pushes it to January of 2020. We're in a good position.

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Operator [42]

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Our next question comes from [Nitin Das], (inaudible).

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Unidentified Analyst, [43]

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My question is related to the Hassana JV. So in the last conference call, you had mentioned that you wanted to bring Care's performance in line with industry peers with application of NMC's global experience. So what's the progress on that? And would that require CapEx? And if that, how much it will be?

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [44]

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Yes. Thank you. I'll speak to the part -- not the CapEx, but I'll just say, as you know, the partnership was completed at -- in May, around the time of Ramadan. And here in the Middle East, there's most -- many people in many service industries take off for their holidays. But we at NMC continue to work through the summer, and we've made good progress. But in the course of the last 2 months, we started to look at ways to better integrate to create synergies for the companies to work together, and I would foresee us, at some point in the near future, being able to look at Riyadh as a cluster very similarly to the way that we've organized our clusters in the UAE. But in terms of the specifics of that, I don't think I'm ready to give much more information. I'll provide more during Capital Markets Day after we've had a bit more time to integrate and work. As I said also, we've exercised our right to restructure the Care Board, the Annual General Meeting, that's all been announced, and the Annual General Meeting will occur on September 15. And I think once the new Board is formed, we'll have a clearer path in which to essentially push the Care operations in a better direction.

In terms of CapEx, we've looked at ways that we could enhance services without adding huge amounts of CapEx. Some of it is transfer of clinical knowledge. Some of it is by sharing physicians. Some of it is bringing in some of our low-cost services like CosmeSurge that are not capital-intense and introducing that, introducing long-term care, which is not difficult or high CapEx. So I'd really like to look at pushing Care from a perspective that would not cost a lot of CapEx to do so but maybe just to transfer some of our knowledge and looking at what's worked for us in other areas of Saudi and in the UAE.

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Unidentified Analyst, [45]

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Just a follow-up. Like, you mentioned that Care, currently, the conversion ratio is 2.5% from outpatient to inpatient. And you wanted to take it to 6%, which is a UAE standard. Then Care utilization is 60%, and NMC aims to keep -- take it to 75%. And also the pharmacy margins can be improved to 20% from 6% at the present level. So would all this need CapEx right or...

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [46]

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No, I think if you remember, we...

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Unidentified Analyst, [47]

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I mean this cannot be done without CapEx.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [48]

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No, I think if you remember, we talked about how much of the Care business is GOSI dependent, which ends up being a lot of -- it's more like occupational health. And I think when you look at things like adding additional subspecialty services, transitioning from more of an occupational health model, where here in the Middle East, people need to get return to work slips in order to go back to work, and so they visit the facility just for a checkup before they get cleared to return to their job. Just some of those areas would help pick us up from the 2.5% to closer to the 6% conversion rate that we target. So I don't think that's CapEx intense. The good operating theaters already exist. Critical care units already exist. A good rehab department exists there. We don't look at making any changes to the physical plant. So we just feel like some fundamental changes to the business plan and shifting away from dependence just -- we're going to keep the GOSI business, but we're going to shift from the dependence of the GOSI business. So I don't see that we would need to expend a huge amount of CapEx toward that. I'll look at it a little bit further and maybe I'll have a bit more information for you at Capital Markets Day. But today, it's not an issue for me.

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Operator [49]

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We have a follow-up question from Jonathan Milan, Waha Capital.

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Jonathan Milan, Al Waha Capital PJSC, Research Division - Analyst [50]

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Just 2 follow-up questions from my side. How will the CapEx needed to expand the Saudi business, excluding Care, be funded? Will it be internally through these entities or injections from NMC and GOSI or Hassana? Or would it be through, say, for example, dividends from Care? Because unlike NMC, which is almost 4x gross debt-to-EBITDA, Care is net cash and that will be a nice source of cash for you. And with regards to growth CapEx, I mean are there any plans? Are you still looking for sizable acquisitions over the next 12 months? Or would you rather focus on slightly reducing or containing leverage and ramping up the existing assets that you've recently acquired over the past 24 months, which are quite numerous?

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Prashanth Shenoy, NMC Health Plc - CFO [51]

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Thank you, Jonathan. I'll take the first question. So as far as the, I mean, JV assets are concerned, under NMC KSA, which is owned by -- 53% by NMC and 47% by GOSI. So definitely, any capital what is required to really to fund these programs will be kind of equally fund by both. So typically, that's the way we will fund these kind of CapEx programs.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [52]

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And regarding Saudi Arabia M&As, at this point of time, nothing is in front of us. Our key focus, as Michael mentioned in his presentation, that is to ensure that all of our underlying assets perform extremely well to the expectation levels of the market. We will focus on creating Care or like making sure that we're integrating Care into the larger NMC's portfolio, and that's a key challenge. And that's why we're looking at it. Meanwhile, as I earlier mentioned and Michael mentioned about conversion rates and in all those a loss and all those things will be a key focus.

The only exception to that would be like we'll be focusing on organic creation of long-term care because that is not there in the market, and we've clearly seen and demonstrated that long-term care facility like critical -- the Chronic Care Medical Centre, CCMC in Jeddah, how it has been able to reach a break-even level in 13 months' time and how it is running today at more than 150 beds with 90% occupancy, that demonstrates the lack of demand-supply of that specialized care. So we'll be looking at it, that CapEx being very, very low. Maybe we will look at in the next few months, and we'll look at it. Other than that, there is no expansionary or M&A focused funding that is going to go in the kingdom in the next few months.

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Jonathan Milan, Al Waha Capital PJSC, Research Division - Analyst [53]

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Okay. Okay. But would you plan on -- or would you plan on asking Care to pay higher dividends because -- I mean, although you would only receive 49% of those dividends, but this would be a -- any source of cash rather than raising more debt at the NMC level, again, given that this tend to be...

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [54]

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Obviously, it's a Board decision. It's not our decision. So we can't comment on it.

(Operator Instructions)

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Operator [55]

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We have a question from Ms. Louet from Societe Generale.

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [56]

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Just to dig a bit more into the business, can you come back to me regarding the performance of the CosmeSurge and as well if you can give us more insight and regarding your plans for the renal care new vertical in terms of beds, in terms of diluted targets probably, in terms of implementation? Any specificity here would be greatly appreciated.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [57]

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Could you please repeat your question regarding CosmeSurge?

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [58]

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Yes, just wanting to know the performance of the business and in terms of gross top line and also in terms of contribution, if we can get more flavor.

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [59]

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Okay. I'll come back on CosmeSurge. And Michael will come back to you. You can get in touch -- we can get in touch and I'll give you the details.

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Asjad Yahya, NMC Health Plc - IR Officer [60]

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And the second question?

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [61]

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Yes, the second question is regarding the new vertical and the renal care, if you can share with us more in terms of beds, more specificity there or your plan.

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [62]

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Yes. So many times, when we look at perhaps in the market, these potential verticals emerge because of the types of patients we see, areas where we feel like we can add greater value. It's the same way that we brought in the pediatrics subspecialties from Boston Children's and Cincinnati Children's Hospitals over the last year. And as another example, we talked a little bit about centralizing cardiothoracic surgeries at NMC Royal Hospital in Khalifa City. The premise was, if you've got 2 hospitals that are doing 40 cardiothoracic surgeries annually, why not bring in one center of excellence, where you have one facility that manages all those patients because you end up with better outcome. You have more volume, and you can centralize a lot of the support services it takes to run an effective program.

We've seen a lot of interest in dialysis services and advanced renal services, and we've begun to put a focus on that. In terms of calling it a new vertical, we're not there yet. Generally, I think you probably remember that I announced at our annual results this year that we see CosmeSurge and pediatrics both poised to become new verticals in the future, but we've not yet really fully announced those. We're still growing them and nurturing them. And we see renal patients, dialysis and all of it surrounding that as a potential for the future. But I wouldn't -- I think it'd be a bit of a stretch to call it a new strategic vertical for us. But it's the beginning of a formation of a center of excellence, and we'll have more information about that over the coming months.

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Operator [63]

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Our next question is from Hassan Al-Wakeel, Barclays.

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Hassan Al-Wakeel, Barclays Bank PLC, Research Division - Research Analyst [64]

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I have a follow-up, please. So you highlighted improved revenue cycle management is a key driver for improving working capital. Could you please provide more color around this for the UAE and Saudi Arabia? What is driving the improvement in the 2 regions? Also, how are rejection rates trending in both geographies?

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [65]

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Hassan, I think you and I had probably had discussions about this previously. I think when you look at revenue cycle management and the philosophy of revenue cycle management is not only about just submitting claims and waiting to be paid. A lot of it is education at the point of documentation, and we've spent a lot of time teaching our physicians to document to the highest level of specificity, making sure that the patient's record accurately reflects the patient's condition, ensuring that when we do submit claims that we submit a claim that is thorough and is ready to be processed. We all know that insurance companies are -- the Ministry of Health does not exist just to give out money. They look for reasons to not pay us. So we battle that by being extremely rigid in the documentation process, very rigid in the submission process and placing a lot of focus on following up on resubmissions. So we've seen -- I'm not prepared at this point to give a specific number, but we've seen a significant reduction in Saudi in our receivables times. We've also seen our first time rejection rates decrease. We've seen our final rejection rates decrease. And we've done so also by taking some of our senior star resources from the UAE and sending them to Saudi to help evaluate the process. I think the idea that with that NMC should go into Saudi Arabia and adapt to the existing revenue cycle management process is the wrong philosophy. We want to go in and change that by replicating the success we've had in the UAE.

So I mean, to answer your fundamental question, submitting claims on the front end that are very accurate, that accurately reflect the patient's condition that are documented to the highest level of specificity, making sure that we have a good process to follow up and that we stay on top of that has really been -- it's very fundamental reason for which we've seen the improvement.

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Hassan Al-Wakeel, Barclays Bank PLC, Research Division - Research Analyst [66]

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That's really helpful. How much of that is low-hanging fruit? And what is the opportunity going forward, particularly in Saudi Arabia?

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Michael Brenden Davis, NMC Health Plc - Chief Operations Officer of Healthcare [67]

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I think when you talk about revenue cycle, when I look at rejection rates, I think first time rejection rates basically reflect, I guess, how organized you are. And second rejection rates really look at your income and your revenue. And I don't think of any of it as low-hanging fruit. Every single bit of that is important. And so we do still have room to improve. And I think you guys on this call have heard me say many, many, many times that Saudi Arabia is not for the faint at heart. If it were easy in Saudi, then every company in the western world would be setting up shop now. But we have to be tenacious, and we have to stay consistently on top of this. And we can never turn our back on the revenue cycle process. So it's something that we have as a company committed a huge amount of resources to. We continue to do so. We continue to look for best practices, even with Care and with our relationship now with GOSI and with Hassana, our existing KSA assets.

But I hope that -- I'm certain that this will be a question that you guys are going to ask repeatedly on every call. And I hope every call to give a good response on the improvements we've made, but it's not something that we're ready to rest on our laurels in any way.

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Operator [68]

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Our next question comes from Matthew Menezes, Citi.

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Mathew Gomes Menezes, Citigroup Inc, Research Division - VP [69]

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So just on the operational beds versus licensed beds, it's about a 300 bed difference. Are all of those 300 beds constructed and kind of ready to start -- become operational? And I guess, over what period you would expect those to ramp up? And similarly, the operational bed that you consider not mature, what is in ramp-up phase? How long do you think those would take to ramp up?

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Prasanth Manghat, NMC Health Plc - CEO & Executive Director [70]

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Yes. So all the beds that we licensed are operational and are all constructed, for example, like NMC Royal in Saudi Arabia and CCMC, is that all the beds are available already in our Al Zahra Hospital. All the facilities are fully built, fully equipped, except for the fact that anytime when you operationalize it, there is a drag on EBITDA. So we watch for a situation where occupancy levels are high enough for us to release more beds. That is a simple theory that we have been following for many, many years, even preIPO, this has been the philosophy of NMC.

Then if you look at it on a ramp-up, depending on the business model, and this is what we are having it, a decent ramp-up should start from 18 months onwards towards a 24 months plus period. We generally have seen the strength. Recently, the beds that have come in are either NMC Royal or facilities where there is a real lack of demand and supply. So in those markets, we have seen clearly that in 18 months to 24 months' time to go into ramp-up area.

Then so that is in 2 years, 3 years, depending on where we are, we should be in a position to again release more and more beds.

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Operator [71]

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We have no further questions. Dear speakers, back to you for the conclusion.

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Asjad Yahya, NMC Health Plc - IR Officer [72]

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Thank you, everyone, for joining us. I also want to extend an invitation to our Capital Markets Day for this year. It will be held on 21st October at the London Stock Exchange. Again, we will be sharing formal invites with you in the coming weeks as well. And thank you for attending the call.

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Operator [73]

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